Tronox Trust Secures Record $5.15B Settlement from AnadarkoPrint PDF
A record-breaking settlement of $5.15 billion was announced today by Irell & Manella partner John Hueston, the Trustee appointed to pursue claims against Kerr-McGee for its attempts to avoid environmental and tort liabilities. The $5.15 billion will be paid by Anadarko, which now owns the subsidiary Kerr-McGee, to resolve all claims. It is by far the largest environmental bankruptcy settlement in history, and one of the largest environmental recoveries of any kind.
Trustee John Hueston stated, “This historic settlement follows a trial that exposed Kerr-McGee’s fraud in seeking to avoid responsibility for 85 years of massive environmental and tort liabilities. As trustee, I have witnessed first-hand the devastation caused by Kerr-McGee’s national toxic legacy: I have picked my way through uranium mine debris in the Navajo Nation, walked over Nevada desert stained with perchlorate rocket fuel, and examined evidence of oozing coal tar creosote in New Jersey and Pennsylvania. These environmental disaster sites and others across the nation forcefully call for immediate remediation that would otherwise be impossible without the award won in this case. This historic $5.15 billion settlement will finally permit remediation of these sites and, most importantly, allows action now."
Included among the many communities that will benefit from cleanup efforts funded by the settlement are:
- Approximately $1.1 billion for the Multistate Environmental Response Trust to clean up more than two dozen contaminated sites around the country, including sites in Columbus, Mississippi; Beaumont, Texas; Soda Springs, Idaho; and Kansas City, Missouri.
- Approximately $1.1 billion to be paid to the Nevada Environmental Response Trust to clean up the perchlorate and other contamination resulting from operations at an industrial park near Lake Mead in Nevada.
- Approximately $1 billion of direct and indirect relief for the Navajo Nation, which has struggled for decades to address the radioactive contamination left behind after Kerr-McGee’s Cold War-era mining of the region’s rich uranium reserves.
- Approximately $220 million to be paid to EPA for cleanup of thorium contamination at the Welsbach Superfund Site in Gloucester, N.J.
- Approximately $210 million to be paid to the federal Superfund in repayment of costs previously incurred by EPA clean up at the Federal Creosote Superfund Site in Manville, N.J.
- Approximately $45 million for the Savannah Environmental Response Trust to clean up metals and volatile organic compounds in soil and groundwater at a site in Savannah, Ga.
In addition to environmental cleanup, a portion of the settlement proceeds will be used to compensate individual tort claimants in communities directly harmed by Kerr-McGee’s pollution and contamination.
Irell & Manella’s John Hueston is the Trustee of the Anadarko Litigation Trust. Hueston was appointed as Trustee in February 2011, with broad responsibilities to prosecute and defend all claims on behalf of the trust’s diverse beneficiaries including the United States government, more than a dozen states, the Navajo Nation, and a class of individual tort victims.
The trust’s case against Kerr-McGee was tried in federal bankruptcy court in the Southern District of New York from May through September of 2012. At trial, the trust alleged that Kerr-McGee executives fraudulently allocated the company’s massive environmental and tort liabilities from legacy businesses such as uranium mining and wood treatment facilities to Tronox, a spin-off entity created to serve as a dumping ground for the liabilities. Kerr-McGee then shuffled its oil and gas assets to a “clean” entity known as New Kerr-McGee which, once freed from the company’s historical liabilities, was primed for a lucrative acquisition that would net Kerr-McGee executives tens of millions of dollars in personal bonuses and stock profits. After finalizing the spin-off of Tronox, New Kerr-McGee was quickly acquired by Anadarko for $18 billion in 2006, leaving Kerr-McGee’s environmental and tort creditors unable to access the oil and gas assets for remediation and cleanup efforts.
In December 2013, Judge Alan Gropper issued a 166-page post-trial decision finding that the trust had proved by clear and convincing evidence that Kerr-McGee (now a wholly owned subsidiary of Anadarko) acted with actual fraudulent intent to hinder and delay its creditors. Judge Gropper’s decision including the following factual findings:
- “There can be no dispute that Kerr-McGee acted to free substantially all its assets – certainly its most valuable assets – from 85 years of environmental and tort liabilities. The obvious consequence of this act was that the legacy creditors would not be able to claim against ‘substantially all of the Kerr McGee assets,’ and with a minimal asset base against which to recover in the future, would accordingly be ‘hindered or delayed’ as the direct consequence of the scheme.”
- Kerr-McGee attached all of the company’s environmental liabilities to Tronox, and spun it off after stripping it of all but $40 million – an amount that represented just 25 percent of a single average year of remediation costs for Kerr-McGee.
- Kerr-McGee conducted extensive internal analyses of fraudulent conveyance law but performed no “internal contemporaneous analysis of the effect of the transfers on Kerr-McGee’s legacy creditors.”
- Kerr-McGee repeatedly attempted to “cleanse the record” by redacting documents, and Kerr-McGee executives destroyed documents “in violation of an agreement with the Justice Department”
- There was “no credibility to the uniform testimony of the inner circle [of Kerr-McGee] that isolation of the oil and gas assets from the chemical business had nothing to do with an effort to cleanse the E&P assets from the legacy liabilities.”
- Kerr-McGee’s top executives ordered bankers to delete from a Board presentation the words “‘complicated under a bankruptcy scenario’ and then initially denied any recollection of the phrase or even what it meant.”
- Kerr-McGee’s supposed $100 million, seven-year indemnity to Tronox for legacy environmental liabilities was “illusory”; by the time of Tronox’s bankruptcy it had been able to access only $5 million
- Kerr-McGee was caught making multiple contradictory assertions, including representing at trial that the chemical business “was worth $1 billion or more,” a position which, if true, would have rendered “false” Kerr McGee’s earlier representations to bondholders
- With respect to Kerr McGee’s assertion that it “had a good faith belief that Tronox would be able to support the environmental and other legacy liabilities that had been imposed upon it,” the Court found “[t]he record on this point is extraordinary because it does not exist.”
- As for Kerr McGee’s fateful allocation of all environmental and tort liabilities to Tronox, the court concluded that “Defendants have never articulated a legitimate business reason for imposing all of the legacy liabilities on Tronox,” and the true motive was that “Kerr McGee was an unattractive merger candidate….Anadarko had, prior to the spinoff, peremptorily rejected a merger with Kerr-McGee, concluding that Kerr McGee’s environmental liability was “$BILLIONS” and there was “no end in sight for at least 30 more years….After the divestiture, Anadarko acquired [Kerr McGee] for $18 billion.”
The lawsuit is Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), 09-1198, U.S. Bankruptcy Court, Southern District New York (Manhattan). The Trust is represented by the Litigation Trustee John Hueston of Irell & Manella LLP and by Kirkland & Ellis. The U.S. Department of Justice participated in the trial against Kerr McGee/Anadarko through a parallel action.