SR-503-003 (4)
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City council Meeting 7-19-88
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JUl 1 9 1988
Santa Monica, California
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STAFF REPORT
TO:
Mayor and City Council
FROM:
city Attorney
SUBJECT:
Recommendation Concerning Assignment of
Ecolo-Haul Recycling Contract to
Empire Waste Management, Inc.
The ci ty currently has a contract with Ecolo-Haul, Inc.
("Ecolo-Haul") to provide recycling services until the year 1997.
Under this contract, Eco10-Haul must obtain the prior written
consent of the City to any assignment or transfer of the contract
rights and obligations. A transfer of capital stock in excess of
fifty percent (50%) also triggers the City consent requirement.
In September, 1987, Ecolo-Haul informed the City that it
desired to transfer all of its capital stock and "merge" with
Empire
Waste
Management,
a
northern
California
company
specializing in recycling services, thereby triggering the
assignment consent provisions of the City'S contract. It is the
recommendation of the City Attorney that the City council consent
to the assignment in accordance with the terms stated in this
report.
At the time consent to the assignment was requested, Empire
Waste Management had been recently acquired by Waste Management,
Inc. ("Waste Management"), one of the country's largest handlers
of waste.
Since City Staff knew little about these companies,
Staff began the process of gathering additional information about
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Empire Waste Management and Waste Management. What follows is a
summary of the steps taken.
In a letter dated October 12, 1987, the City Attorney's
office requested information about both Empire Waste Management
and its parent, Waste Management, with particular emphasis on the
firms' compliance with environmental and anti-trust laws and
their handling of public bid and recycling contracts. See
Exhibit 1 attached hereto. In the ensuing two weeks, a series of
meetings occurred at which the city clarified and, at
Ecolo-Haul's request, narrowed Staff's request. See Exhibit 2
attached hereto. On November, 9, 1987, the companies responded
by providing a cursory review of various litigation matters and
by providing the City with various public documents and brochures
including Securities and Exchange Commission filings. See
Exhibit 3 attached hereto.
When the ci ty Attorney's off ice compared the companies'
response to a computer search of public legal records, the City
Attorney's office discovered that the response failed to disclose
several lawsuits involving alleged anti-trust and environmental
violations. As a result, in a letter dated November 17, 1987,
the City Attorney's office again wrote to Ecolo-Haul and Waste
Management questioning specific aspects of the companies'
disclosure and asked that the companies fully comply with the
October 12, 1987 request. See Exhibit 4 attached hereto. Three
and one-half months later in a letter dated February 29, 1988,
the attorneys for Ecolo-Haul forwarded the requested information
to the City Attorney. See Exhibit 5 attached hereto.
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The February 29, 1988, response indicates that Waste
Management, its subsidiaries, and various divisions have been
repeatedly charged in civil, criminal, and administrative
proceedings with numerous violations of several federal and state
environmental and anti-trust laws. These disputes have arisen in
over 20 states, including California.
A synopsis of these violations includes the following
matters. In 1984, in two separate matters, Chemical Waste
Management of California was assessed civil penalties of $600,000
and $2,100,000 for, among other things, improper storage of PCBs
and for groundwater contamination. In Ohio in 1984, it paid a
$10,000 penalty for PCB violations. In 1985, the company paid a
$2,500,000 Ohio penalty for improper storage and treatment of
hazardous waste. Likewise, in 1983, Chemical Waste Management
was assessed penalties of $50,000 and $70,000 for similar
violations in Alabama and Colorado. In 1985, one of Waste
Management's Indiana subsidiaries was assessed a $30,000 penalty
for failing to comply with groundwater standards and a New York
subsidiary was assessed a $15,000 penalty for a similar
violation. In 1985, as a result of united states Environmental
Protection Agency actions, a Waste Management Oregon subsidiary
paid penalties of $125,000 and $235,000 for, among other things,
failing to accurately document waste transactions and for failing
to properly handle hazardous waste.
within the last year, Waste Management has reportedly been
the sUbject of eleven state or federal grand jury investigations
which have been looking into a variety of alleged anti trust
criminal acts, including price fixing and public bid
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manipulation. See Exhibit 6. Locally, the Los Angeles County
District Attorney has civilly and criminally charged Waste
Management of California and its subsidiaries with price fixing
activities designed to drive smaller companies out of business.
People v. Waste Management of California, Los Angeles Superior
Court Case No. A 952588. A similar charge in Ohio resulted in
the company agreeing to a $1,000,000 settlement in 1987.
Although Ecolo-Haul and Empire Waste Management assert that
their operations would remain separate and apart from the more
controversial operations of Waste Management (e.g., toxics
handling and disposal), this may not be an entirely accurate
assertion. The City's Ecolo-Haul contract covers such toxic
materials as waste oil, a known carcinogenic substance.
