National Clothesline

The city of Lodi, CA, reached the first settlement last month in its 15-year, $30 million battle to force insurance companies to pay for the environmental cleanup of drycleaning solvents that seeped underground.

The owners and insurers of the former Busy Bee laundry site, one of 151 parties the city has sued in the case, agreed to contract with pollution-cleanup firm E2CR Inc. for $475,000 to get rid of the chemicals at the Main Street site, a job that could take three to eight years to complete.

Under the settlement, the city will no longer have to pay about $750,000 in judgments and attorneys fees in Busy Bee’s own legal actions against Lodi. Busy Bee will set up a $100,000 trust fund to cover any possible cost overruns and contract breach.

The settlement requires the approval of U.S. District Judge Frank C. Damrell Jr., who is presiding over Lodi’s pollution case.

Busy Bee was one of nine cleaning companies named when the city expanded its long-running lawsuit last summer. Nearly all downtown Lodi companies that used certain types of chemicals over the past 70 years were named in the expanded suit.

Contamination was found in Lodi’s drinking water back in the mid-1980s. Investigations in the early 1990s found areas where trichloroethylene was disposed of or where perchloroethylene from drycleaning operations was disposed to the sewer system or directly to the ground.

California Regional Water Quality Board officials, in a report filed in January, said they believe perc leaked from the sewer to the soil and groundwater.

Earlier this year, Judge Damrell criticized the city’s legal tactics in the case. The city received a $16 million loan from Lehman Brothers to finance the initial lawsuit in the belief that it could repay the loan with proceeds from winning the suit. But Judge Damrell warned the city a year ago that its prospects in the case looked bad and the defendants had a good chance of prevailing. Nonetheless, the city’s legal bills — and interest on the Lehman loan, continued to mount. Over seven years, the city paid the attorneys about $16 million and spent nearly $25 million pursuing the case. Some reports pegged the interest rate on the Lehman loan as high as 25 percent.

The city’s plan was to shift clean-up costs to insurance companies, but after filing its lawsuit in 2000, the defendants and their insurance companies fought back, arguing that the city’s leaky sewers had helped spread the contamination. The precedent for that argument was set by IFI nearly 10 years ago when it was embroiled in a contamination case at its former headquarters in Silver Spring, MD.

In January, 2004, with a court date imminent, the city fired both its city attorney and the legal team that had presented it with a multi-million dollar bill. Instead of pursuing litigation, the city told Judge Damrell that it wanted to seek a settlement. The city also asked for a four-month delay in the trial while it sought that settlement.

At a June hearing, Judge Damrell gave the city two months to revise its lawsuit, which it did, just before the deadline, with 153 defendants named.

Meanwhile, Lodi’s clean-up problems could be worse than suspected. Tests on groundwater revealed last month that perc was deeper in the soil and had spread farther and in higher concentrations than were previously expected.

The plume, the largest of five that are contaminating groundwater in central Lodi, is suspected by city and state officials to have come from a cluster of businesses that includes Guild Cleaners and the former site of the Lodi News-Sentinel newspaper.

Attorneys for the city, Guild Cleaners and its insurers were unsuccessful in negotiating a settlement in a 10 hour meeting last month but planned to continue meeting.

If the city doesn’t settle with the insurers soon, it may not be able to settle at all and instead will have to rely solely on the assets of the Guild Cleaners and its owner Jack Alquist.

Fireman’s Fund sued Guild Cleaners in 1998, claiming it has no responsibility to cover pollution claims, and contends any perc in the environment is due to routine discharges from drycleaning, not the “sudden and accidental” spills that would trigger coverage.

The case is scheduled for trial in San Joaquin County Superior Court in January.

When Gordon Shaw first opened a Hangers Cleaners store in San Diego back in 2001, it was the first and only plant on the West Coast to use 100% all natural liquid carbon dioxide as its cleaning solvent.

The maneuver may have seemed quite risky at the time, but not anymore. Shaw’s Hangers Cleaners San Diego has been named as the eighth fastest growing privately held company in the city by The San Diego Business Journal.

Shaw, who has been a drycleaner for over 25 years, received the honor recently at a rooftop garden reception hosted by The Journal, along with co-presenter Robert Half International and co-sponsors Comerica, Grubb & Ellis/BRE Commercial Real Estate, Luce Forward and the Westgate Hotel.

Since opening the first plant in April of 2001, Shaw has opened an additional location in April of 2003 and has increased its overall revenue by 200%.

Shaw plans to open up two more plants sometime in 2005 and make the Fast 100 list again next year.

“This was such a great event,” he said upon being presented with a plaque that all of the Fast 100 companies received. During the ceremony, his business was among those featured during a multimedia presentation.

Shaw attributes the company’s success mostly to the good publicity it has been able to generate often since it opened its doors.

“One the key things I’ve learned, and benefited from over the past three and a half years that I’ve had Hangers Cleaners is the tremendous effect and punch of positive PR,” he explained. “I’ve had six or seven periodicals run stories, 11 TV stories done, and a live talk radio hour; all because I am the first in the area to do something truly revolutionary and positive with the CO2 technology.”

Being placed near the top of the Fast 100 list is providing Shaw with another dose of free advertising, as well. His business was featured in a story entitled “Hangers Turns All-Natural Cleaning Into Unnatural Success” in a special supplement of the October 4 issue of The San Diego Business Journal.

“By far, this article is having the largest impact in the context of real estate and the business community,” he noted. “I look for a lot of doors to open, as my brand is being built.”

Prior to his venture into carbon dioxide cleaning, Shaw had built, owned and operated five perc plants, three agencies and a gas station in San Diego County, the last of which was sold in April of 2000. He has also served as director, vice president and president of the San Diego Drycleaners Association, and director and vice president of the California Cleaners Association.

Since he began utilizing liquid carbon dioxide to clean clothes, Shaw has testified before a Congressional Sub-Committee in Washington on behalf of HR 1303, the Dry Cleaning Environmental Tax Credit Bill, and has been a recipient of San Diego County’s only 2001 Clean Air Award in Recognition of his “Outstanding Contribution Implementing Innovative Clean Air Technology.”

He has also played host to numerous visitors. To date, several dozen cleaners, investors, environmentalists and other interested parties have traveled from all over the U.S. and countries such as Turkey, the United Kingdom, Belgium, New Zealand and Canada to see CO2 in action.