Source: http://www.northjersey.com, July 5, 2016
By: James M. O’Neill
Workers have cleared away trees along Pompton Lake in the first step of a long-awaited project to dredge mercury-laced sediment from the lake, a legacy of DuPont’s former munitions plant nearby.
But even as the three-year project finally begins, questions linger about how the $50 million cleanup would be funded if Chemours, the company currently responsible for the contamination, were to file for bankruptcy.
Those concerns, raised when DuPont first spun Chemours off last year, were recently rekindled when a well-known short-seller published a report last month calling Chemours a “bankruptcy waiting to happen.”
Chemours, in a statement, attacked the report, saying the company “strongly refutes” the analysis. Chemours pointed to the company’s “swift and decisive action” to cut costs and strengthen its liquidity position.
Still, environmental law experts say there’s a fundamental tension between the goals of bankruptcy law and environmental cleanup rules. While environmental rules try to ensure that the polluters — and not taxpayers — cover the costs of cleanups, bankruptcy law is designed to give companies a chance to shed past financial responsibilities and start over with a clean slate.
And even though some measures are in place — from policies to case law — that can help the government secure cleanup money from a bankrupt polluter, the process is still prone to onerous litigation that can go on for years, delaying cleanups.
Chemours is slated to dredge more than 130,000 cubic yards of mercury-laced sediment from Pompton Lake, which is 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 both counties.
The mercury was deposited in the lake by Acid Brook, which runs through the nearby property of DuPont’s former munitions facility, which operated for nearly a century, until 1994. The federal Environmental Protection Agency wants the mercury removed because it can build up in the tissue of fish and crabs, and humans who eat them face health risks.
Chemours is also developing plans to clean 140 areas of contamination on DuPont’s sprawling Pompton Lakes campus. And it is running pilot studies to determine how to remove cancer-causing solvents PCE and TCE from groundwater under about 450 nearby homes. The solvents migrated off the DuPont property and vaporized up through the soil into residents’ basements. DuPont installed vapor mitigation devices on most homes.
A report last month by short-seller Andrew Left of Citron Research noted that when DuPont spun off its performance chemical division into Chemours, it included nearly $4 billion worth of debt. DuPont also handed Chemours the environmental cleanup responsibility for its former munitions facility in Pompton Lakes — and 170 other former DuPont sites across the country.
In addition, Chemours could bear the brunt of damages incurred by DuPont from 3,500 lawsuits filed against DuPont over PFOA, an ingredient in Teflon, which made its way into public drinking water and private wells in West Virginia and Ohio. In the suits, residents claim they got sick or had a relative die because they drank water laced with PFOA from the DuPont plant that manufactured Teflon in Parkersburg, W.Va. The company could face up to $1 billion in potential damages.
Chemours spokeswoman Robin Ollis Stemple said that “these are DuPont’s liabilities. That means it would be DuPont’s responsibility to pay any settlement or judgment in these cases.” But, she added, “Under the separation agreement, DuPont may be entitled to indemnity from Chemours.”
Other spinoffs have failed under the burden of a parent company’s environmental liabilities, leading to lengthy litigation — and slowing cleanups.
Complicating matters in this case is the fact that DuPont plans to merge this year with Dow Chemical Co. into DowDuPont, which would then spin off into three independent companies within 18 months. It’s unclear what that means in terms of responsibility for cleanup costs or court-awarded damages, and plaintiffs in the PFOA cases have raised concerns in court.
“This merger threatens to create a Death Star — the ultimate superweapon that cannot be penetrated,” Left writes in his Citron report. “This means unlike its predecessor bankruptcies in which the attorneys could go after a sole surviving party, Chemours’ inevitable bankruptcy won’t have a single responsible party to sue for fraudulent conveyance of Chemours.”
Some consider all these moves a problem for cleanups should Chemours file for bankruptcy. But Aaron Kleinbaum, legal director at the Eastern Environmental Law Center in Newark, puts his faith in the environmental rules. “Environmental laws are very strict,” he said. “DuPont can’t escape liability through mergers and spinoffs.”
Some environmental lawyers say they find it unlikely that Chemours — or by extension DuPont, its corporate predecessor and the original polluter in Pompton Lakes — could walk away from bankruptcy free from the responsibility for the cleanup. “If a company has an obligation to do a cleanup, it can’t discharge that in a bankruptcy,” said Steven Gray, a Secaucus-based environmental lawyer and former deputy state attorney general. “They have an obligation to finish the cleanup. I don’t think DuPont could get out of it entirely. They can’t get away scot-free.”
Bradley Campbell, president of the Conservation Law Foundation and former head of New Jersey’s Department of Environmental Protection, agreed. “It would be difficult for DuPont to win at a corporate shell game with the EPA,” he said. “And the Justice Department has had success arguing that cleanup costs have priority over other creditors in a bankruptcy case.”
The EPA contends that whatever happens, the cleanup will proceed — and it will be funded.
Several past court rulings could play a role in ensuring that Chemours — or its parent DuPont — does not evade responsibility for paying cleanup costs if Chemours filed for bankruptcy.
