Judge Mary H. Strobel, Case 21STCP03887 2022-12-06 Tentative Ruling

Respondents California Department of Toxic Substances Control (“DTSC”) and Meredith Williams, in her official capacity as Director of DTSC (collectively “Respondents”) generally demurrer to the second and third causes of action in the first amended petition for writ of mandate filed by Petitioner Pacific Auto Recycling, Inc. (“Petitioner” or “PARC”). Respondents also move to strike one paragraph in the second cause of action (¶ 73) and multiple paragraphs and part of the prayer for the first cause of action for declaratory relief (¶¶ 67-69 and 86).

Respondents’ Request for Judicial Notice (“RJN”) Exhibits A-C – Granted.

The demurrer admits all material facts properly pleaded, including the following allegations. (CCP 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Petitioner “is a scrap metal and recycling company located in Lancaster, California, that engages in activities associated with the purchase, collection, sorting, transportation, and recycling of end-of-life vehicles, household appliances, and other forms of scrap metal.” (First Amended Petition (“FAP”) ¶ 10.)

“Each year the state of California generates over 1.5 million end-of-life vehicles and millions of tons of other types of scrap metal. This valuable material serves as raw material for the manufacture of new metal products.” (Id. ¶ 23.) “To recycle scrap metal, PARC uses a hammer mill shredder and other advanced equipment to separate and prepare specification-grade steel and nonferrous metals (aluminum, copper, etc.) for use as feedstock in steel mills and smelters in the United States and other countries around the world, making these valuable products commercially available for beneficial use, conserving natural resources, saving energy, and reducing greenhouse gas emissions.” (Id. ¶ 10.)

“Current California law (Pub. Resources Code, § 42160 et seq.) prohibits the disposal of recyclable scrap metal in California landfills, necessitating that the state support a viable scrap metal recycling industry to process these valuable materials.” (Id. ¶ 24.)

“The scrap metal recycling industry provides a vital service to the people of California by extracting recoverable materials from discarded products such as large household appliances and automobiles. Doing so both keeps these discarded products out of landfills and reduces the State’s reliance on raw material mining to meet future manufacturing needs. For over thirty years, scrap metal recyclers have operated under a regulatory regime in which scrap metal was not considered a waste while being recycled and, as a result, not subject to hazardous material control requirements until all recoverable materials had been exhausted from the scrap metal feedstock.” (Id. ¶ 1; see also Id. ¶¶ 10-13 and 23-41.)

“In 1988, the Department of Health Services—a predecessor agency to DTSC—issued Official Policy/Procedures # 88-6, ‘Auto Shredder Waste Policy and Procedures’ (Nov. 1988) (‘OPP #88-6’), provided as Exhibit A, to ensure that a consistent regulatory approach was applied to the management and disposal of auto shredder waste. Auto shredder waste—also known as scrap metal aggregate—contains recoverable material that is further processed until all recoverable material is extracted. OPP #88-6 states that ‘any treatment to a material in an industrial process before that material is exhausted or otherwise rendered a waste is exempt from hazardous waste requirements.’” (Id. ¶ 2, Exh. A.)

In 1988, the Department of Health Services (DHS) (predecessor of the Department of Toxic Substances Control (DTSC)) issued Official Policy/Procedure Document Number 88-6 (OPP 88-6) to ensure that a consistent regulatory approach would be applied to the management and disposal of auto shredder waste (the term “auto shredder waste” includes hazardous waste generated by the shredding of automobiles as well as appliances and other pieces of metal). The document was intended to provide internal guidance to DHS/DTSC staff only. It did not replace or supersede any relevant statutes and regulations, nor was it ever adopted into law.

Facilities that treat, store, or dispose of hazardous waste in California are required to have a hazardous waste facility permit or other grant of authorization from DTSC. In light of the recent finalization of DTSC’s evaluation and analysis of the metal shredding industry in California, DTSC reevaluated OPP 88-6. DTSC has concluded that OPP 88-6 is inexact, self-contradictory regarding the classification of auto shredder waste, and in conflict with provisions in State and federal law. As a result, OPP 88-6 is hereby rescinded.

