Scrap Buyer Sues Geneva

A Chinese steel maker and scrap importer is suing bankrupt Geneva Steel over 4,286 metric tons of steel scrap it says was paid for but not delivered.

China Shenzhen Materials Rongchang Trading Co. sued Geneva Steel and Universal Scrap Metals Inc., a California scrap dealer and demolitions contractor, in U. S. Bankruptcy Court this week.

The suit alleges Universal defaulted on a contract to deliver the scrap to China Shenzhen even though the California company had received $750,000 in escrow payments for $14 million worth of metal scrap China Shenzhen had initially planned to buy from Geneva.

Universal, which was hired by Geneva to demolish its buildings and perform asbestos abatement on the site, was to have paid Geneva $15.75 million for the scrap and residual equipment. But Universal's contract with Geneva was terminated after the California company defaulted on its obligations. It was later replaced by CST Environmental Inc.

"The steel scrap was supposed to have been shipped to China starting last year. But since Universal didn't solicit enough bids from scrap buyers to complete its transaction with Geneva, therefore Universal didn't get access to the steel," said Kelly Ryan, an attorney for China Shenzhen. "And Geneva's trustee has refused to refund China Shenzhen the money supposedly because the estate is entitled to it as penalty for Universal's failure to complete its contract."

James T. Markus, Geneva's Chapter 11 trustee, declined comment on the specifics of the lawsuit. "The matter took place before my appointment. We will do a detailed review of the claims and confer with management, and consider what our best options are in response," Markus said. Representatives of Universal, could not be immediately reached for comment.

In addition, Ryan said there were questions over whether the scrap that was sold to China Shenzhen by Universal was secured by a lien held by Geneva. As a result, China Shenzhen is also objecting to a planned auction of the Geneva property on Nov. 17 to protect its interests in the scrap. Provo (Utah) Daily Herald