Jan. 15 (Bloomberg) -- In a neo-Tuscan villa in an office park near the Charleston airport, seven West Virginia plaintiffs’ lawyers gathered Jan. 13 for a council of war.
Chemical contamination that had cut off tap water to 300,000 West Virginians was making its way west into Ohio. Local authorities were saying that Freedom Industries Inc., the source of the 7,500 gallons of rogue coal-processing chemical, may not have acted swiftly to warn about the seepage. And the federal prosecutor in town sounded dead serious about a criminal investigation.
No surprise, then, that the atmosphere in the elegant conference room of Hill, Peterson, Carper, Bee & Deitzler, while businesslike, had an undertone of bellicose joy.
“We’re looking at punitive damages, ’piercing the corporate veil’ at Freedom Industries, and holding the water company and the chemical manufacturer liable, too,” said James Peterson, the strategy session’s host. Dressed in a black sweat suit and tan baseball cap, he acknowledged he hadn’t showered in five days. Then he smiled and said, “Neither have a lot of other people around here.”
Working with two fellow local firms, Hill Peterson has filed suit against Freedom Industries on behalf of businesses temporarily shut down by the water crisis. The suit also names the West Virginia unit of American Water Works Co., the largest publicly traded water utility in the country. The sole intake for the Charleston-area water system is a mere mile-and-a-half down the Elk River from the Freedom Industries chemical-storage facility.
At least 17 similar suits are on the local court docket. Eventually they’ll be consolidated before a special judicial panel, predicted Anthony Majestro of Powell & Majestro, one of Peterson’s co-counsel. When all is said and done, lost revenue, wages, and other economic harm in Charleston and surrounding counties will total a half billion dollars, the plaintiffs’ lawyers estimated.
“This thing has disrupted life throughout the region and reminded us of the recklessness these companies engage in,” Peterson said. In an area whose industrial history has earned it the nickname Chemical Valley, the environmental mess also underscores the consequences of powerful business and political opposition to aggressive oversight.
The courtroom offensive will begin by targeting closely held Freedom Industries, a little-known amalgamation of four smaller companies whose merger was finalized less than two weeks before the leak became public on Jan. 9. Any potential connection between the Dec. 31 corporate combination and the chemical-tank rupture isn’t yet clear.
In a stumbling first-day press conference, Freedom’s president, Gary Southern, apologized for the mishap, said the company had done the best it could, and vowed to cooperate with federal and state investigators. He sipped from a water bottle and complained that it had been “an extremely long day,” much to the vocal consternation of reporters, who noted it had been a longer day for families without water to drink or bathe.
On Jan. 11, Charles Ryan Associates, a Charleston public relations firm, dropped Freedom Industries as a client, refusing to explain why. A woman who answered the phone at the Freedom Industries corporate office yesterday said executives there were not available to answer questions. She referred inquiries to a public relations firm in Florida, which did not immediately respond to phone messages.
West Virginia corporate filings tell a colorful story about Freedom Industries’ founding. Joining Southern in starting the company in the 1990s was a man named Carl L. Kennedy II, a twice-convicted felon.
The Charleston Gazette reported on Jan. 12 that Kennedy pleaded guilty in federal court in West Virginia in 2005 to tax evasion. He was sentenced to three years in prison, although the sentence was reduced after he agreed to make controlled cocaine buys in a separate investigation. In 1987, he “pleaded guilty to selling between 10 and 12 ounces of cocaine in connection with a scandal that toppled then-Charleston Mayor Mike Roark,” the Gazette added. The state corporate filings show that Kennedy ceased his executive role with Freedom Industries in 2005.
Timothy Bailey, a partner with Bucci, Bailey & Javins, another litigation ally of the Hill Peterson firm, speculated that apparent contradictions between Southern’s account of the chemical leak and that of state authorities may lie behind the Ryan PR firm’s resignation and could signal deep trouble for Freedom Industries in court.
In public briefings, West Virginia Department of Environmental Protection officials have said that their inspectors investigated the situation at Freedom on Jan. 9, not because of an alert from the company, but only after neighbors complained of an annoying chemical odor resembling that of licorice.
When the inspectors arrived at the Freedom plant along the Elk River in Charleston, they found that someone had tried unsuccessfully to prevent the chemical from escaping a containment area adjacent to the leaking 35,000-gallon storage tank. A four-foot-wide stream of a compound known as MCHM was seeping past a dike and into the Elk River. This scenario appears to undercut Southern’s assertion that Freedom notified authorities as promptly as possible; the official account also raises troubling questions about when the leak first occurred.
It isn’t yet known publicly what kind of assets or insurance coverage Freedom has. Plaintiffs’ lawyers could try to go after the company’s owners individually -- “piercing the corporate veil,” as its known -- if they can prove blatant fraud in how Freedom Industries was managed and/or how it responded to the leak, Peterson said. Punitive damages are another option if plaintiffs’ can prove egregious conduct.
MCHM, which is short for 4-methylcyclohexane methanol, is used to remove certain impurities from coal before its burned. The chemical is harmful if swallowed or inhaled and can cause skin irritation, nausea, and vomiting, according to the American Association of Poison Control Centers. More than 230 people were seen at Charleston-area hospitals complaining of those symptoms; at least 14 were admitted, but none was in critical condition, according to state health officials.
Beyond Freedom, the post-spill litigation has encompassed American Water Works, which is based in Vorhees, New Jersey. The company serves 14 million customers in 30 states and parts of Canada. Jeff McIntyre, president of its West Virginia division, has been a continual presence on local television, explaining the process by which some residents, neighborhood by neighborhood, are gradually regaining access to tap water. Treated respectfully in these briefings by West Virginia Governor Earl Ray Tomblin, McIntyre has said his company did everything possible to minimize the contamination.
Plaintiffs’ lawyers, however, are researching why McIntyre’s operation didn’t have some sort of sensor that immediately shut down the intake of polluted water the instant MCHM was detected. Another litigation target, already named as a defendant in at least one suit, is Eastman Chemical Co., the large manufacturer based in Kingsport, Tennessee, that makes MCHM.
According to Eastman’s material safety data sheet for the chemical, MCHM has a U.S. Occupational and Health Administration rating of “hazardous.” Questions likely to arise are what kind of oversight Eastman does of distributors such as Freedom Industries. Spokeswomen at Eastman didn’t immediately respond to phone messages seeking comment.
Another relevant question concerns how much supervision Freedom Industries received from state and federal regulators. Officials with the West Virginia Department of Environmental Protection have said they visited as recently as 2012 to check on reports of the licorice odor associated with MCHM, but found nothing amiss. Randy Huffman, the department’s chief, has stressed during local television interviews, though, that as far as his agency is concerned, MCHM isn’t “hazardous” and doesn’t require any sort of special permitting.
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