Tronox Inc. v. Kerr-McGee Corp. (In re Tronox Inc.)

• Decision Date: 20 April 2017
• Docket Number: Docket No. 16-343,August Term 2016
• Citation: 855 F.3d 84
• Court: U.S. Court of Appeals — Second Circuit
• Parties: IN RE TRONOX INC. Tronox Inc., Tronox Worldwide LLC, f/k/a Kerr-McGee Chemical Worldwide LLC, Tronox LLC, The Anadarko Litigation Trust, Plaintiffs, United States of America, Intervenor Plaintiff, Avoca Plaintiffs, Respondents-Appellants, v. Kerr-McGee Corp., Defendant-Appellee, Kerr-McGee Oil & Gas Corp., Kerr-McGee Worldwide Corp., Kerr-McGee Investment Corp., Kerr-McGee Credit LLC, Kerr-McGee Shared Services Company LLC, Kerr-McGee Stored Power Company LLC, Anadarko Petroleum Corp., Defendants.

855 F.3d 84

IN RE TRONOX INC.

Tronox Inc., Tronox Worldwide LLC, f/k/a Kerr-McGee Chemical Worldwide LLC, Tronox LLC, The Anadarko Litigation Trust, Plaintiffs,

United States of America, Intervenor Plaintiff,

Avoca Plaintiffs, Respondents-Appellants,
v.
Kerr-McGee Corp., Defendant-Appellee,

Kerr-McGee Oil & Gas Corp., Kerr-McGee Worldwide Corp., Kerr-McGee Investment Corp., Kerr-McGee Credit LLC, Kerr-McGee Shared Services Company LLC, Kerr-McGee Stored Power Company LLC, Anadarko Petroleum Corp., Defendants.^*

Docket No. 16-343
August Term 2016

United States Court of Appeals, Second Circuit.

Argued: November 16, 2016
Decided: April 20, 2017

855 F.3d 88

Luke A. McGrath , Dunnington, Bartholow & Miller LLP, New York, NY (Alani Golanski, Jerry Kristal, Weitz & Luxenberg, P.C., New York, NY, on the brief), for Respondents-Appellants.

Bryan M. Killian , Morgan, Lewis & Bockius LLP, Washington, DC (Kenneth N. Klee, David M. Stern, Klee, Tuchin, Bogdanoff & Stern LLP, Los Angeles, CA; Thomas R. Lotterman, Duke K. McCall, III, Morgan, Lewis & Bockius LLP, Washington, DC, on the brief), for Defendant-Appellee.

Before: Kearse, Wesley, and Droney, Circuit Judges.

Wesley, Circuit Judge:

This is an appeal from an order of the U.S. District Court for the Southern District of New York (Forrest, J. ) enforcing a permanent anti-suit injunction issued after a bankruptcy settlement. The tortured corporate histories and shifting legal theories involved make it a messy case to distill. At its core, it is about more than 4,300 individuals (the "Avoca Plaintiffs") who allege significant injuries from the operation of a wood-treatment plant in Avoca, Pennsylvania (the "Avoca Plant") between 1956 and 1996. They originally brought their toxic-tort claims in Pennsylvania state court (the "PA State Action") against several entities including Kerr-McGee Corporation ("New Kerr-McGee"), but their suits were stayed when two of those entities, the owners/operators of the Avoca Plant (the "Tronox debtors" or "the debtors"), filed for bankruptcy in the Southern District of New York. The bankruptcy proceeding revealed a series of corporate transformations that ultimately yielded New Kerr-McGee. After the spinoff, New Kerr-McGee maintained control of the more lucrative oil and gas businesses and left the Tronox debtors with the immense environmental and tort liabilities arising from the previous operation of the Avoca Plant. These transactions were, as the bankruptcy court concluded, essentially fraudulent conveyances designed to place assets beyond the reach of the Tronox entities' creditors.

In the course of the bankruptcy proceeding, the Tronox debtors instituted an adversary proceeding against New Kerr-McGee for fraudulent conveyance to recover assets that would satisfy the debtors' liabilities. Ultimately, New Kerr-McGee settled with the Tronox debtors for over $5 billion; of that sum, more than $600 million was designated for beneficiaries of the Tort Claims Trust, including the Avoca Plaintiffs. New Kerr-McGee sought peace with that payment and required as part of the settlement that the District Court—the court tasked with approving the bankruptcy settlement—would issue an injunction barring the litigation of claims that are derivative or duplicative of the Tronox debtors' claims against New Kerr-McGee (the "Injunction").

After the District Court approved the settlement and issued the Injunction, the Avoca Plaintiffs sought to revive their toxic-tort claims in Pennsylvania state court, again naming New Kerr-McGee as a defendant. The Avoca Plaintiffs did not, however, alter their state-court complaint to allege direct claims against New Kerr-McGee to hold it responsible for its own alleged wrongdoing. Instead, they advanced indirect alter-ego and veil-piercing theories to hold New Kerr-McGee responsible for the conduct of the Tronox debtors. New Kerr-McGee moved in the District Court for an order enforcing the Injunction and for sanctions, asserting that the Injunction forecloses claims that arise from liabilities derived from or through the Tronox debtors that are also generalized and common to all creditors.

