Has the Green Investment Group sold Missoula down the river? 

Nobody wanted to see the Smurfit-Stone pulp mill fall into the hands of Tim Ralston last year. The Frenchtown mill had been an economic anchor in Missoula County for half a century before it shut down in early 2010. Ralston, a Portland, Ore.-based developer, wanted to gut it, selling the equipment. As Ralston's company, MLR Investments, negotiated to buy the mill for $12 million, he was vilified. Ralston cared nothing for reviving the mill or creating new jobs to take the place of the 400 that had been lost there; he was just a "scrapper," folks said. And that was unacceptable.

In March 2011, Gov. Brian Schweitzer stood in front of the mill and said he'd make Smurfit conduct an environmental analysis before the deal could be consummated. He said Smurfit would have to clean its wastewater ponds in the Clark Fork River floodplain. The Montana Department of Environmental Quality threatened a Superfund designation—whatever it took to save the mill from Ralston. "We don't believe this facility ought to be scrapped," Schweitzer said.

In the end, Schweitzer, Ralston and Missoula community leaders all got what they wanted. Ralston bought the site, but immediately sold it for $17 million to the Illinois-based Green Investment Group, Inc. The company, known as GIGI, had "a proven track record of investing the necessary funds to save the industrial infrastructure" of a site such as Frenchtown's, Schweitzer said at the time of the sale, "and create good-paying jobs."

click to enlarge Gov. Brian Schweitzer, right, said the Green Investment Group, owned by Ray Stillwell, center, and Mark Spizzo, left, had a “proven track record of investing the necessary funds to save the industrial infrastructure” of sites such as the Frenchtown mill “and create good-paying jobs.” But that’s not true. - PHOTO COURTESY OF TOM DAUENHAUER
  • Photo courtesy of Tom Dauenhauer
  • Gov. Brian Schweitzer, right, said the Green Investment Group, owned by Ray Stillwell, center, and Mark Spizzo, left, had a “proven track record of investing the necessary funds to save the industrial infrastructure” of sites such as the Frenchtown mill “and create good-paying jobs.” But that’s not true.

But at least in the U.S., where GIGI now owns four former Smurfit mill sites, including Frenchtown's, that's just not true.

GIGI borrowed the money to buy the mill—$17 million plus $2 million in associated costs—from a Seattle-based real estate developer. This and other details of the transaction, such as Ralston's $5 million windfall, recently came to light in a lawsuit filed against GIGI in February by Tom Dauenhauer.

When GIGI acquired the mill, they hired Dauenhauer to manage it. Dauenhauer had worked at the mill for 25 years before beginning a second career as a real estate agent, and helped arrange its purchase from Ralston. Dauenhauer's case, now in federal court, alleges breach of contract, fraud and deceit. He claims GIGI owes him more than $1 million for work he performed between March 2011 and January 2012. And he has an even larger complaint: When it comes to GIGI, he says, Missoula's been sold a bill of goods.

Dauenhauer and Missoula were deceived by GIGI, says Dauenhauer's attorney, J.R. Casillas of Datsopoulos, MacDonald & Lind. GIGI, he says, "turned out to be pure scrappers—and that's it."

More than a year after the sale, the only sound at the Frenchtown mill is the squeal of twisting steel. Demolition machinery pulls structures to the ground, sending up clouds of dust. Railcars haul away the scrap. GIGI's purchase agreement had a non-compete clause: The papermaking equipment, at least, has to be sold.

GIGI owns seven former Smurfit-Stone mills, including three in Canada. It operates them primarily as a scrapper. It's had little success creating jobs. And another breach-of-contract suit filed against GIGI raises doubts about the company's solvency.

click to enlarge State officials thought they saved the mill from a scrapper that wouldn’t create jobs. - PHOTO BY CHAD HARDER
  • Photo by Chad Harder
  • State officials thought they saved the mill from a scrapper that wouldn’t create jobs.

All of which points to a larger question: how the company, which took on Smurfit-Stone's environmental liability, can possibly clean up 50 years of accumulated pollution at the Frenchtown mill site, including 900 acres of toxic wastewater ponds in the Clark Fork River floodplain—or whether it has any intention to.



'Completely cleaned up'

Papermaking is a dirty industry.

