Tronox Incorporated et al v. Anadarko Petroleum Corporation et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
__________________________________________
In re 	) 	Chapter 11
)
TRONOX INCORPORATED, et al., 	) 	Case No. 09-10156 (ALG)
)
Debtors. 	) 	Jointly Administered
_________________________________________ )
TRONOX INCORPORATED, TRONOX 	)
WORLDWIDE LLC f/k/a Kerr-McGee 	)
Chemical Worldwide LLC, and TRONOX LLC 	)
f/k/a Kerr-McGee Chemical LLC, 	)
)
Plaintiffs, 	)
)
v. 	) 	Adv. Pro. No. 09-1198
)
ANADARKO PETROLEUM CORPORATION, 	)
KERR-McGEE CORPORATION, KERR- 	)
MCGEE OIL & GAS CORPORATION, KERR- 	)
MCGEE WORLDWIDE CORPORATION, 	)
KERR-MCGEE INVESTMENT 	)
CORPORATION, KERR-MCGEE CREDIT LLC, 	)
KERR-MCGEE SHARED SERVICES 	)
COMPANY LLC, and KERR-MCGEE 	)
STORED POWER COMPANY LLC, 	)
)
Defendants. 	)
_________________________________________ )
THE UNITED STATES OF AMERICA, 	)
)
Plaintiff-Intervenor, 	)
)
v. 	)
)
TRONOX INCORPORATED, TRONOX 	)
WORLDWIDE LLC, KERR-MCGEE 	)
CORPORATION, and ANADARKO 	)
PETROLEUM CORPORATION, 	)
)
Defendants, 	)
_________________________________________ )
MEMORANDUM OF OPINION
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A P P E A R A N C E S:
KIRKLAND & ELLIS LLP
Counsel to Plaintiffs Tronox Incorporated,
Tronox Worldwide LLC, and Tronox LLC
300 North LaSalle Street
Chicago, Illinois 60654
By: 	David J. Zott, Esq.
Jeffrey J. Zeiger, Esq.
601 Lexington Avenue
New York, New York 10022
By: 	Richard M. Cieri, Esq.
Jonathan S. Henes, Esq.
WEIL, GOTSHAL & MANGES LLP
Counsel to Defendants Anadarko Petroleum Corporation
and Kerr-McGee Corporation
700 Louisiana, Suite 1600
Houston, Texas 77002
By: 	Melanie Gray, Esq.
Lydia Protopapas, Esq.
Jason W. Billeck, Esq.
767 Fifth Avenue
New York, New York 10153
By: 	Richard A. Rothman, Esq.
Bruce S. Meyer, Esq.
Lori L. Pines, Esq.
BINGHAM McCUTCHEN LLP
Counsel to Defendants Anadarko Petroleum Corporation
and Kerr-McGee Corporation
355 South Grand Avenue, Suite 4400
Los Angeles, California 90071
By: 	James J. Dragna, Esq.
2020 K Street, NW
Washington, DC 20006
By: 	Duke K. McCall, III, Esq.
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ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
INTRODUCTION
This Court’s prior opinion (the “First Opinion”) granted in part and denied in part the
Defendants’ motion to dismiss the complaint (“Initial Complaint”) and granted leave to the
Plaintiffs to replead Counts IV through VI, charging breach of fiduciary duty, aiding and
abetting, and civil conspiracy. See Tronox Inc., et. al. v. Anadarko Petroleum Corp. and Kerr-
McGee Corp. (In re Tronox Inc.), 429 B.R. 73 (Bankr. S.D.N.Y. 2010).
Defendants Kerr-McGee Corporation and affiliates (collectively “Kerr-McGee” or “New
Kerr-McGee”), their corporate parent, Anadarko Petroleum Corporation (“Anadarko” and
together with Kerr-McGee, collectively, “Defendants”), now move to dismiss renewed Counts
IV, V, and VI of the Second Amended Adversary Complaint (the “Amended Complaint”) filed
by debtors Tronox Incorporated, Tronox Worldwide LLC f/k/a Kerr-McGee Chemical
Worldwide LLC, and Tronox LLC f/k/a Kerr-McGee Chemical LLC (collectively, “Tronox” or
“Plaintiffs”). Defendants move to dismiss the Amended Complaint pursuant to FED. R. CIV. P.
8(a)(2), 9(b) and 12(b)(6). Counts I, II, and III of the Amended Complaint, asserting claims
against some of the Defendants for actual and constructive fraudulent transfer, are not at issue on
the present motion.
