One Week After W. Va. Toxic Spill, New Owner of Freedom
Industries Puts Firm in Bankruptcy
17 January 2014
By Steven Mufson
It took just one week for Pennsylvania coal mining executive Cliff
Forrest, the new owner of Freedom Industries, to discover that one
of the six-decade-old storage tanks he had acquired Dec. 31 was
leaking a toxic chemical into the Elk River that supplies water to
about 300,000 West Virginians.
And it took just one more week for Freedom Industries, facing
about 20 lawsuits and a Justice Department investigation, to
declare bankruptcy. On Friday, the besieged company filed for
protection under Chapter 11 in the U.S. Bankruptcy Court in
Charleston, W. Va.
Overnight after the spill, an obscure corner of the chemical and
coal business became headline news.
It’s not a sexy business. The chemical that leaked is used in a
process called “froth flotation.” Basically, it creates bubbles
that attract fine coal particles. Add a quart of the chemical to a
1,000-gallon-a-minute slurry of coal in the cleansing separation
process, and coal mining companies can skim off the particles, dry
them and sell them as fuel.
It’s been a pretty good business niche. Freedom Industries has
bought and stored chemicals from the likes of Eastman Chemical, an
international $12 billion business, and Georgia Pacific Chemicals,
a unit of the Koch brothers’ Georgia Pacific, a global paper
product giants. Then Freedom Industries sells to companies such as
Alpha Natural Resources, one of the country’s biggest coal
producers. More than 100 plants in West Virginia use froth
Forrest, through another firm he owns, paid roughly $20 million to
acquire Freedom Industries and orchestrate its Dec. 31 merger with
four tiny distribution, blending and storage firms that act as
middle men between big chemical and big coal companies, according
to a person close to the company but not authorized to speak for
it. He added that Forrest just “had the misfortune of buying a
plant just before all hell broke loose.”
Ever since, Freedom Industries has battened down the hatches. It
issued a statement on Jan. 10, the day after the spill was
discovered, and nothing since. Chief executive Gary Southern,
suffering from pneumonia, made one brief and awkward appearance
sipping from a water bottle before TV cameras. Two days later,
Charles Ryan, the crisis public relations firm Freedom Industries
hired, dropped the company. Its Web site made no mention of the
accident, and later said nothing of the firm’s bankruptcy either.
Newspapers scoured state records to learn about the company but
found slim pickings apart from the criminal record of a
Crisis management experts say the public reaction of Freedom
Industries is not a model.
“Mostly what organizations do in these kinds of moments is duck,”
says Davia Temin, a New York-based crisis manager. “They do not
come forward. They do not put their CEO forward. And they do not
work out of the playbook of good crisis management, probably
because they don’t have anything good to say.”
Temin said such companies “go underground, though unfortunately in
this case their underground is toxic.” And if they’re truly
avoiding the spotlight, then “tomorrow you will no longer be
Freedom Industries, it will be Liberty Industries or Apple Pie
In Charleston, critics say that Freedom Industries may have new
owners, but it has old problems that needed fixing. The facility,
perched on a steep bank of the Elk River, has 13 tanks built in
the 1940s and 1950s, said Daniel Horowitz, a spokesman for the
federal Chemical Safety Board. The site was formerly used by
Pennzoil/Quaker State as a gasoline and diesel terminal. The
35,000-gallon tank that leaked is about 20 feet high and sits on a
concrete pad surrounded by dirt. Encircling that tank and some
others is a cinder block containment wall with visible cracks in
it, Horowitz added.
A state Department of Environmental Protection official said the
agency found that a clear liquid, thicker than water but not as
thick as syrup, had pooled in a roughly 40-foot square and was
flowing through a crack in the base of the cinder block wall.
The person close to Freedom Industries, which has hired two
contractors to help with the cleanup, said the company has emptied
the tank and looked inside. He said the bottom of the tank had
been pushed inward, suggesting damage from water underneath that
froze in the unusually harsh cold earlier that week. He added,
however, “there are many, many additional pieces of information
needed before anyone knows why the tank failed.”
That’s not stopping the plaintiffs’ attorneys, who have already
filed lawsuits against Freedom Industries for negligence. They
have also named Eastman Chemical, the manufacturer of the
licorice-smelling chemical that leaked, and the West Virginia
American Water Corp., which kept its intake pipe open and which
earlier failed to heed recommendations from the state to move a
water intake pipe located about a mile and a half downstream from
the chemical storage tank site.
“It’s got broader implications than West Virginia,” said Kevin
Thompson, a lawyer who filed a class-action suit in federal court
against the three companies on Monday. “There are so many
chemicals out there that are not properly characterized. It’s only
after they dump it in our water and it smells like licorice that
we know about it. If it didn’t smell like licorice, we wouldn’t
Untangling the corporate who’s who is complicated.
Freedom Industries, which was created in 1986, sells a variety of
chemicals. On its Web site, it says it maintains “bulk inventory”
of six raw materials for coal flotation “to insure [sic] that
custom blends for each customer can be produced 365 days per
year.” It also sells chemicals for controlling dust, treating
water and combatting freezing conditions.
The company had a colorful executive in the past. One of the
company’s founders, Carl L. Kennedy II, was charged with failing
to pay more than $200,000 in income taxes, according to news
reports at the time. In 1987, he pleaded guilty to selling between
10 and 12 ounces of cocaine, according to the Charleston Gazette.
