Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.)

Citation: 503 B.R. 239Docket: Case No. 09-10156 (ALG) (Confirmed Cases); Adv. Proc. No. 09-1198 (ALG)

Court: United States Bankruptcy Court, S.D. New York; December 12, 2013; Us Bankruptcy; United States Bankruptcy Court

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On January 12, 2009, Tronox Incorporated and 14 affiliates filed for Chapter 11 bankruptcy protection, leading to the confirmation of a First Amended Joint Plan of Reorganization on November 30, 2010. This Plan established the Anadarko Litigation Trust to pursue claims against Anadarko Petroleum Corporation and its subsidiaries, collectively referred to as Kerr McGee. The Trust's beneficiaries include various governmental entities, the Navajo Nation, environmental response trusts, and tort plaintiff trusts, all of which have agreed on a recovery allocation from potential lawsuit winnings.

The amended complaint was filed by Tronox Incorporated, Tronox Worldwide LLC (the successor to Kerr-McGee Corporation), and Tronox LLC (successor to Kerr-McGee's chemical division). The complaint alleges that these entities were burdened with significant legacy environmental and tort liabilities after the transfer of oil and gas assets, asserting that this transfer was intended to "hinder, delay or defraud" creditors, thereby leaving the Debtors insolvent and undercapitalized. Anadarko acquired these assets for $18 billion shortly after the spin-off, with their current value estimated to be significantly higher.

The litigation, which spanned 34 trial days and included extensive evidence, raised novel issues regarding fraudulent conveyance laws in the context of environmental liabilities. The Court concluded that the Defendants intended to hinder the Debtors' creditors through the asset transfer, which was not made for reasonably equivalent value. Consequently, the Court ruled that the Defendants must pay damages, albeit not at the levels sought by the Plaintiffs.

Additionally, a brief historical context of Kerr-McGee is provided, detailing its origins in 1929, its expansions into refining and uranium mining, and its acquisitions of various chemical and mining operations throughout the mid-20th century.

APC was merged into Old Kerr-McGee, which later spun off some assets into Kerr-McGee Chemical LLC, a predecessor to Tronox LLC. By November 2005, Old Kerr-McGee had ceased most operations except for its oil and gas exploration and production (E.P.) and titanium dioxide businesses. The E.P. business was highly profitable, generating approximately $1.8 billion in operating profits in 2005, compared to $106 million from titanium dioxide. Over the prior five years, E.P. profits totaled $5.2 billion versus $312 million for titanium dioxide. However, Old Kerr-McGee faced significant legacy environmental and tort liabilities, managing over 2,700 contaminated sites across 47 states, incurring over $1 billion in environmental response costs since 2000, and averaging over $160 million annually in remediation expenses. The company had settled about 15,000 creosote liability claims for $72 million (plus $26 million in defense costs) and still faced 9,450 pending claims.

Starting in 2000, Old Kerr-McGee began restructuring its businesses through initiatives called “Project Titan” and “Project Focus,” facilitated by Lehman Brothers. These projects involved transferring the E.P. business and oil and gas assets to a new holding company, Kerr-McGee Corporation (New Kerr-McGee), thereby allowing it to avoid liability for Old Kerr-McGee's legacy issues. Plaintiffs argue this restructuring was a deliberate plan to separate profitable E.P. assets from the burdens of environmental liabilities, while Defendants maintain the restructuring aimed to optimize business performance by creating independent companies for the E.P. and chemical sectors, asserting that the market undervalued their combined operation. They argue that post-restructuring, Old Kerr-McGee had various options regarding its chemical business rather than a definitive separation.

Maintaining the status quo with the chemical business as a subsidiary of Old Kerr-McGee would hinder the company's stock price, preventing it from being viewed as a “pure play” oil and gas entity. Defendants were intent on divesting the chemical business from the start of Project Titan and Project Focus, as management sought to alleviate the valuable E.P. assets from legacy liabilities, which were detrimental to Kerr-McGee's attractiveness as a merger candidate. Evidence indicates that from 1990 to 2004, nearly 80% of independent North American oil and gas firms merged into larger entities, highlighting industry consolidation.

Anadarko, which acquired Kerr-McGee's E.P. business in 2006 shortly after the divestiture of legacy liabilities, had previously rejected a 2002 acquisition of Kerr-McGee due to significant environmental liabilities, identifying over 500 active pollution sites and billions in future remediation costs that would severely impact cash flow. While Defendants argue the limited scope of Anadarko’s due diligence, it underscores that legacy liabilities disqualified Kerr-McGee from a profitable merger with another E.P. company.

The records indicate that a complete separation of the businesses was the primary goal from the outset of Project Titan in 2000. Initial presentations suggested that the chemical business had reached a critical mass for separation from the E.P. operations. Although Kerr-McGee officers believed in the viability of the chemical company post-separation, there was no convincing evidence that a complete separation would not occur if market conditions allowed. Freedom from legacy liabilities was a key factor in the split.

In January 2001, Lehman Brothers advised that spinning off the E.P. business could isolate it from Old Kerr-McGee's historical environmental liabilities, which was crucial to the strategy. Following this, Old Kerr-McGee engaged Simpson Thacher & Bartlett to ensure that the E.P. business would not carry these legacy liabilities. The subsequent separation of the chemical and E.P. businesses was formalized through Project Focus, involving 11 transactions approved by the Kerr-McGee Board in September 2002, effective December 31, 2002, culminating in the formation of a new holding company, Kerr-McGee Worldwide Corporation.

In step 8, ownership interests in E.P. subsidiaries shifted from Old Kerr-McGee to Kerr-McGee Worldwide Corporation. Subsequently, in step 10, Old Kerr-McGee established Kerr-McGee Chemical Worldwide LLC as a wholly-owned subsidiary and merged into it. This entity later became Tronox Worldwide LLC, which retained all legacy liabilities of Old Kerr-McGee. The CEO indicated that Project Focus resulted in the transfer of all original Kerr-McGee businesses except the chemical sector, which retained all legacy liabilities from the past 75 years. The transfers were entirely managed by Kerr-McGee, and their financial ramifications were not transparently reported in public financial statements, aside from a vague mention in the March 27, 2003, Form 10-K. After the 2002 asset transfer, Kerr-McGee operated as a consolidated entity, funding operations and legacy liabilities through a central cash management system, regardless of the subsidiaries’ financial independence.

Notably, bondholders holding about $2 billion in bonds were contractually protected against the transfer of oil and gas assets, as Old Kerr-McGee had promised not to divest substantial assets without ensuring the recipient assumed its bond obligations. To facilitate the transfer, Kerr-McGee claimed it had distributed "substantially all" assets to its parent, supported by an internal analysis showing that 86.4% of Old Kerr-McGee’s assets, 83.2% of its revenues, and 112.6% of its net income were transferred. The transaction incurred approximately $22 million in fees, indicating its significance. Although some transactions began in late December 2002, the final separation of chemical and E.P. businesses did not occur until 2005. In that year, New Kerr-McGee and Old Kerr-McGee formalized their separation through several agreements, confirming that Kerr-McGee Chemical Worldwide LLC would bear sole responsibility for legacy liabilities from terminated businesses, including those related to oil and gas operations, while the E.P. business would only assume liabilities directly associated with current operations.

The Assignment Agreement and the Master Separation Agreement (MSA) between Kerr-McGee, Tronox Worldwide, and Tronox Incorporated were signed in 2005 but backdated to December 31, 2002. The MSA, dictated by Kerr-McGee, outlined the terms of Tronox's separation and required Tronox to cooperate fully. Tronox was allocated $40 million in cash, while New Kerr-McGee retained the remaining assets and imposed a seven-year restriction on Tronox's environmental policy changes. Although the MSA included a $100 million indemnity for environmental liabilities, it was largely illusory, covering only half of Tronox's remediation costs and requiring Tronox to incur additional expenses to access the funds. By March 2009, Tronox had received less than $5 million from Kerr-McGee under the MSA. Additionally, Tronox was assigned $442 million in pension obligations and $186 million in unfunded other post-employment benefits, with no clear rationale for these assignments. The separation process, initially initiated in late 2002 with the transfer of E.P. subsidiaries, was developed further in 2003 and early 2004, but favorable market conditions for a spinoff or sale only emerged in late 2004. Lehman Brothers' analyses indicated that a spinoff could alleviate Kerr-McGee's environmental burdens, prompting management to pursue a dual-track approach for separation in early 2005.

A “100% Spin-Off/Split-Off” was proposed by Lehman to allow Kerr-McGee to achieve a “pure play” valuation and a cleaner separation from Titan liabilities. However, Lehman cautioned that these liabilities would need to be negotiated in any sale or leveraged buyout, unlike a spinoff. On March 8, 2005, the Kerr-McGee Board approved a dual-track spin/sale process. Despite prior discussions emphasizing the benefit of a clean separation from legacy liabilities, a final presentation to the Board omitted these references entirely. A former Board member was unaware that a clean separation was considered a benefit of the spinoff. The Board also did not know that management had instructed legal counsel to investigate the bankruptcy implications of the transaction. Covington & Burling spent over 96 days researching fraudulent conveyance litigation related to spinoffs. 

In July 2005, Lehman drafted a presentation indicating that while a spin would provide a cleaner separation from legacy liabilities, this would be complicated under bankruptcy scenarios. After discussions with top executives, the phrase regarding complications was deleted, and the Board was not informed of this change. No serious interest in selling the chemical business to third parties emerged, although Lehman identified 60 potential purchasers. In March 2005, a teaser was sent to 16 buyers, resulting in 13 confidentiality agreements. Several potential buyers, including BASF and Kohlberg Kravis Roberts, withdrew due to concerns over legacy liabilities. Ineos offered $1.2 billion without the liabilities but only $300 million with them, withdrawing when informed that Kerr-McGee required assumption of all related liabilities. 

After management presentations, Lehman narrowed the prospects to four bidders: Apollo Investors, Bain Capital, JP Morgan Partners, and Madison Dearborn Partners. All had access to extensive data on the chemical business and environmental liabilities. Ultimately, three bidders withdrew, citing concerns over environmental liabilities, while JP Morgan Partners made a conditional bid limited to current operating site liabilities. Madison Dearborn sought an asset purchase only for operational assets, and Kerr-McGee rejected these conditional offers. Apollo, the last interested party, conducted thorough due diligence on both the chemical business and legacy liabilities.

In June 2005, Apollo proposed a $1.6 billion offer to acquire Kerr-McGee Chemical Worldwide, which included assuming environmental liabilities estimated at $225 million, but excluded liabilities related to Wood Treatment facilities. Kerr-McGee rejected this offer in favor of a "cleaner" separation from liabilities. Shortly before Kerr-McGee's alternative IPO and spinoff, Apollo presented a revised offer on November 20, 2005, lowering the purchase price to $1.3 billion and including $300 million in indemnities for assumed environmental liabilities and an additional $200 million for breaches of representations. This revised agreement, signed by a representative of Apollo’s special purpose vehicle, remained contentious due to unresolved terms and previous rejections by Kerr-McGee, raising doubts about a potential agreement.

Concurrent with Apollo's negotiations, Kerr-McGee advanced its plan for a spinoff and IPO of Tronox. Detailed preparations included finalizing documentation for the separation, determining employee assignments, and arranging financing for Tronox. Tronox incurred $200 million in debt and secured a $250 million revolving credit line, alongside issuing $350 million in unsecured notes at a 9.5% interest rate, netting $537.1 million after costs. However, most cash was transferred to New Kerr-McGee, leaving Tronox with $40 million.

The IPO, conducted on November 28, 2005, involved issuing 17.5 million shares at $14 each, yielding $224.7 million in net proceeds after expenses. The offering fell short of expectations as Tronox was perceived as a commodity rather than a specialty chemical company, trading at a lower EBITDA multiple. Kerr-McGee anticipated a share price of $20.50 but received only $14, with underwriters retaining 1.5 million shares. Ultimately, Kerr-McGee received a total of $761.8 million from the spinoff, while maintaining control of Tronox through ownership of all Class B stock, which accounted for 88.7% of voting power.

Kerr-McGee CFO Wohleber remained chairman of Tronox's Board until March 30, 2006, when Kerr-McGee distributed its Class B stock to shareholders, finalizing the spinoff and establishing Tronox as an independent entity. Until that date, Kerr-McGee retained control over Tronox's significant transactions. Following the divestment of E.P. assets, the remaining chemical business involved manufacturing titanium dioxide (TiO2), essential for whitening various products. Kerr-McGee had previously expanded its TiO2 operations through acquisitions in the late 1990s, becoming a major industry player despite subsequent claims by plaintiffs that these acquisitions, particularly in Savannah, Georgia, and Europe, were financially disastrous due to insufficient due diligence and poor operational conditions. The chemical business reportedly lost about $435 million from 2000 to 2004, while defendants argued that EBITDA was a better measure of performance, despite its limitations. Cash flow was negative by $168 million from January 1, 2002, to September 30, 2005, and the TiO2 sector faced challenges including cyclical demand, rising costs, and competitive pressures, particularly from China.

Tronox faced significant financial challenges shortly after its spinoff from Kerr-McGee on March 30, 2006. Primarily reliant on TiO2 sales, which accounted for over 90% of its revenue, the company struggled with declining industry performance and pricing, which had decreased approximately 1.2% annually from 1950 to 2004. The plants acquired from Bayer and Kemira were inefficient and costly, necessitating around $514 million in capital expenditures from 2005 to 2009. After the spinoff, Tronox reported a net loss of $199.7 million from November 2005 until the third quarter of 2008, only achieving profitability in one quarter due to a litigation settlement. To address its financial difficulties, Tronox implemented over 280 cost-cutting initiatives shortly after the spinoff and began drawing on its line of credit, accruing over $212.8 million in debt by the time of its bankruptcy filing.

Tronox aimed to improve its financial situation through the sale of contaminated land in Henderson, Nevada, which it expected to sell for $515 million to Centex. However, the land contained environmental hazards that threatened the Las Vegas water supply, and Centex ultimately terminated the purchase option in January 2007, leaving Tronox without expected cash inflow and potential liabilities. Additionally, Tronox was responsible for funding legacy liabilities from Kerr-McGee, managing to allocate only about $90 million annually, insufficient compared to Kerr-McGee's previous expenditures. This financial strain illustrated Tronox's inability to meet its obligations and maintain operations effectively.

The head of Tronox’s environmental remediation division described the company's approach to deferring environmental expenses as a “kick the can down the road.” The reduced costs for legacy liabilities represented 56% of Tronox’s 2006 EBITDA and 95% of its 2007 EBITDA. Tronox CEO Adams identified these legacy liabilities as a significant risk to the business strategy, characterizing them as a “reverse poison pill” that hindered potential mergers and business opportunities, negatively impacting sales, growth, investor confidence, and the company’s long-term viability. Throughout 2006 and 2007, Tronox’s financial situation worsened, leading to covenant waivers from secured lenders to avoid defaults. The company secured immediate cash by selling accounts receivable in September 2007 and engaged Rothschild Inc. for restructuring in May 2008, subsequently retaining Kirkland & Ellis as legal counsel. Tronox filed for Chapter 11 in January 2009 amid a national financial crisis, relying on secured lenders for liquidity, who conditioned financing on a rapid asset sale. Tronox prepared for a sale to an Australian TiO2 producer, which would only benefit the secured lenders, leaving unsecured creditors with minimal recovery. To avert an unfavorable asset sale, Tronox negotiated financing from unsecured noteholders, contingent on the acceptance of lawsuit proceeds as part of the bankruptcy distribution for environmental claims.

Debtholders financing Tronox and other commercial creditors received stock in the reorganized company as part of the First Amended Joint Plan of Reorganization, confirmed on November 30, 2010, with the plan effective February 14, 2011. The disclosure statement estimated that commercial creditors could recover 58-100% if they participated in a rights offering, while there was no recovery estimate for environmental and tort creditors. 

The Complaint, filed on May 12, 2009, included eleven claims: 1) actual fraudulent transfers under the Oklahoma UFTA; 2) constructive fraudulent transfers under the Oklahoma UFTA; 3) fraudulent transfers under Bankruptcy Code sections 548 and 550(a); 4) civil conspiracy; 5) aiding and abetting a fraudulent conveyance; 6) breach of fiduciary duty; 7) unjust enrichment; 8) equitable subordination; 9) equitable disallowance of claims; 10) disallowance of claims under Bankruptcy Code section 502(d); and 11) disallowance of contingent indemnity claims under section 502(e)(1)(B). 

