In re Tronox Inc.
|10 March 2021
|United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
|In re: TRONOX INCORPORATED, et al., Reorganized Debtors.
DECISIONS AS TO PENDING MOTIONS FOR PERMISSION TO FILE "FUTURE TORT CLAIMS" AND FOR RELIEF FROM THE 2009 BAR DATE
Honorable Michael E. Wiles United States Bankruptcy Judge
These bankruptcy cases were filed in January 2009. The Court set a deadline (known in bankruptcy as a bar date) of August 12, 2009 for the filing of proofs of claim. A plan of reorganization (the "Plan") was later confirmed on November 30, 2010. The Plan established a Tort Claims Trust for the payment of tort claims, including claims based on exposures to creosote. More than 80% of the Trust assets were set aside for distribution to the holders of tort claims that were timely filed before the August 12, 2009 bar date, which were described in the Plan as "Category D" claims. A much smaller portion of the Trust assets (about 6.125%) were to be set aside collectively for holders of "future" tort claims and asbestos claims, all of which are referred to collectively in this Decision either as "Future Tort Claims" or "Category A Claims." After hearing evidence in 2016, I ruled that a claim qualifies as a Category A Claim if:
(1) The claim is based on an alleged exposure to a harmful substance that occurred on or after August 12, 2009; or
(2) The claim is based on an exposure that occurred before August 12, 2009, but as to which no injury or disease was manifested until on or after August 12, 2009; or
(3) The exposure, as well as the manifestation of an injury or disease, predated August 12, 2009, but the claimant is able to establish (a) that the claimant's
failure to file a timely proof of claim should be excused on grounds of excusable neglect, or (b) that the purported discharge of the claimant's claim was a violation of due process and therefore ineffective
See Memorandum Opinion as to Tort Claims Trustee's Motion for Instructions Regarding Future Tort Claims on December 14, 2016 (ECF No. 3268). The witnesses at the 2016 hearing testified that they believed (at the time the Plan was confirmed) that injuries from creosote exposures would already have manifested themselves, and that they did not expect that there would be significant numbers of "future" tort claims based on creosote exposures. See Oct. 25, 2016 Hr'g Tr. (ECF No. 3267) at 15:23-16:8, 20:9-20:23.
It was not clear, when the Plan was confirmed, whether tort claimants would receive significant recoveries, because the main funding for the Tort Claims Trust was to come from the proceeds of a fraudulent transfer litigation that was still pending in 2010. However, a very successful resolution of that litigation in 2015 resulted in the infusion of more than $600 million to the Tort Claims Trust. See Annual Report and Account of the Tronox Incorporated Tort Claims Trust for the Year ending December 31, 2015, filed on April 29, 2016 (the "2015 Trust Report"), at Dkt No, 3064-1, ¶ 6. That large infusion enabled the Trust to make distributions to Category D tort claimants that greatly exceeded the average recoveries that tort claimants had received in pre-bankruptcy litigations.
The large distributions in 2015 sparked an explosion in the filing of "future" tort claims. As of early 2015 the Tort Claims Trust had received only about 600 such claims. See Jan. 24, 2018 Hr'g Tr. (ECF No. 8041) at 5:1-5. After word circulated about the Category D distributions, however, more than 10, 000 new Category A claims were filed in a four-month period. Id. 5:5-8. At the latest count the Trust has received more than 38, 000 such claims. The
Trust has issued "Determination Notices" to more than 19, 000 claimants, stating whether the Trustee agrees or disagrees with the asserted future tort claims and, in cases where the Trustee agrees, what the proposed allowed amounts of the claims would be. See Annual Report and Account of the Tronox Incorporated Tort Claims Trust for the Year ending December 31, 2019, filed on April 30, 2020 (the "2019 Trust Report"), Ex. B [ECF No. 9461]. In many instances the Trust took the position that the proposed claims arose prior to the bar date and were barred because no timely proofs of claim had been filed. In response, 4, 676 claimants have filed motions with this Court seeking permission to file claims notwithstanding the expiration of the August 12, 2009 bar date.
Many of the movants have described serious illnesses, and reviewing the motions is a difficult task. Unfortunately, however, it is obvious that there are many serious misconceptions as to the recoveries that the holders of "future" tort claims are likely to receive and as to the standards that govern the motions.
