District Judge J. Paul Oetken of New York struggled to synthesize Second Circuit authority and divine a rule describing when an unknown environmental claim is discharged in bankruptcy.
Ultimately, Judge Oetken decided in his February 19 opinion that it was “nonsensical to pretend that a claim was administered during a bankruptcy if neither claimant nor debtors knew anything about the claim.” He also felt that a “rule in asbestos cases does not translate easily to” environmental contamination cases.
2014 Settlement and 2019 Discovery
Anadarko Petroleum Inc. made a $5.15 billion settlement in 2014 to resolve environmental and toxic tort claims asserted by the chapter 11 debtor, Tronox Inc. The settlement barred anyone from bringing derivative claims against Anadarko, meaning claims that could have been asserted by Tronox against Anadarko.
The settlement also barred claims that were duplicative of derivative claims.
The plaintiff discovered toxic waste on its property in 2019. In early 2020, the plaintiff filed suit against Anadarko in federal court in Louisiana, claiming that the contamination came from creosote on a property 5.1 miles away. The suit alleged that Anadarko was liable as a successor to the companies that caused the contamination.
Anadarko moved in Judge Oetken’s court to enforce the injunction arising from the 2014 settlement. He said that the outcome turned on when the plaintiff’s claims against Anadarko arose, “legally speaking.”
Common Sense Prevails, Informed by Due Process Concerns
Judge Oetken was guided in large part by two Second Circuit opinions, U.S. v. LTV Corp. (In re Chateaugay Corp.), 944 F.2d 997 (2d Cir. 1991), and Elliott v. General Motors LLC (In re Motors Liquidation Co.), 829 F.3d 135 (2d Cir. 2016). He quoted Chateaugay for saying it was “absurd” to expect that claims would be “filed by those who have not yet had any contact whatever with the tort-feasor.” Chateaugay, id., 944 F.2d 997 at 19003.
Judge Oetken read G.M. as avoiding the constitutional problems arising from Chateaugay by holding that a sale free and clear of claims would discharge a claim if (1) it arose before bankruptcy or resulted from prepetition conduct, and (2) there was a “minimum contact” or “relationship” making the claimant identifiable. G.M., id., 829 F.3d at 156.
Combining the Second Circuit opinions with lower court decisions, Judge Oetken said that the “case law, while less than pellucid, is on [the plaintiff’s] side.”
“Ultimately, especially given inherent due process considerations,” Judge Oetken concluded “that the proper test to apply is the prepetition relationship test as articulated in” GM. Applying the facts to the law, he said that a “rule in asbestos cases [like Chateaugay] does not translate easily to” environmental claims.
For Judge Oetken, the animating principle behind the prepetition relationship test “is essentially a concern that it is unfair — and a potential denial of due process — to preclude a claimant from seeking redress due to no fault of her own.” In the case at hand, Anadarko and the plaintiff had no prebankruptcy relationship or contract from which the parties would know that a claim could arise, he said.
The property that Anadarko had owned was more than five miles away. For Judge Oetken, it was “nonsensical to pretend that a claim was administered during a bankruptcy if neither claimant nor debtors knew anything about the claim.” By itself, the toxic release years before bankruptcy would not constitute a prebankruptcy contract or relationship, “particularly in light of the fairness and due process considerations” discussed by the Second Circuit in GM and Chateaugay.
Judge Oetken decided that the plaintiff’s claims did not arise before bankruptcy and thus were not derivative claims.
Denying Anadarko’s motion for an injunction, Judge Oetken also decided that the plaintiff’s claims were not duplicative of Tronox’s claims because the plaintiff had “no prepetition claim whatsoever.”
Note: Judge Oetken indicated that Anadarko might slip off the hook it were later shown that it had “more extensive contact or more of a relationship” with the plaintiff.
District Judge J. Paul Oetken of New York struggled to synthesize Second Circuit authority and divine a rule describing when an unknown environmental claim is discharged in bankruptcy.
Ultimately, Judge Oetken decided in his February 19 opinion that it was “nonsensical to pretend that a claim was administered during a bankruptcy if neither claimant nor debtors knew anything about the claim.” He also felt that a “rule in asbestos cases does not translate easily to” environmental contamination cases.
2014 Settlement and 2019 Discovery
Anadarko Petroleum Inc. made a $5.15 billion settlement in 2014 to resolve environmental and toxic tort claims asserted by the chapter 11 debtor, Tronox Inc. The settlement barred anyone from bringing derivative claims against Anadarko, meaning claims that could have been asserted by Tronox against Anadarko.
The settlement also barred claims that were duplicative of derivative claims.
The plaintiff discovered toxic waste on its property in 2019. In early 2020, the plaintiff filed suit against Anadarko in federal court in Louisiana, claiming that the contamination came from creosote on a property 5.1 miles away. The suit alleged that Anadarko was liable as a successor to the companies that caused the contamination.
Anadarko moved in Judge Oetken’s court to enforce the injunction arising from the 2014 settlement. He said that the outcome turned on when the plaintiff’s claims against Anadarko arose, “legally speaking.”