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Peter to pay Jack (and soon, Jeffrey) -
Are NRD lawsuits in G.E.'s future?
To read excerpts from the CODE OF FEDERAL
REGULATIONS, Click Here!
by G. M. Heller
Wednesday, March 14, 2001
A General Electric Company press release just
out says that the Company's total year 2000 compensation package
to Dr. John F. (Jack) Welch came to $76 million -- not that there's anything
wrong with that.
Not to frighten any shareowners or put a damper on any future CEO's
spirits, but that kind of compensation package from this company may simply
not be available for too much longer. How can one say such a preposterous
thing about the fiscal prospects of a corporate powerhouse whose revenue
growth averages 15% per year?
The answer is simple: Natural Resource Damage, NRD
PCB's, Big G, and NRD
What carcinogens in cigarettes are to Big Tobacco, PCB's in the environment
are to Big 'G'. NRD is the legal tool
that federal and states attorneys general are in the opening stages of
using against G.E.. They are going to do to G.E. what was recently
done to Big Tobacco using other legal methods, that being to hold the corporate
entity responsible for actions that have proven deleterious to human health,
and in G.E.'s case to the rest of the environment as well.
In the matter of Big Tobacco, the industry defendants settled by agreeing
on a multi-decade plan to fork over literally hundreds of billions of dollars
for damages connected to smoking-related illnesses. The big difference
here though, is that instead of a slew of tobacco company defendants on
the hook being able to spread amongst themselves the costs of monumental
settlements, the list of defendants in this case begins and ends with just
company, General Electric (though once the legal pyrotechnics begin, G.E.
will certainly attempt to implead its PCB supplier, Monsanto Chemical Company).
Like being hit by a meteorite
Even with G.E.'s astronomical market capitalization, ranging this past
year from a high of $600 billion to the current low of $392 billion (share
price times number of outstanding shares), how much of a hit from a meteorite
the size of the Big Tobacco settlement can one world-class company take
without it making a dent?
According to the New York State Dept. of Environmental Conservation
"Natural Resource Damages (NRD's) are compensation for injuries
which happen to natural resources in the course of a spill or release of
contaminants into the environment. The compensation pays for the
cleanup and restoration of the injured resources. Several federal
and state statutes authorize New York State to pursue Natural Resource
Who may file
"The federal laws are: the Superfund law (Comprehensive Environmental
Remediation, Compensation and Liability Act, or CERCLA), the Oil Pollution
Act, and the Clean Water Act; the State laws are: Environmental Conservation
Law, Navigation Law and Common Law (Public Nuisance).
"'Natural resources' include biological and geologic resources, and
air, groundwater and surface water. New York State is the trustee
for those resources within its jurisdiction. Frequently, NYS-DEC
is a co-trustee with the federal government and also with native American
(Indian) nations in particular cases."
To view NYS-DEC's Web page on this subject, Click
To read excerpts from the CODE OF FEDERAL REGULATIONS,
NRD actions may be filed by the U.S. Attorney General or by individual
states attorneys general acting for their respective trustees. The number
of state A.G.'s that could actually file against the Company would depend
on the number of states wherein actual natural resource damage has occurred
as a result of Big G's actions.
In New York, PCB damage to the Hudson River has been highly publicized.
Yet, at the mouth of the Hudson lies New York Harbor, through which PCB's
travel into the Atlantic Ocean on their southerly journey from Hudson Falls
and Fort Edward where G.E.'s plants illegally dumped more than a million
pounds of the compound into the waterway. The State of New Jersey
borders and shares the harbor with New York, so it too has standing to
file NRD claims against G.E..
In Massachusetts, the Housatonic River runs through the City
of Pittsfield where G.E.'s former transformer plant was the origination
point for hundreds of thousands of pounds of PCB's illegally discharged
into that body. The Housatonic River flows southerly through western
before it empties into Long Island Sound at the City of Stratford.
Both these states thus have standing to file NRD claims.
In addition, G.E. has full or shared responsibility for scores of Superfund
sites throughout the United States. Therefore, any of those other
states wherein PCB or other pollution is wrought by actions of G.E., and
where that pollution has had a significant detrimental impact on natural
resources has standing to file NRD claims against the Company.
