Introduction

“Welcome to Seattle . . . an excellent place for business.” ¹

“Seattle is a great place to locate a business.” ²

“Seattle thrives because of . . . the City’s commitment to maintaining the best possible environment for helping businesses succeed.” ³

“Small businesses are the largest job creators fueling the city’s economy. They provide the heart and soul of our neighborhoods—as places for people to eat, shop, and access the services they need.” ⁴

Reading the City of Seattle’s website, one can easily get the impression that Seattle loves business, especially small business. Two small businesspeople of the kind the City claims to cherish are Joe Ventenbergs and Ron Haider. The trouble is, the City has just taken action that will drive Ron Haider’s costs of doing business substantially higher and that could drive Joe Ventenbergs out of business altogether.

Joe Ventenbergs owns Kendall Trucking, Inc. Based in Seattle, about 60 percent of Kendall Trucking’s business is hauling construction, demolition and land clearing waste (“construction waste”) from construction and demolition sites. Joe provides dumpsters to the sites, the construction and demolition companies fill up these dumpsters with construction waste, and Joe takes away the dumpsters and unloads the contents at transfer stations in King County.
One of the construction companies Joe hauls for is Haider Construction, Inc., which is owned by Ron Haider. Haider Construction offers remodeling and roofing services for private homes. Ron uses Kendall Trucking to haul construction waste from his construction sites because Joe is reliable and his service is faster and cheaper than the two largest waste hauling companies in Seattle, Allied Waste Industries (“Allied”) of Scottsdale, Ariz., and Waste Management, Inc. (WMI) of Houston, Tex.

Rather than celebrate Joe and Ron’s efforts to maintain and grow their businesses, however, the City has made it illegal for them to do business with each other.

Washington State’s economy is in freefall. The state lost 85,100 jobs from December 2000 to October 2002, when the Seattle City Council passed the ordinance that made it illegal for Joe and Ron to do business with each other. Almost all sectors of employment lost jobs during this time, with a notable exception being the government, which saw employment increase during this time period. Washington is at the top of the unemployment lists and in some counties unemployment rates run as high as 13 percent. Washington’s unemployment rate is also considerably higher than the national average. ⁵

Regardless of these grim statistics, and the human pain these statistics reflect, the City is actively trying to shut down a sector of small business to benefit two wealthy and influential large corporations. Despite the pro-business rhetoric on its website, the City has granted territorial monopolies to two waste companies, Allied and WMI, by giving them exclusive rights to haul construction waste from construction and demolition sites in Seattle. (The City’s actions show that governments that are often pro-business are not necessarily pro-free enterprise.) Even though Allied and WMI are often more expensive and slower, the City has told Ron that he must use these companies to haul construction waste from his construction sites or haul the materials himself. The City’s actions threaten to put independent construction waste haulers—whom the City has dubbed the “Mosquito Fleet” ⁶ —out of business.

On May 13, 2003, the Institute for Justice Washington Chapter (IJ-WA) filed a lawsuit on behalf of Joe and Ron seeking to prevent the City from enforcing the restrictions on contracting for the hauling of construction waste in the City limits. The suit seeks to have the court declare unconstitutional and unlawful the City ordinance that makes most of the services that Joe provides illegal. The suit marks the first lawsuit filed by the new Seattle-based Institute for Justice Washington Chapter and puts overreaching governments in Washington State on notice that they may no longer expect to get away with interfering with the right of Washingtonians to earn an honest living.

Solid Waste Hauling and Creating Monopolies

There are essentially three kinds of non-hazardous solid waste produced in any given town: residential, commercial and construction waste. Under state law, the Washington Utilities and Transportation Commission (WUTC) regulates the rates, terms and conditions for hauling these kinds of solid waste. Companies wishing to haul solid waste compete for licenses from the WUTC—called certificates of convenience and necessity—that allow them to haul solid waste within a given area. Companies may compete for certificates on an ongoing basis or on a contract-by-contract basis. ⁷ State law also creates an exception to this regulatory scheme for any solid waste collection company under a contract for solid waste disposal from any city or town. ⁸ By the mid-1990s, consolidation among the trash hauling companies reduced the number of companies holding certificates in Seattle to two: Allied and WMI. During this time, however, small haulers of construction waste continued to operate.