Plaintiffs sought compensatory damages, including punitive damages, and costs. Defendants' motion to dismiss was partially denied on March 31, 2010, as the court found the claims plausible and sufficiently particularized. The court upheld claims for intentional fraudulent conveyance and constructive fraudulent conveyance, ruling they were not time-barred. However, it dismissed the civil conspiracy and aiding/abetting claims without prejudice, stating that relief for fraudulent conveyance was limited to that outlined in Bankruptcy Code section 550. Additionally, the breach of fiduciary duty claim was deemed inadequately pleaded and dismissed without prejudice, while the unjust enrichment claim was dismissed due to reliance on express contracts.

Counts asserting that the Defendants’ proofs of claim should be equitably subordinated or disallowed were deemed premature and dismissed without prejudice, as the Defendants had not yet filed such claims. Ana-darko will remain a defendant because the Complaint sufficiently alleged it was a subsequent transferee of fraudulent conveyances. However, the claim for punitive damages was dismissed as it fell outside the scope of relief for fraudulent conveyance under § 550 of the Bankruptcy Code, referencing Tronox I, 429 B.R. 73.

The Court allowed the Plaintiffs to replead several counts, which led to a motion to dismiss by the Defendants. The Court determined that the Plaintiffs had adequately stated a claim regarding the Defendants breaching their fiduciary duty as a promoter, specifically during the timeline between the IPO and the stock distribution to Kerr-McGee’s shareholders, involving an allegedly insolvent subsidiary with minority shareholders. This breach occurred within the applicable limitations period. However, claims for civil conspiracy and aiding and abetting a breach of fiduciary duty were found insufficiently repleaded and were dismissed.

The initial Complaint was filed amid Tronox’s chapter 11 proceedings, with Defendants, through Anadarko, actively participating in the case. They attended most hearings, filed and amended proofs of claim, and sought recovery based on various grounds, including breaches of the Master Separation Agreement. They argued that if found liable to the Plaintiffs, they should be allowed to claim against the Debtors under equitable principles and § 502(h) of the Bankruptcy Code. As the Plaintiffs sought billions in recovery, the Defendants emerged as potentially the largest creditors, albeit with unliquidated claims.

Under Tronox’s Plan of Reorganization, Defendants negotiated terms allowing them to pursue their claims only as offsets against liability for damages if awarded to the Plaintiffs. Except for a stipulated order regarding rejection damage claims, Defendants would not participate in the initial distribution of the Plan, which could proceed without resolving this adversary proceeding. The Confirmation Order allowed all parties to reserve rights to assert claims regarding the Plan’s effect on liability or damages determinations in the Anadarko Litigation. Furthermore, the Debtors’ Plan established a litigation trust to act as the plaintiff, with any recovery benefiting the trust's beneficiaries and the United States, including under a separate FDCPA complaint. Extensive discovery was conducted throughout the chapter 11 case, culminating in a comprehensive pretrial order and a trial date set for May 15, 2012.

Defendants filed two motions before trial. The first motion aimed for summary judgment to dismiss Anadarko as a defendant, arguing there was no evidence that Anadarko was a subsequent transferee of any fraudulent conveyances or involved in any fiduciary breach. The Court’s oral decision on May 8, 2012, concluded that there had been no material asset transfer from Kerr-McGee subsidiaries to Anadarko, which had maintained these subsidiaries as separate entities post-acquisition. Consequently, Anadarko was dismissed as a defendant.

In the second motion, Defendants sought partial summary judgment to limit Plaintiffs' damage claims based on a provision in the Bankruptcy Code. They contended that recovery should only encompass unpaid environmental and tort claims from the chapter 11 case, as any additional recovery would not benefit the estate. However, the Court disagreed, citing precedent that the provision should not be interpreted as narrowly as proposed by Defendants. While it acknowledged that damages could be constrained in fraudulent conveyance cases, it rejected the notion of limiting them strictly to the filed claims.

The Plaintiffs' primary allegation was that transactions had wrongfully "liberated" substantial assets of Old Kerr-McGee from legacy liabilities, characterizing these as fraudulent conveyances—either actual (intended to defraud creditors) or constructive (made for less than equivalent value while insolvent). The applicable law was determined to be the Uniform Fraudulent Transfer Act (UFTA) as adopted in Oklahoma, which parallels the Bankruptcy Code's provisions on fraudulent conveyances. The Bankruptcy Code allows avoidance of transfers only within two years before the bankruptcy petition, potentially limiting the Plaintiffs to a few conveyances post-January 12, 2007. To leverage longer statutes of limitations under state law, a debtor must invoke 11 U.S.C. § 544(b), which allows avoidance of transfers that are voidable under applicable state law. Oklahoma law provides a four-year limitation period for both actual and constructive fraudulent conveyance claims.

A four-year look-back period from Tronox’s January 2009 chapter 11 petition includes the 2005 IPO and the March 2006 spinoff, but excludes 2002 transfers if treated as separate transactions. Defendants claim that Plaintiffs suffered damage from the stock transfer of E.P. subsidiaries to New Kerr-McGee, asserting it was finalized by the end of 2002, thus precluding claims due to the six-year gap before Tronox's filing. However, evidence indicates that the transfer of oil and gas assets was not completed until 2005, which falls within the four-year limitations period. The Assignment Agreement and Indemnity Agreement, while backdated to 2002, were not executed until spring 2005. Kerr-McGee's Deputy General Counsel confirmed that the asset assignment was finalized only with the execution of the Assignment Agreement. Defendants argue that backdating documents is permissible if they merely memorialize a prior agreement, but this cannot retroactively bind third parties or violate laws. The Assignment Agreement did not merely document an earlier agreement as the terms of the separation were not established until 2005. In 2005, Tronox also assumed significant unfunded OPEB and pension obligations under the Master Separation Agreement, with no evidence of an agreement from 2002 regarding these liabilities.

The statute of limitations did not commence in 2002 because Plaintiffs did not experience immediate injury from the stock transfers. Defendants argue that legacy liability creditors lost claims against the E. P subsidiaries' assets after 2002, but for a legacy creditor to access those assets, a judgment against Old Kerr-McGee would have been necessary, which could not happen until well within the four-year limitations period. Until at least November 2005, Kerr-McGee covered all environmental expenses through its centralized cash management system, contradicting Defendants' assertion that the Old Kerr-McGee entities independently managed their legacy liabilities. Many legacy liabilities arose from discontinued businesses, and when these businesses could not meet their obligations, Kerr-McGee recorded the unpaid amounts as equity contributions. Controller Rauh acknowledged that Kerr-McGee sometimes paid amounts from the central fund that subsidiaries could not repay. Access to subsidiary assets by legacy liability creditors was impossible until Tronox was removed from the Kerr-McGee group, as all environmental costs were paid from a common fund prior to creditor access. The Oklahoma UFTA stipulates that a fraudulent conveyance affects creditors' rights only when there is an actual impact. Furthermore, the statute of limitations examines the substance of fraudulent conveyances rather than their form, as established by case law. Courts often “collapse” multilateral transactions into single transactions for liability assessment, considering the defendants' knowledge of the entire transaction structure and whether the components formed a cohesive scheme.

The principle of "collapsing" transactions focuses on the substance of actions rather than their formal structure, aimed at protecting creditors from transactions that could impair their rights. Courts may treat a series of transactions as a single entity based on the knowledge and intent of the parties involved. In the case of Buchwald Capital Advisors LLC v. JP Morgan Chase Bank, the Second Circuit affirmed that the collapsing doctrine could be applied considering the transferee’s knowledge of the overall scheme. The evidence indicates that the defendants were fully aware that the "Project Focus" transfers in 2002 were part of a coordinated effort to establish a "pure play" E.P. business free from legacy liabilities. 

Kerr-McGee had identified legacy liabilities as obstacles to acquiring a larger company, prompting restructuring considerations, including a potential spinoff to separate these liabilities from the E.P. business. Lehman's presentations suggested that a spinoff could isolate E.P. operations from historical liabilities, and a law firm later confirmed this separation would allow Kerr-McGee to shed legacy liabilities. Despite defendants arguing that no final decision had been made regarding the spinoff, the critical issue for the collapsing analysis is whether the defendants' actions constituted a single integrated scheme, regardless of the potential for changes in their plans.

Plaintiffs successfully established that the asset transfers in 2002 were part of a coordinated scheme known to Defendants, culminating in 2005-2006, supported by clear and convincing evidence. Defendants claimed valid business reasons for separating the chemical and E. P lines, referencing Simpson Thacher’s advice that legitimate justifications were necessary for tax-free spinoffs, such as enhanced management focus and incentives. However, the 2002 transactions were only preliminary steps leading to a corporate rationalization that occurred in 2005. Prior to this rationalization, Kerr-McGee’s chemical and E. P assets were distributed across multiple subsidiaries.

Plaintiffs contend that Kerr-McGee created a new holding company to isolate valuable oil and gas assets while leaving legacy liabilities within the old company, effectively cleansing the new entity of these liabilities. The merits of Defendants' business rationale are not the issue; rather, the focus is on whether a cohesive scheme existed from 2000 onward to separate E. P assets from legacy liabilities. Testimonies from Defendants' witnesses lacked credibility, particularly regarding the assertion that the isolation of assets had no connection to cleansing liabilities. The evidence convincingly demonstrates that the Defendants' actions aimed to remove legacy liabilities from E. P assets, culminating in a spinoff in 2005-2006. 

Furthermore, the statute of limitations cannot start from the 2002 reorganization due to policy considerations, as U.S. environmental laws operate under strict liability principles, exemplified by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which holds owners or operators liable regardless of fault.

An entity obligated to clean up a site or contribute to remediation cannot evade that responsibility, except potentially in bankruptcy. Allowing defendants to avoid obligations by transferring assets could enable fraudulent schemes that would hinder creditors and manipulate statutes of limitations. The case references Kerr-McGee’s restructuring, which allegedly concealed the transfer of significant assets to a new holding company that would deny liability for legacy debts. Although Kerr-McGee’s 2002 Annual Report mentioned a reorganization, it lacked clarity on how this affected creditor obligations, particularly regarding a new subsidiary that incurred over $2 billion in debt. The United States intervened under the Federal Debt Collection Practices Act (FDCPA), which parallels fraudulent conveyance laws, asserting it will accept recovery as a creditor in the Liquidating Trustee’s case instead of pursuing separate claims. The court finds the Plaintiffs’ claims timely, thus negating the need for an independent evaluation of the government’s damages. Importantly, the United States is not bound by state statutes of limitations and can utilize federal provisions that apply to fraudulent conveyance claims.

The Fair Debt Collection Practices Act (FDCPA), effective May 29, 1991, establishes a framework for collecting debts owed to the U.S. government, with provisions for fraudulent conveyance codified at 28 U.S.C. §§ 3301-3308. Under § 3306(b), there is a six-year statute of limitations for actual and constructive fraudulent transfer claims, starting from the date of the transfer. Although the E. P. subsidiaries' transfers occurred on December 31, 2002, Tronox's Chapter 11 filing on January 12, 2009, was beyond this six-year limit. However, tolling agreements between the United States and Kerr-McGee extended the limitations period to August 29, 2008, allowing claims to proceed in January 2009.

The FDCPA is relevant under § 544(b) of the Bankruptcy Code, which allows debtors to void transactions voidable under applicable law by certain unsecured creditors. Although the Oklahoma Uniform Fraudulent Transfer Act (UFTA) applies and has a four-year limitations period, the plaintiffs argue for the FDCPA's six-year period due to the tolling agreements. Defendants contest this, citing the Fifth Circuit's decision in MC Asset Recovery LLC v. Commerzbank AG, which ruled that the FDCPA does not modify Title 11 of the Bankruptcy Code and therefore cannot be considered applicable law under § 544(b). This decision rejected previous cases allowing the FDCPA’s limitations period to apply, emphasizing that treating the FDCPA as applicable law would violate the operational integrity of Title 11.

A trustee adequately asserted a claim under 11 U.S.C. § 544(b)(1) and the Fair Debt Collection Practices Act (FDCPA), as established in In re Porter. The court determined that the trustee could assume the role of the Small Business Administration to pursue fraudulent conveyance claims under the FDCPA, which has a six-year statute of limitations. The application of the FDCPA, along with its "reach-back period," was deemed consistent with the term "applicable law" in this context. Treating the FDCPA as applicable does not alter or supersede the Bankruptcy Code's operation, and dismissing the FDCPA's relevance based on legislative history is considered overly restrictive.

Contrarily, some cases have ruled that the FDCPA is not applicable law under § 544(b), claiming that only the United States can utilize the FDCPA's avoidance powers for its benefit, as noted in the Mirant decisions. Critics of this view argue that it underestimates the language and intent of § 544(b). Additionally, the Oklahoma Uniform Fraudulent Transfer Act (UFTA) serves exclusively for creditors, and its incorporation into federal law via § 544(b) should be treated similarly to the FDCPA. Courts that found the FDCPA inapplicable under § 544(b) did not contest that the United States could pursue claims under state fraudulent conveyance laws.

Furthermore, the argument that the U.S. can only recover via FDCPA actions is unsupported. Legal precedents indicate that the U.S. is not restricted by state limitations periods when pursuing actions under state fraudulent conveyance laws. Instead, the applicable limitations for the U.S. are outlined in 28 U.S.C. §§ 2415(a) and 2416(c). Thus, the United States would have a valid claim under either the FDCPA or the Oklahoma UFTA, adhering to the federal limitations periods, as affirmed in United States v. Nemecek and United States v. Jepsen, which state that the federal government is not bound by state statutes of limitations in fraudulent transfer claims.

United States v. Moore established that a fraudulent conveyance action qualifies as a quasi-contractual claim, thus subject to a six-year statute of limitations under 28 U.S.C. § 2415(a). The Bankruptcy Code's § 544(b) necessitates a "triggering creditor" whose allowable, unsecured claim is dated from the time of the contested conveyance. Defendants challenge the existence of such a creditor for Tronox, Inc., but acknowledge valid claims against Tronox Worldwide LLC and Tronox LLC, which have multiple environmental creditors linked to liabilities from 2002-2005. Tronox Worldwide, as the successor to Old Kerr-McGee, holds legacy environmental claims, including those from Rio Algom Mining LLC and the City of West Chicago. The United States has additional claims against both Debtors for environmental liabilities predating 2002. Tronox Inc., established as a holding company in May 2005, does not have environmental or tort creditors with claims prior to its formation, leading defendants to argue that a fraudulent conveyance analysis must be conducted individually for each entity, asserting that only Tronox Inc. made property conveyances during the IPO and spinoff. However, it is contested that at the time of the chapter 11 filings, Tronox Inc. had creditors, including holders of $350 million in unsecured bonds issued in connection with the IPO. Defendants claim these bondholders ratified the fraudulent conveyances, but relevant case law indicates that a creditor cannot be deemed a triggering creditor if they participated in structuring the allegedly fraudulent transaction, which the bondholders did not.

Ratification involves knowingly endorsing an unauthorized act, which typically renders it binding. In this case, defendants failed to demonstrate that bondholders consented to the fraudulent conveyances at issue. If simply becoming a creditor could be considered ratification, it would severely limit the ability of creditors to pursue fraudulent conveyance claims, despite their legitimate rights under relevant laws. Courts typically evaluate fraudulent conveyances based on their substance rather than form, meaning they assess the true nature of transactions. The legitimacy of transfers related to environmental and tort liabilities is particularly scrutinized, especially when assets are spun off to avoid liability. 

Plaintiffs claim that property transfers were executed with the intent to hinder, delay, or defraud creditors, as defined under both the Bankruptcy Code and Oklahoma's Uniform Fraudulent Conveyance Act (UFTA). The plaintiffs focus on the UFTA due to its longer statute of limitations, arguing that the transfers were designed to conceal legacy liabilities. Evidence suggested that defendants intended for Tronox to inherit these liabilities, as indicated in registration statements and acknowledged by potential buyers who recognized the associated risks. By 2005, this strategy was also apparent to U.S. environmental authorities.

