Settlement to Cost Warren Taxpayers $6 Million 7/3/09

Insurance won't pay for money owed to trash hauler

The Macomb Daily
Friday, July 3, 2009

By Mitch Hotts and Norb Franz, Macomb Daily Staff Writers

A lawsuit settlement between the city of Warren and a trash-hauling firm will not be covered by insurance, costing taxpayers in Macomb County's largest community millions of dollars.

The City Council on Thursday at a special meeting that was not televised on the community's cable television station approved the agreement that ends years of litigation between Warren and Rizzo Services.

The council voted 8-1 to approve a global $5.9 million settlement with Rizzo Services with the money coming from the insurance reserves fund.

"I voted in favor of this because I wanted to limit further financial risk to our taxpayers," said Council President Mary Kamp.

Council members were restricted in what they can publicly discuss about the settlement's details due to a disclosure provision included in the agreement.

But council members did say they were surprised to learn of the agreement because for some

time they were under the impression the case was moving in the city's favor.

"This (proposal) came as a complete shock," Kamp said. "We thought, based on the updates we were receiving from the attorneys in the past that we'd be able to come to some other type of agreement."

Councilman Scott Stevens agreed.

Stevens, who voted against the motion, said the settlement amount "made me sick," adding he would have preferred to study the issue longer but the council has a July 14 deadline to approve the measure.

"I ran for office on honesty and transparency but I don't like the way this went down at the last minute," Stevens said. "But at least with this settlement, we received a discount on the amount."

Rizzo Services held a seven-year, $11.7 million contract to operate Warren's trash transfer station and haul the rubbish to a landfill. The contract came under the tenure of former Mayor Mark Steenbergh in 2001.

That pact expired last fall, and the city bought new, larger garbage trucks to directly haul trash to a landfill without a middle man.

In August 2005, the company under its formal name C&R Maintenance, filed a breach of contract lawsuit against the city in Macomb County Circuit Court. In March 2007, the company agreed to drop its court fight without a settlement between the two sides.

The Warren-based firm had sought an extension of its contract and offered to lower its prices in exchange for a contract extension. Circuit Judge Mark Switalski then dismissed the case without prejudice, meaning the company could head back to court on the matter.

Rizzo did so in October 2007, suing the city in U.S. District Court. Also named as defendants were city Controller Richard Fox and Robert Slavko, the city's former public service director.

Warren officials have claimed the city made required repairs at the trash dumping-and-compacting facility on Flanders Avenue enabling the company to accept private, outside construction debris and other materials that are not part of regular trash pickup at homes and businesses in the city. The city claimed it was owed $840,000 in royalty payments.

Rizzo Services, however, countered it should not have to pay any royalties because two new compactors and an additional "direct dump" system were installed late. The company alleged that tardiness prevented it from privately accepting even more outside solid waste, costing it more than a combined $4 million in higher landfill and trucking expenses.

To chip away at the $840,000, Warren officials began withholding a portion of the payments the city makes to the trash hauler for garbage hauling. Warren continued to withhold $28,000 a month.

According to an independent audit of city finances, a $1 million credit line by a bank to Rizzo Services as a requirement of the contract had expired. Had it remained in effect, the city as a third-party beneficiary could have drawn from it to recoup money if administrators felt Rizzo Services shortchanged Warren.