Daniels Sharpsmart, Inc. v. Karen Smith

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DANIELS SHARPSMART, INC., a No. 17-16424

Delaware corporation,

Plaintiff-Appellee, D.C. No.

1:17-cv-00403-

v. LJO-SAB

KAREN SMITH, Director of the

California Department of Public OPINION

Health, in her official capacity;

RICHARD PILORIN, Chief of the

Emergency, Restoration and Waste

Management Section of the

California Department of Public

Health, in his personal capacity;

ALISON DABNEY, Chief Senior

Environmental Scientist for the

Medical Waste Management

Program of the California

Department of Public Health, in her

personal capacity; GINGER HILTON,

Environmental Scientist for the

Medical Waste Management

Program of the California

Department of Public Health, in her

personal capacity,

Defendants-Appellants.

2 DANIELS SHARPSMART V. SMITH

Appeal from the United States District Court

for the Eastern District of California

Lawrence J. O’Neill, Chief District Judge, Presiding

Argued and Submitted April 11, 2018

San Francisco, California

Filed May 2, 2018

Before: Sidney R. Thomas, Chief Judge, Ferdinand F.

Fernandez and Ronald M. Gould, Circuit Judges.

Opinion by Judge Fernandez

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

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

DANIELS SHARPSMART V. SMITH 3

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.

COUNSEL

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.

4 DANIELS SHARPSMART V. SMITH

OPINION

FERNANDEZ, Circuit Judge:

California Department of Public Health1 officials, Karen

Smith,2 Richard Pilorin,3 Alison Dabney,4 and Ginger Hilton5

(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

1

Hereafter, “the Department.”

2

Karen Smith was the Director of the Department.

3

Richard Pilorin was the Chief of the Department’s Emergency,

Restoration, and Waste Management Section.

4

Alison Dabney was the Chief Senior Environmental Scientist for the

Department’s Medical Waste Management Program.

5

Ginger Hilton was an Environmental Scientist for the Department’s

Medical Waste Management Program.

6

Karen Smith was sued in her official capacity. All other Defendants

were sued in their personal capacities.

7

See Cal. Health & Safety Code §§ 117600–118360.

8

42 U.S.C. § 1983.

DANIELS SHARPSMART V. SMITH 5

under the dormant Commerce Clause9 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).

9

U.S. Const. art. I, § 8, cl. 3.

6 DANIELS SHARPSMART V. SMITH

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

10

That medical waste contained trace chemotherapy, pathology, and

pharmaceutical waste.

DANIELS SHARPSMART V. SMITH 7

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’

motion to dismiss. This appeal followed.

JURISDICTION AND STANDARDS OF REVIEW

“We have jurisdiction to review the district court’s grant

of a preliminary injunction.” Meredith v. Oregon, 321 F.3d

807, 811 (9th Cir. 2003); see also 28 U.S.C. § 1292(a)(1).

Furthermore, “an order denying qualified immunity is

immediately appealable.” Wilkinson v. Torres, 610 F.3d 546,

549–50 (9th Cir. 2010). “Our jurisdiction to review an

interlocutory appeal of a denial of qualified immunity,

however, is limited exclusively to questions of law.” Id. at

550.

8 DANIELS SHARPSMART V. SMITH

We review the district court’s decision to grant a

preliminary injunction for abuse of discretion. Associated

Press v. Otter, 682 F.3d 821, 824 (9th Cir. 2012). Moreover:

In deciding whether the district court has

abused its discretion, we employ a two-part

test: first, we “determine de novo whether the

trial court identified the correct legal rule to

apply to the relief requested”; second, we

determine “if the district court’s application of

the correct legal standard was . . . illogical, . . .

implausible, or . . . without support in

inferences that may be drawn from the facts in

the record.”

Id. (citation omitted); see also United States v. Hinkson,

585 F.3d 1247, 1261–63 (9th Cir. 2009) (en banc). A district

court abuses its discretion if it bases a decision “on an

erroneous legal standard or a clearly erroneous finding of

fact.” Associated Press, 682 F.3d at 824 (citation omitted).

“We review a denial of qualified immunity de novo.”

Wilkinson, 610 F.3d at 550.

DISCUSSION

Daniels asserts that the Department officials, not content

with exercising their authority in California, have reached out

in an attempt to control how other states handle and allow the

disposal of medical waste within their borders. The district

court agreed with that assessment, as do we. If permitted,

that kind of action would attack the cement that holds this

nation together. As the Supreme Court has said:

DANIELS SHARPSMART V. SMITH 9

The Commerce Clause provides that

“[t]he Congress shall have Power . . . [t]o

regulate Commerce . . . among the several

States.” Though phrased as a grant of

regulatory power to Congress, the Clause has

long been understood to have a “negative”

aspect that denies the States the power

unjustifiably to discriminate against or burden

the interstate flow of articles of commerce.