A preliminary EPA assessment released last September estimates that every year, the mill generated 20,000 tons of sludge that likely contained dioxins, furans, PCBs, organic halides, chlorinated phenols, petroleum hydrocarbons, polycyclic aromatic hydrocarbons (PAHs), arsenic, cadmium and other metals, all of which was put in ponds and landfills at the mill site. The same chemicals were likely in the mill's annual production of 5.7 billion gallons of wastewater, the report says, which was disposed of through a combination of direct discharge into the Clark Fork River, "rapid infiltration" through ponds to groundwater, pond seepage to groundwater, and evaporation. The DEQ also has documented 11 petroleum spill sites on the property.

"So what happens when the river reclaims its floodplain?" asks Peter Nielsen, Missoula County's environmental health supervisor. "Does that result in a large-scale release of material from the sludge ponds and landfills? That's really the big concern."

Having conducted a site inspection, the EPA is now wrapping up a report on the results, due out in coming weeks. That will help determine whether the site will fall under federal Superfund authority. Ray Stillwell, GIGI's president, certainly doesn't expect it to: "There's a reason we buy paper mills, as opposed to steel mills," he says with a laugh.

But a Superfund designation is possible. Nielsen notes that many of the pulp mills in the Pacific Northwest that have closed over the last decade have landed on state or federal Superfund lists. The mills that bleached paper, as the Frenchtown mill did, tend to have the highest cleanup costs—in the tens or even hundreds of millions of dollars.

GIGI has absolved Smurfit-Stone of environmental liability. In its contract with Smurfit-Stone for the Frenchtown mill, it agreed to "assume and perform, satisfy, pay and discharge all debts, actions, causes of actions, lawsuits, claims, demands and other liabilities and obligations of every kind and nature, whether past, present or future, known or unknown, fixed or contingent, arising from or relating to the property or the environmental conditions in, on, under or surrounding the property or any of the improvements thereon."

In addition, per the agreement, GIGI holds an environmental liability insurance policy that also covers Smurfit-Stone. "It's not just us saying we're going to take care of it," Stillwell says. "We actually collateralize that...with insurance." He says all seven of GIGI's deals with Smurfit-Stone included environmental indemnity.

The Frenchtown mill site is by far the largest and most contaminated of GIGI's properties.

"I've always speculated that maybe this is part of the reason that [GIGI] set it up this way—to try to shield Smurfit from liability," Nielsen says. "It may have worked at other sites, to some extent, but this one is going to be a bigger can of worms."

Under state and federal Superfund law, the government can sue Smurfit-Stone and all other prior landowners to pay for the cleanup; the law says that liability can't be avoided through contract clauses. But the clause would allow Smurfit-Stone to sue GIGI and seek to transfer Smurfit-Stone's obligation.

How GIGI would pay for it is unclear. If its insurer won't pay, or if the company can't pay—if it goes bankrupt, for example—Smurfit-Stone would be back on the hook. But in early 2011, the paper manufacturer RockTenn purchased Smurfit-Stone, complicating the situation further.

click to enlarge Tom Dauenhauer, center, the Green Investment Group’s first employee in Montana, alleges in a lawsuit that the company owes him more than $1 million. - PHOTO COURTESY OF TOM DAUENHAUER
  • Photo courtesy of Tom Dauenhauer
  • Tom Dauenhauer, center, the Green Investment Group’s first employee in Montana, alleges in a lawsuit that the company owes him more than $1 million.

The question of environmental liability gave Montana an excuse to try to stop Smurfit-Stone's deal with Ralston for the Frenchtown mill site, yet it was a non-issue when GIGI acquired the site. GIGI is "more familiar with this kind of cleanup work," Montana DEQ Director Richard Opper told the Indy last year, "so I think we're probably more comfortable with the ownership as it worked out, but the needs haven't changed, nor has the state's commitment to pursue this."

If the EPA doesn't dictate a certain level of cleanup, Gov. Schweitzer says the state will: "We want to make sure, whether it's water quality issues, air quality issues, asbestos—all of those things—that they're [addressed] correctly, because the fastest way to assure that a site like this will not be productive in the future is to put ourselves in a position where we have environmental concerns and companies are saying, 'Whoa, whoa, whoa—I'm not coming in there until...it's completely cleaned up.'"

Still, such a cleanup could be a task of Herculean proportions, on par with the Milltown dam removal upriver. It's long overdue.



'Jobs and opportunity inside'

In 1957, Waldorf Paper Products of St. Paul, Minn., opened a $6 million wood pulp mill on 3,200 acres along the Clark Fork River, three miles south of Frenchtown. It began with 78 employees, producing 250 tons of pulp a day, which was used to make liners for cardboard boxes. Wastewater was sent downriver, until the next year, when complaints of fish kills, foam and discoloration forced the company to build wastewater storage ponds.

