Tronox Incorporated

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
__________________________________________
:
In re: 	: 	Chapter 11
:
TRONOX INCORPORATED, et al., 	: 	Case No. 09-10156 (MEW)
: 	Jointly Administered
Reorganized Debtors. 	:
__________________________________________:
MEMORANDUM OPINION AS TO TORT CLAIMS TRUSTEE’S MOTION
FOR INSTRUCTIONS REGARDING FUTURE TORT CLAIMS
A P P E A R A N C E S:
KEATING MUETHING & KLEKAMP PLL
Cincinnati, Ohio
Counsel for the Garretson Resolution Group, Inc.
As Tronox Incorporated Tort Claims Trustee
By: Robert G. Sanker, Esq.
Bethany P. Recht, Esq.
MICHAEL E. WILES
UNITED STATES BANKRUPTCY JUDGE
The Tronox Incorporated Tort Claims Trust (the “Trust”) was established under the
confirmed plan of reorganization in these cases (the “Plan”). The Trust is governed by a Tort
Claims Trust Agreement (the “Trust Agreement”) and by a set of Tort Claims Trust
Distribution Procedures (the “TDPs”). The Plan and the Trust Agreement establish categories
into which allowed tort claims are to be divided, and the TDPs are rules that govern the
collection, review, allowance and payment of tort claims.
The Garretson Resolution Group, Inc., as trustee of the Trust (the “Trustee”), has filed a
motion [ECF No. 3069] seeking instructions as to the interpretation and application of the
provisions of the Plan, the Trust Agreement and the TDPs that govern “Future Tort Claims.” For
the reasons set forth below, the Court grants the Trustee’s request for instructions, and holds that
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a claim qualifies as a “Future Tort Claim” if it does not fall into the other categories of Tort
Claims and if one or more of the following conditions are met:
(1) 	The claim is based on an alleged exposure to a harmful substance that occurred on
or after August 12, 2009;
(2) 	The claim is based on an exposure that occurred before August 12, 2009, but as to
which no injury or disease was manifested until on or after August 12, 2009; or
(3) 	The exposure, as well as the manifestation of an injury or disease, predated
August 12, 2009, but the claimant is able to establish (a) that the claimant’s
failure to file a timely proof of claim should be excused on grounds of excusable
neglect, (b) that the purported discharge of the claimant’s claim was a violation of
due process and therefore ineffective.
Determinations as to claims that fall into categories (1) and (2), above, will be made by the
Trustee pursuant to the TDPs and subject to the dispute resolution procedures that are set forth in
the TDPs. Claimants in category (3) who wish to obtain relief will be required to file motions
seeking such relief from this Court.
Background
Tronox Incorporated and related entities filed voluntary chapter 11 petitions in this Court
on January 12, 2009. The Court entered an order setting August 12, 2009 (the “Bar Date”) as
the deadline by which to file any proof of claim against the Debtors. The Order required the
Debtors to send notice of the Bar Date to all known creditors, including all parties to pending
litigation with the Debtors (with the proviso that such notices were to be sent to counsel if the
Debtors did not have the litigants’ addresses). In addition, the Order approved many “site-
specific” notices that were designed to inform potential tort claimants of the Bar Date. The site-
specific notices were to be published in local newspapers in locations where facilities had been
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operated and where prior waste disposals had given rise to injury claims. Judge Gropper
approved the form and manner of notices, and also found that the approved notices constituted
“adequate and sufficient notice of each of the Bar Dates . . .” See ECF No. 466, ¶ 20.
On November 30, 2010, the Court confirmed the Plan, which later became effective on
February 14, 2011. The term “Tort Claims” was broadly defined in the Plan so as to include
claims that had already arisen or that might arise in the future:
“Tort Claim” means non-governmental Claims against Tronox, whether
such Claims are known or unknown, whether by contract, tort or statute,
whether existing or hereinafter arising, for death, bodily injury, sickness,
disease, medical monitoring or other personal physical injuries or damage to
property to the extent caused or allegedly caused directly or indirectly by the
presence of or exposure to any product or toxin manufactured or disposed of,
or other property owned, operated or used for disposal by, Tronox or any
Entity for whose products or operations Tronox allegedly has liability . . .
