`If I Believed in Hell, This Could Be No Worse.'.

How Louisiana-Pacific cooked its books and smoked its books neighbors

Arthur and Margaret Orjias thought a fifty-acre plot of irrigated farm land in the high desert valley of Olathe, Colorado, would be the perfect place to settle when Arthur was laid off from Pan American Airlines in 1973. They poured Arthur's severance pay and their small savings into building a new home on the land, setting up four trailer sites to rent, and starting a large garden.

In 1984, when the couple was still putting the finishing touches on their house, a new neighbor moved into town--a timber mill owned by Louisiana-Pacific Corporation. The plant was set up to produce oriented strand board, a plywood substitute, through a process that includes pressing wood chips together with a chemical resin. In no time, the atmosphere at the Orjiases' home changed dramatically.

"Almost every day, especially in the winter, smoke poured out of their stacks all over everything. It came out of every window," says Margaret Orjias today. "It was like four or five tons of wood smoke came out of there an hour."

Other residents described it as thick brown or gray smoke that hung in the air above the valley and would sometimes blow along the ground and across the highway that runs right past the plant. Sometimes, in broad daylight, drivers would have to slow down and turn on their headlights to see the road. Toward the end of the 1980s, a pungent odor started seeping out of the plant. Margaret Orjias says it smelled like skunk spray and left an acidic taste in her mouth.

The Orjiases and their neighbors started suffering from health problems. Margaret's oldest son, Arthur Grant, developed chemically induced asthma, and her youngest son, John, started having corneal trouble, for which he later got a cornea transplant. Everyone in the family, it seemed, had some kind of ailment.

"It wasn't so much coughing as it was phlegm. Huge blobs of phlegm would drop down in your throat," she says. "We'd have chest pains, earaches, diarrhea, swollen glands, headaches like you wouldn't believe. I gave up gardening. Our horses would come up to the fence with big blobs of phlegm dripping out of their eyes and mouths. If I believed in hell, this could be no worse."

The Orjiases ran up thousands of dollars in doctors' bills. They weren't the only ones suffering. Kevin Williams, who was then a staff director for the Western Colorado Congress, a nonprofit grassroots citizens' organization based in Montrose, Colorado, just a few miles south of Olathe, visited with four families who lived near the plant that year.

"They all had all kinds of headaches, nausea, respiratory problems," he recalls. "And they didn't have them before the mill came in."

The Orjiases and their neighbors could only suspect it at the time, but throughout the 1980s and into the early 1990s, managers of the Louisiana-Pacific plant in Olathe were deliberately tampering with monitoring devices that were supposed to check air pollution. They were falsifying emission reports and lying to inspectors about their product.

On May 27, 1998, the company pleaded guilty to eighteen felony counts and agreed to pay a $31.5 million penalty for mail fraud and a $5.5 million fine for willfully conspiring to violate the Clean Air Act, among other crimes. Two Louisiana-Pacific employees were also indicted for their participation in the scheme. Mill superintendent Robert Mann was fined $10,000 and given home detention and probation, and mill manager Dana Dulohery was sentenced to five months in prison.

The penalty for Clean Air Act violations was the largest criminal fine in the twenty-eight-year history of the Act. It was also significant, says John Haried of the Colorado U.S. Attorney's Office, because it was the first case ever brought under the Act's anti-tampering provisions, which make it a crime to disrupt the normal operation of monitoring devices.

"I consider it a very serious offense," says James Morgulec, Senior Counsel with the Environmental Crimes Section at the U.S. Department of Justice, who worked on the case. "Self-policing is at the heart of environmental compliance. Environmental investigators obviously cannot be present every place where there are hazards, and we depend on businesses to do their own accurate monitoring and measuring. If they are tampering with the equipment so that it makes their monitoring unreliable or so they deceive the regulators involved, that is a very serious violation."

Louisiana-Pacific is a Portland-based company with fifteen plants in the United States, Canada, and Ireland. The company brought in $2.5 billion in sales last year alone.

On the day of the plea agreement, Louisiana-Pacific's new chairman and chief executive officer, Mark Suwyn, appeared in Colorado and apologized for the company's legal violations, which he called "wrong." Shortly after the charges were made, he announced that the company's senior management had left the company, and that he had recruited a new management team. "We set out to resolve the issues before us in this state as responsibly as possible," he said.

"Getting these issues behind us has been a top priority for our management team since we came on board two years ago," he said at a press conference. "Louisiana-Pacific's new management team has worked tirelessly to restructure the company and put the people and processes in place to enable us to produce the highest quality products in a highly responsible manner."

That was not the song the company was singing in the mid-1980s. Louisiana-Pacific managers told the Orjiases that the smoke coming out of the plant was just steam.

The Orjiases and Western Colorado Congress pressed for better regulation of the plant's emissions. Margaret complained to just about everyone she could think of. She traveled to Denver to talk to officials at the state health department. She took photographs to illustrate the problems at the plant. And she ran up long-distance phone bills calling neighbors of other Louisiana-Pacific mills.