Pursuant to the exception in state law, in the middle of the 1990s the City of Seattle began negotiations with Allied and WMI that would result in jurisdiction over trash hauling in Seattle being taken away from the WUTC and given to Seattle Public Utilities (SPU), part of the Seattle City government. The City negotiated contracts with Allied and WMI that gave Allied a monopoly in hauling commercial solid waste in the northern part of the City and WMI a monopoly for hauling commercial solid waste in the southern part of the City. (The City did not impose these monopolies solely on government buildings and projects, but rather imposed the monopolies on any and all private construction projects going on within Seattle, thereby limiting individual entrepreneurs’ opportunities to earn an honest living while arbitrarily limiting consumer choice.) These monopoly-granting contracts became effective April 1, 2001, and continue in effect until March 31, 2008. The contracts reserved the hauling of construction waste for these two large out-of-state companies while local small businesses hauling construction waste were made outlaws.

Despite entering into these contracts, however, the City had never given itself the authority to grant monopolies for hauling construction waste. In October 2002, at the urging of Allied and WMI, the Seattle City Council amended the Seattle Municipal Code to include construction waste in the definition of the types of solid waste in which the City would grant exclusive franchises.
In February 2003, the City sent letters to the small haulers telling them that much of the work they did was now illegal and informing them of a meeting held the previous December about the change. The City later admitted that smaller businesses “just slipped under the radar” with regard to being informed of the change to the Code and the meeting called by Seattle Public Utilities to discuss the changes. ⁹

The change to the Municipal Code effectively made the agreement between Joe Ventenbergs and Ron Haider illegal. The City ensured that the large haulers would no longer lose market share to “folks that weren’t supposed to have access to it. . . .” ¹⁰ Although the Seattle Times covered the story and the City Council received a briefing by Ray Hoffman of SPU after the Seattle Times story, there was little the “Mosquito Fleet” could do. They were not big businesses that could afford lawyers to fight City Hall and the entrenched interests to which it catered. The only option for those who manned the Mosquito Fleet appeared to be to try to find some other way to earn a living.

That is when the Institute for Justice Washington Chapter came on the scene.

Litigation Strategy

The newly formed Institute for Justice Washington Chapter is committed to litigation that will, among other goals, restore judicial protection of the rights of ordinary citizens to earn an honest living. The national office of the Institute has won important victories in the area of economic liberty by knocking down barriers to entry and protectionist legislation in the casket, wine, hairbraiding and taxi cab industries. Indeed, the Institute recently won the first economic liberty case in a federal appeals court since the New Deal by successfully challenging the State of Tennessee’s creation of a casket monopoly in that state. ¹¹ IJ-WA will carry on the work of the Institute’s national office in order to preserve and protect the right of Washingtonians to earn an honest living.

On May 13, 2003, IJ-WA filed a lawsuit in King County Superior Court on behalf of Joe Ventenbergs and Kendall Trucking, and Ron Haider and Haider Construction. The lawsuit challenges the change to the Seattle Municipal Code that made Joe’s business illegal. The lawsuit asks the court to declare the City’s change to its Code illegal and its creation of territorial monopolies unconstitutional and unlawful. It also seeks a permanent injunction prohibiting the City from enforcing its grant of territorial monopolies in construction waste hauling, thereby permitting Joe to continue to legally haul construction waste in Seattle and Ron to hire him. The defendants in the lawsuit are the City of Seattle, Seattle Public Utilities, and Chuck Clarke, in his capacity as Director of Seattle Public Utilities.

This lawsuit is the first step in IJ-WA’s comprehensive effort to restore judicial protection for “economic liberty”—the right to pursue a business or profession free from arbitrary or excessive government regulation that is a basic civil right of every Washingtonian. Economic liberty is an essential part of our State’s promise of opportunity and the heritage granted to us from the Framers of our State Constitution.

Washington State remains mired in a severe and long-lasting economic downturn and entrepreneurs face numerous obstacles in creating and sustaining small businesses. Within this environment, the City has granted territorial monopolies to large, out-of-state corporations with billions in assets at the expense of local entrepreneurs and business people. The Washington State Constitution prohibits the State from playing favorites by creating such monopolies. The Washington State Constitution also prohibits the City from interfering with contracts between private parties.

Privileges or Immunities Challenge

Article I, Section 12 of the Washington State Constitution provides that no “law shall be passed granting to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations.” Passed in 1889, Washington State’s privileges or immunities clause was designed to restrict the corrupting nature of large corporations by restraining the State and its subdivisions from passing laws that economically favored such corporations. ¹² The clause is therefore aimed not at governmental discrimination per se, but at the mischief of “positive favoritism.” ¹³

The Washington State Supreme Court recently held that the privileges or immunities clause in the Washington State Constitution grants broader protection than the Equal Protection Clause of the U.S. Constitution. The Court held that “whereas the federal constitution is concerned with majoritarian threats of invidious discrimination, the state constitution protects against laws serving private interests to the detriment of the majority.” ¹⁴ In that regard, legislative classifications that tend to favor entrenched economic interests are only acceptable if such distinctions are based on “reasonable grounds.”