Plan, Article I(A)(156) [ECF No. 2567, Ex. A] (emphasis added). All Tort Claims were to be
channeled to the Trust for processing, allowance and payment, and the Plan made clear that
holders of “Tort Claims” could only seek recovery from the Trust:
The sole recourse of Holders of Tort Claims shall be the Tort Claims
Trust, and such Holders shall have no right at any time to assert Tort Claims
against Reorganized Tronox. Final determinations on the allowance or
disallowance of Tort Claims for distribution purposes shall be made in
accordance with the Tort Claims Trust Distribution Procedures.
Id. Article III(B)(4)(b). The Trust was funded with a cash deposit and by a contingent interest in
the proceeds of certain litigation. That litigation ultimately resulted in a very large judgment in
November 2014, and therefore in more than $580 million of total funding for the Trust.
The Plan established many separate subcategories of Tort Claims, and provided that the
total amounts allocated to the Trust would be divided as follows:
 	“up to” 6.25% would be available for “Indirect Environmental Claims;”
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 	6.25% would be available for “Holders of Asbestos Claims and Future Tort
Claimants;”
 	6.25% would be available to “Holders of Property Damage Claims;” and
 	the largest share (at least 81.25%) would be set aside for “Non-Asbestos Toxic
Exposure Claims.”
Id., Article III(B)(4)(b).
The Trust Agreement was filed with the Court after the proposed Plan had been filed, but
prior to confirmation of the Plan. [ECF No. 2343, Ex. C]. The Trust Agreement effectively
added further limitations on the persons who would qualify for distributions in many of the Tort
Claim categories. More particularly, the definitions of the terms “Allowed Indirect
Environmental Claim,” “Allowed Asbestos Claim,” “Allowed Property Damage Claims” and
“Allowed Non-Asbestos Toxic Exposure Claims” made clear that the only claims that fell in
those categories were claims (i) that were the subject of proofs of claim that were filed prior to
the Bar Date, or (ii) that were the subject of proofs of claim that the Court had authorized to be
late-filed through a Final Order entered prior to the Effective Date of the Plan. Id. at ¶ 1.2(a),
(c)-(e). These conditions had the effect of limiting the claimants who could qualify for inclusion
in these categories.
As noted above, the Plan also defined a category of “Future Tort Claims.” The Plan did
not define the term “Future Tort Claim,” but it did define the term “Future Tort Claimant,” as
follows:
. . . an entity that establishes that it holds a Tort Claim that did not arise prior
to the Effective Date and was not discharged under the Plan.
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[ECF No. 2567, Ex A, Article I(A)(75) (emphasis added). The proposed Trust Agreement,
however, contained a different definition. The Trust Agreement defined the term “Future Tort
Claimant” as:
. . . an entity that establishes that it holds a Tort Claim that arose prior to the
Effective Date and was not discharged under the Plan.
See Trust Agreement, ECF No. 2343, Ex. C, § 1.2(m). The Term “Allowed Future Tort Claim”
was also defined in the Trust Agreement as “a Tort Claim held by a Future Tort Claimant that is
Allowed by a Final Order.” [ECF No. 2343, Ex. C, ¶ 1.2(b).]
The Confirmation Order provided that the definition of “Future Tort Claimant” in the
Trust Agreement would be deemed to have been incorporated into Article I of the Plan and to
have replaced the prior definition. Confirmation Order [ECF No. 2567] at ¶ 185. The
Confirmation Order also approved the other terms of the Trust Agreement and TDPs. Id. at
¶¶ 85, 184. As a result of this change the definition of “Future Tort Claimant” was changed from
one that would include only claims that arose after the Effective Date to one that was limited to
certain claims that arose before the Effective Date. The parties did not explain the differences, or
the changes to the definitions, in their filings with the Court or at the confirmation hearing.
Similarly, no explanation was offered as the how and when a Tort Claim would be deemed to
“arise” prior to the Effective Date. Nor was any explanation offered as to how these provisions
were intended to apply in light of Section VIII.A of the Plan and paragraph 129 of the
Confirmation Order, which stated that all Tort Claims that “arose” prior to the Effective Date
were deemed to have been discharged.
