EPA entered into a settlement agreement with the Bank of India (Bank) as part of an innovative settlement to facilitate the sale and reuse of an abandoned facility in Cortland, NY. The settlement was published in the today’s Federal Register .The proposed settlement is subject to a 30-day comment period.
The settlement involves the Buckbee-Mears Company (“BMC”) facility, a a 50-acre facility in Cortland,NY. From the 1970s until June 2004, BMC manufactured aperture masks, a key component in color picture tubes and computer monitors, along with other photo-chemically etched metal products used in a variety of applications. After BMC Industries filed for chapter 11 bankruptcy, India-based International Electron Devices-USA, LLC (“IED”) acquired the assets and facility of the Buckbee-Mears Group division of BMC Industries for $3.1MM in October 2004. IED was the “stalking-horse” and sole bidder in an auction conducted under supervision of a bankruptcy court. In connection with the acquisition, IED entered into a credit agreement with the Bank that was secured by a mortgage, liens on personal property, equipment and inventory along with personal guarantees executed by the principals of IED.
IED resumed manufacturing aperture masks for cathode ray tubes and sheet metal components required for color television picture tubes and computer monitors. However, IED ceased operations in May 2005 after encountering financial problems and abandoned the facility. The facility was not winterized and water damage occurred in the spring of 2006.
As often happens with abandoned facilities, large quantities of hazardous wastes were discovered when the Cortland Police Department responded to a report of vandalism during the summer of 2006. Acids and caustic chemicals were stored in drums, tanks, , process piping and numerous small containers throughout the facility. The police also observed seven cylinders of chlorine gas. The Cortland Police notified the New York State Department of Environmental Conservation (NYSDEC). After NYSDEC inspected the facility, the agency requested EPA to conduct a removal action because the absence of security and lack of utilities. EPA issued a Unilateral Administrative Order (UAO) to IED in September 2006 but IED did not complete the work required under the UAO. Following several additional acts of vandalism at the facility, EPA initiated a Removal Action on January 2007 to May 2009.
The removal action included sampling and disposal or recycling of the hazardous materials. EPA contractors also drained, cut and removed almost 200,000 linear feet of contaminated chemical feed lines, removed potential radiation sources in instrumentation units and disposed mercury switches. EPA also demolished two of the production facilities which totaled approximately 200,000 SF and encapsulated contaminated concrete floor slabs. EPA expended approximately $8.3MM in the removal action.
After EPA was unable to contact IED, the agency began a dialogue with the Bank, the City of Cortland (“City”) and the County of Cortland (“County’) to resolve the competing liens on the Site property so the facility could be put back into productive reuse. In addition to EPA’s $8.3MM lien, the City had a tax lien of approximately $1.2MM and the Bank has an outstanding lien of approximately $8.4MM. Thus, a property was last assessed at $2.1MM was saddled with liens of approximately $17.6MM in liens.
EPA entered into agreements with the City in June 2012 and the County in July 2012 (collectively, the “Municipal Settlements.” ).Notice of the Municipal Settlements was published in the August 3rd issues of the Federal Register . The final piece of the puzzle was the agreement with the Bank (the “Bank Agreement”). Under the Bank Agreement, the Bank will foreclose on the facility and attempt to sell the Site through a foreclosure auction. EPA will receive all funds in an escrow account with accrued interest (approximately $116,500), 25% of any funds the Bank collects from the principals of IED and a share of the proceeds from the sale of two parcels of land within the Facility that are subject to the City and County tax liens.
Any proceeds remaining after the payments to the Bank, the City and the County will be distributed as follows: The City the greater of $302,881 or 15% after the Bank is paid $150,000 attributable to the costs of marketing and selling the Properties while the County will receive $2,120 to satisfy their liens, which are superior to EPA’s lien. If there are sale proceeds remaining after these payments, the excess funds will be distributed in proportion to the following lien amounts: $8,323.204 for EPA, $8,434,911 for the Bank and $1,199,043 minus the greater of $302,881 or 15% of the proceeds for the City. If the properties subject to the City and Government liens are not sold through the Bank’s foreclosure action, the City and County will foreclose on the Properties and EPA will receive 50% of the sale price, after County and City transaction costs associated with the sale.
In exchange for the, EPA will discharge its CERCLA 107(l) lien on the Site and waive any windfall lien it may have on the Properties under CERCLA Section 107(r), thus eliminating EPA’s one-year right of redemption pursuant to 28 U.S.C. 2410(c) that would otherwise be applicable if EPA’s lien were to be foreclosed. The Bank Agreement acknowledges that the Bank did not participate in the management of the facility so that it continues to remain within the CERCLA secured creditor safe harbor protection. The Bank, the City and the County will also receive a covenant not to sue and contribution protection for the Existing Contamination.
An interesting sidebar to the cleanup was a malpractice action filed by IED against the law firm that represented it to purchase the BMC assets and facility. IED filed its professional malpractice action against the law firm in October 2008, alleging, inter alia, that it failed to recommend conducting a phase 2 prior to the closing. The law firm argued that the three-year statute of limitations for such a lawsuit expired in October 2007. The trial court dismissed the action but the appeals court reversed, concluding that the plaintiff has sufficiently pled that there had been had an ongoing relationship with the defendant firm in connection with the EPA investigation as late as the fall of 2006 so that the statute of limitations had not run. The law firm subsequently dissolved and a settlement was reached.
Finally, the EPA Superfund Redevelopment Initiative funded a $125K Reuse Assessment for the Facility. The City also obtained a NYS Brownfield Opportunity Area (BOA) grant for the corridor where the facility is located. Reuse Assessment Presentation and Reuse Handout are available at the website for the BMC Site.