Potential Conflict Of Interest Clouds Freedom Industries’ Bankruptcy After WV Chemical Spill

The Freedom Industries site in West Virginia, which released 10,000 gallons of chemicals into a drinking water supply, is seen in this Jan. 13, 2014, photo. CREDIT: AP PHOTO/STEVE HELBER
The Freedom Industries site in West Virginia, which released 10,000 gallons of chemicals into a drinking water supply, is seen in this Jan. 13, 2014, photo. CREDIT: AP PHOTO/STEVE HELBER

Faced with mounting lawsuits over West Virginia’s massive chemical spill which contaminated the water supply of some 300,000 people, the company responsible filed for bankruptcy. But within that bankruptcy, another fight is looming.

According to U.S. Department of Justice bankruptcy trustee Judy A. Robbins, Freedom Industries is seeking to be represented by a law firm that may be too close to the company and its dealings. Specifically, Robbins said in a filing with the bankruptcy court on Wednesday, McGuireWoods LLP has represented both Chemstream Holdings, Inc. — the company that acquired Freedom Industries just weeks before the spill — and J. Clifford Forrest, who is both the owner of Chemstream and the owner of WV Funding LLC. WV Funding is the company that might be loaning Freedom Industries money to pull it out of bankruptcy, a fact some have said “smells of collusion.”

In addition to McGuireWoods representing Forrest and Chemstream, the firm has also represented Rosebud Mining — the third-largest coal producer in Pennsylvania, which is also controlled by Forrest. Chemstream Holdings owns Freedom, and has the same exact address as Rosebud Mining. Freedom’s peculiar company tie-ups make it hard to determine who, exactly, will be held accountable for its losses.

The question is, if Freedom itself needs to target Forrest, Chemstream or Rosebud Mining during its bankruptcy, will McGuireWoods be able to do it ethically? Federal bankruptcy law states that a law firm may only represent an estate if it is “disinterested” and does not “hold or represent an interest adverse to the estate,” so Robbins is questioning whether McGuireWoods is fit to be in charge of Freedom’s bankruptcy.


“The U.S. Trustee lacks sufficient information at this time to determine whether McGuireWoods’s representation of these entities disqualifies it from serving as [Freedom]’s counsel in this case,” Robbins court brief said. “Until [Freedom] has fully disclosed the details of its eve-of-bankruptcy acquisition by Chemstream, it is simply impossible to determine if any disqualifying conflicts have been triggered.”

The details of Chemstream’s takeover of Freedom could be useful for those who have been injured or harmed by the chemical spill, as it is a source of potential money. Part of Chemstream’s takeover allegedly included $1 million that was set aside by Freedom. And now, during bankruptcy proceedings, Freedom Industries Present Gary Southern has testified that he does not know where that money is.

“I was shocked when he couldn’t tell me the location of $1 million that was in existence in December. This is the company president,” West Virginia attorney Jesse Forbes told the Wall Street Journal. “It’s $1 million. It’s not like misplacing the car keys.”

McGuireWoods had disclosed its connections to Freedom, Chemstream, and Forrest before the Robbins’ objections. The issue though, according to Robbins, is that the judge presiding over the bankruptcy immediately approved Freedom’s request to employ the law firm, without adequately considering the potential conflicts.

“The firm will not represent [Freedom] in matters directly adverse to” Rosebud Mining, or to Forrest, McGuireWoods told the Wall Street Journal. The paper also noted that the law firm also wouldn’t be able to investigate Chemstream’s takeover of Freedom. That work would pass to West Virginia law firm Barth & Thompson, according to a court filing from McGuireWoods.


McGuireWoods spokesman Bob Lewis told the Wall Street Journal that it “takes very seriously its ethical and disclosure obligations and devotes significant resources to those matters to ensure compliance.”

As of Thursday, U.S. bankruptcy judge Ronald G. Pearson has decided to let Freedom Industries continue to be represented by McGuireWoods, but only on a temporary basis until the potential conflict of interest is investigated.