Anadarko Judge Tosses Some Claims in $25 Billion Lawsuit

Anadarko Petroleum Corp. won dismissal of some claims against it in a $25 billion environmental lawsuit brought by the U.S. and creditors of bankrupt Tronox Inc.

U.S. Bankruptcy Judge Allan Gropper granted a request from The Woodlands, Texas-based Anadarko to limit so-called fraudulent transfer claims to its wholly-owned Kerr-McGee unit. Such claims seek to recover money transferred out of a company prior to a bankruptcy and imply an intent to defraud creditors. Kerr-McGee put its liabilities into Tronox and sold good assets to Anadarko.

David Zott, a lawyer for the U.S. and Tronox, said the ruling made in Manhattan today doesn’t change the case, as the Kerr-McGee unit has always been the main defendant in the lawsuit.

“If a multibillion judgment is entered against Kerr-McGee, Anadarko is still the sole owner,” Zott said in an interview after the hearing.

The suit, which seeks payment for environmental liabilities for as many as 2,772 polluted sites, is set to begin May 15. Anadarko rose more than 3 percent on the news.

Tronox said in its 2009 lawsuit against Anadarko and the subsidiary that Anadarko had control over it, and was part of a “two-step fraudulent-scheme” that first dumped old liabilities onto Tronox through its 2006 spinoff from Kerr-McGee, and then subsequently sold Kerr-McGee’s oil and gas assets to Anadarko three months later. U.S. agencies joined the suit, seeking $15 billion in value they said was transferred to Anadarko, along with $10 billion in interest and appreciation since 2005.

‘Mere Dominion’

The U.S. and Tronox argued that the parent company could be considered the recipient of any fraudulently transferred funds because it had “dominion and control” over the unit.

The law about fraudulent transfers “does not suggest that mere dominion and control makes a company a subsequent or initial transferee,” Gropper said. He said that because Anadarko had kept its Kerr-McGee unit an isolated entity, Tronox and the U.S. can’t argue that it was the recipient of fraudulently transferred funds.

Principal Assets

“The court was not aware that Anadarko had carefully continued to isolate the principal Kerr-McGee assets in the Kerr-McGee subsidiary and that this isolation had continued for all the subsequent years,” Gropper said.

Gropper also said at today’s hearing that the legal separation of the Kerr-McGee unit from Anadarko Petroleum may be a subject to be discussed at trial. “Why have they been kept separate all these years?” Gropper said.

David Owens, deputy general counsel for Anadarko, and John Christiansen, an Anadarko spokesman, declined to comment.

Anadarko bought Kerr-McGee’s oil and gas assets for $18 billion in 2006. According to the U.S. lawsuit, Kerr-McGee began to separate its liabilities from its assets as early as 2001, through a project known as “project focus,” and never revealed the extent of its polluting properties, some of which it referred to internally as “secret sites.”

Under a settlement made between Tronox and the EPA during Tronox’s bankruptcy, Tronox paid $320 million and agreed the agency and state environmental agencies would get 88 percent of whatever can be recovered in the lawsuit for toxic cleanups. The remainder will go to tort claimants who say Kerr-McGee’s pollution injured them.

March Show

In a March slide show for investors, Anadarko estimated that the suit would cost about $250 million -- 1 percent of what the U.S. is seeking. On April 30, it took an additional $275 million charge for the lawsuit, bringing the total for estimated costs to $525 million.

“We’re confident in the merits of our case and also recognize there is value in removing uncertainty for our shareholders,” spokesman Brian Cain said after the April 30 report. “If a settlement is not reached, we are prepared to defend our interests at trial.”

Anadarko fell 32 cents to $68.65 at 12:03 p.m. in New York Stock Exchange composite trading.

Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE