In a dispute that once generated the “largest environmental bankruptcy award ever,” the United States District Court for the Southern District of New York this month issued a decision further clarifying the effects of the monumental 2014 bankruptcy settlement agreement.  The February 1, 2016 decision in In re Tronox Incorporated, No. 1:14-cv-5495, determined that beneficiaries of the 2014 settlement agreement could not reignite their toxic tort claims against the debtors’ surviving corporate parent, Kerr-McGee Corporation (“(new) Kerr-McGee”), in the underlying settlement agreement.

Beginning in 2005, over 4,000 Pennsylvania plaintiffs filed toxic tort claims against the entities now known as Kerr-McGee, Tronox Worldwide, and Tronox, LLC.  The claims arose out of exposure to alleged contamination associated with a wood treatment plant located in Avoca, Pennsylvania that operated from 1956-1996.  The plaintiffs were individuals who lived and worked near the wood treatment plant and alleged that they had been exposed to harmful chemicals during the time of the facility’s operation.  They brought their claims in the Court of Common Pleas of Luzerne County, Pennsylvania where the plant was located.

Of the three defendants, only the predecessors of Tronox Worldwide and Tronox LLC existed during the time in which the wood treatment plant was in operation.  The third defendant Kerr-McGee is referred to as “(new) Kerr-McGee Corp.” in the most recent opinion in order to distinguish it from the Tronox defendants who were debtors in the subsequently-filed bankruptcy proceedings.  The Tronox defendants were formerly known by a number of different corporate titles, many of which included the name “Kerr-McGee.” 

After claiming bankruptcy, Tronox Worldwide and Tronox LLC entered the 2014 settlement agreement by the creation of a trust for the payment of claims to creditors, including the Pennsylvania plaintiffs.  The Pennsylvania plaintiffs, and other tort plaintiffs, were entitled to a portion of the settlement funds devised to a Tort Claims Trust, but the Tort Claims Trust was also entitled to a share of any recovery of the Anadarko Litigation Trust, which was charged with pursuing fraudulent conveyance claims against the surviving (new) Kerr-McGee and its corporate parent, Anadarko Petroleum Corporation.

Seeking to augment their available funds further, the Pennsylvania plaintiffs resumed their toxic tort case against the ultimate parent of the two Tronox entities, (new) Kerr-McGee.  As (new) Kerr-McGee was not a party to the settlement, the plaintiffs argued they were not precluded from seeking a further recovery from this surviving entity.  In doing so, however, the plaintiffs attempted to sidestep the fact that (new) Kerr-McGee could not be directly liable to the plaintiffs by repeatedly referring to an amorphous group of “Kerr-McGee” defendants as responsible for operation of the plant, even though (new) Kerr-McGee was not in existence at the time of the plant’s operations.

Wisely, rather than defend the Pennsylvania plaintiffs’ claims in Pennsylvania state court, (new) Kerr-McGee petitioned the S.D.N.Y. to enforce the 2014 settlement agreement and direct the Pennsylvania plaintiffs to withdraw their Pennsylvania claims.  District Judge Katherine B. Forrest obliged, with two key holdings.  First, the court painstakingly parsed through the claims against “Kerr-McGee” and held that the Pennsylvania toxic tort plaintiffs could not assert a direct tort claim against (new) Kerr-McGee because it was not an existing entity at the time the claims allegedly accrued.  Second, the court held that the Pennsylvania plaintiffs could not assert claims against (new) Kerr-McGee pursuant to the doctrines of veil piercing, respondeat superior, or alter ego without first establishing claims against the Tronox entities.   The court then concluded that because the settlement agreement extinguished such claims, the Pennsylvania plaintiffs could not proceed with their claims against (new) Kerr-McGee, their corporate parent.  

The court’s holding, while perhaps not surprising in its outcome, does provide valuable guidance applicable to future successor liability and corporate parent liability issues.  First, it reinforces the pitfalls of relying on collective allegations against groups of co-defendants, such as “the Kerr-McGee defendants,” when the claims against such entities are distinct.  Second, the case stands for the proposition that a plaintiff may not bring direct tort claims against a corporate entity that did not exist at the time the tort was allegedly committed (potential fraudulent transfer claims notwithstanding); and it provides that theories of indirect tort liability against corporate parents require viable claims against the underlying corporate entities. 

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