Lyondell, U.S. Said to Settle Dispute Over Cleanup of Sites

Lyondell Chemical Co.’s bid to shed some environmental claims brought by the U.S. will be settled without going before a federal district court judge, a person familiar with the negotiations said.

The parties reached an agreement in principle to settle the U.S.’s dispute with Lyondell, which filed for bankruptcy court protection last year, the person said. The person declined to elaborate on the terms of a settlement, saying it hadn’t yet been written. The U.S. previously sought a claim of as much as $5 billion related to contaminated sites.

U.S. District Judge Alvin Hellerstein in Manhattan had been scheduled to hear Lyondell’s dispute with U.S. agencies and decide whether it falls under the bankruptcy code or federal environmental law, an issue the district court is better equipped to evaluate. Lyondell, reorganizing in a Chapter 11 bankruptcy, said it opposed the government’s attempt to claim future cleanup costs at sites across the U.S. that Lyondell says it doesn’t own.

Janice Oh, a spokeswoman for the U.S. Attorney’s Office wasn’t immediately available for comment yesterday. Andrew Troop, a lawyer for Lyondell, didn’t immediately return a call seeking comment yesterday.

Lawyers for the Environmental Protection Agency and California state agencies had asked to have the dispute heard in district court, saying Houston-based Lyondell is trying to use the bankruptcy court to get an order “discharging” it from compliance with federal environmental law.

PCBs, TCE

Lyondell makes solvents, resins and other chemicals, many of them related to the refining industry. It has been named by the EPA as a potentially responsible party at sites where suspected carcinogens, including PCBs and trichloroethylene, or TCE, have been detected.

The company hasn’t disputed that it releases hazardous substances that endanger human health, or that it has cleanup orders for the sites under federal law, lawyers for the EPA wrote in court documents.

“If their hazardous waste has been dumped or otherwise released onto a third-party site, however, the debtors contend that the U.S. and the California environmental agencies are precluded from requiring the debtors to comply with their obligations under federal and state environmental laws,” the lawyers said in court documents.

Creditor Objections

Lyondell and its creditors objected to having the decision about environmental liabilities made in federal district court. The U.S.’s claims for environmental costs are the same as other claims in a bankruptcy, and should be discharged, lawyers for creditors said.

“This issue is a core task of the bankruptcy court,” the creditors’ lawyers wrote in court documents.

David Harpole, a Lyondell spokesman, said the company is “continuing to work toward a settlement with the EPA on this matter, which covers a variety of environmental issues for legacy properties.”

The U.S. sought a claim of as much as $5 billion for cleanup costs, environmental damages and penalties at 11 so- called third-party sites where Lyondell isn’t the current owner of the polluted property, Lyondell said.

The U.S. also sought to hold the company responsible for unknown costs at seven of those sites. The dispute in the lawsuit involved a separate category of claims that covered the seven sites, and all claims about Lyondell’s obligations for environmental damage that can be connected to the company’s pre- bankruptcy conduct, even if the U.S. hasn’t made a claim about it yet, lawyers for Lyondell said.

11 Sites

Of the 11 sites, three are in Texas and two are in Pennsylvania. The remainder are in California, Iowa, Maryland, Michigan, New Jersey and Oklahoma.

Lyondell’s outline of its plan to reorganize is set to be considered by U.S. Bankruptcy Judge Robert Gerber on March 8. Reliance Industries Ltd., India’s biggest company, has expressed interest in the bankrupt chemical maker. Lyondell has also proposed reorganizing by repaying its $8 billion bankruptcy loan and giving an equity stake in the new company to lenders, including sponsors of a $2.8 billion rights offering.

The main case is In re Lyondell Chemical Co., 09-10023, and the adversary case is 09-01375, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Related links:
LyondellBasell - www.lyondellbasell.com