ITEM 3. LEGAL PROCEEDINGS

Except as disclosed below, we are not a party to any pending legal proceedings that we believe, if resolved unfavorably against us, would have a material adverse effect on our business, results of operations or financial condition. In the normal course of our business and as a result of the extensive governmental regulation of the waste industry, we might periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency might seek to impose fines on us or to revoke, or to deny renewal of, an operating permit held by us. In addition, we might become party to various claims and suits pending for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste management business.

The City of Chesapeake, et al v. Camden County, et al, Superior Court of Camden County, Docket No. 05 CVS 95

Black Bear Disposal, LLC , one of our wholly owned subsidiaries, entered into a Franchise Agreement with Camden County, North Carolina, effective November 4, 2002. The Franchise Agreement gave Black Bear the exclusive right to build and operate a municipal solid waste landfill in the County, on a tract of approximately 1,000 acres. On November 3, 2005, the City of Chesapeake, Virginia, 13 individuals and a limited partnership alleging to own property in the vicinity of the proposed landfill, and the Camden Citizens Action League, Inc. filed suit in Camden County Superior Court against Camden County, the Board of Commissioners of Camden County, the five Camden County Commissioners and the County Manager in both their official and individual capacities, and Black Bear. In their complaint, the plaintiffs seek a number of judicial determinations, including a declaration that the Franchise Agreement and underlying Franchise Ordinance are void, that certain prerequisites to the approval of the Franchise Ordinance and execution of the Franchise Agreement were not met, and that certain prerequisites to Black Bear’s permit application to the North Carolina Department of Environment and Natural Resources, or “DENR”, were not met. The defendants, including Black Bear, filed a Motion to Dismiss, Answer, Affirmative Defenses and Counterclaims on January 19, 2006, moving to dismiss the plaintiffs’ complaint on the basis of the applicable statutes of limitation, the failure to join a necessary party, lack of subject matter and personal jurisdiction, sovereign and governmental immunity, lack of standing, and the failure to exhaust administrative remedies, denying many of the factual allegations of the plaintiffs’ complaint, and raising as affirmative defenses the applicable statutes of limitation, the terms of a November 22, 2004 Nondisclosure Agreement between the Company and the Southeastern Public Service Authority of Virginia, or “SPSA”, in which SPSA, for itself and its members (Chesapeake is a member of SPSA), had agreed not to interfere with or oppose our plans for a landfill in

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Camden County, and the doctrines of estoppel, waiver, release, sovereign, governmental and legislative immunities, laches, and the failure to exhaust administrative remedies. The defendants’ counterclaims included claims that the plaintiffs had tortiously interfered with Black Bear’s Franchise Agreement, that Chesapeake had breached the Nondisclosure Agreement, and that Chesapeake had misused Black Bear’s confidential information in violation of the Nondisclosure Agreement and the North Carolina Trade Secrets Protection Act. In the counterclaims, the defendants, including Black Bear, sought the damages suffered as a result of plaintiffs’ tortious interference, and Chesapeake’s breach of the Nondisclosure Agreement and misuse of confidential information, including damages in excess of $3,000,000 per year for any delay in the opening of the proposed landfill. The plaintiffs filed Motions to Dismiss, Strike, Separate Claims, Answer, Affirmative Defenses and Motion to Amend Complaint in response to defendants’ counterclaims, arguing that the counterclaims should be dismissed or stricken, or, in the alternative, separated for trial, and that plaintiffs should be given leave to amend their complaint to add Waste Industries USA, Inc. as a party, given Waste’s agreement to be considered a co-permittee on the landfill, with Black Bear.

Black Bear’s and the County defendants’ Motion to Dismiss the plaintiffs’ claims came on for hearing on April 24, 2006, as did Chesapeake’s and the other plaintiffs’ Motions to Dismiss the defendants’ counterclaims. The Court denied Black Bear’s, the County defendants’ and Chesapeake’s Motions to Dismiss, while granting the remaining plaintiffs’ Motion to Dismiss Black Bear’s and the County defendants’ counterclaims. As a result, the plaintiffs’ challenges to the Franchise Ordinance and Franchise Agreement remain pending, as do Black Bear’s and the County defendants’ counterclaims against Chesapeake. Plaintiff’s Motions to Strike, Separate and Amend were not reached by the Court and remain pending.

