In re The Chemours Company Derivative Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

)
IN RE THE CHEMOURS COMPANY ) CONSOLIDATED
DERIVATIVE LITIGATION ) C.A. No. 2020-0786-SG
)

MEMORANDUM OPINION

Date Submitted: July 19, 2021
Date Decided: November 1, 2021

Gregory V. Varallo, of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP,
Wilmington, Delaware; OF COUNSEL: Mark Lebovitch and Daniel E. Meyer, of
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York;
and Robert D. Klausner and Stuart A. Kaufman, of KLAUSNER KAUFMAN
JENSEN & LEVINSON, Plantation, Florida, Attorneys for Plaintiff City of Hialeah
Employees’ Retirement System.

Gregory V. Varallo, of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP,
Wilmington, Delaware; OF COUNSEL: Gustavo F. Bruckner and Daryoush
Behbood, of POMERANTZ LLP, New York, New York; Kip B. Shuman, of
SHUMAN, GLENN & STECKER, San Francisco, California; Rusty E. Glenn, of
SHUMAN, GLENN & STECKER, Denver, Colorado; and Brett D. Stecker, of
SHUMAN, GLENN & STECKER, Ardmore, Pennsylvania, Attorneys for Plaintiff
Roberto Pinto.

Joel Friedlander, Jeffrey Gorris, and Christopher Foulds, of FRIEDLANDER &
GORRIS, P.A., Wilmington, Delaware; OF COUNSEL: Jonathan M. Moses, Ryan
A. McLeod, and Justin L. Brooke, of WACHTELL, LIPTON, ROSEN & KATZ,
New York, New York, Attorneys for the Defendants.

GLASSCOCK, Vice Chancellor
 Broadly speaking, the Delaware General Corporation Law (“DGCL”) is an

enabling corporate statute, that allows for self-ordering where defaults are eschewed,

and, in conjunction with our common law, allows for the broad discretion of

corporate fiduciaries exercising their business judgement on behalf of the company.

That said, some provisions of the DCGL are proscriptive. Currently at issue are two

such provisions, Sections 160 and 173. Those sections prohibit the corporation from

repurchase of stock or issuance of dividends where those distributions would exceed

(generally speaking) corporate surplus. 1 This prohibition is, obviously, to protect

the entity and, more specifically, its creditors.

Sections 160 and 173 are enforceable under Section 174. That section

provides that, in the case where the corporation “wilful[ly] or negligen[tly]” has

violated Sections 160 or 173, directors “under whose administration” the violation

occurred are “jointly and severally liable” to the corporation, and to its creditors in

the event of corporate dissolution or insolvency. As written, the statute appears to

be incongruent with the general limitation on liability of directors solely to damages

for gross negligence (unless exculpated) or loyalty breaches. Section 174, indeed,

appears to impose strict and several liability on any director vicariously for the

negligence of another corporate actor as well as for her own negligence, and impose

1
As explained in the analysis section of this Memorandum Opinion, this statement is an over-
simplification in aid of clarity.
as damages the full amount paid out even if no actual harm to the corporate interest

ultimately manifests itself.2

The Plaintiffs, Chemours Company stockholders, seek to impose such liability

here. The Chemours Company (“Chemours” or the “Company”) was spun off from

E. I. DuPont de Nemours and Company (“DuPont”) in 2015 (the “Spin-Off”). At

that time, DuPont transferred certain environmental liabilities to Chemours, the size

of which, per Chemours, were vastly understated by DuPont. In 2019, Chemours

sued DuPont, arguing that if the contractual agreement between these entities was

interpreted as transferring all such environmental liabilities to Chemours, above

DuPont’s estimate, the Spin-Off was illegal because Chemours would be rendered

insolvent ab initio. This Court found that the matter was governed by an arbitration

clause, and dismissed; ultimately, the parties settled by agreeing to divide

responsibility for the environmental liabilities.

