The state's largest metal recycler is being accused of dumping millions of pounds of metal that could be recycled into the Waimanalo Gulch Landfill, allegedly violating a city ordinance that currently awards the company $2 million a year in subsidies.

According to a lawsuit filed in federal court yesterday, Schnitzer Steel Hawai'i Corp. dumps about 50 million pounds of residue from the shredding of metals, mostly automobiles, into the landfill.

The lawsuit states testing shows between 5 percent to 11 percent of that residue metal could be recycled.

The suit, filed by attorneys representing competitor Paragon Metals Inc., claims Schnitzer Steel is the only company that receives city subsidies for sending metal residue to the landfill so it should adhere to the ordinance, which prohibits the dumping of recyclable materials.

The city subsidy is for companies that dispose only the residue of metal scrap in the landfill, and provides those companies with an 80 percent discount on the tipping fees it pays to dump material at the gulch in exchange for disposing of metal scrap by shipping off island or recycling it.

Markus Owens, spokesman for the city Department of Environmental Services, said in a written statement, "We recently learned of these allegations. We have no comment on the relative merits of this private dispute but because the allegations involve city programs we are carefully evaluating our operations to determine whether there are ways to further improve our programs."

The suit says Paragon's ability to compete in the scrap metal market in Hawai'i is being damaged by Schnitzer Steel's alleged activities.

Rene Mansho, community relations director for Schnitzer Steel, said the company had not seen the suit and could not comment on it specifically.

However, she said the company, formerly Hawai'i Metal Recycling Co., exports more than 130,000 tons of recycled metal each year, and the company sends about 25,000 tons of waste into the landfill each year.

About a quarter of what the company recycles is automobiles, and Mansho said residue from that metal was once recycled at the city's H-Power plant.

"It would be recyclable if H-Power would take it like they used to take it. We used to take our auto shredded residue to H-Power before they changed their policy," Mansho said. "So we take our auto shredded residue to the landfill."

Paragon Metals maintains it does not participate in the subsidy program and ships all of its metal scrap overseas.

"This means waste plus recyclable metals from neighbor island junk cars and other materials are ending up in this landfill on O'ahu," R. Patrick Jaress, an attorney for Paragon Metals Inc., said in a statement.