Hawaiian Western Steel Goes Under, Taking the Environment With It

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September 16, 1992: Across the country, newspapers carry reports of a hearing on Capitol Hill into the Justice Department’s failure to press criminal charges against six companies identified by congressional staffers as among the most flagrant polluters in the nation. Among the six is the O`ahu steel recycler, Hawaiian Western Steel, Ltd.

Until then, few people in Hawai`i could have been expected to know the extent or even the existence of environmental problems at the company’s plant, at Campbell Industrial Park. At the state Department of Health and at the Region IX office of the Environmental Protection Agency in San Francisco, however, the news about Hawaiian Western Steel was old hat. For at least the last six years, the agencies had been trying with only limited success to get the company to resolve violations of federal and state laws.

Poisoning the Air

In 1989, Hawaiian Western Steel marked its 30th year of turning scrap metal into steel reinforcing bars — rebars, for short. The company melted cars and other scrap in an electric arc furnace, which sent electric currents into buckets of the scrap. The molten metal was poured into ingots, which were then rolled into the rebar.

For most of the first two decades of operation, there were few pollution controls in place to minimize releases to the environment of heavy metals, including lead and cadmium. (Car scrap can contain high levels of lead if batteries and tire weights are not removed. Cadmium comes from paints and rust preventers.) Beginning in the 1970s, however, following passage of federal and state environmental protection laws, Hawaiian Western Steel was forced to take measures to abate airborne pollution. A water-scrubber system was used for a time, but was found to be insufficient to meet federal and state standards.

In 1975, Hawaiian Western Steel installed a “10-module bag filter dust collector … as well as an overhead canopy for fugitive emission scavenging,” according to records at the state Department of Health. The idea was that the hot smoke from the furnace would be trapped inside a high roof, where it would then be funneled to the dust filters. The system, otherwise known as a baghouse, was designed to strip heavy metals and fine particulates, both of which are extremely hazardous when inhaled, from the smoke released when the scrap steel was melted in HWS’s arc furnace. The baghouse was designed to handle up to 174,000 cubic feet per minute of emissions. Before Hawaiian Western Steel shut down in 1991, its operations were yielding about two tons per day of baghouse dust, with concentrations of lead and cadmium high enough to warrant its treatment as hazardous waste. By then, the emissions control system was so ineffective that for every three pounds captured, at least another pound was thought to escape to the atmosphere.

Poisoning the Land

The airborne emissions were but one means by which the plant contributed to environmental pollution. That portion of the scrap that would not melt formed slag. Mill scale built up during the cooling of condenser water used in the shaping of ingots. “Skulls” were formed when molten metal cooled inside the pour ladles. Apparently from the start of plant operations, slag, scale, and skulls were routinely hauled from the plant to one of two dump sites nearby. Both the dumps were on Campbell Estate land (as was the plant itself) — one lay between the beach on the western side of the industrial park and Kaomi Loop; the other is inland, along either side of what is called the Hanua Road extension, mauka of Malakole Road. After installation of the baghouse filters, at least some of the dust trapped in them was dumped along with the other solid waste at these two sites.

In 1976, Congress passed the Resource Conservation and Recovery Act, which required the Environmental Protection Agency to regulate the disposal of solid and hazardous waste. In 1980, implementing the terms of RCRA, the EPA required all generators of hazardous waste and operators of hazardous waste disposal facilities to inform the EPA of their activities and apply for an interim permit to operate. Although Hawaiian Western Steel’s waste qualified as hazardous under federal law, it made no application for an interim permit for any of its facilities.

Poisoning the Water

Running through Campbell Industrial Park and immediately to the west of the Hawaiian Western Steel plant is a drainage ditch that receives run-off from the plant and the more inland of the two dumps. Although dry much of the time for most of its length, water ponds up near the ocean and supports fish. Many people living nearby engage in subsistence fishing at the mouth of the ditch, which runs next to the city’s Barber’s Point Beach Park.

