Class-action lawsuit: Carroll County resident challenges $18 landfill fee
A Berryville resident has filed a class-action lawsuit seeking an injunction that would bar the collection of an $18 fee in six north Arkansas counties included in the Ozark Mountain Solid Waste District.
The lawsuit, filed Wednesday in Carroll County Circuit Court by attorneys Matt Bishop and Wendy Howerton on behalf of Paul Summers, names the solid waste district as defendant. The lawsuit alleges that the fee constitutes a tax on property owners in Carroll, Baxter, Boone, Marion, Newton and Searcy counties and is an “illegal exaction,” that it violates the separation of powers clause in the Arkansas Constitution, that the solid waste district does not have the authority to impose a fee without providing services and the fee is excessive.
The suit asks the court to enjoin the solid waste district from assessing or collecting the $18 fee and to refund fees already paid by taxpayers, to enjoin the solid waste district from collecting a $2 per ton “tipping fee” and to refund tipping fees already paid by taxpayers as well as award attorneys’ fees and other relief at the court’s discretion.
The fee is included on the 2018 tax statements for property owners in the six counties that composed the Ozark Mountain Solid Waste District. Pulaski County Circuit Judge Tim Fox issued an order imposing the fee on April 21, 2017, following the recommendation of court-appointed receiver Geoffrey Treece, an attorney with the Little Rock firm of Quattlebaum, Grooms and Tull.
Treece recommended that the fee be imposed to recoup bondholders who purchased $12,340,000 in bonds issued by the solid waste district in October 2005 to finance the purchase of the North Arkansas Board of Regional Sanitation (NABORS) Landfill in Baxter County. The fee, which is likely to continue for 30 years or more, also is intended to repay up to $16.5 million that the Arkansas Department of Environmental Quality (ADEQ) is expected to spend cleaning up the site of the landfill.
The solid waste district defaulted on its bond payments in 2012 and closed the landfill that same year. ADEQ sued the solid waste district in 2013 in Baxter County Circuit Court and was granted an order of summary judgment to take possession of bank accounts and certificates of deposit held by the solid waste district. The order also said that ADEQ was entitled to pursue additional money related to the cleanup and closure of the landfill.
In January 2014, the solid waste district filed a voluntary petition for Chapter 9 bankruptcy. Bank of the Ozarks, acting as a trustee for the bondholders, filed a motion asking the court to dismiss the bankruptcy petition and U.S. Bankruptcy Judge Ben Barry granted the motion in an order issued Aug. 4, 2014. Bank of the Ozarks filed a complaint in Pulaski County Circuit Court in December 2014, seeking Treece’s appointment as the receiver for the solid waste district. The court entered a consent order appointing Treece as the receiver in May 2015. Among his court-ordered duties were to evaluate the solid waste district’s operations and make recommendations to the court regarding alternatives for the solid waste district to generate additional income and revenue that could then be used to repay the bonds. Treece filed his report and recommendations with the court in November 2016 — citing Section 8-6-701 of the Arkansas Annotated Code, the state legislative act that created the solid waste districts.
Attorneys for Bank of the Ozarks, ADEQ and the solid waste district raised no objections to Treece’s recommendations, and Frost issued his order establishing the $18 service fee on April 21, 2017.
Summers’ complaint notes that the district’s real property was seized and sold and that the district’s bank accounts were also seized, with money from the sales and seizures going to ADEQ and the bondholders.
“As secured creditors, the proceeds from the security would normally be all the bondholders were entitled to obtain,” the complaint says. “Presumably when sophisticated investors make the decision to take advantage of tax-exempt bonds, they do due diligence regarding their investment and require adequate security, knowing that the possibility of default exists.”
State Sen. Bryan King of Green Forest, who has conducted public meetings on the issue in Berryville, has pointed to special language in the 2014 ADEQ appropriations bill that he says created a mechanism that ultimately led to the imposition of the $18 fee.
The Special Language Subcommittee of the Arkansas Legislative Council/Joint Budget Committee approved an amendment to the appropriations bill that became Act 274 of 2014. That amendment, sponsored by then-state Sen. Johnny Key of Mountain Home, clearly related to the NABORS Landfill.