The Trust Agreement also added a new category of “Allowed Unknown Tort Claims,”
and the Confirmation Order incorporated that category into the terms of the Plan. Confirmation
Order [ECF No. 2567] at ¶ 185. On February 4, 2011, amended versions of the Trust Agreement
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and Trust Distribution Procedures were filed. [ECF no. 2768, Ex A, B] This version of the Trust
Agreement amended the defined term “Allowed Unknown Tort Claim” to “Allowed
Unaccounted-For Tort Claims,” and the definition was also circumscribed by a requirement that
the underlying claim be included in the Debtors’ schedules of liabilities or that the claim be the
subject of proof of claim that was timely filed:
“Allowed Unaccounted-for Tort Claim” means any Tort Claim that is
(a)(i) a Claim that is listed in the Schedules by Tronox as neither disputed,
contingent nor unliquidated, and as to which Tronox or any other party in
interest has not filed an objection by the Claims Objection Bar Date or such
other applicable period of limitation fixed by the Bankruptcy Code,
Bankruptcy Rules or the Bankruptcy Court or (ii) that is a Claim to which a
Proof of Claim was timely filed and as to which no objection was filed by the
Claims Objection Bar Date; and (b) is not an Asbestos Claim, Future Tort
Claim, Indirect Environmental Claim, Non-Asbestos Toxic Exposure Claim,
or Property Damage Claim, which Tort Claim is Allowed through the Tort
Claims Trust Distribution Procedures.
Id. Ex. A at ¶ 1.2(g). As it currently stands, then, this category is not available to claimants
unless they filed timely claims or obtained permission, prior to the effective date, to file a late
claim.
The Trust Agreement and the TDPs contain provisions that allow further amendments.
At some point after the effective date the definition of “Allowed Future Tort Claim” was further
amended to make clear that such a claim could be allowed by final Order or pursuant to the
TDPs. [ECF no. 3030, Ex. A, ¶ 1.2(b)].
The Request for Instructions
More than 19,000 claims have been filed as purported Future Tort Claims – a far greater
number than anyone anticipated, and more than twice the number of other claims that the Trustee
has received and processed. Additional Future Tort Claims continue to be filed each week. The
Trustee contends that the relevant terms of the governing trust documents could be interpreted in
different ways and do not provide sufficiently clear guidance to the Trustee as to whether the
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claims qualify as Future Tort Claims. The Trustee has suggested a resolution under which a
“Future Tort Claim” would be allowed only if (1) the claimant was exposed to a Tronox product
before the Effective Date of the Plan, and (2) the claimant was not diagnosed with the claimed
disease or condition until after the Bar Date. All other claims, in the Trustee’s view, would be
barred by the prior discharge orders, and the Trustee has proposed to so inform the claimants. In
addition, the Trustee has suggested that each claimant who wishes to appeal from such
determinations should be required to pay a fee of $250, which fee would be refundable if the
claimant were successful. See ECF No. 3069, ¶¶ 18-21.
The Trustee argued, in its motion papers, that the ambiguous provisions of the Trust must
be interpreted in a way that will give effect to the intent of the parties who established the Trust.
See Motion at pp. 8-9 (citing, Annan v. Wilmington Trust Co., 559 A.2d 1289, 1292 (Del. 1989)
(citing Dutra de Amorim v. Norment, 460 A.2d 511, 514 (Del. 1983)); Fiduciary Trust Co. of
New York v. Fiduciary Trust Co. of New York, 445 A.2d 927, 980 (Del. 1982). The Court
therefore directed that the Trustee to present evidence as to the intent of the parties in drafting
the provisions that are at issue. The Court also directed the Trustee to serve notice of the
Motion, and of the evidentiary hearing, on all persons who had filed Future Tort Claims.
Hundreds of pro se responses to the Motion were sent to the Court and to the Trustee, and
all of those responses have been placed on the docket. See ECF Nos. 3072-3193, 3195-3258,
3260-61. The responses made the following arguments:
 	That some claimants were not aware of their injuries prior to the Bar Date.
 	That some claimants were not aware of the Bar Date itself.
