Settlement Agreement in Anadarko Fraud Case Results $5.15 Billion plus interest for Environmental Cleanups Across the USA

Case Summary: Settlement Agreement in Anadarko Fraud Case Results in Billions for Environmental Cleanups Across the Country

Anadarko Fraud Case Settlement Resources

U.S. District Court (SDNY) Opinion & Order (PDF) (24 pp, 365 K, About PDF) (11/10/2014)

April 2014 Settlement Agreement and other supporting documents

  • Settlement Agreement and Exhibits (corrected 4/9/2014)
  • Exhibit 2 – 2011 Tronox Bankrutpcy Settlement showing cash funding and litigation percentage for ERTs and affected sites

Deputy Attorney General James Cole Delivers Remarks at Press Conference Announcing Anadarko Litigation Settlement

Case summary of 2013 U.S. Bankruptcy Court Decision on Fraudulent Conveyance Litigation

Case summary of the 2011 Tronox Bankruptcy Settlement

On November 10, 2014, the U.S. District Court for the Southern District of New York (SDNY) approved the historic settlement agreement that was announced by EPA and the Department of Justice (DOJ) on April 3, 2014, resolving fraudulent conveyance claims against Kerr-McGee Corporation and related subsidiaries of Anadarko Petroleum Corporation. The deadline for any appeals from the district court’s decision passed on January 20, 2015, without any appeal being filed. The settlement agreement went into effect on January 21, 2015.

Under the settlement, Anadarko paid $5.15 billion plus interest to a litigation trust so that the settlement proceeds can be distributed to the trust’s environmental and tort beneficiaries. Specifically, the trust’s environmental and tort beneficiaries will receive approximately $4.475 billion and $605 million, respectively, which is in addition to the beneficiaries’ $270-plus million recoveries under the February 2011 Tronox bankruptcy settlement, and makes this the largest recovery for the cleanup of environmental contamination in history.

Of the environmental recovery in this settlement, nearly $2 billion will pay for cleanup work associated with numerous EPA-lead sites, resulting in the largest bankruptcy-related award that EPA has ever received for environmental claims and liabilities. With more than 2,700 sites in 47 states at issue in the case, the settlement addresses Kerr-McGee’s enormous legacy environmental and tort liabilities, including its liability at federal Superfund sites in Manville, N.J., Jacksonville, Fla., Columbus, Miss., Navassa, N.C., West Chicago, Ill., Milwaukee, Wisc., and Soda Springs, Idaho. The settlement also covers approximately 50 former uranium mines in and near the Navajo Nation territory in the southwestern United States.

The settlement was reached following a 34-day trial and the U.S. Bankruptcy Court for the Southern District of New York’s December 2013 decision, which held Kerr-McGee and related subsidiaries of Anadarko liable for fraudulently conveying assets in an attempt to evade their liabilities for cleanups at toxic sites around the country.

“EPA’s vigorous pursuit of this case will have a big return for communities across the country. Companies that pollute can’t escape their responsibility to pay for the cleanup. EPA will continue to fight for those affected by pollution.” 

Beginning in 2001, Kerr-McGee, having concluded that its enormous legacy liabilities were a drag on its “crown jewel” oil and gas business, embarked on a plan to separate its valuable oil and gas assets from these legacy liabilities. In particular, between 2002 and 2005, Kerr-McGee transferred these oil and gas assets to a “new” Kerr-McGee (one of the defendants), and then spun off the carcass (a small, cyclical chemical business with 85-odd years of legacy liabilities, which was re-named Tronox) in 2006. A few months later, Anadarko acquired Kerr-McGee (and the oil and gas business) for $18 billion. Meanwhile, as a result of the transactions, Tronox was rendered insolvent and unable to pay for its legacy liabilities, and ultimately filed for bankruptcy in 2009.

Overview of the Anadarko Litigation
In May 2009, Tronox commenced the litigation during its bankruptcy proceedings before Judge Allan J. Gropper. In June 2009, based in large part on a referral from EPA Region 2 concerning the Federal Creosote Superfund Site in Manville, N.J. and similar referrals from Regions 4 and 5 regarding various sites in their respective regions, the U.S. intervened in the lawsuit to recover response costs for cleanups at numerous contaminated sites around the country. In short, the plaintiffs’ complaints alleged that the defendants fraudulently transferred valuable assets out of Tronox and left Tronox with insufficient assets to pay the billions of dollars of liabilities that Tronox owed to, among others, environmental regulators and tort (personal injury) claimants.