Toxic torts by private citizens - a possible feeding frenzy
Add to this already impressive exposure the fact that G.E. can of course
also be held liable in tort actions, lawsuits brought by private citizens
either individually or collectively as a class-action for injuries sustained.
The prospect is quite real of a feeding frenzy when the country's ambulance
chasing, contingency-fee'd tort lawyers realize that even minuscule levels
of PCB's in mother's milk arguably can cause developmental effects in infants.
There exist a myriad of potential medical impacts that PCB's can have on
the human body, either when the chemicals act alone, or in combination
with other pollutants in the environment, or in the presence of drug medications.
PCB cocktails and POP's
The biological reactions which occur under the influence of these chemical
'cocktails', and the processes by which these can affect various tissues
in living organisms, are the subject of intense study around the world.
As with any science, some of the reactions and processes are better understood
PCB's are what are known as 'Persistent Organic Pollutants',
or POP's for short, which bioaccumulate in the food chain, evaporate from
sediments and their surrounding waters (a recent finding), and move into
They are carcinogenic in animals and have been designated as 'probable'
human carcinogens. They are also known to cause endocrine disruption
and reproductive and skin disorders. Because of their neurotoxicity,
they are also known to cause a dampening of intelligence and to increase
(Imagine the prospect of the nation's top toxic tort attorneys obtaining
blood serum drawn from Hudson valley kids, and milk drawn from their Moms,
all in order to analyze for traces of PCB's, furans and dioxins.
What is it worth if a zillionth of a drop of polychlorinated biphenyls
is found in breast tissue of a lactating Mom? Ask a jury!)
G.E.'s only response is 'Note 21'
G.E.'s only official word on the subject is written in dry legalese
in the 'Notes to Consolidated Financial Statements' where, buried
on page 68 of the fiscal 2000 Annual Report, is the footnote
('Note 21') entitled 'GE All Other Liabilities'. The
"GE is involved in numerous remediation actions to clean up
hazardous wastes as required by federal and state laws. Liabilities
for remediation costs at each site are based on management's best estimate
of undiscounted future costs, excluding possible insurance recoveries.
When there appears to be a range of possible costs with equal likelihood,
liabilities are based on the lower end of such range. Uncertainties
about the status of laws, regulations, technology and information related
to individual sites make it difficult to develop a meaningful estimate
of the reasonably possible aggregate environmental remediation exposure.
even in the unlikely event that remediation costs amounted to the high
end of the range of costs for each site, the resulting additional liability
would not be material to GE's financial position, results of operations
or liquidity." (Emphasis and underline added.)
NRD and torts are not specifically addressed in G.E. annual report
Editor's Note: To download the Financial
Section of G.E.'s Fiscal 2000 Annual Report in order to read Footnote
21 in the Notes to Consolidated Financial Statements:
Second, Click on 'Financial Section'.
Then, Click on 'Download the GE 2000 Annual Report
You will find Note 21 on page 68 of
the Annual Report.
Of significant importance is the fact that nowhere in Footnote 21,
or in any other part of the 2000 Annual Report, does the
Company specifically address the possibility of, or the exposure represented
by, the most likely NRD claims. Neither is addressed the possibility of
liability from those above-mentioned tort actions brought privately or
as a class.
Thus, G.E.'s claim above that ".....liability would not be material
to GE's financial position, results of operations or liquidity" rings
somewhat hollow in the context of aggregate liability inclusive of remediation
costs plus NRD claims plus possible tort actions.
Whether the total amount of G.E.'s exposure will ever approach the level
of the Big Tobacco settlement is anybody's guess, but one thing is certain:
the longer G.E. delays in taking steps to actually remedy the environmental
damage it has caused, the longer the offending toxins will stay in the
environment to create even more damage, and consequently more liability
for the Company.
G.E.'s delaying tactics --
'For 'tis the sport to have the enginer
Hoist with his own petar' (Hamlet. Act
III, Sc. 4)
Delay has always proven a valuable weapon in the armory of G.E.'s lawyers,
but in matters of NRD, that delaying device becomes its own booby-trap,
self-inflicting a wound by ironically escalating the Company's liability
exposure. Toxins in the natural environment are not answerable
to a judge's briefing schedule. Potent chemicals do not wait for
expiration of public comment periods so that opposing motions can be filed.
