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."
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.
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.