Reference is made to the First Opinion for the factual allegations that underlie both the
Initial and Amended Complaint. In brief, the Plaintiffs charge that Defendants imposed on them
70 years of “legacy liabilities,” including enormous environmental remediation and retiree-
related obligations, in connection with the spin-off from Tronox of New Kerr-McGee and its
valuable oil and gas assets. The spin-off allegedly left Tronox insolvent or severely
undercapitalized and had the purpose of immunizing the oil and gas business, the prized asset of
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the prior enterprise, from the burden of the legacy liabilities and facilitating the acquisition of
these assets by Anadarko for an ultimate price of $18 billion. The factual allegations in the
Amended Complaint are substantially similar to those made in the Initial Complaint but have
been expanded with respect to the role that Anadarko allegedly played in connection with a
possible acquisition of Kerr-McGee in 2002, the circumstances surrounding the initial public
offering of the stock of Tronox, Incorporated (the “Tronox IPO”) on November 28, 2005, and the
spin-off of Tronox from New Kerr-McGee that was assertedly consummated on March 31, 2006.
The Amended Complaint alleges new theories of liability for breach of fiduciary duty, and the
aiding and abetting and civil conspiracy counts of the original complaint have been repled in the
Amended Complaint as breaches of fiduciary duty.
Since the First Opinion and the Amended Complaint were filed, the parties have
proceeded in a largely cooperative fashion with discovery and trial preparation. The Tronox
Debtors have confirmed a chapter 11 plan of reorganization (the “Plan”), based in part on a
global Environmental Settlement Agreement (“ESA”) negotiated as a resolution of
environmental remediation claims against the Debtors asserted by Federal, State, tribal and other
parties. The ESA formed the lynchpin of the Debtors’ Plan, allowing the reorganized Debtors to
liquidate billions of dollars of claims for alleged environmental remediation costs by establishing
an environmental remediation trust funded in part by an equity offering of shares in the
reorganized Debtors and in part by a litigation trust which has assumed the further litigation of
the case at bar as well as other claims against the Defendants.1 All of Anadarko’s objections to
1 A second proceeding based on similar allegations is pending, brought by the United States for the recovery of
response costs for environmental cleanup pursuant to 42 U.S.C. § 9607(a) on a theory of fraudulent transfer under
28 U.S.C. § 3304(b). That action has been consolidated with the instant adversary proceeding for pretrial purposes;
a motion to dismiss by the defendants in that action (the same defendants as here) was stayed pending the decision
herein and further order of this Court. Case No. 09-01198 (ALG), Dkt. No. 69, Sept. 30, 2009 and Dkt No. 72, Oct.
2, 2009. A third action against certain lenders to Tronox was settled and dismissed. The Anadarko Litigation Trust
is “deemed to stand in the shoes of Tronox” as Plaintiff in this action by order of this Court dated Feb. 14, 2011,
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the confirmation of the Plan were resolved consensually, and the confirmed Plan became
effective on February 14, 2011.2 The Plaintiffs filed a Second Amended Complaint, which
added additional Kerr-McGee entities as defendants without altering the substance of the
Amended Complaint. Defendants consented to this second amendment, subject to the present
motion to dismiss. 3
For the reasons set forth below, Defendants’ motion to dismiss Counts IV, V, and VI of
the Amended Complaint is granted in part and denied in part.
DISCUSSION
I. Standard of Review
The present motion to dismiss is subject to the standards summarized in the First
Opinion. Under Rule 12(b)(6), made applicable to this case by Bankruptcy Rule 7012(b), the
Court must “accept as true all of the factual allegations set out in the plaintiff’s complaint, draw
inferences from those allegations in the light most favorable to the plaintiff, and construe the
complaint liberally.” Rescuecom Corp. v. Google Inc., 562 F.3d 123, 127 (2d Cir. 2009). The
Court is not required to weigh the evidence at issue. DeJesus v. Sears Roebuck Co., 87 F.3d 65,
69 (2d Cir. 1996), cert denied, 519 U.S. 1007 (1996); see also Ryder Energy Distrib. Corp. v.
Merrill Lynch Commodities, Inc., 748 F.3d 774, 779 (2d Cir. 1984). The Court considering a
approving the Anadarko Litigation Trust Agreement and Environmental Settlement Agreement. Case No. 09-10156
(ALG), Dkt. No. 2812, ¶ 3.
2 The Confirmation Order was entered on Nov. 30, 2010. Findings of Fact, Conclusions of Law and Order
Confirming the Joint Plan of Reorganization of Tronox Incorporated et al. Pursuant to Chapter 11 of the
Bankruptcy Code, Case No. 09-10156 (ALG), Dkt. No. 2567, Nov. 30, 2010. The Environmental Settlement
Agreement was filed as a supplement to the Plan. First Supplement to the Plan Supplement for the First Amended
Joint Plan of Reorganization of Tronox Inc., Case No. 09-10156 (ALG), Dkt. No. 2441, Nov. 9, 2010. The Plan
Effective Date occurred on February 14, 2011. Notice of Occurrence of Effective Date of Plan of Reorganization,
Case No. 09-10156 (ALG), Dkt. No. 2827, Feb. 15, 2011.
