Bloomberg
Kalamazoo Cleanup Delayed After Lyondell Bankruptcy
Environmentalist Jeff Spoelstra says an 80-mile stretch of the Kalamazoo River that runs through toxin-laced land in southwestern Michigan was on its way to becoming safe again. The area, once home to Potawatomi Indians and Dutch celery farmers, was finally on the verge of getting cleaned up.
Then, in January 2009, Lyondell Chemical Co. filed for bankruptcy protection. The Houston-based petrochemical giant argued in court that as it reorganized, it could avoid what the U.S. Environmental Protection Agency said were about $2.5 billion in cleanup costs for the river, which flows into Lake Michigan, and another $2.5 billion in liabilities at 10 other polluted spots across the country.
The filing threw the EPA’s plan into turmoil, Bloomberg Markets magazine reports in its May issue.
About 47,000 hazardous waste sites were fouling U.S. air, land and water at the end of 2007, the latest EPA figures show. States, reeling from $196 billion in deficits this year, can’t handle the cleanup costs. And the federal Superfund, created by Congress in 1980 to go after polluters at the worst sites and foot the bill when they couldn’t pay, fell to about $1.3 billion in 2007 from about $1.5 billion in 1999.
Companies navigating the worst economy in generations say they’re strapped, too. Lyondell, part of Rotterdam-based LyondellBasell Industries AF, became one of the 60,837 businesses filing for bankruptcy in the U.S. last year, a 40 percent jump from 2008, according to the American Bankruptcy Institute.
Investors Suffer
Bankruptcy has an advantage for companies with liabilities: It can clear a firm of legal claims, which companies argue can extend to toxic-removal costs.
Investors suffer in any bankruptcy. Shareholders can be wiped out, while bondholders and hedge funds trading in a company’s debt are at the mercy of the bankruptcy judge.
If a company has to pay the billions the U.S. seeks for cleanups, its debt investors can end up getting pennies on the dollar. If the decision goes the other way, the costs can fall on taxpayers.
“It’s a no-win situation,” says Evan D. Flaschen, a bankruptcy lawyer at Bracewell & Giuliani LLP, who isn’t involved in cases mentioned in this story.
“If the debtor can walk, the toxins keep boiling, often getting worse with time. If the debtor has to pay billions for a cleanup, they might go out of business, losing thousands of jobs. Pick your poison.”
Money From Stone
No one has found a solution.
“Congress should have created a priority for this kind of liability,” says Joel Gross, a former chief of environmental enforcement at the U.S. Department of Justice who now practices bankruptcy law at Arnold & Porter LLP in Washington. “You can’t get money from a stone.”
At least $13.2 billion in environmental costs were at stake at the end of February in just four cases in U.S. Bankruptcy Court in lower Manhattan: Lyondell, fellow chemical makers Chemtura Corp. and Tronox Inc., and General Motors Co.
These companies, sometimes along with others, are responsible for more than 200 sites polluted during the past century, according to EPA documents.
The companies say their bankruptcy filings entitled them to steer clear of cleanup costs at sites where a corporate predecessor or related company did the polluting.
Nobody Wins
Firms in Chapter 11 that can’t cover environmental claims may end up liquidating, firing employees and hurting bondholders and other investors.
Natasha Labovitz, a lawyer with Kirkland & Ellis LLP in New York who represents Chemtura, says uncertainty about the company’s environmental costs is a barricade to reorganizing.
“The U.S. has incentive to make as big a claim as it can; there will be no chance to broaden it later,” she says. “The numbers may come in far lower.”
Middlebury, Connecticut-based Chemtura, which filed for bankruptcy in March 2009, is trying to avoid cleanup costs for 197 sites, according to EPA claims. Among them is the Gowanus Canal, a 1.8-mile (2.9-kilometer) stretch of brackish tidal water that extends from New York Harbor into Brooklyn.
The U.S. Justice Department, on behalf of the EPA, has identified polychlorinated biphenyls (PCBs), pesticides, metals and other toxins in the canal. The issue is being decided by a U.S. district judge after the company lost a fight with the government in which it sought to keep the decision in the hands of a federal bankruptcy judge.