In April 2005, the Environmental Protection Agency (EPA) issued a demand letter to Kerr-McGee regarding environmental remediation at the Manville, New Jersey site. Kerr-McGee responded by denying liability and including an indemnification clause in an Assignment Agreement, making Tronox responsible for any environmental costs that Kerr-McGee might incur because of Tronox's failures. In March 2006, shortly before the distribution of Tronox stock and the resignation of Kerr-McGee's officers from Tronox’s Board, an agreement was reached between Kerr-McGee, its subsidiaries, the plaintiffs, and the U.S. Department of Justice to toll the government’s fraudulent transfer claims from March 28 to September 30, 2006, later extended to August 29, 2008. The U.S. has not proven it was misled during the 2005 spinoff, although defendants did not disclose Tronox’s inability to manage legacy liabilities. Even without proof of fraud, simply revealing a scheme does not exempt one from liability. Intent to defraud is distinct from intent to delay creditors. Under the law, a fraudulent conveyance occurs when a transfer is made with the intent to hinder or delay creditors. This principle is supported by case law, including Shapiro v. Wilgus, where the Supreme Court ruled that a conveyance intended to defraud or delay creditors is illegal. In Kelly v. Thomas Solvent Co., a corporate reorganization transferring assets while having serious environmental liabilities was deemed an intentional fraudulent conveyance, even if the intent was merely to hinder or delay creditors.

The Court determined that Thomas Solvent Company created spinoff corporations to evade potential liabilities associated with groundwater contamination in Battle Creek, with no factual disputes among the parties regarding this intent. Citing case law, the Court referenced that under the Pennsylvania Uniform Fraudulent Transfer Act (UFTA), a debtor’s intent to hinder or delay creditors suffices for establishing fraudulent intent, regardless of other motivations. Similar principles apply under Michigan's UFTA, where intent to delay creditors is adequate for classifying a transfer as fraudulent. Oklahoma courts have recognized these principles, exemplified by a case where a defendant admitted to delaying a creditor's collection efforts. Defendants argue that plaintiffs must prove the primary purpose of a transfer was to harm creditors; however, this argument is weakened by the retraction and reversal of relevant case law that established a broader understanding of intent. The Seventh Circuit clarified that intent may be inferred from the natural consequences of a debtor's actions, even if harming creditors was not the primary goal. The court in ASARCO noted that intent under UFTA can encompass transfers made with knowledge that creditors would likely be hindered, regardless of the debtor's intentions to harm. This perspective aligns with the Restatement (Second) of Torts, which defines intent as either desiring the consequences of an act or believing those consequences are substantially certain to occur.

The ASARCO Court could have referenced Shapiro v. Wilgus, which clarifies that a debtor's actions need not be malicious but can simply aim to hinder or delay creditors. Kerr-McGee's actions to divest itself of nearly all assets, particularly valuable ones, had the clear consequence of preventing legacy creditors from claiming against these assets, thus hindering or delaying their recovery. Despite initial assertions by Kerr-McGee's CEO and CFO that legacy liabilities did not influence the separation of business units, both later acknowledged that these liabilities were a significant factor in their decision-making process. The separation aimed to rid the E.P. assets of legacy liabilities, thereby enhancing the attractiveness of the company for acquisition. Lehman’s documentation emphasized the crucial nature of these liabilities in the transactions, with the understanding that Kerr-McGee's environmental liabilities were distinct and complex compared to other chemical companies. Concerns about the impact of these liabilities on Tronox and its creditors were noted, with humor highlighting the detrimental effect of legacy liabilities on the company's future prosperity. Ultimately, the goal of achieving a "clean separation" from historic liabilities was directly linked to hindering and delaying creditor claims.

Corbett and Wohleber, the CEO and CFO of Kerr-McGee, respectively, claimed they did not consider the impact of their transactions on legacy creditors, who had previously cost the company over $1 billion and were incurring annual costs of $160 million. Corbett stated he did not recall discussing potential harm to creditors with his team, and Wohleber had no memory of examining the effects of the transactions on creditors. However, this assertion is contradicted by evidence indicating awareness of creditor impacts, including directives from Wohleber to remove references to the advantages of a spinoff regarding Titan liabilities from Board presentations. Furthermore, they ordered the deletion of a phrase indicating complications under bankruptcy scenarios, which inherently pertained to creditor concerns.

The credibility of Corbett and Wohleber's denials is further weakened by their destruction of documents in violation of a tolling agreement with the Justice Department, which required them to preserve relevant materials related to potential fraudulent transfer claims. Corbett, aware of this agreement, instructed his secretary to destroy his files upon retirement in 2006. Wohleber also directed the destruction of his documents related to the spinoff, resulting in the deletion of all emails and electronic files. Evidence suggests that the defendants acted to hinder or delay creditors by imposing legacy liabilities on Tronox, supported by clear and convincing evidence from the overall record.

Proof of actual intent to "hinder, delay, or defraud" creditors is challenging, as defendants rarely admit to such intentions. To establish this intent, courts allow the use of "badges of fraud," which are circumstances typically associated with fraudulent transfers that suggest an inference of intent. The presence of these badges does not conclusively prove fraud but narrows the inquiry into whether a transfer was made to place assets beyond creditors' reach. The UFTA outlines eleven specific badges of fraud, and while four are not applicable in this case, two relevant factors pertain to constructive fraudulent conveyances: whether the debtor received reasonably equivalent value for the property conveyed and whether the debtor became insolvent as a result of the transfer. 

The remaining five badges support the conclusion of actual intent to hinder or delay creditors. The first factor indicates that the transfer was to an insider, as Kerr-McGee transferred nearly all its assets to a corporate affiliate in 2002 and subsequently transferred additional consideration during its IPO. Transfers to affiliates are treated as transfers to insiders under the UFTA. The second factor reveals that the debtor retained possession and control of the transferred property after the transactions, with Kerr-McGee maintaining complete control following the 2002 transfers and exclusive control post-IPO in 2005.

Kerr-McGee maintained effective control over Tronox until a spinoff in March 2006, influencing the management comprised of long-time Kerr-McGee employees. The transfers in 2002 were inadequately disclosed, while those in 2005-2006 were disclosed. Prior to these transfers, Kerr-McGee faced ongoing litigation concerning environmental and tort liabilities, including a significant EPA remediation demand in April 2005. The December 2002 transfer was claimed to represent substantially all of Kerr-McGee's assets, although even if false, it constituted over 80% of the consolidated enterprise's assets. The Oklahoma courts recognize that any single factor, referred to as a "badge of fraud," may indicate fraudulent intent, and multiple factors create a presumption that the defendant must rebut. The courts have established that sufficient evidence of badges of fraud leads to a presumption of fraudulent intent, shifting the burden to the transferee to demonstrate a legitimate purpose for the transfers. The plaintiffs presented clear and convincing evidence of Kerr-McGee's intent to hinder and delay creditors, supported by the presence of sufficient badges of fraud. Defendants subsequently raised three defenses claiming legitimate supervening purposes for the transactions in question.

Plaintiffs have not demonstrated that Defendants intended or believed anything other than Tronox would succeed as a standalone company capable of meeting its obligations. The purpose of the IPO and the spinoff was to unlock the value of the chemical and E.P. businesses, not to evade legacy liabilities, which Defendants argue provides a legitimate purpose that protects the transfers from being challenged. Defendants also assert that it was reasonable to try to contain or limit environmental exposure. Evidence presented supports that Kerr-McGee executives consistently believed Tronox would be solvent and successful. CEO Luke Corbett expressed confidence in Tronox's potential, while independent director Ms. Walters testified there was no indication of failure. General Counsel Pilcher indicated that Kerr-McGee aimed to create a well-capitalized business with strong prospects. However, evidence suggests otherwise, as Tronox was spun off with $550 million in debt, only $40 million in cash, and significant environmental liabilities, raising doubts about its ability to service its debt. Despite Plaintiffs' arguments about Tronox's potential failure, the crucial issue is whether Defendants genuinely believed Tronox could handle its legacy liabilities, a belief that lacks supporting evidence. A surviving document hints at a potential analysis of the impact on creditors, but no such analysis has been preserved.

The board of directors was unaware of any analysis regarding Tronox's capacity to manage its legacy liabilities, highlighting a significant gap in the case's record. Defendants contest this by claiming that Kerr-McGee and its advisors took substantial measures to ensure Tronox's viability and protect creditors during its separation. They reference three examples, with only two being contemporaneous. One example involves Mr. Rauh, Kerr-McGee's Controller, collaborating with Ernst & Young (E&Y) to analyze cash-flow models predicting Tronox's financial health through 2011. A meeting on November 21, 2005, between Rauh and E&Y's partner, Arlen Hechtner, focused on the company's survival for one year, which E&Y confirmed without substantial doubt, thus not necessitating an explanatory paragraph in their audit report. However, this assurance of short-term survival does not guarantee long-term viability or creditor protection. 

The cash flow analysis discussed with Hechtner, which led Rauh to believe in Tronox's sustainable cash flows and credit availability, relied on a projected cash flow document that lacked thoroughness, particularly in inaccurately categorizing environmental remediation expenses. This misrepresentation suggested that Tronox would incur zero environmental expenses in 2010 and 2011, a conclusion unsupported by the record. Additionally, Hechtner noted that Kerr-McGee management believed Tronox would see a significant reduction in environmental charges, a claim seen as anecdotal and not based on factual evidence. The second contemporaneous piece of evidence cited by Defendants is a solvency opinion obtained from Houlihan Lokey Howard Zukin.

Houlihan's opinion concluded that the fair value of the Company's assets surpassed its stated and contingent liabilities. However, in assessing Tronox's contingent liabilities, Houlihan relied solely on the figures provided by Kerr-McGee without independent verification. The definition of "identified contingent liabilities" was limited to amounts stated and valued by responsible officers, excluding other potential liabilities. Kevin P. Collins, Houlihan's managing director, confirmed that the anticipated contingent liabilities were based on reserves in Tronox's financial statements. At trial, it was agreed that such reserves lack probative value for determining liabilities or solvency in fraudulent conveyance cases. Additionally, there was no indication that Houlihan recognized the significance of legacy liabilities for Tronox's solvency. Collins noted that the primary concern regarding fraudulent conveyance related to the debt incurred during the IPO and the distribution of proceeds to Kerr-McGee, highlighting a typical risk in leveraged buyouts (LBOs). The text references legal precedents affirming that fraudulent conveyance laws apply to LBOs. The crucial issue in this case revolves around the legacy liabilities' impact. The defendants believed in Tronox's future viability based on projections from both parties' experts, indicating cash flow positivity except for one year. However, these post-hoc expert reports could not replace a lack of contemporaneous internal analysis on the effects of transfers concerning Kerr-McGee's legacy creditors, especially given the management's focus on divesting liabilities and addressing fraudulent conveyance concerns.

Kerr-McGee's external legal counsel dedicated considerable time to investigating fraudulent conveyance issues related to failed spinoffs. The Board, despite lacking full awareness of many spinoff-related matters, received counsel's insights on fraudulent conveyance risks. Defendants acknowledged that a July 12, 2005 presentation to the Board highlighted the benefit of separating from legacy liabilities in the context of an IPO/spinoff versus the Apollo bid. Additionally, outside legal advice concerning the Monsanto Solutia case, which faced a fraudulent conveyance challenge prior to its bankruptcy, was provided to the Board. However, Defendants' assertions that Kerr-McGee reasonably believed the Tronox spinoff would withstand fraudulent conveyance challenges were vague and lacking in specificity. 

Notably, Mr. Richie, an outside director and attorney, expressed confidence in proceeding with the divestiture after receiving legal guidance, even dismissing concerns over the removal of references to bankruptcy scenarios from the final presentation, deeming a bankruptcy of the Chemical Business an unrealistic possibility. The record indicates that neither the Board nor management reviewed any analysis concerning the spinoff's impacts on legacy liability creditors, and no evidence exists that such an analysis was conducted. 

Defendants’ key defense against the fraudulent conveyance claim hinges on asserting a "legitimate supervening purpose" for the business separation, claiming it aimed to unlock value and maximize shareholder interests. While they referenced legal precedents supporting the legitimacy of their business motivations, the lawsuit arises not from the decision to spin off the businesses but from the manner in which the spinoff was executed—specifically, transferring nearly all assets of the enterprise while burdening a portion with extensive legacy liabilities. The investment banker for Kerr-McGee noted that while environmental liabilities are typical in chemical businesses, the scale and nature of these liabilities in this case were exceptional.

Liabilities assigned to Tronox included all obligations from every discontinued business previously owned by Kerr-McGee, encompassing uranium mining (since 1952), creosote treatment (acquired in 1963), and aspects of the petroleum business, including over 800 oil and gas outlets (acquired in 1955). Additionally, the obligations covered OPEB retirement commitments for former Kerr-McGee officers and employees. A proposal by Lehman on April 6, 2001, suggested allocating legacy liabilities based on the asset values of the chemical and E.P. businesses, but this was rejected by Kerr-McGee’s inner circle, which placed all legacy liabilities on Tronox. Despite extensive post-trial documentation, defendants have not provided a legitimate business rationale for this decision. Evidence indicated that prior to the spinoff, Kerr-McGee was seen as an unattractive merger candidate due to significant environmental liabilities, which were estimated in the billions, leading Anadarko to reject a merger. After the divestiture, Anadarko acquired the E.P. business for over $18 billion. The evidence suggests an intentional fraudulent conveyance, placing the burden on the defendants to demonstrate a legitimate supervening purpose for how the transfer was structured, which they failed to do. The defendants' defense, claiming they sought to limit overall environmental liability, is insufficient, as their actions effectively detached legacy liabilities from a significant portion of Kerr-McGee's assets. They attempted to equate their actions to proper management of liabilities, but this precedent would encourage other companies with substantial environmental liabilities to similarly isolate these risks. Defendants cited Lippe v. Bairnco Corp. to support their claims, but the facts of that case differ significantly from the current situation.

The Lippe Court determined that the defendants provided substantial, largely uncontested evidence showing they acted in good faith during transactions, paying fair value and relying on legal advice, fairness opinions, and the existence of significant insurance coverage. Consequently, the court granted summary judgment, dismissing challenges to Keene Corp.’s asset sales, noting that no efforts were made to conceal assets from creditors. In contrast, Kerr-McGee transferred nearly all assets out of reach of legacy liability creditors without providing consideration for the stock transfer of E. P. subsidiaries. The defendants acknowledged that fair consideration or reasonably equivalent value was not paid, and their expert conceded this point. They were aware of the legacy liabilities but avoided conducting necessary analyses to ascertain their extent. Unlike the defendants in Lippe, who could rely on advice-of-counsel defenses, Kerr-McGee preserved attorney-client privilege regarding legal advice, limiting their defense options. The Kerr-McGee board proceeded with a no-consideration asset transfer without ensuring sufficient assets remained to meet liabilities, contrasting with Keene’s decision not to pursue a similar transaction based on legal advice.

Firms with established mass-tort liabilities are expected to recognize that undervalued transfers can negatively impact their tort claimant-creditors, particularly if future claims predictions are flawed. These firms occupy a unique position regarding such creditors, necessitating that transactions account for existing liabilities and the complexities in defining their extent. The situation resembles the ASARCO case, although the defendants argue otherwise. In ASARCO, despite paying reasonably equivalent value for transferred assets, the parent company acted with fraudulent intent to hinder creditors. Here, it is established that reasonably equivalent value was not paid. Plaintiffs have convincingly demonstrated that defendants intended to hinder or delay creditors, and the defendants failed to counter this evidence.

Additionally, plaintiffs allege constructive fraudulent conveyance against the defendants, requiring proof of (i) a property transfer or obligation incurrence, (ii) receipt of less than reasonably equivalent value, and (iii) that the transferor became insolvent, inadequately capitalized, or unable to meet debts. It is undisputed that a property interest was conveyed. The burden of proof is on the plaintiffs, who first examine whether reasonably equivalent value was exchanged and then assess insolvency or inadequate capitalization.