3 See the stipulation so-ordered on February 18, 2011. It is noted that the Plaintiffs also filed an ex parte application
to file a surreply to the pending motion under seal, as well as a redacted version of the underlying surreply, on
December 20, 2010. A motion to strike the surreply followed from Anadarko, to which the Plaintiffs responded.
The Court will not consider the surreply in evaluating the present motion as it relies on factual assertions beyond the
scope of a motion to dismiss.
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motion to dismiss reads the complaint as a whole. Yoder v. Orthomolecular Nutrition Inst., Inc.,
751 F.2d 555, 562 (2d Cir. 1985), citing Conley v. Gibson, 355 U.S. 41, 47-48 (1957). The
Court must accept all well-pleaded, nonconclusory factual allegations in the complaint to be true.
Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010), quoting Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949-50 (2009). These factual allegations “must be enough to raise a
right to relief above the speculative level . . . .” Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
A complaint is only required under Rule 8(a)(2) to provide a “short and plain statement
of the claim showing that the pleader is entitled to relief,” so that there is disclosure of “sufficient
information to permit the defendant ‘to have a fair understanding of what the plaintiff is
complaining about and to know whether there is a legal basis for recovery.’” Kittay v. Kornstein,
230 F.3d 531, 541 (2d Cir. 2000), quoting Ricciuti v. New York City Transit Auth., 941 F.2d 119,
123 (2d Cir. 1991). However, where claims are based on purported fraud, Rule 9(b), made
applicable by Bankruptcy Rule 7009, requires that allegations of fraud be stated with
particularity. Granite Partners, L.P. v. Bear Stearns & Co., Inc., 58 F.Supp.2d 228, 236
(S.D.N.Y. 1999), citing Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir. 1994).
II. Breach of Fiduciary Duty (Count IV)
Count IV of the Amended Complaint seeks compensatory damages against New Kerr-
McGee for its alleged breach of fiduciary duties owed to Tronox prior to the completion of the
spin-off on March 31, 2006. The Plaintiffs allege that New Kerr-McGee owed fiduciary duties
to Tronox as a promoter, as the parent of an insolvent subsidiary, and as the parent of a
subsidiary with minority shareholders. The First Opinion held that, under the choice of law rules
of the forum jurisdiction (New York), Delaware law governs the substantive breach of fiduciary
duty claims as a result of the incorporation of each of the Tronox entities in that state. 429 B.R.
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at 104. See 380544 Canada, Inc. v. Aspen Tech., Inc., 544 F.Supp.2d 199, 233 (S.D.N.Y. 2008).
On the other hand, the statute of limitations is determined by reference to the law of the place
where the cause of action accrued, which the parties agree in this case was Oklahoma. Under
New York choice of law principles, the Court must apply the shorter of New York’s three-year
statute of limitations or that of Oklahoma. See N.Y. CPLR 202, 213, 214(4); In re Tronox, 429
B.R. at 105. Under Oklahoma law, the statute of limitations for the amended claims would be a
maximum of three years. Okla. Stat. tit. 12, § 95(a); Resolution Trust Corp. v. Greer, 911 P.2d
257 (Okla. 1996).
The Court will proceed by addressing the question whether a breach of a fiduciary duty
claim has been sufficiently alleged in the Amended Complaint before considering whether the
factual allegations, taken as true for purposes of this motion, support the conclusion that such a
breach occurred during the statute of limitations period. As noted above, the applicable
substantive law is that of Delaware, and the applicable statute of limitations is provided by
Oklahoma law. To understand the issues, however, it is first necessary to review the structure of
the spin-off and the key dates.
A. 	Spin-Off Transaction
Although the Plaintiffs and Defendants offer different characterizations of why the spin-
off was carried out, there is no dispute as to the timing and nature of the principal transactions
effectuated in the course of splitting New Kerr-McGee from Tronox. According to the Amended
Complaint and the documents incorporated by reference and attached thereto, and not disputed
by Defendants, the predecessor of both entities, Kerr-McGee Corporation, was an energy and
chemical company with a wide range of operations and liabilities that accrued over the course of
more than seventy years. Starting in May 2001, Kerr-McGee embarked on a program of
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corporate reorganization called “Project Focus” aimed at segregating its oil and gas assets from
the rest of its holdings and from its legacy liabilities. As a first step, Kerr-McGee set up a
holding company framework under which it could isolate its oil and gas assets within one entity,
which would ultimately become “New Kerr-McGee,” while leaving all other assets and liabilities
in another entity or group of entities (“Old Kerr-McGee”), which would later become Tronox.
