Resident Alleges City of Fort Smith Misused Curbside Recycling Funds, Sent Recyclables to Landfill

Is it reasonable to expect that when a local government assesses its residents and businesses for specific government services, the funds it collects will actually be used for such purposes?  For those who have paid the charges, what recourse do they have for a period when the service is dormant?  A recent Arkansas court decision provides answers.

Jennifer Merriott filed a lawsuit in Sebastian County Circuit Court against the city of Fort Smith, in September 2017, alleging that the city had misused funds from its residential curbside recycling program. Her claim was based on the fact that the city had halted the program for some 30 months, while sending recyclables to a landfill, and had kept residents in the dark about the shutdown. 

Her complaint, representing residential customers who paid sanitation fees to the city between October 1, 2014, and May 1, 2017, sought disgorgement and restitution, that is, a refund of all monies illegally exacted.  (Disgorgement is the act of giving up something such as the profits obtained by unlawful or otherwise improper acts. A court can order a wrongdoer to pay back illicit gains to prevent unjust enrichment.)

Following the plaintiff’s request for recognition, known as certification, of her class action, the city responded and separately moved for summary judgment.  The circuit court, in January 2018, certified the class and, three months later, denied the city's motion. 

The city subsequently filed another motion, this time based on a technical shortcoming relating to the class action.  After its motion was disallowed, the city immediately appealed to the state supreme court, which, in 2020, upheld the city’s position.  The case returned to the circuit court where, after the procedural details were tidied up, the matter went to trial before Judge Stephen Tabor who ruled in favor of Merriott and the class and awarded damages against the city in the amount of $745,057.85.  

 To prevail, the plaintiff had to prove that the allegedly ill-gotten revenue was produced by a tax, which is how Merriott categorized it.  The city took the position that the levy amounted to a fee.  Under Arkansas law, a government exaction qualifies as a fee only if it is fair and reasonable and is reasonably linked to the benefits conferred on those receiving the services.  Based on testimony form the city’s expert witness, the judge concluded that the city’s sanitation charges are reasonable when compared to other municipalities.  The latter element was another story.  “[T]he answer . . . depends on how the word ‘benefits’ and ‘services’ are defined,” Judge Tabor wrote.  “Do they apply to refuse removal as a whole or do they apply to the removal of waste and the removal of recyclable materials as separate benefits and services?”

The city contended that payment by residents of a single fee for all sanitation services means if containers are emptied and refuse is carted away, the public has received the “benefits” they have the right to expect from the city’s “service.”  Judge Tabor disagreed.

 “The simplest explanation for why the public should care about recycling as a separate benefit and why they expect the benefits obtained by recycling is because the City cared about recycling and because the City knew it was an expected benefit,” he continued.  “The fact that the city never abandoned their interest in a recycling program, notwithstanding two years of inaction, demonstrates they recognized the value of the program.  The fact that City officials took great pains to hide that recycling was essentially non-existent for thirty (30) months signals that the City knew recycling was a benefit citizens expected to be serviced by the City.”

Judge Tabor noted the “thoughtful analysis and compelling testimony” contributed by the city’s expert witness, Michael Timpane.  Nevertheless, the judge was surprised and baffled when Mr. Timpane contended that “keeping the public in the dark about the disruption was reasonable.”  

To the contrary, the judge found the city’s lack of honesty “the very center” of the case. “Make no mistake – this case arose because officials of the City deceived the citizens whose interests they are charged to serve,” his opinion stated.  “The evidence and testimony produced at trial clearly demonstrated that the deception was conducted purposely over a period of approximately two and a half years and would have continued even longer were it not for the intervention of the media.”

Even after news of the service disruption broke, the city did its best to hide the situation.  According to evidence presented at trial, on May 12, 2017, Carl Geffken, the city administrator notified the city’s board of directors, its governing authority, via email with a spreadsheet revealing the recycling since October 2014 and with this warning: “do not share this e-mail or spreadsheet with anyone.”

Testimony from the plaintiff and city workers revealed overt attempts to mislead the public. On collection days residents would see trash trucks hauling away solid waste and recycling trucks with crews emptying recycling containers.  As if it actually made a difference, residents who commingled recyclables with trash would be admonished; city workers placed warning stickers on the wayward containers.

“The City directs a multitude of programs, not just recycling, and interacts with its citizens hundreds of times a day in myriad ways,” Judge Tabor observed.  “If trust is broken in one area, how can it exist at all?  The Court cannot find that the City acted reasonably or rationally in deceiving the public for two and a half years, especially given the fact that during the bulk of that period the City was doing nothing to address the issue.  [T]he speculative impact on the recycling program pales in comparison to the value of a positive relationship between the City and its people.” 

As the judge saw it, the city “cavalierly” dismissed the consequences of its actions on its citizens.  “[I]t leads to a concern that the City genuinely believes it has the right to deceive the public when it suits its purposes,” he said.  He brushed off the city’s claim that it had the  discretion to set rates for sanitation services. “Simply put, discretion does not authorize collecting a fee for a service not delivered while simultaneously actively misleading its customers.”

Witnesses testified that the city always hoped to restart its recycling program when a contractor was eventually engaged.  What officials feared was that news of a suspended recycling program would cause residents to get out of the habit of recycling and lessen participation when it resumed. 

That explanation might have been more persuasive if the disruption had been shorter or if the city had been working doggedly to engage a vendor.  The judge cited evidence of a lack of effort to restart the program between late 2014 and late 2016, when the city administrator learned about the disruption.  “To his credit, Mr. Geffken jumpstarted efforts to procure a vendor once he was made aware of the situation,” noted the judge.  “However, prior to that time the City’s efforts could be charitably described as very limited.  [H]e recognized that in his email of May 23, 2017, to [a board member] in which he described the City’s recycling efforts as ‘a failed program that was not watched or maintained since October 2014.’”

To succeed on her claim for unjust enrichment, the plaintiff had to prove (a) she and the other class members paid money to the city, (b) they reasonably expected to receive from the city recycling services, (c) the city, knowing those paying the money expected to receive such services, accepted the money and (d) the dollar value of the expected services.  .

When, in its defense, the city reiterated its earlier arguments about discretion and reasonableness, Judge Tabor expressly declined to repeat his earlier rejection of these purported justifications. The city also claimed that, as a single fee was collected for both waste and recycling, no value could be placed on the loss of recycling. 

“The fact that the City does not divide it does not mean it is not divisible,” the judge responded.  “Indeed, Plaintiff’s expert, Mr. Leroy Duell did just that, as did Mr. Timpane using Mr. Duell’s figures.  In fact, the City’s expert complimented Mr. Duell for following good auditing principles and stated he tried to follow the same methods used by Mr. Duell.  Mr. Timpane also testified the method used by Mr. Duell to calculate the cost of the recycling program was reasonable.”  Expert witnesses can often be, to say the least, dismissive toward their counterparts on the other side.  Here, by comparison, Messrs. Timpane and Duell seem to have been relatively chummy.         

Merriott v. City of Fort Smith, Arkansas, No. CV-2017-637, Sebastian County Circ. Ct., Fort Smith Dist., Aug. 3, 2022.

Postscript:  The city, which reportedly has spent nearly $190,000 in legal fees to defend itself, has filed a notice of appeal.  Because the state supreme court stepped into the case early on with a procedural ruling, the appeal will bypass the intermediate level appeals court and go directly to the seven justices.  Their decision is not expected for at least 18 months.