Before and during the pendency of that dispute, Chemours made stock

repurchases and issued dividends. The Chemours board of directors (the “Board”)

justified these expenditures based on corporate surplus using GAAP principles, as

explained to them by external advisors and corporate officers. The Plaintiffs contend

2
That is, where, as here, the distributions are not alleged to have redounded “to the detriment of
creditors [or] the long-term health of the corporation,” the twin evils addressed by the statutes. See
Klang v. Smith’s Food & Drug Centers, Inc, 702 A.2d 150, 154 (Del. 1997) (stating “purpose
behind Section 160”).

2
that the expenditures resulted from negligent or willful wrongdoing, exposing the

Director Defendants (defined below) to liability. They argue that Chemours’s

allegations in the DuPont litigation demonstrate that the entity was aware that (given

the contingent environmental liabilities) it had no surplus; and that to rely on GAAP,

which the Plaintiffs contend did not require accounting for such liabilities, was

willful wrongdoing, or negligence. There is no question at present that Chemours is

solvent; nonetheless, the Plaintiffs seek to proceed derivatively on behalf of the

corporation to compel liability on behalf of the Director Defendants in favor of

Chemours. With respect to the dividends, at least, the Plaintiffs are in the unusual

position of having received what they allege was an improper distribution, while

seeking to benefit from the Director Defendants repaying that distribution to the

company whose stock they hold.

In order to proceed derivatively, the Plaintiffs must meet the demand

requirement of Rule 23.1. The Plaintiffs argue that demand is excused here, solely

on the ground that a majority of the directors could not bring their business judgment

to bear because each faces a substantial risk of liability.

Upon consideration, I find that the Plaintiffs have failed to plead specific facts

that, if true, imply that the Director Defendants face a substantial likelihood of

liability. As a consequence, I do not find that the Complaint raises a reasonable

doubt that the majority of the Board would be able to bring its business judgment to

3
bear, making demand futile. In assessing what appears to be the stringent liability

provision of Section 174, I find that the section must be read in conjunction with the

specific provision of Section 172, which provides that directors are “fully protected”

from liability—including, I find, liability under Section 174—if they rely in good

faith upon corporate records, officers or experts, insulating the Director Defendants

from liability here. In any event, I find that the facts pled do not make reliance on

GAAP to determine corporate surplus, under the circumstances alleged, sufficient to

imply willful or negligent misconduct. Accordingly, demand is not excused, and the

matter must be dismissed.

My reasoning is below.

4
 I. BACKGROUND 3

A. The Parties and Relevant Non-Parties

Lead Plaintiff City of Hialeah Employees’ Retirement System (“Hialeah

Retirement”) is a Chemours common stockholder.4

Additional Plaintiff Roberto Pinto is also a Chemours common stockholder.5

Nominal Defendant Chemours is a Delaware corporation with principal

executive offices in Wilmington, Delaware. 6 Chemours provides industrial and

specialty chemicals products to various markets, including plastics and coatings,

refrigeration and air conditioning, general industrial, electronics, mining, and oil

refining. 7 Chemours is structured into three main segments: Fluoroproducts,

Chemical Solutions, and Titanium Technologies.8 Chemours was spun off from

3
Unless otherwise noted, the facts referenced in this Memorandum Opinion are drawn from the
Verified Stockholder Derivative Complaint (referred to herein as the “Complaint”) and the
documents incorporated therein. See generally Verified Stockholder Derivative Compl., Roberto
Pinto v. Mark Vergnano, et al., C.A. No. 2021-0152-SG (Dkt. No. 1), [hereinafter the
“Complaint”]. I may also consider documents produced by the Defendants in response to the
Plaintiffs’ 8 Del. C. § 220 books and records demand “to ensure that the plaintiff has not
misrepresented their contents and that any inference the plaintiff seeks to have drawn is a
reasonable one.” Voigt v. Metcalf, 2020 WL 614999, at *9 (Del. Ch. Feb. 10, 2020). Citations in
the form of “Friedlander Decl. —” refer to the Transmittal Declaration Pursuant to 10 Del. C. §
3927 of Joel Friedlander in Support of Defendants’ Memorandum of Law in Support of
Defendants’ Motion to Dismiss the Verified Stockholder Derivative Complaint, Dkt. No. 26.
Citations in the form of “Friedlander Decl., Ex. —” refer to the exhibits attached to the Friedlander
Declaration, Dkt. Nos. 26–27.
4
Verified Stockholder Derivative Compl., Dkt. No. 1 ¶ 27.
5
Compl. ¶ 31.
6
Id. ¶ 32.
7
Id.
8
Id.