It is hard to envision a more blatant example of economic favoritism than the City of Seattle’s creation of territorial monopolies for hauling construction waste in the City. There is no suggestion in the ordinance, the contracts, or any of the discussions before the City Council that this change was needed for the protection of the health or safety of the public. To the contrary, the construction waste being hauled is the same regardless of the hauler, and the waste is taken to the same transfer station regardless of the company that is carrying it. Nor, conversely, has there been a finding of how the independent hauling of construction waste negatively impacts health or safety of the public. In fact, because small haulers often operate more efficiently and at lower prices, they promote public health and safety as containers are filled with construction and demolition debris more quickly and off the streets sooner. Moreover, the light-handed regulation of the WUTC argues strongly that there were no problems with the efficiency, safety or affordability of a competitive market in construction waste hauling. If the basis for the City’s creation of monopolies is the public’s health and safety, or to promote the efficiency or affordability of construction waste hauling in Seattle, the City has not bothered articulating how these goals are accomplished by granting territorial monopolies to often slower and more expensive out-of-state companies.

The City’s actions grant benefits to the monopolists and impose burdens on their competitors and the public at large. It was the fear of precisely this type of manipulation of the machineries of government for the benefit of corporate interests that led the Framers to craft a strong privileges or immunities clause in the Washington State Constitution. The concerns of the Framers are even more prescient in this time of severe economic hardship.

Joe Ventenbergs wants to earn an honest living by offering efficient and inexpensive hauling services to the public. He is being prevented from doing this by large waste companies that have used the coercive power of the government to protect themselves from competition. The City’s creation of these monopolies serves no apparent health or safety purpose. The Framers of the Constitution of this State wisely made such legislative favoritism illegal. It is time to put an end to the City’s unconstitutional and unlawful exercise of the powers of government to benefit the few at the expense of the many.

Impairment of Contracts

Article I, Section 23 of the Washington State Constitution says that no law “impairing the obligations of contracts shall ever be passed.” The Washington State Supreme Court permits private contracts to be substantially impaired by legislation only if such impairment is reasonable and necessary to serve a legitimate public purpose. ¹⁵

Despite this language, the City of Seattle has substantially impaired the contract between Joe and Ron for the hauling of construction waste from Ron’s construction sites. The City offers no reason but the protection of the monopolists. And to protect the monopolists, the City has not only impaired this contract. It has it made it illegal.

The City’s actions do not serve any legitimate public purpose. Rather, the purpose of the City’s actions is to create illegal monopolies and protect the City’s chosen monopolists from competition. The City’s sole explanation of its change to the Municipal Code is that such change was necessary to synchronize the Municipal Code with the City’s contractual obligations. As such, the City’s change to its Code seems to be simply an exercise of special interest legislation rather than a legitimate exercise of governmental power.

Litigation Team

The litigation team on this case will be Institute for Justice Executive Director William R. Maurer and Staff Attorney Jeanette M. Petersen. Prior to joining IJ-WA, Maurer was an attorney with Perkins Coie LLP, where he practiced complex administrative litigation and appellate advocacy. He is a former law clerk to Washington State Supreme Court Justice Richard B. Sanders and Rhode Island Supreme Court Justice Victoria Lederberg. In 2000, he received the National Law Journal’s Pro Bono award as part of the Innocence Project Northwest. He is a graduate of the University of Wisconsin – Madison School of Law, where he was an editor of the Wisconsin Law Review.

Petersen joined IJ-WA in January 2003. Prior to joining IJ-WA, Petersen practiced law at the Kirkland, Wash., office of Wilson Sonsini Goodrich & Rosati, P.C. Petersen clerked for Judge Ronald Gould of the U.S. Court of Appeals for the Ninth Circuit, Justice Richard B. Sanders of the Washington State Supreme Court, and Judge David Armstrong of the Washington State Court of Appeals. She graduated with honors from the University of Washington School of Law and is a member of the Order of the Coif.

A History of Success

Although there may be a legitimate role for limited regulations that are carefully tailored to protect the public’s health and safety, many of the regulations burdening entrepreneurs have nothing to do with those concerns but rather are purposefully designed to limit entry. They are all about limiting competition and stifling opportunity. Since its creation in 1991, the Institute for Justice headquarters office in Washington, D.C., has succeeded in convincing the courts to lift regulatory barriers to entry while allowing other common sense regulations designed to protect the public’s health and safety to remain in place. IJ has scored significant victories on behalf of entrepreneurs and in the process opened up long-closed markets. These include:

Craigmiles v. Giles—A federal appeals court upheld a lower court ruling that found Tennessee’s government-imposed cartel on casket sales was unconstitutional. IJ filed the suit on behalf of Pastor Nathaniel Craigmiles and the other casket sellers. This is the highest pro-economic liberty court decision since the New Deal.

