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Recycling Firm Sues the State

Regulation: Owner claims Department of Conservation is putting him out of business with an ongoing fraud investigation.

June 30, 2002|WENDY THERMOS | TIMES STAFF WRITER

One of California's largest recyclers is suing state officials, alleging that they are putting him out of business with a fraud investigation.

Errol Segal, owner of Los Angeles-based Active Recycling Co., says in two lawsuits that the state Department of Conservation has harassed him for more than 10 years with audits, inspections and accusations but has never proved any serious charges against him.

Segal, who paid a $1,700 fine in 1997 for recycling violations, says the department's lengthy probe has scared away large customers and jeopardized his bank financing. If his lender follows through with a notice canceling his $2.25-million line of credit July 16, he expects to be out of business days later.

"It's abuse of power by government officials, and they used their power to bring a businessman down," Segal, a recycler for 26 years, said in an interview. "Because of this, no banker wants to touch me."

Carol Dahmen, a spokeswoman for the Department of Conservation, which runs the state's recycling program, said the department would not comment on Segal's lawsuits or discuss his case because of an ongoing investigation.

In March 2001, the department filed a 17-page accusation seeking $1.6 million in penalties from Active Recycling and revocation of the company's certificate to operate five recycling centers and one processing plant at various Los Angeles locations, including North Hollywood and Van Nuys.

The state accused the company of engaging in "dishonesty, incompetence, negligence or fraud in performing the functions and duties of a certificate holder." According to the accusation, the company used "inaccurate, altered, falsified, and/or fraudulent information" to obtain redemption money to which it was not entitled.

The accusation said the company was under investigation by the FBI, which seized boxes of business records in October 1999. FBI officials declined to comment Friday.

Segal, an Encino resident who now operates three recycling centers and a processing plant, says recycling officials want to cripple his business because he fought department allegations against him on two occasions and won after state officials reviewed the disputes.

Segal's suits, filed in Los Angeles Superior Court in April and May, allege that state officials have been trying since 1988 to tarnish his reputation by falsely accusing him of fabricating records to collect hundreds of thousands of dollars in bottle and can redemption money from a state fund.

The fund consists of the container deposits paid by consumers. Recyclers apply for the redemption money after buying back the empty bottles and cans.

The lawsuits, which seek unspecified damages, say Segal has never been found guilty of any serious violations of recycling laws. Nonetheless, the court papers continue, Segal's large-volume customers received letters from the department stating that Active Recycling had committed "long-standing violations" of state recycling laws.

"The whole industry called me up and said, 'You're in trouble,' " Segal said.

Large-volume customers who normally bring 1,000 pounds or more of recyclables at a time have refused to do business with him because of the letters, he said.

Segal's attorney, Hal Wright, said the state went after his client over disputed paperwork in 1988 and 1992, but Segal successfully fought back.

Wright said that in the 1988 case, the department refused to pay Segal $249,000 from the redemption fund, contending there were problems with the required documentation. The case went to an administrative hearing and Segal was paid, Wright said.

According to the Segal lawsuits, the department audited Segal's books in 1992 and said he owed the state $240,000 because of improper redemptions. The department eventually dropped that charge, the lawsuits say.The only charges the state has been able to justify were "minor, technical violations" of recycling laws that resulted in Segal paying the $1,700 fine in 1997, said Wright, who once prosecuted recyclers as a staff attorney for the department.

Segal said Comerica Bank notified him it will not continue Active Recycling's line of credit past July 16. "I cannot operate without it," he said, adding that at least six other lenders have turned him down.

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