5
DuPont on approximately July 1, 2015, and as of December 31, 2020, employed

approximately 6,500 employees.9

Defendant Mark P. Vergnano has been Chemours’s President, CEO, and a

director since July 2015.10

Defendant Richard H. Brown has been the Chairman of Chemours’s Board

since July 2015. 11 Brown also served as a member of DuPont’s board of directors

from 2001 to 2015.12

Defendant Curtis V. Anastasio has been a Chemours director since July 2015,

and a member of the Board’s Audit Committee (the “Audit Committee”) since

March 2016.13

Defendant Bradley J. Bell has been a Chemours director since July 2015. 14

Bell is also the Chairman of the Audit Committee, of which he has been a member

since March 2016.15

Defendant Mary B. Cranston has been a Chemours director since July 2015

and a member of the Audit Committee since March 2016.16

9
Id.
10
Id. ¶ 33.
11
Id. ¶ 34.
12
Id.
13
Id. ¶ 35.
14
Id. ¶ 36.
15
Id.
16
Id. ¶ 37.

6
 Defendant Curtis J. Crawford has been a Chemours director since July 2015

and a member of the Audit Committee since March 2016.17 Crawford was also a

member of DuPont’s board of directors from 1998 to 2015.18

Defendant Dawn L. Farrell has been a Chemours director since July 2015. 19

Defendant Sean D. Keohane has been a Chemours director since May 2018.20

Defendant Erin N. Kane has been a Chemours director since June 2019 and a

member of the Audit Committee since July 2019.21

Defendant Stephen D. Newlin was a Chemours director from July 2015 to

May 2018. 22

Defendant Mark E. Newman has been Chemours’s Senior Vice President

since November 2014 and its Chief Operating Officer since June 2019.23 Newman

was also Chemours’s Chief Financial Officer from November 2014 to June 2019. 24

Defendants Newman and Vergnano are referred to as the “Officer

Defendants.” Defendants Vergnano, Brown, Anastasio, Bell, Cranston, Crawford,

Farrell, Keohane, Kane, and Newlin are referred to as the “Director Defendants.”

17
Id. ¶ 38.
18
Id.
19
Id. ¶ 39.
20
Id. ¶ 40.
21
Id. ¶ 41.
22
Id. ¶ 42.
23
Id. ¶ 43.
24
Id.

7
 Non-party DuPont is the former parent of Chemours.25 DuPont merged with

The Dow Chemical Company (“Dow”) on August 31, 2017, forming the world’s

largest chemical conglomerate (“DowDuPont”).26 In April 2019, DowDuPont

separated into three companies: Dow, Inc., a producer of commodity chemicals;

DuPont de Nemours, Inc., a producer of specialty chemicals; and Corteva, Inc.,

which is focused on agriculture.27

B. Factual Background

1. The Environmental Liabilities

The Complaint alleges that DuPont was exposed to massive environmental

liabilities, which it then purportedly transferred to Chemours in connection with the

Spin-Off. Specifically, DuPont’s Performance Chemicals division, which was the

division that DuPont spun off to form Chemours, manufactured certain apparently

toxic chemical substances, including perfluoroalkyl and polyfluoroalkyl substances

