After more than a year and a half of wrangling and negotiating among lawyers, environmental regulators and court officials, Freedom Industries' bankruptcy case is almost settled. U.S. Bankruptcy Judge Ronald Pearson said on Friday that there was "great merit" to the proposed settlement and that he would make a final decision "very, very early next week." It will have to be early in the week. Friday's hearing was likely the last of Pearson's career. He retires from the bench, after 32 years, on Thursday.
Freedom Industries filed for bankruptcy in January 2014, just one week after it leaked 10,000 gallons of coal-cleaning chemicals into the Elk River, contaminating the drinking water of 300,000 people.
For more than 20 months, Freedom's lawyers have been in negotiations with lawyers for local residents, the state Department of Environmental Protection, West Virginia American Water and other parties.
The proposed settlement aims to compensate (as much as possible) victims of the chemical leak, while also providing funds to finish cleaning up the contaminated site on the banks of the Elk. It also releases Freedom's former owners and directors from liability and the threat of lawsuits related to the bankrupt company.
Freedom's proposed bankruptcy plan was submitted on Aug. 12 and received overwhelming support from the people involved in negotiating it. Among the small differences between the proposed plan and the one that will likely be approved next week is a stipulation allowing the bankruptcy estate to donate, potentially to the DEP, the old Freedom site if they are unable to find a buyer following cleanup.
In the end, Freedom's bankrupt estate has a little more than $6 million to distribute.
The settlement, if approved, will provide a little more than $2 million to people and businesses affected by the tainted water.
Nearly $600,000 will go to the IRS for unpaid federal taxes.
The DEP and environmental cleanup firms will get $1.4 million to continue cleaning up the contaminated leak site. That's in addition to another $1.1 million for environmental remediation approved under a separate settlement between the DEP and Freedom's owner, a company called Chemstream Holdings.
"Whatever needs to be done at the site is going to be done at the site," said Mark Freedlander, Freedom's lead bankruptcy lawyer.
Any funds leftover after cleanup is complete will go toward reimbursing leak victims.
About $1.2 million will go toward fees for lawyers and financial management firms involved in the case.
About $350,000 will go to "general unsecured claims," largely people and companies that Freedom owed money to before the leak.
There are two separate classes of spill victims, and they will be drawing from separate pools of money.
People who claimed losses from the spill that were less than $3,000 will collect payments from a total of $500,000. That's only enough to cover about 44 percent of the losses that those people claimed. Still, those leak victims voted overwhelmingly in favor of the settlement. About 98 percent of the more than 800 small claimants who voted on the settlement voted to approve it.
There were significantly more people who claimed large losses from the spill and they will receive a far smaller percentage of the money they've claimed.
More than 2,100 people, with claims greater than $3,000, voted on the proposed settlement. They also voted overwhelmingly to approve it (about 99 percent voted yes). The claims of those people total more than $56 million. They will not see anywhere near that amount of money. At this point, it's estimated there is about $1.6 million for this group of claimants.
Of the approximately $6 million that Freedom's estate has to distribute, the largest chunk, $3.2 million, comes from a settlement from Freedom's insurer, AIG.
Another $2.8 million comes from Freedom's owner and former owners. The company was sold in December 2013, just a month before the chemical leak. Its former owners and directors -- Dennis Farrell, Charles Herzing and William Tis -- all of whom pleaded guilty to water pollution violations, will contribute part of that money.
At the time of the spill, Freedom was owned by Chemstream Holdings, which was owned by J. Clifford Forrest, a Pennsylvania-based coal magnate. Forrest, who was never charged with a crime in relation to the chemical leak, will also contribute a portion of that $2.8 million.
Gary Southern, Freedom's former president who became the face of the company after an infamous press conference the night after the spill, will personally contribute $300,000 to the bankrupt estate.
Southern's assets -- about $7.3 million and a Bentley -- are frozen while he awaits a December sentencing hearing for three water pollution violations. There was some concern at Friday's hearing that those frozen assets could delay administration of the bankruptcy estate. But Southern's lawyers assured the court that there was money outside of the frozen assets to contribute.
Freedlander said he expected all the funds to be in place within about three weeks.
While leak-related litigation remains connected to West Virginia American Water, Friday's hearing was likely the last concerning the Freedom estate.
"This has been a long and complex case," said Freedlander, who was worked on the case since the beginning. He told Pearson that he planned to handwrite the two sentences that had to be added to the settlement, so he could submit it immediately. "I almost feel obligated to do it in blood at this point."
Reach David Gutman at david.gutman@wvgazette.com, 304-348-5119 or follow @davidlgutman on Twitter.