How a Legal Storm Brewed Over E-Scrap in Tennessee

Anyone doing business with public agencies knows that government can be, to say the least, fickle and unpredictable. At times, sad to say not often, an individual or department delivers timely consideration and, for better or worse, a reasoned decision. All too frequently, however, one encounters inexplicable delay, callous indifference or sheer mindlessness. For example, what does a contractor do when an agency, over a period of years, shows no signs that it is unhappy about performance—indeed, admits it’s a great working relationship—and then suddenly seeks to punish what it had ignored or condoned? Here’s what.

In 2005, the Tennessee Department of Environment and Conservation (TDEC) invited proposals for the collection and disposal of household hazardous waste. Clean Harbors Environmental Services responded and eventually won a three-year contract, which included the handling of electronics scrap material or e-scrap. The agreement obligated Clean Harbors to, among other things, arrange waste pickup, conduct collection events, and transport waste to a recycling or disposal facility subject to TDEC approval, and, specifically, no waste could leave the United States without prior written consent. With its invoices, Clean Harbors submitted copies of the manifests (under which the wastes were shipped off-site) and signed certificates of disposition from the final disposal or recycling facility.

Shortly after the contract was signed, Clean Harbors proposed using Supreme Asset Management Recovery (SAMR), located in New Jersey, as a disposal facility for e-scrap, and TDEC approved the selection. Clean Harbors transported e-scrap to SAMR without incident for almost three years. Clean Harbors’s agreement with SAMR required SAMR to maintain complete records on how it performed its services and gave Clean Harbors the right to audit its records and inspect its facilities. However, the agreement did not prohibit SAMR from exporting waste received from Clean Harbors. Before engaging SAMR, Clean Harbors conducted an audit and found that SAMR did indeed export e-scrap out of the country.

Following widespread media reporting on e-scrap exportation from the United States to foreign lands, participants at household hazardous waste collection events began asking questions about the fate of the material. Responding to the public’s mood, TDEC, in April 2008, launched an investigation of Clean Harbors and SAMR with the objective of following the e-scrap through the entire recycling and disposal chain.

The TDEC probe yielded documents indicating SAMR shipped glass cullet to Samtel Group, India's largest integrated manufacturer of a wide range of displays for television, avionics, industrial, medical and professional applications. TDEC also obtained bills of lading showing SAMR shipped glass and CRTs to L.G. Philips Display Brazil, Ltda, in Brazil.

Although Clean Harbors was unable to document where e-scrap collected in Tennessee went after it was delivered to SAMR, TDEC notably did not rescind its approval of SAMR as a disposal facility. Moreover, while concluding that Clean Harbors's inability to track the ultimate disposition of Tennessee e-scrap constituted a breach of its contract with Clean Harbors, TDEC nonetheless exercised its option to extend its contract with Clean Harbors.

Ten months into the new contract term, counsel for TDEC informed Clean Harbors by letter that, "[d]espite our overall excellent working relationship, Clean Harbors has for the past several months failed to provide our agency with documentation that electronic waste has received proper disposition as required under the terms of our contract." TDEC threatened to recoup from future payments the total amount paid to Clean Harbors for e-scrap from May 2006 through the fall of 2008. Alternatively, TDEC offered that Clean Harbors could withdraw "from SAMR an amount of its e-waste equivalent to all the e-waste collected at Tennessee events" and "then provide and document proper disposition of that e-scrap."

With no resolution, TDEC made good on its threat by withholding $382,606.98 from its payments to Clean Harbors. TDEC calculated the amount by multiplying the tonnage of all e-scrap collected (not just glass and CRTs) by the unit cost TDEC paid under the contract. TDEC did this with no basis to conclude that all e-scrap collected and transported to SAMR left the country.

Clean Harbors responded by filing a complaint with the Tennessee Claims Commission (TCC) based on breach of contract and a general claim based on the reasonable value of its services. It sought to recover all amounts withheld. The company also filed a motion for summary judgment arguing that, given the undisputed facts, it had not breached its contract with TDEC. Alternatively, Clean Harbors claimed that whatever breach occurred was not significant or TDEC suffered no damages as a result of the breach. TDEC responded by filing its own motion for judgment in its favor.

TDEC and Clean Harbors supported their respective claims with conflicting interpretations of their contract. The company argued that, once it transported e-scrap to a TDEC-approved disposal facility within the United States, it satisfied the contractual provision that "[n]o such wastes may leave the United States of America without prior written approval from the State." TDEC, on the other hand, argued that the provision required e-scrap to remain in the United States through the entire recycling chain. TCC sided with Clean Harbors and awarded the company its requested damages: $382,606.98.

On appeal, TDEC asserted that TCC erroneously concluded that Clean Harbors did not materially breach the contract. However, the state court of appeals saw things differently and upheld the damages awarded.

When the facts are undisputed or conclusively established, a court’s job in deciding whether a breach of contract occurred is “to ascertain the intention of the parties based upon the usual, natural, and ordinary meaning of the contractual language,” said the appellate panel. “Only Clean Harbors' interpretation is consistent with the language of the contract.”

“Read as a whole, the contract only required Clean Harbors to use a disposal facility within the United States,” the opinion said. “In the same clause prohibiting waste from leaving the United States, the parties also agreed that Clean Harbors would ‘treat and/or dispose of all Household Hazardous Waste . . . at an appropriate facility approved in writing by the State.’ TDEC does not dispute SAMR was a disposal facility located in the United States that it approved in writing. Importantly, the contract did not address recycling by the disposal facility or a requirement to follow constituent parts of waste through the recycling process.”

Finding that the contract only required Clean Harbors to use a disposal facility within the United States, the appeals court concluded that the company provided sufficient documentation of e-scrap disposal. TDEC insisted that Clean Harbors was required to substantiate where Tennessee e-scrap went beyond SAMR. A TDEC representative testified she wanted more thorough documenta-tion. Brushing aside that contention, the appeals court said,“[T]he parties were bound by the terms of their contract, not some hidden, subjective intent of TDEC.”

“The record reflects that Clean Harbors complied with the contract by providing the necessary signed certificates of disposition from the final disposal or recycling facility,” the judges concluded. “The record further reflects that TDEC accepted waste manifests and certificates of disposition from SAMR for nearly three years.”

So what must a contractor sometimes do? Hold the agency’s feet to the fire.

Clean Harbors Environmental Services, Inc. v. State of Tennessee, No. M2014-01136-COA-R3-CV, Tenn. Ct. App., May 18, 2016.