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In early April, the EPA and Department of Justice (DOJ) announced an historic settlement agreement with a company, (and its parent company and related subsidiaries) that for nearly a century had contaminated properties at more than 2,700 sites in 47 states. This “legacy” pollution resulted from a variety of operations including wood treating, uranium mining and processing, thorium processing, and ammonium perchlorate manufacturing.
The company had eliminated most of these operations by the early 2000s, concentrating instead on chemical production and oil and gas exploration and production – what the EPA called its “crown jewel.” However, mindful of its massive legacy liabilities, the EPA alleged that the company “embarked on a plan to separate its valuable oil and gas assets from these legacy liabilities” through a corporate spinoff and asset transfers.
According to the EPA, before 2005 the company determined these environmental liabilities “were a drag on its business” and thus created a new corporate entity and engineered a scheme to transfer its oil and gas exploration assets to the new company. The environmental liabilities remained with the old company, which was then renamed and spun off as a separate company in 2006. As a result of the transfers, the renamed company was undercapitalized, could not pay its debts and was rendered insolvent. The company then declared bankruptcy in 2009.
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This bankruptcy, however, resulted in referrals from EPA Regions 2, 4 and 5 regarding contaminated sites in their jurisdictions, and the United States intervened to recover cleanup costs. In the case, the EPA alleged the company transferred valuable assets out of the insolvent company leaving it unable to pay both environmental and personal injury (tort) claims amounting to billions of dollars. In the bankruptcy settlement reached in 2011, the company resolved the environmental portion of its liabilities to the tune of about $270 million and transferred an 88-percent share of its interest in the corporate litigation to governments and to environmental response trusts.
In 2013 the original company was found to be liable for the fraudulent transfers occurring years before the bankruptcy filing, which the court determined were made with the intent to “hinder or delay creditors when they imposed all the legacy liabilities on the (company).” Further, the court stated the transfers were constructively fraudulent because they not only left the company insolvent, but were made for “less than reasonably equivalent value” and the defendants should have “reasonably believed” the company would incur further debts that it would be unable to pay.
Under the fraudulent conveyance settlement, the company agreed to pay $5.15 billion. The government and environmental response trusts and tort claimants will receive 88-percent ($4.475 billion) and 12 percent ($605 million), respectively, which is in addition to the $270-plus million recovered in the bankruptcy settlement. The 88-percent share is divided to cover both administrative costs associated with trusts and environmental cleanup at trust and non-trust sites.
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Among the environmental liabilities included in the settlements are Superfund sites in New Jersey, Florida, Mississippi, North Carolina, Illinois, Wisconsin, and Idaho, as well as approximately 50 former uranium mines in or near the Navajo Nation territory in the southwestern United States. Millions of dollars will also be paid to the federal Superfund in repayment for past cleanup activities, including $217 million spent at the Federal Creosote Superfund site in New Jersey where more than 450,000 tons of contaminated soils were removed and almost 100 residential and commercial properties cleaned up.