One of those is a 1986 U.S. Supreme Court ruling in Midlantic National Bank v. New Jersey DEP, said Gray.
When the state DEP ordered the owner of the former Quanta Resources Corp. site in Edgewater to be cleaned up, the owner abandoned the property. Under the federal bankruptcy code, a bankruptcy trustee appointed to liquidate a company’s assets can abandon any of the company’s property “that is burdensome” or “of inconsequential value.”
The bankruptcy court approved the move to abandon the property in Edgewater, as well as a site Quanta owned in Long Island City, and then the trustee distributed more than $500,000 to Quanta’s creditors.
New Jersey and New York argued the trustee should have used Quanta’s remaining assets to help cover the cost of cleaning up the sites before paying creditors.
In a 5-4 vote, the Supreme Court agreed, saying companies cannot use bankruptcy to evade responsibility for cleaning up dangerous toxic substances.
Another key decision was handed down in 2009 by the U.S. Court of Appeals 7th Circuit in United States v. Apex Oil Co. Under the federal Resource Conservation and Recovery Act — the same law under which the DuPont contamination in Pompton Lakes is being cleaned up — the EPA required that Apex Oil clean up a contaminated site in Illinois that included millions of gallons of oil.
Apex had argued that it would have had to pay someone $150 million to clean up the site, and all debts or money claims were wiped out during a prior bankruptcy case. But RCRA does not authorize monetary relief to the government for contamination — it entitles the government to require the responsible polluter to clean up the contamination, at their own expense.
If any government order that requires a company to spend money could be considered a claim dismissible in bankruptcy, then “it is unlikely the state could effectively enforce its laws,” the court concluded, since “virtually all enforcement actions impose some cost on the violator.”
Such environment-friendly rulings aside, Gray said that bankruptcy cases are often complex. “There are no set rules on how these cases are managed,” he said. “It can be a very creative negotiation process where environmental liability is concerned.”
For instance, the bankruptcy estate of General Motors reached a settlement with the Obama administration in 2010 to put $773 million into a trust to clean up 89 old sites in 14 states, including New Jersey.
Gray said that the secured creditors in a Chemours bankruptcy would understand that cleanup costs must be considered. And DuPont’s old insurance policies might be a source of funds for cleanup, he said.
At the same time, DuPont and Dow would likely want to insulate themselves from future litigation over the cleanups, and might become involved in a Chemours bankruptcy by creating a trust fund to receive payments from one of DowDuPont’s eventual spinoffs to cover cleanups, Gray said.
Campbell also said that “when an entity is created to help protect a company from cleanup liability, the courts are often more willing to look behind the formality of the corporate structure to take a look at who should really be paying for the cleanup.”
The EPA and DEP have already taken steps to make sure cleanup costs in Pompton Lakes are covered in the event of a Chemours bankruptcy — though there are no guarantees.
The agencies often require companies that submit cleanup plans to file financial assurance that they can cover the cost of the cleanup.
Chemours has filed $52 million in financial assurance with the EPA to cover the cost of the Pompton Lake sediment cleanup. In April it secured two financial guarantee bonds, each worth $26 million.
If Chemours were unable to pay for cleanup, the EPA would make a claim against the surety companies to cover cleanup costs. “The surety companies may not honor the claim or delay payment of a claim,” said Gray. “You can anticipate litigation with the surety companies to get them to pay.”
A year ago, Chemours also filed with the state DEP an irrevocable standby letter of credit backed by Goldman Sachs for $33.35 million to cover the cost of cleanup at the old DuPont site in Pompton Lakes. .
Walter Mugdan, the EPA’s Superfund director for the region, has said that in many cases, the financial assurance that companies file is sufficient. But, he added, “there’s no guarantee the money will actually be there when needed.”
Campbell agreed. “It’s certainly a risk” that the money won’t be available. In 2008, the insurance company American Home Assurance, an AIG subsidiary, spent millions in legal fees and other costs to keep from paying a $148.8 million performance bond it held to cover the cost of cleaning up four landfills in the Meadowlands that were to be remediated by EnCap, a developer that went bankrupt. After many delays, AHA eventually took over cleanup of the landfills.
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 Justice Department intervened, and a bankruptcy judge ruled that Kerr-McGee had fraudulently tried to evade its environmental debts through the spinoff. In a settlement agreement approved by the court in 2014, Kerr-McGee and its parent agreed to pay more than $5 billion, the largest environmental enforcement recovery ever by the Justice Department. “There are concerns from an environmental standpoint about the proposed DuPont spinoff,” said Lawrence Schnapf, an environmental lawyer who teaches at New York Law School. “You just have to see what happened with the Tronox transaction.” Such suits are costly and time consuming, and can delay actual cleanup.
In the meantime, preparations continue for the cleanup of Pompton Lake.
Excavation of contaminated soil along the shore will continue through the summer and work will stop before school begins in September. After that, dredging equipment will be brought in, for use in two small areas. Dredging activity will stop by November, and the work site will be shut down for the winter.
Then, next March, hydraulic dredging will begin on the main cleanup area, near the mouth of Acid Brook. In the third year of the project, clean fill would be spread over the dredged area.