As part of a February 2011 bankruptcy settlement between Tronox and its affiliated debtors on the one hand, and EPA, other federal, state, and local agencies, and the Navajo Nation on the other hand, Tronox resolved the environmental portion of its legacy liabilities. Specifically, Tronox paid approximately $270 million and transferred an 88% share of its interest in the Anadarko litigation to the governments and environmental response trusts created pursuant to the bankruptcy settlement. Tronox established a litigation trust to pursue the litigation upon Tronox’s emergence from bankruptcy protection and to distribute any recovery in the litigation, including the 88% environmental recovery, net of trust-related expenses, pursuant to the distribution scheme described in the bankruptcy settlement.

U.S. Bankruptcy Court’s 2013 Fraud Decision
In an opinion dated December 12, 2013, Judge Gropper found the defendants liable as a result of various fraudulent transfers occurring several years before Tronox filed for bankruptcy. See Tronox Inc., et al., v. Kerr-McGee Corp., et al., (In re Tronox Inc.), 503 B.R. 239 (Bankr. S.D.N.Y. 2013). On the plaintiffs’ actual fraud claims, the Bankruptcy Court noted the “clear and convincing evidence” showing that the transfers that concluded with the spinoff were made by the defendants with the intent “to hinder or delay creditors when they imposed all the legacy liabilities on Tronox.” The Bankruptcy Court also held that the transfers in question were constructively fraudulent because they “left [Tronox] insolvent and undercapitalized” and were made for “less than reasonably equivalent value,” and because the defendants “reasonably should have believed that [Tronox] would incur debts beyond [its] ability to pay as they became due.” Central to the Bankruptcy Court’s ruling was its conclusion that Kerr-McGee had failed to conduct any “contemporaneous analysis of the effect of [its] transactions on the legacy liability creditors.”

On damages, the Bankruptcy Court held the defendants liable for approximately $5.15 billion or $14.17 billion. The Bankruptcy Court deferred ruling on the exact measure of damages until further proceedings yet made “provisional” findings based on the record to arrive at these numbers.

Settlement Overview
Under the settlement, the litigation trust and defendants provide mutual releases in exchange for a $5.15 billion payment plus interest from the defendants. Among other things, in exchange for covenants by the defendants, the settlement also provides covenants not to sue from the U.S. to the defendants under certain environmental statutes regarding the sites at issue in the litigation. The U.S. reserves the right to pursue the defendants for matters not addressed by the proposed settlement, such as any liability that the defendants may have regarding their oil and gas business, including any liability in connection with the Deepwater Horizon oil spill litigation.

The District Court’s approval of the settlement was subject to appeal for 60 days. No appeal was filed and the settlement went into effect on January 21, 2015. Anadarko paid $5.15 billion plus interest to the litigation trust on January 23, 2015.

Environmental Benefits
The settlement proceeds described below will fund investigations and cleanup work at the vast portfolio of sites at which Kerr-McGee (and later Tronox) were liable. In particular, the environmental proceeds will be distributed to governments and environmental response trusts, primarily for future cleanup costs at sites covered by the settlement, but also to reimburse the governments for cleanup costs previously incurred at the sites. In addition, such proceeds will enable the governments and environmental response trusts to clean up contaminated sites in areas with potential environmental justice concerns, including certain sites located in and around the Navajo Nation, West Chicago, Ill., Columbus, Miss., Jacksonville, Fla., and Navassa, N.C.

Distribution of Anadarko Litigation Proceeds
Following the payment of fees, costs, and expenses incurred in administering the litigation trust and prosecuting the litigation after February 14, 2011 (the effective date of Tronox’s bankruptcy plan of reorganization), the litigation trust agreement provides that environmental beneficiaries of the litigation trust (i.e., the governments and environmental response trusts) and tort claimants receive 88% and 12%, respectively, of any recovery in the litigation. The environmental-specific (88%) share is further divided on a categorical (funding for administrative costs associated with trust sites and for cleanups at trust and non-trust sites) and site-by-site basis, as described below. [Emphasis added]

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