Polluted Oil Refinery Once Part-Owned by Huffington : Environment: Huffco subsidiary held 20%. The candidate and others say he had no active role in the plant.

A Paramount oil refinery that was owned in part by U.S. Senate candidate Mike Huffington and his family during the 1980s left behind a trail of environmental damage that could cost millions of dollars to clean up, court records and interviews show.

The pollution is believed to have started decades ago, but may have continued during the nearly five years that a Huffington family company held a minority interest in the refinery. Although health experts see no “imminent” danger at the Paramount Petroleum site, they say pollutants have been found in high levels in nearby soil and ground water.

Huffington’s family company, which earned the onetime Texas oilman a fortune that he is now putting to use in his campaign, owned 20% of the Southland refinery when the problems were first discovered in the mid-1980s. But approximately $70 million in debt and a dim economic future drove Paramount into bankruptcy at the urging of the Huffingtons’ firm.

The state filed a $15-million claim against Paramount in 1988, seeking to use its assets to pay for cleanup and “to protect the public health and safety.” But the company quickly challenged the claim because it was filed 2 1/2 years late in U.S. Bankruptcy Court in Los Angeles, and it was dismissed. A subsidiary of Huffco, the Huffington family company, was one of three shareholders at that time.

Huffington said in an interview that he never supported the project that led to his family company’s 4 1/2-year ownership interest in the refinery and that even while he oversaw all finances at the family company, he never became aware of any environmental claims in Paramount.

“Those things I don’t know about. It was handled by other people,” said the Santa Barbara congressman, whose account was supported by former Huffco officials and a bankruptcy trustee who oversaw the refinery. “It was too long ago for me to remember . . . and it really has nothing to do with this campaign.”

Huffington has made corporate responsibility a central theme in his bid to unseat Sen. Dianne Feinstein, arguing that government should ease its regulatory stranglehold over business and allow the private sector, on its own, to assume greater fiscal roles in society.

But some critics point to the environmental problems at the Paramount refinery as evidence that the approach won’t work.

Terry Trumbull, a San Jose environmental lawyer who has represented the city of Paramount in the case for seven years, estimates that the city spent a half-million dollars in an unsuccessful legal effort to hold the previous owners, including Huffco’s California subsidiary, responsible for the damage. He said that if the refinery’s current owners do not undertake the cleanup on their own, public agencies may have to bear the costs.

“Certainly, going into the bankruptcy washed away (the previous owners’) liability,” Trumbull said. “That may be standard operating procedure for any big business, but to create a subsidiary and hoist 50 or 60 million dollars in (potential) liability on taxpayers, I view that as utterly reprehensible. . . . It stinks pretty badly.”

Questions surrounding the bankruptcy became fodder for Feinstein in the campaign after it was disclosed last month that the state made a 1988 claim against Paramount for nearly $7 million in back taxes allegedly owed by a Huffco subsidiary.

The state was unable to collect on that claim, either, and Huffington maintains that his company never had any tax debt.

The Paramount refinery sits on a 60-acre site on Downey Avenue in southeast Los Angeles, surrounded by nearby homes, a newly opened Wal-Mart, two schools and a municipal golf course. Environmental experts say the pollution at the Paramount site probably began at the time of the refinery’s founding in the 1940s, decades before Huffco assumed an interest.

But continued operations during the 1980s may well have exacerbated the problem, they say. Moreover, both federal and state environmental laws hold that any owners of a hazardous site can be found responsible for damages, even if others before them may have contributed to it. Previous owners can be held liable as well if they are found to have polluted the site.

William W. Pennell, a bankruptcy trustee appointed in 1984 to oversee the refinery’s day-to-day operations, said he never saw a serious environmental problem at the site, despite a bevy of periodic test results that suggested otherwise. The state’s $15-million claim, he said in an interview, “was nonsense then and it’s nonsense now. There was some contamination, sure, but to file a claim of any amount was pure conjecture.”

Trumbull, from the city of Paramount legal team, believes the issue never got a full airing in bankruptcy court, and he blames that on bungling in Sacramento: After filing their claim 2 1/2 years past the court cutoff, he said, lawyers for the state did not even show up for a hearing, leaving the city to fend for itself in pressing the claim.

“We were extremely upset,” he said. “I think the state just completely fouled it up.”

Angelo Bellomo, then head of the Southern California office for the state’s Toxic Substances Control Division, did not recall details of the claim. But he said of Trumbull’s explanation: “That doesn’t surprise me. The workload during that period of time was so heavy, a lot of things fell through the cracks, and that obviously seems like one of them.”

A Huffco subsidiary became part owner of Paramount through its California subsidiary in 1984 in an ill-fated attempt to forestall financial troubles at a refinery the family had started in Bakersfield a few years earlier.