In 1960, a $6 million expansion upped production at the mill to 450 tons of pulp and 150 tons of bleached pulp a day. Capacity more than doubled again in 1966. By then, Waldorf Paper Products had merged with Hoemer Boxes. Hoemer Waldorf dug more ponds for the increasing wastewater. More than five million gallons of it was discharged into the Clark Fork every day from the 700 acres of ponds.

In 1977, Champion International bought the Frenchtown mill and invested about $170 million over three years to boost capacity to 1,850 tons per day. Stone Container Corp. bought it in 1986. By 1993, production reached 1,900 tons per day. Stone Container merged with Jefferson Smurfit in 1998, creating Smurfit-Stone Container, which became one of the world's largest paper-based packaging makers, though the merger saddled the company with billions of dollars of debt.

In the early 2000s, demand for cardboard boxes began to decline. Manufacturing was heading overseas. Smurfit-Stone shut down one of the Frenchtown mill's three paper machines. "The manufacturing sector of our economy produces goods which need to be packaged and transported," the mill's general manager, Bob Boschee, told the Missoulian in 2003. "If those goods are not produced in the United States, then they are not being packaged in the United States."

Smurfit-Stone began closing mills and purging workers around the country.

In 2008, the Frenchtown mill laid off 52 workers. In early 2009, with a debt load of more than $5 billion, Smurfit-Stone filed for bankruptcy protection. In late 2009, the company said it would close the Frenchtown mill. In January 2010, 417 workers, with an average salary of about $70,000 a year, worked their final shifts. The jobs represented about four percent of Missoula County's economy. The mill had been the county's second-largest taxpayer.

Smurfit-Stone emerged from bankruptcy in mid-2010. In early 2011, RockTenn announced it would purchase Smurfit-Stone for $3.5 billion. Before the deal closed, Smurfit sold the Frenchtown mill.

On May 4, 2011, Gov. Schweitzer again stood in front of the mill, this time with Missoula Mayor John Engen and Missoula County commissioners, to announce that the Green Investment Group, through its subsidiary M2Green Redevelopment, had bought it—not Ralston.

"We're here to announce that a scrapper will not tear down this plant," Schweitzer said. "That gate will open, and there'll be jobs and opportunity inside."

Ray Stillwell, GIGI's president, said at the time, "As with all of our projects, our main goal is to work with the community and local officials to develop a site that complements the other industries in the area and meets the economic needs and interests of its people by creating jobs in sustainable growth industries."

Yet in examining GIGI's projects, the same theme keeps emerging: Not much is happening. As in Missoula and Frenchtown, people seem guardedly optimistic that jobs will return to the former industrial sites. They're puzzled, yet hopeful. Is the hope misplaced?



'We're ready for some nice, new redevelopment'

Ray Stillwell is a lawyer and entrepreneur. In 2001, he incorporated Alton Steel, which acquired a shuttered steel mill in Alton, Ill., a city of about 28,000 on the Mississippi River, about 15 miles north of St. Louis. Alton Steel restarted production at the mill in 2003. Stillwell sold his stake in the company in 2005 and used the proceeds to launch the Green Investment Group with Mark Spizzo, the company's executive vice president, who had worked in economic development in Illinois for two decades. In 2006, GIGI acquired its first property, a 235-acre former Smurfit-Stone mill in Alton.

Six years later, there's "nothing happening" at the site, says Monica Bristow, director of the RiverBend Growth Association, an economic development organization in southwest Illinois. "Why? We're not sure."

Bristow says no jobs have been created other than for scrapping contractors. The mill was completely razed. All that remains is an empty service garage.

Stillwell says GIGI had hoped to transform the site, which it named America's Center Industrial Park, into an ethanol plant to work in conjunction with a nearby Conoco-Phillips refinery, but that project has been shelved.

GIGI acquired its second former Smurfit-Stone mill, in Circleville, Ohio, in 2006. Through its subsidiary CircleGreen, the company received a $750,000 grant from the Ohio EPA to remediate a 26-acre section of the 300-acre property. The mill on those 26 acres, which sat at the entrance to the town, was demolished.

"For the most part, we have a level, cleaned, new green space and we're ready for some nice, new redevelopment," says Ryan Scribner, director of the Pickaway Progress Partnership, the economic development agency for Pickaway County, where Circleville is located. As for jobs, there have been none, Scribner says—"unless you count the folks working for the demo company and the folks who did all the environmental remediation."