In return, she started receiving threatening phone calls and letters. One anonymous caller said Margaret and her family better "get out of town if you know what's good for you." Another said, "We need the jobs, so if you don't like it you can leave."

The mill provided jobs for some 300 people in a town with a population of about 12,000. This was during the 1980s when Colorado was experiencing an economic downturn.

"I think anyone who went by the plant would not have much doubt about the fact that they were polluting," says Williams. "But whether or not anyone was willing to do anything about it was a whole other thing."

Within three years, the Orjiases could no longer live in Olathe. They abandoned the home they had built with their own hands, rented a house in the next town, and began legal proceedings against the company. The case was called Orjias vs. Louisiana-Pacific, but the plaintiffs included the Orjiases' neighbors, who were just as unhappy.

In February 1992, Dave Horan, a Louisiana-Pacific employee who had worked for the plant for almost a decade--starting as a broom-pusher and moving up to supervisor--was fired by mill manager Dana Dulohery. Horan filed a wrongful discharge suit in June 1992, alleging that he had been dismissed because he refused to engage in crimes taking place at the plant.

News of the suit appeared in a Denver daily paper, which tipped off an Environmental Protection Agency official who had been following the company's poor environmental track record at other plants. By September 1992, the EPA had obtained a search warrant and seized twenty-three boxes of company documents from the plant.

It took a long time for the U.S. Attorney's Office to make sense of Louisiana-Pacific's practices.

"For the first three years, we interviewed witnesses, reviewed documents, correlated production records to figure out when they had cheated," says Haried. "We had to learn the entire manufacturing system, and then figure out how you can cheat and how you can prove it with records. We had to learn all the different measuring devices."

They finally filed their first criminal indictment on June 15, 1995. Within two months, Louisiana-Pacific accepted the resignation of its top three officers: CEO Harry Merlow, executive vice president James Eissis, and vice president Ronnie Paul.

Suzanne Wuerthele, a regional toxicologist at EPA's Region Eight office in Denver, worked on the case. She identified two chemicals--Formaldehyde and Methylene Diphenyl Isocynate, or MDI, used in making particle board--that cause all kinds of allergic reactions. Both chemicals are "cross-linking agents," designed to connect polymers in the glue that holds particle board together.

According to Wuerthele, they can cause anything from mild eye, nose, and throat irritation to shortness of breath and anaphylaxis--a life-threatening allergic reaction.

Another hazard at the Olathe plant, Wuerthele said, was emission of wood particles into the air.

Very tiny particulate matter, when breathed in, can cause eye and nose irritation and precipitate asthma attacks. Over time, inhaling the irritants in particles can accelerate mucous production in the lungs. That can cause chronic inflammation, greater incidence of colds, susceptibility to other airborne viruses, and, ultimately, lung damage.

The carcinogens produced by wood burning, and the particulate matter, are a health risk, she says, "not to mention stuff like the odor and the fact that you can't see the sky."

Under the Clean Air Act and state regulations, Louisiana-Pacific was required to set up light-sensitive cameras called continuous opacity monitors that could read the density of the particles in the mill's air. The company was also supposed to keep annual records of production rates and make them available to the state health department for inspection. And it was supposed to keep records of its fuel consumption rate because there are legal limits on the hourly burning of wood fuel.

According to Horan's testimony, employees were "regularly instructed to bypass the system that recorded pollution levels in the smokestack" and were "directed to create false records concerning production and pollution." In addition, the Olathe mill regularly exceeded its production limit of 210,000 square feet of board in a twelve-hour shift.

"These people knew this equipment and how they could disguise it, and they did a lot of things that were clever," says Haried. "At one point, they took a wood chip and would wedge it into the recording pen so that it would never go over 20 percent [the state limit]. They took foiled-back adhesive tape and stuck it in the light path of the continuous opacity monitor so that it would read one number and stay there, to get a steady reading."

In the course of investigating the Clean Air Act violations, Haried and his colleagues also uncovered a whole new set of allegations relating to mail fraud.

According to the indictment, Louisiana-Pacific's Olathe plant made a practice of misrepresenting its product to customers. The American Plywood Association (APA) of Tacoma, Washington, now called the Engineered Wood Association, tests and certifies wood products. Building inspectors look for the APA's trademark stamp for proof of the structural integrity of buildings constructed with oriented strand board.

To test the wood coming from various plants, the APA requires that one sample of wood wafer be randomly selected every eight-hour shift and sent to its laboratory in Eugene, Oregon. But instead of selecting the samples randomly, the employees at Louisiana-Pacific simply kept a separate batch of boards, known as "superboard"--made by using more resin and keeping the wood in the press for longer periods of time--that they sent to APA as representative wood product. The "superboard" was never sold to the public. Instead, the company stamped all its regular wafer board, not made to code, with the regulation label.

Between July 1989 and November 1994, Louisiana-Pacific sold oriented strand board with the APA seal of approval to about 150 customers from Olathe to British Columbia, including Diablo Timber in Nape, California, Bradley Plywood Corporation in Savannah, Georgia, and even the Colorado Department of Corrections.

