A West Virginia bankruptcy judge rejected last month a water company’s objection to Freedom Industries Inc.’s $2.9 million class action settlement over a chemical spill that contaminated the drinking water in West Virginia. The court found the agreement is reasonable. West Virginia American Water Co., (WVAW) which has an unsecured claim against Freedom in the bankruptcy case, objected to a proposed stipulation between Freedom and the Plaintiffs in the district court case outlining the terms of the deal.
Bankruptcy Judge Ronald G. Pearson wasn’t swayed by WVAW’s argument that the stipulation is really a motion for stay relief and that the necessary grounds have not been established for granting any such stay relief. Judge Pearson said in an order approving the stipulation:
The court disagrees. This stipulation has been entered into between the debtor and certain plaintiff representatives in what the court believes, considering the limited resources of the debtor, to be a responsible and economical means of attempting to obtain a determination and treatment of incident claims at a reasonable cost.
The water company also pointed out that no final order on a proposed compromise with Freedom’s insurer, AIG Specialty Insurance Co., has been entered and that therefore there is no fund in place for a class action. Judge Pearson said there is almost $3 million in insurance coverage that AIG is holding for parties in interest in this case.
Under the July settlement, Freedom will pay out the money it received in a June settlement with AIG Specialty, and half of the net proceeds from asset sales in Freedom’s pending bankruptcy suit after those funds are used to make several other payments. Freedom entered bankruptcy in January shortly after the incident that caused coal-processing chemicals to leak from one of its storage facilities into the Elk River, just a mile above a West Virginia American Water Co. water treatment plant. The Kanawha County facility leaked coal processing chemical 4-methylcyclohexane methanol, or Crude MCHM, into the river on Jan. 9.
The spill prompted the utility to issue a do-not-use order for nine counties, urging customers not to drink, brush their teeth, wash dishes or bathe in the water for days. Freedom Industries was immediately slammed with demands from customers and for payments that it couldn’t meet. Since then, lawsuits have piled up, including several proposed class actions.
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