Daniels Sharpsmart Inc v. Smith

          Argued and Submitted April 11, 2018 San Francisco, California

          Appeal from the United States District Court for the Eastern District of California Lawrence J. O'Neill, Chief District Judge, Presiding D.C. No. 1:17-cv-00403-LJO-SAB

          Renu R. George (argued) and Karli Eisenberg, Deputy Attorneys General; Ismael A. Castro, Supervising Deputy Attorney General; Julie Weng-Guetierrez, Senior Assistant Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, Sacramento, California; for Defendants-Appellants.

          Jason Levin (argued), Steptoe & Johnson LLP, Los Angeles, California; Douglas D. Janicik, Phoenix, Arizona; for Plaintiff-Appellee.

          Before: Sidney R. Thomas, Chief Judge, Ferdinand F. Fernandez and Ronald M. Gould, Circuit Judges.

         SUMMARY^[*]

         Preliminary Injunction / Qualified Immunity

         The panel affirmed the district court's grant of a preliminary injunction enjoining California Department of Public Health officials from enforcing the California Medical Waste Management Act ("MWMA") against Daniels Sharpsmart, Inc., and reversed the denial of Department officials' motion to dismiss on the basis of qualified immunity.

         The panel held that Daniels will likely succeed on the merits of its claim that the Department officials' application of the MWMA constituted a per se violation of the dormant Commerce Clause. The panel affirmed the district court's decision that Daniels was likely to succeed on its claim that California cannot reach out and impose its notions of the proper way to dispose of medical waste upon those who are conducting disposal activities in other states in accordance with the laws of those states. The panel concluded that the district court did not abuse its discretion when it issued the preliminary injunction.

         The panel held that the doctrine of qualified immunity protected Department officials Richard Pilorin, Alison Dabney, and Ginger Hilton from damages liability where Daniels' constitutional rights under the dormant Commerce Clause were not clearly established at the time of the violation.

          OPINION

          FERNANDEZ, Circuit Judge

         California Department of Public Health^[1] officials, Karen Smith, ^[2] Richard Pilorin, ^[3] Alison Dabney, ^[4] and Ginger Hilton^[5] (collectively "the Department officials") appeal the district court's grant of a preliminary injunction against them in favor of Daniels Sharpsmart, Inc. ("Daniels") and the denial of their motion to dismiss on the basis of qualified immunity.^[6] The preliminary injunction enjoined the Department officials from enforcing the California Medical Waste Management Act ("MWMA")^[7] against Daniels for the manner in which it disposed of medical waste at facilities outside of the State of California. In its action against the Department officials, ^[8]Daniels alleged that they violated its constitutional rights under the dormant Commerce Clause^[9] when they engaged in extraterritorial enforcement of the MWMA. The Department officials also appeal the district court's denial of their motion to dismiss on the basis of qualified immunity. We affirm the grant of the preliminary injunction, but reverse the denial of qualified immunity.

         BACKGROUND

         Daniels is an Illinois based corporation that designs, develops, manufactures, markets, and sells reusable sharps container systems for the disposal of needle-inclusive biohazardous medical products. Those medical products include waste syringes, blood collection devices, and IVs. Daniels also handles the transport and treatment of the medical waste. In California, that waste is handled by Daniels' Medical Waste Treatment Facility and Transfer Station in Fresno. As a medical waste treatment facility in California, it is subject to regulation under California's MWMA. Therefore, when it received its medical waste treatment facility and transfer station permit from the Department, Daniels agreed to "comply with all applicable provisions of the Medical Waste Management Act." Daniels also agreed to operate its facility in conformance with the plans approved by the Department.

         In general, under the MWMA, California-generated medical waste must be incinerated. See Cal. Health & Safety Code § 118215(a)(1)(A), (a)(3)(A). Furthermore, "[m]edical waste transported out of state shall be consigned to a permitted medical waste treatment facility in the receiving state." Id. § 118000(c).

         As of 2014, there were no locations within the State of California that had incinerators to treat Daniels' biohazardous medical waste.^[10] Consequently, Daniels transported the waste from the Fresno facility to other states. For some time, Daniels had the waste incinerated at a facility in Baltimore, Maryland.

         However, in 2014, Daniels decided to transport its medical waste to locations in Kentucky and Indiana, where the waste would be treated by means other than incineration which were consistent with those states' regulations. In Kentucky, the waste was treated by a method called autoclave, while in Indiana the waste was treated by a technique known as thermal deactivation. Treating the waste in Indiana and Kentucky was more cost effective for Daniels than having the waste incinerated in some other state. From September 11, 2014, to December 1, 2014, Daniels transported roughly 320, 000 pounds of medical waste to facilities in Indiana and Kentucky. After a November 20, 2014, inspection of Daniels' facility in Fresno, California, the Department, through Hilton, told Daniels that all biohazardous medical waste originating in California must be treated by incineration, even if the law of another state permitted an alternative method. The Department further indicated that Daniels would be penalized if it did not incinerate all of its biohazardous medical waste. Daniels responded that the Department could not dictate the method by which Daniels treated the waste outside of California.

         On April 10, 2015, the Department conducted another inspection of Daniels' facility, and Daniels received a letter from Hilton, which stated that California law governed Daniels' treatment of medical waste in other states. Then, on August 10, 2015, the Department issued a notice of violation to Daniels for using methods other than incineration to treat its biohazardous medical waste outside of California. The notice imposed a $618, 000 penalty for the 618 violations of law it identified. In order to avoid further penalties, Daniels began transporting its medical waste to incinerators located in other states, at a significantly higher cost to Daniels.

         In addition, Daniels filed a complaint in the district court, and alleged that the Department officials violated the dormant Commerce Clause by their extraterritorial application of the MWMA. Daniels then filed a motion for preliminary injunction, and the Department officials, claiming entitlement to qualified immunity, filed a motion to dismiss.

         The district court granted Daniels' motion for a preliminary injunction and denied the Department officials' ...