The Framers granted Congress plenary

authority over interstate commerce in “the

conviction that in order to succeed, the new

Union would have to avoid the tendencies

toward economic Balkanization that had

plagued relations among the Colonies and

later among the States under the Articles of

Confederation.” “This principle that our

economic unit is the Nation, which alone has

the gamut of powers necessary to control of

the economy, . . . has as its corollary that the

states are not separable economic units.”

Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of State of Or.,

511 U.S. 93, 98–99, 114 S. Ct. 1345, 1349, 128 L. Ed. 2d 13

(1994) (alterations in the original) (citations omitted).

The negative aspect—commonly known as the dormant

Commerce Clause—has at least two emanations. The Court

has pointed out that “[w]hen a state statute directly regulates

or discriminates against interstate commerce, or when its

effect is to favor in-state economic interests over out-of-state

interests, we have generally struck down the statute without

further inquiry.” Brown-Forman Distillers Corp. v. N.Y.

State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 2084,

10 DANIELS SHARPSMART V. SMITH

90 L. Ed. 2d 552 (1986). While many cases deal with the

discrimination emanation,11 this case deals with the direct

regulation emanation. “Direct regulation occurs when a state

law directly affects transactions that take place across state

lines or entirely outside of the state’s borders.” S.D. Myers,

Inc. v. City & County of San Francisco, 253 F.3d 461, 467

(9th Cir. 2001) (citation omitted). As the Court has put it:

“the ‘Commerce Clause . . . precludes the application of a

state statute to commerce that takes place wholly outside of

the State’s borders, whether or not the commerce has effects

within the State.’” Healy v. Beer Inst., 491 U.S. 324, 336,

109 S. Ct. 2491, 2499, 105 L. Ed. 2d 275 (1989). Indeed,

[A] statute that directly controls commerce

occurring wholly outside the boundaries of a

State exceeds the inherent limits of the

enacting State’s authority and is invalid

regardless of whether the statute’s

extraterritorial reach was intended by the

legislature. The critical inquiry is whether the

practical effect of the regulation is to control

conduct beyond the boundaries of the State.

Id. Moreover, the Court further pointed out that:

[T]he practical effect of the statute must be

evaluated not only by considering the

consequences of the statute itself, but also by

considering how the challenged statute may

interact with the legitimate regulatory regimes

of other States and what effect would arise if

11

See, e.g., Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 337–38,

128 S. Ct. 1801, 1808, 170 L. Ed. 2d 685 (2008).

DANIELS SHARPSMART V. SMITH 11

not one, but many or every, State adopted

similar legislation.

Id.

We will apply these general principles to the issues raised

in this case.

A. The Preliminary Injunction

“A plaintiff seeking a preliminary injunction must

establish that he is likely to succeed on the merits, that he is

likely to suffer irreparable harm in the absence of preliminary

relief, that the balance of equities tips in his favor, and that an

injunction is in the public interest.” Winter v. Nat. Res. Def.

Council, Inc., 555 U.S. 7, 20, 129 S. Ct. 365, 374, 172 L. Ed.

2d 249 (2008). We have explained that the first and third of

the factors interact so that “‘serious questions going to the

merits’ and a balance of hardships that tips sharply towards

the plaintiff can support issuance of a preliminary injunction,

so long as the plaintiff also shows that there is a likelihood of

irreparable injury and that the injunction is in the public

interest.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127,

1135 (9th Cir. 2011). The Department officials do not contest

the district court’s determinations regarding the balance of

equities, irreparable injury, and public interest factors, but do

insist that Daniels is not likely to succeed on the merits. In

short, they essentially state that because it is plain that there

was no redressable constitutional violation, Daniels cannot

succeed. In that they are plainly incorrect.

The parties do not dispute that a Commerce Clause action

can be brought by an individual pursuant to 42 U.S.C. § 1983.

See Dennis v. Higgins, 498 U.S. 439, 446–47, 111 S. Ct. 865,

12 DANIELS SHARPSMART V. SMITH

870–71, 112 L. Ed. 2d 969 (1991). Thus, we need only

consider whether Daniels is likely to succeed on the merits

under the facts and circumstances of this case. It is. We are

not concerned here with an attempt by the Department

officials to protect California and its residents by applying the

MWMA to products that are brought into or are otherwise

within the borders of the State. See, e.g., Rocky Mountain

Farmers Union v. Corey, 730 F.3d 1070, 1103–04 (9th Cir.

