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BEFORE THE

ILLINOIS POLLUTION CONTROL BOARD

PEOPLE OF THE STATE OF ILLINOIS,

Complainant,

CHEMETCO, INC., a Delaware corp.

Respondent.

PCB No. 96-76

(Enforcement-Land)

RECEIVED

Mathis, Marifian, Richter &

Grady, Ltd.

23 Public Square, Ste. 300

Fairview Heights, IL 62208

PLEASE TAKE NOTICE that on this date I mailed for filing with the Clerk of the Pollution

Control Board of the State of Illinois, COMPLAINANT'S STATUS REPORT AND PROPOSAL FOR

RESOLUTION, copies of which are attached hereto and herewith served upon you.

Respectfully submitted,

PEOPLE OF THE STATE OF ILLINOIS

LISA MADIGAN,

Attorney General of the

State of Illinois

MATTHEW J. DUNN, Chief

Environmental Enforcement/Asbestos

Assistant Attorney General

Environmental Bureau

500 South Second Street

Springfield, Illinois 62706

217/782-9031

Dated: November 30, 2007

%/17a4t.

ames L. Morgan

Assistant Attorney General

Environmental Bureau/Springfield

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

MADISON COUNTY, ILLINOIS

PEOPLE OF THE STATE OF ILLINOIS,

Complainant,

vs.

CHEMETCO, INC., a Delaware corporation,

Respondent.

No. PCB 96-76

(Enforcement-Land)

CERTIFICATE OF SERVICE

I hereby certify that I did on the 30th day of November, 2007, send by First Class Mail, a

true and correct copy of the instrument entitled COMPLAINANT'S STATUS REPORT AND

PROPOSAL FOR RESOLUTION to:

Laura Grandy

Trustee

Mathis, Marifian, Richter & Grandy, Ltd.

23 Public Square, Suite 300

Fairview Heights, IL 62208

and

Carol Webb

Hearing Officer

Illinois Pollution Control Board

1021 North Grand Avenue East

P.O. Box 19274

Springfield, IL 62794-9276

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

MADISON COUNTY, ILLINOIS

PEOPLE OF THE STATE OF ILLINOIS,

Complainant,

vs.

CHEMETCO, INC., a Delaware corporation,

Respondent.

RECEIVE

No.

PCB 96-76

pollution 00F

Control

42007

ILLINOISBoard

(Enforcement-Land)

COMPLAINANT'S STATUS REPORT AND PROPOSAL FOR RESOLUTION

NOW COMES the Complainant, PEOPLE OF THE STATE OF ILLINOIS, by LISA MADIGAN,

Attorney General of the State of Illinois, and submits this Status Report and Propsal for Resolution to the

Illinois Pollution Control Board ("Board") for approval.

BACKGROUND

On October 10, 1986, a Complaint was filed on behalf of the People of the State of Illinois by

the Attorney General of the State of Illinois pursuant to Section 42(d) and (e) of the Act, 415 ILCS 5/42(d)

and (e)(2002), against the Respondent, Chemetco, Inc. On November 7, 2001, Respondent filed for Chapter

7 Bankruptcy. Laura Grandy was appointed as Bankruptcy Trustee for Respondent's Bankruptcy Estate by

the Bankruptcy Court for the Southern District of Illinois.

On February 19, 1998, the Pollution Control Board issued an Interim Opinion and Order, which

found certain facts to be undisputed and that those undisputed facts established that Respondent had violated

certain provisions of the Act and Board Regulations as alleged in the State's Complaint.

