One Company's Travails in Trying to Recycle Polystyrene

One Company's Travails in Trying to Recycle Polystyrene

Ultimately, Evergreen found itself unable to attract customers who would pay it to remove their waste products or pay a premium for polystyrene products containing recycled resin.

Evergreen Partnering Group (Evergreen) believed it could succeed where others had failed. Its goal was to turn a profit by recycling polystyrene products. Under its business model, Evergreen, founded by Michael Forrest in 2000, would collect, for a fee, used polystyrene products, process them into a recycled polystyrene resin, and sell its resin to converters to use in a "green foam" line of new polystyrene products.

By charging converters a commission on the products sold containing its resin, Evergreen hoped to keep the price of its resin competitive with virgin resin, and it believed the commission reflected the market's willingness to pay a premium for "green" products. Moreover, Evergreen envisioned a system where suppliers of used polystyrene would themselves purchase polystyrene products made from their transformed feedstock.

Starting in 2002, Evergreen began seeking partnerships with polystyrene converters. Over the next several years, it contacted several small companies without success. Evergreen set up its first independent recycling plant in Norcross, Ga., in 2005. The following year, a Georgia school district, Gwinnett County Public Schools began paying Evergreen to collect its used polystyrene lunch trays. Evergreen then began targeting what it believed to be the five largest converters of polystyrene products —Dart Container Corp. (Dart), Dolco Packaging (Dolco), Genpak LLC (Genpak), Pactiv Corp. (Pactiv) and Solo Cup Co. (Solo) – referred to hereafter as the Big Five.

Initially, Dolco and Genpak showed interest in working with Evergreen. Forrest approached Dolco in mid-2005 about the distribution company Sysco's interest in an “Earth Plus” product line containing Evergreen's resin. Dolco appeared receptive and representatives from Sysco, Dolco, and Evergreen met about a possible deal in November 2005. A month later, Dolco made a formal proposal to Sysco and told Evergreen it would be willing to pay a royalty to use its recycled resin as long as the relationship could be profitable. Sysco, however, eventually backed out and the deal fell through.

Genpak began making lunch trays using Evergreen's resin in late 2006 and submitted a bid to Gwinnett Schools (who was already paying Evergreen to remove their trays) to supply it with trays for the 2007-2008 school year. Gwinnett Schools subsequently selected Genpak which had outbid Pactiv for the contract.

In 2007, Forrest approached Genpak's president, Jim Reilly, about financing a new Evergreen recycling plant in California as well as upgrades to Evergreen's Norcross facility. Reilly told Forrest he should submit his funding proposal to the Plastics Foodservice Packaging Group (PFPG) a subgroup of the trade association, American Chemistry Council (ACC). The Big Five were members of the PFPG at one time or another. At the time, PFPG was particularly concerned with local and state initiatives to ban polystyrene products due to the perception that polystyrene was not recyclable.

In mid-May, 2007, PFPG held a conference call with Forrest to discuss Evergreen's intention to expand to California. About a week later, Forrest submitted two proposals to PFPG Senior Director, Michael Levy, requesting that PFPG help Evergreen expand its operations to California. As a follow-up, PFPG members held a conference call on May 31, 2007, to discuss Forrest's proposals. Afterwards, Levy notified Forrest that PFPG had rejected all of his proposals. Forrest later submitted two additional proposals to PFPG, which were also rejected. Without funding and nowhere else to turn, Evergreen did not build a California recycling plant.

Forrest became suspicious that, during the conference call, the PFPG members not only rejected funding Evergreen's proposals, but also agreed that no individual converter would make deal with Evergreen that involved the payment of commissions. Moreover, Forrest believed the call produced an agreement among the PFPG members to promote a sham competitor called Packaging Development Resources of California, LLC (PDR) —a California-based polystyrene recycler whose business model relied entirely on selling its recycled resin and had no commission component —to block Evergreen's access to polystyrene end users.

Meantime, Evergreen continued to negotiate with the Big Five to try to obtain an agreement that included both the purchase of resin and the payment of commissions. Genpak and Dolco entered a joint funding agreement with Evergreen in July 2007, each agreeing to provide Evergreen with $75,000 and to purchase any "acceptable quality" resin that Evergreen produced for $0.85 per pound but rejecting any commission requirement. Evergreen also began negotiations with Solo, which later purchased resin to test in May 2008 but stated it would not accept any deal that included a commission payment. For their part, Pactiv and Dart tested samples of Evergreen's resin throughout 2008 and 2009 without reaching an agreement.

