Anadarko, Tronox Resume Trial Over $25 Billion Lawsuit

Anadarko Petroleum Corp. (APC) and its Kerr-McGee unit began presenting their defense against a $25 billion lawsuit brought by the U.S. and Tronox Inc. in a trial that resumed after settlement talks failed.

David Zott, a lawyer for the U.S. and Tronox, told U.S. Bankruptcy Judge Allan Gropper in opening comments today in Manhattan that the plaintiffs planned to enter one more document before turning the case over to the defense. Neither the judge nor lawyers for either side mentioned the settlement talks, which were confidential.

The lawsuit, over environmental claims and tort claims related to Tronox’s 2005 spinoff, tests whether money can be recovered from a successor to a polluting company, even after a bankruptcy ostensibly cleaned the slate. Tronox initially sued Anadarko in 2009. The Justice Department took over the case on behalf of the Environmental Protection Agency.

The government seeks to recover $25 billion to clean up 2,772 polluted sites and compensate about 8,100 tort claimants.

Anadarko’s defense will include testimony from George Christiansen, who formerly worked in its uranium mining business and worked on setting reserves for environmental damages, and Joseph A. Flake, a former vice president at Kerr-McGee’s chemical business, according to transcripts of depositions filed in court papers.

Christiansen testified that money was set aside for environmental liabilities when it was decided a loss was “probable” and “reasonably estimable,” and that he was never pressured to lower them. Flake helped develop a growth strategy for the company’s titanium-dioxide business, which eventually became Tronox.

Environmental Liabilities

In its lawsuit, the U.S. alleged that the company didn’t set aside enough money for environmental obligations to the EPA and other agencies, and knew that the titanium-dioxide business wouldn’t be strong enough to support the environmental debts once Tronox was spun off.

The trial began May 15, with Anadarko facing testimony from more than 50 witnesses, and was scheduled to run until at least the end of July. On June 28, Zott said the plaintiffs had presented their last witness, and asked Anadarko how it would begin its defense.

Before Anadarko could present its side of the case, a notice was filed July 12 saying the trial was being adjourned for a week while the parties held settlement talks or engaged in mediation. On July 19, John Hueston, a lawyer for the U.S. and Tronox, said in a phone interview that no settlement had been reached, and the trial would resume.

Remains ‘Committed’

Hueston had declined to comment on whether further settlement talks were possible, or potential amounts discussed in the talks.

Anadarko remains “committed to resolving the Tronox litigation through informal negotiations or other alternative dispute resolution mechanisms,” John Christiansen, a company spokesman, said in an e-mailed statement the same day.

The government seeks $15 billion in assets allegedly transferred in 2005, plus $10 billion in interest and appreciation, according to a lawyer involved in the case.

Witnesses who’ve testified so far included bankers, scientists and a mayor who said Kerr-McGee’s toxins destroyed his town, as well as Luke Corbett, the Kerr-McGee chief executive officer from 1997 to 2006, who now sits on Anadarko’s board.

According to the complaint, Kerr-McGee was part of a two- step transaction that defrauded the EPA of money to clean polluted sites.

Toxic Sites

Kerr-McGee, founded in 1929 near Oklahoma City, left a toxic legacy that stretches from uranium mines in Navajo territories in the western U.S. to wood-treatment plants in Mississippi and Pennsylvania, the EPA said in court papers.

After an internal reorganization started in 2001, Kerr- McGee spun off its chemicals business and old environmental liabilities as Tronox Inc. beginning in 2005. About three months after the transaction was completed, Anadarko offered to buy Kerr-McGee’s oil and natural gas assets for $18 billion.

Tronox filed for bankruptcy in 2009 and sued its former parent, saying it was overburdened with billions of dollars in environmental debts. The U.S., Tronox’s largest creditor on behalf of the EPA, intervened, creating the current lawsuit.

Anadarko, based in The Woodlands, Texas, said Kerr-McGee reorganized to separate the chemical business from the oil and gas business and maximize shareholder value.

“All relevant parties believed that both businesses were healthy,” lawyers for Anadarko wrote in court papers.

Anadarko Chief Executive Officer Al Walker said at an energy conference on June 6 that the company wasn’t opposed to a settlement.

The bankruptcy case is Tronox Inc., 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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