Santa Barbara County Approves $1M to Fight Lawsuit Filed by Fired Landfill Recycler

Former Operator at Tajiguas ReSource Center Claims County Employees Deliberately Set It Up to Fail; County Files Motion to Dismiss Lawsuit

By Jean Yamamura Thu Dec 19, 2024 | 12:04pm

When Santa Barbara County fired MSB Investors in December 2023, the company operating the recycling and compost facilities at the Tajiguas Landfill, the county charged that MSB had failed in its handling of water and odor violations and other issues. In July, MSB, known as Mustang Santa Barbara, filed a lawsuit arguing that the county had not fulfilled its contractual financial obligations, which caused the company to fall behind in its obligations. On Tuesday, the supervisors authorized the spending of up to $1 million to its outside counsel, Meyers Nave of Los Angeles, to defend the county.

In its complaint, MSB asserted five issues, including breach of contract, claiming that county employees deliberately delayed payments in an attempt to cause it to “fail.” The company, known as Mustang, stated it was making “extraordinary efforts” by taking out loans and cutting costs to operate the facilities called the ReSource Center.

The problems at ReSource started, according to Mustang, when the bottom dropped out of the recycling market. The financial calculations in the original contract with the county were based on the premise that the ReSource Center would generate 75 percent of its income from recycling materials, but during the pandemic, the largest recycling destination, China, stopped taking other countries’ plastics. At the same time, Mustang charged, the collected trash began to contain a seven-fold increase in “useless, nonrecyclable plastics” so that the amount of methane energy produced by the anaerobic digester decreased dramatically.

When the county and Mustang signed the contract in 2012, they were both aware of the volatility of the recycling market. The contract required the county to “backstop” losses in revenue in order to keep the ReSource Center in operation, but Mustang asserts that the county delayed in supplying the needed funding.

As a result, Mustang’s lawsuit alleges, the company was unable to afford to correct the very problems that led to the county terminating Mustang’s contract. Further, the lawsuit contends that Mustang CEO John Dewey complained to some supervisors about a Public Works manager — speech that is protected by the First Amendment, the lawsuit asserts — after which its dealings with the county became “hostile.” The manager, according to Mustang’s filing, allegedly said publicly that she would “do everything in her power to see Mustang fail.” The lawsuit also claims the county violated the 14th Amendment’s “equal protection,” stating Mustang was not treated the same as the other contractors at Tajiguas.

Though the complaint was originally filed in July at Santa Barbara Superior Court by Santa Barbara law firm Cappello & Noël, it was transferred to the federal court in Los Angeles in August due to the constitutional allegations. In May, the county had hired the L.A. firm Meyers Nave to defend the lawsuit for an initial fee of $150,000. An additional amount of $850,000 was approved at the supervisors’ meeting this week.

As for the county’s side of the lawsuit, it has filed a Motion to Dismiss that addresses the legal theories at issue. The facts of the case, however, were presented at the Board of Supervisors meeting at which Mustang was terminated. During that session last December, the county laid at Mustang’s feet the same issues the company now blames on the county. Among the charges are that Mustang did not pay its subcontractors; that the county had to step in to fix health and safety, water quality, and odor violations as Mustang was taking too long to address them; and that Mustang’s operations could not pass “acceptance tests” of the facilities’ capabilities.

In its attempt to dismiss the lawsuit, the county argues that Mustang was required to have a contractor’s license and did not, which meant it could not now sue for breach of contract. The county cites case law and code sections to buttress its points, which include that as the general contractor, Mustang was not similar to its subcontractors and could not bring a 14th Amendment claim; that Mustang itself argued the county had become antagonistic before its CEO complained about the Public Works manager, and thus, the First Amendment claim was invalid; and that as the county is a governmental entity, a charge of “unjust enrichment” cannot be made by Mustang, which argues that it lost all its investment in the ReSource Center, which the company was negotiating to sell.

Mustang asserts that its losses amount to more than $60 million, and the county, in asking for “disgorgement” of what it had paid Mustang, claims it is owed more than $100 million. The Motion to Dismiss awaits the judge’s decision, and a trial date is expected to be set after March 2026. Between times, experts will be hired and discovery will take place.