The matter is now in discovery on the plaintiffs’ claims and the defendants’ counterclaims, including written discovery and the depositions of the various party and third-party witnesses. The defendants anticipate renewing the defenses underlying their Motion to Dismiss in a Motion for Summary Judgment at the close of discovery.

If the plaintiffs succeed in this matter, Black Bear would have to re-negotiate the Franchise Agreement or re-apply for a franchise with the County and/or re-submit and/or amend its request for a site suitability determination to DENR in order to develop the landfill. We intend to vigorously defend this matter and pursue these and any other potential counterclaims against the plaintiffs.

Pursuant to the Franchise Agreement, Black Bear has agreed to indemnify the County, its officers, employees and agents, which would include the County Commissioners, against all claims arising out of the Franchise Agreement. As a result, Black Bear is liable for the expenses of, and any damages or other awards ultimately determined against, those defendants.

The Franchise Agreement gave Black Bear until November 4, 2007 to open the landfill. Given the litigation brought by Chesapeake and passage of the moratorium (discussed below), the County on April 16, 2007 adopted an Ordinance authorizing a five-year extension on the November 4, 2007 date in return for consideration to the County totaling $450,000, which was paid through a transfer of property. In accordance with the Ordinance, the County, we, along with Black Bear, entered into an Amended and Restated Franchise Agreement, effective April 16, 2007, pursuant to which they also agreed that the service area will be decreased to include only the states of North Carolina, Virginia, Maryland, New Jersey, New York, Connecticut and Massachusetts, and the estimated life of the landfill is 27 years (based on an assumed volume of waste of 10,000 tons a day). The Amended and Restated Franchise Agreement may need to be modified to address issues raised in the Chesapeake litigation.

In July 2006, the North Carolina legislature enacted a one-year moratorium on permits for new landfills. The moratorium ran from August 1, 2006 to August 1, 2007. The legislation that imposed the moratorium also required the Environmental Review Commission, with the assistance of the Division of Waste Management of the DENR, to study ways to reduce the amount of solid waste disposed of in North Carolina and measures concerning, among other things, financial responsibility requirements, franchise and local government requirements, and siting, design and operational requirements for solid waste landfills in the state.

As a result of those studies, on August 2, 2007, the North Carolina legislature approved legislation that regulates new landfills. The law prohibits a new landfill from being constructed within five miles of a national wildlife refuge, two miles of a state park or one mile of a state game land. The new legislation also requires any landfill to be set back at least 200 feet from streams, as opposed to the prior 50 foot requirement. The Black Bear landfill site is within approximately 3,500 feet of a national wildlife refuge. As part of our continuing analysis of the impact of the new legislation on the Black Bear project, we have filed a legal challenge to the new legislation as applied to the Black Bear project (discussed below).

If, as a result of the legislation, the landfill cannot be constructed as planned, we would have to charge off that portion of the project’s book value that exceeded its fair value. Fair value would include any reimbursement that we expect to receive from the state, as discussed below. At September 30, 2007, the book value of the project was approximately $14.0 million, including approximately $9.1 million in land purchase costs. While such an impairment charge would not have a material adverse effect on our cash flows, it could have a material adverse impact on our earnings for the period in which the charge is

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taken. Due to the passage of the legislation, we performed impairment tests (as of September 30, 2007 and December 31, 2007) as required by SFAS No. 144 by comparing the probability-weighted cash flows from alternative courses of action to the carrying value of the Black Bear project and determined that no impairment was indicated.

The new legislation provides that companies that had pending landfill applications as of August 1, 2007 and whose landfills are impacted by the setback provisions in the new legislation can apply for a reimbursement of the reasonable costs of the preparation of the application incurred prior to August 2006, including site plans, engineering and construction plans, geologic and hydrologic investigations and closure and post-closure plans. The reimbursement funds would come from a tax imposed by the legislation of $2.00 per ton on all solid waste disposed of in North Carolina landfills, beginning on July 1, 2008. On December 18, 2007, we applied to DENR for the reimbursement of $13,612,554 in costs related to the Black Bear project, pursuant to the terms of the legislation. By letter dated February 22, 2008, DENR contacted us seeking additional information and documentation for certain of the expenses for which reimbursement is sought, and we are working to provide the requested information and documentation. DENR has not yet provided an estimated timeframe for a decision on our requested reimbursement.