‘Just Not Enough’
Lyondell came to a settlement behind closed doors and set aside $250 million to cover all of its environmental costs, according to a March 1 announcement. The EPA had been trying to get it to pay $5 billion.
“It’s just not enough,” says Spoelstra, who heads the environmental group Kalamazoo River Watershed Council.
He says there’s a chance he’ll never see the PCBs cleaned up and that the toxins in the river and its banks will seep through groundwater into the local aquifer. PCBs, banned by the EPA since 1976, have been found to cause cancer in animal studies. They penetrate skin, build up in the food chain and are difficult to degrade, according to the federal Agency for Toxic Substances and Disease Registry.
“There’s a cost to human health,” Spoelstra says.
“This settlement balances the priorities of environmental law with bankruptcy law,” said David Harpole, a Lyondell spokesman. “The formation and funding of the environmental trust provides a fair and equitable resolution of claims against these assets in Chapter 11. It provides funding for the remediation of these affected properties that would not otherwise exist.”
In another matter, parent LyondellBasell may face a U.S. bribery probe after telling prosecutors about a potentially improper payment linked to a project in Kazakhstan, according to four people with knowledge of the matter. LyondellBasell told the U.S. Justice Department it uncovered conduct that raised “compliance issues” under the U.S. Foreign Corrupt Practices Act, according to a March 30 court filing in Manhattan. A review of international holdings by a management team installed after the parent company’s bankruptcy triggered the disclosure, Harpole said.
Carp Corpses
Kalamazoo emerged as an environmental flash point more than half a century ago. In 1953, Life magazine published “Four acres of carp corpses on the Kalamazoo,” a photo that showed a massive fish kill traced to paper mill emissions.
The EPA singled out Lyondell to shoulder much of the cleanup cost after finding that a predecessor to its Millennium Holdings LLC unit dumped the PCBs from a paper-recycling business. Millennium and Georgia-Pacific LLC signed a consent order with the EPA, agreeing to restore a portion of the river.
“Kalamazoo was Celery City,” Spoelstra says. “Then it was Paper City. I don’t know what we are nowadays. The poster child for PCBs?”
Daniel Esty, a professor of environmental law at Yale University who advised President Barack Obama’s campaign on environmental issues, says some companies may file for bankruptcy to avoid cleanups. W.R. Grace & Co., the Columbia, Maryland-based specialty chemicals and construction materials company that filed for bankruptcy in 2001, said in its 2009 reorganization plan that a fight over the size of asbestos liabilities delayed its efforts to reorganize.
‘Moral Hazard’
“There’s a risk of moral hazard if companies can get out of responsibilities too easily,” Esty says, adding that he sees just two solutions: The EPA has to get tougher or Congress needs to resolve the issue.
“As a society, we lose when bankruptcy wipes the slate clean for the company,” he says.
Today, companies, governments and investors are wrestling over an even smaller pie in bankruptcies than they had before the credit crisis that began in 2007. Moody’s Investors Service says $700 billion of debt issued by firms with non-investment grade ratings will mature from 2012 to 2014.
The EPA collects just 23 percent of the amount a bankrupt company owes for a cleanup compared with 94 percent for a nonbankrupt firm, spokeswoman Deb Berlin says. Bankruptcies also make it difficult for the agency to settle with healthy companies at sites with multiple polluters.
More Aggressive
Esty says the Obama administration is becoming more aggressive in going after polluters. The Justice Department’s Environment and Natural Resources Division has increased the hours that attorneys work on bankruptcies with environmental issues, spokesman Andrew Ames says.
He cites the biggest recovery the EPA has ever gotten in a bankruptcy, from mining company Asarco LLC. In December, Grupo Mexico SAB, which owns Asarco, agreed to pay $1.79 billion for cleanup costs at 80 sites in the U.S.
Lyondell’s alleged Kalamazoo River pollution started with Allied Paper Inc., which dumped PCBs into the water from 1954 to 1985, according to EPA claims. Allied is now defunct.
