Metalclad Seeks Arbitration in Mexico Case

A small Orange County company with a big presence in Mexico has become the first U.S. business to file an arbitration claim against the Mexican government under the North American Free Trade Agreement.

Metalclad Corp., which is seeking $90 million in damages, alleges that the Mexican state of San Luis Potosi illegally seized a $22-million hazardous waste site that the Newport Beach company developed there in 1995.

“We’re a tiny little company, but someone was going to have to test this system,” said Anthony C. Dabbene, Metalclad’s chief financial officer. “We have to stand up for our rights.”

Only two other investment loss claims are pending under NAFTA’s investment protection rule, and both were filed after Metalclad’s. In one case, three Los Angeles investors say they were unfairly removed from a Mexican waste disposal business they’d started in a suburb of Mexico City. The investors are seeking $14 million in damages from the Mexican government.

Metalclad, which started as an insulation installer and asbestos removal firm, branched into hazardous waste disposal in 1993 when it purchased an already approved site in San Luis Potosi in central Mexico and began developing it.

When the landfill was ready to open in March, 1995, however, the then-governor of the state, Horacio Sanchez Unzueta, sent state police to block entrance to the facility.

Since then, the Mexican state has kept the landfill from opening, Metalclad says in its filing with the International Center for Settlement of Investment Disputes in Washington.

And three days before he left office when his six-year term expired at the end of September, Sanchez Unzueta included the Metalclad landfill in a protected ecological zone that encompasses 600,000 acres.

The NAFTA arbitration process now gives Mexican officials until mid-January to respond to Metalclad’s claim. After that, a three-member arbitration panel can issue a binding decision, schedule another hearing or ask for more information.

Dabbene said that Metalclad remains active in Mexico. The company operates seven other waste collection sites in Mexico.