L.A. Recycling Firm Sues California Agency

One of California's largest recyclers is suing state officials, alleging that they are putting him out of business with a fraud investigation.

Errol Segal, owner of Los Angeles-based Active Recycling Co., recently filed two lawsuits against the state of California’s Department of Conservation, as well as three employees of the agency. In the suits, Segal claims that the agency has harassed him for more than 10 years with audits, inspections and accusations but has never proved any serious charges against him. The two lawsuits each seek $250 million. One suit is against three state officials, while the second suit is against the state of California’s Department of Conservation.

Segal cited defamation, intentional interference with business relationships, false imprisonment, harassment, excessive force, intentional infliction of emotional distress and a number of civil rights claims as grounds for the suit.

Segal, who paid a single fine of $1,700 in 1997 for recycling violations, says the department's lengthy probe has scared away large customers and jeopardized his bank financing.

Hal Wright, an attorney for Active, said that the fine was the only penalty the company has received over the past ten years, and the fine was due to a clerical paperwork error.

According to the suit, the state agency’s vindictive attacks on his business has resulted in his primary banking institution pulling its financing for the company. The institution, Comerica Bank, originally sought to recall Active Recycling’s loan June 30^th. However, in recent dialogs, the bank extended its loan to Active Recycling until July 16. In the meantime, Active Recycling is working to extend the loan until later this year, although Segal says at the present time the extension only lasts until July 16.

If, according to Segal, the bank calls in the $2.25 million line of credit, his company will be forced out of business within several days. The company operates six recycling facilities in the Los Angeles area.

According to an article by the Los Angeles Times, last March the California Department of Conservation filed an accusation seeking $1.6 million in penalties from Active Recycling and revocation of the company's certificate to operate five recycling centers and one processing plant throughout the Los Angeles area.

The state accused the company of engaging in "dishonesty, incompetence, negligence or fraud in performing the functions and duties of a certificate holder." According to the accusation, the company used "inaccurate, altered, falsified, and/or fraudulent information" to obtain redemption money to which it was not entitled.

The company has had law enforcement agents seize records from the offices. According to local press reports, at various times both the Federal Bureau of Investigations and the Department of Justice have gone to the recycling center. 

Active Recycling is certified as both a processor and a recycling center. However, Wright, Segal’s attorney, said that the most recent accusation follows a pattern of harassment dating back to 1988, when Active Recycling was refused payment by the Conservation Department. Two years later the state’s DOC filed a $600,000 fine against Active for failing to comply with state regulations. Both of these fines were dropped.

Segal's suits, filed in Los Angeles Superior Court in April and May, allege that state officials have been trying since 1988 to tarnish his reputation by falsely accusing him of fabricating records to collect hundreds of thousands of dollars in bottle and can redemption money from a state fund.

The fund consists of the container deposits paid by consumers. Recyclers apply for the redemption money after buying back the empty bottles and cans.

The lawsuits claim Segal has never been found guilty of any serious violations of recycling laws. However, according to Wright, many of Active’s customers received letters from the department stating that Active Recycling had committed "long-standing violations" of state recycling laws.

Wright said that in the 1988 case, the department refused to pay Segal $249,000 from the redemption fund, contending there were problems with the required documentation. The case went to an administrative hearing and Segal was paid, Wright said.

According to the Segal lawsuits, the department audited Segal's books in 1992 and said he owed the state $240,000 because of improper redemptions. The department eventually dropped that charge, the lawsuits say. The only charges the state has been able to justify were "minor, technical violations" of recycling laws that resulted in Segal paying the $1,700 fine in 1997, said Wright, who once prosecuted recyclers as a staff attorney for the department.

In a suit filed by the state of California's DOC, the agency claimed that an investigation found a sharp increase in the average daily volume of UBCs, from around 667 pounds in November 1998 to slightly more than 4,000 pounds three months later.

According to documents from the state agency, records from the recycler found discrepancies, "which included, without being limited to, the following: the transactions invovled only one material type; the material was weighed ont he facilty truck scale instead of the Recycling Center scales; an interval of 1-12 days passed between generation of the receipt and collection of payment; numerous similar transactions occurred in succession; numerous similar transactions occurred on one day followed by payment for those transations being made on the same day after an interval of 1 to 12 days.

After investigating and researching the shipment, the DOC found that Active Recycling submitted inaccurate, altered, false, and/or fraudulent reprots, notices, claims and/or supporting documents.

Segal claims that these charges are incorrect, and is backing up his claim with the two lawsuits.

The disciplinary action the agency is looking for is immediate payment from Active Recycling for around $800,000 as restitution for money claimed by and paid to the recycling company from the Fund based on 38 claims supported by receipts, shipping reports and/or processor reports that were deemed inaccurate, altered, falsified or fraudulent.

Additionally, the agency is seeking interest payment, which would bring the total fine to $1.657 million.

The suit by the Department of Conservation was filed March 23, 2001.

At the present time the agency has refused to comment on the suit filed by Segal.