But the fish there have been heavily contaminated with cadmium and lead, and Hawaiian Western Steel’s operations appear to be the most likely source. Lead levels of up to 110 parts per million and cadmium levels of up to .296 parts per million were discovered in tilapia taken from the ditch in November 1991. In contrast, the lead levels are an order of magnitude greater than those found in 1984 in fish taken from Manoa Stream — levels that were, at the time, the highest recorded among fish taken from 112 different sampling stations nationwide. As one biologist from the U.S. Fish and Wildlife Service said, with that much lead, it was a wonder the fish didn’t sink.

A Poor Record

In August 1986, the Environmental Protection Agency was notified that Hawaiian Western Steel might be operating in violation of RCRA regulations. At the EPA’s request, the state Department of Health dispatched a team of inspectors to the site the following month. Their report stated that the slag and scaling material had been disposed of off-site (at the time, only one of the two dumps had been discovered).

Most of the baghouse dust was being stored at the plant site, they said, adding that Hawaiian Western Steel claimed it generated between 1,000 and 1,200 pounds of baghouse dust each week. Because the dust contained high levels of lead and cadmium, it met the definition of a hazardous waste set by federal rules, they wrote. “Therefore,” their report states, “it appears that from 1980 to 1986 the facility did not comply with the requirement for identifying its hazardous waste and did not notify the U.S. Environmental Protection Agency as a generator of hazardous waste.”

On July 8, 1987, the Environmental Protection Agency determined that Hawaiian Western Steel had indeed been in violation of federal hazardous waste law from 1980 on. It issued a formal determination of violation, compliance order, and notice of right to request a hearing to both Hawaiian Western Steel and Campbell Estate, which as owner of the land on which the steel plant carried out both its operations and its dumping, shares legal liability. Fines totaling $522,000 were assessed.

Hearings were held and appeals were made. The case went all the way to the top of the EPA administrative process; Lee Thomas himself, then the agency’s administrator, denied a petition for reconsideration in November 1988. By the time Hawaiian Western Steel went into bankruptcy, the level of fines sought had been reduced to just over $141,000. Another ruling favorable to Campbell Estate was made in November 1992, in connection with the EPA’s efforts to remove the case from the administrative law process and take it to federal court.

‘Pilot Project’

After disclosure of its waste management practices, Hawaiian Western Steel implemented certain changes. It began shipping the baghouse dust to a company in Washington state, where the zinc was removed and recycled. To address the waste collected at the mauka dump (the beach dump was still not disclosed), the company proposed what it called a pilot project. The solid waste would be segregated according to size, corresponding roughly to skulls, slag, scale, and baghouse dust. Hawaiian Western Steel’s owner at the time, a Canadian company called Cominco, proceeded to sift much of the landfilled waste — whose volume was estimated at about 43,000 cubic yards — into piles which were then tested for toxicity.

The waste that passed the toxicity test for lead and cadmium was crushed and, according to the company, sold to plantations for use as fertilizer. (The claim is that the high concentration of sodium silicate in the slag makes it suitable for spreading on fields that are naturally low in silica.) The remainder — consisting mostly of material sifted through a half-inch screen — did not pass the toxicity test. This waste met the EPA definition of hazardous. About 36 bags of it — each bag being a cubic yard and weighing about one ton — were kept at the plant site over the next few years. Later, two roll-on/roll-off trailers filled with “pilot project” waste were discovered on the plant site.

After Hawaiian Western Steel began its “pilot project,” the second dump — the one at the beach — was found, almost entirely by accident. In preparation for construction of another facility at Campbell Industrial Park, soil samples were taken at various locations, including the area west of Kaomi Loop. When test results showed high levels of cadmium, lead and zinc for that site, the Department of Health was notified. Inspectors following up on that tip found the second dump.

Recurring Violations

In 1988, 1989, and 1990, the Department of Health continued to send inspectors from its Solid and Hazardous Waste Branch to Hawaiian Western Steel. The annual inspection reports sound like broken records. Year after year, the same violations were noted: bags of hazardous waste (the baghouse dust, for the most part) stored on site. Accumulation start dates (required by federal law) were missing on many or had faded to the point they were no longer legible. Many of the bags had obviously been stored longer than the 90-day limit set for facilities, such as Hawaiian Western Steel, that were not licensed to treat, store, or dispose of hazardous waste.