A person familiar with Freedom Industries said Kennedy left the
company long ago.
The current president, Gary Southern, comes from Britain but has
worked in the U.S. chemical sales business for more than two
decades, according to a person familiar with the company. West
Virginia secretary of state records show that Southern was
president of a chemical sales company called HVC , which in 1998
did an estimated $72.5 million in business.
The companies that are now part of Freedom Industries together had
revenue of about $30.7 million in fiscal year 2013, according to
the bankruptcy filing. It has been slow to pay some bills; the
Internal Revenue Service filed liens to collect more than $2.4
million in recent years.
In December, Freedom Industries was acquired by a Stoystown,
Pa.-based company called Chemstream, which also blends and sells
chemicals to industrial customers, according to the person
familiar with the company. The company’s Web site says it began as
a distributor of chemicals for the mining industry.
Chemstream is owned by Forrest, according to the person. Forrest
is president of Rosebud Mining, a Kittanning, Pa.-based company he
founded in 1979 and which is now the third-largest underground
coal producer in Pennsylvania with 1,400 employees in Pennsylvania
On Dec. 31, Freedom Industries merged with local companies Poca
Blending, Crete Technologies and Etowah River Terminal. The toxic
chemical concoction that leaked into the river was stored in three
of the tanks at the former Etowah terminal, the state Department
of Environmental Protection said.
The person close to Freedom Industries said that Chemstream had
hired two firms to do due diligence before its acquisition and had
plans to “bring maintenance items up to speed.” He described the
Freedom Industries owner and executives as “upstanding guys.”
Eastman Chemical sold Freedom Industries this particular batch
of chemical, called 4-methylcyclohexane methanol, or, more simply,
crude MCHM. Eastman spokeswoman Maranda Demuth said Eastman’s
safety sheet for customers warns that “this product should not be
released into a drain, sewer or stream.” She said it is the
responsibility of the customer and local, state and federal
agencies to ensure operations are safe and comply with
Demuth also disputed assertions by critics and regulators that the
company had not supplied much information about 4-MCHM. She said
Eastman had filed a “Premanufacture Notification” with the
Environmental Protection Agency in 1997 for a component of crude
MCHM for use in coal processing. “EPA reviewed the notification
and did not request any additional testing,” Demuth wrote in an
e-mail. She said the tests were done at “reputable laboratories
where rigorous internal review processes were performed.”
But Horowitz of the Chemical Safety Board said that the safety
data sheet for the chemical “has a great many fields which say ‘no
data available.’ ” Under the section titled “most important
symptoms and effects, both acute and delayed,” Eastman’s forms
says “no data available.” Under toxicological effects of
inhalation, “no data available.” It was the same for whether it
causes cancer, affects reproduction or affects specific organs.
“There is very little available testing data on its toxicity,”
On Thursday evening, the House Energy and Commerce Committee’s
ranking Democrats, Henry A. Waxman (Calif.) and Paul D. Tonko
(N.Y.), wrote to Eastman’s chief executive, Mark J. Costa, asking
that he immediately provide unredacted copies of all studies the
company did on the health and environmental effects of MCHM.
Freedom Industries said in its bankruptcy filing Friday that MCHM
“is not a regulated substance, and accordingly, there are no
published standards regarding acceptable concentrations of MCHM in
Trouble in the water
American Water played a key role in the fiasco, too. Its water
plant was built in 1972, and company spokeswoman Laura Jordan says
that the Elk River was a perfect spot for an intake pipe, much
better than the nearby Kanawha River, which she said was home to
several chemical and industrial plants.
But in retrospect, the intake pipe was very close to the Etowah
Terminal now part of Freedom Industries.
Jordan says that Freedom Industries told American Water about the
spill just before noon Jan. 9. The person close to Freedom
Industries said cellphone records show that the water company was
notified about an hour earlier. In any case, American Water kept
its intake pipe open figuring that it could handle the
contamination with its own treatment facilities. American Water
engineers were told to keep watch and add more carbon to the
company’s carbon filters, Jordan said.
She said that Freedom Industries initially mischaracterized the
chemical that was leaked, saying it was a coagulant that would
sink rather than a foaming agent that would float. By midafternoon
the water company learned of the error.
The water company could have drawn on reserves to avoid the
crisis, according to the person close to Freedom Industries. But
Jordan said the water reserves would last only a few hours and
that it was better to keep the water treatment plant open so
people would have sanitation water and water for fires if needed.
Freedom Industries is also looking at whether the water company
had a leaking pipe on higher ground than the storage tanks. It is
looking at whether the leaking water might have frozen under the
tank and punctured it. The person close to Freedom Industries says
that the water company contacted a contractor two years ago but
only made repairs there this week.
It all has the makings of long-running, soap-opera-style
“I have a whole gang of people working on it,” says Thompson, the
plaintiffs’ attorney. They include an environmental engineer, a
toxicologist, an aquatic biologist and a physician. His clients
include Carolyn Burdette, a beautician who lost $400 in business;
the Vandalia Grill, which says it lost $10,000; Crystal Goode, a
single mother of three who worried about exposure to the chemical;
and the owner of Mousie’s Car Wash in Charleston, who seeks
business damages and health monitoring.
When he filed the suit, Thompson says, “I had to put a number down
so I asked for $100 million.”