SmithCorona Marchant Inc., a typewriter maker that no longer exists, bought Allied in 1967. Hanson Plc, a British building-materials company, acquired SmithCorona Marchant in the 1980s before splitting itself into four firms. One of Hanson’s 1996 spinoffs was Millennium Chemicals. Lyondell acquired Millennium Chemicals, which is related to Millennium Holdings, in a 2004 stock swap.
Stuck With Bill
If Lyondell had to pay the $5 billion the U.S. sought, the company’s creditors, claiming $23 billion, would have had their recoveries cut by almost 20 percent. As it stands, unsecured creditors will get just 16.8 cents on the dollar, according to Lyondell’s March 8, 2010, reorganization outline.
Because Lyondell settled and avoided further cleanup costs, Georgia-Pacific may be stuck with a larger bill. Georgia- Pacific spokeswoman Gail Smith says her company shouldn’t have to pay the entire cost.
“Lyondell should not be able to avoid liability for the Kalamazoo cleanup through bankruptcy,” she says.
Companies in bankruptcy can argue that environmental liabilities are just like other claims -- and that they can ditch them to get a fresh start.
“There’s a basic tension between environmental law -- with the principle that the polluter should pay, no matter how long ago it was -- and a belief in the bankruptcy code that there is a clean break with the past,” says Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey.
‘Keep Coming Back’
Subsidiaries, spinoffs and mergers complicate the issue by creating uncertainty over who the polluter is. Labovitz, the lawyer representing Chemtura, says her client is one of many companies with a long history at locations such as the Gowanus Canal. Now that Lyondell has settled, there’s still no clear law that resolves the conflict Lubben cites.
Labovitz says the issue is ripe for a Supreme Court ruling but nobody wants to be the guinea pig for a legal journey that could tie the company up in bankruptcy proceedings for years.
“Though historically these issues have been resolved by settling, they keep coming back,” she says. “It’s a lot of legal expense and distraction.”
For communities living with pollution, just figuring out who to sue can be a challenge. In 2003, the Mount Canaan Full Gospel Church Inc. in Birmingham, Alabama, began building a school on its property. During the digging, an oily smell erupted from the ground.
Complicated History
The church first sued Kerr-McGee Corp., Allied Energy Corp. and Colonial Pipeline Co. in U.S. District Court in Jefferson County, Alabama, in April 2006. It sought property damages, blaming toxins from a nearby petroleum facility.
In June of that year, Anadarko Petroleum Corp. acquired KerrMcGee, which in March had split off a new company called Tronox. Three years later, in January 2009, Tronox filed for bankruptcy. The church’s case moved to U.S. Bankruptcy Court in New York, where it met another logjam.
Tronox blamed Kerr-McGee and Anadarko for the pollution. It sued both of them in May 2009, alleging that Kerr-McGee fraudulently hid its role and had gone so far as to classify some properties as “secret sites.”
The U.S. intervened in May 2009, claiming in court documents that it was the largest creditor of Tronox and was owed what could be recovered from the hundreds of millions in environmental costs that Kerr-McGee had tried to avoid.
Day in Court
Court papers filed in Tronox’s bankruptcy list EPA claims for costs at 12 named hazardous sites, 270 labs or chemical manufacturing sites and more than 600 mining-related sites.
“We conduct our business with the utmost integrity and we’re not responsible for Tronox’s financial condition,” Anadarko spokesman John Christiansen says.
Four years later, the church still hasn’t had its day in court -- which is now almost 1,000 miles away. Lanny Vines, a lawyer for the church at Lanny Vines & Associates LLC in Birmingham, didn’t return calls for comment.
For General Motors, which reorganized its most profitable businesses and partially exited bankruptcy in July, the fate of toxic liabilities is up in the air. As a part of its Chapter 11 filing, GM left unattractive assets to be liquidated, including two units it created in the 1980s to hold environmental liabilities.
GM Units
In October, those companies entered bankruptcy, with dozens of claims against them and scant money for a cleanup. The two GM units still in bankruptcy owe about $1.2 billion in cleanup costs for 52 locations, EPA documents show.