In 1988, Lisa Munger, attorney for the company, took exception to the determination that there was a problem with the storage of the bags beyond the 90-day period. On October 8 of that year, she claimed in a letter to the Department of Health that the storage time limit was not violated because the baghouse dust did not become hazardous waste until a decision was made to ship it off site. Material that was kept on site, she argued, was not waste inasmuch as it was “recycled to the furnace.”

The Department of Health and the EPA refused to go along. Over the next two years, the subject of when the baghouse dust became hazardous waste was debated. In August of 1990, it would seem that the matter was laid to rest with a long memo to the files from Kandice Bellamy, one of the EPA Region IX staff members involved in the Hawaiian Western Steel case. In a detailed review of federal regulations implementing the Resource Conservation and Recovery Act, Bellamy concluded that there was no legal justification for the argument that throwing the dust into the furnace could be considered “recycling.”

The Criminal Investigation

After the Department of Health forwarded to the EPA its annual inspection report for 1990, the EPA’s enforcement officer for RCRA, frustrated by the recurring, uncorrected violations, sent the case on to the regional office’s Criminal Investigation Division. On February 27, 1991, a team from this division observed the plant’s night-time operations. Five days later, it applied for a search warrant, which was granted.

The warrant was executed the following day, March 5. A team of about 15 EPA criminal investigators, accompanied by at least one agent from the Federal Bureau of Investigation, descended upon the plant. They seized records and took samples of waste found at the plant site.

The plant ceased operations immediately. Members of its politically well-connected Board of Directors had only begun their operations, however.

The Political Offensive

Among the directors of Hawaiian Western Steel are Robert Oshiro, a lawyer who at times has represented the Democratic Party of Hawai`i; Man Kwong Au, an officer in a number of investment firms and a prominent Democrat; John C. Couch, president of Alexander & Baldwin, which owns about minority stake in Hawaiian Western Steel; and William M. Swope, another prominent attorney active in Democratic Party affairs.

On May 24, yet another member of the Board — Bob Rzonca, who before coming to Hawaiian Western Steel had worked in Canada for IPSCO, the plant’s corporate parent — met in Washington with Senator Daniel K. Inouye. Four days later, Oshiro, Au, Swope and Couch sent Inouye a follow-up letter.

“Honorable Sir,” they began. “This is to express our appreciation for the courtesy you showed our fellow Board member, Bob Rzonca, and his party in Washington… Bob reported to us of how greatly he was impressed by your knowledge of our situation, your probing questions and the effort expended by your staff in preparation for same.”

The board members complained bitterly about EPA behavior. “Immediately following the execution of the search warrant, the company started its efforts to determine the cause of EPA’s concerns. EPA refused to advise the company of the violations it suspected… As we were unable to ascertain whether EPA suspected an ongoing violation, we concluded the only prudent course was to shut down the plant until more information could be obtained.

“Since that time, for the last three months, the company has continued its efforts to discover and address EPA’s concerns. We have met twice in San Francisco with representatives of EPA’s criminal investigations division and office of regional counsel. We have met twice with the assistant United States attorney in Honolulu assigned to this matter…

“In our discussions, EPA has mentioned several areas of concern. We have addressed each of these for the agency, offering supporting documents and witnesses, and demonstrated that no criminal activity has occurred. Despite our efforts, EPA still refuses to advise us as to what criminal acts, if any, it now believes occurred at our plant” — this in the face of more than three years of ongoing notification by the EPA and the Department of Health of problems at the plant.

The board members concluded, requesting that the senator “expedite this matter.”

Meanwhile, in Honolulu

A copy of the letter found its way to the office of Governor John Waihe`e. Josh Agsalud, a top aide to the governor, sent it to Director of Health John Lewin with instructions to review the letter with Bruce Anderson, deputy director of health and then “I’ll call you about this,” Agsalud wrote.

Lewin instructed his staff to prepare a letter for the governor’s signature, to be sent to the Hawai`i congressional delegation. According to a note to Anderson, the letter was to reveal “how EPA-DC (NOT Region IX) is in overkill here… Also, we should plug Reg. IX EPA as much more effective in dealing with these tough issues.”