Ultimately, Evergreen found itself unable to attract customers who would pay it to remove their waste products or pay a premium for polystyrene products containing recycled resin. Genpak unsuccessfully bid to supply Gwinnett Schools with trays containing Evergreen's resin for the 2008-2009 school year. Pactiv won the contract with a lower bid. Left without any converter partners, Evergreen shut down its Norcross facility in May 2008 and opened a smaller recycling plant in Lawrenceville, Georgia. The smaller facility closed in October 2008 and Evergreen ceased operations.

In 2011, Evergreen and Forrest filed a complaint in federal district court alleging that the Big Five and the ACC (collectively, the “defendants”) agreed to boycott Evergreen in violation of the Sherman Antitrust Act. The Act is a landmark federal statute passed by Congress in 1890. It prohibits certain business activities deemed to be anticompetitive, including “... every contract ... or conspiracy in restraint of trade or commerce.” A Sherman Act violation may occur when a group of independent competing firms engage in a concerted refusal to deal with a particular supplier, customer, or competitor. However, the Act covers only “agreements” but not independent decisions, even if they lead to the same anticompetitive result as an actual agreement might have done.

In essence, Evergreen claimed that the defendants conspired to prevent its recycling model involving commission payments from becoming viable by rejecting any agreements that involved commissions and by blocking its access to other customers through the promotion of PDR. Evergreen argued that these actions constitute a group boycott prohibited by the Act.

Following discovery, the defendants moved for summary judgment in their favor, and the district judge granted their motion. Summary judgment was appropriate if there were no important facts in dispute about whether the defendants entered into an illegal conspiracy that injured Evergreen. The district court concluded, with guidance from a 1986 U.S. Supreme Court decision, that Evergreen failed to present evidence excluding the possibility that each polystyrene manufacturer independently chose not to partner with Evergreen. The U.S. Court of Appeals for the First Circuit agreed with the district court's reasoning and affirmed the ruling against Evergreen.

Evergreen relied primarily on a deposition statement made by Robert Kingsbury of Dow Chemical that the PFPG "wanted to pick a winner" during the May 31, 2007, conference call. Evergreen argued that Kingsbury's statement must be interpreted to mean that the PFPG intended to pick PDR as the winner, leaving Evergreen as the loser. In short, the defendants agreed to promote PDR, thus denying Evergreen access to end users of polystyrene products.

 “We do not think Kingsbury's statement about picking a winner can reasonably —let alone unambiguously —be construed as meaning that [PFPG] decided to throw its support behind PDR to Evergreen's detriment during the conference call,” the appeals court concluded. “In context, Kingsbury's statement cannot be interpreted as referring to winners and losers in any kind of anticompetitive sense ... [only] that [PFPG] wanted to support proposals that would be successful —i.e., those that would be successful in combating polystyrene bans by showing that polystyrene was recyclable.”

Although Evergreen claimed that the PFPG blocked its access to polystyrene end users who could either supply used polystyrene products (which Evergreen could recycle into resin) or purchase polystyrene products containing Evergreen's recycled resin, its only evidence was that the PFPG introduced PDR to polystyrene users – not that the PFPG discouraged these users from

working with Evergreen, let alone interfered with Evergreen's access. “We note that antitrust laws allow trade associations to make nonbinding recommendations about businesses and products,” the opinion stated.

Evergreen argued that, even without direct evidence of a conspiracy, the court could reasonable infer a conspiracy from the overall circumstances, including the fact that each of the defendants refused to pay commissions on any products sold containing Evergreen's recycled resin and each of them had economic motive to collude.

 “[I]n the context of price-fixing schemes, ‘[m]ere parallelism … does not even create a [superficial] conspiracy case.’ * * * This principle is equally applicable to group boycotts —that is to say, universal refusals to deal alone are insufficient to support an inference of conspiracy,” the appellate panel stated. “Moreover, even if in isolation, [a] defendant's refusal to deal might well have sufficed to create a triable issue, the refusal to deal ha[s] to be evaluated in its factual context. * * * Where the challenged conduct is as consistent with permissible competition as with illegal conspiracy, a plaintiff must present evidence that tends to exclude the possibility that the alleged conspirators acted independently.”

Evergreen Partnering Group, Inc. v. Pactiv Corporation, et al., No. 15-1839, 1st Cir., Aug. 2, 2016.

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