“Rescission of OPP #88-6 would allow DTSC to characterize in-process scrap metal feedstock as hazardous waste, significantly disrupting PARC’s metal shredding and processing operations, increasing operating costs to the point its operations would likely be rendered uneconomical, causing some or all of the facilities to be nonconforming land uses, and effectively foreclosing a safe and cost-effective means of recycling the vast quantities of scrap metal generated in California on a daily basis. Further, DTSC’s actions will stigmatize a legitimate industrial activity and impede the sale of valuable metals by characterizing them as the products of a hazardous waste treatment process.” (Id. ¶ 11; see also Id. ¶¶ 42-57.)

Petitioner “seeks a judicial declaration that scrap metal aggregate is not a waste. In the alternative, PARC seeks a declaration that DTSC’s rescission of OPP #88-6 is invalid and an abuse of DTSC’s discretion contrary to California’s Hazardous Waste Control Law and implementing regulations, and a writ of mandate directing DTSC to reinstate OPP #88-6.” (Id. ¶ 8.)

In the third cause of action for violation of CEQA, Petitioner also contends that “recission of OPP #88-6 will have a sweeping and immediate impact on metal shredding facilities, with ripple effects throughout other sectors of the metals recycling industry and the State’s economy at large.” (Id. ¶ 80.) Petitioner alleges that Respondents violated CEQA because “DTSC failed to even consider whether recission of OPP #88-6 constituted a project, as it was required to do for CEQA purposes, much less conduct the required environmental analysis.” (Id. ¶ 84.)

On November 24, 2021, Petitioner filed the original petition for writ of mandate. On July 7, 2022, Petitioner filed the operative, first amended petition (“FAP”).

On June 7, 2022, at a trial setting conference, the court set the petition for writ of mandate for hearing on March 28, 2023. The court did not set a hearing date on the first cause of action for declaratory relief.

On September 6, 2022, Respondents filed the instant demurrer, motion to strike, and their meet and confer declarations. The court has received Petitioner’s opposition and Respondents’ reply.

A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. The demurrer admits all material facts properly pleaded. (CCP 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) “A demurrer must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

In the second cause of action, Petitioner alleges that DTSC’s OPP #88-6 Statement of Rescission was arbitrary and capricious because it “makes no mention of the important reliance interests of scrap metal recyclers like PARC who have relied on the sound policy stated in OPP #88-6 for over 30 years.” (FAP ¶ 72.) Petitioner also alleges that “DTSC acted arbitrarily and capriciously, abused its discretion, and acted in violation of its duties under the APA and other applicable California law in rescinding OPP #88-6 in that, among other things, DTSC lacks authority to regulate scrap metal, including metal shredder aggregate, in the first instance given that the materials processed at Petitioner’s facility are not waste and thus cannot be hazardous waste.” (Id. ¶ 73.)

In the demurrer, Respondents contend that Petitioner has not pleaded a cause of action for mandate because: “either OPP 88-6 was not a regulation or it was an underground regulation. In either circumstance, it was an unenforceable policy and PARC does not and cannot allege that DTSC had a duty to consider reliance interests when rescinding an unenforceable agency policy.” (Dem. 14.)

The demurrer does not address the allegation that “DTSC lacks authority to regulate scrap metal, including metal shredder aggregate, in the first instance given that the materials processed at Petitioner’s facility are not waste and thus cannot be hazardous waste.” (See FAP ¶ 73; see Dem. 11-5.)[1] Because “a demurrer must dispose of an entire cause of action to be sustained, Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119, Respondents’ failure to address that material allegation for the writ causes of action is a sufficient basis to overrule the demurrer. Moreover, the court overrules the demurrer for other reasons as well, as discussed below.