Swedenburg v. Kelly—A federal judge declared unconstitutional New York state’s laws that barred the interstate direct shipment of wine into New York. IJ filed the suit on behalf of Virginia vintner Juanita Swedenburg who fought New York’s discrimination against out-of-state wineries that want to ship to in-state consumers. New York had barred out-of-state wineries from shipping to New York consumers while in-state wineries were under no such restriction.

Uqdah v. D.C. Board of Cosmetology—Although they lost in court, Taalib Din Uqdah and his wife Pamela Farrell prevailed against the District of Columbia to eliminate a 1938 Jim Crow-era licensing law for African hairbraiders when the District subsequently deregulated cosmetology. Today, Uqdah and Farrell operate a successful hairbraiding business in D.C. and have founded the American Hairbraiders and Natural Haircare Association (AHNHA) to fight unjust licensing laws across the nation. They have contributed to the elimination of hairbraiding licensing laws in 14 states and counting.
Jones, et. al. v. Temmer, et. al.—Leroy Jones, Ani Ebong and Girma Molalegne opened Freedom Cabs, Inc., in Denver after IJ helped them overcome Colorado’s protectionist taxicab monopoly. Stemming from pressure in the court of public opinion created by their lawsuit, the state legislature enabled Freedom Cabs to become the first new cab company in Denver in nearly 50 years. Jones’s testimony also contributed to the breakdown of government-sanctioned taxicab monopolies in Indianapolis and Cincinnati.

Cornwell v. California Board of Barbering and Cosmetology—JoAnn Cornwell, who chairs the Africana Studies Department at San Diego State University and who created the Sisterlocks technique of hairbraiding and locking, defeated the cosmetology licensing requirement for African hairbraiders in California.

Ricketts v. City of New York—Hector Ricketts operates Queens Van Plan, a small business providing inexpensive, safe and reliable transportation to residents of New York’s boroughs. With IJ’s help, Ricketts’s business has continued to put people to work and take people to work in underserved neighborhoods of the metropolitan area. Former New York City Mayor Rudolph Guiliani voiced his support for the van drivers and worked with them to fill gaps in service when the public transportation union went on strike. Ricketts provided invaluable free shuttle service to workers and victims’ families at Ground Zero after the September 11 tragedy.

Clutter v. Transportation Services Authority—William Clutter, John West and Rich Lowre successfully stood up to Las Vegas’s Transportation Services Authority (TSA) and entrenched limousine companies that had stifled competition. A Nevada court ruled in 2001 that the TSA’s cooperation with existing companies to block new entrants was unconstitutional.

Conclusion

The City’s creation of two territorial monopolies for construction waste hauling will have real impacts on Joe and Ron. The majority of Joe’s business was made illegal with the stroke of a pen. Ron now has to use slower and more expensive haulers, raising his costs and interfering with his ability to earn a reasonable return on his business. The general public and the quality of life in Seattle also suffer as construction and demolition waste containers now sit longer on clogged City streets.

The City’s grant of monopolies destroys Joe’s dream of a brighter future. It raises the costs for hardworking small businesspeople like Ron. Small businesspeople like Joe understand that there is no guarantee of success in a free economy. However, it was when the City told him he was breaking the law by operating his business that he realized he would not even have a chance to compete. Until the City’s oppressive monopoly scheme is removed, the rights of hardworking small businesspeople like Joe to earn an honest living will be denied.

The Institute for Justice is a nonpartisan, nonprofit public interest law firm that advances a rule of law under which individuals control their destinies as free and responsible members of society. Through strategic litigation, training, communication and outreach, the Institute secures greater protection for individual liberty and illustrates and extends the benefits of freedom to those whose full enjoyment is denied by the government. From its offices in Seattle, the Institute’s Washington Chapter litigates under the state Constitution to reinvigorate economic rights in this state and will additionally work through the courts to preserve property rights, promote educational choice and defend the right of Washingtonians to freely speak, write and publish on all subjects. The national organization trains law students, lawyers and others in the tactics of public interest litigation with the goal of limiting governmental power and advancing individual freedom. The Institute was formed in 1991 by Chip Mellor and Clint Bolick.

For more information contact:
John Kramer
Vice President for Communications
Institute for Justice
901 N. Glebe Road, Suite 900
Arlington, VA 22203
W: (703) 682-9320, ext. 205

Lisa Knepper
Director of Communications
Institute for Justice
901 N. Glebe Road, Suite 900
Arlington, VA 22203
W: (703) 682-9320, ext. 202