Although Old Kerr-McGee appears to have originally held substantially all the assets of
the consolidated enterprise, under the reorganized structure New Kerr-McGee became the parent
company. New Kerr-McGee directly held the oil and gas assets, while its subsidiary Old Kerr-
McGee retained most of the other assets and the legacy liabilities. In addition, New Kerr-McGee
was also the beneficiary of various agreements providing for the assumption of liabilities by Old
Kerr-McGee (later Tronox), as well as indemnification against future liability related to the
assets retained by Old Kerr-McGee (Tronox). Among the agreements effecting the spin-off were
an Assignment, Assumption, and Indemnification Agreement, executed in May 2005 and
backdated to December 31, 2002, and a Master Separation Agreement (“MSA”), dated
November 28, 2005. Pursuant to the MSA, Tronox incurred bank debt, issued bonds, and
conducted the Tronox IPO, which took place on November 28, 2005. Tronox transferred to New
Kerr-McGee substantially all the proceeds of the financing, including the $224.7 million
proceeds of the IPO and the $537.1 million proceeds of other financing.
Following the Tronox IPO, New Kerr-McGee remained the majority owner of Tronox,
with the remaining shares publicly traded, until the spin-off was completed on March 31, 2006.
At that time, New Kerr-McGee distributed its remaining shares of Tronox stock to the New Kerr-
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McGee shareholders.4 Assuming a three-year statute of limitations period, in order to state a
claim relating to the spin-off, the Amended Complaint must allege at a minimum either (i) some
actionable conduct occurring after January 12, 2006 (three years before the date of Tronox’s
Chapter 11 filing), or (ii) a basis for tolling the statute of limitations with relation to conduct
occurring before that date until a date within the limitations period.
B. 	Duties Owed by New Kerr-McGee With Respect to Tronox
The Plaintiffs have three theories upon which they base allegations that New Kerr-
McGee owed duties to Tronox during the course of the spin-off. First, the Plaintiffs allege that
New Kerr-McGee owed fiduciary duties as the parent company of a subsidiary that had minority
shareholders after the date of the IPO and before the date of the spin-off. Second, the Plaintiffs
allege that New Kerr-McGee owed fiduciary duties to Tronox and its creditors as a parent in
control of an insolvent subsidiary. Lastly, the Plaintiffs allege that New Kerr-McGee was liable
as a promoter by acting as Tronox’s sponsor, obtaining initial credit facilities, soliciting
investors, arranging for the IPO, and distributing its ownership interest to shareholders in the
spin-off.
Under Delaware law, a wholly owned subsidiary is not owed fiduciary duties by its
corporate parent under normal circumstances. Trenwick Am. Litig. Trust v. Ernst & Young, 906
A.2d 168, 191-92 (Del. Ch. 2006), citing Anadarko Petroleum Corp. v. Panhandle E. Corp., 545
A.2d 1171, 1174 (Del. 1988). However, it is established in Delaware that a parent company
owes fiduciary duties to a subsidiary that has minority shareholders. Sinclair Oil Corp. v.
Levien, 280 A.2d 717, 720 (Del. 1971); Burton v. Exxon Corp., 583 F.Supp.405, 414 (S.D.N.Y.
1984)(Delaware law). The Delaware Supreme Court has also recognized that a parent owes
4 Less than three months thereafter, on June 22, 2006, Anadarko entered into an agreement with New Kerr-McGee
to acquire it for $16.4 billion in cash and the assumption of $1.6 billion in debt. The Tronox Debtors filed their
chapter 11 petition on January 12, 2009.
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fiduciary duties to a subsidiary when that subsidiary is insolvent, and that the creditors of the
subsidiary have standing to enforce such duties. See N. Am. Catholic Educ. Programming
Found., Inc. v. Gheewalla, 930 A.2d 92, 101-02 (Del. 2007). Moreover, even when a subsidiary
is wholly-owned, a parent corporation may owe fiduciary duties as a promoter when it is
engaged in a plan or scheme of promotion, until the scheme has been concluded. Bailes v.
Colonial Press, Inc., 444 F.2d 1241 (5th Cir. 1971).
The Defendants have raised objections to the Plaintiffs’ assertion that duties were owed
by New Kerr-McGee to Tronox, but for the reasons stated below, each such objection is wrong
on the law or based on the resolution in favor of the Defendants of hotly disputed factual
questions that cannot be determined on a motion to dismiss.
First, Defendants argue that they cannot be held liable for breach of fiduciary duties as a
majority owner of a subsidiary with minority shareholders because no such shareholders are
party to this action. However, as the Plaintiffs show, it is well established under Delaware law
that the duties owed to a subsidiary with minority shareholders run directly to the subsidiary
itself. Sinclair Oil Corp. v. Levien, 280 A.2d at 720. Plaintiffs are not asserting claims on behalf
of shareholders, but on behalf of the corporate entities.
