In a unanimous decision of a three judge panel last week, the Second Circuit decided that it lacked jurisdiction to overturn a S.D.N.Y. judge’s order enforcing the terms of the Tronox bankruptcy settlement against a group of more than 4,000 Pennsylvania state court plaintiffs. Tronox, Inc. v. Kerr-McGee Corp., No. 16-343, 2017 U.S. App. LEXIS 6949 (2d Cir. Apr. 20, 2017). Both the district court’s decision and the Second Circuit’s decision protected Kerr-McGee, bankrupt Tronox’s corporate parent, from a Pennsylvania toxic tort suit related to contamination surrounding a wood treatment plant in Avoca, Pennsylvania.
We covered the district court’s original decision in early 2016, as it compelled the group of Pennsylvania plaintiffs to withdraw their Pennsylvania state court suit against Kerr-McGee even though Kerr-McGee was not a party to the bankruptcy settlement. Notably, the Pennsylvania plaintiffs never amended their Complaint to allege claims directly against the corporate parent, and it was unlikely that any amendment could tie the new parent entity back to the days of the operation of the plant.
With its February 2016 decision, the district court was enforcing the terms of a $5.15 billion settlement that created a $600 million litigation trust for purposes of disposing of the Pennsylvania plaintiffs’ claims. The settlement was the result of earlier litigation involving allegations that Kerr-McGee and Anadarko had engaged in fraudulent conveyance by underfunding the Tronox entities to which the outstanding liabilities related to the Pennsylvania wood treatment plant, among others, were assigned.
The saga continued in the Second Circuit last week where the circuit judges held that the lower court’s mere enforcement of the terms of the injunction in the settlement order was not an appealable “final order.” The decision came in two parts, with the second more fully analyzing the merit of the Pennsylvania plaintiffs’ argument.
First, the Second Circuit held that in the context of a contempt proceeding related to a settlement order, an action does not become appealable until contempt is found and/or sanctions are ordered. 2017 U.S. App. LEXIS 6949, at *21-24 (referring to the final order rule in 28 U.S.C. § 1291). The district court’s order in this case did neither, and thus no right to appeal was created. The Second Circuit noted that finding otherwise would potentially allow interminable re-litigation of past issues. Id. at *24.
Second, the circuit judges held that in this context, the district judge’s interpretation and enforcement of an existing settlement order does not constitute a “modification” of that order such that an interlocutory appeal would be allowed under 28 U.S.C. § 1292(a)(1). In making this determination, the Second Circuit concluded that the Pennsylvania plaintiffs’ claims against the corporate parent are derivative of their claims against the bankrupt Tronox entities. The plaintiffs had the opportunity in the context of the bankruptcy settlement to secure funds for their claims, but – as the Court held – they “cannot now get a second bite at the apple” from the corporate parent. 2017 U.S. App. LEXIS 6949, at *59. The enforcement of the settlement against parties to the settlement did not modify the order to the extent necessary to create appellate jurisdiction.
With the Second Circuit’s decision, Kerr-McGee inches closer to finality on an issue that appeared to be resolved by 2014’s $5.15 billion bankruptcy settlement. In essence, by ruling that the district court’s order enforcing the injunction was not final, the Second Circuit – in 2017 – may have finally resolved Kerr-McGee’s association with the outstanding liabilities related to the Avoca, Pennsylvania wood treatment plant.