In Re Tronox Incorporated
| Citation | 429 B.R. 73 |
| Decision Date | 31 March 2010 |
| Docket Number | Adversary No. 09-1198.,Bankruptcy No. 09-10156 (ALG). |
| Parties | In re TRONOX INCORPORATED, et al., Debtors.Tronox Incorporated, Tronox Worldwide LLC f/k/a Kerr-McGee Chemical Worldwide LLC, and Tronox LLC f/k/a Kerr-McGee Chemical LLC, Plaintiffs,v.Anadarko Petroleum Corporation and Kerr-McGee Corporation, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
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Kirkland & Ellis LLP by David J. Zott, Esq., Matthew T. Regan, Esq., Jeffrey J. Zeiger, Esq., Chicago, IL, by Richard M. Cieri, Esq., Jonathan S. Henes, Esq., New York, NY, for Plaintiffs Tronox Incorporated Tronox Worldwide LLC, and Tronox LLC.
Weil, Gotshal & Manges LLP by Melanie Gray, Esq., Lydia Protopapas, Esq., Jason W. Billeck, Esq., Houston, TX, by Richard A. Rothman, Esq., Bruce S. Meyer, Esq., Lori L. Pines, Esq., New York, NY, for Defendants Anadarko Petroleum Corporation and Kerr-McGee Corporation.
Bingham McCutchen LLP by James J. Dragna, Esq., Los Angeles, CA, by Duke K. McCall, III, Esq., Washington, DC, for Defendants Anadarko Petroleum Corporation and Kerr-McGee Corporation.
Before the Court is a motion filed by Anadarko Petroleum Corporation (“Anadarko”) and its wholly owned subsidiary, Kerr-McGee Corporation (“Kerr-McGee” or “New Kerr-McGee”) (collectively, “Defendants”), to dismiss the Adversary Complaint (the “Complaint”) of debtors Tronox Incorporated, Tronox Worldwide LLC f/k/a Kerr-McGee Chemical Worldwide LLC, and Tronox LLC f/k/a Kerr-McGee Chemical LLC (collectively, “Tronox” or “Plaintiffs”) filed in the above-captioned adversary proceeding.1 At the core of the Complaint is the allegation that Defendants imposed on Tronox and its chemical business 70 years of legacy liabilities, including enormous environmental obligations, and as a consequence rendered it insolvent and severely undercapitalized. The purpose of the transactions, it is alleged, was to immunize from these legacy obligations Kerr-McGee's most valuable asset, its oil and gas business, which defendant Anadarko acquired for $18 billion. Defendants move to dismiss the Complaint pursuant to F.R. Civ. P. 8(a)(2), 9(b) and 12(b)(6). For the reasons set forth below, the motion to dismiss is granted in part and denied in part.
The following facts are alleged in the Complaint and are presented in the light most favorable to Plaintiffs. They must be and are assumed to be true for purposes of this motion to dismiss.
On January 12, 2009, Tronox and 14 of its affiliated companies (the “Debtors”) filed for Chapter 11 protection in this Court. Debtors are operating their businesses and managing their properties as debtors in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code (the “Code”). Plaintiff Tronox Incorporated, one of the debtors, is a Delaware corporation with its principal place of business in Oklahoma City. Plaintiff Tronox Worldwide, LLC, another one of the debtors, is a wholly owned subsidiary of Tronox Incorporated and successor in interest to Old Kerr-McGee (as defined below). Plaintiff Tronox LLC, another debtor, is an indirect wholly owned subsidiary of Tronox Incorporated.
Defendant Anadarko is a Delaware corporation headquartered in The Woodlands, Texas. On June 22, 2006, approximately three months after New Kerr-McGee completed the transaction that is challenged in the Complaint, Anadarko offered to acquire the oil and gas properties, New Kerr-McGee, for $18 billion, including $16.4 billion in cash. On August 10, 2006, the shareholders of New Kerr-McGee approved the offer, and Defendant New Kerr-McGee became a wholly owned subsidiary of Anadarko. Tronox was allegedly left behind, insolvent, undercapitalized and saddled with legacy obligations that it could not support.
Kerr-McGee was founded in 1929 as Anderson & Kerr Drilling Company in Oklahoma. According to the Complaint, by the late 1990s, the entity then known as Kerr-McGee Corporation (“Old Kerr-McGee”) had accumulated massive actual and contingent environmental, tort, retiree, and other obligations (the “Legacy Obligations”) in connection with many of its lines of business, including the treatment of wood products, production of rocket fuel, refining and marketing of petroleum products, and the mining, milling and processing of nuclear materials. By 2000, Old Kerr-McGee had terminated many of these historic operations and was left with two core businesses: (i) a large and thriving oil and gas exploration and production operation and (ii) a much smaller chemical business.
