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11/26/2012
Source: Law360
 

Tronox, Kerr-McGee Tie Off Monthslong Trial Over Spinoff

Bankrupt chemical company Tronox Inc. and former owner Kerr-McGee Corp. have filed competing court documents summing up their now-completed trial over legacy environmental liabilities remaining from the debtor's 2006 spinoff, with Tronox arguing that the case is straightforward and that Kerr-McGee doomed Tronox to fail.

In findings of fact and conclusions of law submitted Nov. 20 in the wake of the monthslong trial before U.S. Bankruptcy Judge Allan L. Gropper, the debtor argues that Anadarko Petroleum Corp. unit Kerr-McGee deliberately stripped the entity that would ultimately become Tronox of all its assets, including its "crown jewel" oil and gas assets.

"It then spun off what was left: a small, unprofitable and declining business overburdened with 75 years of accumulated legacy liabilities, poor assets and no viable business plan," the debtor said. "Tronox struggled to survive from the beginning, but it never had a chance."

Meanwhile, Kerr-McGee filed its own post-trial brief Wednesday accusing Tronox, whose interests are being represented in the $14 billion case by the Anadarko Litigation Trust, of pursuing "sensational" allegations that Kerr-McGee engaged in a six-year, two-part scheme to defraud creditors despite evidence that the company had sound reason to spin Tronox off.

"And Kerr-McGee had every reason to believe — and correctly believed — that Tronox was solvent and adequately capitalized," the brief said. "The evidence showed that Kerr-McGee believed what all other interested parties believed — that it was divesting Tronox with certain assets and liabilities, which, taken together, left the company solvent, fully capable of servicing its debts, worth over $1 billion and poised to succeed."

The trial began May 15 and wrapped up in September. Tronox, along with the U.S. Department of Justice on behalf of the U.S. Environmental Protection Agency — which would ultimately get any recovery for Tronox as part of a global settlement that allowed Tronox to exit bankruptcy last year — has argued that Kerr-McGee shuffled its burdensome environmental, tort and retiree liabilities into its chemical business and then spun that unit off before selling itself to Anadarko.

The plaintiffs say the so-called sale/spin constituted a fraudulent transfer because the Tronox entity was essentially insolvent at the time thanks to the partitioning of the healthy oil and gas exploration and production assets — which went with Kerr-McGee to Anadarko — from the toxic assets, which stayed with Tronox, choking its titanium dioxide business.

The parties have now given Judge Gropper plenty to mull over, with the two summary filings totaling 459 pages. The trial itself produced tens of thousand of pages of documents and featured testimony from 50 witnesses over its five-month span.

Now, Tronox says it proved its case through "overwhelming and largely undisputed evidence," while Kerr-McGee argues that the plaintiffs' case, which relied on their theory of constructive fraudulent transfer, fell apart at trial.

According to Tronox, the conduct of Kerr-McGee's "inner circle" — CEO Luke Corbett, Chief Financial Officer Bob Wohleber and general counsel Greg Pilcher, who the debtor argues intended to isolate Tronox's oil and gas assets from its legacy creditors — "leaves no doubt" about the company's intent.

"They purposefully designed the [initial public offering] and spinoff to place substantially all of Kerr-McGee's assets beyond the reach of its creditors," Tronox argued. "They did so knowing that the legacy liabilities were vast but unquantified, already had cost Kerr-McGee over $1 billion, and were so large that they were an impediment to a strategic transaction even for a company the size of Kerr-McGee."

But Kerr-McGee argues that before approving the IPO, it made sure of Tronox's solvency and "invited exhaustive diligence" into Tronox by putting it up for sale to private investors, a move that ultimately garnered a $1.3 billion offer by "one of the most sophisticated investors in the world," proof that the defendant and others believed Tronox was solvent.

"That good-faith and reasonable belief cannot be punished based on the dubious hindsight opinions of hired litigation experts," Kerr-McGee said. "There was no credible evidence whatsoever in this case that Kerr-McGee or its officers or directors ever harbored any intent to hinder or delay, much less defraud, creditors."

Counsel for the parties did not immediately return requests for comment Monday evening.

Tronox is represented by David J. Zott, Andrew A. Kassof, David H. DeCelles and Jeffrey J. Zeiger of Kirkland & Ellis LLP.

The defendants are represented by Lydia Protopapas, Richard A. Rothman, Melanie Gray, Jason W. Billeck and Bruce S. Meyer of Weil Gotshal & Manges LLP, James J. Dragna, Thomas R. Lotterman and Duke K. McCall III of Bingham McCutchen LLP, and Kenneth N. Klee and David M. Stern of Klee Tuchin Bogdanoff & Stern LLP.

The adversary proceeding is Tronox Inc. v. Anadarko Petroleum Corp. et al., case number 1:09-ap-01198, in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy is In re: Tronox Inc., case number 1:09-bk-10156, in the same court.

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