 	That some claimants may have known of their diseases prior to the Bar Date but may
not have had any reason to understand that the diseases had been caused by their
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exposure to creosote or to other products released into the environment by Tronox
and its predecessors.
 	That notice of the Bar Date was not reasonably calculated to reach claimants.
 	That claimants’ failure to file claims by the Bar Date was the result of excusable
neglect and should be excused pursuant to Fed. R. Bankr. P. 9006.
Other responses referred to payments made to the tort claimants who filed timely claims, and
argued that in fairness later-filed claims should be given the same treatment. Many other
responses simply stated that the claimants disagreed with any proposed disallowance of their
claims, without further explanation.
Evidence at the Hearing
Three witnesses testified at the hearing. No claimant appeared and no cross-examination
questions were asked, though the Court asked its own questions of each witness.
The first witness was Natalie Ramsey of Montgomery McCracken Walker & Rhoads
LLP. Ms. Ramsey testified that she had represented a creditor who was a member of the Official
Committee of Unsecured Creditors in the Tronox cases and that she had been involved in
negotiating and drafting the provisions of the Plan and related documents that dealt with Tort
Claims. She confirmed that one major concern was that all Tort Claims be channeled to the
Trust and “that there be absolute certainty that no legacy liability would fall on reorganized
Tronox.” (Transcript, October 25, 2016, at 8:11-14.) Ms. Ramsey testified that the definitions
were modified to reflect the fact that diseases sometimes did not manifest themselves until some
time after exposure to a harmful product. Under questioning from the Court, she also testified
that it was her understanding that the category of “Future Tort Claims” would include each of the
following possible types of claims:
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 	Claims by people who were first exposed to a harmful product after the effective date
of the Plan (Transcript, October 25, 2016, at 10:20 – 11:3.) However, Ms. Ramsey
was unable to explain how such a claim would have “arisen” prior to the effective
date (which appears to be a requirement of the modified definition), and suggested
that in this respect the parties may have been inexact in the words they chose. Id. at
11:4 – 11:22.
 	Claims by people who were exposed to substances prior to the effective date but
whose diseases or injuries did not manifest themselves until after the Bar Date. Id. at
11:23 – 12:14.
 	Claims by people whose symptoms had manifested themselves prior to the Bar Date,
but who contend they were not aware of the Bar Date or of the bankruptcy cases, to
the extent such claimants were successful in arguing that they did not receive
sufficient notice as a matter of due process. Id. at 12:15 – 13:15.
 	Claims by people whose symptoms had manifested themselves prior to the Bar Date
and who seek, after the Effective Date, to file late claims on grounds of “excusable
neglect” under Rule 9006 of the Federal Rules of Bankruptcy Procedure. Id. at 13:16
– 14:6.
See also id. at 15:7 – 15:17. Ms. Ramsey also testified, however, that at the time the Plan and
related documents were drafted the parties believed that all tort claims would likely have already
manifested themselves, and did not expect that there would be a substantial number of future
claimants. Id. at 15:23 – 16:8.
The second witness was Nicole Greenblatt of Kirkland & Ellis LLP. Ms. Greenblatt
testified that she had been counsel to the Tronox debtors in their bankruptcy cases. She testified
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that the overriding intent of the parties was that all Tort Claims would be covered in one or more
of the categories of claims that were established by the Trust. She explained:
And so with respect to future tort claims, the concept was that there were a
category of claims that may not be known or knowable at the time of the bar
date but that could – you know, arise is probably the wrong word because of
legal developments around what that means – but there could have been
claims that came into existence post bar date and the trust set aside funds to
deal with that category of claims.
Id. at 18:11 – 18:18; see also 27:14 – 27:20 (confirming witness’s understanding that it would be
inconsistent with the plain intent of the parties if the Tort Claim categories were interpreted in a
way that would leave any Tort Claim uncovered).
Under questioning from the Court, Ms. Greenblatt agreed with Ms. Ramsey’s testimony
regarding the different types of claims that should be considered to be “Future Tort Claims.” Id.
at 19:25 – 20:8. She noted, however, the parties did not really contemplate that exposures to
substances would occur post-bankruptcy, because all of the releases of the relevant substances
had occurred many years earlier and because the Plan established environmental trusts that were
designed to fund remediation programs. Id. at 20:9 – 20:23. To the extent that this assumption
was wrong, and to the extent a person was injured by a post-Effective Date exposure to a
substance that Tronox had released in the past, Ms. Greenblatt agreed that the claim should be
treated as a Future Tort Claim. Id. at 21:9 – 20:24.