855 F.3d 89

The District Court concluded that the claims are barred by the Injunction and, without imposing sanctions or finding contempt, ordered the Avoca Plaintiffs to dismiss with prejudice their state-court complaints. The Avoca Plaintiffs appealed and sought a stay pending appeal, which we granted.

The Avoca Plaintiffs assert three bases for appellate jurisdiction—28 U.S.C. §§ 1291, 158(d), and 1292(a)(1)—none of which persuade us. First, the District Court's order is not "final" for purposes of 28 U.S.C. § 1291, because it neither found contempt nor imposed sanctions. Second, the order is not a decision by the District Court on review of a bankruptcy court order, as required by § 158(d). Third, after an appropriate, under the circumstances, discussion of the merits, we conclude that we lack jurisdiction under § 1292(a)(1) because the District Court properly construed (and neither modified nor continued) the Injunction. In confirming the District Court's construction of the Injunction, we hold that the Avoca Plaintiffs' personal injury claims based on conduct of the Tronox debtors, and asserted against New Kerr-McGee on a variety of state-law indirect-liability theories, are generalized "derivative" claims that fall within the property of the bankruptcy estate. Accordingly, we lift the stay and DISMISS the appeal for lack of jurisdiction.

BACKGROUND¹

I. CORPORATE HISTORY OF THE RELEVANT ENTITIES

Critical to the District Court's decision below and ours here is the role and relationship of the relevant defendants in the PA State Action—"Kerr-McGee Chemical," "Old Kerr-McGee," and "New Kerr-McGee"—and the allegations against them. It gets confusing because both Old Kerr-McGee and New Kerr-McGee, at different times, have operated under the name "Kerr-McGee Corporation." The critical takeaway is that Kerr-McGee Chemical,² the previous operator of the Avoca Plant, and its former parent, Old Kerr-McGee,³ ultimately became the Tronox debtors (Tronox LLC and Tronox Worldwide LLC, respectively). New Kerr-McGee,⁴ a later corporate spinoff of Kerr-McGee Chemical and Old Kerr-McGee, did not exist until 2001 and was not a Tronox debtor.⁵

855 F.3d 90

The reason for the confusing history of corporate restructurings and name changes is that, starting in 2002, New Kerr-McGee began to sever its chemical business—which included the Avoca Plant and was riddled with legacy tort and environmental liabilities—from its more profitable oil and gas business. See Tronox Inc. v. Kerr McGee Corp. (In re Tronox) , 503 B.R. 239, 252-55, 259, 266 (Bankr. S.D.N.Y. 2013). Upon completion of the spinoff in 2006, New Kerr-McGee was separated from the Tronox entities, including what were formerly Kerr-McGee Chemical and Old Kerr-McGee. This spinoff in essence allocated substantially all of the former companies' valuable assets to New Kerr-McGee and substantially all of the companies' costly liabilities to the Tronox debtors, which the debtors claimed left them severely undercapitalized and became the basis of their fraudulent-conveyance claims in the adversary proceeding against New Kerr-McGee in the bankruptcy. Id. More on that later.

II. THE PA STATE ACTION

In 2005, the Avoca Plaintiffs sued Kerr-McGee Chemical, Old Kerr-McGee, and New Kerr-McGee⁶ in Pennsylvania state court asserting toxic-tort claims for hundreds of millions of dollars based on the operation of the Avoca Plant. A consolidated "Master Complaint"⁷ alleged that, from 1956 through 1996, operations at the Avoca Plant led to the "intentional, negligent [,] and otherwise tortious release of dangerous chemicals" into the environment, causing the Avoca Plaintiffs cancer and other illnesses.

The Master Complaint alleged no direct liability of New Kerr-McGee; it failed to identify any act by New Kerr-McGee that contributed to the injuries of the Avoca Plaintiffs after its creation in 2001.⁸ Instead, it alleged the direct liability of only Old Kerr-McGee for its actions as parent of Kerr-McGee Chemical during that entity's operation of the plant. The Master Complaint sought to impute the acts of the plant's prior corporate owners/operators to New Kerr-McGee based on various indirect-liability alter-ego/veil-piercing and successor-liability theories.⁹ Specifically, the Master Complaint alleged that Old Kerr-McGee

provided environmental policies, legal counsel, hydrological services and laboratory technical services in connection with the operation of the wood treatment plant [the Avoca Plant]. Furthermore, [Old Kerr-McGee] communicated with environmental agencies and approved and controlled environmental budgets and expenditures in connection

855 F.3d 91

with the wood treatment plant. [Old Kerr-McGee] controlled the wood treatment plant's facility's environmental changes and monitoring and also directed the Plaintiffs' managers as to environmental policies and decisions, including emission controls, regulatory compliance issues, regulatory reporting and toxic waste handling.

J.A. 504-05 (Master Compl....