Did the City of Fort Smith, Ark. Mislead Residents By Diverting Recyclables to Landfill?

“It’s not a lie to keep the truth to oneself,” says Mr. Spock in Star Trek, Season 3, Episode 2 (“The Enterprise Incident,” 1968).  City officials in Fort Smith, Arkansas would agree.

“Ye shall know the truth, and the truth shall make you mad.”  A line credited to English writer and philosopher Aldous Huxley.  Fort Smith residents would agree.

Fort Smith is the third largest city in Arkansas.  It is bounded on the north by the Arkansas River and on the west by the state of Oklahoma.  Fur trading was thriving in the area when a frontier military post was established in 1817.  The city was formally incorporated in 1842 and became a staging point for migrants heading westward.     

With a budget of $17 million and 90 employees, the city’s Solid Waste Services department strives to provide its 30,000 customers with “safe, efficient, environmentally-sound, and cost-effective services.”  By ordinance, the city charges a monthly fee for curbside pickup of residential solid waste, recyclables and yard waste.  Residents are not separately charged for curbside recycling. The collected fees, together with commercial and industrial collection and landfill tipping fees, are deposited into an enterprise fund which supports the department's overall operating expenses.

For years, the city’s service provider did not charge the city to accept and process recyclables. In 2014, when its contract with the city expired, the company proposed a $35 per-ton processing fee to continue the service.  The city opted not renew the contract, thus beginning a time when the city simply diverted recyclables to a landfill.  On the surface, the city was continuing to provide curbside recycling – running trucks, advertising its program, and even placing warning stickers on cans where trash and recyclables were commingled.

Thanks to press coverage, in early 2017, citizens learned that they had been deceived about how the city was handling recyclables.  City officials eventually admitted to what had been done, and the city signed a contract with a new vendor later that year.

Jennifer Merriott, on behalf of citizens and taxpayers, filed a class-action lawsuit against the city in Sebastian County Circuit Court for the misuse of sanitation fees. She raised two claims: illegal exaction and unjust enrichment. She asserted that the city wrongfully collected monthly sanitation fees from residential customers because no recyclables were actually being processed. She also maintained that, from 2014 to 2017, the city misled citizens about its handling of recyclables – wanting them to believe that the recyclables were being recycled when they were instead being dumped in a landfill.

Based on the alleged shenanigans, she argued the sanitation fees constituted an illegal exaction: charges for services that residents did not actually receive or benefit from. She also contended the city was thereby unjustly enriched: retaining and using the fees without any corresponding expenses in providing the services.

After conducting a hearing on the claims, Circuit Judge Stephen Tabor concluded that the sanitation fees amounted to an illegal exaction in violation of Arkansas law because recycling was a separate benefit and service paid for by residents that they did not receive.  He also found that the city was unjustly enriched because residents paid money expecting to receive recycling services.  The plaintiff class was awarded $745,057.85 in damages.

On appeal by the city, the state supreme court, by a unanimous vote, overruled Judge Tabor. It reversed his decision and dismissed Merriott’s claims.  One justice agreed with his colleagues on the outcome but had a different reason for doing so.

Arkansas law allows any of its citizens to file a lawsuit based on an illegal exaction. An illegal exaction is a tax or other expenditure of public funds for an unauthorized purpose or one contrary to law.

The justices rejected the city’s argument that its residential collection charges are not taxes and that, for this reason, the claim for the misapplication of public funds from tax revenue fails.  “Illegal-exaction claims do not depend on the government's label of the charge as a fee or a tax,” their opinion said.  “A governmental levy of any charge is subject to an illegal-exaction claim unless it meets both elements of the following two prong test: (1) it is fair and reasonable; and (2) it bears a reasonable relationship to the benefits conferred on those receiving the services.”

Judge Tabor had determined the fee was fair and reasonable but found that an illegal exaction occurred because the city deceived its citizens by failing to disclose it wasn’t using the fee for recycling.  “This reasoning is emotionally compelling but fails to satisfy the second prong of the test,” the high court noted. “Once a fee is determined fair and reasonable, the question is whether it bears a reasonable relationship to the benefits conferred.”

“The circuit court's findings that Fort Smith failed to notify the public, deceived citizens, and destroyed public trust are indisputable,” the justices continued.  “But those facts do not make the sanitation fee's relationship to the services less reasonable. *  *  *  The charges were maintained in the sanitation enterprise fund, which Fort Smith used to operate the sanitation department. The fee wasn't collected for sanitation services and then spent for nonsanitation purposes. Nor were the residents charged a separate fee specifically designated for recycling their recyclables, which was spent on other services.”

The city also took issue with the circuit court's finding that it was unjustly enriched.  An action based on unjust enrichment requires that someone has received something of value – usually money or its equivalent – in a context where, in fairness and good conscience, he or she ought not to retain it.

Judge Tabor concluded that a portion of the sanitation fee funded the recycling program. He awarded damages in the amount the city paid to run the curbside recycling operation even though it was not recycling. On appeal, the city pointed out that Merriott presented no evidence on what unconscionable benefit the city received that must be returned.  The justices agreed.

“The class paid a sanitation fee for sanitation services,” said the court. “[N]o evidence showed that Fort Smith profited or otherwise benefited from its actions. Unjust enrichment does not exist to punish but to restore wrongful benefits, and there was no evidence that Fort Smith retained financial benefits from its actions that could be returned to the Class.”

In his concurring opinion, Justice Shawn A. Womack essentially said his colleagues covered more ground than necessary.  “A government-imposed exaction, regardless of its name, is illegal if it violates our constitution, a statute, or other law,” he wrote. “Despite the dishonest and misleading actions of the City here, the imposition of the fee at issue was authorized by statute, and the funds collected were used in a manner authorized by law. Accordingly, Jennifer Merriott's illegal-exaction claim fails because the . . . fee was not illegal.”

City of Fort Smith v. Merriott, No. CV-22-698, Ark. Sup. Ct., March 16, 2023.

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