One of the sites is a former waste-oil refining operation in Dearborn, Michigan, where the automaker disposed of hazardous substances in the 1980s, according to the EPA. The agency found PCBs, lead, arsenic, chromium, cadmium and barium at the facility. Dearborn Refining Co., which ran the business from the 1940s to 2005, failed to pay taxes, making the city of Dearborn the owner.
Robert McCann, a spokesman for the Michigan Department of Environmental Quality, says he doesn’t know whether the GM divisions that remain in bankruptcy will cover their debts. The state hasn’t even completed studies to determine the extent of pollution.
If the bankrupt units and the Superfund can’t pay, McCann says Michigan will be stuck with a gigantic bill it has no way to cover.
“As unsecured creditors, claimants have a legal path to have their claims satisfied on a pro rata basis with the proceeds” from the company’s bankruptcy assets sale, said Greg Martin, a GM spokesman. He said that if the company had been liquidated, unsecured creditors would have received nothing.
Health Risks
The state cleanup fund, which was unable to raise money through an attempted bond issue in 2008, once had $1 billion. It ran out of money in early 2009.
“Our last few dollars are being spent shutting down cleanup processes we can’t afford to finish,” McCann says.
As states and taxpayers wonder how many hazardous sites could be thrown into their laps by rising bankruptcies, no one has even begun to determine the long-term health risks of the pollution, Spoelstra says.
Infertility, lower I.Q. scores, stillborn babies and immune system complications are caused by one of Chemtura’s products, according to 18 scientists, doctors and others who filed court documents in March as part of a public-interest group seeking $9 billion. Chemtura’s bankruptcy judge, Robert Gerber, dismissed the claim, saying the group didn’t follow proper procedures for bringing its claim.
Kalamazoo Vice Mayor Hannah McKinney says the city and about a quarter million people served by a local aquifer fear their tap water may be at risk from carcinogenic PCBs now that Lyondell’s settlement has become final.
“It’s the most-maddening thing,” McKinney says. “It’s the community that’s going to lose.”
Beyond Kalamazoo, towns and cities wrestling with environmental cleanups and growing bankruptcies may find themselves stuck in the same toxic quagmire.
Then, in January 2009, Lyondell Chemical Co. filed for bankruptcy protection. The Houston-based petrochemical giant argued in court that as it reorganized, it could avoid what the U.S. Environmental Protection Agency said were about $2.5 billion in cleanup costs for the river, which flows into Lake Michigan, and another $2.5 billion in liabilities at 10 other polluted spots across the country.
The filing threw the EPA’s plan into turmoil, Bloomberg Markets magazine reports in its May issue.
About 47,000 hazardous waste sites were fouling U.S. air, land and water at the end of 2007, the latest EPA figures show. States, reeling from $196 billion in deficits this year, can’t handle the cleanup costs. And the federal Superfund, created by Congress in 1980 to go after polluters at the worst sites and foot the bill when they couldn’t pay, fell to about $1.3 billion in 2007 from about $1.5 billion in 1999.
Companies navigating the worst economy in generations say they’re strapped, too. Lyondell, part of Rotterdam-based LyondellBasell Industries AF, became one of the 60,837 businesses filing for bankruptcy in the U.S. last year, a 40 percent jump from 2008, according to the American Bankruptcy Institute.
Investors Suffer
Bankruptcy has an advantage for companies with liabilities: It can clear a firm of legal claims, which companies argue can extend to toxic-removal costs.
Investors suffer in any bankruptcy. Shareholders can be wiped out, while bondholders and hedge funds trading in a company’s debt are at the mercy of the bankruptcy judge.
If a company has to pay the billions the U.S. seeks for cleanups, its debt investors can end up getting pennies on the dollar. If the decision goes the other way, the costs can fall on taxpayers.
“It’s a no-win situation,” says Evan D. Flaschen, a bankruptcy lawyer at Bracewell & Giuliani LLP, who isn’t involved in cases mentioned in this story.