The parties have limited disagreement on whether Tronox received reasonably equivalent value for the conveyed assets. Plaintiffs’ expert, Prof. Jack Williams, argued that Tronox transferred assets valued at approximately $17 billion and received only $2.6 billion, indicating a substantial loss of $14.5 billion. Williams calculated the market value of the assets through comparisons with seven independent exploration and production companies, estimating their worth at around $12 billion as of the IPO and adjusting for a control premium to approximately $15.8 billion. His findings were corroborated by valuation estimates from Lehman Brothers and Salomon Smith Barney and were consistent with Anadarko’s subsequent acquisition of the assets for about $15.8 billion shortly after the IPO.

Tronox transferred approximately $799 million in cash to Kerr-McGee, including $224.7 million from an IPO, $537.1 million from borrowings, and $37 million in operating cash. Additionally, Tronox relinquished its interest in a chemical battery business valued at $78.9 million and assumed about $186 million in unfunded retiree benefits. Williams calculated that the Plaintiffs received property valued at $2.6 billion related to the IPO, which included $285 million in TiO2 assets, $2 billion in debt that New Kerr-McGee assumed, $100 million in environmental reimbursements (considered largely illusory), $140 million in pre-paid insurance policies, and a $41 million indemnity for environmental liabilities. Defendants did not dispute these calculations and acknowledged that Tronox transferred out significantly more value than it received. 

Defendants raised three objections regarding the Plaintiffs' claim of not receiving "REV." They argued that the transfer of E.P assets should not be included as it allegedly occurred in 2002, a claim previously rejected, maintaining that it was part of a single transaction. The second objection involved an intercompany account believed to be converted to equity, valued at $377.9 million, which Defendants claimed should count as a contribution from Kerr-McGee to Tronox; however, this would not affect the REV analysis significantly. Defendants failed to provide evidence of any outstanding debt between the Tronox entities and Kerr-McGee or that repayment was expected. Furthermore, Tronox’s financial statements did not indicate such debt, and Kerr-McGee's practice was to convert uncollectable intercompany debts into equity. Lastly, Defendants contended that REV and solvency analyses should be conducted on an entity-by-entity basis, which the Plaintiffs do not dispute for certain entities.

The newly-created holding company did not receive reasonably equivalent value (REV), while Plaintiffs acknowledge that Tronox LLC, which succeeded Kerr-McGee Chemical's business, did receive REV during the IPO. The transfer involved Kerr-McGee's interests in an Australian TiO2 plant, valued higher than the interests transferred out, which pertained to a chemical battery business. Defendants argue for a REV analysis on a strict entity-by-entity basis, referencing general principles of bankruptcy law that treat individual entities separately unless substantive consolidation is warranted. They cite the case of Tower Automotive, which supports separate treatment unless specific grounds for consolidation exist.

The key fraudulent conveyance case referenced is In re TOUSA Inc., where the Eleventh Circuit evaluated whether subsidiaries received reasonably equivalent value while incurring liabilities for their parent. The court focused on the collective liability imposed on the subsidiaries without addressing each separately. The findings indicated that the benefits to the subsidiaries did not equate to the substantial obligations incurred.

Importantly, no creditor of the three Tronox entities claimed reliance on their separate identities. Tronox, like Kerr-McGee, managed its business and environmental liabilities on a consolidated basis. Prior to the IPO in November 2005, Kerr-McGee supported legacy liabilities via a centralized cash management system. Although expenditures were tracked through intercompany balances, legacy liabilities from discontinued revenue-generating businesses were recorded as equity contributions by the parent.

Tronox was marketed as a consolidated entity during the IPO, with each Plaintiff liable as a borrower or guarantor for the debt issued. Defendants contend that the market viewed Tronox as solvent, evidenced by its attractiveness to knowledgeable investors. The market interactions did not treat the three Tronox Plaintiffs or their affiliates as separate entities.

The legal analysis addresses the treatment of "Tronox" as a consolidated entity in the context of fraudulent conveyance laws. Defendants claim that the Oklahoma statute requires a single-entity analysis for fraudulent conveyances, similar to the Bankruptcy Code. However, the relevant Oklahoma statute (Okla. Stat. tit. 25. 25) indicates that singular terms encompass plural meanings unless stated otherwise. This interpretation aligns with Section 102(7) of the Bankruptcy Code and the Dictionary Act, which both affirm that singular includes plural to fulfill the statute's intent.

The analysis emphasizes that courts focus on the substance of transactions rather than their form, as established in precedent cases. Fraudulent conveyance laws aim to protect creditors and evaluate transactions from their perspective. Prior to the IPO, Kerr-McGee, through its cash management system, managed environmental obligations for its various units. After the IPO, creditors could only pursue the consolidated "Tronox" for legacy liabilities.

Plaintiffs demonstrated that Tronox received less than reasonably equivalent value during the IPO, with $17 billion in assets spun off while only $2.6 billion was transferred. The more contentious issue is whether Tronox was insolvent due to these transfers. The Oklahoma Uniform Fraudulent Transfer Act (UFTA) defines insolvency as a situation where a debtor's debts exceed their assets at fair valuation, or if they fail to pay debts as they come due, which creates a presumption of insolvency.

The UFTA specifies that transferred assets intended to hinder creditors are excluded in insolvency calculations. The definitions of "debt" and "claim" under the UFTA mirror those in the Bankruptcy Code, enhancing the relevance of federal cases to interpret similar state provisions. The Bankruptcy Code also defines insolvency in a nearly identical manner, underscoring the shared legal framework.

Property can be deemed fraudulently transferred if it is concealed or removed with the intent to hinder, delay, or defraud creditors, or if it is exempt from the estate under section 522 of the Bankruptcy Code. The definitions of "debt" and "claim" in the Bankruptcy Code closely align with those in the Uniform Fraudulent Transfer Act (UFTA). The solvency analysis in fraudulent conveyance cases employs a "balance sheet test," evaluating whether total debts exceed total assets at fair value. Expert testimony on solvency is critical, with notable witnesses including Grant Newton, an insolvency accounting expert, and Daniel Fischel, a valuation expert known for his belief in the reliability of market prices over litigation-based analyses.

In the current case, defendants argue that substantial market evidence indicates that the Tronox plaintiffs were solvent at the time of their IPO and spinoff, asserting that this evidence is more compelling than in prior cases such as VFB, Iridium, and CarCo, where insolvency was not proven. The defendants emphasize that the trial's market evidence, alongside stock and bond prices, supports their claim of solvency, countering the plaintiffs' arguments regarding fraudulent conveyance.

Apollo has submitted a signed, fully-financed offer to purchase the Chemical Business after extensive due diligence, contrasting with statements and actions from Tronox’s executives that align with evidence of the company's solvency in the public market. The analysis begins with public market evidence followed by a review of both Apollo’s proposal and Tronox's internal perspectives. The Public Market Defendants reference cases like VFB v. Campbell Soup Co. and others to suggest that Tronox's situation mirrors typical instances of subsidiaries that spun off and later faced insolvency. Notably, the Third Circuit upheld a ruling that discounted expert opinions on solvency, favoring market evidence which suggested that the spun-off division was solvent, as proven by its substantial market capitalization shortly after the spin-off. 

In this context, the Debtor also survived for several years post-spin-off with a notable market capitalization. However, the Defendants' reliance on market indicators, including Tronox’s issuance of $450 million in secured debt and its ability to raise $350 million in bonds and $224.7 million in stock, is deemed insufficient for demonstrating solvency. The secured debt was backed by all Tronox assets, providing little insight into true solvency. Additionally, while Tronox issued unsecured bonds and stock, which would rank below legacy liabilities in liquidation, the difficulties in selling these securities and the context of an overly optimistic market at the time further complicate their implications for solvency. Despite these challenges, the issuance of unsecured bonds and stock remains the strongest market-based evidence suggesting Tronox's solvency.

Plaintiffs sought to challenge the validity of Tronox’s financial statements used in its IPO, asserting they were false and misleading. Expert testimony from Prof. Newton indicated that the projections for the IPO were overly optimistic and manipulated under the direction of Kerr-McGee’s CFO, Wohleber. Historical forecasting methods were abandoned, leading to significant increases in projected revenue for 2008 and 2009, with projections reaching $228 million and $825 million, respectively. The use of "sell-side" projections in the November 2005 Registration Statement was criticized, especially as TiO2 prices had begun to decrease shortly after the projections were made. Comparatively, the IPO forecasted average EBITDA of $315 million, far exceeding Tronox’s historical average of $168 million from 2000-2005. The financial statements also failed to disclose crucial liabilities, including an estimated $350 million liability related to the Manville Superfund site, for which the EPA had demanded reimbursement prior to the IPO. Additionally, there was no mention of risks associated with a significant land sale contract in Henderson, Nevada, which was integral to Tronox’s projected cash flow.

The land previously used as an industrial waste site required remediation, and "no action letters" were necessary from the Nevada Division of Environmental Protection for each of the four parcels sold. Key disclosures regarding the site's history and contractual obligations were omitted, including that the contract functioned as an option allowing buyers to exit for a $2 million fee, which was less than 1% of the purchase price. Evidence indicated that Tronox's IPO financial statements inadequately reflected the legacy liabilities from Kerr-McGee, which significantly affected Tronox's solvency. The financial statements did not reserve for or disclose all legacy liabilities meaningfully for solvency assessments under the Uniform Fraudulent Transfer Act (UFTA). Expert reports totaling over 10,600 pages were submitted to value the environmental and tort liabilities, with no expert asserting that financial reserves were relevant for solvency evaluations. Prof. Fischel acknowledged that accounting reserves did not accurately reflect potential environmental liabilities, relying instead on a study by Apollo. The record showed that Kerr-McGee misapplied generally accepted accounting principles (GAAP), resulting in an understatement of its liabilities, as assessments typically began only upon third-party inquiries.

The policy resulted in the incorrect application of GAAP accounting principles, leading to an understatement of environmental liability reserves in financial statements. Under GAAP, only a limited subset of environmental and tort liabilities must be reported, which diminishes the relevance of these reserves in assessing solvency. Environmental liabilities are deemed probable when a claim has been asserted, and the entity is responsible for remediation due to past events, with unfavorable outcomes likely. Expert testimony highlighted that market perceptions of legacy liabilities differ from legal claims under the Oklahoma UFTA.

In the case of In re W.R. Grace, the court emphasized that substantial market capitalization does not necessarily indicate solvency, especially in light of significant asbestos liabilities. Similarly, the current case hinges on Tronox's environmental liabilities, illustrating that market valuations alone cannot determine solvency without thorough analysis. 

Defendants referenced market participants like Apollo, which conducted its own environmental analysis, and JP Morgan, who had substantial financial stakes in the outcome. However, these participants' unique interests may not accurately represent broader market conditions, questioning their reliability in evaluating solvency.

Credit Suisse First Boston and Lehman Brothers served as joint bookrunners for the Unsecured Notes, co-managers for the IPO, and joint lead arrangers for the Credit Facility, each committing $60 million of their own funds with the expectation of repayment. These financial institutions provided credit to Tronox through the Credit Facility, secured by all of Tronox's assets, thus ensuring they would be paid before any legacy liability claims during Tronox's bankruptcy. They received fees from Kerr-McGee and anticipated receiving additional fees from financing Apollo. Neither Credit Suisse nor Lehman Brothers independently assessed Tronox's environmental or tort liabilities, relying instead on data from Apollo. Apollo, however, conducted its own separate valuation of these liabilities, which Defendants claim demonstrated Tronox's solvency. Apollo's due diligence included extensive access to a virtual data room, indicating familiarity with Tronox's financial and environmental issues. Defendants argue that Apollo's $1.3 billion offer for the Chemical Business was final and binding; however, evidence suggests that the offer included unresolved terms and required further disclosures, which could have allowed Apollo to terminate the agreement if inaccuracies were found. Additionally, Apollo's bid included indemnities for environmental liabilities that Kerr-McGee had previously rejected, as it sought a clean break from legacy liabilities.

Kerr-McGee's management expressed a lack of confidence in Apollo as a serious bidder due to Apollo's repeated failures to fulfill commitments, including retrading deals. Consequently, Kerr-McGee proceeded with an IPO and did not present Apollo's final bid to its Board. The reliability of Apollo's assessment of Tronox's environmental and tort liabilities is questioned, despite Apollo hiring Environ for environmental diligence. Defendants' expert, Professor Fischel, based his solvency analysis on Apollo's assessments, asserting a maximum liability of $556.1 million. However, Fischel's calculations are deemed unreliable, as they rely on incomplete excerpts from various documents that do not comprehensively represent Environ's analysis of total environmental exposure. Specific documents cited include a CSFB presentation, an ENVIRON report, and an unidentified document, all of which fail to provide a comprehensive view of liabilities, focusing instead on known sites and lacking clarity on their relationships with Apollo.

Prof. Fischel’s excerpts from various documents do not adequately support the Defendants' claim that Apollo’s assessment of Kerr-McGee’s environmental liabilities, valued at $556.1 million, was based on extensive study. Fischel confirmed on cross-examination that Apollo's analysis was limited to known environmental sites with existing claims, failing to account for Kerr-McGee’s entire environmental impact. The Environ study significantly underestimated Kerr-McGee’s total liabilities relevant to solvency analysis. 

Despite a subpoena in New York, no Apollo witnesses were presented, and the evidence regarding Apollo's bid is limited to a few documents and testimonies from Kerr-McGee officers who rejected the bid. The evidence does not substantiate the Defendants' assertion that Apollo's proposal is definitive proof of Tronox’s solvency. An Apollo Confidential Memorandum highlighted the firm’s belief in managing environmental liabilities but did not provide a clear timeline for holding the Chemical Business. Apollo’s confidence in managing these liabilities does not serve as a valid basis for solvency analysis under the Uniform Fraudulent Transfer Act (UFTA).

Furthermore, while Tronox’s officers expressed belief in the company’s solvency during the spinoff, Plaintiffs are not required to demonstrate bad faith or that management failed to exert reasonable efforts for success. Testimonies reveal a mixture of optimism and concern among management, with some anticipating potential failures early on.

Tronox developed a "gap closure plan" within three weeks post-spinoff to address a financial shortfall, as highlighted by vice president of financial planning, Brown, who emphasized the urgent need for action. Within six weeks, Tronox identified 40 cost-cutting initiatives, with some labeled "draconian" by CEO Adams. The necessity for cost reductions does not inherently prove insolvency; rather, it reflects management's attempts to sustain operations, despite the significant legacy liabilities being a primary cause of potential insolvency as per the UFTA definition. Tronox's management, including environmental remediation head Corbett, suggested pursuing legal action against Kerr-McGee, indicating concerns over the liabilities' impact on the company’s viability.

Despite efforts to manage these liabilities, Tronox faced severe cash constraints that hindered its ability to cover related expenses and access indemnifications under the Master Separation Agreement with Kerr-McGee, which it was obligated to uphold for seven years. The management’s optimism regarding solvency did not equate to actual solvency, necessitating a thorough analysis of Tronox's assets and liabilities as of the IPO date. Expert testimonies from both parties were presented, focusing on environmental liabilities, which were critical to the insolvency analysis. According to Defendants’ expert Prof. Fischel, Tronox's environmental liabilities were valued at $278.1 million, contrasting with Plaintiffs’ valuation of $1.0 to $1.2 billion. This disparity suggests that, even under Defendants’ asset valuation, Tronox was insolvent if Plaintiffs' liability valuation holds merit. The next focus will be on asset valuation as of the IPO.

To conduct a UFTA solvency analysis for Tronox at the time of its IPO, it is essential to assess the company's debts, defined as liabilities under the Oklahoma UFTA, which includes unmatured, contingent, and unliquidated claims. The term "claim" is interpreted broadly, consistent with interpretations under the Bankruptcy Code and similar UFTA cases. While there is general agreement on the value of many of Tronox's liabilities, such as financial debts and tax liabilities, a significant dispute exists regarding the valuation of environmental and tort liabilities.

Environmental liability is particularly substantial, with the plaintiffs' expert, Neil Ram from Roux Associates, leading the assessment. Ram has extensive experience in environmental engineering and remediation. He and his team dedicated over 40,000 hours to evaluate remediation costs across 2,746 sites previously associated with Kerr-McGee, ultimately calculating the present value of future environmental remediation costs to be between $1.499 billion and $1.684 billion as of November 2005. This estimate accounts for third-party reimbursements and is based on various factors, including the ownership duration of Kerr-McGee and the level of mining activity at the sites.

