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Landlords inherit costs for Circle K tank cleanup

Fred Rogers normally likes gifts. But the gift he's getting from the bankruptcy proceedings of Circle K keeps him awake at night.

The slimmed-down convenience store giant has closed 1,900 stores so far in a plan to emerge from bankruptcy reorganization as soon as June 30. But Rogers is among 320 jilted Circle K landlords in Florida who inherited ownership of about 1,000 buried gas tanks _ many of them corroded and leaking _ that will cost big money to remove.

"It ridiculous," said Rogers, owner of Right Way Tool Repair. "I never got a cent in rent from their gas sales. Heck, I only got $375 a month rent for the convenience store. Now they say I own these tanks that are going to cost something like $50,000 each to remove."

A onetime service station owner aware of the perils of leaking buried gas tanks, Rogers tried from day one to avoid his current plight.

Back in 1982 Lil General wanted to put a gas station at its convenience store in his tiny St. Petersburg shopping center. Rogers insisted the lease specify the convenience store company pay all costs of removing it.

Then Circle K bought out Lil General's lease. Now 11 years later in Chapter 11 proceedings, a Phoenix bankruptcy judge voided the lease so Circle K could cut costs to survive and refinance its huge debt.

Circle K pumped out the tanks at Roger's center and temporarily capped them when it closed the store two years ago. Now unleaded gas contamination has been found on his property. And because the steel tanks were not upgraded with lining, state law requires they be dug up and the sites cleaned up by 1995.

Rogers is far from alone. About 1,200 former Circle K landlords face a similar plight on about 3,600 buried gas tanks in 33 states. Many of the tanks are still in use. All are being monitored for leaks by state environmental agencies.

Both the environmental agencies and landlords protested that Circle K was using the bankruptcy to dodge a potential cleanup bill by abandoning the stores and tanks buried in front of them. So Bankruptcy Judge George Nielsen Jr. ordered the company to set aside money for gas tank cleanup.

In Florida, state law says ownership of abandoned gas tanks shifts to the landowner. It also says companies like the owners of Lil General can be held liable for undiscovered leaks traced back to when they owned the tanks.

"It's sort of a gift you cannot refuse," said Jonathan Alden, assistant general counsel for the Florida Department of Environmental Regulation.

The state government has been closely watching the case because it marks the first time a big company has tried to use leases canceled by a bankruptcy proceeding to escape environmental cleanup costs.

"If I owned a shopping center or mall, this case would persuade me to carefully watch how any of my tenants were handling toxic wastes," said Alden.

Florida was able to wrangle $3.9-million for its gas tank cleanup fund from the Circle K bankruptcy. But with the average cost of leaky tank removal at a full-sized gas station running around $300,000, no one knows how much state help that will provide the new owners of Circle K tanks.

The state this month began notifying the former landlords that they must register the tanks as their own _ the first step in qualifying for state cleanup money.

Arab investors are putting up $399.5-million in a reorganization plan that would lift Circle K out of bankruptcy later this month. Nielsen, however, already has ruled the new investors and previous owners of Circle K must put money in a trust fund to clean up gas tanks.

An analysis by the company said $45-million should be plenty. But former landlords are arguing for more because the actual cleanup bill won't be known for several years.

"It's all speculation," said Keith Fendrick, a Tampa attorney representing General Host Inc., a Detroit company that sold 400 Lil General stores to Circle K in 1984. "But we're estimating the trust fund being set aside is only going to cover about 25 cents on the dollar of actual cleanup costs."