Plaintiffs have adequately alleged that a duty was owed by New Kerr-McGee with
respect to Tronox as a subsidiary with minority shareholders, and that such duties were breached.
Plaintiffs allege that from at least the time New Kerr-McGee commenced Project Focus until and
including the conclusion of the spin-off on March 31, 2006, New Kerr-McGee (and its
predecessor) engaged in transactions that lacked intrinsic fairness, involved gross overreaching,
and caused Tronox to become insolvent in breach of the fiduciary duties owed by New Kerr-
McGee. The Plaintiffs also allege that the spin-off itself constituted a breach of duty to Tronox
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because New Kerr-McGee “knew or should have known that Tronox could never survive as an
independent company.” Am. Compl. ¶ 173. “Self-dealing occurs when the majority stockholder
or parent, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way
that the dominant party receives something of value to the exclusion of, and detriment to, the
minority stockholders.” Burton v. Exxon Corp., 583 F.Supp. at 415. 5
With respect to duties owed to Tronox as an insolvent subsidiary, the Defendants appear
to concede that, following the IPO, New Kerr-McGee would have owed fiduciary duties to
Tronox as an insolvent subsidiary if indeed it were insolvent.6 The real dispute is the factual
question whether Tronox was insolvent or undercapitalized following the IPO. Since the
insolvency of Tronox is a hotly contested factual question, it follows that this branch of the
motion to dismiss must be denied.
Finally, with respect to the duties of New Kerr-McGee as a promoter of Tronox, the
Defendants do not dispute that New Kerr-McGee owed such duties during at least some period,
but they assert that all activities relating to promotion of the Tronox entities were concluded on
the date of the IPO (a date more than three years before the bankruptcy filing). The Defendants
point to Bailes v. Colonial Press, Inc., 440 F.2d at 1244, to support their argument that liability
as a promoter ends when the scheme of promotion is concluded. The Amended Complaint
alleges, however, that the spin-off itself was part of the scheme of promotion and that it did not
conclude until after March 31, 2006, when Tronox was no longer directly controlled by the
5 Where a parent company owes fiduciary duties to its subsidiary, transactions between the two that involve self-
dealing on the part of the parent will be judged by the intrinsic fairness standard, under which the defendant bears
the burden of proof. Burton v. Exxon Corp., 583 F.Supp. at 415; Kahn v. Lynch Comm’n Sys., Inc., 638 A.2d 1110,
1115 (Del. 1994).
6 Defendants’ Reply Memorandum of Law at 14. Although Defendants argue in their motion that no such duty
existed prior to the IPO, Plaintiffs’ opposition clarifies that such duties are only alleged to have existed during the
period following the IPO. Plaintiffs’ Opposition at 18. The IPO appears to be the critical date because following
that date, it is alleged, New Kerr-McGee only paid the obligations of Tronox where it was under a contractual
obligation to do so, whereas previously New Kerr-McGee routinely paid or provided for the obligations of its
subsidiaries, including Tronox.
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Defendants. It is also alleged New Kerr-McGee executed further transfers of defined benefit and
retiree liabilities to Tronox in the course of authorizing and preparing for the final step in the
spin-off, the stock distribution, on March 31, 2006. These allegations are sufficient to create a
disputed factual issue as to when the scheme of promotion concluded.
Although factual questions exist regarding the solvency of Tronox during the relevant
pre-spin-off period and the scope of the plan of promotion which caused Tronox to become an
independent company, at the motion to dismiss stage the Court must assume the truth of the
well-pled facts. Taking the allegations made by the Plaintiffs as true, the Amended Complaint
sets forth a claim for breach of fiduciary duties if any act in breach of those duties occurred
within the applicable limitations period.
C. Statute of Limitations
Assuming for purposes of this motion to dismiss that New Kerr-McGee owed fiduciary
duties to Tronox at all times prior to the conclusion of the spin-off, to state a claim for breach of
fiduciary duties, the Plaintiffs must plead facts supporting the conclusion that actionable conduct
occurred within the three-year limitations period, or else that the statute of limitations was tolled.
An affirmative defense, such as the statute of limitations, “may be raised by a pre-answer motion
to dismiss under Rule 12(b)(6), without resort to summary judgment procedure, if the defense
appears on the face of the complaint.” McKenna v. Wright, 386 F.3d 432, 436 (2d Cir. 2004).
On such a motion, “as with all Rule 12(b)(6) motions, the motion may be granted only where ‘it
appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that
would entitle him to relief.’” Id.; see also In re Magnesium Corp. of Am., 399 B.R. 722, 754
(Bankr. S.D.N.Y. 2009). The parties agree that a three-year statute of limitations applies to the
amended claims of breach of fiduciary duty to the extent that they are not based in fraud. Since
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none of the allegations in Count IV of the Amended Complaint is grounded in fraud, the Court
applies a three-year statute of limitations.