Stillwell says he expects the Ohio Environmental Protection Agency to approve the environmental cleanup soon, which he hopes will spur more interest in the site. For now, the ag giant Cargill is leasing some of the land for corn storage, he says.

GIGI bought its third Smurfit-Stone mill, in Carthage, Ind., in 2009. "We haven't progressed very far there yet," says Jim Finan, director of the economic development organization in Rush County, where Carthage is located. "The feedback we've gotten is that [redevelopment] is the plan but they're working in other arenas first before they focus their attention on this particular site."

Finan says no jobs have been created there. He calls the 180-acre site a "dinosaur": it's about 10 miles from the interstate, and he thinks its age, the condition of the facilities and the required environmental cleanup will deter prospective businesses. He's wondering why GIGI bought it.

click to enlarge The EPA is determining whether to designate the 3,200-acre Frenchtown mill property a Superfund site. Every year for 50 years, the mill generated an average of 20,000 tons of sludge containing a medley of papermaking chemicals that was put in onsite ponds and landfills next to the Clark Fork River. - PHOTO COURTESY OF PETER NIELSEN
  • Photo courtesy of Peter Nielsen
  • The EPA is determining whether to designate the 3,200-acre Frenchtown mill property a Superfund site. Every year for 50 years, the mill generated an average of 20,000 tons of sludge containing a medley of papermaking chemicals that was put in onsite ponds and landfills next to the Clark Fork River.

Stillwell says progress has been delayed in Carthage due to a fire allegedly started by a demolition company GIGI hired. The fire burned down buildings GIGI hoped to preserve, which led to litigation that's ongoing.

GIGI's success stories are in Canada. The company bought two former Smurfit-Stone mills in Quebec in January 2010. At one, in Portage-du-Fort, Trebio, a company that makes wood pellets, has leased part of the 2,200-acre site, making up the majority of the 175 new jobs there. Stillwell and Spizzo reportedly own part of Trebio.

GIGI's other Quebec mill site is in New Richmond. Part of its 225 acres are now occupied by Fabrication Delta, which uses the space to make masts for wind turbines, employing about 150 people, according to Elie Arsenault, a Fabrication Delta manager. He says the arrangement is "going perfect."

GIGI also acquired a mill in Bathurst, New Brunswick. That site, too, is vacant.

Stillwell says GIGI only owns former Smurfit-Stone mills because he and Spizzo "have always enjoyed a good working relationship with the Smurfit folks."



'Headed for insolvency'

Tom Dauenhauer worked at the Frenchtown mill from 1981 to 2006. He served as a purchasing agent, storeroom supervisor, shipping supervisor and paper machine supervisor. After leaving the mill, he became a real estate agent. His familiarity with the mill made him well suited to broker a deal when Smurfit sought to sell the property. He worked with several prospective buyers. According to the lawsuit Dauenhauer filed earlier this year, Stillwell and Spizzo approached him in February 2011.

Meanwhile, Smurfit-Stone was nearing a deal to sell the mill for $12 million to Tim Ralston's company. Dauenhauer wasn't involved because Ralston "was a known 'scrapper,' interested only in demolishing the site," the lawsuit says.

In March 2011, Dauenhauer met with Stillwell and Spizzo, who were interested in purchasing Ralston's contract. During that meeting, Dauenhauer says, he presented Stillwell and Spizzo with an agreement: He was to be paid three percent of the $12 million purchase price of Ralston's agreement—$360,000. He'd also get five percent of the roughly $19 million in non-traditional financing GIGI secured from Wakefield Kennedy, LLC to buy the mill. That's another $950,000.

Stillwell confirms that GIGI obtained financing from Wakefield Kennedy, which is a subsidiary of Wakefield, a large Bellevue, Wash.-based residential and commercial real estate development company owned by Steve Malsam and Len Evans.

Dauenhauer, Stillwell and Spizzo apparently agreed to the deal, though they never signed a contract. Dauenhauer's argument in the lawsuit is that the oral contract is enforceable because it was partly performed by both parties: Dauenhauer was paid at least $360,000 plus a separate $75,000 commission.

"It's our view," says Casillas, Dauenhauer's attorney, "that these defendants brought him in to broker this deal and then preyed on the knowledge and experience that he had out there to their benefit without wanting to compensate him accordingly."

Stillwell declined to discuss those allegations. In a prepared statement, he said Dauenhauer "was paid his commissions before he terminated his activities in January as a result of business irregularities occurring during his work."

