EUREKA, Calif. (CN) - A recycling company claims a public Waste Management Authority tricked it into allowing the public trash district to do a "comprehensive study" of its business, then disclosed trade secrets to competitors, driving down the value of the business, so the defendant could pick it up on the cheap at a foreclosure sale.
The Arcata Community Recycling Center sued Humboldt Waste Management Authority in Humboldt County Court. It seeks punitive damages for civil rights violations, taking property without just compensation, interference with prospective economic advantage, negligent and intentional misrepresentation, misappropriation of trade secrets, and improper award of public contract.
Arcata also wants the company that was awarded the contract removed from the competition because its bid came in late.
The nonprofit plaintiff, which has been processing most recyclables for Humboldt County, claims the defendant "joint powers authority" had had an interdependent relationship with it until the market for recyclable materials began to decline in 2008. At that point, Arcata had to start charging the Waste Management Authority fees for processing.
In 2009, the Waste Management Authority said it was "seeking a long term contract" with Arcata, and asked for permission to "commission a study of plaintiff's Samoa processing facility in order to negotiate terms of a contract that would be fair and reasonable to both parties," according to the complaint.
Arcata says it OK'd the study, on this basis, but when it was given a draft of the study, it "contained a section analyzing acquisition" of the facility, to which Arcata objected.
The Waste Management Authority's executive director then "confirmed that its true intent in commissioning the study was to acquire title to plaintiff's Samoa processing facility," according to the complaint.
The Waste Management Authority then released the study to the public, and recommended to its board "that acquisition of the facility be pursued," even though the report stated that Arcata was not interested in selling; the board voted against it, according to the complaint.
Next, the Waste Management Authority took bids to replace the business it had been giving to Arcata, after having disclosed all of the plaintiff's operational costs, revenue, operating procedures and other proprietary information to the public, "depriving the plaintiff of any fair opportunity to compete in the bidding," according to the complaint.
"Plaintiff has established its technical and production leadership in the recycling industry in part due to its efforts to develop proprietary processing techniques. Plaintiff developed these proprietary techniques at great expense and over a long period of time. Availability of these proprietary techniques to a competitor would provide that competitor a distinct competitive advantage and would be a significant loss to plaintiff. These techniques are not generally known to the public or the recycling industry and have been the subject of reasonable efforts to keep them confidential.
"Plaintiff is informed and believes, and on that basis alleges that defendants misappropriated all or portions of these proprietary techniques by obtaining consent to study plaintiff's operations using false representations," Arcata says.
It adds that "through this course of conduct, defendants ultimately sought to take the Samoa facility from plaintiff, and through its manipulations, would be able to acquire it at a much discounted price after plaintiff was thereby forced to cease operations and default on its financing."
Arcata says the Waste Management Authority's skullduggery worked: "Realizing that defendants had lured plaintiff into an untenable position using false representations and bad faith, plaintiff offered to sell the Samoa facility to defendant."
But, "still hoping to salvage its business, plaintiff submitted a bid in response to the request for proposals."
Arcata says Solid Waste of Willits won the contract after submitting its proposal late, and after engaging in "secret communications" with the Waste Management Authority.
Without the contract with the Waste Management Authority, Arcata says, it will have to shut down and default on its loans, and the defendant "will be able to acquire a modern state of the art recycling facility, fulfilling its true intent from the time when defendants approached plaintiff to negotiate a long term contract, and for a price well below its fair market value."
It seeks compensatory and punitive damages.
It is represented by Thomas Herman of Fortuna.
"The Arcata Community Recycling Center will close its doors in January after serving the community for 40 years," reported the Eureka Times-Standard, Nov. 2. "About 35 people will lose their jobs."
The volume of materials brought in to the recycling center has been cut in half since Humboldt Waste Management Authority contracted for the Willits facility to take its recycling, reported the Times-Standard.
The Arcata Community Recycling Center had proposed that it would process the Waste Management Authority's recycling for $65 a ton, and lost the bid to the Willits facility, which offered to pay $5 a ton to take the materials, according to the Times-Standard.
John McClurg, of Fire and Light, which uses recycled glass to make brilliantly colored glassware, told the Times-Standard that the recycling center puts about $2.5 million back into the local economy in addition to providing 35 local jobs.
"I think it's a terrible loss for the community and a very short-sighted decision on the part of the Eureka City Council and the Humboldt Waste Management Authority," McKlurg told the Times-Standard.