Over the course of decades, energy giant Kerr-McGee had failed to clean up hundreds of polluted sites – including more than $1 billion of uranium mining waste on the Navajo Nation alone – across the United States. Prior to a $19 billion acquisition by Anadarko Petroleum, Kerr-McGee transferred almost all of its massive environmental liabilities to a small pigment-making company, Tronox Inc., which shared no historic or business connection to those liabilities. Tronox soon sank under the weight of its liabilities and filed for bankruptcy.
Our clients – the Kerr-McGee environmental and torts creditors – had a choice: stand in line in bankruptcy court to receive pennies on the dollar or accept a stake in litigation against Kerr-McGee for fraudulent transfer. The creditors – including the Navajo Nation, a number of states, the U.S. government, and classes of tort plaintiffs – chose to file suit in bankruptcy court and alleged that the spin-off of Tronox prior to the sale of Kerr-McGee constituted a fraudulent transfer because the Tronox entity was essentially insolvent at the time of the transfer. The underlying allegations and proof of damages in the suit were environmental: the history of Kerr-McGee’s uranium mining, wood treatment, and rocket fuel processing operations; the legacy of by-products and contamination; and the scope of remediation effort necessary to remediate the contamination and to compensate those personally harmed by Kerr-McGee’s conduct.
Anadarko and Kerr-McGee were confident in their defense. Defendants cast the case as a “sensational” claim that they engaged in a six-year, two-part scheme to defraud creditors that was somehow missed by a host of outside lawyers and advisers who diligently scrubbed every aspect of the spin-off of Tronox and acquisition of Kerr-McGee.
At trial in bankruptcy court in the Southern District of New York, we established our case through Kerr-McGee and Anadarko executives, leaving almost no witnesses other than experts for the defense case. Although it was a bench trial, we injected immediacy and a visceral human element by utilizing a handful of victims of the unremediated waste sites. We proved that outside advisers were duped or recklessly ignored key aspects of the scheme. We ensured that our damages expert engaged in a more comprehensive analysis and breadth of assessment than his counterpart, which provided a more compelling narrative of harm to the court.
In a 166-page opinion, the Court found by “clear and convincing evidence” that defendants intended “to hinder or delay creditors when they imposed all the legacy liabilities on Tronox” and “that the transaction, which left the debtors insolvent and undercapitalized, was not made for reasonably equivalent value.” The Court requested additional briefing on the scope of the estimated multibillion-dollar damages. In post-trial negotiations, we secured a $5.15 billion settlement that permitted full national remediation and avoided years of appellate review. The $5.15 billion represented the then-largest environmental award in U.S. history.
“An unprecedented environmental victory…” —Daily Journal
“Case Summary: Settlement Agreement in Anadarko Fraud Case Results in Billions for Environmental Cleanups Across the Country,” U.S. Environmental Protection Agency, July 11, 2018.