Anadarko, Kerr-McGee Can’t Limit $15.5 Billion Claim in Lawsuit

Anadarko Petroleum Corp. (APC) and its Kerr-McGee Corp. (KMG) unit can’t limit the damages claim in a $15.5 billion lawsuit over environmental cleanup costs brought by the U.S. and Tronox Inc. creditors.

U.S. Bankruptcy Judge Allan Gropper in Manhattan denied the request from The Woodlands, Texas-based Anadarko and Kerr-McGee (KMG) in court papers filed yesterday. His ruling paves the way for Tronox creditors and the government to argue in a May trial that the companies should pay billions of dollars to clean up thousands of polluted sites around the U.S. and compensate people who claim they were harmed by Kerr-McGee’s toxins.

“The amounts at stake are possibly enormous but at this point wholly uncertain,” Gropper wrote, noting that a separate estimate of tort and environmental damages in the case had been $1.9 billion to $6.9 billion. Gropper heard more than two hours of arguments on Nov. 29 and said he would later issue a written ruling.

Tronox sued Anadarko and Kerr-McGee in 2009, during its bankruptcy, to recover environmental liabilities that the chemical maker claimed Anadarko dumped on it through a 2006 spinoff. U.S. government agencies also sued.

A trust created when Tronox exited bankruptcy in February is now pursuing the lawsuit. The U.S. will get 88 percent of whatever is won in the lawsuit and tort claimants will get the remainder, according to court papers.

May 15 Trial

The case is set to go to trial May 15. Gropper said Nov. 29 that the parties should mediate the dispute.

Anadarko said in court papers that the plaintiffs shouldn’t be able to profit from a recovery, and redacted their pleadings to hide their estimates of how much the trust had allegedly overstated its claim.

“They admit to you they’re seeking over $15.5 billion,” Lydia Protopapas, a lawyer for Anadarko, told Gropper Nov. 29. “That’s a windfall.”

Kerr-McGee transferred about 2,800 polluted sites and liability for 70 years’ worth of pollution to Oklahoma City- based Tronox after moving its most valuable oil and gas assets to a new company that Anadarko acquired in 2006 for $18 billion, Tronox said in its 2009 lawsuit.

Tronox has called the transactions a two-step fraud and is seeking the full value of assets it says were fraudulently transferred into Anadarko. Anadarko had sought to limit their claim to what environmental and tort creditors were owed, which it says was close to $1.5 billion in 2005.

Measure of Damages

Gropper said in his ruling that the appropriate measure of damages should be determined after trial, and can’t be limited only by the amount of fraudulently transferred property.

David Zott, a lawyer for the trust, had said the estate and all its creditors, including environmental and tort claims, are entitled to recover money that was fraudulently transferred out of the estate.

“We’re entitled to avoid in entirety the fraudulently transferred oil and gas assets,” Zott told Gropper at the Nov. 29 hearing.

Proceeds from the lawsuit will go to the litigation trust which has taken on the case. The trust will distribute proceeds to the U.S. Environmental Protection Agency and other agencies. Lawyers for the U.S. have said the federal government and several states are involuntary creditors now dealing with pollution strewn across the country.

In a separate related lawsuit, Tronox shareholders sued Anadarko in July 2009, seeking unspecified damages over the same two transactions. They claim they were misled by company disclosures about the size of Kerr-McGee’s potential environmental liabilities.

The bankruptcy case is Tronox Inc. (TRXAQ), 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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