What’s fair when it comes to recyclers handling and collecting stray proprietary pallets, such as rental or pooled pallets? Let’s face it. The recyclers provide a valuable service by helping pallet owners collect, sort, store and return stray assets. This issue may be heading to the courts in California where CHEP USA has sued two separate recyclers over the return of less-than-truckload quantities of pallets.
At the heart of the issue is how pallet owners, such as CHEP, and recyclers interpret AB 1760, a bill passed in 2022 aimed at clarifying recycler rights when it comes to these stray assets. It established a mechanism whereby these stray proprietary pallets can be declared abandoned property if the owner does not arrange collection of them in a timely manner (35 days). It also establishes the right for the recycler to charge storage fees. But the law also put some restrictions on recyclers and junk dealers too.
The California legislature wrote this latest bill to correct AB 1583, which made it almost impossible for recyclers to take possession of these proprietary pallets. MillerCoors, the brewing company, originally sponsored AB 1583 to safeguard plastic transport packaging. This law arose after a 2011 criminal case resulted in the recovery of $1.3 million in stolen plastic containers, boxes and crates.
But these latest cases involve a fairly small number of pallets procured under different circumstances. CHEP USA has filed separate lawsuits, in two different California counties, against ECO Pallets and G.O. Pallets, Inc. In each lawsuit, CHEP USA alleges that the pallet recyclers refused to hand over CHEP-marked pallets that these recyclers have collected as part of their normal course of business.
Sources advise that these allegations will be disputed by G.O. Pallets, which wants CHEP to pick up the pallets within the 35 day time limit now in place under the new legislation. The case against G.O. is in the early stages in San Bernardino County Superior Court.
In the ECO Pallet case, the Los Angeles County Superior Court has granted CHEP’s motion to retrieve CHEP-marked pallets from Eco Pallets. In both cases the amount of money that CHEP should pay for storage and handling will undoubtedly be a subject of contention as CHEP is asserting that its Asset Recovery Program (ARP) is fair. The recyclers disagree and are asking for considerably more money for each CHEP pallet they are collecting, sorting, storing and transporting.
CHEP maintains that G.O. Pallets has not satisfied the good faith requirement in California law. CHEP declared, “G.O. Pallet’s continuing failure to turn over the CHEP pallets has deprived CHEP of the lease proceeds from leasing the CHEP pallets at issue.” It is clear that CHEP is laying the groundwork for substantial damage claims.
G.O. Pallets will likely counter that it is not actively purchasing CHEP-marked pallets but is only acquiring them as part of obtaining mixed core loads. This has become a standard practice for recyclers all over the country. And without this recycling network, many CHEP pallets would never be located nor retrieved. The recycler may also claim that CHEP’s business model has shifted retrieval costs and responsibilities to competitors, such as most white-wood recyclers.
What appears to be clear is that AB 1760, while well intentioned, has some critical flaws. It calls for one of two conditions for a pallet recycler to legally take possession of stray proprietary pallets 1.) the owner cannot be identified or 2.) the owner has failed to retrieve the pallets in a timely basis. The California law does not define the term, “timely basis.” And it is not clear how these conditions are to be executed, tracked and documented. A major hurdle is that most pallet recyclers reluctantly acquire proprietary pallets from street vendors or customers who offer mixed loads on a take it or leave it basis. In most cases the pallet recyclers do not pay for them and find these proprietary pallets to be a nuisance. In very few cases do pallet users contact the proprietary pallet owner before getting rid of these stray pallets or maintain records on length of possession or chain of custody. These marked pallets are treated like any other pallet by most users unless they have a contractual relationship with the pooler or provider.
The core of the dispute is what constitutes good faith possession as well as what a recycler must do to take possession of these stray assets and what records must be kept. Also, under dispute is when the 35 day clock starts for declaring the property abandoned.
Even though CHEP claims it costs the company $35 to produce new pallets, its ARP only offers a few dollars to recyclers for retrieval fees. CHEP alleges that since G.O. Pallets is not part of its ARP, this recycler should never be in possession of any CHEP pallets. But this would seem to suggest that many recyclers in the country are not acting in good faith according to CHEP’s view of things.
Why is this case important? For starters, AB 1760 was the first major bill in the country detailing recycler rights. Its application is being challenged in the court by CHEP, and the outcome could have major precedence in how other jurisdictions rule on the matter. Also, G.O. Pallets is led by Edgar and Lina Montes, who are major leaders in the North American Pallet Association. This trade group primarily represents Hispanic-owned pallet companies in Southern California. By suing major leaders in this group, CHEP may be setting up for a showdown with one of the largest collections of pallet recyclers in the largest state in the country. AB 1760 is a confusing law in many ways. It appears the bill either needs to be amended by the legislature or disputed in open court. Let’s see what develops over the coming months.
