On February 23, 2015, FedEx Ground Package System, Inc. (“FedEx”) filed an appeal in the U.S. Court of Appeals for the Ninth Circuit (“9th Circuit”), seeking to block an enforcement action brought by the State of California alleging that the company improperly stored and transported packages of products that it found to be damaged or leaking without complying with the State’s hazardous waste regulations.  FedEx is arguing that its process for handling such packages in California (which has since changed) was consistent with the Hazardous Materials Regulations (“HMR”) issued by the U.S. Department of Transportation (“DOT”), and that such regulations preempt State rules governing transport of hazardous wastes, pursuant to the preemption provisions of the Hazardous Materials Transportation Act (“HMTA”).  This argument, if successful, could potentially have broader implications for others who initiate or transport shipments of products and/or wastes.

Background

FedEx originally asked a federal district court for declaratory judgment to block what was then only a threatened State enforcement action, in a case filed on April 26, 2014.  See FedEx Ground Package System, Inc. v. Ingenito, No. 2:14-cv-01038-TLN-EFB (E.D. Cal.).  Shortly thereafter, the State initiated its enforcement action in state court.  See Complaint for Permanent Injunction, Civil Penalties and Other Equitable ReliefPeople v. FedEx Ground Package System, Inc. (Sacramento County Superior Court) (filed June 25, 2014).  The State alleged that the company, in more than 1,500 instances, failed to properly manage as hazardous wastes packages that were discovered at a terminal to be broken or leaking and that contained hazardous products such as acids, solvents, insecticides, batteries and other flammable, toxic, or corrosive materials.  In some instances, FedEx allegedly either delivered the packages to the intended recipients or returned the packages to the original shipper (after repackaging, if necessary), without a hazardous waste transporter registration or a hazardous waste manifest.  In other instances, the company allegedly stored the damaged packages at the terminal, placed them into salvage drums, and sent them to a hub facility for eventual recycling or disposal, without properly identifying and labeling the materials as hazardous waste, using a hazardous waste manifest, or shipping the material directly from the terminal to an authorized hazardous waste facility.

The State subsequently filed a motion to dismiss FedEx’s case in federal court on the ground that that court should not interfere with the now-ongoing state proceeding, which was addressing important state interests and provided a forum for addressing the company’s preemption argument.  The federal court granted the motion to dismiss on January 21, 2015.  See Order Granting Defendants’ Motions to Dismiss Pursuant to the Younger Doctrine,FedEx Ground Package System, Inc. v. Ingenito, No. 2:14-cv-01038-TLN-EFB (E.D. Cal.).  However, FedEx has now appealed to the 9th Circuit to overturn the dismissal, so that its preemption argument could be heard in federal court and, if successful, the state court proceeding could be enjoined from moving forward.   See FedEx Ground Package System, Inc. v. Ingenito, No. 15-15350 (9th Cir.).

Analysis & Implications

The essence of FedEx’s preemption argument appears to be that the packages at issue were in transportation and therefore subject to the detailed requirements of the HMR regarding classification, packaging, labeling, marking, placarding, shipping documents, personnel training, security, registration, and incident reporting.  See generally 49 C.F.R. Parts 171-180.  Under the HMTA, states are preempted from issuing or enforcing requirements that are not substantively the same as the federal requirements on certain subjects (e.g., packaging, labeling, shipping documents, and incident reporting) or that otherwise are an obstacle to the goals of the statute.  See 49 U.S.C. §§ 5125(a)-(b).  Thus, as long as the damaged packages were handled in accordance with HMR requirements, there arguably should be no basis for a State hazardous waste enforcement action.

Somewhat similar preemption arguments have been addressed before by DOT and the courts, and they have had varying degrees of success depending upon the circumstances.  In the present case, FedEx’s arguments may be strengthened by the fact that the packages were found to be damaged during transport.  However, the outcome of the argument (whether in federal or state court) may be of broader significance for companies that initiate or transport shipments of products and/or wastes.