In the Interim Opinion and Order, the Pollution Control Board found that Respondent had

violated:

For the period between April 19, 1991, through May 1992, 35 Ill. Adm. Code 725.190(6),

725.192(a), 725.213(b)(1997) and 415 ILCS 5/21(0(2) (L

e.,

quarterly groundwater sampling

requirements);

For calendar year 1991, 35 III. Adm. Code 725.175, 725.194(a)(2)(B), 725.213(6)(1997)

and 415 ILLS 5/21(0(2) (i.e., Annual Report requirements);

For the period between April 19, 1981, through May 1992, 35 III. Adm. Code

725.213(1997) and 415 ILCS 5/21(0(2) e., requirements to determine groundwater flow

rate and direction);

For the period since 1986, 35 III. Adm. Code 725.243(1997) and Section 21(0(2) of the

Act, 415 ILCS 5/21(0(2) (regarding financial assurance for closure);

For the period since 1986, 35 111. Adm. Code 725.245(1997) and Section 21(0(2) of the

Act, 415 ILCS 5/21(0(2) (regarding financial assurance for post-closure); and

For the period since 1986, 35 Ill. Adm. Code 725.247(a) and (b) (1997) and Section

21(0(2) of the Act, 415 ILCS 5/21(0(2) (liability assurance for bodily injury and property

damage to third parties caused by sudden and nonsudden accidental occurrences arising

from operations of the facility).

The violations of 35 III. Adm. Code 725.243, 725.245, and 725.247(a) (1997) and Section 21(0(2) of the

Act, 415 ILCS 5/21(0(2) were not corrected before Respondent ceased operations and filed for Chapter 7

bankruptcy.

In its order, the Board directed the parties to proceed to hearing on the issue of whether

Respondent violated 35 111. Adm. Code 725.242(a) by failing to provide detailed written closure cost

estimates fully satisfying the requirements of that provision and for resolution of potential factaul disputes

related to the appropriate civil penalty.

On April 6, 1998, the State amended its complaint to allege that Respondent had violated

35 III. Adm. Code 725.242(b)and (c), and 725.244(a)-(c) (1997) and Section 21ffi(2) of the Act, 415 ILCS

5/21(0(2) , by failing to maintain a written estimate, in current dollars, of the cost of its hazardous waste

management unit post-closure plans or to annually update its cost estimates for inflation or for modification

of its hazardous waste management unit closure and post-closure plans.

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent failed to maintain written cost estimates for its Illinois EPA-approved hazardous

waste management unit closure plan or the successive amendments of that plan reflecting the additional costs

for the modifications required by the conditional approval of such amendments, thereby violating that

provision and Section 21(0(2) of the Act, 415 ILCS 5/21(0(2). An amended closure plan and associated

cost estimate that has not been submitted to or approved by Illinois EPA cannot serve to fulfill this

requirement.

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent did not annually update its cost estimates for its hazardous waste management unit

closure plans for inflation in violation of 35 Ill. Adm. Code 725.242(b)(1997) and Section 21(0(2) of the

Act, 415 ILCS 5/21(0(2) .

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent did not annually update its cost estimates for its hazardous waste management unit

post-closure plans for inflation in violation of 35 Ill. Adm. Code 725.244(b)(1997) and Section 21(0(2) of

the Act, 415 ILCS 5/21(0(2) .

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent did not update its cost estimates for its hazardous waste management unit closure

plans to reflect modifications of those plans in violation of 35 Ill. Adm. Code 725.242(c)(1997) and Section

21(0(2) of the Act, 415 ILCS 5/21(0(2) .

10.

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent did not annually update its cost estimates for its hazardous waste management unit

post-closure plans to reflect modifications of those plans in violation of 35 Ill. Adm. Code 725.244(c)(1997)

and Section 21(0(2) of the Act, 415 ILCS 5/21(0(2) .

11.

During the period of 1988 until Respondent ceased operations and filed for Chapter 7

bankruptcy, Respondent did not prepare written cost estimates for its hazardous waste management unit post-

closure plans in violation of 35 Ill. Adm. Code 725.244(a)(1997) and Section 21(0(2) of the Act, 415 ILCS

5/21(0(2) .

12.