Despite this high valuation, Ram did not factor in potential reimbursements from insurance or other agreements, which could reduce his environmental liability estimate to approximately $1 billion to $1.2 billion, compared to a lower figure of $278.1 million proposed by the defendants. Ram's report is the only comprehensive assessment of Tronox's environmental liabilities in the case, as Kerr-McGee did not perform a similar analysis. The defendants also presented expert testimonies from Neil Shifrin and Richard Lane White, but their evaluations were not deemed comprehensive.

The Court recognized Shifrin as an expert, noting his extensive experience testifying on environmental issues. However, the report from Shifrin and White was not a comprehensive assessment of all of Tronox’s environmental liabilities; it served primarily as a rebuttal to Ram's findings. Their initial report estimated remediation costs at $330.6 million, significantly lower than Ram's estimate of $1 billion to $1.2 billion. Prior to trial, they revised their estimate to $376.2 million. The report focused on critiquing Ram's analysis rather than providing a thorough evaluation of the environmental liabilities imposed on Tronox by Kerr-McGee, highlighting a major failure on the defendants' part to present a comprehensive analysis.

Defendants claimed the net present value of Tronox's remediation costs was between $278.1 million and $376.2 million, contrasting sharply with Ram's higher estimates. They argued that Kerr-McGee's environmental costs were decreasing, a claim not substantiated by the record. The unresolved issue of Kerr-McGee-Tronox's liability for remediation at the Manville Superfund site further complicated the defendants' position. Shifrin and White's assertion that Ram should have valued future liabilities based on Kerr-McGee's recent expenditures was deemed unreasonable. Their methodology involved a "conceptual probability" matrix to estimate remediation costs, which, while appearing precise, relied heavily on subjective judgment. Testimonies highlighted inadequacies in Shifrin's probability allocations, particularly regarding a former Kerr-McGee facility in Wilmington, North Carolina, designated as a Superfund site.

Shifrin asserted that in situ solidification was the most viable remediation method for a project, estimating its probability at 50%. He based this claim on project documentation and site-specific analysis, but evidence presented at trial contradicted his deposition testimony. He acknowledged that in situ solidification had not been previously employed at other Kerr-McGee sites and that his assumptions significantly underestimated the anticipated remediation costs. Specifically, for the Riley Pass uranium site, he presumed that the remediation would involve minimal controls, which regulators had already rejected as inadequate for human health, proposing a remedy costing $12 million compared to Shifrin's estimated $340,000.

Both parties’ experts referred to the ASTM International Standard Guide for Disclosure of Environmental Liabilities, which outlines four cost estimating methods, including "expected value" and "most likely value." The "expected value" approach is probabilistic and considered the preferred method for estimating future environmental costs. Defendants criticized Ram's study for not using this approach; however, the ASTM Guide acknowledges that a probabilistic approach may not always yield the best estimate, depending on the circumstances.

Ram justified his choice of method by indicating that some sites had sufficient information for a definitive remedy, while others did not allow for reliable probability assignments. Thus, he applied a "most likely value" approach, which is valid according to the ASTM Guide. In contrast, Shifrin and his team did not strictly follow the "expected value" method, instead opting for a "conceptual probability" approach that included various response scenarios without a probability-weighted average. They could not cite any prior use of this approach, and Shifrin admitted to employing a "pivotal element approach," resembling Ram's "most likely value" method.

Defendants successfully challenged some of Ram's conclusions regarding potential liability, specifically the necessity for remediation at a Wendy's in Los Angeles. However, Ram evaluated only 372 out of 2,746 sites, factoring in uncertainty about claim potential for each site. Defendants argue that Ram's "most likely value" methodology does not sufficiently address future uncertainties, particularly whether environmental response actions would be necessary. They suggest that a "gating" analysis should have been applied to assess the likelihood of Tronox incurring costs at various sites.

In solvency analyses, "fair valuation" is assigned to all debts, defined broadly to include contingent, unmatured, and unliquidated claims. This analysis is crucial in bankruptcy contexts, where all debts are treated as accelerated, and creditors must receive notice to file claims. Shifrin acknowledged he had not previously applied a probabilistic analysis for estimating environmental costs in fraudulent transfer cases, typically viewing environmental claims as contingent and discounting their likelihood of pursuit. However, environmental claims can be filed without the satisfaction of contingencies, as noted in case law. 

Judge Wolin emphasized that while contingent claims can be discounted, tort liabilities, including environmental claims, are not contingent. They become active liabilities upon bankruptcy filing, compelling claim holders to act to avoid losing their claims. Ram's decision to assess remediation costs for only 372 sites properly accounted for the likelihood that not all potential remediation actions would be pursued despite the bankruptcy context. The final valuation of environmental liabilities as of the IPO date involves reducing future costs to present value, using a risk-free rate of 2.5% based on U.S. treasury yields and high-grade corporate bonds.

Mr. White advocated for a 5% discount rate to incorporate risk into the valuation of future income. However, it was asserted that environmental liability valuation should focus on achieving a fair valuation without considering the debtor's ability to pay. As a result, Newton’s discount rate was deemed more appropriate, leading to a calculated fair value of Tronox’s environmental liabilities at the IPO between $1.499 billion and $1.684 billion, with the Court selecting the lower figure of approximately $1.5 billion. 

Regarding tort liabilities, expert testimony revealed that Tronox faced significant claims related to creosote exposure, with 24,500 claims filed against Kerr-McGee since 1998. Kerr-McGee had paid $98 million to resolve about 15,000 claims, leaving 9,450 pending. Dr. Denise Martin, an expert with extensive experience, estimated future claims based on historical data from similar sites, concluding that 26 out of 31 sites would likely face claims. She projected a present value of Tronox's future creosote liability at approximately $356.7 million, using a 2.5% discount rate. In contrast, the Defendants' expert, Dr. Thomas Vasquez, critiqued Martin's analysis, noting that many sites had been closed for extended periods, which allowed him to reduce the estimated liability to a negligible $13.7 million.

At trial, expert testimony revealed that Tronox had no future liability for creosote claims as of the IPO date, which was disputed by the court. Dr. Vazquez, who claimed no liability, was found to lack credibility, particularly because there were 9,450 pending claims at the IPO, indicating significant liability. The court noted that despite a few new claims post-IPO, the average awards for skin-related claims were substantially higher than prior to the IPO. Personal injury attorneys were preparing to file new creosote lawsuits despite the company’s deteriorating financial state. 

The court found that Dr. Martin's analysis of liability was more credible than Dr. Vazquez's, even though some of her estimates were flawed. The court adjusted her estimate down by $100 million for overestimated liabilities, resulting in a present value of tort claims of $257 million. Combined with Dr. Ram's lower liability estimates, Tronox's total liabilities amounted to $1.757 billion (or $1.27 billion net of reimbursements). Tronox's undisputed other liabilities were around $803 million, leading to a total fair value of liabilities of $2.073 billion, demonstrating that Tronox was insolvent at the IPO date.

On the asset side, two experts provided differing business enterprise values (BEVs) for Tronox as of the IPO date: Prof. Newton estimated $1.03 billion while Prof. Fischel estimated $1.7 billion using three standard valuation approaches: discounted cash flow analysis, comparable company analysis, and comparable transaction analysis. The court planned to analyze these expert opinions and their conclusions further. Newton's discounted cash flow analysis involved adjusting internal projections downwards based on various substantiated reasons.

Financial projections in Tronox’s S-1 filing were deemed inflated and based on overly optimistic assumptions, influenced by Kerr-McGee’s CFO, Wohleber, who directed the abandonment of historical forecasting methods. This led to a significant increase in the March 2005 forecast, which became the basis for IPO numbers, with projected results for 2008 and 2009 rising by $99 million and $128 million, respectively. These projections were not only unrealistic compared to Tronox’s historical performance but also exceeded prior peak years in 2000 and 2005.

The analysis highlighted that Tronox’s TiO2 business had peaked in early 2005 and was declining by the time of the November IPO. Critics of the projections, like Newton, favored earlier February 2005 forecasts over the inflated March ones. Fischel’s calculation of the business enterprise value (BEV) at $1.7 billion was criticized for relying on these management projections without proper analysis of historical performance. Comparisons with third-party projections from potential bidders and advisors indicated a lower BEV of approximately $1.507 billion, nearly $200 million less than Fischel’s figure, with most third-party forecasts also based on Kerr-McGee’s inflated numbers.

Apollo's projections, which anticipated $30 million in annual overhead and operating cost savings, were not substantiated by an analysis of Tronox’s capabilities as a standalone entity. The discounting of future projections to present value was generally agreed upon, with Newton and Balcombe using an 11% weighted average cost of capital. Newton calculated Tronox’s BEV at $1.01 billion using a 2.5% growth rate in perpetuity, while Fischel’s higher estimate of $1.7 billion was deemed unconvincing. Both experts also employed comparable company analysis alongside discounted cash flow methods to derive BEV estimates.

The comparable company analysis aimed to establish Tronox's value by referencing other similar companies in the commodity chemical sector. Newton selected ten companies, calculating EBIT and EBITDA multiples while applying a 5% control premium. Balcombe used a 6.8% premium, and both agreed on the appropriateness of utilizing EBIT and EBITDA multiples. Newton estimated Tronox's value at the IPO to be between $770 million and $1.23 billion, with a midpoint of $1 billion. In contrast, Fischel's analysis was critiqued for flawed selection criteria, using 15 companies deemed comparable without independent verification. His choices included larger, more diversified firms like DuPont and specialty chemical companies, resulting in a higher LTM EBITDA multiple of 7.63 compared to Newton's 6.2x and Balcombe's 6.3x. Fischel concluded a value for Tronox between $1.48 and $1.6 billion, which lacked persuasiveness.

Additionally, both Newton and Fischel evaluated Tronox based on comparable market transactions. Newton identified seven transactions, deriving median EBITDA and EBIT multiples to estimate Tronox's value between $960 million and $1.24 billion, with a midpoint of $1.1 billion. Fischel's approach, though market-based, suffered from unreliable results due to his inadequate analysis of transactions. His inclusion of unrelated transactions led to a higher LTM EBITDA multiple of 8.0x, compared to Newton's 6.6x and Balcombe's 6.9x, ultimately resulting in a BEV for Tronox of $1.7 billion based on overstated future performance projections.

Fischel's analysis of Tronox's value, based on "third-party projections," estimated a business enterprise value (BEV) of $1.5 billion, which was criticized for its reliance on flawed projections. In contrast, Newton calculated an average BEV of $1.03 billion using three methods: discounted cash flow ($1.01 billion), comparable company ($1.0 billion), and comparable transaction ($1.1 billion). Newton also accounted for non-operating assets, notably the Henderson, Nevada property, valuing them at $193 million, resulting in total asset value of $1.223 billion. Fischel's higher total asset value of approximately $1.81 billion was deemed unpersuasive. 

Newton concluded that Tronox was insolvent by $850 million based on its liabilities of $2.073 billion, as well as a potential insolvency of $55 million even when considering minimal environmental liabilities. However, it was argued that using lower liability estimates was unreasonable. The analysis recognized the uncertainty surrounding the exact degree of insolvency, stating that in cases of fraudulent conveyance, a precise dollar amount is not necessary; the key is whether liabilities exceed assets. The court referenced a precedent, emphasizing that it does not need to ascertain the exact value of unliquidated claims, just that they exceed the debtor's assets. Defendants claimed this approach was inequitable, but the court's view suggested that it aimed to address the risks of entities with significant undisclosed liabilities transferring valuable assets under the guise of solvency. Ultimately, an entity that transfers assets for less than fair value risks insolvency if it is indeed unable to meet its obligations.

In a constructive fraudulent conveyance action, the primary issue is whether a transfer reduces the transferor's estate. If the transferor is solvent, such a transfer is legally permissible, but if not, it unjustly harms creditors, regardless of the transferor's intent or knowledge of insolvency. The fraudulent conveyance statute aims to protect existing creditors' interests over those of transferees who receive less-than-full value. Creditors operate under the assumption that debtors will not deplete their assets irresponsibly, particularly critical for tort creditors who have no choice in selecting their debtor.

The burden of proving the reasonableness of a transfer's date-of-transfer estimate falls on the debtor and transferee when future claims are uncertain. The Oklahoma Uniform Fraudulent Transfer Act (UFTA) also imposes liability for transfers made for less than reasonably equivalent value if the debtor's assets are unreasonably small relative to its business activities. "Unreasonably small capitalization" is defined as a general inability to generate adequate cash flow. Courts have emphasized that the reasonableness of financial projections must be assessed against the debtor's actual performance, including cash flow and profit metrics. The standard for proving unreasonably small capital is viewed as potentially easier to meet than that for insolvency, focusing on a financial condition that, while technically solvent, is likely to lead to future insolvency.

Prof. Newton, the plaintiffs' solvency expert, provided robust evidence indicating that Tronox lacked sufficient capital, demonstrating that its future financial projections were overly optimistic. At the IPO, Kerr-McGee caused Tronox to incur $550 million in debt while only leaving $40 million in cash after upstreaming the rest of the proceeds. Tronox faced challenges in a declining market, burdened by poor facilities, high capital expenditure needs, and lacking a comprehensive business strategy. Defendants rely on Prof. Fischel's analysis, which posits that Tronox was solvent at the IPO and could meet its liabilities, based on optimistic third-party projections and hypothetical asset sales. However, this position is challenged, as Fischel's reliance on Kerr-McGee's projections is deemed flawed, and the notion that capital adequacy can be demonstrated through asset liquidation is rejected. Defendants cite case law suggesting that a company's survival post-transaction indicates adequate capital, but this is countered by the understanding that such survival does not negate fundamental issues of financial health, as shown in the ASARCO precedent. Despite Tronox's prolonged survival post-transaction, it was still in a financially precarious state with inadequate cash flow.

ASARCO faced a significant cash squeeze during the fraudulent conveyance, but Tronox was equally poorly capitalized, primarily due to its legacy liabilities, which hindered its ability to sustain long-term liabilities. These legacy liabilities ultimately prevented Tronox from accessing capital markets or engaging in necessary capital transactions. Todd Snyder, Tronox’s restructuring advisor, testified that while competitors managed to navigate similar market challenges by securing liquidity, Tronox was burdened by liabilities stemming from a spin-off transaction, which acted as a "millstone" around its operations. Defendants referenced testimony from Prof. Fischel, who argued Tronox was adequately capitalized at separation from Kerr-McGee, stating that a well-capitalized company has options to raise capital, such as accessing markets or selling assets. However, the evidence contradicts this, showing that Tronox was undercapitalized due to its legacy liabilities, which restricted its ability to raise additional capital or consider mergers.

Tronox was unable to effectively engage in a joint venture, attract private equity, or access capital markets, and while it could potentially sell assets, this was deemed unsustainable long-term. Despite operating during a global financial crisis that impacted its main product market, competitors in the TiO2 sector managed to survive. Tronox's financial situation was exacerbated by inadequate capital and legacy liabilities. The relevant legal standard under the Oklahoma Uniform Fraudulent Transfer Act (UFTA) requires proof that the debtor intended to incur debts beyond its ability to pay, which entails both subjective and objective evaluations of financial capability. Testimony indicated that Tronox would likely face liquidity issues, projecting a cash deficit of $475 million by the end of 2012. However, while it was reasonable to conclude Tronox faced cash deficiencies, there was insufficient evidence to confirm it could not meet its short-term debts post-IPO. In contrast, the plaintiffs established that the defendants should have reasonably anticipated that Tronox would incur debts it could not pay.

Defendants did not conduct an analysis of Tronox's capacity to manage legacy liabilities, which they should have recognized as unmanageable. Plaintiffs successfully demonstrated that Defendants should have reasonably believed Tronox would incur debts beyond its repayment ability. Count IV of the Amended Complaint alleges breach of fiduciary duty, distinct from claims of fraudulent conveyance, asserting that Defendants failed to uphold their fiduciary responsibilities to Tronox and its creditors. The Court previously dismissed allegations of breach but allowed Plaintiffs to replead. The amended complaint posits three theories of breach: (1) Defendants owed fiduciary duties to Tronox post-IPO in November 2005 until the spinoff in March 2006; (2) duties as the parent of an insolvent subsidiary; and (3) liability as a promoter through various actions related to Tronox's formation and financing.

