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Bumbling, Blame and Bankruptcy in Wake of West Virginia Chemical Spill

Business  (tags: abuse, americans, bankruptcy, business, consumers, corporate, corruption, cover-up, dishonesty, economy, environment, government, labor, lies, law, money, politics, society )

- 1578 days ago -
Last Friday, as lawsuits piled up over the chemical spill that left hundreds of thousands of West Virginia residents without potable water for days, Freedom Industries, the company responsible for the leak, declared bankruptcy.

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Kit B (276)
Saturday January 25, 2014, 11:56 am
Photo Credit: AP Photo/Tyler Evert

Last Friday, as lawsuits piled up over the chemical spill that left hundreds of thousands of West Virginia residents without potable water for days, Freedom Industries, the company responsible for the leak, declared bankruptcy.

The filing set off a battle between several private companies trying to avoid liability for the damages suffered by West Virginians. It also provided new insight into the previously murky ownership of Freedom Industries, and a sense of what the company’s foreclosure strategy may look like.

Who Owns Freedom Industries?

As Bloomberg Businessweek’s Paul Barrett wrote, it “took some detective work” to figure out exactly who owns Freedom Industries. The company, first founded in 1986, merged with several other small operators on December 31, just weeks before the spill.

According to The Wall Street Journal, a company called Chemstream Holdings paid $20 million and is now the sole owner of Freedom Industries. Chemstream Holdings is owned by Pennsylvania coal magnate J. Clifford Forrest, president of Rosebud Mining Corporation.

Barrett notes that separate West Virginia filings also list Forrest as the manager of two of the companies that merged with Freedom last month.

Forrest and Rosebud are heavy political donors. According to Open Secrets, during the 2012 election cycle, Rosebud and its officers donated almost $600,000 to Republican candidates, PACs and outside spending groups.

Among other donations, last year, Forrest personally maxed out his contribution to Rep. Bill Johnson (R-OH), who sits on the House Committee on Energy and Commerce. He also donated to Speaker John Boehner (R-OH), Sen. David Vitter (R-LA), the ranking member of the Senate Committee on Environment and Public Works, and Rep. Shelley Moore Capito, a West Virginia Republican who sits on both the House subcommittee on railroads, pipelines, and hazardous Materials and the subcommittee on water resources and environment.

What Does the Filing Mean?

Freedom Industries filed under Chapter 11 of the bankruptcy code. That temporarily halts all litigation against the firm as it reorganizes.

John Pottow, an expert in bankruptcy and commercial law at the University of Michigan Law School, tells that most claims are “dischargeable” by the bankruptcy court. That means that the company’s creditors, state regulatory agencies and anyone suing for damages would have to get in line for a piece of Freedom’s assets proportional to their claims.

There are “narrow” exceptions, he said. A company can’t get bankruptcy relief for damages resulting from “fraud, or intentional personal injury.” The company can also still be stuck with some kinds of government fines. Criminal investigations aren’t impacted by the bankruptcy.

But the courts will likely treat any fines that regulators may levy on Freedom — and they could add up — like any other debt. Asked whether the company could use the court to shirk responsibility for those sorts of liabilities, Pottow said that there’s “a gatekeeping power in the bankruptcy code, so when a company files a Chapter 11 petition, they can get thrown out of bankruptcy for bad faith.” But, he continued, “there’s a perverse reasoning here: The worse they are, the more likely they are to incur penalties and fines, which makes it more likely that they have a legitimate need to file for bankruptcy.”

According to the Charleston Gazette, Freedom claims to have between $1-$10 million in assets. Aside from those mounting lawsuits, it owes creditors $3.6 million, and Uncle Sam has a lien on the company for $2.4 million in back taxes.

A Fast One?

Here’s where things get interesting. At Bloomberg Businessweek, Paul Barrett notes that “Freedom’s filings also show that entities called VF Funding and Mountaineer Funding are seeking to lend as much as $5 million to keep Freedom Industries operating during its reorganization.” But Mountaineer Funding was only formed last week, and is owned by none other than J. Clifford Forrest.

According to West Virginia University College of Law’s Joshua Fershee, there’s a third company seeking to finance the re-organization: WV Funding. He writes, “WV Funding LLC was organized by the same Wheeling attorney who formed Mountaineer Funding LLC for Forrest. The sole listed member of WV Funding LLC? Mountaineer Funding LLC.”

Liability Battle

In bankruptcy proceedings, creditors who bail out a company in bankruptcy move to the front of the line for their share of its assets.

This is where West Virginia-American Water comes in. The private company that supplies drinking water to the area — and had an intake just a mile and a half downstream from Freedom’s chemical storage tanks — made its own filing on January 19, claiming that it had incurred massive damages, and would likely end up being Freedom’s largest creditor. According to Barrett, the company is alleging that Forrest’s loan to Freedom “is actually a disguised tool to manipulate the bankruptcy process.”