“If the debtor can walk, the toxins keep boiling, often getting worse with time. If the debtor has to pay billions for a cleanup, they might go out of business, losing thousands of jobs. Pick your poison.”
Money From Stone
No one has found a solution.
“Congress should have created a priority for this kind of liability,” says Joel Gross, a former chief of environmental enforcement at the U.S. Department of Justice who now practices bankruptcy law at Arnold & Porter LLP in Washington. “You can’t get money from a stone.”
At least $13.2 billion in environmental costs were at stake at the end of February in just four cases in U.S. Bankruptcy Court in lower Manhattan: Lyondell, fellow chemical makers Chemtura Corp. and Tronox Inc., and General Motors Co.
These companies, sometimes along with others, are responsible for more than 200 sites polluted during the past century, according to EPA documents.
The companies say their bankruptcy filings entitled them to steer clear of cleanup costs at sites where a corporate predecessor or related company did the polluting.
Nobody Wins
Firms in Chapter 11 that can’t cover environmental claims may end up liquidating, firing employees and hurting bondholders and other investors.
Natasha Labovitz, a lawyer with Kirkland & Ellis LLP in New York who represents Chemtura, says uncertainty about the company’s environmental costs is a barricade to reorganizing.
“The U.S. has incentive to make as big a claim as it can; there will be no chance to broaden it later,” she says. “The numbers may come in far lower.”
Middlebury, Connecticut-based Chemtura, which filed for bankruptcy in March 2009, is trying to avoid cleanup costs for 197 sites, according to EPA claims. Among them is the Gowanus Canal, a 1.8-mile (2.9-kilometer) stretch of brackish tidal water that extends from New York Harbor into Brooklyn.
The U.S. Justice Department, on behalf of the EPA, has identified polychlorinated biphenyls (PCBs), pesticides, metals and other toxins in the canal. The issue is being decided by a U.S. district judge after the company lost a fight with the government in which it sought to keep the decision in the hands of a federal bankruptcy judge.
‘Just Not Enough’
Lyondell came to a settlement behind closed doors and set aside $250 million to cover all of its environmental costs, according to a March 1 announcement. The EPA had been trying to get it to pay $5 billion.
“It’s just not enough,” says Spoelstra, who heads the environmental group Kalamazoo River Watershed Council.
He says there’s a chance he’ll never see the PCBs cleaned up and that the toxins in the river and its banks will seep through groundwater into the local aquifer. PCBs, banned by the EPA since 1976, have been found to cause cancer in animal studies. They penetrate skin, build up in the food chain and are difficult to degrade, according to the federal Agency for Toxic Substances and Disease Registry.
“There’s a cost to human health,” Spoelstra says.
“This settlement balances the priorities of environmental law with bankruptcy law,” said David Harpole, a Lyondell spokesman. “The formation and funding of the environmental trust provides a fair and equitable resolution of claims against these assets in Chapter 11. It provides funding for the remediation of these affected properties that would not otherwise exist.”
In another matter, parent LyondellBasell may face a U.S. bribery probe after telling prosecutors about a potentially improper payment linked to a project in Kazakhstan, according to four people with knowledge of the matter. LyondellBasell told the U.S. Justice Department it uncovered conduct that raised “compliance issues” under the U.S. Foreign Corrupt Practices Act, according to a March 30 court filing in Manhattan. A review of international holdings by a management team installed after the parent company’s bankruptcy triggered the disclosure, Harpole said.
Carp Corpses
Kalamazoo emerged as an environmental flash point more than half a century ago. In 1953, Life magazine published “Four acres of carp corpses on the Kalamazoo,” a photo that showed a massive fish kill traced to paper mill emissions.
The EPA singled out Lyondell to shoulder much of the cleanup cost after finding that a predecessor to its Millennium Holdings LLC unit dumped the PCBs from a paper-recycling business. Millennium and Georgia-Pacific LLC signed a consent order with the EPA, agreeing to restore a portion of the river.
“Kalamazoo was Celery City,” Spoelstra says. “Then it was Paper City. I don’t know what we are nowadays. The poster child for PCBs?”
