BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 841|
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UNFINISHED BUSINESS
Bill No: SB 841
Author: Wolk (D)
Amended: 6/22/11
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE : 7-0, 5/9/11
AYES: Simitian, Strickland, Blakeslee, Hancock, Kehoe,
Lowenthal, Pavley
SENATE FLOOR : 39-0, 5/23/11 (Consent)
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De León, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Hernandez,
Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal,
Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner,
Simitian, Steinberg, Strickland, Vargas, Walters, Wolk,
Wright, Wyland, Yee
NO VOTE RECORDED: Harman
ASSEMBLY FLOOR : 76-0, 8/25/11 - See last page for vote
SUBJECT : Solid waste: enterprises: contracts
SOURCE : California Refuse Recycling Council
DIGEST : This bill 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
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constitutional requirements enacted by Propositions 218 and
26.
Assembly Amendments revise the Senate version of the bill
by restricting the enforceability of any indemnity
obligation instead of prohibiting the outright
enforceability of such an obligation.
ANALYSIS :
Existing law:
1. Under the California Integrated Waste Management Act of
1989 (Public Resources Code Section 40000 et seq.):
A. Authorizes a local agency to determine (1) aspects
of solid waste handling, including but not limited
to, frequency of collection, means of collection and
transportation, level of services, charges and fees,
and nature, location, and extent of providing solid
waste handling services; and (2) whether the services
are to be provided by means of nonexclusive
franchise, contract, license, permit, or otherwise,
either with or without competitive bidding, and under
terms and conditions prescribed by the governing body
of the local agency by resolution or ordinance.
(Section 40059)
B. Contains various requirements relating to
integrated waste management, and requires each city
or county source reduction and recycling element to
include an implementation schedule that shows a city
or county must divert 25 percent of solid waste from
landfill disposal or transformation by January 1,
1995, through source reduction, recycling, and
composting activities, and must divert 50 percent of
solid waste on and after January 1, 2000. (Section
41780). Administrative civil penalties may be
imposed upon a local agency of up to $10,000 per day
until the local agency implements its source
reduction and recycling element or its household
hazardous waste element. (Section 41850)
C. Contains requirements relating to an indemnity
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obligation due to a local agency's failure to
establish and maintain a source reduction and
recycling element, and to meet the above solid waste
diversion requirements (Section 40059.1).
2. Sets numerous requirements relating to indemnity (Civil
Code Section 2772 et seq.). Indemnity is "a contract by
which one engages to save another from a legal
consequence of the conduct of one of the parties, or of
some other person."
3. Under Articles XIII C and XIII D of the California
Constitution, sets various requirements relating to
assessments, fees, and taxes enacted by voter approved
Proposition 218 (November 5, 1996, election) and
Proposition 26 (November 2, 2010, election).
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, is not enforceable
to the extent the claims arise out of, pertain to, or
relate to the liability of the local agency.
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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.
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.
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C. Determine whether or not a fee, levy, assessment,
or 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.
Comments
Previous attempts by solid waste interests to seek
indemnification restrictions . SB 1179 (Polanco), 1997-98
Session, set restrictions on the enforceability of an
indemnity obligation for solid waste collection. Governor
Wilson vetoed the bill, noting that "To assert that solid
waste management enterprises cannot indemnify losses based
upon their own breach without the state's intervention to
negotiate the terms of the agreement is ludicrous on its
face." According to this veto message, "When government
ventures into the arena of contractual negotiations it is
generally to protect an obviously disadvantaged party. In
this instance it appears that the state is being asked to
protect the industry from itself. Indeed there is
significant evidence that the industry is responsible for
the proliferation of waste diversion indemnification
agreements. Various solid waste management providers have
offered to indemnify prospective clients to gain an
advantage in a competitive marketplace."
SB 1340 (Polanco), Chapter 987, Statutes of 1998, set
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requirements relating to an indemnity obligation due to a
local agency's failure to establish and maintain a source
reduction and recycling element, and meet solid waste
diversion requirements. The bill prohibited an indemnity
obligation from being enforceable against a solid waste
enterprise until the local agency has affirmative sought in
good faith, all administrative relief or demonstrates good
cause for not pursuing that administrative relief.
However, any penalty must be apportioned in accordance with
the percentage of fault of the local agency and the solid
waste enterprise. The bill addressed court interpreter
compensation issues when approved by the Senate, and these
provisions were stricken in the Assembly where the
indemnification issues were added.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/26/11)
California Refuse Recycling Council (co-source)
Californians Against Waste
Central Contra Costa Solid Waste Authority
Inland Empire Disposal Association
Los Angeles County Waste Management Association
Marin Sanitary Service
Republic Services
Solid Waste Association of Orange County
Waste Management
ARGUMENTS IN SUPPORT : 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
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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 sponsors 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 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
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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 sponsors, 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
sponsors state that even though Proposition 218
indemnification has been proposed in only a handful of
situations to their knowledge, they fear that recent
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
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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 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.
ASSEMBLY FLOOR : 76-0, 08/25/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Block, Blumenfield, Bradford, Brownley, Buchanan, Butler,
Charles Calderon, Campos, Carter, Cedillo, Chesbro,
Conway, Cook, Davis, Dickinson, Donnelly, Eng, Feuer,
Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani,
Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Harkey,
Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman,
Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
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Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
Pérez, Portantino, Silva, Skinner, Smyth, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. Pérez
NO VOTE RECORDED: Bill Berryhill, Bonilla, Gorell, Hall
DLW:mw 8/26/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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