In its filing, West Virginia American Water claims that Freedom’s ownership is trying to use the loan to hold onto “those parts of the business that it deems valuable, abandoning the rest, taking the going concern value from the debtor, and leaving the debtor and its many creditors ‘holding the bag.’”

John Pottow, the University of Michigan scholar, says that there’s precedent for these kinds of maneuvers. “This happened in the car company bankruptcies,” he said. “When ‘old GM’ sold itself to ‘new GM,’ the purchasers wanted to buy the nice cherries from the company, but they said, ‘Oh we don’t want to buy those pieces of land that have leaking gas on them.’ They didn’t want to pick up the claims from people that were hurt.’” Eventually, public outcry led the company to change course, but Pottow says “it was pretty clear that the court couldn’t force them to do so.”

The Wall Street Journal reported that the litigants ultimately agreed to a deal that would allow Forrest’s WV Holdings to loan his troubled company $4 million, but wouldn’t grant it special status as a creditor.

Meanwhile, Freedom Industries’ filing claims that a water main underneath the ruptured chemical tanks may have been responsible for the leak in the first place, which would shift liability for the mess back onto the water company. So everyone is suing everyone, and a big question is how much insurance Freedom carries — according to the water company, it didn’t specify in its filing.

Poor Response Continues

Last week, it became clear that early communication issues between West Virginia-American Water and Freedom may have aggravated the impact of the spill. Both firms have continued to bumble the aftermath.

After being cited for numerous violations at its Elk River depot, Freedom Industries moved the remaining mining chemicals to a second facility in Nitro, West Virginia. Several days later, according to the Associated Press, state environmental inspectors found similar violations at the Nitro site.

West Virginia-American Water, meanwhile, was using water from tanker trucks to service its customers, who then reported that they smelled the same licorice-like odor that had accompanied the spill in the first place. The water company told local officials that the trucks were being filled, “off site, out of Charleston.” But according to the Gazette, the company was actually filling up their trucks near the plant where the original spill occurred.

Second Chemical Discovered

We previously reported that little is known about the potential health affects of Crude MCHM, the chemical discharged into the Elk River. On Wednesday, the Gazette reported that state and federal health officials had been informed by Freedom that a second chemical was also contained in the tank.

According to the Gazette, the “health impacts of the [second] chemical remain unclear, and Freedom Industries has claimed the exact identity of the substance is ‘proprietary.’”

----In an email to state officials Tuesday night and a press statement this morning, the U.S. Centers for Disease Control noted that data about the potential health effects of the chemical “PPH” are — like the information on Crude MCHM — “very limited.”---

Unlike with food or drugs, the government doesn’t require most chemicals to be tested for harmful effects in humans before they’re put on the market.

By: Joshua Holland | Bill Moyers and Company |

Arielle S (313)
Saturday January 25, 2014, 12:18 pm
So once again, money talks - loud and clear. And the people who were so afraid of speaking out for fear of losing their jobs, will soon be both unemployed and have poisoned drinking water.

JL A (281)
Saturday January 25, 2014, 12:39 pm
I hope the water district has what they need to keep pushing their case.

pam w (139)
Sunday January 26, 2014, 8:43 am
"Among other donations, last year, Forrest personally maxed out his contribution to Rep. Bill Johnson (R-OH), who sits on the House Committee on Energy and Commerce. He also donated to Speaker John Boehner (R-OH), Sen. David Vitter (R-LA), the ranking member of the Senate Committee on Environment and Public Works, and Rep. Shelley Moore Capito, a West Virginia Republican who sits on both the House subcommittee on railroads, pipelines, and hazardous Materials and the subcommittee on water resources and environment. "

++++++++++++++++++ GASP! SUCH a SHOCK!

lee e (114)
Sunday January 26, 2014, 9:05 am
These are the rich terrorists that are wreaking havoc on our country and its natural resources, they should be judged as terrorists! No doubt it'll be the slap on the wrist as 1000's of lives have been put in jeopardy, the end results of which may not be known for another decade!

Kit B (276)
Sunday January 26, 2014, 9:13 am

The toxins in the river have done what all things do in rivers, followed the movement of the water. The Koch owners (and others) of Freedom Industries have declared bankruptcy, one might think they are avoiding law suits. Congress, most particularly the republicans continue to hammer on about too many regulations. This company was last inspected in 1991, too many regulations? West Virginia might begin to consider that mining for coal is hazardous to their health and continued life. Perhaps one of their Senators could be useful by bringing in new technologies - clean energy, maybe. Coal is dead, OIL and GAS very soon to see the same fate.