2013); Ass’n des Eleveurs de Canards et d’Oies du Quebec

v. Harris, 729 F.3d 937, 949 (9th Cir. 2013); Valley Bank of

Nev. v. Plus Sys., Inc., 914 F.2d 1186, 1192–93 (9th Cir.

1990). Rather, we are faced with an attempt to reach beyond

the borders of California and control transactions that occur

wholly outside of the State after the material in question—

medical waste—has been removed from the State.

The mere fact that some nexus to a state exists will not

justify regulation of wholly out-of-state transactions. For

example, an attempt by California to regulate the terms and

conditions of sales of artworks outside of California simply

because the seller resided in California was a violation of the

dormant Commerce Clause. Sam Francis Found. v.

Christies, Inc., 784 F.3d 1320, 1322 (9th Cir. 2015) (en

banc). As we said, the statute in question “directly regulates

the conduct of the seller or the seller’s agent for a transaction

that occurs wholly outside the State.” Id. at 1324. That could

not be countenanced and “[w]e easily conclude[d] that the

royalty requirement, as applied to out-of-state sales by

California residents, violates the dormant Commerce Clause.”

Id. at 1323. One state cannot be permitted to dictate what

other states must do within their own borders.

Over twenty years earlier, we reached a similar

conclusion in a quite different factual setting, but for the

DANIELS SHARPSMART V. SMITH 13

selfsame reasons. See NCAA v. Miller, 10 F.3d 633, 635 (9th

Cir. 1993). There, the State of Nevada sought to impose rules

of procedure that would in effect control proceedings in other

states, even if those states did not impose the same

restrictions on procedures and could even prescribe other

rules. Id. at 639. As we then declared: “the Statute could

control the regulation of the integrity of a product in interstate

commerce that occurs wholly outside Nevada’s borders. That

sort of extraterritorial effect is forbidden by the Commerce

Clause.” Id. Moreover, the Nevada statute could have had

the baleful effect of subjecting businesses to conflicting

requirements. Id.; see also Healy, 491 U.S. at 336–37, 109

S. Ct. at 2499 (“[T]he Commerce Clause protects against

inconsistent legislation arising from the projection of one

state regulatory regime into the jurisdiction of another

State.”).

This case is little different from Sam Francis and NCAA,

for here there can be no doubt that the Department officials

sought to punish Daniels for disposing of medical waste in a

manner that was perfectly legal in the states in which Daniels

had effectuated disposal. The transactions in delivering and

paying for disposal took place within those states and, from

all that appears in the record, in accordance with their laws.

There is nothing to indicate that the transactions had any

effect whatsoever in California. See BMW of N. Am., Inc. v.

Gore, 517 U.S. 559, 572–73, 116 S. Ct. 1589, 1597, 134 L.

Ed. 2d 809 (1996). Rather, California has attempted to

regulate waste treatment everywhere in the country, just as it

tried to regulate art sales12 and Nevada tried to regulate rules

12

See Sam Francis, 784 F.3d at 1324.

14 DANIELS SHARPSMART V. SMITH

violations procedures13 everywhere in the country. Of course,

that could also have the effect of requiring Daniels to run

afoul of other states’ regulation of medical waste disposal

within their jurisdictions, if California law directed something

different from their requirements. See NCAA, 10 F.3d at 639.

Therefore, Daniels will likely succeed on its claim that the

Department officials’ application of the MWMA constitutes

a “per se violation of the Commerce Clause.” Id. at 640.

Were it otherwise, California could purport to regulate the use

or disposal of any item—product or refuse—everywhere in

the country if it had its origin in California.14 The district

court did not abuse its discretion when it determined that

Daniels was likely to succeed on the merits and enjoined the

Department officials from “enforcing the MWMA against

Daniels’s out-of-state waste disposal.”

B. Qualified Immunity

The Department officials sought dismissal of the action

on the basis of the defense of qualified immunity. While the

parties do not make any distinctions among the Department

officials, as the district court noted, Smith was sued in her

official capacity only and is therefore not entitled to qualified

immunity. See Eng v. Cooley, 552 F.3d 1062, 1064 n.1 (9th

Cir. 2009). Moreover, qualified immunity applies only to

liability for money damages—not injunctive or declaratory

13

See NCAA, 10 F.3d at 639.

