Privatizing Gains, Socializing Costs: WV Water Polluter Files for Bankruptcy to Halt Lawsuits

(AP Photo/Steve Helber)

Freedom Industries, the company that recently leaked thousands of gallons of toxic chemicals into the Elk River in West Virginia, quietly filed for bankruptcy this past Friday to shield themselves from the onslaught of lawsuits filed against the company.

The current owner of Freedom Industries, J. Clifford Forrest, took control of the company about a week before the chemical spill occurred, and only a week later filed for bankruptcy.  According to the filing, the company owes more than $3.6 million to creditors (a fact that was known when Forrest bought the company in late December). 

What Forrest couldn’t have known at the time was that he was sitting on a time bomb, and that his newly purchased company had been skirting safety regulations and vital equipment upgrades in an effort to save a few bucks in the short term.

The company is now facing an investigation by the U.S. Department of Justice, in addition to at least 20 separate lawsuits from residents. The number of lawsuits is expected to rise, as the chemical spill is estimated to have poisoned at least one-sixth of West Virginia’s entire water supply.

But Forrest isn’t the victim in this case. His decision to file for bankruptcy protection had nothing to do with the prior debts that the company owed, and everything to do with preventing the millions of dollars his firm will be forced to pay out in lawsuit settlements. The bankruptcy filing will effectively temporarily “stay” the lawsuits, which prevents any payments from being made.

Forrest knew this, and this is why he had his company file bankruptcy. But this doesn’t mean that the company is no longer in business. To the contrary, Raw Story has revealed that Forrest is also the owner of a brand new firm called Mountaineer Funding LLC, which is funding the company to the tune of $5 million (more than enough to handle their current, non-lawsuit liabilities). So the liabilities of Freedom Industries can be handled by Forrest’s funding firm, as can the daily operations, but the lawsuits are now being held in limbo since Freedom Industries is technically “bankrupt.”

The practice of filing for bankruptcy following disasters is quite common, especially when it comes to environmental lawsuits. But this doesn’t mean that the victims in West Virginia will never get their day in court.

Should Freedom Industries be sold, even if it is broken into subsidiaries or smaller corporate pieces, the buyers will assume not only the assets of the company, but its liabilities as well. This includes the pending litigation against the company.

But the other fact that Forrest and any potential buyers of Freedom Industries understand is that environmental lawsuits take a very long time to make their way through the legal system. It can take years for full environmental assessments to figure out the extent of the damage. Additionally, it may take just as long for adverse effects to begin appearing within the population (for damages beyond the immediate lawsuits seeking restitution for loss of use and inconvenience). 

Suing or settling before this monitoring is completed would severely hurt the injured people by rewarding them much less compensation than they should be entitled to.

There is also the fact that lawsuits take a long time to make their way through the court, typically due to the lengthy appeals process. 

The legal battles will take years, and the bankruptcy process will only be a minor bump in the road by the time the dust settles. Freedom Industries will have years to make back the money that they will pay out, even before they have to cut a single check. And in the meantime, just as with many other environmental disaster stories, mystery illnesses could creep up within the population of West Virginia that will difficult to link with the company.

The only winner in this situation is J. Clifford Forrest, who will likely never have to pay a dime out of his own pocket for the disaster that occurred on his watch. He has perfected the age-old corporate practice of privatizing the gains and socializing the costs.

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