. (0)
Sunday January 26, 2014, 10:37 am
They are employing the same principle as CP Rail did back in Globe & Mail 15/08/2013 and I quote, "Canadian Pacific Railway Ltd. says it holds no financial responsibility for the Lac-Mégantic rail disaster and has rejected a legal demand by the Quebec government that it help pay for the cleanup in the devastated town."
CP's argument is as follows: "It handed off the train in Montreal to the smaller Montreal, Maine & Atlantic Railway Ltd., which then operated the tanker train that derailed in the heart of Lac-Mégantic and set off a series of explosions." ibid.
Thus, I doubt the new owners of the Montreal, Maine & Atlantic Railway will feel any obligation to help pay for the cleanup. It's the same principle really and the little people who are the real people will get stuck with the bill for the environmental cleanup and the medical bills. Watch the insurance premiums go up.
I empathize with the citizens of West Virginia and any other area hit by one of the 1400+ incidents since 1997. Your bankruptcy comment Kit is right on the money. Between 1997 and 2005 the corporatist POTUSs Clinton & Bush not only destroyed Glass-Steagall they also approved the changes in bankruptcy laws that benefit large corporations. Screw the little guy.
Between 1997 & 2005 the banks spent more than 100 million dollars to change the bankruptcy laws that would deny the same privileges and protections that corporations enjoyed to you and I. A person declaring bankruptcy was no longer exempt or absolved from his/her debts. Under Chapter 13 any person would still be held responsible for all debts along with additional penalties forever. With the removal of public protection from banks being able to engage in both investment and commercial banking through repealing Glass-Steagall and the associated Bank Holding Company Act, banks won the ability to make loans and the underwrite their sale to other people and institutions.
In the old days banks lent money and you paid it back with interest. Under the new rules, a loan is written by a mortgage lender. The bank agrees to provide the actual loan money in return for underwriting contract. These big bundles [credit default swaps or CDSs and collateralized debt obligations or CDOs were all predicated on a mathematically questionable function developed by David Li.
These were the prime motivator factors in the banks move to utilize all that excess credit by selling loans and sub prime loans to people who at the best of times would have been disallowed. They are also major crediting factors in the derivative scandal we are now seeing today. Too big to fail; hardly. Unlike us real little people these corporations have protection under the bankruptcy acts along with bailouts for the banks and corporations like the Koch Bros. Deny, deny, deny! Meanwhile, the environmental damage is already done; the people are still dead along with the other inhabitants and the bottom line of maximum profit is achieved. It's sad that their bottom line is business as usual at any cost or price and that they can usually cover off fines from petty cash as they make more than that in one quarter.

Joanne Dixon (38)
Sunday January 26, 2014, 11:04 am
Why sure - corporate motto, "When criminally liable, declare bankruptcy." It doesn't work for mere humans though. Another reason corporations are not people.

Angelika R (143)
Sunday January 26, 2014, 1:34 pm
Hmm.." Coal is dead, OIL and GAS very soon to see the same fate. "-may I add West Virgina('s population) to this? Summary: Everything remains UNCLEAR, great, eh?

Angelika R (143)
Sunday January 26, 2014, 1:38 pm
Very good point by Joanne, unlike people, Corporations don't die.

Robert B (60)
Sunday January 26, 2014, 2:30 pm
THIS is why corporations are NOT PEOPLE!!!!! THIS is why the unlimited flow of money to congress HAS TO STOP!!!!! And until we can stop this, IT WILL HAPPEN OVER AND OVER.

Katie & Bill D (107)
Sunday January 26, 2014, 2:47 pm
This does make you wonder if it could happen anyplace! Yes then they file for bankruptcy.
Thank You Kit

Theodore Shayne (56)
Sunday January 26, 2014, 3:39 pm

Roxie H (350)
Tuesday January 28, 2014, 4:03 am
Thanks again to Bill Moyers! And Kitty, this article was pretty good, I had (have) a thread on the start of the WV tragedy since it first was posted. ( Actually have friends there ughhh) Also, I can smell Koch-bought rats behind this company and the GtaC owned mining company that is forcing its ugly throat onto the Great Lakes. I know the owners are from the same area, Same crap, different name on the Owners Title. But the dark money behind it and the corrupt way of running everything. Smells AMAZINGLY like Walkers-Koch-Bought Wisconsin at the moment. Battling billionaires with a drum and feather is not easy, but GOSH poisoning our water and to think the Great Lakes??? These are all the same criminals. But here, added links to your Article

Roxie H (350)
Tuesday January 28, 2014, 4:21 am
The Wait Continues for Safe Tap Water in West Virginia
Group Thread Link

Roxie H (350)
Tuesday January 28, 2014, 4:23 am
Most Interesting Stuff about the beginning of this disaster:
Freedom executive Kennedy had felonies.


EXCLUSIVE: Girlfriend of Koch-Affiliated WV Water-Poisoning Freedom Industries’ CEO Plays Victim While Enjoying Lavish Lifestyle

US House passed bill ravaging toxic-waste law - on same day as W. Virginia chemical spill


Roxie H (350)
Tuesday January 28, 2014, 4:43 am
Behind West Virginia’s Massive Chemical Spill, A History Of Poverty And Pollution
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