PORTLAND – Eastern Pulp and Paper Corp.’s two mills received “a stay of execution” Wednesday when a federal bankruptcy judge delayed until Monday a decision on whether the properties should be abandoned.

U.S. Bankruptcy Chief Judge James B. Haines left open the possibility for a prospective buyer to submit a bid on the mills, but he warned that the “extraordinary” financial issues that have stressed the company in recent months still exist and that any hopes of a restart of operations could be dashed for good on Monday.

Gov. John Baldacci’s office, however, remains optimistic that a buyer will be ready with an offer by Monday.

“It is crucial that we get an offer,” said Kurt Adams, the governor’s legal counsel, after court recessed Wednesday evening. “Basically what Judge Haines did today [Wednesday] was give Lincoln and Brewer a stay of execution.”

Twice on Wednesday Haines was informed that an offer would be presented after a recess in court proceedings to fine tune a few details, and twice no offer was given. The bid was $8 million in cash for both mills, according to attorneys close to the negotiations, but the money wasn’t enough to satisfy secured claims of up to $60 million or to pay the expenses to keep the mills warm until a sale was completed.

“I’m disappointed to say we’re not in a position to move forward with a stalking horse bidder at this time,” said Fred Bopp III, a Portland attorney representing Eastern Pulp’s trustee.

A stalking horse bid typically is a low offer that other interested buyers try to top during a court-sponsored auction. The offer circulating through bankruptcy court Wednesday was too low to be considered “low ball.”

The trustee, Bangor attorney Gary Growe, has said that an offer would have to be enough to cover secured creditors along with enough to pay a small amount to unsecured creditors who are owed $40 million.

Eastern Pulp ceased to exist on Feb. 4 when Haines converted the company’s bankruptcy status from Chapter 11, protection from creditors, where it had been since September 2000, to Chapter 7 – liquidation. Growe was appointed trustee to manage the assets and oversee a temporary “warm stasis” mode – keeping the mills warm until a buyer is found or, if not, then liquidating the properties.

Eastern owned Eastern Fine Paper Co. in Brewer and Lincoln Pulp and Paper Co. in Lincoln. The company employed 750 people.

Environmental risks

At issue on Monday will be whether the mills pose an “immediate and imminent threat” to humans and the environment if they are abandoned. Thousands of gallons of hazardous chemicals currently are stored at the mills in pipes, vats and tankers.

The likelihood of seepage or spills occurring is being heavily debated by the trustee, who has no money to pay an estimated $18 million in disposal and cleanup costs, and the Attorney General’s office, which acknowledged Wednesday that the threat is real and that the state doesn’t have any money to clean up the mill sites if they are abandoned.

Of the $18 million, about $1.6 million would be needed to remove the chemicals at the mills to alleviate any risk to the public immediately while the rest would be needed to clean up alleged historic damage.

“We don’t have the money to clean up the mills after the environmental catastrophe happens,” said Dennis Harnish, assistant attorney general.

Harnish, citing a U.S. Supreme Court case, urged Haines either to place surcharges on the properties if they are abandoned and sold off for parts by secured lenders or to require the trustee to keep the mills warm until a cleanup is completed.

“Sell all this other stuff,” Harnish said. “Sell the machinery parts, sell the chemicals, sell all this other stuff to get the $1.6 million to $1.7 million.”

Haines said he was not willing to rule on Wednesday that the lenders should have to give up a portion of money received from selling their collateral without hearing from them first.

Harnish countered that the state shouldn’t be responsible for any cleanup costs if the mills are abandoned in the next few days. He told Haines to find money to pay the costs.

“We’ve given you an answer which you apparently don’t want to do,” Harnish said.

Haines responded it appears that no one has the money to clean up environmental hazards at the mill sites. He urged attorneys for the trustee, the state and the lenders to “get off their high horse” and “roll up their sleeves” to come up with some sort of agreement on how to minimize health and environmental damage at the mills.

“Bankruptcy court can do a lot of things, but we don’t have a printing press down in the basement to make money,” Haines said.

Lender alleges threats

Outside the judge’s purview, the Department of Environmental Protection warned Congress Financial Corp. of New York City that it will proceed with a lien on Eastern Pulp’s properties to secure cleanup costs. The lien would circumvent Congress’ rights to sell any assets it has been given as collateral to cover about $40 million in loans.

“We have the authority to order people to comply with the law,” said Jim Dusch, DEP enforcement officer, outside of court Wednesday. “Congress is saying we’re not responsible for this [environmental cleanup] stuff. We’re not so sure.”

Congress Financial, responding to the warnings, filed a lawsuit against DEP in U.S. District Court in Bangor on Wednesday, accusing the state of threatening the lender if it did not continue to fund operating costs for the mills.

Congress Financial is asking the federal court to issue a temporary restraining order and a preliminary injunction enjoining the state from carrying out its threats to order Congress Financial to fund the “warm stasis” mode indefinitely while awaiting a buyer.

A hearing is scheduled for 4 p.m. today in U.S. District Court in Portland.

The financial institution claims that the DEP “has threatened to use unspecified and non-existent emergency” powers to force Congress Financial to keep the mills warm. Those threats, according to court documents, violate the company’s rights to due process, equal protection and the takings and contracts clauses of the U.S. Constitution.

According to court documents, Congress Financial claims that earlier this month, David Littel, assistant commissioner of DEP, specifically threatened one of its employees by asserting that the state had authority under its “emergency powers” to force the lender to keep funding the “warm stasis” mode.

The lawsuit also charges that Jack Cashman, commissioner of the Department of Economic and Community Development, said that if Congress Financial did not continue to provide funds for the mills, the state “‘would see to it’ that ‘only we [the state] get any money’ out of any sales of the mills,” despite the state’s lack of standing in the financial matter.

The lawsuit asserts that the state has no power to force Congress Financial to continue funding operations at the bankrupt mills and that only a bankruptcy court has jurisdiction over the matter.

Roller-coaster ride

Holding vigil throughout Wednesday’s bankruptcy court hearing were union representatives who at times were hopeful they could tell their members that the mills were being sold and at other times were solemn and disappointed.

“We went from two potential stalking horse bids to nothing,” said Ray Hinkley, PACE international representative. “I’m not happy with what happened today.”

Trustee Growe received permission from Haines on Wednesday to stop operating the mills at “warm stasis” mode, but Growe received word that he might receive up to $200,000 to fund maintenance operations through Monday.

Growe said he would not stop the operations just yet, and that employees who worked this week should receive a paycheck on Friday.

“Beyond that, I cannot make any promises to pay payroll the following week because I may not have the money,” he said.

Congress Financial agreed Wednesday to pay the wages earned by the skeleton crew the two or three days prior to Eastern Pulp’s conversion to Chapter 7.

Also awaiting the outcome of Wednesday’s court hearing was Joseph Torras Jr., president of Eastern Pulp. His father Joseph owned the company.

Torras sat quietly throughout the day near the back of the courtroom, taking notes and hoping for a positive outcome. He compared the proceedings to that of sitting in agony in a hospital waiting room while your child is on an operating room table. All the while, doctors are arguing about what procedure should be performed.

Torras, his eyes bloodshot, said he has spent most of the last week walking prospective buyers through the mills, trying to convince one of them to bid on the facilities. His wife has wanted him to file for unemployment, but he’s delayed that action because he said selling the mills “was more important right now.”