What Freedom Industries’ Bankruptcy Really Means For Those Harmed By The Chemical Spill

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"What Freedom Industries’ Bankruptcy Really Means For Those Harmed By The Chemical Spill"

WV chem spill

CREDIT: Foo Conner/@iwasaround

One of the largest environmental disasters in recent American history happened three days before Christmas in 2008, when more than 1 billion gallons of coal ash slurry spilled from a coal plant in Tennessee into a nearby river.

The Tennessee Valley Authority’s (TVA) plant at Kingston tainted drinking water with toxic metals, mercury, and arsenic for weeks. To clean up the mess, the Environmental Protection Agency ordered TVA to dredge the lake, and get rid of the remaining 1 million pounds of coal ash by transporting it to a 978-acre landfill in Uniontown, Alabama — a minority-heavy, low-income county nearly 350 miles away.

Storing the sludge in a faraway landfill on top of mounds of household trash, however, was far from a perfect solution. The coal ash from Tennessee’s disaster wound up blowing into Alabama’s air. Affected residents filed a notice to sue the landfill company and its permitee. In response, both entities declared Chapter 11 bankruptcy.

“Because the bankruptcy code forbids anyone from filing a lawsuit against someone who has filed for bankruptcy, we could not follow through with our lawsuit,” David Lutter, who represented the plaintiffs in Alabama, told ClimateProgress on Tuesday. “It’s essentially the same thing that’s happening in West Virginia.”

Indeed, the situation in West Virginia is similar. After contaminating the state’s drinking water with 7,500 gallons of a mysterious chemical called Crude MCHM (and possibly another chemical), the company responsible — Freedom Industries Inc. — has now declared bankruptcy, citing the combined pressure of demands for payments from creditors, and a pile of lawsuits over the spill.

The bankruptcy has many wondering what exactly this will mean for the more than 25 lawsuits that have been filed against the company, and for the people who have been harmed by Freedom Industries’ spill.

Those who claim injury from the spill are not just those who have drunk, cooked or bathed in the water — not just those who have become nauseous, developed rashes, or gone to the emergency room. Business owners, too, have lost profits after being forced to close for days on end. Workers at those businesses have lost wages. And West Virginia’s capital city of Charleston has said it has lost more than $120,000 in tax revenue over the course of the week following the disaster.

In its bankruptcy filing, Freedom Industries listed a maximum of $10 million in liabilities, or potential debts. But that $10 million is dubious — the company’s debts already include $6 million in combined debts to both the IRS and other creditors, with no lawsuits mentioned.

Now that they’ve filed for bankruptcy, however, lawyers may begin dropping their lawsuits against Freedom, according to Lutter.

“The motivation for most lawyers to pursue somebody in court disintegrates once they’ve filed for bankruptcy,” said Lutter, who wound up dropping his case against the Alabama landfill owners once they declared bankruptcy. Like Freedom Industries, the owners — Perry-Uniontown Ventures I LLC and Perry County Associates LLC — immediately filed once they were threatened with lawsuits, and immediately sold their interests in the landfill to another company (Freedom has also attempted to sell itself to another company, though that is being met with objections).

At that point, the Alabama plaintiffs could no longer seek a court order to have the landfill clean up the mess they made, Lutter said. All they could seek was monetary damages, which the bankrupt landfill owners certainly did not have.

“Most attorneys are interested in collecting money, not changing things at a facility,” Lutter said. “If the company is in bankruptcy and going through reorganization, chances are very high that the bankruptcy court is going to basically liquidate all claims against the company so that it can come out of bankruptcy and start new, which means claims are going to be paid pennies on the dollar.”

So, instead of suing the landfill owners through the more drawn out and complicated adversary proceeding process in bankruptcy court, Lutter pursued regular litigation against the non-bankrupt landfill operator, Phillips & Jordan Inc. The plaintiffs wound up with a confidential settlement.

“That’s the big downside of bankruptcy law,” Lutter said. “It’s nice to give people a fresh start, but its hard to justify giving them a fresh start when they’ve harmed people.”

Lutter is not the only one who has theorized that Freedom Industries’ bankruptcy is an attempt to avoid having to pay claims from those its chemical spill has harmed. MSNBC’s Chris Hayes called the filing a “staggeringly brazen” attempt to avoid lawsuits, additionally reporting that the company Freedom has tapped to lend it money — Mountaineer Funding LLC — is controlled by Freedom’s owner, J. Clifford Forrest.

If the loan is approved, Hayes said, “Mountaineer [will] emerge from the ashes with the same assets, but without all that nasty legal baggage.”

Still, attorneys must pursue their main interest, which is getting money for their clients who were harmed by the spill. And if they can’t get it from Freedom, they will go down other roads to get it. Some already are.

“There’s not much point to having [Freedom Industries] in our lawsuit anymore,” said Kevin Thompson, an attorney who filed a class action lawsuit against Freedom and others in federal court last week. “There’s going to be no money left. There’s gonna be nothing left. The feds are going to have control of them. There’s nothing left to do over there.”

Thompson said he would voluntarily dismiss Freedom from his lawsuit, which among other things seeks a court-ordered medical monitoring program for anyone exposed to the chemical. Instead, he will continue to pursue Eastman Chemical Company — the company that supplied the crude MCHM to Freedom — and West Virginia American Water.

Thompson did, however, say that he thinks the bankruptcy court will order Freedom to pay into a fund for site cleanup. So while money from the company probably won’t go to his clients, it will go somewhere.

“There won’t be money available to compensation, but in our view, and my clients view, its far better for that money to go to cleanup,” he said. “I’m completely thrilled that there are regulators in there and environmental professionals, and it appears that there’ll be a full blown cleanup. But if they don’t do that, then we’ll sue the Department of Environmental Protection. We’ll be there.”

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