Judge to determine damages county will pay trash haulers

Amount county owes haulers only issue yet to be decided

By Gloria Lloyd

Five years after three trash haulers spurned by St. Louis County’s establishment of trash districts originally sued for damages, the only question now is how much the county will pay them in damages.

That decision holding the county at fault was upheld by the Missouri Supreme Court last year, so the current court proceedings focus only on the amount of damages to be awarded to the three trash haulers.

Three trash companies, American Eagle, Meridian and Waste Management, sued in May 2008 after being outbid for contracts to exclusively serve eight new trash districts created by the county in unincorporated areas. Unauthorized haulers are prohibited from offering service to district residents.

The haulers’ case was heard in county, state and federal courts before Circuit Judge Barbara Wallace ruled in September 2010 that the county breached an implied contract with the haulers by not providing two years’ written notice, as required by state law, a decision upheld by the Missouri Supreme Court. County Counselor Pat Redington argued that the County Charter superseded state law, and the county therefore did not have to provide notice.

The three trash companies are represented by attorney Jane Dueker, of law firm Stinson Morrison Hecker LLP.

The amount of the damages hinges on the testimony of the haulers’ expert witness, certified public accountant C. Eric Ficken, and how he calculated the three companies’ lost business profits. Ficken, who also is a certified valuation analyst in financial forensics, was the only witness to testify during an all-day hearing Aug. 12 on the issue of the haulers’ lost profits.

In his original calculations, Ficken said the haulers sustained $23 million in damages, the gross revenue they lost by not being able to provide services during the two-year waiting period.

“The Circuit Court, in its hearing on damages, excluded evidence of haulers’ expenses or net profit, allowing only evidence of their gross revenue for a two-year period starting April 8, 2008,” last year’s ruling stated. “In its final judgment, the Circuit Court awarded haulers 5 percent of their gross revenue for that two-year period.”

In sending the case back to Wallace, the Supreme Court upheld everything but the $1.2 million in damages she granted the haulers. Wallace estimated the amount of gross revenue the trash companies would have received rather than looking at evidence of the haulers’ expenses and their net profit, according to the ruling.

In a previous case, Ameristar Jet Charters v. Dodson, Missouri courts ruled that lost business profits should be calculated without fixed costs deducted, so that awarded damages put a company back in the same position it was before it suffered the loss.

Ficken calculated roughly $10 million combined total damages for the companies using that formula, but Redington disputed those figures, saying that they are far above anything the companies have made in profit.

Ficken calculates that Waste Management lost $7,872,329, that American Eagle lost $1,486,631 and that Meridian lost $771,237.

The trash haulers lost customers and routes, Ficken said, but he took those damages and subtracted any gains they received from not servicing the newly created trash districts. For example, when American Eagle lost its county routes, it sold four trash trucks and made a profit of $3,953 on those sales.

Ficken said he had not conducted an audit of the trash haulers, and his estimates of loss of business profit are based on monthly profit-loss statements that were provided by the trash haulers themselves, numbers Redington said are “based entirely on inadmissible hearsay evidence which the court cannot reasonably rely on.”

In cross-examination by Redington, Ficken said that he was calculating “loss of business profit,” not simply lost profits, for the haulers.

Loss of business profit does not include fixed costs that would normally be taken into account when calculating profits, Ficken said. Fixed costs include trash trucks, phone lines, insurance, political contributions and rent for office buildings. On the witness stand, Ficken agreed that those costs are usually part of normal operating expenses.

In court, Redington cited the difference in stated lost income Ficken provided for each of the three trash haulers compared to the three companies’ tax returns, which show lower profits than Ficken’s calculations.

“Before American Eagle lost a single customer to the county’s trash program, their total net income was $36,000” on $3 million in revenue, a profit margin of 1.1 percent, she noted.

In 2007, when it still had all its customers, American Eagle showed $97,859 in profits on its profit-loss statement on total revenue of nearly $4 million, a 2.51-percent profit margin.

From the years Ficken took into account, 2006 to 2010, American Eagle never made anything close to $800,000, Redington noted. The highest profit shown in those years was in 2007.

“If the county had taken away every single customer that American Eagle had, the company would have lost about $94,000,” she said. “Your opinion is that American Eagle is damaged more by losing some of their customers than they would have been by losing all of them? Those numbers show that they would have lost $94,000 if they would have lost all of their business.”

“We’re not comparing apples to apples,” Ficken replied. “What you’re asking and what I measured are two different things.”

In his calculations, Ficken calculated lost profits to American Eagle of $5.1 million, including $4.3 million in lost customer fees and a 20-percent growth in customers and rate increases each year, or $900,000, that the company was not able to receive when it could not operate in those unincorporated areas.

That equates to 30-percent profit margins, Redington noted, which American Eagle has never reported in either its profit-loss or income-tax statements.

Redington questioned why the numbers on the profit-loss statements and the income-tax statements did not match.

“I don’t think you have to be an expert in tax to understand you have to report all your income,” she said.

In the case of Meridian, Redington said that profit calculations should be made from $11.8 million in lost revenue, then multiplied by 7 percent because of the company’s typical 7-percent profit margin, for total damages of roughly $832,000.

She also blamed the companies for not winding down their services in the new trash districts as they got closer to the date the county’s chosen hauler would begin servicing the districts. At the end of the two-year period in which the companies should have received notice, the companies were as heavily invested in those districts as they were at the beginning, she noted, blaming them for not finding alternate sources of revenue in the intervening time.

Wallace asked both sides to write her letters on the loss-of-profits issue, to be submitted by Tuesday — after the Call went to press.