ANN ARBOR, Mich., July 28, 2016 /PRNewswire/ -- Resource Recovery Systems, LLC and FCR, LLC ("ReCommunity") filed a complaint in federal court yesterday against the City of Ann Arbor for damages arising from 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 themselves at ReCommunity's expense through wrongful actions to escape a contract they 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.
ReCommunity has had a contract with Ann Arbor to manage the City's recycling facility and transfer station since 1993. Such services included the sale of recyclables, and sharing the profits from such sales when the revenues exceeded operating costs. In 2014, when the worldwide price of oil began to decline, sales revenues for recyclables also dropped steadily until reaching all-time sustained lows in 2015. The City's recycling contract included a requirement that the City pay ReCommunity when sale revenues fell short of the amount of ReCommunity's cost to operate the site. 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 costs of needed repairs. Instead of paying the shortfall in revenues and working with ReCommunity to find a solution to equitably fund equipment repairs, the City maximized their profits when market prices were up, receiving nearly $3 million since 2011, and then refused to pay required shortfall payments and invest in critical equipment when the market was down.
When City Council members realized in March of 2015 that their costs related to the site were expected to increase by $1 million, the City decided to engage in efforts aimed at escaping the contract with ReCommunity and entering into a new one that provided less financial risk and greater financial reward to the City. To effect its plan, the City 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.
Due to the shortfall in the repair fund, ReCommunity was forced to spend over $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 then 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 immediately addressed the alleged safety issues and took steps to reduce third party volumes coming into the facility. ReCommunity also paid in excess of $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, and ReCommunity seeks to recover all damages associated with the City's actions.
Despite the collection interruption caused by the City, ReCommunity encourages residents to continue their longtime commitment toward a sustainable future and recycle any discarded items or materials.