On January 1, 2004, Section 42(h) of the Act, 415 ILCS 5/42(h), was amended to require

that any penalty determined by the Board in a contested proceeding must be "at least as great as the economic

benefits, if any, accrued by the respondent as a result of the violation" unless it would result in an

unreasonable or arbitrary hardship.

13. During the course of the bankruptcy, the Trustee initiated proceedings against a number of

• Respondent "insiders" to recover money those persons received from Respondent because Respondent

underfunded its liabilities. The Trustee alleged that Respondent's liabilities included its failure to provide

the financial assurance for closure and post-closure required by 35 III. Adm. Code 725243 and 725.245 and

the liability assurance required by 35 III. Adm. Code 725.247. The Trustee recovered on those claims.

CURRENT STATUS

The Complainant and theTrustee have conducted settlement negotiations but a settlement agreement

has yet to be finalized. The State of Illinois, the United States, and the Trustee have also been engaged in

settlement negotiations to resolve the case of U.S. and Illinois v. Chemetco, 00-670 (S.D. Ill.), but a

settlement agreement has yet to be finalized.

PROPOSAL FOR RESOLUTION

Pursuant to 11 U.S.C. 726(a), there are only two classes lower than penalties such as those sought

in this case in the order of distribution of proceeds from the Bankruptcy Estate during liquidation. The next

lowest priority is interest on claims and the lowest priority is for distribution to the debtor. The Trustee

contends that the Bankruptcy Estate has assets that she may be unable to process which could be returned

to Respondent by abandonment or by distribution of the Estate if all other claims have been satisfied.

The issues that must be resolved to bring this case to a close are:

What penalty should be imposed for the previously adjudicated violations?

Whether Respondent violated 35 III. Adm. Code 725.242(a)

alleged in the original

complaint by failing to provide detailed written closure cost estimates fully satisfying the

requirements of that provision and what penalty should be imposed for that violation, if

proved.

2. Whether Respondent violated 35 Ill. Adm. Code 725.242(b)and (c), and 725.244(a)-(c)

(1997)

and

Section 21(0(2) of the Act, 415 ILCS 5/21(f)(2) , by failing to maintain a written

estimate, in current dollars, of the cost of its hazardous waste management unit post-closure

plans or to annually update its cost estimates for inflation or for modification of its

hazardous waste management unit closure and post-closure plans as alleged in the amended

complaint and what penalty should be imposed for those violations, if proved.

The issue of whether Respondent committed the alleged violations is ripe for resolution by summary

judgment, stipulation of the parties or by a hearing of limited duration. Each violation has occurred if the

required "paper trail" has not been created.

The penalty determination may also be resolved by summary judgment, stipulation of the parties or

by a hearing of limited duration. The resolution of the violations listed above will fix the applicable closure

and post-closure costs and enable a straightforward determination of the economic benefit of non-compliance

and other factors set out in Section 42(h) of the Act, 415 ILCS 5/42(h). Since the Trustee has previously

pursued Respondent's insiders for diverting Respondent's funds instead of addressing liabilities like the

financial assurance obligations and recovered on those claims and 11 U.S.C. 726 places the payment of any

penalty imposed after payment of other claims, imposition of a civil penalty equal to the economic benefit

represented by the amount of financial assurance left unfunded would not impose an unreasonable or

arbitrary financial hardship.

The opportunity remains for the Complainant and Trustee to craft a compromise of these outstanding

issues but the interests of the People of the State of Illinois are no longer served by further delay in doing

SO.

James L. Morgan

Assistant Attorney General

Environmental Bureau

500 South Second Street

Springfield, IL 62706

217-524-7506

WHEREFORE, Complainant proposes that the following schedule be set in this matter to bring it

to a close:

Establish a cutoff of February 1, 2008, for filing of motions for summary judgment; and

Set a final hearing date for April 15, 2008.

PEOPLE OF THE STATE OF ILLINOIS,

LISA MADIGAN

Attorney General

State of Illinois

MATTHEW J. DUNN, Chief

Environmental Enforcement/