Guest Post – Innovator Liability Flunks The Dormant Commerce Clause

Here's another guest post on the Dormant Commerce Clause by our guest guru on that subject, Dick Dean over at Tucker Ellis. He reports on another possible use for the Dormant Commerce Clause that could provide a win for the our side in an innovator liability situation. As always our guest bloggers deserve 100% of the credit, and any blame, for their postings.

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On April 25, 2018 this blog advised " Don't Sleep on the Dormant Commerce Clause." It was right. That post discussed a Fourth Circuit case involving a drug pricing regulation attempt by the State of Maryland. Since then, two other Circuit court decisions have followed; it's the Dormant Commerce Clause gone wild. And both decisions involve subject matter areas of direct interest to readers of this blog.

In Daniels Sharpsmart, Inc. v. Smith, 889 F.3d 608 (9th Cir. 2018), the Ninth Circuit upheld a District Court decision which invoked the Dormant Commerce Clause to strike down the enforcement of a California regulation beyond the state's border. Daniels was an Illinois-based corporation that made systems for the disposal of biohazardous medical products including waste syringes and blood collection devices. It also transported and treated medical waste. It had a medical waste treatment facility in Fresno, as well as others in several different states. California's Medical Waste Management Act (CMWMA) required that California-generated medical waste must be incinerated. And if medical waste was transported out-of-state, it was required to be "consigned" to a waste treatment facility "permitted" in the "recovery state." As of 2014, there were no incinerators within California to treat Daniels' biohazardous medical waste (why that is the case is not discussed in the decision), and so Daniels transported that waste to other states to have it incinerated. Eventually, Daniels shipped that waste to Kentucky and Indiana, where that waste was treated by methods other than incineration consistent with the regulations in those states. In Kentucky, the waste was treated by a method called autoclave; in Indiana, the method was "thermal deactivation." Both treatment methods are less expensive than incineration.

California regulators took the position that biohazardous medical waste originating in California had to be incinerated in Indiana and Kentucky, even though the regulations and laws of other states permitted an alternative method. To that end, the regulators proposed daily fines...