(“PFAS”) and, in particular, a type of PFAS known as perfluorooctanic acid

(“PFOA”).28 PFAS are man-made industrial components used in a variety of

household products, including non-stick cookware, water repellants, and coated

papers used to package food.29 They are designed for extreme durability, and

25
Id. ¶ 45.
26
Id. ¶ 46.
27
Id.
28
Id. ¶¶ 47–48, 50.
29
Id. ¶ 48.

8
therefore do not break down in the environment.30 PFAS also allegedly “bio-

accumulate” in the blood streams of people and animals that are exposed to

contaminated water or air. 31 Bio-accumulation of PFAS, in turn, purportedly

contributes to or causes adverse health effects, including fatal cancers. 32

As the public became aware of the risks associated with PFAS, DuPont faced

nation-wide litigation concerning the discharge of PFAS into the environment by its

Performance Chemical division.33 Much of this litigation remained unresolved at

the time of the Spin-Off.34

2. The Chemours Spin-Off

Beginning in 2013, DuPont commenced a plan, dubbed “Project Beta,” that

culminated in the spin-off of DuPont’s Performance Chemicals division as an

independent, publicly traded company, Chemours. 35 DuPont announced the Spin-

Off in October 2013, and it also determined that the “spinco” (i.e., Chemours) would

pay a dividend of $3.3 billion to DuPont, funded with billions of dollars in debt. 36

As Project Beta progressed, certain members of incoming Chemours

management expressed concerns about the health of Chemours’s capital structure

30
Id.
31
Id.
32
Id.
33
Id. ¶ 53; see also id. ¶¶ 54–55.
34
See, e.g., id. ¶ 75.
35
Id. ¶ 58.
36
Id. ¶ 61.

9
following the Spin-Off.37 For example, in June 2015, Defendant Newman,

Chemours’s then-CFO, requested an addition $200-300 million in cash reserves for

Chemours, which DuPont rejected.38 Chemours also expressed concerns about the

potential effects of a $100 million Chemours dividend that DuPont, as Chemours’s

then-parent and controller, declared for the last quarter prior to the Spin-Off. 39

As a condition to the Spin-Off, DuPont’s board of directors commissioned

Houlihan Lokey to opine on the solvency of DuPont and Chemours after the Spin-

Off.40 Houlihan Lokey’s analysis included a quantification of the environmental

liabilities that DuPont was transferring to Chemours in connection with the Spin-

Off.41 To quantify the environmental liabilities, Houlihan Lokey used numbers

supplied by DuPont, labeled the “High End (Maximum) Realistic Exposure” for

each of the liabilities (the “Maximums”).42

The Complaint alleges that the Maximums understated the environmental

liabilities because they were calculated from figures used to prepare DuPont’s

account reserves, which only included liabilities that were both probable and

reasonably estimable. 43 Thus, according to the Complaint, the Maximums excluded

37
Id. ¶¶ 64–65.
38
Id. ¶ 65.
39
Id.
40
Id. ¶ 67.
41
Id. ¶ 68.
42
Id.
43
Id. ¶¶ 69–70.

10
any environmental liabilities that were viewed as merely “possible,” as opposed to

“probable,” as of December 31, 2014, even if they were reasonably estimable, as

well as any environmental liabilities that were probable but not yet reasonably

estimable at that time. 44 In May 2015, DuPont approached Defendant Newman to

certify the Maximums for 87 categories of liabilities being transferred to

Chemours.45 Defendant Newman declined to do so, and instead signed a revised

certification stating that he was relying on DuPont as to the accuracy of the

Maximums.46

On June 5, 2015, DuPont announced that its board of directors approved the

Spin-Off, which took effect on July 1, 2015.47 In connection with the Spin-Off,

Chemours assumed various liabilities, including 67% of DuPont’s environmental

liabilities covering 80 sites and $4 billion in debt used to fund a $3.91 billion

dividend back to DuPont. 48

Under the separation agreement between DuPont and Chemours that governed

the Spin-Off (the “Separation Agreement”), Chemours was required to defend and

indemnify DuPont against any liability “relating to, arising out of, by reason of or

otherwise in connection with” the liabilities assigned by DuPont to Chemours,

44
Id. ¶ 70.
45
Id. ¶ 72.
46
Id.
47
Id. ¶ 73.
48
Id. ¶ 74–75.

11
without limitation.49 The Separation Agreement also prohibited Chemours from

seeking recourse from DuPont concerning those liabilities. 50 Following the Spin-