The letter was ready for the governor’s signature by June 20. Hawaiian Western Steel, Waihe`e told Inouye and others in the delegation, “is the only steel processing plant in Hawai`i and its closing would have a significant impact. Lost would be 90 jobs and $14 million in direct sales. The multiplier effect as the loss rippled through the economy would mean that the total loss to the state would be 286 jobs and $28 million. We seek your assistance in resolving this dilemma by requesting EPA to inform HWS of violations of environmental laws associated with the facility and any actions required to address the violations.”

The company “is anxious to resolve this matter and is ready to comply with all environmental laws,” Waihe`e said. “Any assistance you can provide in this matter will be deeply appreciated.” Blind copies of the letter were sent to Oshiro, Au, Couch, and Swope.

The Move to Justice

At least three members of the congressional delegation — Inouye, Senator Daniel Akaka, and Representative Patsy Mink — made inquiries of the EPA. Inouye and Mink received almost identical responses in mid-July from Daniel McGovern, EPA Region IX administrator. Until the EPA’s review of samples and other materials taken during exercise of the search warrant was complete, the EPA could say nothing. “If, after our full analysis, the Region concludes that a criminal referral is warranted, we will forward our recommendation to the assistant administrator for enforcement at Headquarters. He will then decide whether to refer the matter to the Department of Justice; as you know, the Department, not EPA, makes a final and independent decision about whether to bring a criminal prosecution.”

Akaka did not send his inquiry to the EPA until August. By the time he received a response, the matter had been forwarded to the Department of Justice’s Land and Natural Resources Division. Barry M. Hartman, acting assistant attorney general for that division, stated in his letter to Akaka of September 16, 1991: “We can assure you and Governor John Waihe`e … that every reasonable effort, consistent with our obligation to properly develop criminal cases throughout the country, is being made by this division and by the EPA to expeditiously resolve the HWS investigation.”

Hartman closed by noting “that at no time has the federal government required HWS to cease or suspend its operations and we have no objections to the company’s continued operation in compliance with applicable laws.” Akaka, apparently unaware that the company had abruptly stopped operations some six months earlier, forwarded the letter to Waihe`e, commenting that he “was interested to read that HWS has not been required … to cease or suspend its operations while the investigation proceeds.”

‘Gestapo-like Tactics’

By November 1991, the company was taking its complaints to the press. An article in the November 10 Honolulu Advertiser reported that delays by the Justice Department and EPA were “about to drive Hawai`i’s only steel mill out of business … according to company officials and labor leaders.”

The article quoted Rzonca and two company lawyers as saying that while the company had “offered to provide any documents to the EPA and correct any violations,” the EPA had not responded.

Bruce Anderson, the deputy director of health, when asked by the Advertiser reporter for comment, trotted out the party line set months earlier in the Lewin memo. Anderson accused the EPA of “Gestapo-like tactics … totally inappropriate here in Hawai`i.” He continued, according to the article: “State authorities are far more likely to be aware of the appropriate enforcement action to take and to be aware of the economic implications of not enforcing compliance in a timely manner.”

But in fact, something entirely apart from the company’s problems with the Health Department or EPA appears to have prompted Hawaiian Western Steel to file for bankruptcy. Its economic troubles were at least as serious as its environmental ones. And whereas the environmental regulators were put off with relative ease (recall, for example, the 1987 RCRA complaint, still unresolved), the company’s creditors were not so easily stalled.

On November 15, the company lost a default judgment for about $50,000 to one of its minor creditors, Pacific Suppliers (purveyor of cast iron ingot molds and artificial graphite electrodes). Six days later, the company’s own corporate parent and holder of 50 percent of its stock, Western Steel, Ltd., a corporation based in Vancouver, British Columbia, sued Hawaiian Western Steel for $1,014,342.77, plus interest, attorney’s fees and court costs. Almost $600,000 was owed, Western Steel said, for shipments of ingots sent to Hawai`i from Canada in the three months between December 1990 and February 1991. The remainder was “for services rendered and expenses incurred at defendant’s request from 1988 to date.” At least two other creditors (Matson and Aloha Cargo Transport) had filed in state circuit court, seeking recovery of debts.