In addressing Defendants' renewed motion to dismiss, the Court concluded that the allegations were sufficient to proceed, despite some being deemed untimely. The first theory asserts a breach of duty to minority shareholders between the IPO and spinoff. Delaware law generally states that a parent does not owe fiduciary duties to a wholly-owned subsidiary but does owe such duties to subsidiaries with minority shareholders. Plaintiffs argue this applies to the stated period of control. Although the claims are timely for duties breached after January 12, 2006, evidence was lacking to substantiate a breach during the specified periods, particularly regarding Tronox's governance immediately post-IPO.

Kerr-McGee maintained control over Tronox from the IPO until the final distribution of shares in 2006, with its CFO, Wohleber, serving as Tronox’s Board chairman. There were no allegations of breach of duty against Wohleber during this period. Tronox assumed certain OPEB obligations, which were defined in the Master Separation Agreement from 2005. Although Kerr-McGee could have opted not to finalize the spinoff, the Plaintiffs did not contest the share distribution itself or claim it harmed Tronox. They did not argue that Tronox would have been better off with Wohleber remaining as chairman, leading to a failure to identify any breach of fiduciary duty resulting in damage to Tronox or its minority shareholders during this interim.

Regarding the statute of limitations, Oklahoma's three-year statute for breach of fiduciary duty claims applies, allowing challenges to actions dating back to January 2006. However, the Plaintiffs asserted that the IPO date in 2005 was critical for liability. The Court previously found that Plaintiffs sufficiently alleged "new and independent acts" of wrongdoing during the post-IPO period, but the trial did not yield proof of any adverse impact from the distribution of Tronox stock on Tronox or its minority shareholders. The Plaintiffs argued that the statute of limitations should be tolled due to "adverse domination," fraudulent concealment, or from the discovery of fraud. However, the trial established that these doctrines could not be used to preserve their claims, as Oklahoma courts only recognize tolling in fraud cases, which would fall under a two-year statute of limitations. Additionally, Tronox was not under Kerr-McGee's adverse domination for over two years before January 2009.

Defendants' fraudulent concealment claim is time-barred as the alleged scheme was publicly known over two years before January 2009. Plaintiffs’ breach of fiduciary duty claims, based on predicate acts during Tronox’s period with minority shareholders, are also barred by Oklahoma's statute of limitations. Claims from the IPO and earlier are similarly affected. Although Delaware law allows an insolvent corporation to bring breach of fiduciary duty claims on behalf of creditors, these claims are also time-barred, having accrued more than three years before Tronox's chapter 11 filing.

The measure of damages related to fraudulent conveyance is complex. Plaintiffs’ expert, Prof. Williams, valued the transferred E.P. assets at $6.6 billion in 2002 and $12.5 billion in 2005, applying a 30% control premium, leading to a total valuation of $15.9 billion at the IPO. This valuation is supported by Anadarko's subsequent $19 billion acquisition of New Kerr-McGee, adjusted to $15.8 billion for the E.P. assets alone. Defendants contest Williams' calculations, suggesting a corrected valuation of $10.7 billion. However, Plaintiffs have successfully established the value of the E.P. assets as of the IPO date, with minimal dispute regarding other property transferred. Defendants also transferred an interest in a battery company and cash, resulting in outbound transfers totaling $1.064 billion.

Williams determined that Tronox received an "inbound consideration" valued at $2.55 billion, which included: $285 million in transfers from Kerr-McGee, approximately $2 billion in debt assumed by New Kerr-McGee, $100 million in maximum environmental reimbursement under the MSA, roughly $140 million in pre-paid insurance policies, and $41 million in environmental indemnities. In contrast, the plaintiffs established that the net value of the property transferred out amounted to $14.459 billion, indicating a significant loss for Tronox.

The Bankruptcy Code treats the avoidance of transfers separately from the liability of the transferee, as outlined in Section 550(a), which allows a trustee to recover the value of transferred property if the transfer is avoided. The court affirmed that the remedy for the plaintiffs would be the value of the transferred property rather than the physical return of the property. 

Defendants contended that the "for the benefit of the estate" clause in Section 550(a) should cap Tronox's recovery to the amount of unpaid creditor claims. However, the court rejected this limitation, referencing previous case law that did not support imposing a ceiling on avoidance liability and arguing that such a limitation would undervalue the plaintiffs' rights to a fair distribution of estate property.

While the court dismissed the defendants' proposed cap based on Section 550(a), it suggested that limitations on damages could potentially arise from other provisions of Section 550, other sections of the Bankruptcy Code, or the court’s equitable powers. Defendants argued that any recovery exceeding the value of legacy liability claims would be an unjust windfall for the plaintiffs, but they found minimal support for limiting their liability under the provisions cited.

Section 550(e) allows a "good faith transferee" of a fraudulent conveyance to hold a lien on the recovered property for the lesser of the value of improvements made post-transfer, minus any profits, or the increase in property value due to the improvements. However, in this case, it is undisputed that this provision does not apply, as the Defendants are initial transferees and cannot claim defenses available to subsequent transferees under Section 550(b). Relevant provisions from the Oklahoma Uniform Fraudulent Conveyance Act and the Bankruptcy Code are referenced. Section 120(D) mirrors Section 548(c) of the Bankruptcy Code, offering protection for good faith transferees equivalent to the value given to the debtor, acknowledged by the Plaintiffs' damages analysis. Additionally, Section 502(d) disallows claims from fraudulent conveyance recipients unless they have compensated for their liabilities, creating a barrier but not a claim. The parties agreed that any recovery by the Defendants would offset their damages liability. Section 502(h) recognizes claims arising from property recovery under Section 550 as prepetition claims, similar to other prepetition claims, but there is less authority on its application in fraudulent conveyance contexts compared to preferences.

The Supreme Court upheld a District Court's ruling that a stock pledge to the defendant constituted fraud against creditors under Section 70e of the Bankruptcy Act. The Court ruled that the defendant is entitled to participate equally with other creditors in asset distribution but did not specify how the defendant's claim should be measured, aside from reversing the lower court's decision that subordinated the defendant’s claim to others. Previous cases interpreting Sections 502(h) and 57g of the former Bankruptcy Act have consistently allowed transferees of intentionally fraudulent conveyances to recover through a proof of claim, focusing on the protection of creditors rather than the relative fault of the parties involved. The principle established allows a fraudulent grantee, who relinquishes assets acquired through fraud to the bankruptcy estate, to share in the distribution equally with other creditors. The key issue regarding Section 502(h) claims is the measure of the claim, which typically corresponds to the consideration paid for the property transferred. Courts have clarified that such claims do not encompass the full value of the avoided transfer but are limited to the consideration exchanged, reinforcing that if no consideration was provided, no claim can be made.

Section 502(h) addresses the consideration paid by defendants for property involved in a fraudulent conveyance, asserting that the property’s actual value exceeds the amount paid. Plaintiffs argue that Professor Williams’ damages calculation of $14.459 billion appropriately reflects the full value of the inbound consideration received by Tronox, which encompasses an Australian Tio2 plant and $2 billion in debt obligations assumed by New Kerr-McGee in 2002. Plaintiffs contend that this calculation is overly generous to the defendants, as it provides a full offset for consideration received rather than limiting it to prepetition claims under 502(h).

However, case law indicates that claims under 502(h) can extend beyond just the amount paid for the transferred assets. Notable cases, such as Verco Industries and Misty Management Corp. v. Lockwood, have recognized that defendants may prove claims that reflect losses incurred due to fraudulent transfers. Additionally, in ASARCO, the court granted defendants an offset based on the consideration ultimately paid for stock after a fraudulent conveyance was avoided.

Defendants argue that claims under 502(h) should not be confined to the consideration paid for the property. They assert that if the Court collapses the 2002 and 2005 transactions, the outcome should reflect the positions of the parties as if the 2002 conveyances had been avoided, preserving residual value for New Kerr-McGee rather than for Plaintiffs. This idea, termed the "restorative principle," is rooted in the Supreme Court’s decision in Bangor Punta Operations, Inc. v. Bangor Aroostook R.R. Co., which stated that shareholders who paid a fair price did not have standing to sue former shareholders for corporate mismanagement. Defendants maintain that this principle should limit recoveries under 550(a) and potentially under 502(h) as well.

Plaintiffs reject the restorative principle, arguing it merely reiterates a previously dismissed argument that their claims should be limited to the value of legacy liabilities.

No authority supports the view that the Bangor Punta principle, concerning shareholder standing in corporate waste cases, limits damages in fraudulent conveyance actions. The Supreme Court in Bangor Punta noted that the action was not brought on behalf of creditors and that the railroad's financial health was strong. Subsequent cases have deemed Bangor Punta irrelevant to creditor actions. Conversely, Section 502(h) and its predecessors are rooted in a restorative principle, as established in cases like Best Products and In re Dreier LLP, which assert that avoiding a fraudulent transfer restores parties to their prior positions. In this context, if restoration occurs, Defendants would be entitled to the residual value of the E.P. assets after settling debts, including legacy liabilities. The calculation of damages under Section 502(h) to reflect this entitlement is complex, especially since Chapter 11 distributions are governed by the reorganization plan, not by general legal principles or Chapter 7 liquidation standards. Plaintiffs argue that legacy liability creditors did not receive proportional distributions and instead exchanged their rights for limited cash and asset proceeds from this litigation. The Tronox plan of reorganization does not explicitly limit damages in this fraudulent conveyance case, yet it contains provisions relevant to Defendants’ Section 502(h) claims. Tronox's initial Joint Plan of Reorganization raised concerns about the non-disclosure of the value of Defendants’ claims and their potential impact on distributions to unsecured creditors, indicating that a significant portion of stock may need to be reserved for Defendants.

After negotiations, the Debtors and Defendants recognized that any claim under Section 502(h) for Anadarko could serve as a direct offset against any judgment against the Defendants rather than as an independent claim. This understanding was incorporated into Tronox's confirmed plan and reiterated in the amended plan, which clarified that the Defendants’ agreement to this offset did not waive their rights as general unsecured creditors. Consequently, any potential Section 502(h) claim by the Defendants must be treated as an offset against judgments for the Plaintiffs while ensuring that Defendants receive a distribution comparable to other unsecured creditors under the confirmed Tronox Chapter 11 plan.

Additionally, both parties consented to a provision in Article IV.C.5, establishing that, if the Anadarko Section 502(h) Claim is allowed, Anadarko could reduce any judgment in the Anadarko Litigation by the amount of the allowed claim multiplied by the recovery percentage for Allowed Class 3 General Unsecured Claims. The percentage calculation may or may not include the allowed claim, and it will be determined by the Bankruptcy Court. The parties also reserved their rights concerning the impact of the allowed claim on Anadarko's judgment reduction capability. Furthermore, Anadarko agreed that any reduction in judgment would be its sole remedy concerning the allowed Section 502(h) Claim, with no recourse against Tronox or Reorganized Tronox.

Defendants maintain the right to file a Section 502(h) claim if the case results adversely for them and expect their claim to be considered appropriately in due course. Despite the extended deliberation on damages, provisional findings on this matter are deemed beneficial.

Claims related to Tronox's legacy liabilities are to be calculated based on "the percentage recovery" of an Allowed Class 3 General Unsecured Claim, as agreed by the parties. In 2010, Tronox estimated these legacy liabilities at a mid-point value of approximately $4 billion. At the confirmation of Tronox's plan, environmental and tort creditors abandoned claims valued at $4 billion in exchange for a contingent asset— the right to recover in the current case. If the legacy liabilities are valued at $4 billion, the remaining value of the E.P. assets would be $10.459 billion, which represents the equity available to New Kerr-McGee after settling these liabilities. Consequently, the Defendants should provisionally hold an allowed claim under 502(h) for $10.459 billion.

To implement the agreement outlined in Tronox's Plan, the court is tasked with determining the percentage recovery for this claim. The Tronox Disclosure Statement projected recoveries for Class 3 General Unsecured Creditors participating in the Rights Offering at 78% to 100%, with a mean recovery estimate of 89%. If valued at 89%, the Defendants’ 502(h) claim would offset approximately $9.3 billion from the Plaintiffs’ recovery of $14.459 billion, leading to a damages award of about $5.15 billion to the Plaintiffs, excluding legal fees and costs.

The parties acknowledged that the Defendants' 502(h) claim may significantly impact other allowed claims against Tronox, although they did not provide guidelines for the court's discretion on this matter. The Tronox Disclosure Statement indicated that general unsecured creditors had claims totaling $445.6 million, which includes claims from participants in Class 3 recoveries.

A 502(h) claim of $10.459 billion would raise the total of general unsecured claims to approximately $10.905 billion. The stock value allocated to general unsecured creditors is $302.855 million, resulting in a potential recovery of only 2.8 cents on the dollar for these creditors. Consequently, the 502(h) claim would be valued at $292.852 million. Offsetting this against the Plaintiffs' recovery would yield a damages award of $14.166 billion, exclusive of attorneys’ fees or costs. The Court has not yet resolved the dilutive effect of the Defendants' claim on this amount and will allow the Defendants to file their 502(h) claim and address this issue before finalizing damages. The difference in potential damages could range from $14.166 billion to $5.150 billion, plus applicable fees.

Defendants contend that general unsecured creditors recovered 387% of their claims against Tronox, arguing that their 502(h) claim should reflect this recovery based on post-confirmation records. However, these recoveries were inconsistent with the Plan and could not have been anticipated at the time of confirmation. All creditor classes supported the Plan, while the equity class rejected it, leading to confirmation under the absolute priority rule, which stipulates that creditors cannot receive more than 100% of their claims' value. The Confirmation Order confirms that the Plan meets the Bankruptcy Code's cram-down requirements, and thus, the value of a General Unsecured Claim is capped at the Disclosure Statement's projection of 89% for creditors eligible to participate in the rights offering. The bankruptcy laws do not obligate courts to reassess equity among parties based on later developments.

Finally, as the trial approached, Defendants sought to introduce a new affirmative defense claiming immunity under section 546(e) of the Bankruptcy Code.

Defendants argued that while the Court could hear the case, it could only provide findings of fact and conclusions of law for the District Court's review. They claimed a defense under Section 546(e) of the Bankruptcy Code, asserting that the transactions at issue were “settlement payments” related to a “securities contract.” However, Defendants introduced this defense years after their initial answer and after the deadline for amending pleadings, leading Plaintiffs to assert that the defense was waived due to its untimeliness. The Court denied Defendants' motion to amend their answer, citing both timeliness and waiver concerns, as well as the futility of the amendment. 

The adversary proceeding was initiated on May 12, 2009, with Defendants answering on May 19, 2010, without mentioning Section 546(e). Following an amended complaint and further proceedings, no amendments were sought despite multiple opportunities, and substantial resources were invested in trial preparation. The United States had previously filed a complaint under the Federal Debt Collection Procedures Act (FDCPA) but opted to participate in this proceeding instead. After several developments, including the confirmation of Tronox's plan and an agreement among creditors for limited distribution, Defendants raised the Section 546(e) defense for the first time on February 21, 2012, shortly before a conference on proposed summary judgment motions. The Court allowed Defendants to seek to amend their answer, but ultimately found no merit in their claims that Section 546(e) was not an affirmative defense or that it had been preserved under Rule 12(h)(2).

Rule 8(c)(1) mandates that a party responding to a pleading must explicitly state any affirmative defenses or avoidance claims. An affirmative defense, such as § 546(e), not only negates a plaintiff's prima facie case but also serves to defeat the claim entirely, irrespective of the plaintiff's proof. Courts have consistently recognized § 546(e) as an affirmative defense that protects transfers from avoidance unless actual fraud under § 548(a)(1)(A) is proven. A general plea of “failure to state a claim” does not preserve an affirmative defense, and such defenses cannot be introduced simply to avoid default consequences. In this case, the defendants waived their § 546(e) defense by not raising it timely unless they can demonstrate grounds for amending their answer. To amend, they must show "good cause" under Fed. R. Civ. P. 16(b)(4). A court may deny a motion to amend if there is undue delay, bad faith, repeated failures to cure deficiencies, undue prejudice to the opposing party, or if the amendment would be futile. In this instance, three of these conditions apply: the defendants delayed in raising the issue, which has caused severe prejudice to the plaintiffs. Significant resources were expended in trial preparations, and no discovery was conducted on the § 546(e) issue. The plaintiffs successfully proved their case under the Second Amended Complaint, while the applicability of § 546(e) is limited to property transfers, not obligations incurred.

