City advised on recycling lawsuit
Reject $1.1 million settlement in case, Fort Smith board told
FORT SMITH — City Attorney Jerry Canfield has recommended 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 city directors at a nonvoting study session Nov. 27, but some board members said they did not believe payment of the settlement amount would be justified.
“I have some frustration about this lawsuit regardless,” board member 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 recycling was taking place from Oct. 1, 2014, to May 1, 2017, when the trash actually was being dumped into the landfill.
The lawsuit accuses the city of illegal exaction and unjust enrichment for wasting money by using the city’s recycling equipment to maintain the subterfuge of recycling. No trial date has been set.
City directors pointed out that if the city pays the settlement, the money will come from the sanitation department’s enterprise fund, into which customers pay their monthly service fees.
“If a liability was created, revenues from the people who are serviced would pay for the settlement amount,” City 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, Lorenz said. The two board members also pointed out that Hyman and Mansour’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 & Co. CPAs LLC of Springdale, that broke down the costs comprising the settlement.
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 $1,149,551.49 figure.
“We do not accept their presentation of cost,” Canfield told the city board. “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 the board that the recycling market crashed in 2014, leaving the city without a company to take its recycling. The city hired two companies last year to provide the recycling services.
He reminded board members 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 the board 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.
Lorenz said he agreed with the city’s position. The collection of trash, he said, is a contractual agreement with a city’s residents, and the city has fulfilled the agreement “by picking up the refuse from the houses regardless of what truck it was in or where it went afterwards.”