According to the Complaint, consolidation in the oil and gas industry increased the value of exploration and production companies in the late 1990s, but prospective merger and acquisition entities were discouraged from dealing with Old Kerr-McGee as a result of its Legacy Obligations. By 1998, Old Kerr-McGee executives began exploring transactions through which they could attempt to ring-fence the Legacy Obligations and immunize the oil and gas properties. One option included assigning all of the Legacy Obligations to a dormant subsidiary in exchange for a promissory note issued by Old Kerr-McGee. In 1999, however, Old Kerr-McGee received notice from the United States Environmental Protection Agency (the “EPA”) that it was designated a potentially responsible party (a “PRP”) for the cleanup of a contaminated former wood treatment site at Manville, New Jersey. One of the letters from the EPA outlined the remedy the EPA had selected for the Manville site, including the permanent relocation of residents, excavation of contaminated material, and off-site thermal treatment and disposal. The letter further requested that Old Kerr-McGee state whether it would finance or perform the remediation, which was estimated to cost $59,100,000.2 According to the Complaint, the EPA letters caused grave concern at the Old Kerr-McGee Board of Directors level, especially as there were other previously undisclosed wood treatment and agricultural chemical sites that, like Manville, had likely generated environmental and tort obligations.
It is alleged in the Complaint that Old Kerr-McGee accordingly devised, over time, a plan to rid itself of the Legacy Obligations and to protect its oil and gas assets. The first step, named “Project Focus,” was to segregate the Legacy Obligations from the valuable oil and gas assets by isolating the former in a subsidiary that primarily consisted of the chemical business (the “Chemical Business”). To segregate the oil and gas assets, Old Kerr-McGee created a new corporate structure that included a new “clean” parent company, New Kerr-McGee, and a new “clean” subsidiary, Kerr-McGee Oil and Gas Corporation (the “Oil and Gas Business”), into which all of the oil and gas assets were eventually placed. That left many of the Legacy Obligations partially segregated, but still with New Kerr-McGee in control and ultimately responsible for them. The second step was to sever the Chemical Business, along with the Legacy Obligations, from New Kerr-McGee through either a sale or a spin-off.
In connection with the first step, Old Kerr-McGee concluded that the Chemical Business was too small to take on all of the Legacy Obligations with any credibility. In an alleged effort to bolster the size of the Chemical Business, Old Kerr-McGee acquired the titanium dioxide operations of Kemira Pigments Oy (“Kemira”), including plants in Savannah, Georgia and Botlek, Netherlands. The Complaint alleges on information and belief that Old Kerr-McGee significantly overpaid for the Kemira facilities and failed to conduct any meaningful due diligence that would have revealed operational and environmental issues that have afflicted the Savannah plant since its purchase. By carrying the Kemira assets at an inflated acquisition cost, Old Kerr-McGee allegedly intended to cover the imposition of many more Legacy Obligations on Tronox.3
In 2001, having pumped up the Chemical Business, Old Kerr-McGee commenced Project Focus, the purpose of which was to segregate the oil and gas assets from the Legacy Obligations. On May 8, 2001, Old Kerr-McGee management presented the Board with several options for separating Old Kerr-McGee's Oil and Gas Business from the Chemical Business, including (i) a leveraged buy-out of the Chemical Business, with Old Kerr-McGee retaining a minority equity share, (ii) a spin-off of either the Chemical Business or the exploration and production business, or (iii) a Morris trust transaction through which a spin-off would be coupled with a merger of the Chemical Business and a third party.
On May 13, 2001, the Old Kerr-McGee Board of Directors approved the first step in a series of corporate transactions by which a new “clean” holding company, New Kerr-McGee, and a new “clean” subsidiary, holding the assets of the Oil and Gas Business, were created. Old Kerr-McGee became a wholly owned subsidiary of New Kerr-McGee. On December 31, 2002, Old Kerr-McGee caused “substantially all” of the valuable oil and gas assets, worth billions of dollars, to be transferred into the new subsidiary. Included in these assets were shares of Devon Energy Corporation stock worth more than $200 million, and other assets, including the stock of various other companies. In 2003, New Kerr-McGee continued to transfer assets out of Old Kerr-McGee as Project Focus progressed. Nevertheless, although the oil and gas assets were segregated the Complaint claims that the Defendants imposed on Plaintiffs the Legacy Obligations that were the result of the oil and gas operations, such as liabilities relating to petroleum terminals, offshore drilling, and hundreds of service station sites with environmental clean-up issues. The Legacy Obligations imposed...
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