A group of pallet recyclers connected to the North American Pallet Association (NAPA), a western trade group made up of mostly Hispanic-owned pallet companies in Southern California, is continuing to fight in the courts for fair compensation involving the safe return of stray CHEP pallets. A law firm working with NAPA have consolidated about six cases currently pending in the state between CHEP and independent pallet recyclers.
At issue is the interpretation of AB 1760, a law passed in 2022 dealing with recycler rights and obligations when it comes to handling and returning stray proprietary pallets. AB 1760 updated rules on how recyclers or junk dealers can acquire, purchase, possess or sell marked bulk merchandise pallets (rental or pooled pallets). 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.
Currently, the NAPA lawyers are seeking pallet companies in the region that would want to be part of any potential settlement if a deal can be reached. The NAPA lawyers have hired an economist to look at the cases. He is seeking to quantify the recyclers’ true cost as well as the real benefit to CHEP of those services. It is likely believed that similar to other settled cases, CHEP will insist on a gag order, which means anyone who participates will not be able to share what compensation they receive. So, if a pallet company wants to potentially be able to participate in any settlement, it needs to be part of the group before, not after a deal is reached. CHEP could offer a similar deal to anyone in the country. But given its previous cases, anything beyond its standard Asset Recovery Program (ARP) will likely be something that CHEP would not agree to voluntarily without a legal fight.
One major concern raised by the NAPA lawyers is the current legal standing of CHEP in the state of California. Ron Vera, a NAPA lawyer for some of the recyclers, wrote in a motion, “There are several defects in the complaint, including failure to state a claim and failure to specify the terms of the lease agreement which determines ownership of the pallets. A threshold issue is whether Plaintiff, CHEP USA, a foreign general partnership which has neither registered with the Secretary of State, nor completed the ‘DBA’ process in this state nor in this county, has the legal capacity and legal standing to bring this lawsuit. Due to lack of capacity to sue and be sued, this lawsuit filed by Plaintiff CHEP USA should be dismissed.”
Basically, the recyclers contend that CHEP lacks standing due to a lack of licensing in the state as well as insufficient details about the pallet leases and other critical details. CHEP contends that the recyclers involved have not obtained the pallets in good faith and thereby do not qualify for compensation under AB 1760. CHEP has pointed to the reporting and other requirements mentioned in AB 1760. For example, CHEP contends that to qualify, the pallet company has to legally buy the pallets, and that CHEP never sells its pallets. Because CHEP pallets are clearly marked and CHEP has notified the recyclers of its property rights, the pooler claims that these pallets cannot qualify for good faith status.
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.
If CHEP were to require paperwork for every stray pallet, this would substantially burden pallet users, scavengers and recyclers. This would add cost for everyone who touches the pallet. Recyclers are simply trying to turn a profit and get compensated for costs such as transportation, sorting, storage, admin/management costs, etc.
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. And of course, the main dispute is how much money recyclers in California are due for return services for proprietary pallets.
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. AB 1760 is a confusing law in many ways. It appears to outline a process that does not reflect real-world conditions in California or any other state when you look at how the pallet recycling sector functions.
If your company is in California and would want to be party to any settlement, you would likely want to meet with representatives of NAPA. The key leader in this effort is Edgar Montes of G.O. Pallets. You can reach Edgar through his company or NAPA at northamericanpallet@gmail.com.
Every pallet company must decide what road they want to take when it comes to just compensation and proprietary pallets. Being part of a larger settlement may enable you to secure more than the standard ARP. At the very least, it could be worth a look now, once a deal is reached, those outside likely won’t be able to opt into a settlement without bringing their own lawsuits.