Plaintiffs could have reformulated their complaint to claim that Defendants' actions led Tronox to assume legacy liabilities if the 546(e) issue had been timely raised. Defendants' justification for the delay, citing a supposed expansion of applicable law by the Second Circuit in Enron Creditors Recovery Corp. v. Alfa S.A.B. de C.V., is unfounded, as the court's decision did not alter the law and was issued eight months before Defendants first mentioned the 546(e) defense. Their lack of diligence warrants denial of their motion to amend, as they did not demonstrate the "good cause" required under Fed. R. Civ. P. 16(b)(4).

Despite the broad interpretation of "settlement payment" in prior cases, Defendants were initially correct in deciding against raising a 546(e) defense, and their proposed amendment would be deemed futile. The Bankruptcy Code defines "settlement payment" broadly, but it must be understood within the context of the securities trade. The transactions involving Tronox in November 2005, characterized as simple intercompany cash transfers by a managing director, do not challenge any direct or indirect distributions of Tronox's stock. Furthermore, a judgment for Plaintiffs would not disrupt a long-settled leveraged buyout, and Defendants failed to provide evidence that the transfer of stock ownership from Old Kerr-McGee to New Kerr-McGee constituted a settlement payment.

Defendants characterized their financial transaction as a reorganization in which Kerr-McGee Operating Corporation transferred its investment in certain subsidiaries to a newly formed holding company. They argued that a "one-way payment" does not qualify as a "settlement payment" under relevant case law. Additionally, Defendants claimed that Kerr-McGee was a "financial participant" under the Bankruptcy Code and that the ownership transfers were related to a "securities contract." However, they did not successfully identify any specific securities contract as defined by the Bankruptcy Code that could substantiate their claims. Evidence presented by Defendants included financial contracts and a significant stock repurchase, but the agreements in question merely allocated assets and liabilities among subsidiaries without involving the sale or purchase of securities. 

Furthermore, Defendants attempted to retract their prior consent to the court's final adjudication of fraudulent transfer claims, which they had initially provided in their answer to the Second Amended Complaint. This retraction came eight months later and was filed well past the deadline for amending pleadings, shortly before the trial was set to commence.

Defendants notified the Court of their lack of consent for final orders and judgments on the fraudulent transfer claims asserted by Plaintiffs and sought leave to amend their answer accordingly. Their motion was based on the premise that, prior to the Supreme Court's decision in *Stern v. Marshall*, it was believed that bankruptcy courts could adjudicate all statutory 'core' claims without requiring consent. Defendants argued that their consent was not informed and any presumed consent before *Stern* was invalid. They referenced a Southern District of New York case indicating that a fraudulent conveyance action against a non-creditor is non-core and cannot be finally adjudicated by a bankruptcy court. However, the excerpt clarifies that Defendants are not mere non-creditors, as the estate's claims against them are core matters due to their relation to the creditor's proof of claim. The Supreme Court's ruling in *Stern* did not undermine its earlier decisions affirming the jurisdiction of bankruptcy courts to resolve issues integral to the allowance of claims, as established in *Katchen v. Landy* and *Langenkamp v. Culp*.

A preferential transfer claim can be adjudicated in bankruptcy if the creditor has filed a claim, as it becomes integral to restructuring the debtor-creditor relationship. In this case, the Defendants filed significant claims against the Debtors, seeking billions in damages related to the Master Separation Agreement (MSA) and environmental litigation. After the Debtors did not formally address the MSA, the Defendants moved to compel them to act. The Defendants also claimed recovery rights under § 502(h) of the Bankruptcy Code and noted that their recovery was subject to § 502(d), which disallows claims from entities that are liable for recoverable property. Although the parties eventually agreed on a resolution that allowed Tronox to confirm a reorganization plan without settling the adversary proceeding, the adjudication of Defendants' claims necessitated addressing the Plaintiffs’ fraudulent conveyance claims. The Defendants' argument about their consent to bankruptcy court jurisdiction was weakened by the Ninth Circuit's ruling that counterclaims to proofs of claim might not be core matters, and a decision from the Supreme Court was anticipated. The legal precedent established that bankruptcy courts lack authority to issue final judgments in fraudulent conveyance cases against parties that have not filed claims unless consent is given. Recent Circuit Court rulings indicate that even with consent, bankruptcy judges may not have the authority to enter final judgments against non-claimant entities.

The legal document references several cases that address the issue of implied consent in bankruptcy court adjudications. Notably, the Supreme Court is set to rule on the Ninth Circuit’s decision in *In re Bellingham Ins. Agency, Inc.*, which contrasts with prior cases where defendants did not file proofs of claim and implied consent arose from their participation in litigation or their inaction. The leading authority in this area remains *In re Men’s Sportswear, Inc.*, which established that defendants can imply consent to adjudication of non-core claims by a bankruptcy court. The Supreme Court has affirmed that parties may consent to adjudication by bankruptcy judges for non-core issues, as seen in *Stem* and *Commodity Futures Trading Commission v. Schor*. The Seventh Circuit’s ruling in *Peterson v. Somers Dublin Ltd.* clarifies that waivers of the right to an Article III court decision are enforceable and distinguishes between “forfeiture” and “waiver.” It further asserts that defendants who filed proofs of claim are subject to preference-recovery and fraudulent-conveyance claims, which bankruptcy judges can adjudicate based on precedent from *Katchen v. Landy* and *Langenkamp v. Culp*. The court notes that while the breach of fiduciary duty claim may not be fully adjudicated, it was non-core both before and after *Stem*. The defendants’ responses indicate unconditional consent to the bankruptcy court's authority over non-core claims, and they have not provided sufficient justification for any lack of consent regarding the fiduciary duty claim.

The Court affirms its authority to issue a final judgment in the adversary proceeding. Should an appellate court disagree, it requests this decision be treated as proposed findings of fact and conclusions of law for the District Court's final entry. Defendants have 30 days to file a proof of claim under § 502(h) of the Bankruptcy Code and address the impact of damages on their claim. Plaintiffs have a corresponding 30 days to respond and propose a judgment consistent with their stance. The judgment will include the relief granted and dismiss the Anadarko defendants, who were previously awarded summary judgment. If Plaintiffs seek attorneys’ fees and costs, they must file an application with supporting details alongside their other pleadings, with Defendants granted 30 days to respond. Parties may schedule arguments on remaining issues. Additionally, the United States filed a complaint-in-intervention against Kerr McGee under the Federal Debt Procedure Act (FDCPA), which will be referenced only when its rights differ materially from other Plaintiffs. The term "Plaintiffs" encompasses the Trust, acting on behalf of Debtors’ estates and certain creditors, along with the United States. Anadarko was dismissed as a defendant on May 8, 2012, but no final order of dismissal was entered to avoid multiple submissions to the District Court. The jurisdictional concerns and additional witness depositions are addressed in later sections. The text also mentions the use of titanium dioxide and creosote, the latter being a potential carcinogen used at Kerr-McGee facilities, and identifies key management figures within the company.

Ownership interests in various oil and gas subsidiaries were transferred from Old Kerr-McGee to Kerr-McGee Worldwide Corporation, a new holding company owned by New Kerr-McGee. The subsidiaries included Kerr-McGee Oil and Gas Corporation, Atlantic Exploration and Production, and several others across different regions. The Form 10-K for the year ending December 31, 2002, briefly mentioned this reorganization and the establishment of Kerr-McGee Chemical Worldwide LLC, into which Kerr-McGee Operating Corporation merged. The defendants claimed that the chemical business was valued at over $1 billion, asserting that Old Kerr-McGee was not insolvent or undercapitalized following the transfer of its exploration and production assets. However, if the chemical business indeed held significant value, this would contradict Kerr-McGee's representations to the indenture trustees, impacting the credibility of the defendants.

In a related transaction between April and June 2005, ownership of additional subsidiaries was transferred to New Kerr-McGee shortly after the EPA demanded $179 million for cleanup costs associated with a legacy site in New Jersey. The AAI Agreement included an indemnification clause requiring the chemical business (Tronox) to cover legacy liabilities. Tronox Worldwide LLC was established as the parent company of Tronox LLC, which succeeded the Old Kerr-McGee chemical operations. Concerns about potential conflicts of interest arose during document drafting, particularly for Roger Addison, the associate general counsel, who was to represent the interests of the spun-off chemical business.

A lawyer was engaged to represent the chemical business during document drafting, but did not significantly influence the terms of the separation for Tro-nox's benefit. Initially, pension obligations were fully funded, but later became underfunded as Tro-nox struggled to manage them. Retirement benefits remained unfunded. Testimonies from Corbett and Wohleber were presented at trial, and Pilcher’s deposition was used due to his unavailability. Lehman acknowledged the complexity of assessing environmental liabilities associated with the transaction; Watson, Lehman’s director, noted that other chemical companies lacked similar legacy liabilities. A JP Morgan Partners representative suggested that Kerr-McGee’s management actions were potentially criminal. Kerr-McGee allocated $40 million in cash for the new company, although the rationale behind this figure was unclear. The chemical business previously had no independent cash flow, relying on a subsidiary for cash management. Initial employee requests exceeded $40 million, but CFO Wohleber's decision to allocate this amount was deemed unchallengeable. Defendants pointed to Tronox's credit line and a casual remark by future CFO Mikkelson about cash needs, but no thorough cash flow analysis was presented. Observations during the IPO indicated that a sale might be preferable to supporting the IPO. The plant partially shut down in 2004 and fully closed during Tronox's Chapter 11 proceedings. The seller faced a lawsuit for failing to disclose material defects, resulting in substantial damages. Defendants contested the admissibility of plaintiffs’ cash flow evidence, but plaintiffs connected their exhibit to Tronox’s S-1, which was accepted in court. Kerr-McGee's controller did not dispute the presented numbers. An Environmental Settlement Agreement was filed as part of the Plan.

In Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal, the legal framework for avoiding transfers of debtor property under the Bankruptcy Code is established. Specifically, Section 544(b) allows a bankruptcy trustee, including a debtor in possession in a Chapter 11 case, to avoid transfers that are voidable under applicable law by an unsecured creditor. The applicable law here is confirmed as Oklahoma law, with a dispute regarding the inclusion of Federal law under the FDCPA relevant to the defendants' statute of limitations defense. The Oklahoma UFTA's provisions are treated as the applicable law for the motion to dismiss, with the defendants arguing that the claims are time-barred under Oklahoma law.

Plaintiffs must rely on either the Oklahoma UFTA or the FDCPA to counter the limitations defense, as the Bankruptcy Code imposes a two-year period from the challenged transfer to the petition date, during which only minor transfers occurred prior to the Chapter 11 filing on January 12, 2009. Section 502(h) relates to claims arising from the recovery of property, ensuring they are treated as if they arose before the bankruptcy petition date. Section 550 outlines the remedies available in avoidance actions, such as fraudulent conveyance.

The plaintiffs seek damages rather than reconveyance of the transferred property, a point of agreement in the case. An issue exists regarding whether the plaintiffs have established a "creditor holding an unsecured claim," which is addressed later. If this condition is met, it is accepted that Tronox can avoid transactions on behalf of its estate and creditors, following the precedent set in Moore v. Bay. Additionally, the plaintiffs argue that the statute of limitations may be extended under the FDCPA. The Bankruptcy Code's look-back period, governed by Section 108(a), preserves non-time-barred claims at the bankruptcy commencement date, and Section 546(a) allows two years for the trustee or debtor in possession to file avoidance actions. Finally, Oklahoma UFTA's Section 118(l)(b) specifies that a non-real property transfer occurs when a creditor can no longer secure a judicial lien superior to the transferee's interest, and an obligation is incurred when a written document is delivered for the obligee's benefit.

The Circuit Court interpreted the New York Uniform Fraudulent Conveyance Act (UFCA), noting its substantive alignment with the subsequent Uniform Fraudulent Transfer Act (UFTA) regarding the "collapsing" doctrine. The court referenced its earlier opinion in the same case. It was revealed that the Board was not informed that separating and spinning off entities would allow "E.P." to evade legacy liabilities, a point included in a draft but removed before the final presentation. CFO Wohleber described the new corporate structure as an "octopus." Involuntary creditors, like environmental and tort claimants, lack protective covenants and primarily rely on fraudulent conveyance laws. The United States is not typically bound by state statutes of limitations and can pursue claims under the Federal Debt Collection Procedures Act (FDCPA). Defendants argue that the FDCPA serves as the exclusive remedy for the United States in debt collection, while also contending that the U.S. cannot simultaneously pursue fraudulent transfer claims. However, courts have held that the United States can act as a plaintiff under the relevant statutes. The United States claims that its injury is similar to that of other creditors, leading to a dispute over standing to prosecute its fraudulent transfer claims. The document discusses the limitations period for the U.S. to file claims, specifying that actions must generally be initiated within six years or one year after applicable administrative proceedings, with certain exclusions for circumstances where relevant facts are not known.

Under 28 U.S.C. § 2416(c), the statute of limitations is tolled when material facts relevant to a legal action are unknown and could not reasonably be known by a responsible U.S. official. In this case, the limitations period was tolled due to an agreement made by Kerr-McGee in 2005 and the fact that no responsible official could have been aware of the 2002 corporate reorganization until at least March 27, 2003, when it was briefly mentioned in Kerr-McGee's 2002 Form 10-K report. This disclosure was deemed insufficient to alert creditors about potential impacts on their rights. Even if the limitations period were measured from March 27, 2003, it falls within six years of Tro-nox’s Chapter 11 filing on January 12, 2009.

The argument that the United States cannot be considered a triggering creditor under the Fair Debt Collection Practices Act (FDCPA) lacks merit. The FDCPA does not exclusively limit the government's remedies, and historically, the United States has acted as a triggering creditor in cases involving unsecured claims. The excerpt references a precedent where the IRS was allowed to serve as a triggering creditor.

Additionally, it is noted that Kerr-McGee had indicated to its indenture trustees that the transferred oil and gas properties represented "substantially all" of its assets. Even if this statement was inaccurate, the assets still significantly comprised over 86% of Old Kerr-McGee's assets and revenue. Under Section 548(a)(1)(A), a transfer can be avoided if made with actual intent to hinder, delay, or defraud creditors, a standard echoed in the Oklahoma Uniform Fraudulent Transfer Act (UFTA). The defendants' requirement for proof of “intentional deception” is countered by case law that emphasizes intent to hinder or delay creditors without necessitating a finding of fraud. Further testimonies and depositions referenced reinforce these points.

Watson acknowledged making statements suggesting concerns about legacy liabilities during a transaction involving Kerr-McGee and Apollo, as noted in a 2011 deposition. A Lehman banker expressed in an email that the sale to Apollo was likely failing due to Kerr-McGee's refusal to confirm it was unaware of additional material liabilities beyond the 27,000 documents provided for review. The banker humorously referenced the movie "Silkwood," which depicted a Kerr-McGee employee's tragic story related to environmental disclosures. Watson's testimony about a tolling agreement was inconsistent, shifting from a lack of memory to recognition of its existence. Corbett, who retired post-Anadarko's acquisition of Kerr-McGee, gained $60 million from stock and options. 

The excerpt also addresses varying standards of proof among states regarding actual intent under the Uniform Fraudulent Transfer Act (UFTA). The burden of proof differs by jurisdiction, with some states applying a preponderance of the evidence standard and others requiring clear and convincing evidence. Specifically, the bankruptcy court in Oklahoma has inferred that preponderance may be the standard used, but a case referenced by the court suggested a cautious approach, leaning towards clear and convincing evidence. This discrepancy highlights the evolving legal landscape surrounding proof standards in fraudulent conveyance cases.