Finally, Ms. Greenblatt confirmed that the Trust documents contemplated that the Trustee
would make determinations as to the nature of the injuries that a claimant had suffered and the
categories into which various claims fell (subject to dispute resolution procedures set forth in the
Trust documents), but that any “due process” or “excusable neglect” contentions were to be
resolved by the Court. Id. at 21:25 – 23:17, 25:17 – 26:15.
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The third witness was Joseph Bruemmer of the Garretson Resolution Group. He testified
as to the number of Future Tort Claims that had been received, and also testified that
approximately 2,800 of those claims appeared to be based on injuries or diseases that had not
manifested themselves until after the Bar Date.
DISCUSSION
A Trustee may seek instructions when the Trustee is unsure as to how to interpret the
terms of trust documents and uncertain as to how to act. See Peierls Family Inter Vivos Trusts,
59 A.3d 471, 477 (Del. Ch. 2012) (noting that a “request for judicial relief involving a trust can
be appropriate in many circumstances,” including when the trust agreement is “genuinely
ambiguous”); see also In re Am. Home Mortg. Inv. Trust, 2005–2, No. 14 Civ. 2494(AKH), 2014
WL 3858506, at *12 (S.D.N.Y. July 24, 2014) (noting that “trust instruction proceedings are a
well-established procedure by which trustees (and other affected parties) can seek judicial
guidance from the court about how to resolve immediate and difficult issues of interpretation of
governing documents”). It is plain that the interpretation of the “Future Tort Claim” provisions
of the trust documents present genuine, active controversies and that some binding clarification
of these issues is required. The Plan provides that this Court has continuing jurisdiction over any
issue relating to the interpretation and application of the Trust Agreement and the TDPs, see
Article XI of Plan at ¶¶ 14, 16 [ECF No. 2567, Ex.]; see also Trust Agreement at ¶ 9.16 [ECF
No. 3030, Ex. A], and it is appropriate for this Court to exercise that power.
With respect to the relevant provisions: the evidence supports the Trustee’s suggestion
that “Future Tort Claims” includes persons whose diseases or injuries did not manifest
themselves until after the Bar Date. However, the Trustee proposes to include only claims of this
kind that are based on exposures to substances that occurred prior to the Effective Date of the
Plan. That limitation would not be consistent with the evidence presented to the Court.
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In the abstract, one does not usually consider a Tort Claim to “arise” before a particular
date just because the release of an offensive substance occurred before that date. Ordinarily,
therefore, it would be reasonable to suggest (as the Trustee does) that a claim could not have
“arisen” before the Effective Date unless some exposure occurred before the Effective Date.
However, this interpretation (if adopted) effectively would mean that some claims would
constitute “Tort Claims” as that term is defined in the Plan and in the Trust Agreement, but
nevertheless would not fall into any of the defined sub-categories of Tort Claims. The witnesses
made clear that the overriding intent of the parties was that all Tort Claims would be covered by
the Trust and by the sub-categories of claims in the Trust. They further made clear (without
regard to potential technical arguments over when a claim “arises”) that their own understanding
and intent was that claims based on post-Effective Date exposures, if there were any, would be
treated as Future Tort Claims. The Court therefore will not limit “Future Tort Claims” to those
based on exposures that occurred prior to the Effective Date of the Plan.
The Trustee also suggested, at the hearing on October 25, that the Trustee would notify
any claimants whose injuries had manifested themselves prior to the Bar Date that their claims
were discharged. The Court expressed concern at the hearing that this approach would suggest
to claimants that the Court, in effect, had already ruled that no successful “due process” or
“excusable neglect” argument could possibly be made. Claimants are entitled to receive fair
notice of their potential rights, and in these circumstances the Court believes that such notice
must include a description of the grounds on which claimants whose injuries were manifested
prior to the Bar Date, and who did not file proofs of claim, might nevertheless be entitled to seek
relief from the Bar Date or to argue that due process bars the discharge of their claims.