Off, in December 2015, the Board approved individual indemnification agreements

for the Chemours directors.51

3. Chemours Undertakes the Five-Point Transformation Plan

According to the Complaint, Chemours struggled in the immediate aftermath

of the Spin-Off.52 For example, the Company laid off 1,000 employees, closed

plants, sold certain business lines, and undertook two corporate restructurings.53 The

Company’s stock price fell from $21.00 per share to $11.40 per share within a month

of the Spin-Off, and by January 25, 2016, the share price had fallen further to $3.06

per share. 54

As a result, the Company took steps to improve its capital structure pursuant

to a plan called the “Five-Point Transformation Plan,” the purpose of which was to

get “the company de-levered as quickly as possible.” 55 For instance, in November

2015, Chemours announced that it would sell a facility in Beaumont, Texas to Dow

for $140 million in cash.56 In addition, in February 2016, Chemours obtained a $190

49
Id. ¶ 77.
50
Id.
51
Id. ¶ 80.
52
See id. § III.C.1.
53
Id. ¶ 81.
54
Id. ¶¶ 81, 83.
55
Id. ¶ 84.
56
Id. ¶ 82.

12
million advance from DuPont for goods and services to be provided to DuPont

through mid-2017.57 The Company also reduced its quarterly dividends from $0.55

per share to $0.03 per share in September 2015.58

4. The Environmental Liabilities Continue

Although the Company had taken steps to address its capital structure issues,

the environmental liabilities related to PFAS continued to loom. In particular, the

Company faced litigation in Ohio, New Jersey, and North Carolina related to PFOA

and other types of PFAS. 59

a. The Ohio Litigation

In connection with the Spin-Off, Chemours agreed to indemnify DuPont

under the Separation Agreement for a multidistrict action in the U.S. District Court

for the Southern District of Ohio against DuPont involving approximately 3,550

individuals who had been diagnosed with diseases associated with PFOA exposure

(the “Ohio MDL”). 60 DuPont certified that the Maximum for the Ohio MDL was

$128 million, including defense costs.61 In mid-2016, however, DuPont lost the first

three bellwether cases in the Ohio MDL, incurring an aggregate of $19.7 million in

57
Id. ¶ 83.
58
Id. ¶ 241. As the Defendants note, the $0.55 quarterly dividend was declared by Chemours’ pre-
Spin-Off board, when Chemours was a wholly-owned subsidiary of DuPont. See Friedlander
Decl., Ex. 15 at 35 n.1, 37 n.4.
59
See Compl. ¶¶ 93–99, 104–18.
60
Id. ¶ 55.
61
Id. ¶ 93.

13
damages. 62 And despite estimating that it would win 68% of the PFOA trials,

DuPont would go on to lose every single trial.63

As a result, Chemours notified DuPont that its indemnification obligation

under the Separation Agreement with respect to the Ohio MDL was capped at the

$128 million Maximum that DuPont had certified in connection with the Spin-Off.64

In response, in July 2016, DuPont argued that this $128 million Maximum

“represented only estimates based on the best judgment of management and its

advisors given available information at the time,” and therefore, it had no legal effect

on Chemours’s indemnification obligations.65 DuPont further argued that, instead,

Chemours was “contractually obligated to indemnify DuPont for any and all

Indemnifiable losses . . .including without limitation any and all judgments.” 66 In

