The Department of Justice yesterday entered into a record $5.1 billion settlement with Anadarko Petroleum in an environmental contamination case. The settlement marks the largest environmental enforcement recovery in the Justice Department's history.

In December 2013, the U.S. Bankruptcy Court for the Southern District of New York found that Old Kerr-McGee, which was acquired by Anadarko in June 2006, fraudulently conveyed assets to New Kerr-McGee to evade its debts, including its liability for environmental clean-up at contaminated sites around the country. To resolve the charges, the defendants will pay $5.15 billion, $4.4 billion of which will be paid to fund environmental clean-up and for environmental claims. 

“Kerr-McGee's businesses all over this country left significant, lasting environmental damage in their wake,” said Deputy Attorney General James Cole. “It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill. This settlement demonstrates the Justice Department's firm commitment to preventing and combating all forms of fraud.”

According to the complaint, Old Kerr-McGee operated numerous businesses, which left contamination across the country, including radioactive uranium waste across the Navajo Nation; radioactive thorium in Chicago; creosote waste in the Northeast, the Midwest, and the South; and perchlorate waste—a component of rocket fuel—in Nevada.

Prior to 2005, Old Kerr-McGee concluded that the liabilities associated with the environmental contamination were a drag on its business, the exploration and production of oil and gas. With the intent of evading these and other liabilities, Old Kerr-McGee created a new corporate entity, defendant New Kerr-McGee. Through a scheme executed in 2002 and 2005, it transferred its valuable oil and gas exploration assets to the new company. 

“The company tried to keep its rewards and shed its responsibilities by playing a corporate shell game, putting its profitable oil-and-gas business in a new entity and leaving behind a bankrupt shell holding the environmental liabilities of the defunct, polluting lines of business,” said U.S. Attorney Preet Bharara. “The company tried to cleanse its valuable business from its toxic legacy liabilities.”

The legacy environmental liabilities were left behind in the old company, which was re-named Tronox, and spun off as a separate company in 2006.  As a result of these transactions, Tronox was rendered insolvent and unable to pay its environmental and other liabilities, declaring bankruptcy in 2009.

Lawsuit Filed

The United States and the bankruptcy estate (now represented by the Trust) filed a lawsuit to hold the defendants accountable and require them to repay the value of the assets fraudulently conveyed from Old Kerr-McGee. 

In its decision, the court found that Old Kerr-McGee transferred assets with the intent to hinder or delay creditors, in particular environmental creditors, and also transferred those assets for less than their fair value, which left Tronox insolvent, unable to pay its debts when they came due, and undercapitalized.

“[T]here can be no dispute that Kerr-McGee acted to free substantially all its assets—certainly its most valuable assets—from 85 years of environmental and tort liabilities,” the court concluded.

The settlement agreement will be lodged with the U.S. Bankruptcy Court for the Southern District of New York for a period of at least 30 days before it is submitted for the court's approval, in order to provide public notice and to afford members of the public the opportunity to comment on the settlement agreement.

The consent decrees are available here.