WASHINGTON -- The 562-foot smokestack still casts a long shadow.
For nearly a century it emitted a plume of arsenic, lead and other heavy metals from Asarco's copper smelter in Ruston, blanketing 1,000 square miles of South Puget Sound, where a half-million people now live.
At some places, regulators found arsenic levels 25 times higher than the state considers safe.
Once the world's biggest, the smokestack has been demolished. Yet it remains a fitting symbol for the largest environmental bankruptcy in U.S. history. And it provides a cautionary tale of how a company intent on shedding its environmental liabilities can manipulate the nation's bankruptcy system.
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In this case, Asarco's foreign owner, Grupo Mexico, S.A. de C.V., tried and failed. But it took a federal judge to block what some bankruptcy lawyers call a "candy heist" that could have left taxpayers responsible for environmental cleanup at 80 sites in 19 states initially estimated to cost $6.5 billion.
"Grupo Mexico tried to use a bankruptcy court to avoid Asarco's cleanup responsibilities, and they almost got away with it," said Sen. Maria Cantwell, D-Wash.
Asarco officially emerged from bankruptcy earlier this month. Its owners have paid $1.8 billion in a cleanup costs, including $188 million to Washington. State and federal regulators say they are more than satisfied.
Unless the laws are changed, however, Cantwell and others warn that another company almost certainly will try to manipulate the bankruptcy system.
"This is not what the bankruptcy laws were intended for," said John Iani, a Seattle lawyer who as regional head of the Environmental Protection Agency during the George W. Bush administration convinced reluctant Justice Department lawyers that Grupo Mexico was trying to pull a fast one.
In court documents, Grupo Mexico steadfastly denied it maneuvered Asarco into bankruptcy in an effort to slough off its environmental responsibilities. Grupo Mexico refused to comment for this story.
Ten miles or so from where the Ruston smokestack once stood, work is under way to remove and replace the topsoil at Children's Villa day care center. The work is being funded with money Washington received from the Asarco bankruptcy.
Washington has been especially concerned about day care centers like Children's Villa and schools where children playing outside can get contaminated dirt on their hands and in their mouths. Teachers and day care workers have been careful to make sure the children wash their hands and wipe their feet as they come inside.
"We are very conscientious about it," said Debbie Winn, the director of Children's Villa.
The Washington Department of Ecology will use about half the $188 million it received from Asarco to take samples at 20,000 parcels that may have been affected by fallout from the smelter plume. That includes 800 to 900 schools and day care centers.
In addition to the plume cleanup, the state will use $44.7 million from the Asarco bankruptcy settlement at a smelter site in Everett, $22 million for the B&L Woodwaste site in Pierce County, and $10.8 million for old mining sites in northwest and Eastern Washington. About $2 million will be used to remove creosote-laden docks that were part of Asarco's smelter operation.
The smelter, along with the smokestack has been leveled, the site cleaned and soil or concrete caps placed on the most contaminated areas. A private developer is developing the site.
At its peak, the Ruston smelter produced 10 percent of the nation's copper. Gold, platinum, silver and arsenic were byproducts. The smelter was the only domestic producer of arsenic in the country.
Asarco had seen better years when Grupo Mexico bought it in 1999 for more than $2 billion in a highly leveraged buyout. Owned by one of Mexico's richest families, Grupo Mexico had its eyes on Asarco's "crown jewels" -- a majority interest in two of the world's richest copper mines, located in a Peruvian desert where it hadn't rained since the time of the Spanish conquistadors.
From the get-go, Iani and other regulators smelled trouble. They were convinced Grupo Mexico's sole goal was to gain control of the Peruvian mines and then nudge Asarco into bankruptcy to avoid billions of dollars in environmental cleanup costs.
"We watched as their lawyers sought to move things offshore," Iani said. "They were leaving the country and these sites would have gone orphan."
Federal lawyers were able to temporarily block the transfer of the Peruvian mines to another of Group Mexico's subsidiaries. But in 2003, Grupo Mexico officially bought the mines from Asarco. Less than two years later, Asarco filed for bankruptcy protection.
Over the past four years, the case has unfolded in a bankruptcy court in Corpus Christi, Texas. Early on, Judge Richard Schmidt effectively stripped Grupo Mexico of its control of Asarco and installed an independent board of directors.
Grupo Mexico continued to play a role in the bankruptcy proceedings, but it was unclear how serious it was about reassuming control of Asarco in a reorganization.
While the bankruptcy case was unfolding in Corpus Christi,, a separate case was filed in a federal court in Brownsville, Texas. Asarco alleged that Grupo Mexico had fraudulently stripped it of its interest in the Peruvian mines and taken steps to force it into bankruptcy.
In a stern decision, U.S. District Judge Andrew Hanen agreed and found Grupo Mexico owed Asarco $8.8 billion for the mines.
Grupo Mexico would either owe $8.8 billion to a new owner of Asarco under a reorganization plan, or it could fight to regain control of Asarco for far less.
"In a status conference just weeks before Hanen's ruling, Grupo Mexico said it wasn't interested in buying Asarco," said Elliott Furst, who handled the case as a senior counsel in the office of the Washington state attorney general.
But within weeks of Hanen's ruling, Grupo Mexico was in a bidding war for control of Asarco.
In the end Schmidt, the bankruptcy judge, accepted Grupo Mexico's $2.2 billion plan. In his decision, Schmidt suggested Grupo Mexico finally offered a serious reorganization plan in an effort to limit liability in the Peruvian mine case.
-- Les Blumenthal: 202-383-0008; email@example.com