February 2017, the parties agreed to settle the Ohio MDL cases for $670.7 million,

split evenly between DuPont and Chemours, and with DuPont contributing up to an

additional $125 million toward PFOA-related costs, including litigation defense.67

While the Ohio MDL settlement resolved 3,550 cases, it left unresolved other claims

related to PFOA exposure. 68

62
Id. ¶ 95.
63
Id.
64
Id. ¶ 96.
65
Id. ¶ 97.
66
Id.
67
Id. ¶ 98.
68
Id. ¶¶ 117–18.

14
 b. The New Jersey Litigation

On December 12, 2016, a New Jersey municipality sued DuPont and

Chemours for over $1.1 billion for remediation costs of the Chambers Works site.69

At the time of the Spin-Off, DuPont certified a Maximum for all New Jersey

litigation of $337 million.70 Chemours also inherited three other New Jersey sites

from DuPont that become the subject of litigation.71

c. The North Carolina Litigation

Beginning in September 2017, several plaintiffs, including the State of North

Carolina, certain public water authorities, well owners, and a consolidated putative

class of North Carolina residents filed suit against Chemours and DuPont relating to

the Fayetteville Works site, which had been discharging a type of PFAS known as

“GenX.” 72 At the time of the Spin-Off, DuPont certified a Maximum for liability

relating to Fayetteville Works of $2.09 million.73

5. The Stock Repurchases and Dividends

In 2017 and 2018, the Chemours Board approved two stock repurchase

programs and increased the Company’s quarterly dividend twice. During this time,

69
Id. ¶ 104.
70
Id. ¶ 108.
71
Id. ¶¶ 108–09.
72
Id. ¶¶ 110, 112.
73
Id. ¶ 111.

15
the Board also regularly discussed and received updates regarding the environmental

liabilities.

a. The 2017 Stock Repurchase Program and Dividend
Increases

In January 2017, shortly before Chemours settled the Ohio MDL in February

2017, the Board received a financial update that discussed potential return of capital

strategies.74 The financial update observed that “Chemours’ current dividend yield

is toward the low end of the range of public chemical companies.”75 The same

financial update cautioned that any return of capital strategies “should be evaluated

in light of liquidity and credit agreement constraints from any potential settlement

of contingent liabilities . . . .” 76 The update added that “[w]hile investors would

likely applaud a share repurchase to offset dilution, management believes focus on

contingent liabilities . . . should take priority.” 77 In April 2017, Defendant Vergnano

wrote to the Board that returning capital “would reflect our confidence in the

potential to drive Chemours stock price well above current levels.” 78

In the months leading up to the approval of the 2017 Stock Repurchase

Program and the increase in dividends, the Audit Committee and the Board

discussed the environmental liabilities on several occasions. On January 3, 2017,

74
Id. ¶ 129.
75
Id.
76
Id.
77
Id.
78
Id. ¶ 130.

16
for instance, the Board received a presentation summarizing directors’ responses to

a questionnaire.79 In response to a question canvassing the topics the directors would

like to cover during the next year, one director wrote, “[w]e . . . need to assess more

carefully other potential environmental liabilities that could occur in the normal

course of business going forward once the PFOA case is behind us.” 80 Likewise, on

April 20, 2017, and again on August 1, 2017, the Audit Committee met, along with

Defendants Brown, Vergnano and Newman, and discussed litigation related to the

environmental liabilities, including legal and environmental reserves and

environmental remediation developments.81

On August 2, 2017, the Board met and received two presentations concerning

a potential share repurchase program and a potential increase in the Company’s

dividends.82 The presentations, which were delivered by financial advisors Barclays

and Dyal Partners, recommended that Chemours increase its dividends or repurchase

stock, noting that Chemours trailed its peers with respect to the return of capital to

stockholders.83 These presentations also emphasized that an increase in the return

of capital would be a positive signal to the market.84 At this meeting, the Board also

