Source: http://www.northjersey.com, January 11, 2015
By: James M. O’Neill
DuPont plans to create a spinoff company that would take on the environmental liability for about 190 contaminated sites across the country, including DuPont’s former munitions facility in Pompton Lakes, one of its most costly cleanup sites.
The change is not expected to slow progress on cleanups in the short term, state and federal officials said. But it raises longer-term questions about whether the move could insulate DuPont from future cleanup and natural resource damage claims, particularly if the spinoff, called the Chemours Co., developed financial problems.
DuPont said in recent filings with the Securities and Exchange Commission that the new company would be financially sound. It said the environmental liabilities for the 190 sites is estimated at nearly $300 million, including $87 million in expected cleanup costs for Pompton Lakes. Those costs are not expected to have much impact on the new company’s financial position, liquidity or ability to operate, DuPont said.
But DuPont also cautioned that “expenditures are subject to considerable uncertainty.” The company acknowledged that cleanup and other liability costs could climb to more than $1 billion.
Other spinoffs in the nation have indeed failed under the burden of a parent company’s environmental liabilities, leading to lengthy litigation. And beyond the issue of cleanup costs is the potential impact on the federal government’s pursuit of significant damages against DuPont for decades of pollution that harmed soil and water in Pompton Lakes.
“The legal implications under all possible future scenarios are pretty complicated, and we have not been able to research them yet,” said Meagan Racey, a spokeswoman at the U.S. Fish and Wildlife Service. The agency is trying to determine the extent of damage to fish, wildlife and other natural resources from the pollution in Pompton Lakes. Such investigations often lead to a settlement in which the company pays an amount equivalent to the value of the resources damaged. Or it might pay for restoration projects that go beyond the cleanup.
The current cleanup in the area includes dredging sediment contaminated with mercury from 200-acre Pompton Lake, bordered by Pompton Lakes and Wayne in Passaic County and Oakland in Bergen County. The lake is an occasional backup source of drinking water for towns in both counties.
The company also is developing plans to clean 140 areas of contamination on DuPont’s sprawling 600-acre campus and is running pilot studies to determine how to remove the cancer-causing solvents PCE and TCE from groundwater under about 450 homes in the borough. The solvents have migrated up through the soil into basements, and DuPont has installed vapor mitigation devices on homes.
“Chemours and DuPont remain committed to fulfilling all remedial and redevelopment activities that have been ongoing at Pompton Lakes,” DuPont spokesman Terry Gooding said.
Lisa Riggiola, a former borough councilwoman who lives in the neighborhood affected by contaminated groundwater, said she was uncomfortable with the Chemours spinoff. “Before it happens, there’s got to be some way to ensure DuPont is held responsible for the cleanup and not harm residents more than they already have,” Riggiola said. “Will our groundwater ever be cleaned up? What will the U.S. government do about this?”
Environmental law experts said the spinoff should not insulate DuPont from liability for the Pompton Lakes cleanup costs.
“In New Jersey, these spinoffs in general have not been successful tools in shielding the parent company from liability for environmental damages,” said Michael Gordon, an environmental lawyer who won a settlement of $38.5 million for Pompton Lakes residents affected by DuPont contamination in the 1990s.
Edward Lloyd, an environmental law expert at Columbia Law School and member of the New Jersey Pinelands Commission, agreed. “The public policy issue here is that certainly no company should be able to spin off some of their operations just to avoid liability for contamination,” Lloyd said. “Otherwise this is just an easy route around the law.”
But Walter Mugdan, the federal Environmental Protection Agency’s Superfund director for the region, said the issue would be more complex if Chemours ever filed for bankruptcy. Whenever the EPA finalizes a cleanup plan, the company responsible must provide financial assurance that it can pay for the cleanup. Most of the time these are sufficient, but, Mugdan said, “there’s no guarantee the money will actually be there when needed.”
Following the spinoff, expected by the middle of the year, Chemours will be a publicly traded company operating DuPont’s titanium dioxide,  fluoroproducts and chemical solutions units. It will have about 9,100 employees and 37 production facilities in a dozen countries. The move is expected to save DuPont $1 billion.
The EPA and the state Department of Environmental Protection jointly oversee the Pompton Lakes cleanup.
DuPont remains responsible under New Jersey laws for remediation of the site regardless of the spinoff, DEP spokesman Larry Ragonese said. DuPont signed an administrative consent order, or ACO, decades ago agreeing to address the contamination. “Chemours will now be listed as the entity with primary responsibility for the remediation work,” Ragonese said. “But DuPont would remain on the ACO and remain liable for cleanup.”
State attorneys are reviewing DuPont’s moves and will make needed changes to agreements between the state and DuPont.
Federal officials have a similar outlook. The spinoff “doesn’t change anything from our perspective,” Mugdan said.
Once Chemours is spun off, DuPont will ask the EPA to change the name on the cleanup permits to the subsidiary. “We’d have no reason not to do that,” Mugdan said, “and Chemours would then be obligated to carry out the remediation work.”
Similar situations have prompted the EPA to launch an investigation into whether a spinoff was fraudulent – and force the parent company to pay up. In 2006, Kerr-McGee Corp. spun off a subsidiary called Tronox, which included the parent’s chemicals business and its former environmental liabilities. Tronox went bankrupt in 2009. The U.S. Justice Department intervened, and a bankruptcy judge ruled that Kerr-McGee had fraudulently tried to evade its environmental debts.
In a settlement agreement approved by the court last fall, Kerr-McGee and its parent agreed to pay $5.15 billion, the largest environmental enforcement recovery ever by the Justice Department. The money will pay for cleanups across the country, including $217 million for work at the Federal Creosote Superfund site in Manville. The EPA had removed more than 450,000 tons of contaminated soil and cleaned up nearly 100 properties in the Somerset County borough.