Tronox Inc. v. Kerr-McGee Corp.
2017 U.S. App. LEXIS 6949
| 2d Cir. | 2017Background
- Avoca Plaintiffs (4,300+ individuals) sued for toxic-tort injuries from a wood-treatment plant in Avoca, PA; claims originally sued in state court against entities that became Tronox debtors and against New Kerr‑McGee.
- Tronox LLC and Tronox Worldwide LLC (formerly the plant operator and its parent) filed Chapter 11 in SDNY; their adversary proceeding alleged that New Kerr‑McGee fraudulently conveyed assets in a corporate spinoff leaving the debtors underfunded.
- The adversary proceeding settled for $5.15 billion; the Tort Claims Trust received a share (>$600M). As part of the settlement the district court entered a permanent injunction barring claims that are "Trust Derivative Claims" or duplicative of them.
- After the injunction became final, the Avoca Plaintiffs sought to revive their state-court suit asserting indirect theories (alter-ego, veil-piercing, successor liability) against New Kerr‑McGee, not direct post-2001 wrongdoing.
- District Court held the Avoca Plaintiffs’ theories were derivative/duplicative of claims in the bankruptcy litigation and ordered dismissal with prejudice; it did not make a contempt finding or impose sanctions.
- Second Circuit considered whether it had appellate jurisdiction and whether the order modified the injunction; it concluded it lacked jurisdiction and dismissed the appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court order enforcing injunction is a "final" appealable order under 28 U.S.C. §1291 | Order finally determined Avoca Plaintiffs’ rights; nothing left to decide | Order did not find contempt or impose sanctions and thus is not final | Not final: appeal dismissed for lack of §1291 jurisdiction |
| Whether order is appealable under 28 U.S.C. §1292(a)(1) as a modification/continuation of an injunction | District Court effectively expanded "Trust Derivative Claims" to cover all derivative claims, thus modified injunction | District Court merely interpreted and enforced the injunction without modifying it | No §1292(a)(1) jurisdiction: court construed, did not modify, the injunction |
| Whether Avoca Plaintiffs’ indirect liability claims against New Kerr‑McGee are derivative (property of the estate) or individualized creditor claims | Claims are personal injury claims unique to plaintiffs and therefore non-derivative | Claims are indirect (alter-ego/successor) and would increase the estate pool; thus derivative | Claims are derivative/duplicative — within bankruptcy estate and barred by the injunction |
| Whether district court abused discretion by ordering dismissal with prejudice rather than permitting repleading/discovery | Plaintiffs asked leave to amend and to pursue discovery to identify direct claims | Plaintiffs had multiple opportunities and failed to plead any direct post-2001 conduct by New Kerr‑McGee; dismissal with prejudice was justified to prevent gamesmanship | No abuse of discretion; dismissal with prejudice was permissible and did not modify injunction |
Key Cases Cited
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir.) (claims that seek relief for harm to the debtor/estate are derivative and belong to the trustee)
- Johns-Manville Corp. v. Chubb Indem. Ins. Co., 517 F.3d 52 (2d Cir.) (distinguishing derivative estate claims from direct third-party claims)
- Picard v. JPMorgan Chase & Co., 721 F.3d 54 (2d Cir.) (trustee lacks standing for claims that allege particularized harm to individual creditors)
- In re Bernard L. Madoff Inv. Sec. LLC, 740 F.3d 81 (2d Cir.) (upheld injunction barring duplicative or derivative creditor suits that could have been asserted by trustee)
- Wilder v. Bernstein, 49 F.3d 69 (2d Cir.) (post-judgment orders enforcing a decree without contempt findings or sanctions are not final)
- Thomas v. Blue Cross & Blue Shield Ass'n, 594 F.3d 814 (11th Cir.) (order enforcing injunction without contempt/sanctions is not appealable under §1291 or §1292)
- In re Emoral, Inc., 740 F.3d 875 (3d Cir.) (successor/alter-ego claims premised on increasing estate assets can be deemed generalized derivative claims)