Publication / Inside EPA
December 24, 2013
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U.S. Bankruptcy Court Finds Cleanup Liability Transfer Fraudulent

A U.S. bankruptcy court in a recent landmark ruling has found Kerr-McGee Corp. liable for billions of dollars in environmental cleanup costs, after it fraudulently conveyed assets to a new parent company to evade its debts, a decision that is considered the largest bankruptcy award ever for U.S. environmental claims and liabilities.

In the Dec. 12 opinion in Tronox Inc. et al. v. Kerr McGee Corp et al., Judge Allan Gropper for the U.S. Bankruptcy Court for the Southern District of New York found Kerr-McGee Corp. acted with “intent to hinder” when it created the new company Tronox in 2005, and left it with environmental liabilities estimated at up to $14.1 billion with no available assets to pay the obligation — ultimately setting up Tronox to fail.

The ruling awards between $5.1 billion and $14.1 billion to the United States and other claimants to be paid by Anadarko Petroleum Corp and its subsidiaries. Anadarko purchased Kerr-McGee Corp. in 2006. The money will be used to clean up contaminated sites around the nation affected by “Old Kerr-McGee” businesses that included uranium mining, the processing of radioactive thorium and the manufacturing of perchlorate.

The groundbreaking decision may have future implications, as experts say the ruling sends a warning about environmental liability transfers within companies. They say companies buying or selling assets with existing environmental cleanup liabilities must take steps to ensure their disclosure of liabilities is well documented and that everyone involved in a sale is acting in their own company’s best interests.

The decision “will not let polluters evade their environmental liabilities through a corporate shell game,” Manhattan U.S. Attorney Preet Bharara said in a Dec. 13 statement.

Cynthia Giles, assistant administrator in EPA’s Office of Enforcement and Compliance Assurance, said in a statement that the court ruling asserts that companies are responsible for the toxic pollution they cause and that “those that manipulate their assets and leave American taxpayers to foot the bill to clean up their mess will be held accountable.”

It may still be years before claimants see payout from the ruling as Anadarko has vowed to appeal the judgment, and has questioned the court’s authority to enter a judgment.

Separate litigation over the size of damages is also still underway.