On November 29, eight days after Western Steel had filed its lawsuit, Hawaiian Western Steel sought protection from its creditors under Chapter 11 of the federal bankruptcy law.

Bizarre Developments

The scene shifts at this point to Washington. A major impediment to Hawaiian Western Steel’s efforts to reorganize the company were the still-pending RCRA violations, dating back to 1987, and the ongoing criminal investigation. The company’s lawyers had actually begun meeting with Justice Department attorneys as early as the fall of 1991, months before the bankruptcy filing. Leading the lawyerly charge was Thomas Dent of the Chicago branch of the Washington-based law firm of Seyfarth, Shaw, Fairweather & Geraldson. Before joining the firm, Dent had served as an assistant U.S. attorney and chief of its environmental law unit for northern Illinois. Another Seyfarth, Shaw lawyer who helped out the company on occasion is Keith Onsdorff, based in the Washington office. Onsdorff (who, by the way, also represents the Hamakua Sugar Company on environmental matters) served from 1984 to 1987 as civil enforcement counsel for the EPA. In 1987 he joined the EPA’s office of criminal enforcement, rising to the post of its director before entering private practice in October 1990.

In January 1992, high-ranking officials from the Justice Department and the EPA met in San Francisco with Region IX staff familiar with the case. At the meeting, the chief Justice Department official there, Neil Cartusciello, exhibited behavior that regional staff later described to Congress as absurd and bizarre. Cartusciello insisted that the investigation be completed by March 1, 1992, over objections of regional staff. At that time, staff members were informed that the EPA’s Environmental Crimes Section had promised Hawaiian Western Steel that the case would be finished by the end of March.

But even before the March 1 deadline came around, the Justice Department was telling Hawaiian Western Steel that there would be no criminal prosecution. According to a staff report to the House Subcommittee on Oversight and Investigation, Representative John D. Dingell, chairman, the EPA learned that the Justice Department’s environmental crimes section “had sent a letter to the defense counsel declining prosecution against the company.” “In a bizarre deviation from standard procedures,” the report continues, “the declination letter was addressed to defense counsel, with only a copy to the EPA. The question of whether to prosecute any individuals was not resolved until June, when the ECS sent another declination letter to counsel.”

Cleaning Up

In late February, Hawaiian Western Steel and the EPA entered into a consent order addressing the hazardous wastes that remained at three sites used by the company: the plant site itself, the beach dump, and the landfill along the Hanua Street extension. The remedial action decided upon was to consolidate the waste at the landfill, grade it, and place an impermeable cap (a heavy plastic sheet, actually) atop the five acres or so occupied by the landfill. That work was completed for the most part by last month. The resulting pile of waste, containing more than 43,000 cubic yards of scrap, slag, and hazardous baghouse dust, is easily identifiable, rising 10 to 15 feet above the surrounding land like the foundation of an ancient Hawaiian heiau.

However, the matter is not resolved. The consent order was limited to actions that can be described as emergency clean-up work, intended to protect the environment and health from damage that the site could cause in the short term. The governing law for that action was the Superfund law, or the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and amendments thereto.

If the landfill is to be more than temporary, it must be licensed under a different law, the Resource Conservation and Recovery Act. RCRA requires that the EPA receive a closure plan for each regulated landfill, and that that plan show how long-term environmental monitoring requirements are to be met. That, in turn, requires the landfill operator — in this case, Hawaiian Western Steel or Campbell Estate — to demonstrate how it will finance those long-term monitoring requirements. Neither the company nor the estate has done this.

In what appears to have been an attempt to get Hawaiian Western Steel to adopt a more conciliatory approach to dealing with this problem as well as the still outstanding RCRA violations first complained of in 1987, the Justice Department in September 1992 filed a civil action in federal court. Named as defendants were the company and its landowner, Campbell Estate.

The Justice Department waited for two months for some signal that Hawaiian Western Steel or Campbell Estate wanted to reopen negotiations. In late November, the lawsuit was served on Campbell Estate. Service on Hawaiian Western Steel had not been made by the time Environment Hawai`i went to press.

Volume 3, Number 7 January 1993

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