I know, I know. This is one of the signs of the Apocalypse. Actually, believe it or not, I find that this happens more often than you’d think. The specific issue that I’m referring to here is the idea that corporate welfare needs to end. This is a great piece on how the American Smelting and Refining Company (Asarco) is using legal loopholes to avoid paying for the messes that it is making. Notice a few key points :
  Reorganization under the Bankruptcy Code’s Chapter 11 helps companies wipe the slate clean of environmental liabilities, giving them a fresh start.
Blatant abuse of the bankruptcy code. When private citizens do this kind of thing, we get smacked around; when corporations do it, they get a wink and a nod.
Asarco’s parent company, Grupo México, is benefiting too. A few months after Asarco filed for bankruptcy, Grupo México announced that net profits had doubled–largely because Asarco’s environmental liabilities had been removed from its books. Of course, the liabilities remain, but now they are borne by U.S. taxpayers.
As usual, guess who winds up paying for corporate malfeasance? That’s right, you and me.
There are United States v. Asarco rulings unfavorable to the company in Arizona, Colorado, Idaho, Kansas, Montana, Texas, Utah, and Washington. When Asarco filed for bankruptcy, more than 100 civil environmental cases were pending against it.
Ok, I’m no expert, but doesn’t the company’s board of directors monitor this kind of thing? When you have over a hundred cases of a similar type pending against you, it’s time to start doing more than just meeting in Tahiti once a year.
In 2002, Senator Maria Cantwell (D-Wash.) was concerned enough about corporate shell games and other legal evasions to ask the Government Accountability Office (GAO) to see if corporate polluters were avoiding their responsibility under existing laws.
Well, at least someone in Congress isn’t asleep at the wheel on this, however…
Once, Tacoma could have depended on the federal Superfund program to force the parties responsible to bear the cost of cleaning up contaminated sites. Most of the costs of restoring “orphaned” properties–many created through bankruptcy–were paid by a tax on crude oil and certain chemicals and an environmental tax on corporations. Not anymore. When authority to collect these taxes expired in 1995, Congress did not renew it, and now the program’s “polluter pays” fund is depleted. Cleanup dollars have to be pulled from general funds, meaning out of the public’s pockets.
And why didn’t Congress renew this? Also, remind me who occupied the Oval Office in 1995? Seems like the blame gets spred pretty evenly here between R’s and D’s.
No one knows just how widespread the problem is. According to the GAO report, “While more than 231,000 businesses operating in the United States filed for bankruptcy in fiscal years 1998 through 2003, the extent to which these businesses had environmental liabilities is not known because neither the federal government nor other sources collect this information.”
More examples of your federal government in action. And remind me why we would ever support people who put their faith in big government?
Andrea Madigan is the chair of the EPA’s national bankruptcy work group and an enforcement attorney based in Denver’s Region 8 office…”The bankruptcy laws specify that companies have to give notice to their creditors, and if we are a creditor, we should be identified,” says Madigan. But is the EPA notified so it can collect? “Debtors can sometimes be pretty sloppy.”
Uh, yeah, and apparently so can the government. Perfect example of government versus business. Government yo-yo says,”Eh well, a lot of people owe us money. Uh, I guess we’re going to try to find out who owes and how much. Maybe we’ll even try to get some of that back.” On the other hand, private businessowner Joe Capitalist does not go to bed at night without knowing who owes him money, how much, where they live, their shoe size, and their kids’ pet Golden Retriever’s name. Government yo-yo has neither the personal motivation nor accountability to keep track of who owes the government money (it’s not his money, right?). Joe Capitalist’s future depends on making sure that he gets paid when someone purchases a product or service from him or is issued a line of credit. Personal responsibility, accountability, and motivation. Hmmm… maybe this capitalism thing isn’t that bad.
