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Wallace Acquisitions Inc. v. Allied Waste Industries Inc.

April 23, 1999

WALLACE ACQUISITIONS, INC. INDIV. AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
ALLIED WASTE INDUSTRIES, INC., A DELAWARE CORPORATION AND NATIONAL WASTE SERVICES, INC., AN ILLINOIS CORPORATION, DEFENDANTS-APPELLEES



The opinion of the court was delivered by: Justice Quinn

Appeal from the Circuit Court of Cook County Honorable John K. Madden, Judge Presiding.

Plaintiff, Wallace Acquisitions, Inc., individually and as a representative of a class of persons similarly situated, brought this class action against defendants, Allied Waste Industries, Inc. (Allied), and National Waste Services, Inc. (National), seeking damages for the imposition of a 3% surcharge labeled as a "Federal Clean Air Act Fuel Surcharge" on defendants' customers' bills when the surcharge was not required by federal law. In July 1995 Wallace filed a four-count complaint against Allied and National Waste alleging common law fraud (count I), violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 1996)), (count II), breach of contract (count III), and violations of the Racketeer Influenced and Corrupt Organization Act (RICO) (18 U.S.C. §§1961, 1962 (1994))(count IV). Defendants' motion for summary judgment as to counts I, II and III were denied. Plaintiff appeals from the circuit court's grant of summary judgment in favor of defendants on count IV, contending that its allegations support liability under RICO. For the reasons that follow, we reverse the judgment of the circuit court granting summary judgment in favor of defendants.

The following facts are undisputed. In 1992, Allied, a solid waste management company serving various regions nationwide, acquired National. The evidence showed that when Allied acquires new subsidiaries, it moves quickly to integrate the acquired company into its operating and control systems. Allied then immediately appoints a new board of directors and executive officers and establishes new bank accounts and cash control procedures for the acquired company.

In January 1993 plaintiff, a Delaware corporation doing business as Binyon's Restaurant, entered into a service agreement with National, now a wholly owned subsidiary of Allied that operates as a waste collection company for Allied's operations in the Chicago area. The service agreement set forth the type of service plaintiff required and the price National would charge to provide those services.

Dan Ivan, Allied's executive vice president and secretary, was responsible for all aspects of the operation of National, including ensuring the smooth integration of National with Allied and improving the efficiency and profitability of National as a subsidiary. Ivan worked closely with National's division managers, conducted weekly management meetings and oversaw all major decisions regarding National.

Shortly after National's acquisition, Roy Svehla, National's fleet maintenance manager, received notice from National's fuel supplier that, pursuant to the Federal Clean Air Act ( 42 U.S.C. § 7479 et seq. (1994)), effective October 1, 1993, all on-road diesel vehicles were required to use only low sulfur diesel fuel and that in January 1994 there would be a 4.3 cent-per-gallon increase in fuel taxes. This requirement meant an increase in the per-gallon price that National would pay for fuel. Svehla raised the issue at a weekly manager's meeting. In his affidavit, Svehla averred that it was decided that a "surcharge would be added to customer bills." This surcharge, entitled the "Federal Clean Air Act Fuel Surcharge" (surcharge), represented a 3% increase in the price customers were charged. It was decided to highlight the Surcharge as a separate line item in the customer's monthly statement.

In an affidavit and deposition, Ivan stated that a letter was drafted and sent to customers explaining the reason for the Surcharge. However, in deposition testimony, Akaber Jaffer, Michael Gallagher and Shaher Samed, all customers of National, indicated that they did not recall receiving a letter explaining the Surcharge. Ivan testified that it was his belief that the Surcharge was only imposed on a portion of Allied's existing customer base, namely, National's customers. In a letter to the district general managers of Allied's subsidiaries dated September 10, 1993, Ivan stated, "[m]ost importantly, a price increase to all of our customers to offset these mandated costs has to be initiated ASAP." Ivan further testified that the use of the term "Federal Clean Air Act Fuel Surcharge" was unique to National and that no other subsidiary used that term. Plaintiff alleges that the Surcharge was implemented by other Allied subsidiaries as well.

Many customers called to inquire and complain about the Surcharge. According to the deposition testimony of Michael Gallagher and Akaber Jaffer, when they called National regarding the Surcharge, they were told that the Surcharge was required by federal law. Michael Gallagher specifically testified to the following:

"I asked them specifically about the Federal Clean Air Act Fuel Surcharge and was given an explanation that indeed it was either a cost that was directly going to the federal government or was required by the federal government as a pass through. I came away with that clearly."

Defendants testified that, due to customer inquiries and complaints, they issued a second letter to customers explaining the Surcharge with the December 1993 billing statement. In an attempt to explain the Surcharge, the letter provided the following in pertinent part:

"The Federal Clean Air Act was passed by Congress in 1990. The Environmental Protection Agency began enforcing this Act on October 1st of this year. The Clean Air Act requires all diesel powered trucks travelling on our highways to use fuel with a substantially lower sulfur content than in the past. We at National Waste Services are in total support of the E.P.A. in their efforts to rid our environment of harmful pollutants. The effect of this new low sulfur fuel requirement on our company is that fuel costs have increased by approximately $.25 per gallon. Therefore, the surcharge which was passed along to our customers is only a small portion of the actual increase."

Plaintiffs allege that customers did not receive this second letter.

Defendants testified that in April 1994 the Surcharge was reduced to 2% and the line item on the bills was changed to "Fuel Surcharge." In January 1995 the Surcharge was dropped.

In July 1995 Wallace filed a four-count complaint against Allied and National Waste alleging common law fraud (count I), violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (count II), breach ...


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