The longer these substances are allowed to stay in an environment, the
more havoc they wreak biologically. Just ask any fish-eating Hudson
Time and the natural processes of biology become the multiplier of damages
in NRD proceedings. So the ironic kicker to all this is that even
G.E. succeeds in its present anti-dredging advertising campaign, and even
the Company does manage to somehow stave off US-EPA's order to dredge the
Hudson River, it becomes a Pyrrhic victory indeed once the NRD lawsuits
commence. Because the longer the toxins remain in the river to spread
damage throughout the ecosystem, the higher will be the ultimate liability
A single example for the skeptics
For those who are doubtful of this thesis that G.E.'s future profitability
will be strained because of NRD actions, consider just the single
matter of the closures of the recreational fisheries in the Hudson River.
remediation those closures are likely to continue indefinitely.
As more is learned about the potency and toxic effects of even trace doses
of PCB's, the odds are that New York State will simply keep those fisheries
off-limits. Whose deep-pockets do you think are going to be held
liable for those closures?
'A whole lot of shakin' going on'
What all this adds up to for the long-term is a whole lot of litigation
and liability exposure for G.E., and the prospect of a lot of G.E.'s hard
earned capital changing hands. This is money that today would be
used by the Company to maintain its share price by repurchasing shares,
and/or used to pay higher dividends to shareowners, and/or used to pay
generous bonuses to senior management.
While PCB's are left to continue their migration from the sediments
on the river bottom into the water environment, fish, wildlife and human
beings in the Hudson valley, the natural resource damage and toxic tort
claims have the potential of dwarfing the combined costs of EPA's proposed
Hudson River clean-up, the Pyrrhic anti-dredge ad campaign, Dr. Welch's
recent pay package, and just about every future stock option G.E. chairman-elect
Jeffrey Immelt is planning to enjoy.
To read excerpts from the CODE OF FEDERAL
REGULATIONS, Click Here!
© 2001 HudsonWatch.net/HudsonWatch.org/Hudson-Voice.com®/™
Editor's Note: In the course
of writing this article, we came across a bit of G.E. history that we decided
to delete from the article because it seemed to be subsidiary to the larger
issues discussed, but upon closer view it was decided that it might yet
be important material to include from the standpoint of giving perspective
to the reader. The deleted paragraphs are therefore included here
followed by further commentary:
The increased natural resource damages exposure, when combined
with the likely increases in toxic tort exposure to the Company, could
exceed, by a very large margin, any sum G.E. might save on the cleanup.
When one adds on the frosting, the cost of the advertising campaign, there
could be a significant slice taken out of the Company's profits pie.
Why would the Company pursue such a course of action?
Did you know that G.E. Chairman Welch was personally in charge of negotiations
when the Company settled the enforcement action brought by the State of
New York in 1976 involving the Hudson Falls and Fort Edward plants that
illegally dumped the PCB's into the river? It is Dr. Welch's signature
that graces the settlement documents. Dr. Welch probably used to
think, and certainly might still wish, that this case ended a quarter century
ago. It is possible that on this issue, the fabled judgment
of the Company's senior management is clouded.
State and federal government agencies are currently in the process
of assessing the money damages due to the people of the State and the nation
for the past, ongoing, and future injuries to the natural resources of
the river, and of the valley. The goal is to restore the resources,
to the extent possible.
Feedback from the Hudson Valley
by G. M. Heller
Wednesday, March 14, 2001
A young Jack Welch was personally involved when
New York State and the Company settled the State's enforcement action in
1976. He signed for G.E. the actual settlement papers. At the
time of those negotiations, Dr. Welch (he had attained his doctorate in
chemical engineering from the University of Illinois in 1959) was vice-president
and group executive of G.E.'s Components and Materials Group.
Handling of New York matter aided rise to the top
His negotiating style and tactics, and the cagey diplomacy he exhibited
at the bargaining table all impressed G.E.'s then chairman, Reginald H.
