Harwood Investment Company vs. Wells Fargo National Association, Inc (N.D.Ca) seems to combine the facts of the infamous 1988 Fleet Factors case and the HSBC case from New York, a lender agreed to settle claims that its agents caused releases of hazardous substances following foreclosure.
The defendant bank extended a $16MM loan to the Harwood Products, Inc. a lumber mill. The loan was leguaranteed by the plaintiff and the promissory note was secured by the property and equipment owned by the lumber mill. After the bank asserted that it was in default of its loan in the amount of $2.6MM, Harwood Products filed for bankrtupcy. In September 2008, the lumber mill defaulted on its loan and the bank retained an auctioneer to conduct a sale of the borrower's assets.
In December 2008, a contractor retained to provide security and dismantle equipment allegedly caused hydraulic fluid and other hazardous substances to be release. Later, the Mendoncino Couty Department of Environmental Health conducted an inspection and observed abandoned drums without secondary containment and wastewater overflowing from a dip tank along with evidence of staining on floors and near floor drains. The MCDEH determined the conditions posed an imminent and substantial endangerment and notified the regional water quality control board.
In January 2009, a purchaser of certain equipment located in the planer building was using a blow torch to dismantle equipment when a spark ignited that engulfed the building. Water from the fire suppression system and from fire fighting actions of the local fire department caused the hazardous substances to flow into surface water and the stormwater system containment system. and pread into the soil and groundwater. Following the fire, the regional water quality control board issued an abatement order requiring the borrower to implement remedial actions.
The bankruptcy case was then converted to a chapter 7 liquidation and the bankruptcy court authorized the abandonment of the facility to Willits Financial Company, Inc. in April 2009. The plaintiffs then filed a contribution and cost recovery action, alleging the bank and its agents took possession of the lumber mill in september 2008 and were responsible for the releases of hazardous substances.
The defendants filed a motion to dismiss and the parties reached a settlement. According to sources, the lumber mill was the largest employer in this rural area and the bank did not want to run the risk of having a trial before such a jury pool.
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