Anadarko Petroleum Corp. agreed Thursday to pay a record $5.15 billion to settle pollution claims with a litigation trust of Tronox Inc., which emerged from bankruptcy in 2011 and has accused Anadarko subsidiary Kerr-McGee Corp. of dumping environmental liabilities on the company as part of a fraudulent transfer scheme.
The deal resolves all claims against Kerr-McGee and gives Anadarko contribution protection from third-party claims seeking reimbursement from more than 4,000 sites covered by the settlement. The company was facing up to $14.1 billion in damages following a federal bankruptcy judge's ruling in December that Kerr-McGee stripped Tronox of healthy assets before spinning it off.
The $5.15 billion settlement is the largest sum for environmental contamination cleanup in the history of the U.S. Department of Justice, federal prosecutors said.
“This announcement is more than merely the settlement of a bankruptcy case,” deputy U.S. Attorney General James M. Cole said. “Kerr-McGee's businesses all over this country left significant, lasting environmental damage in their wake. It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill.”
The massive lawsuit stems from the 2005-06 initial public offering and spinoff of Oklahoma City-based pigment maker Tronox from Kerr-McGee before that company went to Anadarko in a nearly $19 billion deal.
The litigation trust claimed that Anadarko had looked into acquiring Kerr-McGee in 2002, balked at the idea of taking on billions of dollars in legacy costs, and then conspired with Kerr-McGee to structure a spinoff that could dump the liabilities onto Tronox and keep the valuable oil and gas assets for itself.
The trust said the spinoff and sale constituted a fraudulent transfer because the Tronox entity was essentially insolvent at the time, thanks to the partitioning of the good assets from the bad.
According to the litigation trust, each member of Kerr-McGee's “inner circle” — CEO Luke Corbett, Chief Financial Officer Bob Wohleber and general counsel Greg Pilcher — displayed “callous indifference,” and their conduct amounted to fraudulent intent.
U.S. Bankruptcy Judge Allan L. Gropper sided with the Tronox trust in December, finding that Kerr-McGee “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.”
The judge said he would enter damages of at least $5.1 billion and as much as $14.1 billion against Kerr-McGee, but the federal government and the trust agreed to take the $5.15 billion offered by Anadarko on Thursday.
“This settlement agreement with the litigation trust and the U.S. government eliminates the uncertainty this dispute has created, and the proceeds will fund the remediation and cleanup of the legacy environmental liabilities and tort claims,” Anadarko CEO Al Walker said in a statement Thursday.
More than $4.4 billion of the deal will cover environmental remediation and settle pollution claims across the country, the DOJ said.
The agreement still must be approved by the bankruptcy court and the federal district court in New York. Anadarko expects the Tronox adversary proceeding to be stayed while the settlement goes through the final approval process, which the company said should be completed by the end of the third quarter.
The Tronox trust is represented by the litigation trustee, John Hueston of Irell & Manella LLP, and by David Zott, Andrew Kassof and Jeffrey Zeiger of Kirkland & Ellis LLP.
Anadarko and the Kerr-McGee defendants are represented by Melanie Gray, Lydia Protopapas and Jason W. Billeck of Winston & Strawn LLP; Gregory Sibert of Weil Gotshal & Manges LLP; Sabin Willett, Thomas R. Lotterman and James J. Dragna of Bingham McCutchen LLP; and Kenneth N. Klee and David M. Stern of Klee Tuchin Bogdanoff & Stern LLP
The case is Tronox Inc. v. Kerr McGee 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. et al., case number 1:09-bk-10156, in the same court.
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