14

We note that even if a law intended to protect the environment is

involved, the dormant Commerce Clause applies. See C & A Carbone,

Inc. v. Town of Clarkstown, 511 U.S. 383, 393, 114 S. Ct. 1677, 1683, 128

L. Ed. 2d 399 (1994).

DANIELS SHARPSMART V. SMITH 15

relief. See Hydrick v. Hunter, 669 F.3d 937, 939–40 (9th Cir.

2012).

That said, the doctrine of “[q]ualified immunity ‘protects

government officials from liability for civil damages insofar

as their conduct does not violate clearly established statutory

or constitutional rights of which a reasonable person would

have known.’” Sjurset v. Button, 810 F.3d 609, 614 (9th Cir.

2015). “Qualified immunity gives government officials

breathing room to make reasonable but mistaken judgments

about open legal questions. When properly applied, it

protects ‘all but the plainly incompetent or those who

knowingly violate the law.’” Ashcroft v. al-Kidd, 563 U.S.

731, 743, 131 S. Ct. 2074, 2085, 179 L. Ed. 2d 1149 (2011).

In determining whether qualified immunity applies, courts

“must determine whether: (1) the facts adduced constitute the

violation of a constitutional right; and (2) the constitutional

right was clearly established at the time of the alleged

violation.” Mitchell v. Washington, 818 F.3d 436, 443 (9th

Cir. 2016).

As we have already noted, it is likely that Daniels will

succeed on its claim that the Department officials’ application

of the MWMA violated the dormant Commerce Clause.

Thus, we will consider the question of whether Daniels’

constitutional rights under the clause were clearly established

for this purpose. We think not.

In deciding if a constitutional right was clearly

established “at the relevant time, the key question is whether

the defendants should have known that their specific actions

were unconstitutional given the specific facts under review.”

Hamby v. Hammond, 821 F.3d 1085, 1090 (9th Cir. 2016).

In other words, the “‘right must be sufficiently clear that

16 DANIELS SHARPSMART V. SMITH

every reasonable official would have understood that what he

is doing violates that right.’” Id. (emphases in original).

However, the Court has insisted that the “‘clearly established

law’ should not be defined ‘at a high level of generality.’”

White v. Pauly, __ U.S. __, __, 137 S. Ct. 548, 552, 196 L.

Ed. 2d 463 (2017) (per curiam); see also Kisela v. Hughes, __

U.S. __, __, 138 S. Ct. 1148, 1152, __ L. Ed. 2d __ (2018)

(per curiam); Hamby, 821 F.3d at 1090. It is that rock upon

which the district court’s qualified immunity decision

founders.

The district court was satisfied that, as it said, “[t]he

extraterritorialty doctrine has been clearly established for

decades.” No doubt that is so, but that is far from deciding

that it was clearly established that application of the MWMA

violated the doctrine. See White, __ U.S. at __, 137 S. Ct. at

552. Certainly, the Department officials could not look at a

decision dealing with the MWMA itself, and that statute at

least injected some ambiguity into the equation when it

declared that “[m]edical waste transported out of [California]

shall be consigned to a permitted medical waste treatment

facility in the receiving state.” Cal. Health & Safety Code

§ 118000(c). Of course, that does not say who must issue the

permit to the facility, and a reasonable official, who is not

knowledgeable about the arcane considerations lurking within

dormant Commerce Clause doctrine, could reasonably, if

erroneously, believe that the Department could control what

was done with California waste in another state.15 As we see

15

Perhaps the MWMA was intended to reach transactions outside of

California. But see Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207, 254

P.3d 237, 248, 127 Cal. Rptr. 3d 185, 198 (2011); N. Alaska Salmon Co.

v. Pillsbury, 174 Cal. 1, 4, 162 P. 93, 94 (1916). If so, that would not

change the result but would further support according qualified immunity

DANIELS SHARPSMART V. SMITH 17

it, this area is complex and murky enough that it was

improper to decide that Pilorin, Dabney, and Hilton could be

mulcted with damages for their error. The district court erred

in holding that they could be.

CONCLUSION

We affirm the district court’s decision that Daniels is

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. Thus, the district court did not abuse its discretion

when it issued the preliminary injunction. However, we also

hold that the doctrine of qualified immunity does protect

Pilorin, Dabney, and Hilton from damages liability.

AFFIRMED in part, REVERSED in part, and

REMANDED. The parties shall bear their own costs on

appeal.

to the Department officials. See Acosta v. City of Costa Mesa, 718 F.3d

800, 824 (9th Cir. 2013) (per curiam); Grossman v. City of Portland,

33 F.3d 1200, 1209 (9th Cir. 1994).