Jury finds Recology cheated in waste diversion bonus program

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GUARDIAN FILE PHOTO BY LUKE THOMAS

A jury has determined that Recology, San Francisco’s garbage collection contractor, was not honest with the city when it collected a bonus payment of $1.36 million for successfully diverting waste from the landfill.

Brought by a former employee, the lawsuit claims that Recology misrepresented the amount of diverted waste in order to qualify for the bonus money. This is especially significant because San Francisco is recognized nationwide as a leader in its quest to send zero waste to the landfill as an environmental goal.

Jurors deliberated for more than a week before issuing their determination, and ultimately found on June 17 that the waste management company had made a false claim and therefore must pay the city $1.36 million to compensate for the amount it improperly received.

The False Claims Act, the California law under which the suit was filed, provides that violators can be made to pay three times the amount collected under false pretenses, with interest tacked on to boot. That means Recology could ultimately wind up paying out an amount closer to $5.5 million.

Under an incentive program set up by the city, Recology may reap additional bonus profits above what it normally earns from the business of collecting and processing San Francisco customers’ trash if it effectively meets targets for keeping the trash out of the landfill, the most environmentally harmful waste disposal method. Under the program structure, Recology may withdraw this extra money from an account it maintains, containing funds derived from rates paid by garbage customers, if it meets the city’s established waste diversion targets.

The lawsuit, filed in 2010, claims Recology used several schemes to manipulate waste diversion records when it submitted records the San Francisco Department of the Environment in 2008, in order to be granted permission to withdraw the bonus money. The suit claimed this happened in three other years, too, but the jury only ruled against Recology for this one year.

The primary way this occurred, according to attorney David Anton, involved misclassifying demolition and construction waste. Under state law, ground up raw construction material that is labeled as “fines” can legally be used to cover up the top of a landfill – in order to prevent pests, fires, and odors, for example. When construction waste is ground up and used this way, it counts as “alternative daily cover” – like a layer of frosting on a giant cake of garbage – and strangely enough, the state allows waste disposal companies to count that frosting as “diverted waste” even though it’s actually part of the landfill.

The lawsuit claimed that Recology tried to count a great many tons of its construction and demolition waste as “fines” when in reality it should have been labeled just plain garbage, because the tons of stuff that they were shipping to the Solano County landfill wasn’t being processed to a fine enough grade to comply with state requirements for what constitutes "fines."

The difference between “fines” and regular old construction and demolition waste is that for the latter, the company would have had to pay a fee to dispose of it – and would have had to count it as waste sent to the landfill, rather than waste diverted from the landfill. Had it been counted as plain old garbage, Recology would have missed its diversion targets in 2008, thus losing out on the $1.36 million bonus payment.

“The construction material that they were sending – they were telling SF was qualified to be used for this beneficial purpose at the landfill," said Anton, "when in fact, the county and the state had said it was not qualified for it, it can’t be used that way, and it can’t be accounted that way." He added, “Recology kept this completely secret from San Francisco.”

Recology spokesperson Eric Potashner told us the company plans to appeal this finding, because the violation Recology received in regard to the "fines" was only the start of a lengthy process. “The local enforcement agency in Solano County had questions about that material,” he said, noting that Recology went through a formal process of challenging an inspector’s assessment of the material. He said that at the end of the day Recology was never issued a cease-and-desist, nor was it made to revise company records to count it as anything other than “alternative daily cover.”

Another problem uncovered in the trial, Anton said, had to do with Recology misrepresenting tons of garbage generated in San Francisco as having originated in a different county, so that it could be counted outside the parameters of the waste diversion program. Potashner called that “an oversight” that had since been corrected, and added that it would not amount to enough to "move the needle" on hitting the diversion goals.

Finally, Anton noted, it came out in the course of the trial that somewhere between 10 and 20 percent of what residential customers chuck into their green compost bins actually winds up in the landfill at the end of the day.

Where happens to the stuff that goes in the green bin? “What we found out in this trial,” Anton said, “is that it’s sent to a place where they can compost it, but this place doesn’t necessarily make it into compost. Recology owns the composting place. And the composting place happens to be at a landfill. And it happens to be the law that a landfill has to cover the garbage that it gets every day. It’s got to cover it with dirt – six inches of dirt. Every day. A lot of landfills buy dirt to cover it – but the state allows you to … take mulch or green waste, if it’s chopped up fine, and cover a landfill with it. Well, Recology decided that they made more money and did better if they took a bunch of your green bin material, and put it on their landfill, rather than buying dirt.” As a result, he said, some of that green-bin waste “gets put in a landfill every night.”

Which really isn't what most people would expect would happen after they've chucked some yard clippings into a compost bin.

When San Francisco set up the green-bin composting program, Anton said, a specific policy was created against this sort of practice. Nevertheless, “San Francisco knew that the company was doing that,” he said, and permitted it despite the formal policy because “they wanted to help out the company.”

Potashner said it is perfectly legitimate under state law for green waste to be used as alternative daily cover. “The Department of the Environment watches this, and knows we’re doing this,” Potashner said.

All of which underscores a point that Anton said he found to be somewhat confusing, or perhaps telling: “It was a very strange thing," he said, "to be pursuing this lawsuit, trying to get money to the city, and the city’s representatives are saying, ‘we don’t want it.’”

He said he found it odd that a representitive from the San Francisco Department of the Environment, which oversees the city's Zero Waste program, even made a statement in the course of the trial suggesting that he hoped the suit wasn't successful.

Anton guessed that the city remained on the sidelines of this case because its “relationships with Recology are so close and tight."

The Department of the Environment did not return the Bay Guardian’s request for comment.