A California trial court recently overturned a jury verdict finding Recology San Francisco liable for violating the California False Claims Act (CFCA) and granted Recology’s motion for a new trial. The court’s ruling comes three months after the jury awarded over $1.3 million in penalties and damages.

In McVeigh, et al, v. Recology, et al., San Francisco Superior Court, Case No. CGC10504569, the qui tam plaintiff, Brian McVeigh, alleged that Recology submitted 157 false claims to the State of California relating to reimbursements Recology received for recycled goods. McVeigh, a former Recology employee, alleged that Recology received inflated payments from the California Department of Conservation based on Recology’s inaccurate representations of the weight and source of goods Recology sold to third parties. According to the complaint, Recology’s employees engaged in “tag inflation”—a process whereby Recology attendants weighed customers’ recyclables and issued a “tag” to customers indicating the weight of goods submitted, but recorded more weight on the tag than the weight of the recyclables actually submitted. This resulted in inflated payments to customers and potential kickbacks to the attendants.

McVeigh also alleged a scheme to defraud the City and County of San Francisco based on payments Recology received pursuant to its agreements with San Francisco to provide garbage and recycling services. As part of these agreements, San Francisco and Recology agreed to establish an interest bearing Diversion Incentive account that is funded by a portion of the rates paid by San Francisco and others serviced by Recology in San Francisco. Recology allegedly fraudulently underreported the tons of materials disposed in landfills to obtain incentive payments from the Diversion Incentive account.

On June 17, 2014, the jury found that Recology submitted a false claim to the City in 2008 and awarded over $1.3 million in penalties and damages. It ruled in favor of Recology on all other claims.

Recology and McVeigh both filed motions for judgment notwithstanding the verdict and for a new trial. The court denied plaintiff’s motions but granted Recology’s motion for a new trial on the jury’s finding that Recology submitted a false claim to the City in 2008.  The court ruled that there was insufficient evidence to support the jury verdict and explained that “the claim required proof that some City money was part of the Diversion Incentive Account from which the false claim was paid. No such evidence was presented at trial nor was there any evidence presented from which a reasonable inference that the account included City money could be drawn.”