West Virginia Chemical Leak and the Smell of Collusion

January 22, 2014

posted by Crane-Station

On Friday, January 17, 2014, as the chemical plume from the January 9 West Virginia chemical spill was passing through Louisville in the Ohio River, Freedom Industries, whose storage tank the chemical leaked from, filed Chapter 11 bankruptcy protection in federal court in Charleston, West Virginia.

The feeding frenzy of lawsuits in the wake of the spill involves many plaintiffs and two main defendants, Freedom Industries, who stored the chemical, and the water company, whose intake pipes are situated 1.5 miles downstream from Freedom. (Eastman Chemical (EMN), the Kingsport (Tenn.)-based manufacturer of the chemical has also been named in one lawsuit so far.)

Freedom Industries is closely held and newly acquired by Pennsylvania coal magnate J. Clifford Forrest. The main other main defendant is the water company, the West Virginia division of American Water Works Company Incorporated. American Water Works (aka American Water) is publicly traded under, amazingly enough, the initials AWK.

In its bankruptcy filing, Freedom Industries claimed that AWK was to blame for the chemical leak from its (70-year-old uninspected) tank. Freedom advanced a theory, to explain why the water company was responsible for the visible hole in the chemical company’s storage tank. Paul M. Barrett, writing for Bloomberg Businessweek explains:

Freedom has a strategy for spreading the blame.

The company’s bankruptcy attorneys, led by Mark Freedlander of the Pittsburgh office of McGuire Woods, used Chapter 11 to float a theory designed to ease Freedom’s liability: ‘It is presently hypothesized that a local water line break [caused] the ground beneath a storage tank at the Charleston facility to freeze in the extraordinary frigid temperatures in the days immediately preceding’ what Freedlander delicately termed ‘the incident.’ Freedom further hypothesized that ‘the hole in the affected storage tank’ was caused by ‘an object piercing upwards through the base’ of the tank.

This happens all the time. The old water pipe-ground-expanding bomb thing. Every winter. In fact, as I type this, our faucets are cut on a bit because it is 15F outside; standing water in pipes can freeze and expand, compromising a pipe and breaking it. One time, a pipe in the ground outside did break. But I don’t remember any sort of phallic projectile protruding through the floor of this tiny modest apartment, which leaves me thinking that only really vulnerable structures succumb to underground water-propelled projectile object bombs. Like reinforced steel tanks engineered to hold thousands of gallons of toxic chemicals.

At any rate, AWK was not amused by this one hundred percent evidence-free filing in federal court, and on January 19, it fired back a response. Paul Barrett explains:

In its own filing dated Jan. 19 and made available yesterday, the West Virginia unit of the water company fired back. West Virginia-American Water accused the chemical supplier of concealing its true ownership, using a proposed emergency loan to put creditors at a disadvantage, and generally failing to provide the bankruptcy court with sufficient financial information about such matters as Freedom’s insurance coverage. The situation ‘smells of collusion,’ the water utility alleged in its court papers.

Collusion is people agreeing to do bad things together. What does the water company mean by this? Well it appears that Freedom Industries is 1) blaming the water company for the spill and 2) asking the court to approve a five million dollar loan from, well, J Clifford Forrest, to keep the company running, during the bankruptcy proceedings, and for the punchline 3) have priority over all of the other creditors, since it is lending the money. Forrest wants to transfer all of the assets from Freedom to another company that he owns and borrow money from it. The name of the other company escapes me, but it should be a household name by now because it has been around forever — since Friday.

So, Freedom Industries is wanting to keep the lawsuits on hold, transfer money from one pocket to the other to remain operational, and then blame the water company for its unfortunate and sudden onset of problems. AWK is calling bullshit. Paul Barrett writes:

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