GIGI filed its answer to Dauenhauer's lawsuit on April 9, denying the allegations and filing counter claims against him, alleging a breach of his real estate agent duties, among other things.

That's not the only legal dispute surrounding GIGI's acquisition of the Frenchtown mill.

In June 2011, Washington-based VanTek, Inc., a supplier of used paper mill equipment, also sued GIGI for breach of contract. About two years earlier, VanTek, owned by Gordon Cassie, signed an agreement with GIGI to partner in buying former paper mills. The two companies created a company called VanGreen, incorporated in Colorado. VanTek claims it spent 18 months working to acquire the Frenchtown mill through VanGreen only to have GIGI pull out of their agreement at the last minute and acquire it separately. VanTek says GIGI exploited its expertise.

A judge dismissed that case on April 11, 2012, at VanTek's request. After reviewing GIGI's financial disclosures, VanTek opted to pull the case because "it appears that they will never be able to pay back the Wakefield Kennedy loan," Vantek's attorney, Donald Grant, wrote in an email to GIGI's attorney on April 10. "Although Gordon believes that GIGI breached the partnership agreement, it also appears that GIGI is headed for insolvency and will likely never be able to pay back any judgment."

Stillwell insists that VanTek's decision not to go forward with the suit had "nothing to do with financial information."

There have been at least two other suits claiming that GIGI failed to pay contractors. Worthing, S.D.-based IntegroEnergy Group sued GIGI subsidiary SWI Energy in December 2011 over an agreement it signed with GIGI to provide consulting services for the ethanol project in Alton, Ill. The case remains open.

In a case that was dismissed in June 2011, John Brutz, of Ohio, and Michael Cohl, of Michigan, claimed GIGI owed them about $30 million for work they performed demolishing, scrapping and salvaging GIGI's mill sites in Canada.



'It all takes time'

Mark Spizzo, GIGI's executive vice president, was in Missoula a few weeks ago. He declined a request for an interview while he was here, but according to County Commissioner Jean Curtiss, Spizzo gave representatives of the Northwest Advanced Renewables Alliance a tour of the mill site. NARA is a Washington State University-led consortium of researchers working to convert wood waste into jet fuel. It recently landed a $40 million USDA grant.

click to enlarge Dauenhauer estimated the Frenchtown mill contained more than $50 million in assets, between the papermaking equipment, heavy equipment, scrap metal, tools, land and water rights. “There is nothing being scrapped that has infrastructure value for ongoing use,” GIGI president Ray Stillwell says. - PHOTO BY CHAD HARDER
  • Photo by Chad Harder
  • Dauenhauer estimated the Frenchtown mill contained more than $50 million in assets, between the papermaking equipment, heavy equipment, scrap metal, tools, land and water rights. “There is nothing being scrapped that has infrastructure value for ongoing use,” GIGI president Ray Stillwell says.

"I just keep crossing my fingers that somebody's going to come in and do something," Curtiss says. "It all takes time."

A more immediate use of the site would be wood chipping, since the mill has a chipper. "We see that as a very viable business activity that we're aggressively working on preserving," Stillwell says.

In GIGI's counterclaim against Dauenhauer, the company blames him for failing to secure a wood-chipping deal with Boise Inc., which, earlier in the year, wound up leasing the chipper at the former Stimson mill site in Bonner, now owned by Western Montana Development.

The chipper is one of the Frenchtown mill site's many assets, some of which GIGI is trying to sell. A year ago, Dauenhauer estimated that the site contained more than $50 million in assets, between the papermaking equipment, heavy equipment like the wood chipper, scrap metal, tools, land, and water rights.

"We obviously look for the best return on our investment that we can get," Stillwell says. "But there is nothing being scrapped that has infrastructure value for ongoing use."

GIGI disputes the $50 million estimate in court documents. Stillwell declines to say what he thinks the sellable scrap and equipment is worth.

There are other potential uses for the site—recycling, biomass electricity generation, wood pellet production. The BitterRoot Economic Development District has been working to explore such possibilities through a feasibility study. It worked with GIGI to get a $20,000 Big Sky Economic Development Trust Fund grant through the state Department of Commerce. GIGI had agreed to chip in another $30,000 for the study, but it hasn't followed through. Spizzo says in an email that the study is "on hold for the time being." It's a matter of "prioritizing" the work at all of GIGI's properties.

BREDD is asking the program for an extension.

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