Daniel Esty, a professor of environmental law at Yale University who advised President Barack Obama’s campaign on environmental issues, says some companies may file for bankruptcy to avoid cleanups. W.R. Grace & Co., the Columbia, Maryland-based specialty chemicals and construction materials company that filed for bankruptcy in 2001, said in its 2009 reorganization plan that a fight over the size of asbestos liabilities delayed its efforts to reorganize.
‘Moral Hazard’
“There’s a risk of moral hazard if companies can get out of responsibilities too easily,” Esty says, adding that he sees just two solutions: The EPA has to get tougher or Congress needs to resolve the issue.
“As a society, we lose when bankruptcy wipes the slate clean for the company,” he says.
Today, companies, governments and investors are wrestling over an even smaller pie in bankruptcies than they had before the credit crisis that began in 2007. Moody’s Investors Service says $700 billion of debt issued by firms with non-investment grade ratings will mature from 2012 to 2014.
The EPA collects just 23 percent of the amount a bankrupt company owes for a cleanup compared with 94 percent for a nonbankrupt firm, spokeswoman Deb Berlin says. Bankruptcies also make it difficult for the agency to settle with healthy companies at sites with multiple polluters.
More Aggressive
Esty says the Obama administration is becoming more aggressive in going after polluters. The Justice Department’s Environment and Natural Resources Division has increased the hours that attorneys work on bankruptcies with environmental issues, spokesman Andrew Ames says.
He cites the biggest recovery the EPA has ever gotten in a bankruptcy, from mining company Asarco LLC. In December, Grupo Mexico SAB, which owns Asarco, agreed to pay $1.79 billion for cleanup costs at 80 sites in the U.S.
Lyondell’s alleged Kalamazoo River pollution started with Allied Paper Inc., which dumped PCBs into the water from 1954 to 1985, according to EPA claims. Allied is now defunct.
SmithCorona Marchant Inc., a typewriter maker that no longer exists, bought Allied in 1967. Hanson Plc, a British building-materials company, acquired SmithCorona Marchant in the 1980s before splitting itself into four firms. One of Hanson’s 1996 spinoffs was Millennium Chemicals. Lyondell acquired Millennium Chemicals, which is related to Millennium Holdings, in a 2004 stock swap.
Stuck With Bill
If Lyondell had to pay the $5 billion the U.S. sought, the company’s creditors, claiming $23 billion, would have had their recoveries cut by almost 20 percent. As it stands, unsecured creditors will get just 16.8 cents on the dollar, according to Lyondell’s March 8, 2010, reorganization outline.
Because Lyondell settled and avoided further cleanup costs, Georgia-Pacific may be stuck with a larger bill. Georgia- Pacific spokeswoman Gail Smith says her company shouldn’t have to pay the entire cost.
“Lyondell should not be able to avoid liability for the Kalamazoo cleanup through bankruptcy,” she says.
Companies in bankruptcy can argue that environmental liabilities are just like other claims -- and that they can ditch them to get a fresh start.
“There’s a basic tension between environmental law -- with the principle that the polluter should pay, no matter how long ago it was -- and a belief in the bankruptcy code that there is a clean break with the past,” says Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey.
‘Keep Coming Back’
Subsidiaries, spinoffs and mergers complicate the issue by creating uncertainty over who the polluter is. Labovitz, the lawyer representing Chemtura, says her client is one of many companies with a long history at locations such as the Gowanus Canal. Now that Lyondell has settled, there’s still no clear law that resolves the conflict Lubben cites.
Labovitz says the issue is ripe for a Supreme Court ruling but nobody wants to be the guinea pig for a legal journey that could tie the company up in bankruptcy proceedings for years.
“Though historically these issues have been resolved by settling, they keep coming back,” she says. “It’s a lot of legal expense and distraction.”
For communities living with pollution, just figuring out who to sue can be a challenge. In 2003, the Mount Canaan Full Gospel Church Inc. in Birmingham, Alabama, began building a school on its property. During the digging, an oily smell erupted from the ground.
