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In re Tronox Incorporated

United States District Court, S.D. New York

November 10, 2014

IN RE TRONOX INCORPORATED TRONOX INCORPORATED, et al., Plaintiffs,
v.
ANADARKO PETROLEUM CORPORATION, et al. Defendants.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

In this case, [1] the Court is asked to approve a settlement agreement resolving two lawsuits in which Tronox, Incorporated[2] ("Tronox") and the Government[3] asserted fraudulent transfer and other claims against Kerr-McGee Corporation ("Kerr-McGee") and its parent company, Anadarko Petroleum Corporation ("Anadarko").[4] Tronox, which is in chapter 11 bankruptcy before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), initially filed this lawsuit on behalf of creditors who hold environmental and tort claims against it. The Government subsequently intervened on behalf of Tronox. The case was litigated before the Bankruptcy Court, which recommends that this Court approve the settlement agreement. (See Findings of Fact and Conclusions of Law on Joint Motion for a Report and Recommendation to the District Court Recommending Approval of Settlement Agreement Resolving the Adversary Proceeding and Issuance of an Injunction in Support Thereof at 5, ECF No. 1 ("R&R").)

The settlement is historic, providing $4.4 billion for the removal of pollution and environmental contaminants, the largest such recovery in American history. The settlement amount is also over $4 billion greater than what plaintiffs might recover if they pursued the damages phase of this litigation to its conclusion. Perhaps unsurprisingly, the settlement agreement enjoys overwhelming support among Tronox's many creditors.

Nevertheless, two tort claimants have objected to the settlement agreement as inadequate and unfair. Both hail from Columbus, Mississippi, where for three decades Kerr-McGee operated a wood treatment plant that discharged creosote, a toxic and carcinogenic substance. The objectors argue the settlement amount is too low, or that they are entitled to a greater share of the settlement proceeds. The Court is sympathetic to the objectors, whose community is coping with the toxic legacy Kerr-McGee has left in its wake. Nevertheless, the Court must consider the broad interests of all of the parties affected by this litigation, not simply the narrow interests of the objectors.

After reviewing de novo the Bankruptcy Court's proposed findings of fact and conclusions of law and the matters to which parties have timely and specifically objected, the Court OVERRULES the objections, ADOPTS the Bankruptcy Court's findings of fact and conclusions of law, and APPROVES the settlement agreement. The Court also ISSUES the requested permanent injunction.

I. PROCEDURAL HISTORY

In 2006, Kerr-McGee completed a series of transactions that resulted in the spin-off of Tronox, which Kerr-McGee left saddled with the massive environmental and tort liabilities it had accumulated over the course of decades of operating in the chemical, mining, and oil and gas industries, but without sufficient assets with which to address these liabilities. (See Adv. Dkt. No. 622 at 19-26.) Tronox voluntarily filed for chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York on January 12, 2009. (Bankr. Dkt. No. 1.) Subsequently, the United States and numerous state, local, and tribal governments filed proofs of claim against Tronox on account of alleged environmental liabilities, and many private individuals submitted proofs of claim on account of alleged tort liabilities. (R&R at 5-6.) These claims will be resolved pursuant to a reorganization plan that has been confirmed by the Bankruptcy Court (the "Plan"). (See Bankr. Dkt. No. 2567.)

