Lawyer: Settling city suit unwise

Fort Smith asked to pay out $1.1M

FORT SMITH — City Attorney Jerry Canfield recommended Tuesday that city directors reject a million-dollar settlement offer in a sanitation customer’s lawsuit over the city’s 2½-year undisclosed interruption of recycling services.

Canfield updated directors at their nonvoting study session, but some directors said they did not believe payment of the settlement amount would be justified.

“I have some frustration about this lawsuit regardless,” Director Mike Lorenz said. “I think, as Jerry said, we have not done anything that would warrant any type of refund.”

Attorneys for sanitation customer Jennifer Merriott, who represents the class of city sanitation customers in a lawsuit against the city, presented an offer in an Oct. 19 letter to settle the lawsuit for a payment of $1,149,551.49.

The offer from attorneys C. Whit Hyman of Fort Smith and Monzer Mansour of Fayetteville said the amount totaled what they contend the city wasted by using recycling trucks to deceive residents into believing their recyclable trash was being recycled from Oct. 1, 2014, to May 1, 2017, when it actually was being dumped into the landfill.

The lawsuit accuses the city of illegal exaction and unjust enrichment for wasting city money by using the city’s recycling equipment to maintain the subterfuge of recycling. No trial date has been set.

Directors pointed out that if the city pays the settlement, the money will come from the sanitation department’s enterprise fund, into which sanitation customers pay their monthly service fees.

“If a liability was created, revenues from the people who are serviced would pay for the settlement amount,” Director Keith Lau said. “Same people. So six of one, half a dozen of the other.”

Sanitation rates would have to be increased to pay the settlement amount, Lorenz said. The two directors also pointed out that Hyman’s and Monsour’s fees also could come from that settlement amount.

With the Oct. 19 letter, Hyman and Mansour submitted a 22-page report by M. LeRoy Duell, an accountant with Keen & Company CPAs LLC of Springdale, that broke down the costs comprising the settlement amount.

It said labor costs totaled $935,375.57, container costs were $120,081.34, truck operating costs for fuel and maintenance were $191,886,29, and the costs of depreciation or purchase of recycling trucks were $27,667.73.

The total, $1,247,343.20, was multiplied by 92.16 percent as “estimated percent of recycling stream sent to the landfill during the period in question” to reach the total of $1,149,551.49.

“We do not accept their presentation of cost,” Canfield told directors. “We believe it was exaggerated, and we are in the process of retaining experts to deal both with the market conditions that caused the situation and the actual costs that are involved.”

Canfield told directors that the recycling market crashed in 2014, leaving the city without a company to take its recycling. The city hired two firms last year to provide the recycling services.

He reminded directors of the city’s position that it was innocent of illegal exaction because the term refers to illegal collection or use of taxes, while the sanitation department collected fees for services.

Sebastian County Circuit Judge Stephen Tabor ruled in May that for a fee to be distinguished from a tax, it must be fair and offer a benefit. A jury could find that the city could have lowered the sanitation fee during the time it was not recycling, he wrote in his decision.

Canfield told directors that the city contends the courts have no authority to tell the city how to administer its duties. It is not up to the judge to decide how many trucks it takes to patch potholes, he said.