May 1 (Bloomberg) -- Reverend Steven Jamison recalls the February day 13 years ago when he was digging ditches to replace culverts at his Maranatha Faith Center in Columbus, Mississippi. As he switched from a shovel to an excavator, an oily black substance began to fill the trench. It smelled like turpentine, and the deeper he dug, the more he saw, Bloomberg Markets magazine reports in its June issue.
“We called the city right away to come and look,” says Jamison, 58, a Pentecostal minister whose speech quickens as he relives the incident. “They told us they thought we’d hit creosote.”
Jamison phoned the Kerr-McGee Corp. plant down the road. The company produced creosote, a toxic wood preservative, and coated railroad ties and telephone poles with it. A manager told him the stuff probably wasn’t creosote and that even if it were, it wouldn’t hurt anyone, Jamison says. So he kept working, immersing himself in sludge and bringing in dirt to absorb it.
After digging for six weeks, Jamison, who says he hadn’t had health problems beforehand, was sick and losing weight. He says his kidneys were functioning at less than a third of their normal level. That April, when Kerr-McGee offered to help remove the old culverts, the crew arrived in hazmat suits, Jamison says.
The U.S. Department of Justice, in a lawsuit on behalf of the Environmental Protection Agency and other environmental and state agencies, says Kerr-McGee fouled 2,772 sites, including Columbus, during seven decades of producing chemicals, fertilizer and plutonium pellets. The lawsuit, scheduled for trial beginning May 15, seeks $25 billion to clean up the toxins and compensate tort claimants -- or the people who say they’ve been personally harmed.
“That is by far the biggest polluter on record,” says David Guest, an attorney with nonprofit law firm Earthjustice. “This is an almost unprecedented case in terms of how much money is in play.”
Trouble is, Kerr-McGee no longer exists. It disappeared in a spinoff, a merger -- into Anadarko Petroleum Corp. -- and a bankruptcy, corporate maneuvers that have frustrated small-town residents across the country who say the pollution has ruined their health.
For decades, companies have used such tactics to make it harder to pursue legal action so they won’t have to pay for tainting the land and making people sick, says Robert Gordon, a partner in New York law firm Weitz & Luxenberg, which specializes in mass-tort and wrongful injury suits. Gordon compares such tactics to a card game that dealers use to cheat victims.
“Establishing liability can be like three-card monte,” he says. “‘Oh, sorry. You got the wrong corporation. Oh, sorry. You got the wrong corporation again.’” Weitz & Luxenberg represents business owners and residents in suits against BP Plc and other companies, including Anadarko, related to the 2010 Gulf of Mexico oil spill.
The case, scheduled for U.S. Bankruptcy Court in Manhattan, will test whether the government can recover money years later from a successor to a polluting company, even when a bankruptcy has ostensibly cleaned the slate.
The lawsuit says The Woodlands, Texas-based Anadarko, the company that bought a piece of Kerr-McGee in 2006, is responsible because it was part of a “two-step fraudulent scheme” that transferred $15 billion in assets out of Kerr-McGee.
The U.S. is seeking that amount from Anadarko, plus another $10 billion to cover interest and appreciation since 2005, according to a lawyer involved in the case.
Anadarko, among the biggest U.S. independent oil and gas companies by market value, says it’s not responsible for Kerr-McGee’s old liabilities. In July 31, 2009, court papers that sought, and failed, to have the suit dismissed, Anadarko said the lawsuit is trying to rewrite history. The company estimated in a March slide show for investors that the suit will cost about $250 million -- 1 percent of what the EPA is seeking.
“We conduct our business with the utmost integrity, and we are confident in the merits of our case,” Anadarko General Counsel Bobby Reeves said in a March 15 statement.
On April 30, Anadarko said first-quarter profit rose to $2.16 billion on higher crude oil prices and a tax-settlement gain. It said it took an additional $275 million charge for the lawsuit, bringing the total for estimated costs to $525 million.
“We’re confident in the merits of our case and also recognize there is value in removing uncertainty for our shareholders,” spokesman Brian Cain said after the report. “If a settlement is not reached, we are prepared to defend our interests at trial.” The company declined to comment further. Anadarko shares traded at $73.21, down 4.1 percent for the year.
