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Resolution Reached in Multi-Company PFAS Case

Wednesday, January 27, 2021

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Chemical solutions company Chemours announced in a press release on Friday (Jan. 22) that it, DuPont de Nemours, Inc. (DD) and Corteva, Inc. (CTVA) had entered a binding memorandum of understanding which contained a settlement to resolve legal disputes originating from a 2015 spin-off of Chemours from E. I. du Pont de Nemours and Company (EID).

The memorandum also establishes a cost sharing arrangement and an escrow account to be used to support and manage potential future legacy per- and polyfluoroalkyl substances (PFAS) liabilities arising out of pre-July 1, 2015 conduct.

Case & PFAS Background

Back in June 2015, Forbes reported that EID announced that the Board of Directors granted the final approval necessary for the spin-off of its performance chemical business, The Chemours Company (CC). According to the spin-off, shareholders of DD would receive one share of CC common stock for every five shares of DD common stock.

The transaction was dated June 23, 2015, however, the distribution of shares wasn’t scheduled to be completed until July 1, 2015.

A few years later in January 2018, the North Carolina Department of Environmental Quality announced that it had been investigating GenX, a chemical used by Chemours in the manufacture of fluoropolymers including PTFE—sold by Chemours and DuPont as Teflon—after finding possible contamination around Chemours’ Fayetteville Works.

GenX, an unregulated chemical, has been shown to be carcinogenic in some animals.

scyther5 / Getty Images

Chemical solutions company Chemours announced in a press release on Friday (Jan. 22) that it, DuPont de Nemours, Inc. (DD) and Corteva, Inc. (CTVA) had entered a binding memorandum of understanding which contained a settlement to resolve legal disputes originating from a 2015 spin-off of Chemours from E. I. du Pont de Nemours and Company (EID).

The investigation was launched after the Department received reports that GenX releases were contaminating the groundwater—used as a drinking-water source by some nearby residents—and the Cape Fear River. The DEQ began looking into the substance and Chemours’ handling of it. Chemours released a statement at that time asserting that it did not believe GenX was affecting the area’s drinking water, but that it would implement new practices regarding the capture and disposal of wastewater containing GenX.

Previously, in November, the DEQ cited Chemours for violating the terms of its wastewater permit after the company did not report a spill of dimer acid fluoride, used in the process of making GenX. The company admitted the spill, which occurred Oct. 6, after being questioned by the agency.

By March, the United States Environmental Protection Agency announced that it would convene a national leadership summit to address the topic of per- and polyfluoroalkyl substances, or PFAS, used in products including paints.

PFAS are a group of man-made chemicals that includes PFOA, PFOS, GenX and many other chemicals that have been manufactured since the 1940s.

They are used in consumer products and industrial processes and are resistant to heat, oils, stains, grease and water—properties which contribute to their persistence in the environment and in the human body.

PFAS in many cases provide nonstick and chemical-resistant properties to the materials they coat. The most notable PFA substance in production in the U.S. at the time was GenX, which previously raised controversy after the reported releases at the Chemours’ plant in North Carolina.

In July 2019, Chemical & Engineering News reported that Chemours was suing DuPont over environmental liabilities. According to the lawsuit, DuPont grossly underestimated the environmental liabilities it saddled Chemours with when it spun off the company back in 2015.

At the center of the suit, Chemours points out “High End (Maximum) Realistic Exposure” figures—estimates of the liabilities DuPont transferred to Chemours, which took over DuPont businesses such as titanium dioxide and fluorochemicals.

As examples, Chemours referenced the GenX spills in Fayetteville, North Carolina. At the time, DuPont allegedly estimated the liabilities at $2 million, however, Chemours signed an agreement with the state requiring it to spend upwards of $200 million to fix the problem.

Additional examples included 3,500 lawsuits filed against DuPont in Ohio over exposure to perfluorooctanoic acid (PFOA). At spin-off, DuPont determined the maximum liability was $128 million, but later ended up splitting a $671 million settlement with Chemours. The company also agreed to provide up to $125 million for future liabilities.

Both companies also face lawsuits from the state of New Jersey for discharges from various plants. These liabilities were originally estimated to cost $337 million but were later revised to $620 million.

The lawsuit also requested limits on DuPont’s liabilities to be removed, or for DuPont to return a nearly $4 billion dividend that Chemours paid DuPont at the time of the spin-off.

“If, as DuPont now maintains, the maximums it certified for its board have zero meaning, and Chemours has uncapped liability without regard to them, then DuPont is admitting that the entire spin-off process was a sham,” the suit says.

