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West Virginia

January 18, 2014

Company files for bankruptcy after spill

Temporarily shields Freedom Industries from dozens of lawsuits

CHARLESTON — The company blamed for a chemical spill that left 300,000 West Virginians without safe drinking water filed for bankruptcy Friday, temporarily shielding them from dozens of lawsuits, most by businesses that were forced to shut down for days.

Freedom Industries Inc. also used its bankruptcy papers as a forum to speculate on how the spill might have happened.

The company filed a Chapter 11 petition with the U.S. Bankruptcy Court in the Southern District of West Virginia, eight days after the spill began.

Company president Gary Southern signed the paperwork, which lists both the company’s assets and liabilities as being between $1 million and $10 million. It says the company has at least 200 creditors and owes its top 20 creditors $3.66 million.

The bankruptcy proceedings temporarily halt the lawsuits against Freedom Industries, said Charleston attorney Anthony Majestro, who is representing several small businesses that sued the company. Majestro said his clients are weighing an option to petition the court to proceed in hopes of collecting on Freedom’s insurance policy. It depends on the company’s level of coverage, Majestro said.

The bankruptcy filing doesn’t stall lawsuits against other parties targeted in the spill, said Washington D.C. attorney H. Jason Gold. Nor does it strip Freedom Industries’ responsibility to rectify environmental damage caused by the spill, said Department of Environmental Protection spokesman Tom Aluise.

Some of the lawsuits in Kanawha County Circuit Court against Freedom Industries also name West Virginia American Water Company and Eastman Chemical, the producer of the coal-cleaning chemical that spilled. Freedom Industries also owes the Tennessee-based company $127,475, bankruptcy documents show.

Mark E. Freedlander, an attorney with the law firm representing Freedom Industries, said in a statement Friday that “the petition and related pleadings speak for themselves.”

According to bankruptcy documents, Freedom Industries is wholly owned by Chemstream Holdings, Inc., a company located at the Pennsylvania headquarters of Rosebud Mining Company.  

In the documents, the company also gives a possible explanation for what caused the spill: Freedom Industries says a water line burst during last week’s frigid temperatures, the ground beneath a storage tank froze, and some kind of object punctured a hole in its side, causing it to leak.    

The water was tainted after a chemical used to clean coal leaked from a storage tank and then a containment area at a facility owned by Freedom Industries. The water ran into the Elk River, contaminating the state’s largest water system.

After the spill, residents in a nine-county area around the state capital of Charleston were told not to use the water for anything other than flushing toilets. Some businesses and schools were forced to close for several days. The water restrictions have since been lifted for most residents.

The spill has become the focal point of the state’s 60-day lawmaking session, which started the day before last Thursday’s spill. Gov. Earl Ray Tomblin announced plans Friday to push for regulation of above-ground storage tanks. He also wants to require contingency plans for water companies. State Sen. John Unger, D-Berkeley, has spelled out specifics to regulate and inspect storage facilities in SB 373.

In Congress, Sens. Jay Rockefeller and Joe Manchin, both West Virginia Democrats, have introduced a bill requiring state inspections of above-ground chemical storage facilities, letting states recoup costs for emergency responses and setting industry standards for emergency responses. Sen. Barbara Boxer, D-Calif., is also a bill sponsor.

Government entities ranging from the U.S. Attorney’s Office to a West Virginia legislative panel on water resources are investigating the spill.

The terminal that leaked had not been inspected by state officials since 2001, when it was owned by a different company operating under more stringent rules. State officials said Freedom Industries bought the terminal last month, though the firm has long been tied to the property.

Freedom bought the terminal from Etowah River Terminal LLC, a company that Freedom formed the purpose of buying the terminal site, according to a 2005 court filing. State records show the former president of Freedom Industries was listed as the manager of Etowah.

A spokeswoman for Gov. Earl Ray Tomblin did not answer a phone call for comment.

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