More than $2.9 million in insurance money, and potentially funds from other assets of Freedom Industries, could be spent for health studies, water testing or other projects to benefit Kanawha Valley residents and businesses affected by the company’s January chemical leak, under a new legal settlement proposal made public Friday.
Lawyers representing a broad class of those harmed by the leak reached the proposed deal with attorneys for Freedom and filed a copy of a “term sheet and agreement in principle” as part of a legal brief in a leak-related case in U.S. District Court in Charleston.
The proposal says settlement proceeds would be distributed by a yet-to-be-named oversight board to be used “for the benefit” of the class of residents, businesses and others affected by the leak from Freedom’s now-closed chemical tank storage site, located just 1.5 miles upstream from West Virginia American Water’s regional water intake on the Elk River.
Anthony Majestro, of the law firm of Powell & Majestro, the lead attorney who negotiated the settlement with Freedom, said funds from the settlement could be used for things like medical surveillance of the health effects of MCHM exposure or testing of the water system to determine if MCHM is still present.
“The claimants, and their attorneys who have agreed to represent the class, firmly believe that this settlement with Freedom is the right way to use Freedom’s limited resources,” Majestro said.
Specific distribution procedures would be subject to approval by U.S. Bankruptcy Judge Ronald Pearson as part of Freedom’s liquidation plan. The settlement document refers to funds being distributed according to the direction of an “oversight board” but does not explain how that board would be chosen or what guidelines it would follow.
In at least one recent bankruptcy hearing, lawyers for Freedom and for the company’s creditors hinted that they were close to reaching a deal that could be incorporated into Freedom’s liquidation plan.
Mark Freedlander, a lawyer for Freedom Industries, would not comment Friday afternoon.
If approved by the court, the proposal would settle dozens of pending lawsuits filed against Freedom after the Jan. 9 leak from the company’s Elk River chemical tank farm contaminated the drinking-water supply of 300,000 residents in Charleston and counties surrounding Kanawha County. Hundreds of people reported illnesses or injuries related to the leak, and many businesses were closed for days because of a “do not use” order on the region’s tap water.
According to the settlement document, consideration of the deal would first require approval from Pearson for a waiver of the bankruptcy-related suspension of civil litigation against Freedom Industries, so that lawyers for the residents could file a new federal court complaint that the proposed settlement would then resolve. The settlement also would be subject to the review and approval of a U.S. District Judge.
Under the proposal, the class of plaintiffs covered by the case would include all persons or entities who: 1) are customers of West Virginia American Water in the area affected by the leak; 2) live in the affected area; 3) are employed in that area; 4) owned or operated a business in the area; and/or 5) were physically present in the area at any time between Jan. 9 and Jan. 19.
The settlement would not resolve other lawsuits against individuals related to Freedom Industries, such as cases that name former company officials as defendants, and it also would not resolve leak-related lawsuits filed against West Virginia American Water or against MCHM-manufactuer Eastman Chemical.
The deal would set aside for leak victims all of a $2.9 million insurance settlement that Freedom Industries reached with AIG Specialty, the now-bankrupt chemical firm’s insurance carrier. That money would be placed into a trust, pending approval by the bankruptcy court of Freedom’s yet-to-be disclosed liquidation plan.
Under the proposal, Freedom’s remaining assets would first be spent to pay the administrative costs of its bankruptcy proceeding, clean up the company’s Elk River site, pay a claim filed against Freedom by the Internal Revenue Service, and pay up to $2.9 million to non-leak Freedom creditors, such as vendors still owned money for materials or services provided before the bankruptcy.
Once those other non-leak creditors are paid $2.9 million, then any additional assets would be split 50-50 between leak victims and the non-leak creditors until the non-leak creditors are paid the full amount that Freedom owes them. After that, leak victims would receive the entire amount of any money that’s left, the proposal says.
The proposal says the settlement proceeds would be used for “cy pres” purposes. The phrase comes from the Norman French term “cy pres comme possible,” which translates to “as near as possible.” It’s a legal doctrine used in trust law when a donor’s charitable gift is considered impractical and estate lawyers attempt to find the “next closest” use.
In class-action lawsuits, the term generally refers to the use of funds to promote the interests of class members in indirect ways. Such settlements sometimes involve charitable contributions or other projects, when settlement money is unclaimed or when direct distribution is infeasible or the money available is too small to make distribution practical.
Majestro said Friday that “it has been obvious for a long time” that Freedom Industries “would not have sufficient funds to pay for all of the damages caused by the spill.”
“If Freedom’s available assets and insurance are distributed to all of the spill victims, the likely recovery will be, on average, less than $10 a person,” Majestro said. “In our communications with our clients and area citizens and businesses, we found that they were more concerned over the unanswered questions from the MCHM spill than in recovering a small sum of money after filing an individual claim.”
Many details of the proposal remain to be worked out, but the settlement documents made public so far indicate that one condition to the settlement is that Freedom’s remaining environmental remediation payments, excluding costs for legal help and consultants from the firm Arcadis, do not exceed $850,000.
The settlement requires the remediation to be done “in accordance with the Remediation Plan previously approved” by the West Virginia Department of Environmental Protection. However, Mark Welch, Freedom’s chief restructuring officer, has said he doesn’t know how much the final remediation will cost because additional testing of the site needs to be done once all of the company’s storage tanks are removed. Until that testing is completed, Welch said, there’s no way to know for sure what the cleanup will cost.
The terms sheet made public Friday also indicates that the final settlement document will include a provision allowing potential class members to “opt-out” of the deal if they wish to do so. It requires public notices to be filed that explain the settlement and informs the public of deadlines for opting out.
The terms sheet says lawyers for the residents and businesses agree “neither to ask for nor receive payment of fees from settlement proceeds paid by Freedom for the class.”
“Because we live and work here and want these questions answered for ourselves and our community, we were willing to reach this settlement and agree not accept any compensation or attorney fees,” Majestro said. “But, we also wanted to make sure that those who don’t agree, and want to file their individual claim, have the right to opt out of the settlement and personally receive their individual share of Freedom’s assets. The settlement preserves this right.
“The settlement will also save money because, if approved, the parties will not have to resolve the numerous individual claims of the class in Bankruptcy, making more money available to all of Freedom’s creditors,” Majestro said.
Charleston lawyers Ben Bailey and Marvin Masters also represent the class of plaintiffs, the terms sheet said.
Reach Ken Ward Jr. at email@example.com, 304-348-1702 or follow @kenwardjr on Twitter.