Kerr-McGee, founded in 1929 near Oklahoma City, has left a toxic legacy that stretches from uranium mines in the West to wood treatment plants in Mississippi and Pennsylvania, the EPA says. The company became notorious in the 1970s when labor activist Karen Silkwood died mysteriously after claiming that Kerr-McGee was contaminating her and others at its nuclear materials plant near Crescent, Oklahoma.
Starting in 2000, Jamison and about 5,100 other Columbus, Mississippi, residents sued Kerr-McGee for alleged creosote damage. In 2003, Kerr-McGee closed the plant, which now stands abandoned on a 90-acre (36-hectare) tract of parched grass surrounded by a chain-link fence. Three years later, the company transferred most of its environmental liabilities, along with its pigment-making unit, to a new company called Tronox Inc. In June 2006, three months after the spinoff was complete, Kerr-McGee sold its profitable oil and gas business for $18 billion to Anadarko.
Tronox declared bankruptcy in 2009. It said it was spending as much as $126 million a year on Kerr-McGee’s old environmental messes and had spent $27 million on related tort claims since its spinoff.
Tronox then sued Anadarko, claiming in the suit that in 2001, Kerr-McGee had begun to separate oil and gas assets from toxic liabilities and in 2005 launched the bad stuff onto share-holders through an initial public offering of Tronox. Top managers and the most-profitable assets went to Anadarko, it said.
The Justice Department joined the lawsuit, saying the U.S. was the victim of any sham transfer and should get that money back because it was owed unknown billions for pollution that Kerr-McGee had refused to clean up, making it Tronox’s largest creditor.
‘Die Is Cast’
A 2010 settlement between the EPA and Tronox cleared Tronox to exit bankruptcy with its pigment unit intact and 70 years’ worth of liabilities wiped out.
Tronox paid the EPA $320 million and agreed that the EPA and state environmental agencies would get 88 percent of whatever could be recovered from Anadarko for toxic cleanups. The settlement set up trusts to collect and distribute any money awarded from the $25 billion suit.
The May trial will bring Jamison closer to resolving his 12-year quest for compensation. He and 8,100 others across the country who seek a total of $2 billion are in line for the remaining 12 percent of what the U.S. wins. To do so, they must meet strict guidelines. They must have filed suits for personal injuries before Tronox exited bankruptcy last year and proved they suffer from one of 10 illnesses.
Out of Luck
Even if evidence in the trial establishes new sources of pollution or phony asset transfers, that won’t help, says Matthew Garretson, whose Garretson Resolution Group oversees the trust for tort claims. “The die is already cast,” he says. He declined to say whether lawsuits such as Jamison’s meet the requirements.
Thousands of other people who say Kerr-McGee caused their injuries are already out of luck. Some missed deadlines, didn’t follow legal procedures or couldn’t afford medical tests to link their illnesses to alleged toxins. Many settled for pittances because they were sick, needed money or were afraid they’d die before heading to court.
Bankruptcy made things worse, because the cost to bring suits isn’t worthwhile unless there can be a recovery, says Robert Rabin, a law professor at Stanford University in Palo Alto, California, who specializes in tort law.
The government case against Anadarko seeks to prove that Kerr-McGee carried out a sham transfer with the intent of escaping a toxic past and placing oil and gas assets beyond the reach of potential claimants.
The U.S. says Kerr-McGee never revealed the extent of its polluting properties and had internally referred to at least 11 locations where it treated wood as “secret sites.”
The sites, along with hundreds of other polluted properties, were hidden even from most Kerr-McGee employees and not discovered until after Tronox filed for bankruptcy, according to the lawsuit.
Because the toxic locations were “secret,” an unknown number of people who may be suffering today would have had no way of tracing their ailments to Kerr-McGee, says John Hueston, who is overseeing legal strategy for the lawsuit.
“Kerr-McGee took steps to ensure that both the EPA and other potential claimants would not know or discover polluted sites in a timely fashion,” says Hueston, who was a federal prosecutor in the trial of Enron Corp. executives Kenneth Lay and Jeffrey Skilling. “A challenge in the case will be the defense from Anadarko that many of these sites were unknown to it and Kerr-McGee.”