The Defendants admit that the distribution of Tronox stock in the spin-off and certain
transfers of defined benefit and retiree liabilities from New Kerr-McGee to Tronox took place
after January 12, 2006, the cut-off date under a three-year statute of limitations. The Defendants
argue nevertheless that the consummation of the spin-off is not, standing alone, a sufficient
predicate for Plaintiffs’ claims because a spin-off is an ordinary transaction that is “entirely
consistent with traditional principles of corporate governance.” Aviall, Inc. v. Ryder Sys. Inc.,
913 F.Supp. 826 (S.D.N.Y. 1996); Anadarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d
at 1174. The Defendants also argue that the spin-off and all transfers occurring during the
limitations period were merely the “unabated inertial consequences” of agreements entered into
prior to the IPO and did not reset the statute of limitations clock, citing Varner v. Peterson
Farms, 371 F.3d 1011, 1019 (8th Cir. 2004).
The Court agrees that a spin-off can be an entirely appropriate corporate transaction and
that a spin-off is not prima facie evidence of a breach of a fiduciary duty owed to a subsidiary.
However, on the allegations of the Amended Complaint, this spin-off was not a beneficial
corporate transaction but the concluding step in an integrated scheme to segregate the valuable
oil and gas assets from the legacy liabilities of Old Kerr-McGee, leaving Tronox insolvent and
without adequate capital. The detailed allegations are that Project Focus included unsuccessful
attempts to sell the non-oil and gas related assets of Kerr-McGee, the creation or use of the
Tronox entities for the purpose of concentrating and offloading liabilities, and the consummation
of a spin-off by which New Kerr-McGee “caused Tronox to accept onerous liabilities, including
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defined benefit and other retiree-related liabilities that were transferred to Tronox as of March
31, 2006.” Am. Compl. ¶ 166.
The Defendants’ argument that the transfers of liabilities occurring at the time of the
spin-off and the spin-off itself were “unabated inertial consequences” of the IPO and other earlier
actions does not square with the facts alleged in the Amended Complaint. In Varner v. Peterson
Farms, the Court held that performance under a pre-existing contract was not an overt act
sufficient to constitute a continuing violation of the antitrust laws or to start the statute of
limitations running again, as contractual performance was merely an “unabated inertial
consequence” of the initial entry into the contract. 371 F.3d at 1019. Under Varner, an overt act
must be “a new and independent act that is not merely a reaffirmation of a previous act,” and it
must “inflict new and accumulating injury on the plaintiff.” Id.
The Plaintiffs have adequately alleged that the Defendants took “new and independent”
acts after January 12, 2006. For one thing, it appears that prior to March, 2006, under the
documents governing the Tronox IPO, New Kerr-McGee was not subject to a binding obligation
to complete the spin-off. As alleged in the Amended Complaint, the distribution of the new
Tronox stock held by New Kerr-McGee and the consummation of the spin-off would not have
occurred but for a decision of the directors of New Kerr-McGee on March 8, 2006. Am. Compl.
¶ 166. This allegation is substantiated by the statement, contained in a Tronox S-1 Registration
Statement, filed on November 21, 2005, immediately prior to the IPO, that “Kerr-McGee
[continued to have] the sole discretion to decide if and when the Distribution [would] occur and
to determine the form, the structure, and all other terms of any transactions to effect the
Distribution.” 7 Given the Plaintiffs’ detailed allegations that the effectuation of the spin-off
7 Tronox Registration Statement at 5, Exhibit B to Defendants’ Affidavit in Support of the Motion to Dismiss. The
Court can take judicial notice of certain securities filings in ruling on a motion to dismiss under Rule 12(b)(6).
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caused further harm to Tronox and its shareholders, the authorization of the spin-off by the New
Kerr-McGee board of directors within the limitations period is sufficient to plead that a “new and
independent” breach of fiduciary duty occurred within that period.
The Plaintiffs have provided an adequate basis to support their theories of fiduciary
duties owed by New Kerr-McGee to Tronox and have stated with sufficient clarity factual
allegations supporting the claim that New Kerr-McGee breached such duties within a three-year
limitations period. Because the Plaintiffs have adequately pled a claim for breach of fiduciary
duties without tolling the statute of limitations, the Court need not reach the question of whether
the statute of limitations was tolled.8 The Defendants’ motion to dismiss is denied with respect
to Count IV of the Amended Complaint.