At the time, DuPont and codefendant Corteva called Chemours’ claims “without merit” and argued that the company has been doing well since the spin off and already returned $1 billion to shareholders in dividends and share buybacks.

“We have no reason to believe Chemours is insolvent or otherwise unable to manage the liabilities allocated to it,” the companies said in a statement.

Last March, while the cases wound their way through the courts, the U.S. EPA proposed regulations on imported products that contain certain persistent long-chain PFAS chemicals that are used as surface coatings as part of its Per-and Polyfluoroalkyl Substances (PFAS) Action Plan.

While the EPA believes the use of these chemicals as surface coatings in imported goods has been phased out, the proposal would ensure that any new uses are reviewed by EPA before any products containing these chemicals could be imported into the U.S. again.

According to the EPA, studies indicate that the chemicals can cause reproductive and developmental, liver and kidney, and immunological effects in laboratory animals. Both chemicals have caused tumors in animals.

The most consistent findings are increased cholesterol levels among exposed populations, with more limited findings related to:

  • low infant birth weights;
  • effects on the immune system;
  • cancer (for PFOA); and
  • thyroid hormone disruption (for PFOS).

In August, Morningstar financial analyst Seth Goldstein estimated that the total PFAS legal liability for DuPont, Corteva, and Chemours combined, was about $6.5 billion. Of that, $5.2 billion is litigation and $1.3 billion is cleanup costs.

At the time the settlement was announced, DuPont and Corteva stocks were up relative to the overall market, while Chemours shares were roughly flat.

What Now

Replacing the February 2017 PFOA Settlement and subsequent amendment to the Chemours Separation Agreement, in addition to the aforementioned resolutions in the binding memorandum, the new settlement brings DuPont, Corteva and Chemours to an agreement to resolve the ongoing matters in the multi-district PFOA litigation in Ohio.

According to the terms of the cost sharing arrangement, with DuPont and Corteva on one side and Chemours on the other, the three have agreed to a 50-50 split of certain qualified expenses incurred over a term not to exceed twenty years or $4 billion of qualified spend and escrow contributions in the aggregate.

DuPont and Corteva's 50% will be limited to $2 billion including qualified expenses and escrow contributions, and under the existing Letter Agreement from June 1, 2019, each company will bear 50% of the first $300 million (up to $150 million each) and thereafter, DuPont will bear 71% and Corteva will bear the remaining 29%.

DuPont's share of the potential $2 billion would be approximately $1.36 billion and Corteva's approximately $640 million. 

As reported in the resolution, the companies have also agreed to establish a $1 billion maximum escrow account to address potential future PFAS liabilities. Over a period of eight years, Chemours, on one hand, and DuPont and Corteva on the other, will make contributions to the escrow. Over this period, Chemours is slated to deposit a total of $500 million into the account and DuPont and Corteva will deposit an additional $500 million pursuant to the terms of their existing Letter Agreement.

The escrow provides for a one-time replenishment mechanism if the escrow account balance has less than $700 million at Dec. 31, 2028. Following the term of the agreement, Chemours' indemnification obligations under the Chemours Separation Agreement would continue unchanged, subject to certain exceptions set forth in the memorandum of understanding.

Additionally, Chemours will waive specified claims, including claims regarding the construct of its 2015 spin-off from EID. DuPont, Corteva and Chemours will dismiss the pending arbitration regarding those claims.

Regarding the Ohio multi-district PFOA litigation, all companies have agreed to resolve the matters for $83 million. DuPont will contribute $27 million, Corteva will contribute $27 million and Chemours will contribute $29 million to the settlement. The agreement resolves approximately 95 pending cases as well as unfiled matters, but does not include the case of Travis and Julie Abbott v. E.I. du Pont de Nemours and Company as it is presently pending appeal.

The amounts are not subject to the new cost sharing arrangement.

“We are pleased to have reached a settlement agreement between our companies related to potential legacy PFAS liabilities, as well as resolving the remaining PFOA MDL cases in Ohio,” said Ed Breen, DuPont Chairman and CEO; Jim Collins, Corteva CEO and Mark Vergnano, Chemours President and CEO in a statement. “The agreement will provide a measure of security and certainty for each company and our respective shareholders using a transparent process to address and resolve any potential future legacy PFAS matters.”

   

Tagged categories: Asia Pacific; Chemours; Construction chemicals; DuPont; EMEA (Europe, Middle East and Africa); Environmental Protection; Environmental Protection Agency (EPA); Latin America; Lawsuits; North America; Program/Project Management; Z-Continents

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