As commodity markets remain tight, the contractual relationships that underpin local recycling programs are being tested around the country. Now, a dispute over contamination rates in one New Jersey county has landed Republic Services in court.
Earlier this month, Camden County filed a complaint alleging the company's recent decision to start enforcing a load inspection protocol with new "fees" constitutes a breach of contract. It also requested a temporary injunction, along with compensation for applicable recycling and attorney fees.
"The contract is quite clear and transparent with regard to the services that should be rendered," Camden County Director of Public Affairs Dan Keashen told Waste Dive. "We believe that Republic is trying to change the playing field after it's already been established."
Republic, which declined to comment for this story, disputed these claims in a legal filing outlining why it believes everyone involved must adapt to the "changed environment" of recycling.
Like other large MRF operators, the company has repeatedly ensured shareholders it's working diligently to renegotiate terms early, lock in more "fair" rates going forward and potentially walk away from unprofitable business if necessary. While some local governments are going along with this plan, others are digging in.
Contract terms and inspection protocols
Camden County has worked with FCR since 1993 and is currently about halfway through a three-year contract that expires in April 2020. The May 2017 deal includes a $70 per ton average commodity revenue threshold. FCR agreed to rebate 70% of any value beyond that amount, but never charge more than $5 per ton if value dropped below it.
That summer, everything changed. China made its initial scrap import ban announcement in July, and Republic announced plans to acquire ReCommunity, FCR's prior parent company, weeks later.
Camden County is only responsible for a fraction of the estimated 42,000 tons per year coming in from member communities, but has acted as a representative in the past and chosen to take a lead role with this suit.
According to Republic's filing, the company began communicating with county and local officials about contamination concerns in early 2018. This continued over multiple meetings and led to a March 2019 composition audit, for which local officials were reportedly present, finding an average inbound contamination rate of 17.5%.
Still, FCR claims, local governments have been unresponsive to the company's "predicament" caused by a "seismic change in the industry" due to market shifts. As a result, Municipal Services Manager Gary Smalley sent a letter in late July that kicked off the current dispute.
The company said it planned to start "rigorously" enforcing a contract provision allowing rejection of material beyond an 8% contamination threshold as of Aug. 5.
The letter went on to outline the steps involved, ranging from visual inspections to a "Thorough Audit Process" (TAP). Any contaminated loads detected in the TAP stage must be collected by the member municipality within two hours. Alternatively, if agreed to in writing, the member can "elect to have FCR dispose of or process the contaminated loads subject to applicable additional charges and fees."
According to the county's complaint, processing would entail a $75 per ton surcharge for the entire load – well above the contract's $5 per ton floor price. The disposal option would entail "a $250 handling charge, actual costs and an additional 15% to transport and dispose of the load."
If three or more contaminated loads are detected in a 60-day period, FCR said it will stop taking material on a temporary basis. If the situation continues, FCR "reserves the right to terminate its contract" with any member.
The current legal dispute now revolves around whether these theoretically elective "additional charges and fees" fall outside contract terms, and constitute a breach of the floor price agreement.
The company has rejected Camden County's call for a temporary injunction on the inspection protocols, saying it's just asserting contractual rights: "FCR is not imposing any new fees. It is simply offering the County and its municipalities an additional service for rejected loads and will only invoice those municipalities that request that service and agree in writing to pay for it."
In conclusion, Republic's lawyers essentially claim the county and its member municipalities are asking to be "allowed to deliver contaminated loads with impunity." They go on to point out that Camden County itself has only delivered an average of 17 tons per month during the first seven months of 2019, which means the "assertion that FCR's 'new fees' will 'wreak havoc' on its budget is totally unsupported and lacks all credibility."
As of the latest filing, FCR said it had verified multiple loads with high contamination levels from member municipalities since the new protocol took effect. It remains unclear how the court will address questions around budgetary effects or legal standing given that Camden County filed the complaint, but also works with municipalities in the contracting process.
The presiding judge has scheduled an initial hearing for Sept. 9. In the meantime, the county maintains Republic has gone too far and market changes shouldn't be an excuse to allegedly alter the agreement.
"[T]hose pressures from the marketplace do not void any piece of that contract that we signed in 2017," said Keashen. "Everybody's got an acute understanding of what's been happening and how the marketplace has changed. Still a deal is a deal."
Discussions about how to reduce contamination, and who should bear the cost during that process will continue to play out for months and years. Multiple companies have chosen to take a harder line by finding ways to charge new fees, but the legal avenue is still less common.
ABC Disposal remains engaged in its lawsuit with New Bedford, Massachusetts over whether high contamination rates could justify force majeure contract termination. Republic recently filed suit against a quasi-public agency in Connecticut over similar contamination issues in a MRF operations contract.
As long as market conditions remain challenging in the Northeast – including New Jersey, where state legislators recently held a hearing on the topic – this may not be the last time a local recycling contract ends up in court.