Anadarko Petroleum Corp. has agreed to pay a record $5.15 billion to settle pollution claims with a litigation trust of Tronox Inc. Tronox emerged from bankruptcy in 2011 and accused Anadarko subsidiary Kerr-McGee Corp. of dumping environmental liabilities on the company as part of a fraudulent transfer scheme. The settlement agreement 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.
According to reports, the $5.15 billion settlement is the largest sum for environmental contamination cleanup in the history of the U.S. Department of Justice. Deputy U.S. Attorney General James M. Cole made this observation:
This announcement is more than merely the settlement of a bankruptcy case. 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 ruled in favor of 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.
Judge Gropper 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.
The Justice Department said more than $4.4 billion from the settlement will cover environmental remediation and settle pollution claims across the country. The agreement must be approved by the bankruptcy court and the federal district court in New York. The Tronox adversary proceeding will likely be stayed until the settlement receives final approval process, which is expected by the end of the third quarter of this year, according to the company.