There are two essential requirements to the issuance of an ordinary writ of mandate under Code of Civil Procedure section 1085: (1) a clear, present, and ministerial duty on the part of the respondent, and (2) a clear, present, and beneficial right on the part of the petitioner to the performance of that duty. (California Ass’n for Health Services at Home v. Department of Health Services (2007) 148 Cal.App.4th 696, 704.) “An action in ordinary mandamus is proper where … the claim is that an agency has failed to act as required by law.” (Id. at 705.)

“Normally, mandate [under section 1085] will not lie to control a public agency's discretion, that is to say, force the exercise of discretion in a particular manner. However, it will lie to correct abuses of discretion. In determining whether a public agency has abused its discretion, the court may not substitute its judgment for that of the agency, and if reasonable minds may disagree as to the wisdom of the agency's action, its determination must be upheld. A court must ask whether the public agency's action was arbitrary, capricious, or entirely lacking in evidentiary support, or whether the agency failed to follow the procedure and give the notices the law requires.” (County of Los Angeles v. City of Los Angeles (2013) 214 Cal.App.4th 643, 654.)

An agency acts arbitrarily and capricious where, among other things, it has not “adequately considered all relevant factors.” (Cal. Ass’n for Health Servs. Home v. State Dep’t of Health Care Servcs. (2012) 204 Cal.App.4th 676, 686; accord Ridgecrest Charter School v. Sierra Sands Unified School Dist. (2005) 130 Cal.App.4th 986, 1006.)

The California Administrative Procedure Act (“APA”) defines “regulation” as “every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure.” (Gov. Code § 11342.600.) Pursuant to the APA, “[n]o state agency shall issue, utilize, enforce, or attempt to enforce any guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, which is a regulation as defined in Section 11342.600, unless the guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule has been adopted as a regulation and filed with the Secretary of State pursuant to this chapter.” (Id. § 11340.5(a).) A regulation that substantially fails to comply with the requirements of the APA may be judicially declared invalid. (Id. § 11350.)

To be a regulation, a policy must meet two requirements: (1) “the agency must intend it to apply generally, rather than in a specific case”; and (2) the agency must adopt it to implement, interpret, or make specific the law enforced by the agency. (Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 571.) A policy that leaves the agency with discretion to determine which procedures it will utilize or is a “suggested resource but not the sole resource” for the agency to follow is not a rule of general applicability. (Modesto City Schools v. Education Audits Appeal Panel (2004) 123 Cal.App.4th 1365, 1382.) Additionally, “if an agency prepares a policy manual that is no more than a restatement or summary, without commentary, of the agency's prior decisions in specific cases and its prior advice letters, the agency is not adopting regulations.” (Tidewater, supra, 14 Cal.4th at p. 571.)

Here, OPP #88-6 is described as an “official policy/procedure” of DTSC. In a section titled “Purpose,” OPP #88-6 states that “this document establishes the policy and procedure for the Toxic Substances Control Division … to ensure that a consistent regulatory approach is applied to the management and disposal of ASW [auto shredder waste].” (RJN Exh. A [bold italics added].) OPP #88-6 provides a definition of “in-line treatment” as “any treatment to a material in an industrial process before that material is exhausted or otherwise rendered a waste.” The policy document states that “because in-line treatment is applied to a material that is not a waste, it is exempt from DHS hazardous waste requirements.” (Ibid.) Petitioner has a reasonable argument that OPP #88-6 was intended to apply generally, rather than to any specific case or location, and that it implemented the law enforced by the agency, i.e., it establishes a “consistent regularly approach” to the management and disposal of ASW.

Respondents contend that OPP #88-6 is not a regulation because it “restates DHS’s prior decision that auto shredder waste was hazardous and could not be disposed of in nonhazardous waste landfills.” (Dem. 12, citing RJN Exh. A at p. 1.) Respondents also contend that OPP #88-6 provided its predecessor agency with a variety of discretionary approaches to regulating scrap metal recycling operations and “was not a rule of general applicability.” (Dem. 12-13.)

