Reducing Environmental Risk

Largest Environmental Settlement in History Reached in Kerr-McGee Case

In a triumph of environmental responsibility and justice over corporate attempts to disclaim environmental liabilities, the former Kerr-McGee Corporation has been ordered to clean up after itself.

Since its founding in 1929, Kerr-McGee engaged in a number of highly contaminating enterprises, including uranium mining; processing of radioactive thorium; treatment of wood using creosote; oil and gas operations; and the manufacturing and use of various chemicals, including ammonium perchlorate, a component of rocket fuel. U.S. Attorney for the Southern District of New York Preet Bharara characterized Kerr-McGee’s business plan as “85 years of poisoning the earth.”

Many of these components of Kerr-McGee’s business had been discontinued by the early 2000s, but the company still retained vast environmental liabilities for its former operations. In order to separate its continuing oil and gas business from its former identity as a chemical company, and make the remainder of the company more attractive to prospective purchasers, Kerr-McGee reorganized: it created a new corporate entity, Tronox Incorporated, to hold its chemical legacy liabilities; spun off this entity from the remainder of its business; and sold the remainder of its company to Anadarko Petroleum Corporation for $18 billion.

In 2009, just three years after its founding, Tronox filed for bankruptcy, and initiated a lawsuit against Kerr-McGee, and its now-parent Anadarko, alleging a fraudulent conveyance of assets. Tronox had found itself responsible for billions of dollars in environmental legacy liabilities to involuntary creditors for the toxic and chemically-laden activities performed by Kerr-McGee since its inception, yet was undercapitalized and lacked the funds to satisfy these debts.

In 2011, Tronox emerged from bankruptcy after reaching a settlement with the United States, 22 states, 6 local governments, and the Navaho Nation. Under the terms of the settlement, Tronox was required to pay approximately $300 million, establish a litigation trust, and give up an 88% stake in its fraudulent conveyance suit. The United States intervened in the fraudulent conveyance action after this settlement, and took over the litigation.

The court recognized that Kerr-McGee’s corporate reorganization was simply an attempt to evade responsibility for the cleanup of its toxic and hazardous sites throughout the country. It found that Kerr-McGee had created Tronox as a shell corporation, with the intent to hinder or delay rightful environmental and tort beneficiaries from obtaining any meaningful recovery.

This year, in the largest environmental enforcement recovery in history, Kerr-McGee and Anadarko were ordered to pay $5.15 billion, $4.4 billion of which will be used to remediate 85 years of environmental contamination and satisfy outstanding environmental and tort claims.

The funds will be divided among the 2,700 former Kerr-McGee sites in 47 states, with 8.8% of the recovery used for remediation of EPA Region 2 sites. At least one former Kerr-McGee site is in New York, and several others are in the tri-state area.



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