In re Chemours Company Derivative Litigation

E.I. DuPont and Company (DuPont) faced unknown but potentially significant liability from lawsuits regarding its performance-chemicals business. In 2015, DuPont created a spin-off corporation, Chemours Company (plaintiff), and moved its performance-chemicals business, including its potential liabilities, to Chemours. Specifically, Chemours agreed to indemnify DuPont for the litigation outcomes. Chemours calculated these potential liabilities using generally accepted accounting principles (GAAP) for liability reserves, which did not include any outcomes that were either only possible, not probable, or not reasonably estimable. Over the next few years, the Chemours board of directors (defendant) relied on these GAAP figures to determine that Chemours had a capital surplus. The board relied on that surplus calculation to (1) repurchase corporate stock two times and (2) declare over $16 million in dividends in a year when Chemours recorded only $7 million in net profits and no net profits the preceding year. A group of Chemours stockholders (plaintiffs) filed a derivative lawsuit on behalf of the corporation in the Delaware Court of Chancery, alleging the board of directors had violated Delaware law by repurchasing stock and issuing dividends when the corporation did not have a capital surplus. The complaint alleged that the GAAP figures calculated by the corporation’s financial advisors and reflected in the corporate records underestimated the corporation’s true liabilities and that the true liabilities eliminated any surplus. The directors moved to dismiss the complaint.