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Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.)

United States Bankruptcy Court for the Southern District of New York

December 12, 2013, Decided

Chapter 11, Case No. 09-10156 (ALG) (Confirmed Cases), Adv. Proc. No. 09-1198 (ALG)

Opinion

 [*247]  MEMORANDUM OF OPINION, AFTER TRIAL

ALLAN L. GROPPER

UNITED STATES BANKRUPTCY JUDGE

On January 12, 2009, Tronox Incorporated and 14 of its affiliates (the "Debtors") [*248]  filed for protection under chapter 11 of the Bankruptcy Code. On November 30, 2010, they confirmed a First Amended Joint Plan of Reorganization (the "Plan")  [**2] which, among other things, created the Anadarko Litigation Trust (the "Trust") to pursue certain claims that three of the Debtors had brought against Anadarko Petroleum Corporation ("Anadarko") and several of Anadarko's subsidiaries, including Kerr McGee Corporation (collectively, "Kerr McGee" or "Defendants"). The beneficiaries of the Trust are public and private entities that have claims against the Debtors for damages for environmental response costs and tort liabilities. These include the United States, eleven states, the Navajo Nation, four environmental response trusts, and a trust for the benefit of tort plaintiffs. The Trust beneficiaries have agreed on an allocation of the recovery in this lawsuit, if there is a recovery.

The amended complaint (the "Complaint") was initially filed by three of the Debtors: Tronox Incorporated, a holding company created in 2005 to hold the stock of the other members of the group; Tronox Worldwide LLC, which is the successor to Kerr-McGee Corporation, formed in 1929 and sometimes called hereafter "Old Kerr McGee;" and Tronox LLC, formerly known as Kerr-McGee Chemical LLC, which is the successor to Old Kerr-McGee's chemical business.1 The Complaint  [**3] charges that these three entities were left with 70 years and billions of dollars of legacy environmental and tort liabilities when the oil and gas assets of the group were transferred out and spun off; that the transfer was designed to "hinder, delay or defraud" creditors; that it left the Debtors insolvent and undercapitalized; and that these creditors can recover from the defendants the value of the transferred oil and gas assets. These assets were acquired by Anadarko for $18 billion only a few months after they were spun off, and there is no dispute that they are worth billions more today.2

Not surprisingly, the litigation was hotly contested, consuming 34 trial days at which 28 witnesses testified, 14 of whom were qualified as experts. Over 6,100 exhibits and thousands  [**5] of pages of the deposition testimony of 40 witnesses were also admitted into evidence.3 As far as the Court is aware, the case raises issues of [*249]  first impression regarding the application of the fraudulent conveyance laws in the face of substantial environmental and tort liability. For the reasons stated hereafter, the Court finds that the Defendants acted with intent to "hinder and delay" the Debtors' creditors when they transferred out and then spun off the oil and gas assets, and that the transaction, which left the Debtors insolvent and undercapitalized, was not made for reasonably equivalent value. It finds that the Defendants must respond in damages, but not at the level demanded by the Plaintiffs.

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503 B.R. 239 *; 2013 Bankr. LEXIS 5232 **; 43 ELR 20274; 2013 WL 6596696

In re TRONOX INCORPORATED, et al., Debtors.TRONOX INCORPORATED, et al., Plaintiffs, - against - KERR MCGEE CORPORATION, et al., Defendants.THE UNITED STATES OF AMERICA, Plaintiff-Intervenor, - against — TRONOX, INC., et al., Defendants.

Subsequent History: Findings of fact/conclusions of law at, Objection overruled by Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.), 2014 Bankr. LEXIS 4719 (Bankr. S.D.N.Y., May 30, 2014)

Prior History: Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), 464 B.R. 606, 2012 Bankr. LEXIS 120 (Bankr. S.D.N.Y., 2012)

CORE TERMS

fraudulent, environmental, conveyance, legacy, chemical, spinoff, sites, solvency, subsidiaries, stock, entity, calculated, confirmed, estimated, fiduciary, hinder, Disclosure, discount, oil, valuation, reorganization, contingent, spin, shareholders, bid, diligence, survive, lenders, solvent, tolling

Bankruptcy Law, Reorganizations, Debtors in Possession, Powers & Rights, Prepetition Transfers, Voidable Transfers, Unsecured Creditors, Bankruptcy, Claims, Allowance of Claims, Estate Property, Avoidance, Transferee Liabilities & Rights, Fraudulent Transfers, General Overview, Governments, Legislation, Statute of Limitations, Time Limitations, Business & Corporate Compliance, Contracts Law, Standards of Performance, Creditors & Debtors, Real Property Law, Purchase & Sale, Fraudulent Transfers, Contracts Law, Contract Conditions & Provisions, Third Parties, Environmental Law, Federal Versus State Law, Enforcement, Cost Recovery Actions, Strict Liability, Federal Government, Claims By & Against, Tolling, Remedies, Ratification, Intent, Evidence, Burdens of Proof, Clear & Convincing Proof, Preponderance of Evidence, Types of Evidence, Circumstantial Evidence, Inferences & Presumptions, Presumptions, Creation, Rebuttal of Presumptions, Allocation, Procedural Matters, Interpretation, Constructively Fraudulent Transfers, Preferential Transfers, Elements, Debtor Insolvency, Business & Corporate Law, Corporations, Dissolution & Receivership, Administrative Proceedings & Litigation, Expert Witnesses, Credibility of Witnesses, Corporate Existence, Powers & Purpose, Existence, Distinct & Separate Legal Entity, Defenses, Affirmative Defenses, Statute of Limitations, Statutory Remedies & Rights, Torts, Tolling, Discovery Rule, Extensions & Revivals, Powers, Ability to Engage in Litigation, Setoffs, Case Administration, Bankruptcy Court Powers, Plans, Postconfirmation Effects, Effects of Confirmation, Plan Confirmation, Prerequisites, Fairness Requirement, Jurisdiction, Federal District Courts, Limitations on Trustee Powers, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pretrial Matters, Conferences, Pretrial Orders, Scheduling Conferences, Pleadings, Amendment of Pleadings, Leave of Court, Liquidations, Clearing Banks, Commodity Brokers & Stockbrokers, Core Proceedings, Adversary Proceedings, Defenses & Objections, Noncore Proceedings