Bank OZK held in contempt in NABORS Landfill suit, court docs reveal ADEQ/bondholder plot for taxpayer bailout

Carroll County Circuit Court Judge Scott Jackson has found the Bank of the Ozarks, now Bank OZK, to be in contempt of court over refusing to return $433,987.10 in taxpayer money to the court’s registry after ruling that the Ozark Mountain Solid Waste District’s $18 NABORS tax was unconstitutional.

Bank OZK was given until Aug. 16 to deliver the money back to the registry per a court order obtained by the Observer.

Bank OZK had previously filed a motion for stay against Jackson’s garnishment of taxpayer funds from the bank in Paul Summers v. Ozark Mountain Solid Waste District but was denied on Aug. 15.

Bank OZK will be fined $500 a day until they release the $433,987.10 in taxpayer funds to the court’s registry. The money will remain in the registry until Bank OZK’s appeal receives a ruling. The disputed funds were recently released back to Bank OZK by Pulaski Circuit Court Judge Tim Fox’s registry following his ruling that OMSWD’s $18 NABORS tax was constitutional in 2022.

The latest development marks another twist in the five-year-long saga surrounding the waste district’s attempted $18 tax on the district’s property owners to raise money to repay its bondholders after the shuttering of NABORS landfill by ADEQ in 2014.

Judge Fox’s ruling on the tax is out of line with what other judges serving within the waste district have found in various lawsuits of the year. Attorney Matt Bishop, who has been involved in the legal fight against the waste district’s tax, said OMSWD and Bank OZK often run back to Judge Fox for help after losing their cases in Baxter County and Carroll County.

OMSWD’s case continues to sit in Fox’s court and is expected to be appealed to the Arkansas State Supreme Court. Earlier in the year, Fox quietly released the money sitting in his registry back to Bank OZK.

For the last few years, the judge has been attempting to find ways to pay back OMSWD’s investors, even going so far as to order the district to sell the shuttered landfill despite ruling in agreement with the Arkansas Department of Environmental Quality that the landfill was a danger to Baxter County residents.

There are currently six summary judgments finding OMSWD’s NABORS tax unconstitutional. Carroll County formed its own waste district after leaving OMSWD in 2019.

“After we started winning, I went and garnished their account,” Bishop said. “Well, they turned around really quick and dumped it in Fox’s court, and Fox issued an order before taxpayers even had notice, saying I’ll keep the money. Well, in April, I found out that Pulaski County had given it back to Bank OZK. So, I started to garnish it.”

Bank OZK filed its appeal to that garnishment on Aug. 17.

Warnings ignored

In 2003, OMSWD, which was then known as the Northwest Arkansas Regional Solid Waste District, began considering the purchase of NABORS Landfill from RLH, Inc. in Baxter County.

During this period, OMSWD’s day-to-day operations were handled by the Northwest Arkansas Economic Development District (NWAEDD), which consisted of county judges, mayors, and several private sector representatives.

NWAEDD encompassed the same six counties as OMSWD, as well as Benton, Washington, and Madison County.

After the waste district took an interest in NABORS Landfill, NWAEDD hired IESI Corporation as a consultant to analyze the potential purchase. Shortly before deciding to proceed with the purchase, IESI sent NWAEDD a warning letter stating that they could potentially find themselves in the exact predicament that would lead to the waste district filing for bankruptcy in 2011.

Not only did OMSWD not allow IESI to assume the financial risk of NABORS Landfill, the purchase price ended up being $4 million more than the original $8 million price that the district based its financial projections on.

In addition to the extra $4 million, OMSWD was never able to require that its member cities and counties direct all waste to the landfill, which IESI correctly identified as a prerequisite to any chance of success. As the district would later state in its bankruptcy filings, the financial disasters and default on the bonds were practically foretold from the start, despite “rosy predictions” of Crews & Associates marketing materials.

In 2005, despite all of the warnings, the district purchased the landfill for $12,340,000. At the time, the landfill was subject to multiple consent orders issued by ADEQ for violations. It was also filled past capacity in two of its three cells.

To fund the purchase, OMSWD issued revenue bonds through Crews & Associates, now a subsidiary of First Security Bank, which then marketed them to “sophisticated investors. Purchasers included First Security Bank, Farmers & Merchant Bank of Magnolia, and clients of Crews & Associates.

The bond payments were managed for the bondholders by Bank OZK, who served as bond trustee.

When marketing the bonds, Crews & Associates notified investors that the bonds could only be repaid from “revenues generated from the facility and the hauling company, the district has no taxing power.” Investors were told they should also “understand that investments pose a risk of loss of principal.”

The beginning of the end

For several years after the purchase, OMSWD could make its bond payments. However, those payments didn’t last for long.