On May 12, 2009, Tronox filed a lawsuit (the "Adversary Proceeding") for the benefit of its environmental and tort claimants against Kerr-McGee and Anadarko, [5] alleging that the transactions that resulted in Tronox's spinoff from Kerr-McGee amounted to an actual and constructive fraudulent conveyance. (See Adv. Dkt. No. 1.) Under the Plan and several related agreements, Tronox's environmental claimants will receive approximately 88% of the net proceeds from the lawsuit, and its tort claimants will receive approximately 12%. (See Bankr. Dkt. Nos. 2692 at 2, 11-12 & ex. 1 ¶¶ 119-23; 2747; 2567 ¶¶ 35-38 & ex. A art. III §§ B.4. (b), 5. (b)(i); see also R&R at 7-8.) On May 21, 2009, the Government filed a complaint-inintervention (the "U.S. Joinder") asserting claims under the Federal Debt Collection Procedures Act, 28 U.S.C. §§ 3301 et seq. (Adv. Dkt. No. 5.) On February 14, 2011, the Bankruptcy Court appointed a litigation trust (the "Litigation Trust") to represent Tronox, and substituted it for Tronox as the party in this litigation. (Bankr. Dkt. No. 2812.) The Litigation Trust and the Government litigated the Adversary Proceeding jointly. (See R&R at 6.)

After a 34-day trial, the Bankruptcy Court issued a 166-page opinion finding Kerr-McGee and Anadarko liable for actual and constructive fraudulent transfers. (Adv. Dkt. No. 622.) But the Bankruptcy Court declined to award damages, instead provisionally finding defendants liable either for approximately $5.15 billion or for approximately $14.17 billion, depending on the resolution of a legal question on which the Bankruptcy Court ordered further briefing. (Id. at 149).

In their briefs, the parties argued that the actual amount of damages should be higher or lower than the Court's initial estimates by billions of dollars. Defendants argued that they were not liable for any damages, and that if they were, their liability was limited to approximately $850 million. (Adv. Dkt. No. 623 at 20.) By comparison, the Litigation Trust and the Government argued that damages were in excess of $20 billion. (Adv. Dkt. No. 624 at 1, 26.)

Before the Bankruptcy Court could award damages, the parties agreed to settle.[6] In essence, the settlement agreement, as corrected on April 9, 2014 (the "Settlement Agreement") (Adv. Dkt. No. 637), provides that Anadarko will pay the Litigation Trust $5.15 billion in exchange for releases, and that the United States and Anadarko will not sue each other or assert claims relating to the sites with which the environmental and tort claims are concerned (see id.; R&R at 9-12). The settlement represents the largest-ever environmental cleanup recovery in the Government's history. (United States of America's Response to Objections to Proposed Findings of Fact and Conclusions of Law at 2-3, ECF No. 7 ("U.S. Response").)

On April 9, 2014, the parties filed a motion (the "Recommendation Motion") seeking a report and recommendation from the Bankruptcy Court advising this Court to enter a final order approving the Settlement Agreement, and to permanently enjoin certain parties from asserting certain related claims (the "Injunction"). (Adv. Dkt. No. 638.)

On April 12, 2014, the claims and noticing agent in the chapter 11 cases completed timely service of more than 66, 000 copies of the Recommendation Motion and the Settlement Agreement to potentially interested parties, as required by Bankruptcy Rule 2002(a)(3). (Adv. Dkt. Nos. 640, 653.) The settling parties also published notices in 86 newspapers across the country over the course of 14 days, and created an informative website that received hundreds of unique visits. (Adv. Dkt. Nos. 651, 653.) Five objections to the Recommendation Motion were then filed on the docket, of which three were from tort claimants from Columbus, Mississippi, where from 1964 to 2003 Kerr-McGee Chemical LLC owned and operated a woodtreatment plant that discharged the toxic and carcinogenic chemical creosote. (Adv. Dkt. Nos. 643-48, 650; Bankr. Dkt. Nos. 2991-95.)

On April 14, 2014, the Government published notice of the Settlement Agreement in the Federal Register, commencing a period of public comment that ran through May 14, 2014. 79 Fed. Reg. 20, 910, 20, 910-11 (Apr. 14, 2014). Residents of Columbus, Mississippi requested additional time to submit public comments, and the Government extended the deadline to May 21, 2014. 79 Fed. Reg. 27, 638, 27, 638-39 (May 14, 2014). Ultimately, the Government received 338 timely comments and 94 untimely comments, nearly all of which were form letters provided by individuals interested in the Columbus, Mississippi site. (R&R at 16; Government's Letter to Bankruptcy Judge Gropper, ECF No. 5 ("Gov't's Letter").) At the request of members of the local community in Columbus, the Government held a public meeting there on May 5, 2014. (Adv. Dkt. 657 ex. A.) After considering the written comments it received and the transcript of the public meeting, the Government decided to support the Settlement Agreement. (Adv. Dkt. Nos. 656-57.)

