NEW YORK (Reuters) - Anadarko Petroleum Corp (APC.N) and its Kerr-McGee unit acted with “intent to hinder” when they spun off Tronox, the paint materials company that later went bankrupt, and should pay billions of dollars in environmental cleanup costs, a judge ruled on Thursday.
The decision, which parties had been awaiting for about a year since a trial wrapped up in late 2012, drove Anadarko’s shares down 9.8 percent to $75.50 in after-hours trading.
Judge Allan Gropper said damages could range between about $5 billion and more than $14 billion, in the decision handed down late Thursday afternoon in U.S. Bankruptcy Court in Manhattan.
Anadarko and Kerr-McGee are expected to appeal the ruling.
“Given the significant factual evidence supporting our position, we vehemently disagree with the Judge’s Memorandum of Opinion,” Anadarko CEO Al Walker said in a statement.
“We fully expect to pursue every avenue available to us through the appellate process to protect the interests of our stakeholders, once a final judgment including damages has been rendered.
Tronox sued Anadarko and Kerr-McGee in 2009, arguing that the 2005 spinoff that created Tronox was fraudulent because it loaded Tronox up with environmental liabilities that made it insolvent.
Tronox, which makes titanium dioxide used in paints, filed for Chapter 11 bankruptcy in 2009.
When Tronox emerged from bankruptcy in 2011, a litigation trust for certain Tronox creditors took its place as the plaintiff in this case. The trust claimed that Kerr-McGee’s spinoff of Tronox allowed Kerr-McGee to become more valuable to Anadarko, which acquired it in 2006.
Tronox said it will receive no immediate or direct benefit from the ruling. It said 88 percent of the judgment will go to trusts and other governmental entities to remediate polluted sites and 12 percent of any funds received will be distributed to a Tort Trust.
The litigation trust represents the interests of entities that claimed health problems caused by pollution from uranium deposits, wood creosote and more. Claimants include the United States government, 11 individual states, the Navajo Nation, various environmental response trusts and trusts for individual plaintiffs.
The litigation trust, which sought $25 billion to clean up 2,000 sites in the United States, was eventually joined as a plaintiff in the lawsuit by the U.S. government.
“The defendants acted with intent to hinder and delay” Tronox creditors when they transferred out and then spun off oil and gas assets, and the transaction “was not made for reasonably equivalent value,” Gropper said in a 166-page ruling.
Just how adverse a ruling it is for Anadarko and Kerr-McGee will come down to the issue of damages. While Gropper found that the trust is entitled to recover about $14.17 billion, Anadarko may be entitled to decrease the figure by roughly $9 billion for offsetting costs it may have incurred from the transaction. Overall damages could be between about $5.15 billion and $14.17 billion, plus attorneys’ fees, Gropper said.
Both sides will present their cases to the judge on appropriate damage figures at a later date.
John Hueston, the trustee for the litigation trust, called the ruling a “stunning victory” for Tronox creditors and environmental claimants.
“The floor for damages is $5 billion, but we expect the court to provide well in excess of that once all is said and done,” Hueston told Reuters.
Gropper waited about a year to render a ruling, longer than had been expected, perhaps because he hoped the parties would settle, Hueston said.
“Eventually I think it became clear to him that the parties were not going to settle,” he said, adding that his “confidence grew over time” that the decision would fall in the trust’s favor.
“I thought it indicated there would be a very thorough, thoughtful opinion,” he said.
The case is Tronox Inc et al. v. Kerr McGee Corp et al., U.S. Bankruptcy Court, Southern District of New York, No. 09-1198.
Additional reporting by Chris Peters in Bangalore; Editing by Jan Paschal and Supriya Kurane