Consequently, how Waste Management handles a wide range of waste
is of prime relevance to this inquiry. Moreover, undoubtedly, as
a subsidiary of Waste Management, Ecolo-Haul/Empire Waste will be
expected to conform to Waste Management's corporate practices and
operating philosophy. within this corporate culture, it remains
an open question as to how "separate and apart" Ecolo-Haul can
remain from the other practices of its parent.
Based upon these matters, the City Attorney believes that
it would be commercially reasonable for the City Council to
refuse to consent to the transfer of Ecolo-Haul's capital stock
to Empire Waste Management. While such a decision is legally
defensible, it is not the City Attorney's recommendation for two
reasons. One, City Staff believes that Ecolo-Haul, and in
particular its management in the form of Gary Petersen, has ably
performed under the ci ty' s recycl ing agreement. Consequently,
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City Staff wishes to retain its working relationship in this
sometimes difficult to administer field. Two, undoubtedly if the
City refused to consent to the transfer costly litigation would
ensue. While the City Attorney believes that the City would
ul timately prevail, the City's recycling program would at the
very least be disrupted during the pendency of any suit.
These considerations have led the City Attorney to seek a
compromise agreement with Ecolo-Haul and Empire Waste Management
that protects the City while not disrupting recycling services.
The terms of the agreement, which would amend the City's
Ecolo-Haul contract, have been agreed to by Ecolo-Haul, Empire
Waste Management and Waste Management and contains the following
terms:
(1) The City will consent to the transfer of Ecolo-Haul's
capital stock to Empire Waste Management, a wholly owned
subsidiary of Waste Management of North America, Inc., a division
of Waste Management, Inc.
(2) The City's consent is contingent upon:
(a) The length of the Agreement being changed from
ten (10) years to five (5) years.
(b) The Agreement's default and termination clause
being amended to state that it shall be considered a default and
a basis for the city to terminate the Agreement for Empire Waste
Management in any of its operations throughout California, and
not just confined to Ecolo-Haul's activities, to to be found in
violation of the California Hazardous Waste Control Law, Health
and Safety Code sections 25100 et ~ or its implementing
regulations, or the California Restraint of Trade and Unfair
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Competition Law, Business and Professions Code sections 16600 and
sections 17000 et ~
This proposal addresses several issues. First, it makes
the term of the Agreement the same as Gary Petersen's employment
contract with Empire Waste Management. Mr. Petersen has signed a
five year employment agreement with Empire Waste Management to
operate what were Ecolo-Haul's activities. As owner of
Ecolo-Haul, Mr. Petersen enjoyed wide respect from City staff who
believe that he ran Ecolo-Haul as an efficient and
environmentally sound company. By making the term of the
Agreement co-extensive with Mr. Petersen's employment contract,
the city will have some limited assurance that Empire Waste
Management will continue with this level of service at least as
long as Mr. Petersen runs the City's recycling program. Second,
the proposal makes plain that the ci ty expects Empire Waste
Management to follow relevant state environmental, anti-trust,
and anti-competition laws. Should a violation of any of these
laws occur, the City has the option of terminating the Agreement.
This provision allows the City to enforce the city's public
policy that its contractors stay within the letter of the law.
The City Attorney considers the proposed changes the
minimum necessary to protect the City's interests. The City has
had no prior experience either with Empire Waste Management or
its parent, Waste Management. without these changes, the City
Attorney will not recommend that the transfer of Ecolo-Haul's
stock to Empire Waste Management be approved by the City Council.
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RECOMMENDATION
The City Attorney respectfully recommends that the City
Manager be authorized to approve the transfer of ownership of
Ecolo-Haul stock to Empire Waste Management, a wholly owned
subsidiary of Waste Management of North America, Inc., a division
of Waste Management, Inc., contingent upon an amendment to
Agreement Number 4908 (CCS) that contains the fOllowing terms:
(a) The term of the Agreement shall be reduced from
ten (10) years to five (5) years.
(b) The default and termination provisions of the
Agreement shall be changed so that Ecolo-Haul and Empire Waste
Management shall be considered in default under the Agreement if
they are found or determined through any judgment, conviction,
administrative ruling, settlement, or consent decree, to be in
violation of the California Hazardous Waste Control Law, Chapter
6.5 of the Health and Safety Code, sections 25100 et ~, or
implementing regulations, or the California Restraint of Trade
and Unfair Competition Law, Business and Professions Code
sections 16600 et ~ and 17000 et ~ For purposes of the
amendment, a plea of nolo contendere or no contest shall be
considered the same as a conviction entitling the City to invoke
the default provisions of the Agreement.
PREPARED BY: Robert M. Myers, City Attorney
Joseph Lawrence, Assistant City Attorney
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