BILL ANALYSIS Ó
SB 841
Page 1
SENATE THIRD READING
SB 841 (Wolk)
As Amended June 22, 2011
Majority vote
SENATE VOTE :39-0
JUDICIARY 10-0 NATURAL RESOURCES 9-0
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|Ayes:|Feuer, Wagner, Atkins, |Ayes:|Chesbro, Knight, |
| |Dickinson, Beth Gaines, | |Brownley, Dickinson, |
| |Huber, Huffman, Jones, | |Grove, Halderman, Hill, |
| |Monning, Wieckowski | |Monning, Skinner |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Restricts the enforceability of any indemnity
obligation, as specified, in a contract or request for proposal
between a solid waste enterprise and a local agency, related to
liability for failure to obtain voter approval of fees or
charges in violation of constitutional requirements enacted by
Propositions 218 and 26. Specifically, this bill :
1) Defines "indemnity obligation" to mean an indemnity
obligation related to the failure of a local agency to obtain
voter or property owner approval of a fee, levy, charge,
assessment, or other exaction that may be required by the
California Constitution, Articles XIII C or XIII D, if that
indemnity obligation is expressly assumed by or imposed upon
the solid waste enterprise, including pursuant to ordinance,
contract or franchise, for the benefit of the local agency.
2) Provides that an indemnity obligation, including the duty and
cost of defense, shall be subject to the following
restrictions:
a) An indemnity obligation or other provision, clause,
covenant, or agreement that purports to obligate a solid
waste enterprise to indemnify a local agency against
liability for claims by a third party for failure to
obtain voter or property owner approval of a fee, levy,
charge, assessment, or other exaction in violation of the
California Constitution, Article XIII C or Article XIII D,
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is not enforceable to the extent the claims arise out of,
pertain to, or relate to the liability of the local
agency; and,
b) An indemnity obligation is not enforceable if it
requires a solid waste enterprise to refund fees to its
customers, if the fees are collected and retained by the
local agency, or collected on behalf of the local agency
by the solid waste enterprise and have been remitted by
the solid waste enterprise to the local agency, and in
either case have been found by a final judgment of a court
to have been imposed in violation of the California
Constitution, Article XIII C or Article XIII D.
3) Provides that an indemnity obligation is subject to the above
restrictions if it meets either of the following conditions:
a) The indemnity obligation is imposed or required by a
provision, term, condition, or requirement contained in an
ordinance, contract, franchise, license, permit, or other
entitlement or right adopted, entered into, issued, or
granted by a local agency for solid waste handling
services, including the recycling, processing, or
composting of solid waste; or,
b) The indemnity obligation is authorized or required in a
request for bids or proposals in connection with a
contract or franchise specified above.
4) Provides that provisions of this bill are not subject to
waiver, and any attempted waiver must be null and void as
against public policy.
5) Provides that this bill cannot be intended to do any of the
following:
a) Add to or expand local agency authority to determine
aspects of solid waste collection and handling specified
in Public Resources Code Section 40059;
b) Alter the authority of business entities to collect or
process materials that are not solid waste; and,
c) Determine whether or not a fee, levy, assessment, or
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exaction requires voter or property owner approval by the
California Constitution, Articles XIII C or XIII D.
6) Makes several Legislative declarations, including that these
provisions are not intended to address or to determine
whether fees for solid waste handling services are fees
imposed as an incident of property ownership or fees imposed
for a property-related service, within the meaning of the
California Constitution, Article XIII D, Section 2.
7) Provides for prospective application of these provisions to
any provision, term, condition, or requirement contained in
an ordinance, contract, franchise, license, permit, or other
entitlement or right adopted, entered into, issued, or
granted on or after January 1, 2012.
8) Establishes that these provisions shall become operative on
July 1, 2012.
FISCAL EFFECT : None
COMMENTS : This bill, sponsored by members of the solid waste
industry, seeks to restrict the ability of local governments
that negotiate solid waste fees and franchise agreements with
solid waste companies to obligate those companies to indemnify
them for any portion of franchise fees that may be found by a
court to violate voter approval requirements under Propositions
218 and 26. This bill provides that an indemnity obligation, as
specified, shall be unenforceable to the extent that claims for
failure to obtain necessary voter approval for the fee at issue
arise out of, pertain to, or relate to the liability of the
local agency for failure to comply. In addition, this bill
deems an indemnity obligation unenforceable if it requires a
solid waste enterprise to refund fees to its customers that have
not been retained by the solid waste company but that are being
held by the local agency instead. The author and sponsor
contend that these restrictions on indemnity obligations are
needed to protect waste companies from unfairly being required
to indemnify local agencies for Proposition 218 and 26
compliance decisions particularly when, as the companies
contend, they have no ability to determine the amount of these
fees or to impose them in the first place.