At the pleading stage, Petitioner has asserted a reasonable interpretation of section OPP #88-6 to be a regulation. While Respondents may further develop their arguments for the hearing on the writ petition, the court finds Respondents’ arguments somewhat less persuasive on this briefing.

On its face, OPP #88-6 appears to do more than that simply state that ASW is hazardous and could not be disposed of in nonhazardous waste landfills. While it described an “enforcement strategy” and several “scenarios” for regulators to address different types of operations, all were based on the agency’s position that “in-line treatment is applied to a material that is not a waste,” and thus “it is exempt from [DTSC] hazardous waste requirements.” (RJN Exh. A at pp. 4-7.)

Petitioner Has Sufficiently Alleged that DTSC’s Rescission of OPP #88-6 was Arbitrary and Capricious

Respondents state that “assuming OPP 88-6 meets the definition of a regulation … , it was an underground regulation” and DTSC could rescind it without complying with the APA. (Dem. 12-14.) Respondents cite paragraph 67 of the FAP, which states that “OPP #88-6 itself was adopted without following the necessary rulemaking procedures” and contend that Petitioner has conceded that OPP # 88-6 was not properly adopted pursuant to the APA. (Ibid.) As the FAP is pleaded, the court agrees that Petitioner has apparently conceded that OPP #88-6 was not adopted in full compliance with the APA.

However, for the second cause of action for writ of mandate, Petitioner alleges that DTSC’s OPP #88-6 Statement of Rescission was arbitrary and capricious because it “makes no mention of the important reliance interests of scrap metal recyclers like PARC who have relied on the sound policy stated in OPP #88-6 for over 30 years.” (FAP ¶ 72.) Petitioner’s claim assumes that OPP #88-6 was not adopted in full compliance with the APA. (Id. ¶¶ 67, 71.)

Respondents contend that OPP #88-6 could be rescinded without any consideration of reliance interests because it was not adopted in compliance with the APA. (Dem. 12-14.) As support, Respondents rely on Naturist Action Comm. v. Department of Parks & Recreation (2009) 175 Cal.App.4th 1244, 1250. In Naturist, the Parks Department issued a memorandum in 1979 saying that it would only enforce regulations against nude sunbathing upon receiving a complaint from a citizen. In 2008, the Department rescinded the policy as to a specific beach (San Onofre State Beach) based on a significant increase in complaints, criminal behavior, and reports from employees that allowing nude bathing at the beach was creating a sexually charged, harassing, and hostile work environment. (Id. at 1247–1248.) The Court of Appeals held that, although the initial memorandum was a “regulation,” it was an “underground regulation,” and, as such, the decision to rescind the policy did “not have to go through the APA rulemaking process. Its effect is merely to discontinue an invalid policy.” (Id. at 1250.)

Naturist did not hold that, or consider whether, an agency is entirely immune from arbitrary-and-capricious review if it decides to rescind a regulation that was not properly promulgated. Based on the Court of Appeal’s summary of the case, that issue was not raised at the trial court or on appeal in Naturist. Furthermore, there are obvious differences in the reliance interests that could be at issue for nude sunbathing at a single public beach, as in Naturist, compared to the disruption of a 30-year-old enforcement approach to ASW that applies to the entire state of California, as alleged in the FAP. (See FAP ¶¶ 1-7, 23-57.) “‘It is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court. An opinion is not authority for propositions not considered.’” (People v. Knoller (2007) 41 Cal.4th 139, 154-55.)

