Bankruptcy Judge Sides with Solutia In Chocolate Bayou Dispute
September 11, 2009

A federal judge said Lyondell Chemical Co. can't abandon a Texas chemical facility that may be responsible for environmental damages reaching into many millions of dollars.

Judge Robert Gerber of the U.S. Bankruptcy Court in Manhattan on Wednesday sided with a pair of chemical companies in their dispute with Lyondell over the company's abandonment of its facility at the Chocolate Bayou plant in Alvin, Texas.

Gerber, the bankruptcy judge overseeing Lyondell's Chapter 11 case, in March gave Lyondell the green light to close the facility, a move the company said would save about $100 million. That decision, Lyondell argued, also allowed it to pass on any environmental responsibilities to the plant's owner.

Solutia Inc. (SOA) owns the plant, which produces a key chemical for its nylon business, and Lyondell unit Equistar Chemicals was a "guest supplier" there.

Solutia and chemical company Ascend Performance Materials objected to Lyondell's contention that Gerber's earlier ruling authorizing it to walk away from its lease also allowed it to abandon tanks, piping and other equipment at the location.

Gerber said his decision didn't authorize Lyondell to abandon the facility, and the company's own use of the term "long-term idling" implied some type of low-level operation with the possibility of restarting the facility.

The judge also said that Lyondell can't force Solutia or Ascend to accept the property when they don't want to, particularly when the property could saddle Solutia and Ascend with substantial environmental obligations.

"While debtors generally may leave personal property behind when rejecting leases for premises and may be subject only to unsecured claims for their failures to comply with contractual covenants to leave the premises in 'broom-clean' or similar condition, limits on their right to abandon their property may apply when debtors leave environmentally hazardous property behind," Gerber said.

The equipment at issue isn't currently an environmental hazard, the judge noted, but it could become so without proper maintenance. Gerber said he wasn't considering whether Lyondell is permitted to abandon the equipment at this point, but if the company wishes to do so, it will have to comply with bankruptcy and environmental laws.

Since Lyondell, based in Houston, filed for bankruptcy, it has clashed with Solutia over the Chocolate Bayou contract.

Solutia went to court in January to force Lyondell to decide whether it would shut down its facility there. The St. Louis company accused Lyondell of disrupting its nylon business and said uncertainty over the supply contract was hurting a possible sale of the business.

Lyondell and the U.S. operations of LyondellBasell filed for bankruptcy last January. The filing came nearly a year after Basell AF's leveraged buyout of Lyondell Chemical formed LyondellBasell. LyondellBasell, based in the Netherlands, filed for bankruptcy in April.

The company is also wrangling with a group of bondholders to block them from trying to collect payment when a standstill agreement expires later this month, a move Lyondell says could force the company to liquidate.

Lyondell hopes to exit bankruptcy via a restructuring plan that would give control of the company to creditors.

Source: Dow Jones Daily Bankruptcy

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