Waste firm escapes hazardous situation: $400 million in potential liability ends with lawsuit.

Waste firm escapes hazardous situation

$400 million in potential liability ends with lawsuit

A recent favorable court ruling has likely removed an 11-year-old smoldering volcano of potential liability that could have incinerated hazardous waste disposal company American Ecology Corp.

A decision by Bureau County, Ill., Judge Alexander Bower on June 7 ruled that a federal decision on how American Ecology Corp. was to respond to a leak at a dump it had operated in Sheffield, Ill., effectively superseded state efforts to compel a more extensive cleanup by the company.

The state of Illinois had sued to force American Ecology, its subsidiary U.S. Ecology and former parent company Teledyne Inc. of Century City to excavate soil surrounding the Sheffield dump because it had hazardous chemicals leaking from the dump site.

A federal Environmental Protection Agency ruling last year called for the company to construct retention walls around the dump, not remove the surrounding soil.

A ruling in favor of the state could have left the company bankrupt, said William Prachar, chairman and chief executive of the Agoura Hills-based company. He estimated the soil excavation could have cost $400 million under a worst-case scenario.

"We've been operating with one hand tied behind our back," said Prachar. "With the Sheffield (lawsuit) out of the way, it means we can be more like a normal company."

The most immediate effect of the judgement, Prachar said, may be access to the capital markets for the company. "Our financials have been qualified by this and investors get unsecure from a decision which could do in the company," he said, noting no analysts follow the company's stock.

Hazardous waste disposal is an increasingly capital-intensive business, Prachar added, making it crucial for the company to raise money if it is to survive in the industry.

A representative of the Illinois state attorney general said his agency "is still deciding" whether it will appeal the decision, which it has 35 days to do.

"This definitely concludes the case as final," said Matthew Dunn, chief of the environmental control division of the Illinois attorney general's office. "To pursue it further we would need a dismissal order from the state of Illinois."

American Ecology and its counsel contend the ruling is all but final.

"It's a very cogent and compelling legal argument," said Mark Mester, one of the company's attorneys. "If the federal government says you need to clean up a building and the state tells you you need to burn it down, then federal law supersedes state law when they conflict."

Shareholders reacted favorably to the news, pushing up the company's stock price up to $13.75 a share from $11 in the two days of trading following the announcement.

American Ecology is involved in the handling, treatment and disposal of low-level radioactive waste and hazardous chemical waste. The company operates radioactive waste disposal sites in Nevada and Washington and is applying to operate sites near Needles, Calif., and in Nebraska. It owns chemical hazardous waste disposal facilities in Texas and Nevada.

Coming off two years of losses caused by divestiture of a refuse-derived fuel subsidiary, National Ecology Inc., in 1989 and money spent to settle legal disputes, the company recorded income of $3.8 million on revenues of $48.7 million in fiscal 1990.

But it still faces significant, though lesser, exposure in another cleanup in Maxey Flats, Ky., where its participation level in the cleanup has yet to be determined.

Had the Sheffield lawsuit been settled earlier, the company might not have sold National Ecology, Prachar said.

"We found we didn't have enough working capital to be in the hazardous waste and solid waste business," he said. "If not for Sheffield, it would have been a different story."

He said that, given the ruling, the company is now considering expanding into related hazardous waste operations like remediation (removing waste from contaminated facilities) and decontamination of chemical waste sites.

"We run the cemetery; but that is only the last resort, we'd like to be involved in reducing the amount of hazardous waste and preparing the waste that does need to be disposed of," he said.

American Ecology owes its incorporation to litigation concerns. A profitable Teledyne subsidiary, it was spun off in 1983 over fears the lawsuits like the Sheffield case would seek out Teledyne's deep pockets.

Meanwhile, major players are bowing out of the hazardous materials disposal business. Browning-Ferris Industries of Houston, Texas, the second largest waste disposal company in the country, announced last year it would cease hazardous waste disposal operations.

In addition, Browning-Ferris is in the process of selling an investment in American Ecology convertible to 51.7 percent of American Ecology's stock to one of the sons of the founders of BFI, Harry Phillips Jr.