TORONTO - The Federal Court has granted intervener status to a company and a union that say they were affected by the closure of most of U.S. Steel's Ontario operations - a decision lawyers say could result in an auction of the steelmaker's Canadian assets.
Lakeside Steel Inc. (TSXV:LS), the junior Canadian company that successfully filed for intervener status in the case that will address whether U.S. Steel (NYSE:X) broke promises made to Ottawa, will argue that U.S. Steel's Canadian assets should be sold.
"We think an appropriate remedy for the court to consider in this context is a divestiture so that we can bring a Canadian company with net benefits to Canada back to Canada unless U.S. Steel finally listens to reason and fully complies," Lakeside lawyer Jeff Kaufman said outside a Toronto courtroom Monday.
The court will decide whether U.S. Steel was justified in breaking production and employment guarantees it made to the federal government when it bought the former Stelco in 2006.
Lakeside already owns Stelco's steel pipe and tubular assets, which it bought in 2005, a year after Stelco filed for bankruptcy protection from creditors.
Kaufman said an auction of U.S. Steel's Canadian assets would be one option available, but said it's too early to speculate on a possible purchase price.
In court, Lakeside argued that as a customer of U.S. Steel it was affected by the closure of the company's mills in Hamilton and Nanticoke, Ont. It also described itself as "a ready, willing and able potential purchaser" of U.S. Steel's Canadian operations.
The United Steelworkers union was also granted intervener status in the case. Steelworkers lawyer Robert Champagne said more than 1,600 union members have been laid off by U.S. Steel and another 720 have retired since last November.
"These individuals and their families... suffered serious financial hardship, stress and uncertainty as a result of their layoffs or have found themselves in a position of having to take an earlier retirement than they might otherwise have wanted to take due to the uncertainty of their employment," Champagne argued in court, adding that the union has also suffered from a loss of dues, stature and bargaining power.
The union will ask for compensation for all affected workers, said Bill Ferguson, president of Steelworkers Local 8782 which represents U.S. Steel workers in Nanticoke.
"This was the first step in being able to recognize that it was an inappropriate act to close the mill in the first place... and it's the first step towards getting our blast furnace lit and running again," Ferguson said outside court. It will provide us with some consistency or some feeling of consistency anyway.""
U.S. Steel lawyer Michael Barrack had argued that the rights of Lakeside and the United Steelworkers had not been affected by the shutdown and they could not ask for intervener status on solely economic grounds. He also argued that allowing them intervener status would create "open season" for anyone else who feels they should have a say, but prothonotary Martha Milczynski disagreed.
She will release her reasons in a written submission next week and the court will reconvene on Sept. 11.
U.S. Steel shut most of its Ontario operations this spring, amid a major downturn in the auto industry and other sectors that use steel produced at the plants.
As of May, the workforce at U.S. Steel's Canadian operations had shrunk to only 23 per cent of the more than 3,000 workers it promised to employ when it took over Stelco, according to the legal application made by the federal government.
Since then, 800 workers have been recalled to the Hamilton plant.
The Pittsburgh-based company also repeatedly broke production promises it made, with the amount of steel produced by its Canadian operations as of May representing "a small fraction" of the amount it was required to produce on an annualized basis, the documents say.
The company has argued the global recession left it with no choice and it shouldn't be held responsible for "factors beyond their control."
The government is asking for a court order mandating U.S. Steel to meet its promises or face a $10,000 daily fine.
Seeking a court order to force a company to maintain job commitments is an unusual step for Ottawa, but it reflects growing unease in the country about the takeover of Canada's steel and mining industries.
Canada's big steelmakers - the former Stelco, Dofasco, Algoma Steel and Ipsco - have all been acquired in recent years by foreign companies in a wave of consolidation.
Steel output has taken a beating from the recession, which has hurt demand for everything from vehicles to household appliances.