Most of the lumber companies that bought the wood did not seem distressed by the news that Louisiana-Pacific had mislabeled their wafer board. But the mislabeling did bother some customers. After Louisiana-Pacific was indicted in Colorado, four of its clients filed class-action suits in courts across the nation, based on the Olathe mail fraud allegations. All the cases were consolidated into one case, in San Francisco federal district court. On February 6, 1998, Judge Vaughn Walker of the U.S. District Curt of Northern California approved a settlement agreement that requires the company to pay for swift repair of any damage caused by the product in the next twenty years.

In the Olathe case, the court ordered Louisiana-Pacific to pay $36.5 million in fines over a five-year period to the federal Victims of Crime Compensation Fund, which is distributed to victim-compensation programs in all fifty states.

Louisiana-Pacific also had to donate $500,000 to seven Colorado-based organizations that deal with air pollution. (Margaret Orjias is a member of one of these groups, the Delta committee. She says "it was fitting" that her group received some funds from the action. The committee plans to use the money to initiate a "stove exchange," taking old stoves that do not comply with EPA standards from low-income families and replacing them with new stoves.)

Following the announcement of the $37 million plea, the company announced that the Olathe plant was going to be a "model of environmental compliance." CEO Suwyn said the company had installed more than $150 million in state-of-the-art pollution-control devices in the mill, had developed new environmental policies and materials, and had retrained employees. They established an environmental management structure within the plant, including a new position called Director of Environmental Affairs, and they set up an 800-number so that employees could anonymously report violations of the law to the company.

People who live near the mill say the changes have been dramatic. "From a visible pollution perspective it has improved," says Kevin Williams. "You don't see the dark brown smoke hanging over the valley anymore. If you do see some smoke, it's pretty much white, and it dissipates quickly." Horan, who now owns a mobile-home park in Montrose, agrees: "It's 100 percent better than it was before."

The court imposed a five-year probation period, during which time the company is required to monitor its own compliance and report any violations. If it fails to do so, it could be barred from any federal contracts, including use of federal lands. Since Louisiana-Pacific purchases timber from national forests, the federal-lands sanction would be fatal.

"A case like this sends shock waves through an industry," says James Morgulec of the Justice Department. "Deterrence is one of the most important aspects of criminal prosecution."

Gerry Soud, public information officer for Louisiana-Pacific, says the company's other factories are nothing like the Olathe plant: "That was an isolated situation at that plant, and it's not a reflection whatsoever of the other facilities."

But the company has had a long list of legal problems: In 1988, Louisiana-Pacific faced a Clean Air Act violation at its now-closed Kremmling, Colorado, mill and paid the EPA $65,000 in civil penalties. In 1990, the company reached a settlement with the Colorado Department of Health totaling $80,000. In 1993, Louisiana-Pacific paid out $11.1 million as part of a consent decree in a federal case filed in the Western District of Louisiana. In 1995, the company was convicted of a Clean Water Act violation in its Ketchikan Pulp Mill in Alaska, which resulted in a $3 million fine and closure of the mill.

In August 1997, the company paid a fine of $136,450 for emissions violations following a suit by the Texas Natural Resource Conservation Commission. And Louisiana-Pacific still has problems with its products, including Inner-Seal siding, which is known to deteriorate "like shredded wheat" and sprout mushrooms, according to a July 24, 1998, article in The Wall Street Journal.

Margaret Orjias is not particularly satisfied with the terms of the Olathe settlement. "They were fined the $37 million strictly on their Olathe plant because this is the only one they could catch," she says. "But we all know it wasn't just there--this was corporate practice. If they had been fined for all the places they did it, the fine would have been much bigger."

Dave Horan didn't want to discuss the amount of his settlement with the company, but he says he "didn't make millions, not even remotely close." He hopes he sees some of the funds from the $37 million settlement, but he doesn't expect to.

"I was definitely looking over my shoulder for quite a while," says Horan. "If I get nothing out of [the larger settlement], I would say to anyone who was thinking about doing the same thing, `Don't, if that's what you get out of it.' I have a wife and a couple of kids, and what I did was very scary."

The neighbors finally settled their own suit with Louisiana-Pacific in 1992 for $2.9 million. The families didn't see any money until 1995, and when it did come, $1.3 million went to lawyers' fees, and $200,000 went to expenses. The rest was divided among twelve people. The Orjiases, who had mortgaged their home, spent $140,000 of their own money and twelve years fighting the company. They also spent $125,000 building a second house after they abandoned their Olathe home (which they were finally able to sell only last year). That ate up most of the $350,000 they ultimately received from Louisiana-Pacific.

"We didn't want to sue in the first place," says Margaret, now sixty. "We wanted them to clean up so that we, and people like us, wouldn't get sick. Nothing can give you back those twelve years we lost fighting with the company. It makes me very sad that we spent more than a decade building a home that we didn't really get to enjoy. And some of the people who lived near this plant will have the lingering health effects for the rest of our lives."

Nina Siegal is a freelance writer based in New York City.