The Bankruptcy Court held a hearing on the Recommendation Motion on May 28, 2014, and two days later it issued a Report and Recommendation advising this Court to approve the Settlement Agreement and to issue the Injunction. (Adv. Dkt. Nos. 658, 661.) The Bankruptcy Court provided the parties with 35 days to file objections to the Report and Recommendation-the maximum amount of time permitted under the Bankruptcy Rules, see Fed.R.Bankr.P. 9033-plus 3 days for mailing. (Adv. Dkt. No. 661.) By the end of this 38-day period, only two parties had filed objections: Maranatha Faith Center, Inc. ("Maranatha") and Anita Gregory, both from Columbus, Mississippi. (Objection to Proposed Findings of Facts and Conclusions of Law and Entry of Judgment, ECF No. 3 ("Maranatha Objection"); Objection of Anita Gregory, ECF No. 4 ("Gregory Objection").) Anadarko and the Government filed responses to these objections. (See ECF Nos. 6-7.)

II. JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction over Tronox's claims under 28 U.S.C. § 1334 because they are related to Tronox's chapter 11 bankruptcy proceeding, which was properly referred to the Bankruptcy Court under 28 U.S.C. § 157(a).[7] The Court has supplemental jurisdiction over the U.S. Joinder under 28 U.S.C. § 1367.

This Court reviews the Bankruptcy Court's findings of fact and conclusions of law de novo. Under 28 U.S.C. § 157(b), there are two kinds of bankruptcy proceedings: "core" proceedings and "non-core" proceedings. Under Article III of the Constitution, a bankruptcy court has authority to issue final orders and judgments only in certain core proceedings. See Stern v. Marshall, 131 S.Ct. 2594, 2611 (2011).[8] In both core and non-core proceedings, a bankruptcy court may, instead of issuing a final order or judgment, submit proposed findings of fact and conclusions of law to a district court. 28 U.S.C. § 157(c)(1) (in non-core proceeding "otherwise related to a case under title 11... the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court"); Exec. Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2173 (2014) (in a core proceeding in which a district court does not have authority to issue a final order or judgment, it may issue proposed findings of fact and conclusions of law to the district court); In re Orion Pictures Corp., 4 F.3d 1095, 1100-01 (2d Cir. 1993) (in a non-core proceeding, "the bankruptcy court is only empowered to submit proposed findings of fact and conclusions of law to the district court for de novo review"); Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 490 B.R. 46, 55-56 (S.D.N.Y. 2013) (in cases in which Congress attempted to grant bankruptcy courts the power to issue final orders and judgments, bankruptcy courts necessarily also have authority to issue proposed findings of fact and conclusions of law); Kirschner v. Agoglia, 476 B.R. 75, 82 (S.D.N.Y. 2012) (same). The district court may then enter a final order or judgment after "considering the bankruptcy judge's proposed findings and conclusions" and "reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1). The district court "may accept, reject, or modify the proposed findings of fact or conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions." Fed.R.Bankr.P. 9033(d).[9]

III. THE BANKRUPTCY COURT'S FINDINGS OF FACT

In her objection, Gregory makes a number of factual assertions in support of her arguments for rejecting the Settlement Agreement. In particular, Gregory details at length her understanding of the effects of environmental contamination on the health of members of the Columbus, Mississippi community, as well as her belief that defendants knew the activities of their chemical industry operations could cause such effects. (See Gregory Objection at 2-5, 7-9, 11). Gregory also disputes one of plaintiffs' experts' estimates of environmental cleanup costs (see id. at 3-4), and she suggests that ...


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