Conveyances were determined to be fraudulent, intended to hinder and delay creditors. The Levinson court did not explicitly adopt the clear and convincing evidence standard, yet the plaintiffs meet this standard under Oklahoma law. The Oklahoma UFTA defines an affiliate as anyone who owns 20% or more of the debtor's voting securities, controls the debtor's assets, or has substantial control over the debtor. The solvency of Tronox is examined further in the context of these definitions. Kerr-McGee failed to anticipate higher future environmental expenditures, having increased environmental reserves by over 47% from 2001 to 2005, with additional support for Tronox's environmental matters being largely illusory. Management's sophistication impacts the interpretation of their actions. Expert testimony from Williams, a bankruptcy accounting and finance professor and experienced consultant, indicated a significant diminution in value of transferred property when comparing market and book values. Williams reported a property valuation difference of $4.8 billion at the IPO date, agreeing with the defendants’ expert on preferring market value for valuations. Anadarko’s acquisition of New Kerr-McGee for approximately $19 billion included non-pertinent assets and featured a control premium of 37.3-42%, compared to the 30% premium used by Williams. Balcombe, a novice in accounting, testified for the first time in this context.

Tronox Worldwide lacks any significant writings on the subject at hand, and it is undisputed that it did not receive the REV. Defendants’ expert, Balcombe, argued that Tronox Inc. received REV due to smaller transfers compared to the stock value from the spinoff of Kerr-McGee. However, Balcombe acknowledged that if Tronox Worldwide were deemed insolvent, Tronox Inc. would experience a $984 million loss in value from the IPO transfers. The insolvency of Tronox Worldwide, along with all Plaintiffs, was uncontested, and the case was not litigated on an entity-specific basis. The Defendants claimed that Plaintiffs' solvency expert, Dr. Newton, failed to provide an entity-by-entity analysis and made unsubstantiated assumptions regarding environmental liabilities. The Defendants introduced their "entity by entity" argument late in the proceedings and did not offer a clear allocation of environmental liabilities. Their solvency defense mainly relied on a consolidated market argument. The Bankruptcy Code defines "claim" to include rights to equitable remedies for breaches that result in payment obligations. Unlike Dr. Newton, Prof. Fischel based his opinion solely on objective evidence, independent from the Defendants' experts. In the chapter 11 proceedings of Tronox, debts were settled in full before any other creditor received payments. Evidence indicated that IPO proceeds were lower than expected, with the stock closing at $14 per share versus a targeted $20-22, and lackluster market demand leading to increased interest rates on unsecured bonds.

Alan Greenspan's statement references a discounted cash flow analysis using February 2005 figures, noting that it was deemed "conceivable" for Kerr-McGee Chemical (later Tronox) to achieve a projected income of $245 million, with one witness estimating a 15% probability, which reassured future managers regarding their projections. After Kerr-McGee ceased operations in 1956, a developer built 137 homes on the site, later abandoned due to a sinkhole and contamination linked to creosote, a carcinogen. The EPA demanded cleanup from Kerr-McGee starting in 1998, which led to $298 million being spent by the EPA when Kerr-McGee refused. Legal memoranda indicated Kerr-McGee likely had liability as the successor to American Creosoting Corp, while auditors claimed substantial defenses existed regarding liability at Manville. A critical issue involved an unsigned 1959 Plan of Liquidation affecting the assumption of liabilities. Kerr-McGee’s environmental experts valued Manville at zero. Despite optimistic projections, Tronox was expected to incur losses in 2006 and through 2007, with only modest earnings from 2005-2008. Concerns over a polluted property led to the termination of a contract in January 2007, and as of the 2012 trial, the property remained unremediated. Ongoing litigation related to Tronox's Registration Statement violations was present at trial's end. A Final Judgment for class action settlements was entered on November 26, 2012, and distribution of settlement funds was approved on September 19, 2013. Kerr-McGee’s S.E.A Department produced Sarbanes-Oxley certifications that covered only known liabilities.

The law department's control documentation inaccurately stated that reserves should be established when a judgment or loss was considered probable and measurable. Following the Master Separation Agreement, Tronox adhered to Kerr-McGee’s reserve-setting methodology post-spinoff. Concerns about this practice—specifically reserving for environmental liabilities only after third-party demands—were raised by Tronox's new controller and chief accounting officer as early as January 2007, with other employees expressing similar doubts. A review of the 2008 reserves revealed an understatement of $68.5 million, leading to the withdrawal of financials. In October 2011, Tronox revised its financial statements for 2008, 2009, and 2010, concluding its environmental reserve was understated by $303.2 million. When a claim is asserted or likely to be asserted, and if the entity is associated with the environmental site, there is a presumption of an unfavorable outcome. Despite concerns about repayment capabilities, evidence indicates that creditors like Morgan, CSFB, and Lehman factored in protections for their debt in the event of Tronox’s failure due to legacy liabilities. Defendants did not argue that these entities purchased unsecured debt or stock in Tronox; any securities held were due to their roles as underwriters. The market, with the exception of Apollo, largely declined to bid on Tronox, burdened by legacy liabilities. Lehman identified 60 potential bidders, with only Apollo willing to accept these liabilities; others, including Bain Capital and JP Morgan Partners, withdrew from consideration due to the costs and risks associated with legacy liabilities.

Ineos submitted a bid of $1.2 billion for Kerr-McGee's assets excluding legacy liabilities but only $300 million including them, indicating a substantial $900 million difference. Under a proposed transaction with Apollo, Kerr-McGee would retain $110 million in medical coverage liabilities for pre-closing retirees, which would be transferred to Tronox in a spinoff. Kerr-McGee was skeptical of Apollo's reliability, as after negotiations ended, Apollo attempted to purchase another TiO2 business but later backed out, leading to a lawsuit where a Delaware Chancery court found Apollo had intentionally breached the contract.

The document emphasizes that courts generally dismiss unaccepted offers as evidence of market value, as such offers are deemed speculative. Additionally, expert testimony based on these offers is excluded as inadmissible. A reference to Prof. Fischel's updated exhibit suggests minimal changes in content relevant to the decision. CSFB's involvement in previous financing efforts for Apollo and its analysis of Tronox highlighted significant management inefficiencies and potential cost savings exceeding $300 million. A subsequent memorandum to Apollo’s CEO acknowledged that environmental liabilities deterred competition for the Chemical Business, characterizing the investment as twofold: an attractive but poorly managed TiO2 business and a separate, management-intensive environmental liability entity.

The packaging of the two entities has reduced competition and allowed for the acquisition of TiOg at a favorable price, contingent on navigating environmental liabilities. The amounts considered were net of reimbursements, including insurance and claims against other potentially responsible parties (PRPs). Notably, it was anticipated that Kerr-McGee would reimburse Tronox between $61.8 million and $65 million as per the Master Separation Agreement. This estimate, derived from Apollo's views on environmental liability, is the lowest valuation in the record. The plaintiffs' valuation ranged from $1.499 billion to $1.684 billion, which contrasts sharply with Fischel’s valuation of $278.1 million. The legacy liabilities were subject to reductions for recoveries from other PRPs and insurance, with differing methodologies applied by the parties, leading to Fischel's valuation being net of specific reductions that plaintiffs did not account for or treated as contingent assets. Fischel's figure aligns more closely with the plaintiffs' estimated value of $1.0 to $1.2 billion.

"Claim," as defined under the Oklahoma UFTA and the Bankruptcy Code, encompasses a broad range of rights to payment, whether contingent or not. The net adjustments totaling $484.4 million stem from Newton's Direct, though this figure requires further refinement due to its inclusion of tax impacts related to tort liabilities, which are significantly less than environmental liabilities. Shifrin, a testifying expert, has faced varying acceptance of his opinions in court, with some judges labeling his assessments as speculative and lacking scientific basis, while others have rejected them outright as unfounded. Both Shifrin and White provided individual and combined written testimonies.

Fischel’s valuation of Tronox was $278.1 million, lower than Shifrin's $376.2 million, based on analyses by Apollo's experts. Defendants pointed out that Ram used a 7% discount rate, consistent with outdated OMB guidance from 1992, which was deemed inappropriate by expert White in light of 2005 economic conditions. The EPA guidance serves public benefit-cost analyses, not contingent liabilities, supporting the use of a risk-free rate for cost analyses. Approximately $10 million in pending asbestos and benzene-related claims against Tronox were acknowledged but deemed immaterial to solvency. Fischel calculated Tronox's "Other Liabilities" at $803 million, which included various financial liabilities. Defendants also presented Balcombe’s testimony on valuation issues. The decline in TiO2 market prices led Apollo to repeatedly reduce its offer, with CSFB and JPM adopting these adjustments without changes. Tronox anticipated an annual overhead increase of $20-25 million as an independent entity, which would lower its EBITDA by $50 million compared to Apollo's projections. Market perceptions categorized Tronox as a less valuable commodity chemical company despite Lehman's marketing efforts. Fischel's updated report minimally discounted the Henderson land contract, and Newton's 25% discount was deemed reasonable. The Moody case, interpreted under Pennsylvania law, has influenced other courts regarding the UFTA, although no relevant Oklahoma cases were cited. The ASARCO Court differentiated cases relied upon by Defendants.

The Court in Joy Recovery established that a company is not deemed to have unreasonably low capital if it survives for an extended period post-transaction. However, this principle was contextualized in ASARCO, which highlighted that the companies referenced in Joy Recovery were actively paying their creditors, unlike ASARCO, which was struggling financially and failing to meet obligations. Similarly, Tronox faced challenges, particularly with legacy liabilities, requiring covenant amendments from lenders to avoid default. Despite Tronox's ongoing environmental liabilities, it lacked the cash for necessary remediation, managing to defer these issues rather than resolve them. The Court clarified that the legacy liabilities were not the sole cause of Tronox's bankruptcy, and the plaintiffs were not required to prove causation regarding the bankruptcy in breach of fiduciary claims, which are subject to a three-year statute of limitations under Oklahoma law. The Bankruptcy Code allows a debtor to initiate actions with unexpired limitations as of the petition date. Williams utilized a fair market value approach by comparing seven companies in the E.P. business to New Kerr-McGee, a method not disputed by the defendants' damages expert, Balcombe. Cash transfers included significant amounts from an IPO and loans, alongside substantial unfunded OPEB obligations. Most losses were attributed to Tronox Worldwide LLC. Plaintiffs claimed Anadarko was liable as a subsequent transferee, but the Court granted summary judgment in favor of Anadarko, determining it was not a subsequent transferee due to the absence of a conveyance of material assets from Kerr-McGee subsidiaries.

The Uniform Fraudulent Transfer Act (UFTA) allows for transferee or obligee protection through liens, rights to retain transferred assets, enforcement of obligations, or reduction of judgment liability. The Bankruptcy Code's analogous provision (11 U.S.C. § 548(c)) permits similar protections. A bankruptcy court’s equitable powers are confined to the Bankruptcy Code, as established in Norwest Bank Worthington v. Ahlers. Limitations on damages in fraudulent conveyance cases must be based on statutory provisions, specifically 11 U.S.C. § 502(h), and cannot solely rely on equitable grounds, as demonstrated in cases like Nostalgia Network, Inc. v. Lockwood and Stanley v. U.S. Bank, N.A.

In a specific ASARCO chapter 11 bankruptcy case, defendants contributed over $2 billion to regain equity ownership, leading to a resolution that allowed them to benefit from asset values returned to the estate. Anadarko's third amended proof of claim includes a significant liquidated claim of approximately $59 million for incurred defense costs, alongside numerous unliquidated claims totaling at least $199 million for Oryx costs and up to $24 million for brine site contributions. Most claims, except the contingent § 502(h) claim and Tronox's § 502(d) defense, were resolved by a stipulation dated January 26, 2011. The remaining aspect of Anadarko's proof of claim requiring liquidation relates to its claim under § 502(h), which encompasses Anadarko Petroleum Corporation and its affiliates, including Kerr-McGee Corporation. A footnote preserves all parties' rights regarding unresolved matters, including the ability to subordinate or disallow the § 502(h) claim. The net value of the assets transferred from Tronox was calculated at $14.459 billion as of November 2005, with legacy liabilities valued at $4 billion in a 2010 Disclosure Statement, which Plaintiffs have not argued has changed substantially.

Plaintiffs assert that they calculated the "inbound consideration" as an offset to Defendants’ liability instead of part of Defendants’ claim under 502(h), which they argue is excessively favorable to Defendants. However, there’s no reason to challenge this approach, as Plaintiffs did not contest Defendants’ right to an offset under section 120(D) of the Oklahoma UFTA for payments made directly to Tronox. Additionally, Defendants' expert on damages, Balcom-be, rightfully included the obligation for OPEB benefits imposed on Tronox in the damages assessment, even though those payments were intended for third parties. 

The calculation indicates that Class 3 general unsecured creditors had claims totaling $445.6 million, and under Tronox's plan, they received 50.9% of the company’s stock, which translates to a recovery of approximately $302.9 million, estimating around 68% of their claims. The Disclosure Statement projected recoveries for Class 3 creditors who did not participate in the rights offering between 58% and 78% of their claims. Class 3 comprised general unsecured creditors, while Class 6 included holders of Indirect Environmental Claims, half of whom partook in the general recovery.

An equity committee actively represented stockholders' interests in the Tronox case, initially arguing that creditors would receive over 100% of their claims but ultimately settled for warrants proposed in the plan. Valuing claims based on subsequent information post-confirmation would contradict the notion that Defendants’ 502(h) claim should be assessed without considering claims in the creditor base, relying instead on facts available at confirmation.

Furthermore, although intentional fraudulent conveyances are exempt under section 548(a)(1)(A) of the Bankruptcy Code, they are not exempt under state law, which typically requires avoidance through section 544(b) of the Bankruptcy Code. Section 546(e) specifies that certain transfers related to margin payments and settlement payments made before a bankruptcy case cannot be avoided, except under section 548(a)(1)(A).

Defendants have submitted a proof of claim against three Plaintiff debtors totaling $59,156,981 for costs incurred in defending against an adversary proceeding from the Petition Date through July/August 2010, along with a contingent claim of $47,568,991 for anticipated future costs. According to Rule 16(b)(4), a schedule can only be modified for good cause with the judge's consent. In the Enron case, both the District and Circuit Courts concluded that redemption payments made to Enron shareholders constituted settlement payments under § 546(e), regardless of the lack of a financial intermediary. If the November 2005 transfers from Tronox’s stock and debt offerings were classified as settlement payments, the potential damages against Defendants could be reduced by approximately $761.8 million. However, this partial immunity does not exempt Defendants from all liabilities associated with the transaction, as noted in In re Appleseed's Intermediate Holdings, Inc. The term "financial participant" includes entities that have substantial agreements or transactions with a debtor exceeding $1 billion in gross dollar value or significant gross mark-to-market positions. Additionally, § 741(7) outlines the definition of a "securities contract," encompassing various types of financial agreements, options, and transactions related to securities, loans, and guarantees.

The text outlines several agreements and transactions that fall under a specific subparagraph, including similar agreements, combinations of agreements, and options to enter into such agreements. It also mentions master agreements that encompass these transactions and related credit enhancements, like guarantees, by financial participants, with damages capped according to section 562. Importantly, it specifies exclusions for commercial mortgage loan participation obligations. 

The excerpt further discusses the jurisdiction of bankruptcy judges, noting that they can only issue final orders in core matters, as designated by 28 U.S.C. § 157(b)(2)(H), which includes fraudulent conveyance determinations. It references Supreme Court cases, particularly Granfinanciera S.A. v. Nordberg, indicating a lack of distinction in treatment between preference and fraudulent conveyance claims. 

Additionally, it mentions the timing of the Supreme Court's decision in Stern v. Marshall, which occurred shortly after the Defendants filed their answer, and the subsequent discussions in legal circles about its implications. The court expressed a desire to await this decision before progressing in related proceedings. 

Finally, the document addresses a dispute over whether the dismissal of Anadarko should be with or without prejudice, with Plaintiffs arguing for a dismissal without prejudice due to potential undisclosed asset transfers. The court suggests that speculation about such transfers should not prevent a prejudicial dismissal, affirming that the Plaintiffs would still have grounds for relief if the Defendants acted improperly.