Jones, enough so that in 1977, the young engineer was appointed a senior
vice-president and sector executive of G.E.'s Consumer Products and Services
Sector. He served in that capacity until 1979 when he was appointed
co-vice chairman and executive officer of the corporation, succeeding to
the chairmanship and the post of chief executive officer in 1981.
A strong personal stake
It is clear then that Dr. Welch has a strong personal stake in the
New York matter since it helped propel his rise in the Company. This
is perhaps one reason his judgment may be prejudiced in the current situation.
Some believe that he is not necessarily seeing the whole picture with the
freshest eyes, nor appreciating the potential downside liability to the
Company, at least not as clearly as he should given the circumstances.
Full-time residents of the Hudson Valley region have expressed just
how truly amazing is the onslaught of G.E.'s advertising campaign, and
that upon being inundated by it, one quickly realizes that Dr. Welch must
be absolutely obsessed with this matter. People talk of scratching
their heads wondering how the Company can justify spending maybe a quarter
of the cost of the cleanup on advertising and lobbying.
The emperor's sartorial dilemma
Many have expressed the notion that this is not the most credible approach
for a company like G.E. to take, when U.S. corporations ache to be identified
with environmental causes and all things green. Talk abounds that
nobody at corporate must be willing to tell the emperor that he is wearing
It is the view of many that at the end of his reign, this deservedly
admired business leader appears to be 'losing it' over this one case, a
matter over which his, and any successor's, control becomes more limited
with time -- since time is the mathematical constant that is multiplying
the Company's NRD liability.
© 2001 HudsonWatch.net/HudsonWatch.org/Hudson-Voice.com®/™
Editor's Additional Note: For
more information on NRD, please click on the following websites:
U.S. National Oceanic and Atmospheric Administration
Damage Assessment and Restoration Program:
New York State Department of Environmental Conservation
Hudson River Assessment:
Hudson River Preassessment Screen:
Ecosystem Remediation & Restoration Section:
EXCERPTS FROM THE
CODE OF FEDERAL REGULATIONS
TITLE 43--PUBLIC LANDS: INTERIOR
SUBTITLE A--OFFICE OF THE SECRETARY OF THE INTERIOR
PART 11--NATURAL RESOURCE DAMAGE ASSESSMENTS
§ 11.15 What damages may a trustee recover?
(a) In an action filed pursuant to section 107(f) or 126(d)
of CERCLA, or sections 311(f) (4) and (5) of the CWA, a natural resource
trustee who has performed an assessment in accordance with this rule may
(1) Damages as determined in accordance with this part
and calculated based on injuries occurring from the onset of the release
through the recovery period, less any mitigation of those injuries by response
actions taken or anticipated, plus any increase in injuries that are reasonably
unavoidable as a result of response actions taken or anticipated;
(b) The determination of the damage amount shall consider
any applicable limitations provided for in section 107(c) of CERCLA.
(2) The costs of emergency restoration efforts under § 11.21 of
(3) The reasonable and necessary costs of the assessment, to include:
(i) The cost of performing the preassessment and
Assessment Plan phases and the methodologies provided in Subpart D or E
of this part; and
(ii) Administrative costs and expenses necessary
for, and incidental to, the assessment, assessment planning, and restoration,
rehabilitation, replacement, and/or acquisition of equivalent resources
planning, and any restoration, rehabilitation, replacement, and/or acquisition
of equivalent resources undertaken; and
(4) Interest on the amounts recoverable as set forth in section 107(a)
of CERCLA. The rate of interest on the outstanding amount of the claim
shall be the same rate as is specified for interest on investments of the
Hazardous Substance Superfund established under subchapter A of chapter
98 of the Internal Revenue Code of 1954. Such interest shall accrue from
the later of: the date payment of a specified amount is demanded in writing,
or the date of the expenditure concerned;
(c) Where an assessment determines that there is, in fact,
no injury, as defined in § 11.62 of this part, the natural resource
trustee may not recover assessment costs.
(d) There shall be no double recovery under this rule for
damages or for assessment costs, that is, damages or assessment costs may
only be recovered once, for the same discharge or release and natural resource,
as set forth in section 107(f)(1) of CERCLA.
(e) Actions for damages and assessment costs shall comply
with the statute of limitations set forth in section 113(g), or, where
applicable, section 126(d) of CERCLA.