Huffco, the Houston oil conglomerate founded by Huffington’s wildcatter father, was already making millions from gas operations in Indonesia, but California oil production offered a way to expand the firm’s operations. Begun in 1980, the $135-million Bakersfield refinery was designed to process heavy crude oil from the San Joaquin Valley and pipe it to the Los Angeles Basin for use as gasoline, jet fuel and other petroleum products.

Huffington and his associates say he had opposed the Bakersfield project, warning his father that it could be an economic flop, and events proved him right. A drop in the price of oil and problems with contractors plagued the refinery from the start, and Huffco soon merged the operation with the Paramount refinery in a stock transfer that created an instant Los Angeles outlet for its crude product. In addition to the Huffco subsidiary’s 20% interest, Mid-Pacific Resources Inc. and Pasco Inc., a company associated with international arms dealer Adnan Khashoggi, each ended up with a 40% share of Paramount.

But within months of the 1984 merger the debt-loaded refinery was already considering bankruptcy.

The Huffco subsidiary recommended bankruptcy, but one of the partners blocked the move, the trustee said in a report to the court. It was finally left to the company’s banking creditors, who held $48 million in loans on the Bakersfield and Paramount refineries, to break the stalemate and push Paramount into an involuntary Chapter 11 filing through a petition in U.S. Bankruptcy Court in Los Angeles. Huffington had worked for one of the banking creditors early in his career, and his father was a director at a second bank in Houston.

Pennell, the bankruptcy trustee, said the Huffingtons played little role in Paramount during its four years in bankruptcy protection and that he never even met any of the family members. “They were totally benign in this whole affair. . . . I wouldn’t know (Mike Huffington) if he fell on me,” Pennell said in an interview.

Former Huffco officials said the Texas company took such a distanced role from the refinery operations that they were never even aware of any potential environmental problems at the site or any claim by the state for damages from the estate. Huffco was sold to Taiwan’s nationalized oil company in 1990, with Mike Huffington earning an estimated $70-million share in the sale.

“The bottom line is this,” former Huffco President Lorne Bain said in an interview. “The Huffington family and Mike Huffington had no involvement in the Paramount business interests at all. . . . There was no tie back to us.”

But the Huffco subsidiary did hold voting seats on the Paramount board, and Huffington himself oversaw financing for the Bakersfield deal and the bankruptcy negotiations that followed it. The congressman, however, suggested that his company’s role in the refinery was so minimal that it would be unfair to question its responsibility--legal or otherwise--for problems there.

“If you have shares in Exxon, do you have an ethical responsibility to help clean up the Valdez disaster?” the congressman asked. “I don’t think so.”

The discovery of health problems around oil facilities became almost commonplace in California during the 1980s as the state moved to toughen its environmental oversight. Paramount Petroleum, in fact, was one of 15 Southland refineries ordered by water quality officials to begin extensive soil and ground water testing because of suspected problems.

As far back as 1985, soon after Huffco assumed a stake in the company, the testing at Paramount detected the presence of underground oil pools floating on top of the local ground water supply. Within four years, water officials found that contaminants had begun to spread off the site and recommended that cleanup should begin “as soon as possible.”

But efforts by government agencies and the refinery owners have lagged, and even today no major cleanup has begun and no final plan for the work has been submitted.

In the meantime, the problem has only grown. Ongoing tests filed this year with the state found arsenic and chloride contamination in each of 21 ground water wells sampled around the refinery. And levels for benzene, a carcinogen found in gas and linked to leukemia and other diseases, came in as high as 15,000 times the state’s accepted levels for drinking water.

The real problem, said Jim Ross, senior engineer for the Los Angeles Regional Water Quality Control Board, will come if the contaminants are allowed to seep into a local aquifer and reach local drinking water supplies. “There is not an imminent danger to the community,” he said, “but it certainly has the potential to be if it lingers.”

Estimates through the years for the cost of a full-scale cleanup have started at about $6 million, but Ross said the Paramount operation would surely tally in the “tens of millions.” He said the job would be similar to ongoing work at another polluted Los Angeles refinery with “nearly identical problems,” and cleanup costs there will probably reach $50 million.

The current owners of the Paramount refinery promise to do the job.

Glenn Lingle, current president of Paramount Petroleum, said the refinery has only undertaken “minor” cleanup to date, but it has set aside more than $10 million over the next five or six years for more extensive soil and water work in the area.

The company will pay for the project without public monies, he pledged, and it hopes to “go back to anyone who owned it over the years” to help cover the costs. “I don’t want to pay for it out of my own pocket if I don’t have to,” he said.

Paramount City Manager Pat West said he has been impressed by the new ownership’s cooperation. But Trumbull and others in the protracted case are wary, saying they have heard similar pledges before: The company that bought Paramount for $43 million in 1988 and took it out of bankruptcy also pledged a full cleanup, only to file for bankruptcy itself soon after.

“That’s the risk that was created by not using the assets from the bankruptcy in ’88 . . . and doing the work when we should have,” Trumbull said. “The bottom line is that somebody’s going to have to clean it up.”

Times research librarian Janet Lundblad contributed to this story.