Lawsuit: Recycling Company Trucked Cans to California for Unfair Profit

For years, Arizona recyclers have made big bucks by shipping empty aluminum cans in trucks to California, a state with a lucrative, consumer-subsidized recycling program.

Passing Arizona cans off as California cans is illegal in California but not in Arizona, leading to a cottage industry of can-shipping that's destroying the California program and making life tough on recyclers who aren't playing the game.

One of those competing recycling companies has had enough.

SA Recycling, which boasts 50 recycling plants in California, Arizona, and other states filed a federal complaint last week that accuses Valley company HD Recycling #3 of unfair competition and unjust enrichment for the "unlawful scheme" of taking cans to California from Arizona.

Besides compensation and restitution payments, SA Recycling wants a permanent injunction "to prevent HD Recycling from transferring or selling aluminum cans or other recyclable material to California for the purposes of submitting them" under California's program.

The complaint filed in the U.S. District Court of Arizona first outlines the problem:

Certified recyclers are required to pay at least $1.57 per pound for aluminum cans, but they're reimbursed for the artificially high price by the CRV (California Redemption Value) fund. Cans usually are sold at California recyclers for $1.67 to $2.05 per pound.

The catch is that no out-of-state cans are allowed, which makes sense because nobody paid the CRV amount for those cans. The tax is set at five cents for containers less than 24 ounces and 10 cents for containers 24 ounces or larger.

HD Recycling acquires cans "at an inflated price of $1.15 to $1.25 per pound," even though recycled aluminum currently goes for just 60 to 70 cents per pound, the suit states. The company "secretly " transported the cans in an uncrushed condition "because it is easier to submit the counterfeit cans for CRV if they are uncrushed" and smuggled them past inspection officials at the California border, it states.

Former New Times writer Paul Rubin, who now works for R3 Investigations, conducted surveillance on HD Recycling #3 at 4023 North 38th Avenue in Phoenix, court records show. According to his declaration for support of the injunction, Rubin observed HD Recycling from October 2014 until March 2015, watching as workers gathered uncrushed cans and periodically loaded them into a white tractor-trailer with California plates.

The truck "engaged in counter-surveillance tactics such as exiting and re-entering the highway in an apparent effort to ensure" no one was following on the way to the border, the complaint states. The company sometimes hid the cans under other materials and didn't report them to the authorities at state border inspections as required, SA Recycling alleges.

With the help of California private investigator Dan Finneran, the white truck was observed driving to Express Space Storage in Los Angeles on February 18. The bags of cans were allegedly put into the storage facility, then loaded into a white van a few days later, and taken to California's A Star Recycling company, where "a woman received a cash payment for the cans."

"HD Recycling's unfair business practices not only affect the market for aluminum cans but also affect where individuals and companies choose to sell other recyclable items, such as cars, appliances, or household scrap metal, further exacerbating the market distortion and resulting in additional injury to SA Recycling," the complaints states. "For example, individuals and companies that would sell other recyclable items to SA Recycling instead sell those items to HD Recycling along with the aluminum cans for which HD Recyling is willing to pay an artificially inflated price."

In a 2011 Phoenix Business Journal article, a CalRecycle spokesman said the number of cans being imported by other states was small. The agency now says the CRV program "faces an ongoing structural deficit of $124 million dollars per year due largely to the importation and illegal redemption of imported beverage containers," according to a statement released on Friday by SA Recycling.

"The can smugglers have been defrauding California citizens and seriously harming the legitimate metal recycling business in Arizona," said the company's president, George Adams. Several Phoenix-area companies are engaged in the practice, and he wants them put "on notice that this fraudulent activity cannot be tolerated."

The complaint was filed on June 1, the same day that CalRecycle announced the arrest of another trucker on suspicion of transporting cans from Arizona for resale under the CRV program.

It also follows the indictments in May of five Californians on charges related to an alleged multi-million-dollar recycling scam. In that case, agents with the U.S. Department of Justice witnessed cans being loaded into trucks in Phoenix before being taken to California.

State records show that HD Recycling #3, as well as HD Recycling and HD Recycling #2, are LLCs managed by Socorro Fuentes of Phoenix. New Times was unable to reach Fuentes for comment.

At another HD Recycling location, 2901 West Thomas Road, signs advertised a price of $1 per pound for cans, which the lawsuit says is above market price. A worker loading bagged cans said he had no comment for this article.

Check back here for updates on the court case.

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