Two cases cited by Petitioner provide support for Petitioner’s position that, in some circumstances, an agency may need to consider reliance interests before rescinding a regulation, even if it is asserted that the regulation was illegally adopted. Thus, in Morning Star v. State Board of Equalization (2006) 38 Cal.4th 324, the California Supreme Court held that DTSC’s interpretation of a statute—specifically, its identification of when corporations “use, generate, store, or conduct activities in this state related to hazardous materials”—was a regulation under the APA but was not properly promulgated under the APA and was “invalid.” (Id. at 340-341.) Despite the invalidity of the regulation, the California Supreme stated the following with respect to the remedy:

Instead, we direct the Board to conduct further administrative proceedings on Morning Star's refund request, without reliance upon the Department's invalid regulation. (Cf. Cal. Law Revision Com. com., 32D West's Ann. Gov.Code, supra, foll. § 11425.50, pp. 299–300.) To avoid significant disruption of the fee scheme, however, upon remand the superior court shall issue an order staying these proceedings before the Board and otherwise maintaining the fee system as presently interpreted and implemented by the agencies, an order to remain in effect until such time as the Department has had a reasonable opportunity to promulgate valid regulations under the APA.

Our instructions here derive from the court's inherent power to issue orders preserving the status quo. (California Hotel & Motel Assn. v. Industrial Welfare Com. (1979) 25 Cal.3d 200, 216, 157 Cal.Rptr. 840, 599 P.2d 31.) In California Hotel, we concluded that a minimum wage order promulgated by the IWC pursuant to various sections of the Labor Code was invalid because it lacked an adequate “statement of basis” as required by statute. (Ibid.) But we further concluded that the order was of “critical importance to significant numbers of employees” who bore “no responsibility for the deficiencies of” the order. (Ibid.) We therefore exercised “our inherent power to make an order appropriate to preserve the status quo pending correction of deficiencies,” directing the issuance of a writ of mandate to compel the IWC to correct the deficiencies “within 120 days of the finality of the opinion.” (Ibid.)

So, too, in the present case, the continued viability of the hazardous materials fee program is of critical importance to the State of California, as determined by the Legislature, and any disruption in collection of the fee would seriously undermine the program. With these considerations in mind, as in California Hotel we will allow the Department a reasonable opportunity to correct the deficiency in its hazardous material fee regulations by subjecting them to APA procedures, while maintaining the current system in the interim.

Relatedly, Petitioners also cite Dep’t of Homeland Sec. v. Regents of the Univ. of Cal. (2020) 140 S. Ct. 1891, 1914-15, in which the U.S. Supreme Court explained that “[w]hen an agency changes course . . . it must be cognizant that longstanding policies may have engendered serious reliance interests that must be taken into account,” and “[i]t would be arbitrary and capricious to ignore such matters.” (Id. at 1913 (quotations omitted).) The Court state that “because DHS was ‘not writing on a blank slate,’ it was required to assess whether there were reliance interests, determine whether they were significant, and weigh any such interests against competing policy concerns.” (Id. at 1915.)

In reply, Respondents seek to distinguish Morning Star and Regents, but they do not cite any authority that directly supports their position that rescission of an unlawfully promulgated regulation could never be considered arbitrary or capricious, especially where it is alleged the regulation is of critical importance to the State of California, that industry has relied on the regulation, and that recission could cause significant disruptions in the state. (Reply 6-8 and 9.) Respondents are not precluded from citing additional relevant authorities for the hearing on the writ petition.

Respondents state that, unlike in Morning Star, “here DTSC has not utilized OPP 88-6 and does not intend to utilize OPP 88-6; therefore, an order maintaining the status quo to allow DTSC a reasonable opportunity to promulgate valid regulations under the APA is not necessary.” (Reply 7-8.) However, the FAP alleges that OPP # 88-6 established a “precedent” and policy of DTSC that was relied upon by the scrap metal recycling industry for 30 years. (FAP ¶¶ 1-7.) Thus, Petitioner does allege that DTCS has “utilized” OPP # 88-6 for many years.

