DuPont could have permanently stopped discharging perfluorinated compounds – PFAS – from its Fayetteville Works plant into the Cape Fear River nine years ago, but decided against it in order to foist the liability onto a spinoff company, court documents allege.
The 64-page complaint, filed by Chemours against its former parent company, DuPont, lays out a series of stunning allegations, that if true, reveal the nefarious actions of a billion-dollar company determined to avoid financial and legal responsibility for environmental disasters.
DuPont allegedly underestimated to Chemours the true costs of its environmental cleanups. Instead, DuPont capped the costs at amounts far less than what Chemours had to pay. And an indemnity clause in the corporate documents purports to release DuPont from the legal and financial burden – presumably forever.
DuPont “orchestrated a spinoff of its Performance Chemicals unit into a new company, Chemours, as part of a plan to try to offload its historical environmental liabilities,” the court documents read.
Filed in Delaware court, the documents were supposed to be confidential. However, when Chemours lawyers failed to meet a court-ordered deadline to file a public version, the Associated Press asked the Delaware Supreme Court to unseal the documents, unredacted, which it did on Friday.
In 2010, DuPont had commissioned a “blue ribbon panel of company managers, scientists and engineers to identify solutions for this recognized issue,” the documents read. The company could have spent $60 million to end the discharges altogether, or reduced them by only 70 percent for $20 million.
“But the best solution and even the modest recommended solution was too much for DuPont,” the court documents read. Instead, after installing a $2.3 million system that eliminated one waste stream, DuPont decided shut down the system in late 2013. Coincidentally, this was around the time DuPont announced its plan to spin off Chemours – which had a code name inside the company: “Project Beta.”
Project Beta focused on DuPont’s Performance Chemicals Unit – the same unit that had “given rise to many of DuPont’s environmental liabilities” involving PFAS, including GenX.
“Why bother spending money to fix the problem, when it could be conveniently passed on to Chemours,” the documents read.
That’s precisely what happened. A consent order, approved this year between Chemours, the NC Department of Environmental Quality and Cape Fear River Watch, penalized Chemours $12 million. It requires Chemours to “adopt the very same technology that DuPont had previously declined to install,” the documents read.
When DuPont formed Chemours as a subsidiary in the spring of 2015, it knew the Fayetteville plant had been discharging PFAS for 30 years or more into the Cape Fear River. But in private company discussions, DuPont guaranteed that Chemours would have to pay no more than $2 million to clean up the environmental contamination at the Fayetteville Works plant. That figure is now estimated at $200 million, not including possible payments from class action suits.
In addition, Chemours is on the hook for hundreds of millions of dollars to remediate several sites in New Jersey.
DuPont also “spectacularly” underestimated the costs of settling 3,500 lawsuits filed by people exposed to PFAS in drinking water from discharges at the Washington Works plant near the Ohio/West Virginia line. “These were serious cases. There were hundreds of cancer victims, others with other serious diseases,” Chemours says in the documents.
Deloitte, a firm hired by DuPont to analyze the potential litigation costs, estimated DuPont would win 68% of the trials. And “the remaining cases could then be settled relatively inexpensively” – $128 million including defense attorney fees.
But DuPont lost every trial. Less than two years later, a jury awarded the victims $671 million – well over five times the maximum that DuPont had certified. DuPont later agreed to split the cost with Chemours.
DuPont also offloaded to Chemours the liabilities of more than 80 sites, the majority of which Chemours wouldn’t operate after the spinoff. These include fees related to lawsuits over asbestos and benzene exposures.
DuPont vastly underestimated the costs, Chemours alleges, to comply with a Delaware law requiring spinoffs to be solvent. If the true potential and likely costs were revealed, it would have been clear Chemours would have been nearly bankrupt from the outset.
Furthermore, DuPont appointed three of its managers onto an early version of the Chemours board – the only people serving on it – who were ostensibly there to negotiate on Chemours’s behalf. But the term “negotiations” was forbidden. Instead, “in an Orewellian flourish,” according to court documents, DuPont called them “calibrations.”
After the spinoff was complete in July 2015, Chemours became an independent company; the three members of the Chemours board resigned and returned to DuPont.
“Things did not go as well for Chemours in the aftermath of the spinoff,” the documents read. Chemours’ stock price collapsed from $21 a share to $11.48 within a month and to $3.16 within six months – an 85% decline. (Its stock is $23.27 today, a 3% decrease over the opening high.) The company has laid off 1,000 employees.
In the documents, Chemours argues that DuPont has set a precedent. If the certified maximum cleanup and legal costs are “meaningless, and Chemours has uncapped liability, then DuPont is admitting that the entire spinoff process was a sham.” Other companies could use the same tactics to get out from underneath environmental and legal liabilities.
In a statement released last Friday, DuPont called the Chemours lawsuit “regrettable” and “without merit.” It went on to say that the process of allocating liabilities to Chemours “was conducted as part of a standard spinoff practice.”
Chemours is asking the court to force DuPont to return the $4 billion it had taken from the company during the spinoff to pay dividends to its shareholders. Chemours is also asking the court to remove the liability caps and nullify the indemnification clauses.
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