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 But with an appeal on the way, along with litigation over the size
of damages, the real fight is just beginning, and claimants may wait
years for any payout.
U.S. Bankruptcy Judge Allan Gropper on Thursday held that Kerr-McGee
acted with "intent to hinder" when it spun off what became Tronox in
2005, saying it was liable for between $5.15 billion and $14.17
billion in environmental cleanup.
Shares of Anadarko Petroleum Corp, which bought Kerr-McGee in 2006,
fell as much as 12 percent, but partially recovered, closing on
Friday down 6.4 percent at $78.30. The U.S. Justice Department, a
plaintiff in the case, hailed the ruling as the "the largest award
ever in a bankruptcy for governmental environmental claims and
liabilities."
But the sides still have to face off over where in the judge's range
the damages should fall before Gropper can enter a final judgment in
the case, a process that could take months.
Once a judgment is entered, Anadarko has vowed to appeal both the
judgment itself, and the question of whether Gropper has the
authority to enter a judgment to begin with, which could take years
to resolve.
All told, the litigation could go "into 2016, if not 2017," said a
professional involved in the litigation, who declined to be named
because he was not authorized to speak to the media.
After Tronox filed for bankruptcy in 2009, it filed a lawsuit in the
U.S. Bankruptcy Court in Manhattan accusing Kerr-McGee of knowingly
setting up Tronox to fail by spinning off assets with heavy
environmental liabilities.
When it emerged from bankruptcy in 2011, the claims were assigned to
a litigation trust benefiting entities that held environmental
claims against Tronox, including the U.S. government, 11 states, the
Navajo nation and individual claimants.
The trust sought $25 billion to clean up about 2,000 sites across
the United States for pollution from uranium deposits, wood creosote
and more.
Under the so-called "fraudulent transfer" provisions of federal
bankruptcy law, the value of a transferred asset can be recovered if
the transfer was made with intent to hurt creditors.
In this case, Gropper found that Kerr-McGee intended to hurt holders
of environmental liability claims by pushing those claims off their
books and onto Tronox.
Fraudulent transfer cases of this magnitude are not common, and the
ruling came as a surprise to many. When the sides attempted
settlement talks last year, analysts estimated any settlement would
hover in the $2.5 billion range, while Anadarko itself set aside
only about $525 million in reserves.
Gropper's damages range, even at the low end, far exceeds those
numbers. He said that the value of the spinoff — around $14.46
billon — can be recovered by the plaintiffs.
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But Kerr-McGee and Anadarko will be able to offset that amount with
their own claims against the Tronox trust, the size of which hinges
on highly technical valuations under bankruptcy law. Gropper gave
the parties 60 days to file briefs on damages, and the right to
schedule an oral argument sometime thereafter.
Once a judgment is entered, Anadarko will file an appeal to the
U.S. District Court in Manhattan, the petroleum company's Chief
Executive Officer Al Walker said in a statement on Thursday.
That process could take months itself, and the result will likely be
further appealed to the 2nd U.S. Circuit Court of Appeals.
John Hueston, the lawyer for the plaintiffs, told Reuters he was
confident that Gropper's "thorough findings and careful legal
analysis" would not be overturned.
Meanwhile, Gropper also faces pushback over whether he has the
authority to rule on the case at all.
Gropper said that, because Anadarko previously consented to abide by
his ruling, he has the authority to issue final judgment. Anadarko
has argued otherwise.
An Anadarko spokesman declined to comment on Friday.
In 2011, the U.S. Supreme Court in a case called Stern v. Marshall
limited the power of bankruptcy judges, and a new case before the
Supreme Court, In re Bellingham Insurance Agency, is expected to
further clarify that ruling. Oral arguments in the Bellingham case
are slated for January. Depending on how the court rules in that
case, Anadarko may be able to argue that, despite consenting to a
final judgment by Gropper, the judge lacks the authority to enter
one.
The case is Tronox Inc et al. v. Kerr McGee Corp et al., U.S.
Bankruptcy Court, Southern District of New York, No. 09-1198.
(Reporting by Nick Brown; editing by
Eddie Evans and Lisa Shumaker)
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