Enforcement

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

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. 

Under the settlement, Anadarko will pay $5.15 billion 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 be paid 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.

On this page:

"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.”
Cynthia Giles, Assistant Administrator, Office of Enforcement and Compliance Assurance

Relevant Factual Background Information

Since its founding in 1929, Kerr-McGee operated various businesses around the country, including wood-treating, uranium mining and processing, thorium processing, and ammonium perchlorate manufacturing. By the early 2000s, Kerr-McGee had discontinued most of these historic business operations yet remained responsible for massive legacy environmental and tort liabilities related to those businesses. At that time, Kerr-McGee operated two core businesses: oil and gas exploration and production; and chemical production.

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.

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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.

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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.

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Settlement Overview

Under the settlement, the litigation trust and defendants provide mutual releases in exchange for a $5.15 billion payment 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 is subject to appeal for sixty days.  If no appeal (or other further review specified in the settlement agreement) occurs, the settlement will go into effect on January 12, 2015. Two days after the settlement goes into effect, the defendants’ $5.15 billion payment will be due.

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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.

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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.

Multistate Environmental Response Trust

Funds received from the Tronox bankruptcy settlement and Anadarko litigation proceeds for each site in the multistate environmental response trust (ERT), including allocations for administrative costs, are set forth in the table below in alphabetical order by the state in which the sites are located.

Site and/or Location Funding from Tronox Bankruptcy Settlement* Anadarko Litigation Percentage** 
Administrative funding $16,936,352 1.155%
Birmingport, Ala. $402,395 0.010%
Theodore (Mobile), Ala. $21,587,129 6.000%
Jacksonville, Fla. (Ag Chem) $4,220,981 2.000%
Jacksonville, Fla. (Petroleum Terminal) $38,957 0.000%
Soda Springs, Idaho $6,050,929 2.000%
Madison, Ill. $1,294,468 0.150%
Sauget, Ill. $3,960,429 0.100%
Indianapolis, Ind. $366,782 0.050%
Rushville, Ind. $1,795 0.001%
Bossier City, La. $897,624 0.500%
Calhoun, La. $2,720,947 0.250%
Kansas City, Mo. $1,743,398 0.500%
Springfield, Mo. $2,025,323 0.500%
Columbus, Miss. $5,520,102 1.500%
Meridian, Miss. $1,298,956 0.500%
Wilmington (Navassa), N.C. $4,208,555 2.000%
Bristol Mine, Pioche, Nev. $17,952 0.003%
Caselton Mine, Pioche, Nev. $269,287 0.150%
Rome, N.Y. $700,000 0.400%
Cleveland, Okla. $8,036,586 1.000%
Cushing, Okla. $8,719,555 2.000%
Avoca, Pa. $4,101 0.000%
Beaumont, Texas $1,651,132 0.500%
Corpus Christi, Texas $215,477 0.000%
Texarkana, Texas $2,537,176 0.500%
Service Stations (Owned) $2,028,696 0.150%
Service Stations (Non-owned) $315,989 0.500%
Other sites*** $0 3.000%
Total $97,771,073 25.419%
* Does not include site-specific financial assurance, insurance, or real estate assets.
** Percent of 88% share of net Anadarko Litigation proceeds.
*** These are sites for which the U.S. and certain states provided covenants not to sue under the Tronox bankruptcy settlement agreement.

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Four Site-Specific Environmental Response Trusts

Funds received from the Tronox bankruptcy settlement and Anadarko litigation proceeds for the four, non-multistate environmental response trusts, including allocations for administrative costs, are set forth in the table below.

ERT Funding from Tronox Bankruptcy Settlement* Anadarko Litigation Percentage**
Cimarron, Okla. $8,638,384 1.839%
Henderson, Nev. $81,020,018 25.000%
Savannah, Ga. $7,107,355 1.285%
West Chicago, Ill. $10,356,820 0.000%
Total $107,122,577 28.124%
* Does not include site-specific financial assurance, insurance, or real estate assets.
** Percent of 88% share of net Anadarko Litigation proceeds.