On December 3, 2007, we filed a Complaint against the State of North Carolina and DENR in the Superior Court of Wake County, North Carolina, challenging application of the legislation to the Black Bear project. We believe that applying the legislation to the Black Bear project violates the contract, interstate commerce, equal protection and due process clauses of the United States Constitution, the corresponding clauses of the North Carolina Constitution and our common law vested rights. The defendants filed an Answer to the Complaint on February 1, 2008, denying all of our claims. We served discovery requests on the defendants, to which the defendants have responded. On February 8, 2008, the defendants filed a Motion to Dismiss and Motion for Judgment on the Pleadings on the following grounds: lack of standing; the session laws at issue do not violate any provision of the North Carolina or United States Constitutions; the doctrines of waiver and estoppel; lack of arbitrary and capricious conduct; lack of interference with a vested right; and lack of entitlement to a writ of mandamus. Our motion to dismiss the hearing (which had been scheduled for March 24, 2008) on the defendants’ motions to dismiss was granted and the defendants’ motions have been re-scheduled for hearing during the week of May 5, 2008. We will vigorously oppose the defendants’ motions to dismiss. If the motions are denied, we plan to proceed with depositions and additional discovery to support our claims in the case.

We are reviewing all other options and remedies available to us to either continue developing the Black Bear landfill or recover our investment in the project.

David Shaev Profit Sharing Account f/b/o Nora Vides on behalf of itself and all others similarly situated v. Waste Industries USA, Inc., Lonnie C. Poole, Jr., Jim W. Perry, Paul F. Hardiman, Glenn E. Futrell, and James A. Walker

On December 21, 2007, we received notice of a complaint filed against us and other defendants on December 19, 2007 in the Superior Court of Wake County, North Carolina. The plaintiff claims to have been a shareholder of ours at all relevant times cited in the complaint. The lawsuit names as defendants us and our five directors, Lonnie C. Poole, Jr., Jim W. Perry, Paul F. Hardiman, Glenn E. Futrell and James A. Walker.

The lawsuit alleges that our directors breached their fiduciary duties to our shareholders by, among other things, engaging in improper, unfair dealing and wrongful and coercive conduct in approving the agreement and plan of merger, dated December 17, 2007, among us, Marlin HoldCo LP, a Delaware limited partnership, and its wholly owned subsidiary, Marlin MergeCo Inc., a North Carolina corporation, that governs the proposed going private transaction discussed in Item 1 – “Business.” Pursuant to the terms of the merger agreement, Marlin MergeCo will merge with and into us, and, as a result, we will continue as the surviving corporation and a wholly owned subsidiary of Marlin HoldCo. Marlin HoldCo is owned by an investor group led by Lonnie C. Poole, Jr., our founder and Chairman, and Jim W. Perry, our President and Chief Executive Officer, and financial partners MIP Waste Holdings, L.P., an affiliate of Macquarie Infrastructure Partners, and GS Direct, LLC, an affiliate of Goldman, Sachs & Co.

The plaintiff seeks class action designation for the lawsuit, certifying the plaintiff as the class representative, enjoining the proposed merger, awarding plaintiff the costs and disbursements related to the lawsuit, including attorneys and financial expert fees, and such other relief as the court deems just and proper.

Although no assurances can be made with respect to any litigation, we believe all of the allegations of wrongdoing in the complaint to be without merit and denies any wrongdoing. In addition, we have been advised that the other defendants named in the complaint believe all of the allegations of wrongdoing in the complaint to be without merit and deny any breach of duty to or other wrongdoing with respect to the plaintiff and any plaintiff class, should one be designated.

        On January 31, 2008, the plaintiff filed a voluntary dismissal, without prejudice, of all claims asserted in the complaint. However, because a putative class action may not be dismissed without approval of the court, the voluntary dismissal filed by plaintiff on January 31, 2008 is moot. On February 12, 2008, the parties submitted a proposed stipulation and order of voluntary dismissal to the court for consideration. On February 22, 2008, the court sent a notice of hearing to advise that at 11:00 a.m. on March 11, 2008, it will hear the parties on the proposed stipulation and order of dismissal. The parties attended a hearing in the North Carolina Business Court on March 11, 2008 to answer questions from the Judge relating to the joint stipulation of dismissal tendered by the parties to the court. The Judge asked the parties to submit some additional data to the court and counsel submitted that information on March 12, 2008. The parties are now awaiting a formal ruling from the court regarding whether it will approve dismissal of the putative shareholder action and, if so, on what terms.

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