In 2010, with mounting administrative orders from ADEQ over several violations, NABORS landfill and the investment the district hoped to cash in on began to falter. The district would stop making payments on its bonds the following year.

In addition to its financial woes, after taking back control of NABORS Landfill from NWAEDD in 2009, an audit discovered a shortfall of $503,806. This shortfall resulted from NWAEDD transferring funds from the waste district’s account into its general account for its own use.

NWAEDD has a long history of financial mismanagement, with a 2015 legislative audit finding that the organization owed $1,168,285 to various agencies. At the time, former Baxter County Judge Mickey Pendergrass had requested the audit after water was cut off at the Van Matre Senior Center for non-payment in 2014.

That audit revealed that NWAEDD was essentially cooking its books by transferring money back and forth from various agencies to cover up inadequate cash flows. On paper, the organizations that NWAEDD operated appeared to be doing fine, but behind the scenes, they were failing.

NWAEDD’s director at the time was also found to have been double dipping with various funds.

The waste district failed to find and reclaim its missing $503,806 from NWAEDD. By 2012, all operations at NABORS had ceased.

In Feb. 2013, ADEQ filed suit against the district in Baxter County Circuit Court. The suit requested that OMSWD be compelled to comply with various environmental regulations and administrative orders. The district filed for bankruptcy in 2014.

Plotting a taxpayer bailout

After filing for bankruptcy, ADEQ and Bank OZK approached OMSWD with a plan to shift their unpaid bonds and the cost of NABORS Landfill back to taxpayers.

To do this, ADEQ and Bank OZK focused on a 2011 amendment to Ark. Code Ann. 8-6-714, which originally provided that a solid waste district could charge a fee for its work and nothing else.

That statute was modified in 2011 to “charge fees and charges that will support the programs mandated by statute, but for which no other means of funding exists.”

Under this new version, OMSWD could charge a “tipping fee” for the movement of waste within the district contingent upon the district providing certain specific services.

While the district did enact the tipping fee, the damage had already been done, with the district needing millions of dollars to maintain its landfill, not the $15,000 per month the fee generated. Court documents reveal that the district’s investors found the tipping fee unsatisfactory and began pushing OMSWD to impose a charge upon the residences in the district’s six counties.

OMSWD knew this was not an option and pleaded in bankruptcy court, stating, “As the District did its best to explain to its creditors, this provision applied only if the levying entity were providing waste-hauling services. These services are provided not by the Debtor District… moreover, Debtor would not be levying such fees for disposal services anyway. It would be levying fees to pay down old debt.”

While some assets secured the district’s bondholders, ADEQ had no options for recovery of the money it was spending to shutter NABORS Landfill after winning its judgment in court.

So, it turned to former Arkansas State Senator Johnny Key, who also served as the Arkansas Commissioner of Education from 2015 until this year. Key represented Baxter, Marion, and Boone counties at the time.

In the 2014 ADEQ appropriations bill, Act 274, Key quietly bestowed a gift on ADEQ and OMSWD’s bondholders by placing a little-noticed amendment in the bill that changed the Landfill Post-Closure Trust Fund.

The fund, which was created in the 80s, could only cover the costs of maintaining landfills after the landfill was no longer accepting waste and had been certified as “closed” by ADEQ if the owner could no longer maintain the landfill post-closure.

Under Key’s change, the fund could now be used by ADEQ to close NABORS Landfill, despite being in direct conflict with Ark. Code Ann 19-5-979, which created the Landfill Post-Closure Trust Fund. Ark. Code Ann 19-5-979 was never amendment or repealed following the implementation of Act 274.

The change also allowed ADEQ to sue other governmental entities for recovery of funds and authorized a settlement between the offending district and ADEQ, providing the district’s bondholders were satisfied.

Act 274 was never published to the public and still remains in conflict with Ark. Code Ann 19-5-979. In summary, Key delivered the bailout bondholders and ADEQ sought. And it was done in a way that the public would have no notice unless “they read the very last pages of unpublished bills funding government operations.”

Following the passage of the 2014 ADEQ appropriations bill, ADEQ was granted summary judgment in the Baxter County case against OMSWD. The order turned over control of OMSWD’s bank accounts to ADEQ to the tune of $2.5 million. ADEQ was also granted total control of NABORS landfill.

The waste district’s bankruptcy case was then dismissed. NABORS Landfill legally remains open today. ADEQ never filed a certificate of closure for the landfill despite taking money from the Landfill Post-Closure Trust Fund to close and maintain the site.

The City of Mountain Home officially requested that ADEQ issue a closure certificate for NABORS Landfill in July.

Hell-bent on every thin dime

In Oct. 2014, Bank OZK attorney Lance Miller contacted Geoffrey Treece about serving as the receiver when the district’s bondholders made their move to put their “service fee” plan into action.