received a presentation concerning litigation developments regarding the

79
Id. ¶ 120.
80
Id.
81
Id. ¶ 132, 138.
82
Id. ¶ 141.
83
Id.
84
Id.

17
Fayetteville Works site in North Carolina. 85 On October 30, 2017, the Audit

Committee met again, with Defendants Brown, Vergnano and Newman in

attendance, received further updates regarding environmental litigation, and

discussed Chemours’s legal and environmental reserves. 86

A month later, on November 30, 2017, the Board met, with Defendant

Newman also in attendance, and approved a share repurchase program authorizing

the purchase of up to $500 million (the “2017 Stock Repurchase Program”).87 At

the same meeting, the Board also declared a first quarter 2018 dividend of $0.17 per

share, a $0.14 increase from the previous $0.03 quarterly dividends.88 The

resolutions approving the 2017 Stock Repurchase Program and the dividend increase

stated that the Board believed that the returns of capital complied with the DGCL.89

The Complaint alleges that, in making this determination, the Board only considered

GAAP-based “legal and environmental reserves.”90

In early 2018, the Board continued to receive presentations and updates

regarding the environmental litigation, as well as the Company’s legal and

environmental reserves. In January 2018, in response to a question about topics or

agenda items that should be covered during the year, one director wrote, “I would

85
Id. ¶ 140.
86
Id. ¶ 144.
87
Id. ¶ 145.
88
Id.
89
Id.
90
Id. ¶¶ 146–47.

18
personally benefit from . . . a detailed sustainability strategy that reduces the cost of

future litigation.”91 Likewise, the Audit Committee met on February 12, 2018, with

Defendants Brown, Vergnano and Newman in attendance, and received a litigation

report that included a discussion of the environmental litigation. 92 The Complaint

alleges that the Audit Committee also discussed the Company’s share repurchases,

as well as the Company’s legal and environmental reserves, but it asserts that the

Audit Committee did not discuss these topics “in conjunction” with one another.93

The following day, on February 13, 2018, the Board met, with Defendant

Newman in attendance, and was informed of the litigation update that the Audit

Committee had received the previous day.94 The Board also received an update on

litigation regarding the Fayetteville Works site,95 and a further update regarding

Fayetteville Works litigation at an April 30, 2018 Board meeting. 96

In May 2018, the Company executed its final purchase of the 2017 Stock

Repurchase Program, exhausting the $500 million limit, and the Board declared

another $0.17 per share quarterly cash dividend.97 The resolutions that approved the

dividend stated that the Board believed the dividend complied with the DGCL.98

91
Id. ¶ 151.
92
Id. ¶ 153.
93
Id. ¶ 154.
94
Id. ¶ 156.
95
Id.
96
Id. ¶ 160.
97
Id. ¶¶ 161, 163.
98
Id. ¶ 162.

19
Again, the Complaint alleges that in forming this belief, the Board relied only on

Chemours’ accounting-based reserves for the contingent environmental liabilities,

calculated in accordance with GAAP. 99 In particular, the Complaint alleges that on

May 1 and 2, 2018, the Audit Committee and the Board, along with Defendant

Newman, received updates regarding the environmental litigation and the

Company’s environmental and litigation reserves.100

b. The 2018 Stock Repurchase Program and Dividend
Increases

After the Company exhausted the $500 million 2017 Stock Repurchase

Program, the Chemours Board approved a second repurchase program in August

2018 (the “2018 Stock Repurchase Program”). Specifically, on July 30, 2018, the

Board met, along with Defendant Newman, and received a report concerning the

environmental litigation.101 The Complaint alleges that at this meeting, the Board

was informed that the Company was facing increased legal and environmental

costs. 102

The following day, on July 31, 2018, the Audit Committee met, with

Defendants Vergnano and Newman in attendance.103 At this meeting, the Audit

99
Id. ¶¶ 162, 165.
100
Id. ¶¶ 164–66.
101
Id. ¶ 167.
102
Id.
103
Id. ¶ 168.

20
Committee received a litigation report that discussed the environmental litigation.104

The Board also discussed the Company’s environmental and litigation reserves and

the Company’s share repurchases. 105 Again, however, the Complaint alleges that

there is no indication that the share repurchases were discussed “in conjunction”