Section B-2 of the amendment states that “(The Arkansas Department of Environmental Quality also may:) Institute a civil action against the regional solid waste management district and all of the entities composing the regional solid waste management district to seek the recovery of any funds expended from the Landfill Post-Closure Trust Fund under subdivision (b)(1) of this section, unless satisfactory repayment arrangements are reached and agreed upon by the department with the district and the bondholders.”
Summer’s lawsuit cites that portion of the amendment.
“In effect, this unpublished piece of legislation changed the revenue sources of the Landfill Post-Closure Trust Fund,” the suit says. “Prior to this legislation, the only sources were various fees charged to the landfill operators and transferees plus whatever federal funds could be obtained. This legislation, obviously crafted especially for the Ozark Mountain Solid Waste District, now expanded and ADEQ could not only sue the District as an entity, but now each county within the district could be sued for these costs. However, it did not have to do so if a ‘satisfactory repayment arrangement’ was reached and agreed upon by the department with the district AND the ‘bondholders.’ The specificity of ‘bondholders’ as opposed to ‘secured creditors’ is unique, and … make the provision uniquely tailored to the situation at the Ozark Mountain Solid Waste District, rather than more general language which might encompass other districts. The only limitation on this new right to sue the District was that it expired June 30, 2017.”
Bishop agreed with King that the seeds for the $18 fee were planted in that 2014 appropriations bill.
“The ADEQ Appropriation Act absolutely kicked this off, and it could not be more obvious,” Bishop said in an email. “The bondholders had no possible way to recover beyond their bond security prior to the Act, and ADEQ did not have the ability to pursue reimbursement from the taxpayers. ADEQ had adequate funding from tax dollars to handle this already. After this was passed, the bondholders had this new option, which is why nine months later they filed suit for the Receiver to be appointed. Reading the legislation you can tell someone drafted it to be tailor made for the Ozark Mountain Solid Waste District situation, and to open up options for the bondholders. Otherwise, why mention just ‘bondholders’ or only allow the legislation to be effective until June 2017? Why not all secured creditors or even unsecured?”
Although the $18 charge included on tax assessments has been referred to as a “fee,” the lawsuit argues that it is actually a tax.
“Arkansas courts are not bound by an entity calling an exaction upon taxpayers a ‘fee’ and not a ‘tax,’ ” the complaint says. “The distinction between a tax and a fee is that government imposes a tax for general revenue purposes, but a fee is imposed in the government’s exercise of its police purposes. … A fee must be fair and reasonable and bear a reasonable relationship to the benefits conferred on those receiving the services.”
The complaint cites precedent established in other Arkansas court rulings. It goes on to say that the $18 charge does not go toward the district’s “exercise of its police powers.”
“Rather, it goes almost entirely to creditors,” the complaint says. “Paying creditors is not a function of the District’s exercise of police powers, for as the Receiver noted, the Defendant is not operational. Moreover, paying creditors is never an exercise of police powers.
“Further, the $18 confers no benefit on those taxpayers bearing it, because the entity charging it provides no service to said taxpayers; rather, it is a fee designed solely to benefit ADEQ, which already has the funds it needs to clean up, and the investors in the bonds who chose to take the risk of investing.”
The complaint also argues that “the $18 tax clearly has no relation to any services performed by Defendant and is thus an excessive illegal exaction.”
Bishop said he believes the suit has a good chance to be successful.
“I think it is solid, or Ms. Howerton and I wouldn’t be putting our time and money into it,” he said. “We have to file one in each of six counties, and have spent weeks researching it just to the point of filing. With a lot of money at stake for the Defendants, and fighting both ADEQ and the bond investors, I think it will be a long-term battle against a well funded opponent but I believe we’ve interpreted the law correctly. That doesn’t mean the taxpayers will for sure win, as I’m not the judge, but my time is valuable to me and I wouldn’t waste it on a case I didn’t think was worth the fight for the public in general or that couldn’t be won.