Likely Recoveries. It is plain that many movants believe that if their Future Tort Claims are allowed they will receive compensation that is similar to what has been paid to persons who filed Category D tort claims before the original bar date in 2009. Unfortunately, however, that is not the case. Any recoveries by holders of Category A Claims will be relatively small, and I am powerless to do anything to change that outcome.
The confirmation of the 2010 plan of reorganization discharged all tort claims against the Tronox companies. That discharge was final in 2010. I have no continuing jurisdiction over Tronox or its predecessors or successors. Those companies have no obligation to contribute additional funds to the Tort Claims Trust. Claimants' only recourse is to whatever funds are still held in the Tort Claims Trust. No other funds are available in these bankruptcy cases.
As noted above, most of the assets of the Tort Claims Trust were set aside for claimants who filed timely proofs of claim in 2009. Those funds have already been distributed, except for a minor amount that is awaiting distribution while administrative issues are resolved. See 2019 Trust Report. The only funds to which the movants would have access (if their motions were granted) are the funds that were set aside for "Category A" claims. At the end of 2019 the amount that remained for all of these claims was only $20, 705, 258.
Once the claims process is finished, each Category A claimant whose claim is allowed will be entitled to a share of whatever is left. That share will be based on the size of the claimant's allowed claim compared to the total of all allowed Category A claims. Given the amount of available funds, and the huge numbers of Future Tort Claims that have been filed, the Tort Claims Trustee anticipates that Future Tort Claimants will receive payments that are less than 1% of the "allowed amounts" of their claims. See 2019 Trust Report ¶ 6A. That means (for example) that a future tort claimant who has an "allowed" claim of $10, 000 will likely receive less than $100 as an actual distribution. The actual amounts of the payments could be less, and ultimately will depend on how much (if anything) is left after paying the ongoing costs of reviewing and resolving the many thousands of remaining claims.
The Court understands that the holders of timely-filed tort claims received much larger distributions of approximately 35% of the "allowed" amounts of their claims. The payments to Future Tort Claimants therefore will necessarily be only a small fraction of the payments that were made to persons who filed timely claims. The claimants who have filed future tort claims understandably may feel that it is unfair that timely-filed claims received better recoveries. However, I cannot do anything to change that fact. The allocations of funds among the different categories of tort claims happened long ago - with participation by attorneys who represented
tort claimants - and those allocations became final when the plan was confirmed in 2010. See Tronox Inc. v. Anadarko Petro. Corp. (In re Tronox Inc), No. 14-cv-5495(KF), 2014 U.S. Dist. LEXIS 158767 *21-22 (S.D.N.Y. Nov. 10, 2014) (rejecting a request in 2014 for a change to the allocation of settlement proceeds because the allocations had been set by the 2010 confirmation order and requests for changes were barred by res judicata). I do not have the power to alter the plan or the allocations of funds that were previously approved. In any event it would be fruitless to try, because as noted above all of the monies that were set aside for "timely" tort claims have already been distributed or designated for distribution.
Claims that were Barred Before the Bankruptcy Filing. In a bankruptcy case, the court sets a bar date for the filing of claims. Claimants may ask to be excused from the bar date based on excusable neglect, but such a showing only excuses a failure to comply with the bar date itself. The claim still must be a claim that is valid and enforceable under non-bankruptcy law. See 11 U.S.C. § 502(a). A very high proportion of the motions that have been filed, however, identify claims that plainly were barred prior to the Tronox bankruptcy filing.
For example, many of the claims that are the subject of the pending motions have been filed by claimants in Mississippi. Mississippi imposes a three-year statute of limitations for the assertion of a tort claim of the kind that is at issue here. Miss. Code § 15-1-49. The Mississippi Supreme Court has held that a claim for latent injury or disease based on creosote exposure accrues when the claimant was diagnosed with the injury or a disease, regardless of whether the claimant knew of the cause of the injury or disease. See Angle v. Koppers, Inc., 42 So.3d 1, 7 (Miss. 2010) (holding that "[n]o provision of Section 15-1-49 provides that a plaintiff must have knowledge of the cause of the injury before the cause of action accrues, initiating the running of the statute of limitations.")
The Tronox bankruptcy case was filed on January 12, 2009. Claims under Mississippi law that are based on injuries or...
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