III. Civil Conspiracy (Count V) and Aiding and Abetting Breach of Fiduciary Duty (Count VI)
Count V is premised on an alleged conspiracy between Anadarko and New Kerr-McGee
to breach fiduciary duties owed to Tronox, and Count VI alleges that Anadarko should
independently be held directly liable for aiding and abetting breaches of fiduciary duty by New
Kerr-McGee.9 The Amended Complaint asserts that Anadarko pursued an acquisition of Kerr-
McGee’s valuable oil and natural gas assets beginning in 2002 until it discovered the magnitude
of the legacy liabilities, after which it waited in the wings, eager to pay a premium for the assets
if they were cleansed. According to the Plaintiffs, the acquisition of New Kerr-McGee for $18
billion just months after the completion of the spin-off was not consummation of an arm’s-length
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Staehr v. Hartford Fin. Svc. Group, Inc., 547
F.3d 406, 425 (2d Cir. 2008).
8 The Plaintiffs argue that even if actionable conduct did not occur within the limitations period, the statute of
limitations was tolled due to the adverse domination of Tronox, fraudulent concealment by the Defendants, and
under the “discovery” rule. The Defendants contend that adverse domination only applies when fraud is alleged, in
which case Oklahoma would impose a two-year limitations period. Def. Motion. at 8, fn. 7; In re Tronox, Inc., 429
B.R. at 106. The Defendants also argue that fraudulent concealment and the discovery rule have not been
adequately pled and should not be applied to toll the statute of limitations. None of these issues need be reached.
9 New Kerr-McGee has not been named in Count VI’s allegations of aiding and abetting breach of fiduciary duty.
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business transaction but instead the conclusion of a conspiracy to transfer out the valuable assets,
with Tronox left behind insolvent and undercapitalized. The Anadarko Defendants argue in
response that even if the amended claims are not barred by the statute of limitations or other
legal deficiencies, the facts alleged do not rise to the level of specificity required under Twombly
and Iqbal, nor do the allegations suggest that Anadarko engaged in actionable conduct
inconsistent with a legitimate arm’s-length business transaction. See Bell Atl. Corp. v. Twombly,
550 U.S. at 557; Peterson v. Grisham, 594 F.3d 723, 731 (10th Cir. 2010).
There is no material disagreement as to the elements the Plaintiffs must show in order to
state a claim in Counts V and VI.10 A claim of civil conspiracy (Count V) requires that a
complaint allege: 1) the existence of a confederation or combination of two or more persons; 2)
that an unlawful act was done in furtherance of the conspiracy; and 3) that the conspirators
caused actual damage to the plaintiff. Nicolet v. Nutt, 525 A.2d 146, 149-50 (Del. 1987). A
claim for aiding and abetting breach of fiduciary duty (Count VI) requires a showing of: 1) the
existence of a fiduciary relationship; 2) that the fiduciary breached its duty; 3) that a defendant,
who is not a fiduciary, knowingly provided substantial assistance to a breach; and 4) that the
plaintiff was damaged as a result of the concerted action of the fiduciary and nonfiduciary. In re
USA Detergents, Inc., 418 B.R. 533, 546 (Bankr. D. Del. 2009).
Thus, Count V’s conspiracy claim fails unless the Amended Complaint adequately
alleges that Anadarko entered an actual agreement to commit an unlawful act, and Count VI
10 The Defendants point to Oklahoma law as governing Counts V and VI, whereas the Plaintiffs rely on Delaware
law. The Defendants argue that under Oklahoma law a two-year statute of limitations applies to the conspiracy
claims because they are based in fraud. Mtn. to Dismiss at 24, fn. 23, citing Paxton v. Hyer, 87 P.2d 938 (Okla.
1939). They also argue that the aiding and abetting a breach of fiduciary duty claim is controlled by Oklahoma law,
and that although Oklahoma has applied aiding and abetting to other causes of actions in tort it has not recognized it
as applying to breach of fiduciary duty. Mtn. to Dismiss at 29, fn. 26, 27 Because the Amended Complaint has
failed to state a claim under Count V or VI without regard to these questions of state law, the Court bases its
decision solely on the common law elements of civil conspiracy and aiding and abetting recognized by both
jurisdictions. Citation is made to Delaware case law because even under the cases cited by the Plaintiffs, Counts V
and VI fail. Accordingly, the effect of the statute of limitations need not be reached.
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requires allegations that Anadarko was at a minimum a knowing provider of substantial
assistance to a breach of duty. On the other hand, as the Delaware courts have held, negotiation
of the terms of an arm’s-length transaction “cannot give rise to liability for aiding and abetting,
whereas a bidder may be liable to the target’s stockholders if the bidder attempts to create or
exploit conflicts of interest in the board . . . [or] where the bidder and the board conspire in or
agree to the fiduciary breach.” Malpiede v. Townson, 780 A.2d 1075, 1098 (Del. 2001). If
Anadarko’s involvement in the reorganization of New Kerr-McGee was limited to the role of
counterparty to an arm’s-length business transaction, then the agreement to enter such a
transaction and the effectuation thereof cannot ordinarily support claims of either actionable
conspiracy or aiding and abetting. See id.