Complicated History
The church first sued Kerr-McGee Corp., Allied Energy Corp. and Colonial Pipeline Co. in U.S. District Court in Jefferson County, Alabama, in April 2006. It sought property damages, blaming toxins from a nearby petroleum facility.
In June of that year, Anadarko Petroleum Corp. acquired KerrMcGee, which in March had split off a new company called Tronox. Three years later, in January 2009, Tronox filed for bankruptcy. The church’s case moved to U.S. Bankruptcy Court in New York, where it met another logjam.
Tronox blamed Kerr-McGee and Anadarko for the pollution. It sued both of them in May 2009, alleging that Kerr-McGee fraudulently hid its role and had gone so far as to classify some properties as “secret sites.”
The U.S. intervened in May 2009, claiming in court documents that it was the largest creditor of Tronox and was owed what could be recovered from the hundreds of millions in environmental costs that Kerr-McGee had tried to avoid.
Day in Court
Court papers filed in Tronox’s bankruptcy list EPA claims for costs at 12 named hazardous sites, 270 labs or chemical manufacturing sites and more than 600 mining-related sites.
“We conduct our business with the utmost integrity and we’re not responsible for Tronox’s financial condition,” Anadarko spokesman John Christiansen says.
Four years later, the church still hasn’t had its day in court -- which is now almost 1,000 miles away. Lanny Vines, a lawyer for the church at Lanny Vines & Associates LLC in Birmingham, didn’t return calls for comment.
For General Motors, which reorganized its most profitable businesses and partially exited bankruptcy in July, the fate of toxic liabilities is up in the air. As a part of its Chapter 11 filing, GM left unattractive assets to be liquidated, including two units it created in the 1980s to hold environmental liabilities.
GM Units
In October, those companies entered bankruptcy, with dozens of claims against them and scant money for a cleanup. The two GM units still in bankruptcy owe about $1.2 billion in cleanup costs for 52 locations, EPA documents show.
One of the sites is a former waste-oil refining operation in Dearborn, Michigan, where the automaker disposed of hazardous substances in the 1980s, according to the EPA. The agency found PCBs, lead, arsenic, chromium, cadmium and barium at the facility. Dearborn Refining Co., which ran the business from the 1940s to 2005, failed to pay taxes, making the city of Dearborn the owner.
Robert McCann, a spokesman for the Michigan Department of Environmental Quality, says he doesn’t know whether the GM divisions that remain in bankruptcy will cover their debts. The state hasn’t even completed studies to determine the extent of pollution.
If the bankrupt units and the Superfund can’t pay, McCann says Michigan will be stuck with a gigantic bill it has no way to cover.
“As unsecured creditors, claimants have a legal path to have their claims satisfied on a pro rata basis with the proceeds” from the company’s bankruptcy assets sale, said Greg Martin, a GM spokesman. He said that if the company had been liquidated, unsecured creditors would have received nothing.
Health Risks
The state cleanup fund, which was unable to raise money through an attempted bond issue in 2008, once had $1 billion. It ran out of money in early 2009.
“Our last few dollars are being spent shutting down cleanup processes we can’t afford to finish,” McCann says.
As states and taxpayers wonder how many hazardous sites could be thrown into their laps by rising bankruptcies, no one has even begun to determine the long-term health risks of the pollution, Spoelstra says.
Infertility, lower I.Q. scores, stillborn babies and immune system complications are caused by one of Chemtura’s products, according to 18 scientists, doctors and others who filed court documents in March as part of a public-interest group seeking $9 billion. Chemtura’s bankruptcy judge, Robert Gerber, dismissed the claim, saying the group didn’t follow proper procedures for bringing its claim.
Kalamazoo Vice Mayor Hannah McKinney says the city and about a quarter million people served by a local aquifer fear their tap water may be at risk from carcinogenic PCBs now that Lyondell’s settlement has become final.
“It’s the most-maddening thing,” McKinney says. “It’s the community that’s going to lose.”
Beyond Kalamazoo, towns and cities wrestling with environmental cleanups and growing bankruptcies may find themselves stuck in the same toxic quagmire.
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