Wholesale Distributors Association Files Federal Lawsuit Against Colorado Packaging EPR Law

At a Glance

• The National Association of Wholesaler-Distributors (NAW) has filed a federal lawsuit challenging Colorado's extended producer responsibility (EPR) program for packaging, arguing that its rigid fee-setting rules and lack of oversight violate the U.S. Constitution.
• NAW claims that Colorado's EPR law forces businesses to join and pay fees to the producer responsibility organization "Circular Action Alliance" (CAA), infringing on their First Amendment rights; it also says the law bars businesses from challenging CAA's fee assessments in court, violating due process.
• NAW also filed a motion for a preliminary injunction, asking the court to block enforcement of the EPR law while the case is pending. This follows NAW's earlier win this year in another EPR lawsuit in Oregon, where it secured a preliminary injunction preventing Oregon's Department of Environmental Quality from enforcing its EPR law against some NAW member companies.

Deep Dive

NAW is no stranger to EPR litigation: the trade association is currently challenging Oregon's EPR law in court, a case that went to trial earlier this month and is now in post-trial briefing. In June, NAW also joined a coalition of 17 states as the sole business plaintiff in a federal court challenge to California's EPR law (SB 54).

NAW previously hinted at actions in other states when it first filed the Oregon lawsuit. The named defendant in the Colorado lawsuit is Jill Hunsaker Ryan, executive director of the Colorado Department of Public Health and Environment. NAW is the sole plaintiff in the Colorado case, represented by the New Civil Liberties Alliance.

In Colorado, the state Department of Public Health and Environment oversees the state's EPR program and approved CAA's plan. Most producers are required to participate in the state's EPR program, and since January, they have been paying mandatory fees.

NAW's grievance is that the state did not directly implement the program but delegated its administration to CAA—which, according to the lawsuit, is an "unaccountable private party."

The complaint states: "The Act's stated goal is to increase recycling rates, but its means are unconstitutional: it delegates excessive government power to a self-interested private party, discriminates against and disrupts interstate commerce, and restricts businesses' free speech."

NAW further alleges that CAA lacks "adequate standards or oversight" to implement the program and uses its power as a producer responsibility organization to force businesses into the EPR program and "condition the ability to do business in the state on providing financial support to CAA," which violates the First Amendment.

NAW also says CAA prohibits businesses from informing customers about the amount of EPR-related fees they pay, which the association argues is also a First Amendment violation.

NAW objects to CAA's method of setting fees, saying the complex calculations prevent businesses from being able to "accurately predict their fees or adjust their operations accordingly." In the lawsuit, NAW calls the fees "a heavy burden on distributors" and says they could "exceed a producer's profit margin on a product, or even the price of the product itself."

NAW also points out that the law's definition of "producer" captures many wholesale distributors, who must pay fees even though they have no control over the choice, design, or manufacture of packaging for most of their products.

"Manufacturers and brands can choose packaging materials, but distributors cannot," said Brian Wild, NAW's chief government relations officer, in a statement. "Yet Colorado's law still includes some distributors in its fee structure, treating them as 'producers,' and these costs are passed through the supply chain to businesses and consumers outside Colorado."

The lawsuit says the state's EPR law does not allow producers to charge Colorado customers fees "to cover their EPR costs—which prohibits businesses from telling consumers that EPR fees are the reason for higher prices."

Businesses wishing to challenge fees must go through an arbitration process operated by CAA, rather than raising challenges in court, the lawsuit says.

"States have a responsibility to ensure regulatory power is accountable to the public," NAW CEO Eric Hoplin wrote in a LinkedIn post. "Businesses should have the right to voice their opinions and the opportunity to access courts that will hear them."

Meanwhile, Colorado also faces another EPR lawsuit. In March, the Independent Lubricant Manufacturers Association filed a state-level lawsuit challenging Colorado's EPR law, saying the fees impact small businesses.

CAA's communications department said in an email that the producer responsibility organization "has noted the recent lawsuits challenging Colorado's law and is closely monitoring developments," while noting it "is not a party to the litigation."

The email added: "CAA has been transparent about our fee-setting methodology from the start, and our team has engaged extensively with producers, municipalities, and other key stakeholders. Our methodology, principles, and fee schedule are publicly available, have been discussed in open forums, and are reflected in our approved plan. Transparency and engagement are important parts of the program."

Lauren Whitney, a communications specialist at the Colorado Department of Public Health and Environment, said in an email that the department does not comment on pending litigation. "We remain committed to reducing waste, protecting natural resources, and supporting a cleaner, healthier environment for all Coloradans."