The claims in the Amended Complaint are insufficient in light of these principles.
According to the Amended Complaint, Anadarko explored an acquisition of Kerr-McGee in
2002 but lost interest and terminated its due diligence after determining that it could be faced
with as much as $3 billion in legacy costs if it closed the transaction. Certainly this
demonstration of interest could not be enough for the incurrence of liability, and Plaintiffs do not
argue to the contrary.
The Amended Complaint then admits that the only communication between Anadarko
and New Kerr-McGee from that time until after the IPO was in the form of Anadarko’s
continued expressions of interest in an acquisition communicated through New Kerr-McGee’s
investment banker, Lehman Brothers. Nevertheless, although the Plaintiffs imply that Lehman
Brothers played a nefarious role in orchestrating “Project Focus” and the acquisition of New
Kerr-McGee by Anadarko, none of the expressions of interest allegedly communicated between
Anadarko and New Kerr-McGee through Lehman is alleged to have constituted an agreement.
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None indicates that Anadarko supplied assistance or aid to the project that can be termed
substantial. The Plaintiffs have not alleged that Anadarko demanded that any particular
liabilities be imposed upon Tronox or that New Kerr-McGee promised to sweeten the deal at
Anadarko’s behest by foisting additional liabilities upon Tronox prior to the spin-off. The
Amended Complaint makes it clear that Anadarko had previously balked at acquiring
unliquidated liabilities that could potentially reach into the billions of dollars, but the Plaintiffs
have not alleged sufficient facts to support the conclusion that Anadarko acted in concert with
New Kerr-McGee to structure the spin-off or that Anadarko dictated which assets and liabilities
would be retained by New Kerr-McGee.
The Amended Complaint also alleges that Anadarko and New Kerr-McGee entered
formal discussions regarding an acquisition of New Kerr-McGee prior to the completion of the
spin-off in March 2006, but there is no allegation that the substance of such discussions involved
the transfer of further liabilities to Tronox. Even if the Court accepts for purposes of this motion
the Plaintiffs’ assertion that the CEO of Anadarko contacted the CEO of New Kerr-McGee in
March of 2006 to discuss an acquisition of New Kerr-McGee, such communications are
consistent with arm’s-length negotiations. Plaintiffs have not cited any case law supporting the
proposition that a third-party can take on in personam liability for damages on a theory of
conspiracy or aiding and abetting merely because it holds itself out as a potential purchaser of
assets that have been cleansed through improper or unlawful means. As a purchaser, Anadarko
may find that the company it bought is worth substantially less because of liabilities that the law
does not permit New Kerr-McGee to avoid, but this is quite different from Anadarko’s
incurrence of in personam liability as a conspirator or aider and abettor. Ultimately, the
Amended Complaint’s factual allegations only support the proposition that as the conclusion of
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the spin-off neared, New Kerr-McGee was an attractive target for a strategic partner in the oil
and gas industry and that Anadarko, having already conducted due diligence on the company and
on the investment bankers’ valuations of New Kerr-McGee, was in haste to consummate an
acquisition before an alternate bidder emerged.
Indeed, the facts here are similar or even more favorable to Anadarko than those in
Malpiede v. Townson, supra. There the Delaware court found that a company bidding for an
attractive target may have engaged in suspect tactics, and that there had been conflicts of interest
and a possible breach of the duty of care by the target board, but that there could be no liability
on the bidder for aiding and abetting a breach of fiduciary duty because the conduct of the bidder
in the course of the acquisition was not actionable, in that “arm’s length negotiations cannot give
rise to liability for aiding and abetting . . . .” 780 A.2d at 1097. As the Supreme Court stated in
Twombly, “Without more, parallel conduct does not suggest conspiracy, and a conclusory
allegation of agreement at some unidentified point does not supply facts adequate to show
illegality.” 550 U.S at 557.
In the case at bar, although the anticipation of a merger with Anadarko provides the
motive for New Kerr-McGee to maximize the net value of its enterprise by transferring out all
the valuable property and leaving the legacy liabilities behind, the allegations do not provide a
sufficient basis to infer an agreement between Anadarko and New Kerr-McGee to commit an
unlawful act, as required for an allegation of civil conspiracy, or of knowing and substantial
assistance in a breach of duty, as required for liability for aiding and abetting. Counts V and VI
are dismissed.
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CONCLUSION
Defendants’ motion to dismiss is denied as to Count IV of the Amended Complaint for
breach of fiduciary duty and granted as to Counts V and VI for civil conspiracy and aiding and
abetting breach of fiduciary duty. Either party may settle an order on five business days’ notice.
Dated: 	New York, New York
May 11, 2011 	/s/ Allan L. Gropper
UNITED STATES BANKRUPTCY JUDGE
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