Corporations have a responsibility to clean up their messes. This is part of the idea of personal accountability (you make a mess, you are ultimately responsible for making sure that it gets cleaned up). Don’t get me wrong, I’m not advocating a war against business here, but when a corporation uses the bankruptcy codes to dodge reponsibility to its creditors, it needs to be shut down for good. Regulatory agencies need to be a lot smarter about watching what corporations are doing and predicting the results of corporate actions. If a company is on shaky grounds financially and suddenly starts transferring its assets to a holding company or other such entity, the regulatory folks need to make the logical jump here, realize what’s happening, and do their jobs in making sure that existing laws are enforced. In the case of Asarco, since they have essentially stolen taxpayer money (we’re paying for their messes and legal liabilities), there is no way that they should be allowed to return to operation in the United States until they have paid back every dollar. Further, their parent company should be held accountable for this debt as well and should be monitored to guarantee that they don’t just use a new start-up company or holding company to pick up right where Asarco left off. This kind of parasitic behavior by corporations needs to end. When Asarco returns to the US (as it inevitably will), they will pick up where they left off, debt-free (thanks, taxpayers). Their competition, meanwhile, may well be honest businesses who take responsibility and pay for their debts rather than using legal maneuverings to avoid them. What sort of message does this send to them? Are we simply incentivizing bad behavior? We talk a good game about the free-market and capitalism, but how free is the market if some companies get to leech off of the taxpayer and some don’t?
Omar:
First you should read the whole piece you linked (you missed the part about Ansarco setting up a $100 Million trust fund, guaranteed by Grupo Mexico, for environmental clean-up).
Second, the Sierra Club is not only unreliable, they frequently make baldly false claims about their enemies in order to support their own stance. I’ve had to deal with them as opposition in legal cases before, and they are anything but fair and honest.
Third, Ansarco has been operating these smelters, etc. for over 100 years — i.e. long before the EPA, Superfund or most of the environmental rules and science that we have today. Also, in how many cases was Ansarco occupying the subject sites prior to any “victims” living there? Does it make it a difference that Ansarco created opportunities for these people to live and work? What if Ansarco had no reason to suspect a danger to their own employees, et al. from operating its business? It should it still be liable for any alleged injuries, no matter how tenous the proximate cause?
Finally, just because someone brings a case against Ansarco, that doesn’t mean that they are absolutely entitled to a verdict in their favor, nor that a favorable verdict is indeed fair to Ansarco. You’d be surprised at how much of the damages awarded in a case are actually for legal fees and government fines, as opposed to clean-up costs or compensatory damages to “victims.”
As for bankruptcy eliminating “environmental liabilities” (as the Sierra Club puts it), that just isn’t true. If a company successfully emerges from Chapter 11, the creditors will have to sign off on the Reorganization Plan, as will the judge. The alternative to bankruptcy, or course, is that a few favored creditors get paid while leaving all others holding unsatisfiable judgments against a company with no assets. How is that better?
Nope, I just didn’t consider it a key point to the conclusion that I reached. Is Grupo Mexico regulated by the US government or the Mexican government?
For this one, I’ll have to use the Fox News defense,”I report you decide.”
In my view, irrelevant to them playing legal and financial shell games to avoid paying for messes that they have made.
Regarding personal injury type issues, I would tend to say let the jury decide, but on issues of clear environmental damage (meaning pollution specifically, not injury to people, pets, etc.), then I would say yes if they are the company that made the mess.
No doubt, but this isn’t really about lawsuits is it? It’s about a company causing pollution and dumping a bunch of waste products, then trying to skip out on paying to clean the stuff up. Which, in turn, means that you and me (Joe Taxpayer) gets to pay for the clean-up. That’s capitalists playing the socialist government system for all it’s worth. And then these guys are just going to turn around and complain about how business-unfriendly our “socialist” government is.
Well it’s all capitalism right? You invest in a company (or its stock) with the understanding that this is business proposition with inherent risk. You have voluntarily undertaken that risk. On the other hand, when a company fails to pay EPA fees (or fines or what have you), then the EPA is still going to get its money. That money is just going to come from taxpayers. Which is coercion. I haven’t agreed to take the risk of investing in this company, why should my money be put to use settling its debts?
Wait. This:
and this:
are inconsistent. There are no “legal shell games” going on. Ansarco sold off an asset and left an equivalent amount of money (backed by the parent company which had no obligation to do so) to cover potential environmental claims. Absent the transfer, the same amount (and probably less) of money is available to pay claims.
The company went bankrupt under the weight of claims made pursuant to the EPA, which was enacted AFTER the company had been doing business for about 70 years.