Jamison, whose booming voice and confident posture belie his health complaints, says he’s sure the Kerr-McGee plant in Columbus is responsible for his ailments -- and for the creosote fouling the church property and parts of the community. He says his joints are swollen, and he keeps to a strict diet with plenty of fresh juices to avoid needing dialysis for his damaged kidneys.
Even today, a smell like burnt rubber and tar intensifies the closer a visitor comes to the fenced-off expanse of the abandoned plant. A ditch carries a stream of dark water down a road, under a bridge and across to the Maranatha Faith Center before curling through ball fields and emptying into Luxapalila Creek.
Ruby White and Ethel Toney, sisters in their mid-60s, live in one-story homes on Shady Street, separated from the plant by another row of houses. The women can’t afford to move. White, sitting in her sparse living room where an air conditioner blocks a small window, looks decades older as she sucks on oxygen to breathe. Pulmonary fibrosis has scarred her lungs for at least 15 years, and she’s had breast cancer for two, she says.
Toney attributes the mouth cancer that makes it hard for her to enunciate to her childhood habit of eating blackberries that grew near railroad tracks around the plant.
Others in the town of about 25,000 just west of the Alabama border blame creosote for problems from miscarriages to itchy skin. A Kerr-McGee predecessor called T.J. Moss Tie Co. began producing it in Columbus in 1928, according to court papers. Creosote contains at least 300 chemicals and can cause skin irritation, convulsions, confusion, kidney and liver problems, skin and scrotum cancer and death, according to the Agency for Toxic Substances and Disease Registry.
Jamison began his battle long before Kerr-McGee disappeared into Tronox and Anadarko. He sued Kerr-McGee in a Mississippi court in 2000. About 4,400 residents, including White and Toney, settled claims for property damage or personal injury for $50 million, according to lawyer Wilbur Colom, who worked on the case. White says she collected $12,000 of a promised $19,000 and says the money is mostly gone. Jamison and a handful of others held out for more.
People Are Dead
Colom says he faced a big dilemma when he counseled clients whether to settle around 2002. Some were so sick that he advised them to take a payout sooner rather than endure drawn-out court proceedings.
“Ten years later, all of the people who had serious cancers are dead,” Colom says, reviewing thousands of names next to such entries as “sarcoidosis with renal involvement,” “lung and colon cancer” and “dec’d ovarian cancer,” meaning deceased.
Jamison struggled with the temptation to settle too. He says lawyers for Kerr-McGee offered him $3 million to drop the lawsuit he brought on behalf of his church and not tell anyone he thought the tarry substance was harming people and properties around the plant.
“I said, I’m a preacher. I preach God’s love,” he recalls. “How can I preach that to people and know they are in harm’s way and not tell anyone?”
Jamison says lawyers then offered $4 million. He turned that down. By then, he’d seen the 1983 movie “Silkwood,” starring Meryl Streep. The film showed Silkwood’s suspicious death in a 1974 car accident as she was driving to meet a reporter and go public with her story that Kerr-McGee was exposing employees to plutonium through poor safety standards. Jamison says he was afraid of what a company that powerful might do to someone who had damaging information.
“So I called a press conference and told everyone what I had found,” he says.
Jamison has hit roadblocks since. His first frustration arose in proving where the creosote came from and that there was enough to cause injuries. He and his lawyers eventually paid for tests to show creosote existed at the church, while Kerr-McGee disputed what chemicals were present in what concentrations, he says.
Sarcoidosis and Cancer
He has had to resubmit his lawsuit at least twice. In 2005, as Kerr-McGee was preparing the spinoff into Tronox, it said a unit called Kerr-McGee Chemical Worldwide LLC was the correct target. After the spinoff, the defendant became Tronox. When Tronox entered Chapter 11, Jamison had to move his case to federal bankruptcy court in Manhattan.
Jamison says creosote is still damaging Columbus because the soil remains saturated. People are sick and their medical bills have surpassed their settlements, he says.
