Bombarded by lawsuits and under federal investigation, the chemical company that spilled a dangerous solvent into a West Virginia river and fouled the drinking water of 300,000 people filed for federal bankruptcy protection Friday.
Freedom Industries Inc., owner of a storage tank that ruptured Jan. 9 and spilled 7,500 gallons of a coal-treatment foaming agent called MCHM into the Elk River, sought protection from creditors under a Chapter 11 filing by its parent company, Chemstream Holdings Inc. of Pennsylvania.
The filing will protect Freedom from creditors, temporarily halt lawsuits against it and allow the company to continue operating.
The spill prompted the governor to order residents of nine counties in the Charleston area not to use tap water for anything but flushing toilets. No baths, no washing dishes; even boiling the water could not make it safe.
In court documents, Freedom Industries says a water line break brought on by frigid temperatures may have caused "an object piercing upwards" to punch a hole in the 35,000-gallon storage tank, allowing the chemical to flow down an embankment into the river. The Freedom facility is just upstream from a major water treatment plant.
Freedom says in its filing that the water line scenario is "hypothesized" and intended for "explanatory purposes only." The hypothesis, it says, is not intended as a legally valid explanation in defense against any lawsuit.
Eight businesses and individuals filed a joint class action suit Monday in federal court in Charleston against Freedom, the local water company and the Tennessee chemical company that produced the MCHM, which is used to wash coal. The suit alleges that the companies either failed to take reasonable precautions to prevent the spill or concealed the true dangers of the chemical.
In addition, at least two dozen lawsuits against Freedom and other companies have been filed in state court in West Virginia. The U.S. attorney in Charleston has launched an investigation.
Kevin Thompson, a Charleston lawyer who filed the federal class action suit, said in an interview Friday that Freedom seemed to be claiming that a shard of ice from the water pipe rupture pierced the storage tank.
"That sounds pretty preposterous," Thompson said. "It's not much of a steel tank if a chunk of ice can pierce it."
Thompson said the bankruptcy filing would put his lawsuit against Freedom on hold but did not affect his clients' claims against West Virginia American Water Co. or Eastman Chemical Co., the Tennessee firm that makes MCHM, or 4-methylcyclohexane methanol.
The bankruptcy filing lists Freedom Industries' 20 largest creditors, with claims totaling more than $3.6 million. Among them are Eastman, which claims $127,000; and Chemstream, of Stoystown, Pa.; which claims $175,000.
In the filing, Freedom estimates its total liabilities and total assets at between $1 million and $10 million each. The company was founded in 1992, but has existed in its current form only since Dec. 31, when it merged with three other companies under the Freedom Industries name.
The bankruptcy documents are signed by Gary Southern, the embattled Freedom president. Southern made a brief and contentious appearance before reporters in Charleston last week but has made no public comments since.
The West Virginia Department of Environmental Protection has said that Freedom violated state law by failing to immediately report the leak or take quick action to stop it. The agency said its inspectors went to the Freedom facility Jan. 9 in response to neighbors' complaints of a licorice-like odor coming from the storage tanks.
In the bankruptcy filing, Freedom says, "The water company was notified," but it does not say when. Nor does it say whether the company notified state authorities, as required by law.
Under state and federal environmental laws, the tanks are exempt from inspections. Scientists say very little is known about the possible health effects of MCHM, which Eastman says can cause nausea and eye or skin irritation.
Even after state officials had lifted the ban on tap water use for half of those affected, the Centers for Disease Control and Prevention issued a warning Wednesday advising pregnant women not to use the water. That prompted outrage from residents and from West Virginia's congressional delegation, which harshly criticized the CDC and demanded its toxicity studies on the chemical.
In the bankruptcy filing, Freedom says MCHM is used to "treat coal and reduce the amount of ash during the coal preparation process." The document makes no mention of any possible adverse health effects from exposure to the chemical.
Also Friday, both of West Virginia's U.S. senators introduced legislation that they said would protect Americans from chemical spills that threaten drinking water.
The Chemical Safety and Drinking Water Protection Act, co-sponsored by Sen. Barbara Boxer (D-Calif.), would require regular inspections of aboveground chemical storage facilities, force chemical companies to develop state-approved emergency response plans and allow states to recoup the costs of combating spills and improve the ability of water companies to respond to spills.
West Virginia Gov. Earl Ray Tomblin, a Democrat, said Friday that he would introduce state legislation next week that would establish similar requirements, as well as regulations governing construction and maintenance of aboveground chemical storage tanks.
david.zucchino@latimes.com
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