Solid waste enterprises are companies engaged in the business of
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collecting, transporting, storing, or processing solid wastes.
The California Integrated Waste Management Act of 1989 (Act)
allows local governments to determine most aspects of solid
waste handling and recycling services, including the means of
collection and transportation and the assessment of charges and
fees. The Act also authorizes local governments to contract
those services to private solid waste companies, by means of
nonexclusive franchise, contract, license, or otherwise, under
terms and conditions prescribed by the local agency.
According to representatives of solid waste companies backing
this bill, local governments have the upper hand in negotiating
franchise agreements because there is a very limited demand for
large-scale solid waste handling services, i.e. there are a
limited number of municipal "suppliers" of solid waste in a
particular geographical region. Local government agencies
typically impose so-called "franchise fees" in solid waste
franchise agreements that, according to supporters of the bill,
are added only after a company is chosen from the competitive
bidding process, ratepayer fees for solid waste handling service
are determined from the bid, and the franchise agreement is
ratified. Furthermore, proponents of the bill contend that such
franchise fees are not negotiated between the local agency and
the solid waste company, often exceed the costs to local
governments in overseeing or supervising franchises, and are
usually imposed without voter approval-circumstances which, if
true, would potentially render such fees constitutionally
impermissible under Propositions 218 and/or 26. For these
reasons, the solid waste companies assert that they "have no
role in determining the amounts or types of these fees", and
that local governments should not be permitted (through
indemnification obligations) to pass their risk of imposing
potentially unconstitutional fees on to private companies "that
had no responsibility for determining the amount of these fees
or imposing them in the first place."
According to the sponsor, although no court has yet held that
solid waste fees are subject to Proposition 218, some
municipalities are nevertheless seeking indemnification from the
solid waste industry, even with respect to that portion of waste
collection rates that are retained by local government as
franchise fees. The author and sponsor state that even though
Proposition 218 indemnification has been proposed in only a
handful of situations to their knowledge, they fear that recent
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passage of Proposition 26 will contribute to a sharp increase in
the use of such indemnity provisions. To prospectively address
this perceived problem, this bill is specifically intended to
restrict the ability of local governments that negotiate solid
waste fees and franchise agreements with solid waste companies
to cause those companies to indemnify them for any portion of
franchise fees that ultimately may be found by a court to
violate constitutional voter approval requirements pursuant to
Propositions 218 and 26.
Existing law places certain restrictions on the ability of local
agencies to require their solid waste franchisees to indemnify
local government from fines and penalties for the agency's
failure to meet state waste diversion requirements, including a
provision that liability "shall be apportioned in accordance
with the percentage of fault of the local agency and the solid
waste enterprise." A similar type of proportionality rule
applies in construction defect cases with respect to indemnity
of builders or contractors by a subcontractor. In those cases,
the law provides an indemnity obligation is unenforceable to the
extent that the claims of construction defect arise out of,
pertain to, or relate to the negligence of the builder or
contractor (i.e., the indemnified party).
In order to more closely track the qualified indemnification
restrictions in the solid waste diversion statute, after which
this bill is openly modeled, this bill now adopts a similar
rule, based on proportional responsibility, to restrict but not
completely prohibit enforceability of an indemnity obligation.
Under the bill, a solid waste company should continue to have
zero liability if the extent of its responsibility for failure
to comply with Propositions 218 and 26 is also zero. Otherwise,
the bill operates to apportion liability to the extent the solid
waste handler and the local agency are found responsible for the
failure to comply.
This bill also clarifies that solid waste companies sometimes
collect required fees on behalf of the local agency and then
remit those sums to the local agency, and sometimes the local
agency collects and retains the fees itself. In either case,
however, the local agency retains the benefit of the fees, not
the solid waste company, and therefore, according to the author,
any provision to obligate a solid waste company to refund fees
it does not retain should not be enforceable as a matter of
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sound policy.
In order to avoid impacting existing contracts and to give
parties time to become aware of the proposed restrictions on
indemnification, this bill applies prospectively and does not
become operative until July 1, 2012, representing the date six
months after January 1, 2012, the date the bill otherwise
becomes effective if ultimately signed into law by the Governor.
In other words, the indemnification restrictions under this
bill apply to contract terms entered into after July 1, 2012,
and do not affect any agreements adopted or entered into before
that date.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0001426