ReCommunity files federal lawsuit against Ann Arbor, Michigan

Resource Recovery Systems LLC and FCR LLC (known as ReCommunity), headquartered in Charlotte, North Carolina, have filed a complaint in federal court against the city of Ann Arbor, Michigan, for damages caused by what they claim is the city’s wrongful termination of its recycling contract with ReCommunity. The filing includes claims that the city breached its contract, broke promises relied upon by ReCommunity and unjustly enriched itself at ReCommunity’s expense through wrongful actions to escape a contract it believed was no longer financially advantageous. Additionally, the city’s actions put dozens of employees out of work, created additional burdens for city taxpayers and ended a vital, popular service for its residents.

In a statement sent by the company, ReCommunity points out that it has had a contract with Ann Arbor to manage the city’s recycling facility and transfer station since 1993. The services included the sale of recyclables and sharing the profits from the sales when revenue exceeds operating costs.

In 2014, when the price of oil began to decline, revenue from recyclables also dropped, ultimately reaching all-time sustained lows in 2015. Meanwhile, the city’s recycling contract included a requirement that the city pay ReCommunity when revenue fell short of the company’s operating costs. It also included a requirement for the city to reimburse ReCommunity’s costs for the repair and replacement of recycling equipment from a fund that the city knew was insufficient to cover the costs of the repairs, ReCommunity says.

However, ReCommunity alleges that Instead of paying the shortfall in revenue and working with ReCommunity to find a solution to equitably fund equipment repairs, Ann Arbor maximized its profits when market prices were up, receiving nearly $3 million since 2011, and then refused to pay the required shortfall payments and invest in critical equipment when markets dropped.

In March 2015 Ann Arbor’s City Council realized that costs related to the site were expected to increase by $1 million. According to the ReCommunity statement, the city sought to engage in efforts aimed at escaping its contract and enter a new one that provided less financial risk and greater financial reward to the city. To effect its plan, Ann Arbor retained a consultant to develop a new contract, continued to default on its payment obligations, refused to invest in critical equipment and initiated a series of inspections designed to find any and all discrepancies to manufacture a basis for terminating the contract, the company alleges. 

In light of the shortfall in the repair fund, ReCommunity was forced to spend more than $500,000 in repairs without being reimbursed by the city, including constant work on the old baler, which would break down regularly causing operational issues, employee turnover and deferred housekeeping. After ignoring or rejecting numerous proposals from ReCommunity to work together to find solutions, the city started writing default letters to finalize its termination plan.

Recognizing a weakness in its initial default notice alleging failure to obtain approval for the third-party recyclables that contributed to the city’s revenue share, Ann Arbor stated that an incurable default existed based on alleged safety violations detected during the daily inspections by the city and its consultants – who were directed to find problems, ReCommunity claims.

ReCommunity says immediately addressed the alleged safety issues and took steps to reduce third-party volumes coming into the facility. ReCommunity says it  also paid more than $550,000 for the new baler in reliance on city assurances that it would pay a portion of such costs. Instead, on the day that the baler was fully installed and operational at ReCommunity’s sole cost, the city completed the final step of its plan and issued a termination letter giving ReCommunity one business day to vacate the site.

The city’s termination was wrongful and its conduct constitutes a breach of the contract, the company claims, and ReCommunity seeks to recover all damages associated with the city’s actions.