Petitioner further alleges that “[r]escission of OPP #88-6 would allow DTSC to characterize in-process scrap metal feedstock as hazardous waste, significantly disrupting PARC’s metal shredding and processing operations, increasing operating costs to the point its operations would likely be rendered uneconomical, causing some or all of the facilities to be nonconforming land uses, and effectively foreclosing a safe and cost-effective means of recycling the vast quantities of scrap metal generated in California on a daily basis.” (Id. ¶ 11.) Similar allegations of reliance interests are found throughout the FAP and are not addressed at all by Respondents in the demurrer. (See e.g. Id. ¶¶ 50-57.) The demurrer admits all material facts properly pleaded. (CCP 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In addition, the allegations in the petition must be liberally construed in favor of Petitioner on demurrer. (Mobil Oil Corp. v Exxon Corp. (1986) 177 Cal.App.3d 942, 947.) Petitioner has alleged sufficient reliance interests on OPP # 88-6 such that it could have been arbitrary and capricious for DTSC to rescind the policy without any consideration of the same. Liberally construing the pleading, as required, the court finds these allegations sufficient to state a claim for a writ of mandate directing DTSC to set aside and reconsider the decision to rescind OPP # 88-6.

For the first time in reply, Respondents argue that Petitioner has not sufficiently alleged how it relied on OPP # 88-6 to its detriment or that DTSC did not consider industry reliance interests. (Reply 8-9.) Respondents do not show good cause to raise these new arguments in reply. (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.) Accordingly, the arguments are rejected on procedural grounds. Furthermore, as discussed, the FAP sufficiently alleges industry reliance on OPP # 88-6 and that DTSC did not consider such interests before rescinding the policy. (See FAP ¶¶ 11, 50-57, 72-73 and Exh. B.)

On this briefing, the court concludes that Petitioner has sufficiently stated a cause of action for writ of ordinary mandate. Respondents may further develop their positions that reliance interests did not need to be considered at all before rescission of OPP # 88-6, or, alternatively, were properly considered, for the hearing on the writ petition. The demurrer to the second cause of action is OVERRULED.

Respondents argue that the rescission of OPP #88-6 was not a “project” subject to CEQA because it “was a guidance document without the force of law or, if it was an underground regulation, it was void and unenforceable.” Respondents also assert that, if OPP #88-6 was not an enforceable regulation, “there is no causal connection between the rescission of OPP 88-6 and the social or economic effects, or the physical environmental changes PARC alleges in the FAC.” (Dem. 15.) Respondents do not develop an argument that the third cause of action is not properly stated separate from the contentions addressed above for the second cause of action. Accordingly, for the same reasons discussed above, the demurrer to the third cause of action is OVERRULED.

The motion to strike paragraph 73 of the FAP is entirely derivative of the arguments made in the demurrer. For the reasons discussed above, the motion to strike is DENIED.

The first cause of action seeks declaratory relief. Pursuant to the local rules which designate that Department 82 is a specialized Writs and Receivers department and not a general civil department, only those special proceedings stated in the rule (including for writ of mandate) are properly assigned to this department. (LASC Local Rules 2.8(d) and 2.9.) Local Rules 2.8(d) and 2.9 do not include a claim for declaratory relief as special proceedings assigned to the writs departments.

Accordingly, the first cause of action is stayed until the court rules on the second and third causes of action for writ of mandate. If the court’s ruling on the writ causes of action does not necessarily resolve the first cause of action, the court will transfer the first cause of action to Department 1 for assignment to a general civil department. In light of the stay of the first cause of action, the court does not rule on Respondent’s motion to strike paragraphs 67-69 or 86 of the FAP, all of which pertain only to the first cause of action.

The first cause of action for declaratory relief is stayed until the court rules on the second and third causes of action for writ of mandate. (LASC Local Rules 2.8(d) and 2.9.) In light of the stay of the first cause of action, the court does not rule on Respondent’s motion to strike paragraphs 67-69 or 86 of the FAP.

[1] While it is unclear whether Respondents seek to address that allegation for the first time in reply (see Reply 3-5), new reply arguments are improper. “The salutary rule is that points raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before.” (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.) Especially given the complexity of the regulatory framework at issue, Respondents do not show good cause to raise new arguments in reply, depriving the court of a written response from Petitioner.