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Other Sites and/or Claims under the Tronox Bankruptcy Settlement

Sites contaminated by Tronox and its predecessor companies that were not owned by Tronox during or prior to the bankruptcy received funding pursuant to the bankruptcy settlement. In addition, some of the Tronox bankruptcy settlement proceeds resolved the governments’ various claims for past costs, natural resource damages, and penalties related to Tronox-owned and non-owned sites. Funding received from the bankruptcy settlement and Anadarko litigation proceeds for each such site, combining separate recoveries by the governments for a particular site, are set forth in the table below in alphabetical order by the state in which the sites are located.

Site and/or Location Receiving Entity* Funding from the Tronox Bankruptcy Settlement** Anadarko Litigation Percentage***
Anniston, Ala. State $6,320 0.010%
Birmingham, Ala. State $179,525 0.100%
Mansfield Canyon, Ariz. FS $94,797 0.150%
Juniper Mine, Calif. FS $191,490 0.303%
Jacksonville, Fla. (Ag Chem) EPA $1,896 0.003%
Brunswick, Ga. State $632 0.001%
Savannah, Ga. EPA and State $6,952 0.011%
Chicago, Ill. sites EPA $5,686,628 2.700%
Decatur, Ill. State $632 0.001%
Mount Vernon, Ill. State $94,797 0.150%
West Chicago sites, Ill. EPA and State $111,747 0.201%
Bossier City, La. State $106 0.00017%
Calhoun, La. State $107 0.00017%
Dubach, La. State $2,315 0.00366%
Hanover, Mass. State $1,044,660 1.653%
Kansas City, Mo. State $20,801 0.033%
Springfield, Mo. State $73,996 0.117%
Columbus, Miss. EPA $5,386 0.003%
Hattiesburg, Miss. State $389,310 0.100%
Wilmington (Navassa), N.C. EPA, DOI/NOAA, and State $917,732 0.503%
Federal Creosote site, Manville, N.J. EPA and State $3,398,485 5.575%
Welsbach site, Camden and Gloucester City, N.J. EPA $3,159,890 5.000%
Quivira Church Rock Mine, N.M. EPA $1,263,956 2.000%
Specified uranium mine sites in or near Navajo Nation territory EPA $12,039,562 20.000%
Ship Rock Mill, N.M. Navajo Nation $1,231,978 1.000%
Caselton Mine, Pioche, Nev. BLM $6,320 0.010%
Rome, N.Y. State $4,323 0.005%
Toledo, Ohio EPA and State $256,856 0.215%
Cleveland, Okla. State $112,749 0.160%
Cushing, Okla. State $49,551 0.060%
Gore, Kriner/Stigler, and Wynnewood sites, Okla. State $94,797 0.150%
Lakeview, Ore. EPA $448,812 0.250%
Flat Top Mine, S.D. EPA $631,978 1.000%
North Cave Hills/Riley Pass, S.D. EPA and FS $7,368,730 4.113%
Texarkana, Texas DOI and State $484,115 0.466%
Milwaukee, Wis. EPA $724,419 0.410%
Total   $40,106,350 46.457%
* Receiving entities include the following: EPA, various state environmental agencies, the Forest Service (FS), the Department of Interior (DOI), and the National Oceanic and Atmospheric Administration (NOAA), the Bureau of Land Management (BLM), and the Navajo Nation.
** Does not include site-specific financial assurance, insurance, or real estate assets.
*** Percent of 88% share of net Anadarko Litigation proceeds.


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Contact Information

For more information, contact:
Craig Kaufman
Attorney-Advisor
U.S. Environmental Protection Agency (MC2272A)
1200 Pennsylvania Avenue, NW
Washington, D.C. 20460
(202) 564-4284
kaufman.craig@epa.gov

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