Senator Eliot Shapleigh - El Paso, Texas

Once the world’s biggest, the Ruston smokestack has been demolished. Tacoma News Tribune/Peter Haley via MCT

RUSTON, Wash. — The 562-foot smokestack still casts a long shadow.

For nearly a century, it emitted a plume of arsenic, lead and other heavy metals from Asarco’s copper smelter in Ruston, blanketing 1,000 square miles of South Puget Sound, where half a million people now live. At some places, regulators found arsenic levels 25 times higher than Washington state considers safe.

Once the world’s biggest, the smokestack has been demolished. Yet it remains a fitting symbol for the largest environmental bankruptcy in U.S. history. And it provides a cautionary tale of how a company intent on shedding its environmental liabilities could manipulate the nation’s bankruptcy system.

In this case, Asarco’s foreign owner, Grupo Mexico, S.A. de C.V., tried and failed, lawyers and regulators close to the case charge. But it took a federal judge to block what some bankruptcy lawyers call a "candy heist" that could have left taxpayers responsible for environmental cleanup at 80 sites in 19 states initially estimated to cost $6.5 billion.

"Grupo Mexico tried to use a bankruptcy court to avoid Asarco’s cleanup responsibilities, and they almost got away with it," said Sen. Maria Cantwell, D-Wash.

Asarco officially emerged from bankruptcy this month. Its owners have paid $1.8 billion in cleanup costs, including $188 million to Washington state. State and federal regulators say they are more than satisfied.

Unless the laws are changed, however, Cantwell and others warn that another company almost certainly will try to manipulate the bankruptcy system the way they say that Grupo Mexico did.

"This is not what the bankruptcy laws were intended for," said John Iani, a Seattle lawyer who as regional head of the Environmental Protection Agency during the George W. Bush administration convinced reluctant Justice Department lawyers that Grupo Mexico was trying to pull a fast one.

In court documents, Grupo Mexico steadfastly denied that it maneuvered Asarco into bankruptcy to slough off its environmental responsibilities. Grupo Mexico refused to comment for this story.

Cleanup under way

Ten miles or so from where the Ruston smokestack once stood, work is under way to remove and replace the topsoil at Children’s Villa day-care center.

The work is being funded with money Washington state received from the Asarco bankruptcy.

Washington state has been especially concerned about day-care centers like Children’s Villa and schools where children playing outside can get contaminated dirt on their hands and in their mouths. Teachers and day-care workers have been careful to make sure the children wash their hands and wipe their feet as they come inside.

"We are very conscientious about it," said Debbie Winn, the director of Children’s Villa.

The Washington state Ecology Department will use about half the $188 million it received from Asarco to take samples at 20,000 parcels that may have been affected by fallout from the smelter plume. That includes 800 to 900 schools and day-care centers.

Maybe 10 percent of those will ultimately have to be cleaned up, said Marian Abbett, who oversees the cleanup project for the state. Because it is a federal Superfund site, the EPA has been responsible for the neighborhoods immediately around the smelter site.

"It’s a long-term health concern but not an immediate risk," Abbett said.

In addition to the plume cleanup, the state will use $44.7 million from the Asarco bankruptcy settlement at a smelter site in Everett, $22 million for the B&L Woodwaste site in Pierce County, and $10.8 million for old mining sites in northwest and eastern Washington. About $2 million will be used to remove creosote-laden docks that were part of Asarco’s smelter operation.

The smelter, along with the smokestack, has been leveled, the site cleaned, and soil or concrete caps placed on the most contaminated areas. A private developer is building on the site.

'Dante’s Inferno’

For more than 100 years, the smelter’s enormous blast furnaces produced molten metal 24 hours a day. Red-hot waste was dumped directly into Puget Sound. In a room known as the "arsenic kitchen," the toxic gases could blister a worker’s skin.

At its peak, the Ruston smelter produced 10 percent of the nation’s copper. Gold, platinum, silver and arsenic were byproducts. The smelter was the only domestic producer of arsenic in the country.

And towering over the site, on "stack hill," was the brick smokestack. Among those who watched when the smokestack was demolished in 1993 was Tacoma Mayor Bill Baarsma, who worked at the smelter for four summers while he was growing up.

"It was like Dante’s Inferno," Baarsma said. "It was hot, dangerous, tough work."

Baarsma said he wasn’t allowed in the arsenic plant because his fair skin would blister easily. He remembers getting a small piece of molten slag up his nose. The smelter also recycled copper from the insides of old Nike missile systems and copper-clad bullets that Baarsma said sounded like gunfire while being melted.

To Baarsma, the smelter was both good and bad. For a century, it provided steady employment for the blue-collar workers who lived in the surrounding neighborhoods, putting food on their tables and sending their kids to college. But it also pumped out toxic pollution. Baarsma’s father died of lung cancer after working at the smelter for 30 years.

The mines

Asarco had seen better years when Grupo Mexico bought it in 1999 for more than $2 billion in a highly leveraged buyout.

Owned by one of Mexico’s richest families, Grupo Mexico had its eyes on Asarco’s "crown jewels": a majority interest in two of the world’s richest copper mines, in a Peruvian desert where it hadn’t rained since the time of the Spanish conquistadors.

From the get-go, Iani and other regulators smelled trouble. They were convinced that Grupo Mexico’s sole goal was to gain control of the Peruvian mines and then nudge Asarco into bankruptcy to avoid billions of dollars in environmental cleanup costs.

"We watched as their lawyers sought to move things offshore," Iani said. "They were leaving the country and these sites would have gone orphan."

Federal lawyers temporarily blocked the transfer of the Peruvian mines to another of Group Mexico’s subsidiaries. But in 2003, Grupo Mexico officially bought the mines from Asarco. Less than two years later, Asarco filed for bankruptcy protection.

Over the past four years, the case has unfolded in a bankruptcy court in Corpus Christi. Early on, Judge Richard Schmidt effectively stripped Grupo Mexico of its control of Asarco and installed an independent board of directors.

Grupo Mexico continued to play a role in the bankruptcy proceedings, but it was unclear how serious it was about reassuming control of Asarco in a reorganization.

Two court cases

While the bankruptcy case was unfolding, a separate case was filed in a federal court in Brownsville. Asarco alleged that Grupo Mexico had fraudulently stripped it of its interest in the Peruvian mines and taken steps to force it into bankruptcy.

In a sternly worded decision, U.S. District Judge Andrew Hanen agreed and found that Grupo Mexico owed Asarco $8.8 billion for the mines.

Grupo Mexico would either owe $8.8 billion to a new owner of Asarco under a reorganization plan, or it could fight to regain control of Asarco for far less.

"In a status conference just weeks before Hanen’s ruling, Grupo Mexico said it wasn’t interested in buying Asarco," said Elliott Furst, who handled the case as a senior counsel in the office of the Washington state attorney general.

But within weeks of Hanen’s ruling, Grupo Mexico was in a bidding war for control of Asarco.

In the end, Schmidt, the bankruptcy judge, accepted Grupo Mexico’s $2.2 billion plan.

In his decision, Schmidt suggested that Grupo Mexico finally offered a serious reorganization plan to limit liability in the Peruvian mine case.

Furst and other lawyers, including several representing Asarco, agreed. Justice Department lawyers who handled the federal claims declined to comment.

In the end, Furst said Washington state was "absolutely satisfied" with the way the case turned out. But the case may also have served as a wake-up call for federal regulators and Congress.

"It’s an example of how people can skirt their responsibilities and why we need tougher regulations," Cantwell said.