While you assume that the cases were based on something nefarious and illegal (“It’s about a company causing pollution and dumping a bunch of waste products, then trying to skip out on paying to clean the stuff up.“), there’s nothing in the story you linked to suggest that. If you’ve come across other articles, etc., that provide evidence for your assumption, go ahead and link them and I’ll deal with them accordingly.
In the meantime, let’s just assume that you are right and that some sort of dumping of toxic waste products is the problem? How much was known about it being a problem? What was the evidence that any harm was actually caused. Is it fair to saddle a company with liability for taking a legal action when the laws that make the action illegal now were enacted well after the fact? You already provided some answer:
I would agree that allowing a jury to decide about certain issues regarding damages is perfectly fine, and in fact preferable to having any judge do so (for posterity’s sake). But sometimes such issues should never reach a jury. The legal system is designed (over hundreds of years) to present issues of fact to a jury and issues of law to a judge.* The idea is that a defendant should not be faced with competing issues of fact when there is no legal principle to support the case against him. With respect to the Ansarco case, there may be (and I readily admit that I don’t know) counterveiling issues of law that weigh in favor of the defendant, issues upon which they relied for 70 years. It is not fair IMHO to subject such defendants who bettered peoples lives (both employees and consumers — have you thought about where we would be without smelting?) to ex post facto judgments about their deeds that were perectly legal at the time.
That was just the policy problem I have with your post. With regard to the legal subject, you should know that bankruptcy law is not something to be taken lightly. It is a heavy subject and one of the few in which a lawyer can be certified in an expert (not that I am one, but I do work for one). In fact, my bankruptcy professor (Todd Zywicki) is a blogger, so I feel I have to comment here in defense of bankruptcy laws.
Anyway, the central argument in the Sierra Club piece is that Ansarco is somehow ducking claims by declaring bankruptcy (which may not have been at their own bidding — there is such a thing as involuntary bankruptcy that befalls entities in Ansarco’s position). If Ansarco did not declare bankruptcy, however, what would have happened? The answer is that either nobody or a few favored creditors would have received some compensation, and the rest would have to do without. The wail that “the taxpayers are left holding teh bag!” is true in a sense, but it begs the question — how do you get blood from a stone? If Ansarco has way more liabilities than it can pay, what difference does it make that the company enters bankruptcy in order to stop the clock with respect to new claims (which is all that bankruptcy is in the end)? If Ansarco only has $100 Million, but it has $1 Billion in unsatisfied claims, isn’t it obvious that somebody is going to do without? Why blame the legal system? Ansarco accumulated these claims after operating legally (I’m doing the assuming now) for 70 years (plus all those years prior to the conglomerate known as Ansarco, when it was just a bunch of independent smelters). How is it fair to make them mliable for something that they had no idea would be illegal or that would cause any ill effects?
BTW, I don’t mean to pick on you about this. I care about the nvironment too. I just hate to see ready-made assumptions about how bankruptcy and corporate laws operate being used to advance an agenda that has “feel good” written all over it without understanding the complexities of the problem.
*That’s a bit simplistic, but for our purposes it will suffice. I can get deeper into the subject if you like (it really is fascinating), but I won’t bore you with it unless you ask … at you own peril of course
Interesting debate here.
It is not fair IMHO to subject such defendants who bettered peoples lives (both employees and consumers — have you thought about where we would be without smelting?) to ex post facto judgments about their deeds that were perectly legal at the time.
I see your point, Mike, but I think we’re confusing the fairness of being punished for ex post facto laws with the fairness of having to pay to clean up your own environmental damage. The second one may be a rough deal, but the first is natural justice.
You make a good point, glasnost. I don’t diagree with a company/polluter being held responsible for its misdeeds, but if said company only has so much money what do we expect it to do? That is aside from the issue of whether we should, as a policy, hold anyone accountable under laws that were enacted after the actions too place.
To be sure, environmental problems are great issues to debate libertarian causes from an externalities point of view. This is no exception, and I don’t mean to make the case that Ansarco shouldn’t be held liable for unlawful or harmful actions it should have known not to take. But I do mean to suggest that just because a company enters bankruptcy does not mean that it is hiding from responsibility, as the Sierra Club asserts.