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Freedom Industries Inc. filed for Chapter 11 bankruptcy protection Friday in U.S. District Court in Charleston. The petition, which was signed by the Freedom president Gary Southern, estimates the company’s debt at $10 million or less.

The papers also say Freedom owes more than $3.5 million to debtors. At the top of that list are FloMin Coal Inc. of Altanta ($648,221) and Silverlake Holding of Evansville, Ind., ($615,954). The documents also show that Freedom Industries owes more than $2.4 million in unpaid taxes to the Internal Revenue Service dating back to 2000. http://wvrecord.com/news/265453-facing-water-spill-suits-freedom-indus
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The site of a West Virginia chemical spill that contaminated the water supply for 300,000 people operated largely outside government oversight, highlighting gaps in regulations and prompting questions on whether local communities have a firm grasp on potential threats to drinking water.

The storage facility owned by Freedom Industries Inc. on the banks of the Elk River was subject to almost no state and local monitoring, interviews and records show. The industrial chemical that leaked into the river, 4-methylcyclohexane methanol, isn't closely tracked by federal programs. A state regulator had said earlier that, before last week's spill, environmental inspectors hadn't visited the site since 1991. On Monday, the state said it had located another inspection from 2002 related to a remediation project done by the site's previous owner.

The company complied with one of the few mandates that applies to its operation: Nearly a year ago, it gave the West Virginia Division of Homeland Security and Emergency Management a list of chemicals with "immediate (acute) hazards," which is required annually under federal law. MCHM was among them.

It was unclear what was done with that information. Laura Jordan, a spokeswoman for West Virginia American Water Co., which operates the complex distribution system with 1,700 miles of pipes, said officials there weren't aware of the document, known as a Tier Two Emergency and Hazardous Chemical Inventory. Mr. Blackwood of the local emergency group said he wasn't aware a list existed.

The site wasn't subject to much state regulation because it was used primarily for storage rather than manufacturing or processing. It had one state permit, to send storm runoff into the Elk River, which officials described as "routine."

"It falls between the regulatory acts," said James Salzman, an environmental law professor at Duke University who wrote a recent book about drinking water. http://online.wsj.com/news/articles/SB10001424052702303819704579317062
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Freedom Industries Chapter 11 Filing Reveals Owners' Strategy

Searching for shelter in the face of liability lawsuits, Freedom Industries, the source of the big West Virginia chemical spill, has retreated into federal bankruptcy court with a Chapter 11 filing late Friday. In addition to temporarily freezing litigation against a debtor company, Chapter 11 proceedings allow the bankruptcy judge to sort out whose claims go first. A side benefit is that the process forces troubled corporations to reveal some secrets. Here are my initial findings on Freedom Industries:

The company’s owner made one of the worst-timed acquisitions ever.

We now know who owns Freedom Industries, which was identified on Jan. 9 as the company leaking a hazardous coal-processing chemical into the Elk River in Charleston. The lucky winner is J. Clifford Forrest, a Pennsylvania coal magnate. Forrest acquired Freedom only weeks before the spill that cut off water to 300,000 people and shut down businesses in nine counties. Talk about buyer’s remorse!

Not that Forrest has stepped forward to deal with the mess. Connecting the dots took some detective work. Freedom’s Chapter 11 documents identify its sole owner as Chemstream Holdings. The Pennsylvania company is headquartered in Kittanning, near Pittsburgh, at the same street address as Clifford’s Rosebud Mining. Rosebud claims to be the third-largest coal producer in Pennsylvania and the 21st-largest in the U.S. Freedom’s filings also show that entities called VF Funding and Mountaineer Funding are seeking to lend as much as $5 million to keep Freedom Industries operating during its reorganization. Mountaineer Funding was incorporated just this past Friday in West Virginia; its sole “member” is Forrest. In other words, he’s seeking bankruptcy-court permission to lend millions to his besieged new acquisition.

Separate West Virginia corporate filings identify Forrest as the manager of two other companies that were merged into Freedom Industries as of Dec. 31, 2013. The corporate rearrangement might have seemed smart on New Year’s Eve; today, not so much. Lawyers for Forrest and for Freedom Industries didn’t respond to my phone calls and e-mail seeking comment.

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.

It seems the idea is that water turning to ice expanded, pushing that mystery “object” through the floor of the tank. Hard to say if the court will buy that. Shouldn’t steel tanks containing dangerous chemicals be able to withstand the consequences of winter weather?

Whose allegedly troublesome water line is Freedom talking about?

Apparently, the suggestion is that the burst pipe might have been the responsibility of Freedom’s co-defendant in many of the liability lawsuits: the local water utility. Business and home owners are blaming the West Virginia unit of American Water Works for failing to move swiftly enough to shut down its intake, which is a mere mile and a half down the Elk River from Freedom’s plant. If the utility were also implicated in puncturing the chemical storage tank in the first place that might shift a lot of the legal hassle to American Water (AWK), the nation’s largest publicly traded water company.

The president of American Water’s West Virginia unit has said his company did everything possible to minimize harm from the spill. Something tells me Freedom’s lawyers are going to argue otherwise.

Freedom doesn’t have much money on hand.

American Water had revenue of $6.6 billion in 2012. The companies that now comprise Freedom Industries collectively had revenue of $25.7 million that year, according to the Chapter 11 filing. In 2013, Freedom’s sales increased, but only to $30.7 million. Freedom told the bankruptcy court that it has assets of worth from $1 million to $10 million. The filings show that Freedom’s top 20 unsecured creditors—apart from lawsuit plaintiffs, of course—are owed a total of $3.6 million.

Among the creditors is Eastman Chemical (EMN), the Kingsport (Tenn.)-based manufacturer that sold Freedom MCHM, the chemical that escaped into the Elk and from there into the regional water system. Eastman has much bigger concerns, however, than recovering the $127,474.84 Freedom owes it. Plaintiffs in liability suits have also named Eastman as a defendant, alleging that the company failed to warn adequately of MCHM’s hazards. Eastman’s spokeswoman has called the allegations meritless. She went out of her way, though, to add that the manufacturer couldn’t vouch for the conduct of American Water or Freedom Industries. http://www.businessweek.com/articles/2014-01-19/freedom-industries-cha
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