Court Ruling Sharply Narrows Severstal's Clean Up Liabilities

In a little-noted court decision with potentially long-term local consequences, a federal judge has ruled that Severstal Sparrows Point LLC is not liable for the pollution that occurred at the Point before the bankruptcy court approved the sale of the former Bethlehem Steel Corp. plant to the Russian-owned steelmaker.

The U.S. District Court did require Severstal to undertake a sediment study of offshore pollution in the immediate area around the Sparrows Point plant, so the former owner of Sparrows Point may not be completely off the hook. The decision was signed by United States District Court for the District of Maryland Judge J. Frederick Motz on July 5.

"...EPA and MDE interpreted the agreement based upon the assumption that Severstal was at least potentially liable for remediating historic, offsite contamination," Motz wrote. "This assumption was erroneous."

The 12-page decision can be found here.

First reported by the Daily Record, the Baltimore legal newspaper, the decision is good news for Severstal and likely for RG Steel, which now owns the restarted steel plant. Attempts to get a comment from Severstal on the court decision were not immediately successful  Friday.

Like the Sparrows Point plant itself, however, there’s a complex back story and history to this case. In a nutshell, Severstal tried to claim the 2003 bankruptcy sale of Bethlehem Steel, once the nation’s second-largest steel producer trailing only U.S. Steel, freed Severstal from a court-ordered decree signed by Bethlehem and state and federal environmental regulations to clean up pollution at the plant.

On this crucial point, Severstal seemingly has prevailed, good news for the Russian-owned steelmaker and likely the current owner RG Steel as well. But it’s bad news for environmentalists and others concerned about Baltimore harbor and Chesapeake Bay pollution.

The Maryland Department of the Environment (MDE) has been particularly active in trying to ensure that the court-ordered cleanup decree be enforced, despite the rapid series of post-bankruptcy sales of the large Bethlehem plant over the past decade, first to the International Steel Group (ISG),  then to Mittal Steel (now Arcelor-Mittal) in 2005, then to Severstal in 2008 and most recently to RG Steel.

An authorized by the state of Maryland released in late May found higher than acceptable levels of risk for human beings and ecological resources with long-term exposure to sediment and surface water along the Coke Point shoreline at Sparrows Point. Coke Point-area sediment and surface water offshore was contaminated with lead, zinc, benzene, PCBs and hydrocarbons, the study found.

Just last month, Maryland Port Administration and Maryland Department of the Environment official met with with and local environmental activists about cleaning up the water around Sparrows Point with the hope of eventually making the Coke Point area into a dredging facility.

The immediate questions, Frank L. Hamons, deputy director for Harbor Development, told local residents gathered at Edgemere Elementary in June, were how much will it cost to remediate the site—and who’s going to pay for the cleanup.

A Baltimore Brew story in November of 2009 highlighted a bankruptcy court document that committed ISG, the venture capital firm owned by New York billionaire Wilbur Ross, to all “ongoing obligations of the consent decree” signed in 1997. That document was signed by John Lefler, at the time general manager at the Point, according to a reporter Mark Reutter.  

According to reports both in Baltimore Brew, the Sun and trade publications, federal and state regulators were battling to get Severstal to install groundwater pumps, vapor extractors and other equipment that would capture the “chemical contaminants from the groundwater before they reach the harbor,” as Reutter put it in his 2009 story.

Back in 2009, MDE officials confirmed to this reporter, a long-time Washington correspondent for American Metal Market (AMM, a leading metals trade publication), that the state regulators were greatly concerned that Severstal  was not taking adequate measures to deal with groundwater remediation at the Point.

Bottom line: the outcome of the ligation transcends the national "jobs versus environment" debate. It also raises corporate responsibility and governance issues relating to foreign ownership of U.S. steel plants and factories, more generally. (Severstal, the world’s fourth-largest steelmaker, is headquartered in Russia.)   

Most immediately, the court decision appears to throw at least a temporary monkey wrench into plans to clean up the Coke Point area and develop the site into a Baltimore harbor dredging facility.

Stay tuned. This one’s probably not over yet.