Four years ago, Warren and Sheldon Becker sold off a sizable property along the Alameda Corridor for millions. The two brothers had run a steel distributor there for nearly two decades, and were looking to cash out for their later years.

But what was meant to be a straightforward retirement plan has ended up a legal catastrophe.

The brothers are now clashing with a new owner that the property was resold to, the Housing Authority of the City of Los Angeles. Housing officials want to convert the site for residential use, which has stricter environmental requirements, and they’re trying to force the brothers to potentially pay millions of dollars to clean up contamination.

The brothers, 79 and 85, are now in a costly fight with an owner they did not sell the property to, over a use they had not anticipated.

“It’s like extortion,” said Warren Becker, the older of the two brothers. “If you wanted to move in for industrial use right now, you could. HACLA wants to upgrade it, but they want us to pay for it and we didn’t even sell it to them.”

Even more galling: The original buyer flipped the property for millions of dollars in profit – and extracted an agreement from housing officials not to be held responsible for contamination.

The Beckers sold the 21-acre property in Watts to what was then Meruelo Maddux Properties, which originally planned to develop an industrial complex. But instead, the developer sold it at a profit in a simultaneous transaction to the Housing Authority.

Officials want the site for an expansion of a large low-income housing project next door, and as part of the deal, agreed to not to sue Meruelo Maddux for contamination. (Meruelo Maddux has since gone through bankruptcy and is now Evoq Properties Inc.)

Agency officials said that they had limited information about the site and were aware of some environmental contamination, and only discovered more upon further testing. Alleged contaminants include hazardous substances such as arsenic, lead, mercury and petroleum. They have sued the Beckers, along with other tenants and even previous owners of the land in federal court.

The Beckers argue that the Housing Authority bought the property with full disclosure of known contaminants and that they did not cause the pollution anyway. The other previous tenants have also denied liability.

But the authority is suing under the Comprehensive Environmental Response, Compensation and Liability Act, the law that governs so-called Superfund sites and regulates other environmental contamination.

The law is notorious for its joint and several liability, which allows the government to ask a court to have one party responsible for an entire cleanup even if others might have contributed to the pollution. It also can hold landlords responsible for pollution caused by their tenants.

Adrian Sawyer, an attorney at Kerr and Wagstaffe LLP in San Francisco who reviewed the lawsuit for the Business Journal, said that once ensnared in such a case, it can be hard to get out.

“It looks to me like the city has gone ahead with the idea of ‘Let’s aim at everybody and let them sort it out,’” he said. “It can be difficult (to untangle).”

And as unusual as the circumstances may seem, experts say it’s an all-too-typical cautionary tale, especially as more industrial properties in Los Angeles County are converted into other uses.

“It is a risk that you run by selling industrial properties,” said Susan Patelson, an area senior vice president in the Glendale office of insurance brokerage Arthur J. Gallagher & Co., who specializes in environmental liability. “It could be something they had 20 years prior and had no idea it was ever going to be residential. It is unfortunate but that’s the risk.”

Family business

The brothers founded Becker Brothers Steel Supply in South Los Angeles in 1952 and moved to the Alameda Corridor site after buying it in 1979. The site previously was owned by several steel companies and had housed a steel mill until 1975. The brothers ran a steel distribution service center with a third brother, Leo, who has since died.

Their company would buy large coils of steel, then store, cut and sell them. They insist that they never used chemicals or heat for cutting. Part of the large property was leased to other tenants as well, including Bishopric Products Co., which made beer tanks for Anheuser-Busch.

In 1999, with Warren Becker then in his 70s, the brothers closed up shop but continued to lease the property to various steel companies. Then, in 2004, they agreed to sell it to developer Meruelo Maddux for $25 million.

It would be the start of their legal troubles. Meruelo Maddux asked for an extension to review environmental reports, but the Beckers, having received other offers and wary of the developer’s ability to pay, tried to cancel the sale. That led to a lengthy court battle in which Meruelo Maddux eventually won a court order mandating the sale of the property for $25 million.

By the time of the court order in 2008, however, the market was starting to turn for the worse and Meruelo Maddux was in the midst of financial troubles that would cause it to file for bankruptcy in 2009. It decided to flip the property, selling it to the Housing Authority for more than $31 million.

HACLA coveted the site as part of the planned redevelopment of its 700-unit Jordan Downs affordable housing project, which is now expected to cost $1 billion to redevelop into 1,800 units.

John Maddux, the president of Meruelo Maddux at the time, said that he was aware of contamination of the property and that his company disclosed all the information it had to HACLA. That also led to the agreement not to sue Meruelo Maddux.

“We just explained to them that based on our understanding of the property, there was contamination on it and we don’t want to sell it to you and have you sue,” he said.

The agency, sensing an opportunity to quickly acquire the property and in a hurry to close the deal, did not wait to order further testing before moving on it, according to documents filed in court.

Pollution found

Subsequent studies in 2010 and 2011 discovered contamination that the authority argued was more extensive than previously thought.

A report filed late last year by the authority concluded that lead and arsenic levels were too high for residential users – but that the site “does not pose an unacceptable adverse impact to future onsite construction workers, commercial workers or recreational park uses.”

The state’s Department of Toxic Substances Control, however, disagreed, saying that the site would in fact be too polluted for nonresidential users as well.

The report concluded that about 33,600 cubic yards of contaminated soil would have to be removed at an estimated cost of $175 per cubic yard, or about $6 million. Other documents filed by the agency suggest a range in cleanup costs between $3 million and $15 million.

Federal housing officials soon became alarmed that the authority had potentially made a mistake in buying the property. A letter of concern from the U.S. Department of Housing and Urban Development to the city agency in November stated that it would be unacceptable for federal funds to be used for cleanup.

“HACLA purchased the property on an ‘as is’ basis, with full disclosure that the property had known environmental contaminates,” it stated, adding, “HACLA did not perform any environmental due diligent (sic) prior to purchasing the property from the Meruelo-controlled entity.”

The authority explained to HUD that it had not performed testing prior to purchasing the property because it was in a rush to buy.

“Time was of the essence in this transaction because the sale of the property to Meruelo was court ordered to occur immediately,” the agency wrote back.

Unable to sue Meruelo Maddux, the agency sued about a half-dozen former occupiers of the property last year in U.S. Central District Court. Several other tenants have gotten dragged into litigation by the brothers and other tenants sued by HACLA. The federal law allows such third-party actions in contamination cases.

Complicated fight

All the parties now find themselves ensnared in complicated litigation with hundreds of filings. Though there have been some mediation talks, the brothers said a resolution is not close.

How much the Housing Authority knew or did not know about contamination could be a legal crux of the case, said Sawyer.

The Beckers are arguing that since the agency bought it on an as-is basis, it doesn’t have the standing to demand money to fix the property, while the agency is saying it did not have all the information at the time.

In a statement to the Business Journal, a Housing Authority spokeswoman wrote, “At the time of purchase, HACLA was provided with limited environmental site characterization data for the property. Subsequent environmental studies revealed the presence of additional site contamination.”

To make matters worse for the brothers, they said they have spent and lost much of their money from the sale on investments and on properties in Texas during the downturn. Now they say they are stuck in a legal mess through no fault of their own.

“It’s breaking us,” Warren Becker said. “We were unlucky we got involved with the people that picked this deal and had their own way of doing business. We were novices, and if you’re a novice you need the best help you can get.”