Kerr-McGee to Pay $5.15 Billion for “85 Years of Poisoning the Earth”

Kerr-McGee Corporation and certain of its affiliates, and their parent Anadarko Petroleum Corporation, will pay $5.15 billion to settle a fraudulent conveyance case in the bankruptcy of Tronox Inc. and its subsidiaries.

The bankruptcy court had previously found, in December 2013, that the historic Kerr-McGee Corporation fraudulently conveyed assets to New Kerr-McGee to evade its debts, including its liability for environmental clean-up at contaminated sites around the country.

Pursuant to the settlement agreement, the defendants agree to pay $5.15 billion to settle the case, of which approximately $4.4 billion will be paid to fund environmental clean-up and for environmental claims.

The case represents the largest environmental enforcement recovery ever by the Department of Justice.

“Kerr-McGee’s businesses all over this country left significant, lasting environmental damage in their wake,” said Deputy Attorney General James Cole.  “It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill.  Through a lot of hard work, we uncovered this fraud and recovered over $5 billion dollars for the American people.  This settlement demonstrates the Justice Department’s firm commitment to preventing and combating all forms of fraud and to securing environmental justice.”

“For 85 years, Kerr-McGee operated numerous hazardous businesses, and those businesses caused significant damage to the environment and to communities exposed to contamination,” Cole said.

“Kerr-McGee’s perchlorate business contaminated Lake Mead, which flows into the Colorado River and provides drinking water to much of the Southwest United States.  Its uranium mining operations left abandoned mines with radioactive waste piles throughout the territory of the Navajo Nation.  Its wood treating facilities left carcinogenic creosote contamination throughout the East, Midwest, and South, and its thorium facilities left radioactive soil in the City of Chicago.”

“All told, dozens of sites were dangerously contaminated. Over time, Kerr-McGee was found liable for the cost of cleaning up these sites and compensating those with injuries resulting from exposure to contamination.”

“By the late 1990s, Kerr-McGee was no longer actively engaged in the businesses that had produced most of these environmental and tort liabilities.  These “legacy” liabilities depressed Kerr-McGee’s stock value and its prospects for engaging in corporate mergers.  So Kerr-McGee devised a plan to isolate and shed these liabilities through a complicated, multi-step corporate reorganization.”

 “Between 2002 and 2006, the Kerr-McGee Corporation fraudulently spun off billions of dollars of these environmental liabilities into a different corporation called Tronox.  At the same time, Kerr-McGee kept its valuable oil and gas assets to make it more attractive to investors.  Four months after the Tronox spin-off, Kerr-McGee’s oil and natural gas exploration business was purchased by Anadarko for $18 billion.  Tronox – saddled with environmental liabilities and not enough assets to cover them – eventually filed for bankruptcy.  Had Kerr-McGee gotten away with its scheme, it would have skirted its responsibility for cleaning up contaminated sites around the country.”

“Instead, in May 2009, the United States and the bankruptcy estate brought this lawsuit to hold the defendants accountable.  Our Department of Justice lawyers worked closely with a Litigation Trust set up for the purpose of recovering the value of the assets fraudulently conveyed to Anadarko. After a 34-day trial, on December 13, 2013, the United States Bankruptcy Court found that the Kerr-McGee Unit of Anadarko Petroleum committed a fraudulent conveyance in trying to separate Kerr-McGee’s oil and gas assets from its legacy liabilities and was liable for substantial damages attributed to this fraud.”

“Anadarko has agreed to pay $5,150,000,000 to settle this fraudulent conveyance claim.  Under the settlement, Anadarko will pay these funds into a trust that will be used primarily for environmental cleanup of contaminated sites across 22 states and the Navajo Nation.  Approximately 88 percent of the recovery will pay for federal, state, local, and tribal cleanups, and approximately 12 percent will pay the tort claims of people who have health effects from the pollution.  Many of these sites are located in rural, tribal and urban communities that have historically borne a disproportionate burden from pollution.”

“If you are responsible for 85 years of poisoning the earth, then you are responsible for cleaning it up,” said U.S. Attorney Preet Bharara.  “That’s why this case was brought.  And that’s why the defendants are paying a record $5.15 billion — to fund that colossal cleanup and to make things right.  The company tried to keep its rewards and shed its responsibilities by playing a corporate shell game, putting its profitable oil-and-gas business in a new entity and leaving behind a bankrupt shell holding the environmental liabilities of the defunct, polluting lines of business.  The company tried to cleanse its valuable business from its toxic legacy liabilities. Now the defendants will pay to cleanse the land and water.”

Federal officials alleged that Old Kerr-McGee operated numerous businesses, which included uranium mining, the processing of radioactive thorium, creosote wood treating, and manufacture of perchlorate, a component of rocket fuel.  These operations left contamination across the nation, including radioactive uranium waste across the Navajo Nation; radioactive thorium in Chicago and West Chicago, Illinois; creosote waste in the Northeast, the Midwest, and the South; and perchlorate waste in Nevada.

In the years prior to 2005, Old Kerr-McGee concluded that the liabilities associated with this environmental contamination were a drag on its business, the exploration and production of oil and gas.  With the intent of evading these and other liabilities, Old Kerr-McGee created a new corporate entity – defendant New Kerr-McGee – and, through a scheme executed in 2002 and 2005, transferred its valuable oil and gas exploration assets to the new company.

The legacy environmental liabilities were left behind in the old company, which was re-named Tronox, and spun off as a separate company in 2006.  As a result of these transactions, Tronox was rendered insolvent and unable to pay its environmental and other liabilities.  In 2009, Tronox went into bankruptcy.

The United States and the bankruptcy estate brought this lawsuit to hold the defendants accountable and require them to repay the value of the assets fraudulently conveyed from Old Kerr-McGee.

In its decision, the court found that Old Kerr-McGee transferred assets with the intent to hinder or delay creditors, in particular environmental creditors, and also transferred those assets for less than their fair value, which left Tronox insolvent, unable to pay its debts when they came due, and undercapitalized.

Among other things, the court concluded that:

“There can be no dispute that Kerr-McGee acted to free substantially all its assets – certainly its most valuable assets – from 85 years of environmental and tort liabilities.”

Under the settlement, the defendants will pay $5.15 billion to the trust to settle the fraudulent conveyance case.

Pursuant to a 2011 agreement between the United States, certain state, local, and tribal governments, and the bankruptcy estate, approximately 88 percent of the net proceeds of this litigation will be distributed by the trust to the United States, certain state governments, the Navajo Nation, and environmental trusts created to clean up the contaminated sites.

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