Finally, the Trustee has suggested the imposition of a filing fee for appeals. The Trustee
has described this proposed fee as follows:
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In addition, to preserve the monies in Fund A from unnecessary depletion due
to frivolous appeals and litigation, the Trust will charge a $250.00 filing fee
for any Category A claimant that seeks review of the disallowance of his
claim (to be fully refunded upon a successful appeal by the claimant), as
contemplated by Section 5.4 of the TDPs, to help defray the cost of any
litigation that may result from the disallowance of thousands of filed Future
Tort Claims.
Trustee Motion [ECF No. 3069] at p. 14. Section 5.4 of the TDPs, which is referenced in this
excerpt, provides as follows:
The Trustee shall have the discretion to determine, with the consent of the
Trust Advisory Committee, whether a filing fee should be required for any
Claims that do not accept the Scheduled Value. Any such requirement shall
be applied, within any Category, on a non-discriminatory basis.
[ECF no. 3030, Ex. A, ¶ 5.4].
The circumstances under which the Trustee intended to impose such fees are not clear
from the motion papers. The Trustee originally proposed to notify claimants whose claims were
based on exposures that pre-dated the Bar Date, and whose diseases or injuries manifested
themselves prior to the Bar Date, that their claims were discharged. It appears that the proposed
“appeal fee” was intended for claimants who wished to contest such “discharge” issues pursuant
to the dispute resolution procedures of the TDPs. However, under the instructions set forth in
this Order any Claimant who seeks relief pursuant to Rule 9006 of the Federal Rules of
Bankruptcy Procedure, or on “due process” grounds, must do so through an application to this
Court, and not through the dispute resolution procedures in the TDPs. The proposed “appeal
fee” therefore would not be applicable to disputes of that nature.
On the other hand, the Trustee may believe that an exposure and manifest injury each
pre-dated the Bar Date, and the claimant may contest the Trustee’s factual determinations on
those points. That sort of appeal should be made through the TDPs. However, it does not appear
that such an appeal would really be a challenge to the “Scheduled Value,” which is the sort of
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challenge that Section 5.4 of the TDPs addresses. Challenges to the “Scheduled Values” involve
cases in which the Trustee agrees that a claim is an allowed claim but the claimant contends that
the presumptive “Scheduled Values” are not sufficient and that the amount of the claimant’s
allowed claim should be higher.
In any event, it is not clear whether the Trustee has asked for the Court’s approval of the
proposed fees (and the circumstances under which they might be imposed), or has simply
informed the Court of the Trustee’s intentions. To the extent the Trustee has sought this Court’s
approval of such a fee, the request is denied. To the extent the Trustee wishes to impose fees
pursuant to the authority granted in Section 5.4 of the TDPs, the Trustee and the Advisory
Committee should ensure that such fees apply only to the types of challenges that are covered by
Section 5.4, and that the fees be applied on a “non-discriminatory basis” as required by that
Section of the TDPs.
CONCLUSION
The request for instructions is granted, and instructions are provided as set forth in the
second paragraph of this Opinion. The Trustee has previously submitted a proposed order and a
proposed form of notice, and is hereby directed to submit revised forms that reflect the rulings
set forth above. The form of notice to claimants should include a proposed description of the
categories of claims that may constitute Future Tort Claims. It should also include a brief
explanation of claimants’ rights to argue (a) that their failure to file a timely proof of claim
should be excused on grounds of excusable neglect, or (b) that the purported discharge of the
claimant’s claim was a violation of due process and therefore ineffective. Those descriptions
should include brief statements as to the showings that claimants must make in order to obtain
relief from the Bar Date and/or the discharge order.
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In addition, since the final distributions to Future Tort Claimants cannot be made unless
and until the values of the Allowed Claims are finally determined, the Court will also set
deadlines for the submission of “due process” or “excusable neglect” claims to the Court by
persons who have filed currently pending Future Tort Claims. The proposed Order and form of
notice to be presented by the parties should include proposed deadlines for such filings that are
consistent with this ruling.
Dated: New York, New York
December 14, 2016
s/Michael E. Wiles
UNITED STATES BANKRUPTCY JUDGE
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