Bank OZK would file a suit on behalf of bondholders on Dec. 2, 2014, requesting a receiver for OMSWD to be appointed. ADEQ was not named in the lawsuit, nor was it ever served with notice.

Despite this, ADEQ moved to intervene in Bank OZK’s suit before a receiver was appointed. In its motion to intervene, ADEQ sought no relief from OMSWD and specifically sought no reimbursement from the district for expenditures from the Landfill Post-Closure Trust Fund. Its motion was granted on May 8, 2015, and Geoffrey Treece was appointed receiver on May 15, 2015.

Three weeks later, ADEQ and the bondholders via Bank OZK began advocating for taxpayers to bail them out. Lorielle Gutting, then the acting chief of ADEQ’s legal division, approached Treece with ADEQ’s plan for the Ark. Code Ann. 8-6-714 “service fee” charge to taxpayers that ADEQ and district bondholders had wanted for so long.

ADEQ did not amend its filing in either the Baxter County or Pulaski County lawsuit to request reimbursement from OMSWD.

In March 2016, Treece began circulating drafts of his proposed report to two attorneys of Bank OZK, Michael Ptak and Lance Miller, and to Butch Lomax, a managing director of Crews & Associates.

Crews & Associates were not a party to any litigation surrounding NABORS Landfill and had resisted attempts to ascertain if it was a bondholder. Nevertheless, by April 2016, Lomax was demanding quicker action by Treece, and a meeting was held between Lomax, at least on Bank OZK attorney and Treece to discuss their next steps.

In late May of 2016, Treece met with Becky Keogh, who was then serving as the Director of ADEQ, and Michael McAlister, Managing Attorney for ADEQ. Keogh now serves as the State Infrastructure Coordinator for the Arkansas Department of Finance and Administration.

According to Treece’s testimony, Keogh made it clear that ADEQ was “hell-bent” on recovering every “thin dime” it had spent on OMSWD issues. To meet those demands, Treece returned to the drawing board to impose the fee on taxpayers.

OMSWD’s attorney was not involved in the discussion, though he never objected to the plan in the Pulaski County case. ADEQ did not amend its filings after the meeting.

In July 2016, Treece emailed attorneys for OMSWD, Bank OZK, ADEQ, and Lomax the details of his plan. Unsurprisingly, he adopted ADEQ’s and the bondholder’s long-sought plan for a taxpayer bailout. He promised to provide a draft shortly. By August, Crews & Associates became frustrated and began pushing for Treece for faster action.

In his May 2019 testimony, Lomax stated he was unsure if Crews & Associates or its parent company, First Security Bank, were bondholders. He could not answer why he was so eager for Treece to move forward.

In court, Crews & Associates, First Security Bank, and Bank OZK objected to disclosing any information about the identity of bondholders. They filed multiple motions to quash discovery on the subject.

Treece responded to Lomax’s prodding, and the draft of his report was circulated and tweaked by all parties over the next two months before finally being filed in the Pulaski County case in Nov. 2016. The report almost completely adopted the plan proposed years earlier by ADEQ and the bondholders.

The report sought to impose an $18.00 charge on all improved property owners within the six counties comprising OMSWD using Ark. Code Ann. 8-6-714(d) as its statutory basis. Treece suggested that Fox’s court approve and adopt the fee in April 2017 with no objection from OMSWD.

The tax, set to run for 20 years, would have generated a total payment of $11,090,000 to Bank OZK for the benefit of its bondholders and $16 million to ADEQ, with any remaining funding going toward OMSWD.

OMSWD currently earns between $700,000 and $900,000 in fees per year, with net revenues over $200,000. This does not include money raised from the $18 tax. Treece did not attempt to utilize any of the district’s current funding to pay off its creditors. In fact, despite the district’s net positive cash flow, Treece proposed that OMSWD receive even more money from the $18 tax.

Ark. Code Ann 8-6-714(d) requires OMSWD’s board to take action to impose a service fee. The board has never disbanded and still regularly meets. OMSWD and its board members have never voted to impose the $18 tax proposed by Treece.

Michael McAlister, an ADEQ managing attorney who testified in the case, testified that ADEQ is not seeking relief from taxpayers but did not object to Treece’s plan to pay them. Treece testified that he was told very clearly by former ADEQ Director Keogh that ADEQ would collect all expenditures from the district.

He also testified that he was told that ADEQ was considering suing the municipalities and counties pursuant to their special litigation. ADEQ declined to intervene in the Carroll County cases.

This “change of heart,” Treece testified, was due to the Governor’s Office becoming “weak-kneed” in the face of political blowback from the $18 tax.

In late 2017, Pulaski Circuit Judge Fox signed off on the tax, and Treece began contacting the tax collectors in the district’s six counties, requiring them to put the charge on property owners’ tax invoices.

In the case of Carroll County, the tax was collected in 2018 and 2019.