Connie Davis says her mother, Hattie Baldwin, has sarcoidosis, which formed nodes in her lungs and has left her using a portable oxygen tank. Davis, 63, lost a 19-year-old son to cardiac arrhythmia. Ann White, in her early 50s, is surviving breast cancer. The breast cancer rate in Columbus was 2.65 times the national average, according to a 2006 report by Patricia Williams, a coordinator of toxic research labs at the University of New Orleans.
‘Mississippi Still Burning’
Ruth Joiner blames digestive problems and a benign tumor on more than 40 years of living near the plant. She missed a deadline to submit a claim for compensation because she didn’t know she had to file before Tronox’s bankruptcy ended.
“Why were they bankrupt before we got paid?” Joiner, 65, asks. “They say they got nothing left, but we’ve got our health left -- our messed-up health.”
Jamison says Columbus’s black population, which lives closest to the foul-smelling plant and which had worked in its yards, has suffered most.
“Mississippi is still burning,” he says. “There are poor people of color dying.”
In Hattiesburg, Mississippi, about 200 miles (320 kilometers) south, people settled with Kerr-McGee long ago -- and for a pittance.
In 2003, 1,490 of 3,300 claimants who say they were harmed by the wood treatment plant in their town got $600,000, or an average of $402.68 per person, a 2006 Tronox filing with the U.S. Securities and Exchange Commission shows. Another 1,335 claims were settled for an undisclosed amount. A judge dismissed the rest because plaintiffs failed to pay filing fees or disclose enough information, according to the filing.
In Avoca, Pennsylvania, residents won more -- but have yet to see the money. Twenty-four people sued Kerr-McGee in 2005, saying chemicals from a plant that had used creosote from 1956 to 1996 caused skin and lung cancer, asthma and other diseases. By 2007, the suit had grown to 3,700 plaintiffs.
In May 2007, Tronox, which by then had assumed Kerr-McGee assets, agreed to negotiate. It set aside $4 million, saying it would increase the amount as needed when an arbitrator decided the awards, according to the confidential arbitration agreement viewed by Bloomberg News. The agreement says Tronox must pay any award within 30 days and can’t appeal any decision.
The court-appointed arbitrator awarded eight skin cancer sufferers $45,000 to $300,000 apiece on Oct. 2, 2008, according to court documents. Tronox filed motions in the Luzerne County Court of Common Pleas to reconsider, violating the requirement about not appealing. After that, it didn’t pay, according to papers in the arbitration agreement.
In April, as the trial approached, Anadarko argued to exclude testimony by three witnesses from Avoca, court papers show. One of them, David Perks, says his bladder cancer had been caused by living near the Kerr-McGee plant since 1977 and coaching Little League for 16 years on creosote-soaked fields.
Teddy Nez, who lives outside Gallup, New Mexico, is fighting colon cancer and respiratory difficulties he says were caused by uranium from Kerr-McGee’s mines dating to the 1940s.
He and others in the Navajo Nation that stretches through New Mexico, Arizona and Utah couldn’t afford medical tests to prove radiation caused their illnesses. Because no one filed tort claims, there won’t be any money from the U.S. lawsuit to defray medical costs for Nez and others, says David Taylor, a lawyer for the Navajo Nation Department of Justice.
“Every time we ask about the health problems, they say you need a study,” Nez says. “We don’t have any money for a health study.”
The Navajos will at least benefit in one way: 23 percent of what the U.S. recovers for cleanup costs in the $25 billion suit will go to 51 uranium mines or exploration sites on their territory. Avoca, Columbus and Karen Silkwood’s former Oklahoma plant are also in line for payouts.
As with Silkwood’s 1974 death, the full story of Kerr-McGee’s 2,772 allegedly polluted sites may never be known.
“There’s a shockingly large magnitude of liabilities stretching across the nation,” legal strategist Hueston says.
Thirteen years after striking creosote, Jamison is waiting to find out whether his lawsuit will be considered in any recovery. Sitting on a wooden pew in his empty church, he says he hopes the trial will finally rectify the miscarriages of justice against small-town citizens who’ve suffered for years while battling an ever-shifting corporate foe. For others who haven’t had the fortitude or the finances to keep up the fight, it’s already too late.
The bankruptcy case is Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The adversary case is 09-01198, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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