with the environmental and litigation reserves.106

A day later, on August 1, 2018, the Board approved the 2018 Stock

Repurchase Program, which authorized the repurchase of up to $750 million in

shares.107 The next day, on August 2, 2018, the Board increased the quarterly cash

dividend from $0.17 per share to $0.25 per share. 108 The resolutions approving the

2018 Stock Repurchase Program and the dividend increase stated that the Board

believed the returns of capital complied with the DGCL, though the Complaint

asserts that the Board relied only on accounting-based reserves to form this belief.109

In October 2018, the Board declared another $0.25 quarterly dividend.110

Specifically, on October 29, 2018, the Audit Committee met, with Defendants

Brown, Vergnano and Newman in attendance.111 The Audit Committee discussed

the share repurchases at this meeting; received updates on the environmental

104
Id. ¶ 168–69.
105
Id.
106
Id. ¶ 169.
107
Id. ¶ 170.
108
Id. ¶ 171.
109
Id.
110
Id. ¶ 174–79.
111
Id. ¶ 174.

21
litigation, including “significant judgments”; and discussed the environmental and

litigation reserves.112 The Complaint asserts, again, that there is no indication that

the share repurchases were discussed “in conjunction” with the environmental and

litigation reserves.113

The following day, on October 30, 2018, the full Chemours Board met and

approved the $0.25 dividend. 114 At this meeting, the Board also discussed the

environmental litigation, and received an “Enterprise Risk Management”

presentation stating that “Legacy/Future Environmental-Operational Sustainability”

was the number one risk.115 Yet again, the resolutions approving the dividend stated

that the Board believed the dividend complied with the DGCL, though the

Complaint asserts that this belief was based only on accounting-based reserves.116

On November 20, 2018, the Board met telephonically, with Defendant Newman

present, and received an update on the Fayetteville Works site. 117

c. The Board Increases the 2018 Stock Repurchase Program
and Declares More Dividends

In early 2019, the Board authorized an increase in the 2018 Stock Repurchase

Program. Specifically, on February 12, 2019, the Audit Committee met, with

112
Id. ¶ 174–75.
113
Id. ¶ 175.
114
Id. ¶¶ 176–78.
115
Id. ¶ 177.
116
Id. ¶ 178.
117
Id. ¶ 180.

22
Defendants Brown, Vergnano and Newman in attendance. 118 At this meeting, the

Company received a litigation update, discussed “reserve accounting for [the]

Fayetteville” site, and discussed the Company’s share repurchases. 119 As with prior

meetings, the Complaint asserts that there is no indication that the share repurchases

were discussed “in conjunction” with the environmental and litigation reserves.120

The following day, on February 13, 2019, the Board met and increased the

2018 Stock Repurchase Program to permit the repurchase of up to $1 billion of the

Company’s shares. 121 The Board also announced a $0.25 per share quarterly cash

dividend. 122 At the meeting, with Defendant Newman present, the Board received

an update on a consent order related to the Fayetteville Works site. 123 The Complaint

alleges that the Board discussed “what appears to be a GAAP-based accrual for

Fayetteville,” and that the Board “separately” discussed share repurchases and

received a presentation conveying that “INVESTORS WANT CAPITAL

ALLOCATED TO THEMSELVES.” 124 The Complaint alleges that there is no

indication that the share purchases and the environmental and litigation reserves

were discussed “in conjunction” with one another at this meeting. 125 The resolutions

118
Id. ¶ 187.
119
Id.
120
Id.
121
Id. ¶ 190.
122
Id.
123
Id. ¶ 188.
124
Id. ¶ 189 (capitalization in original).
125
Id.

23
that approved the share repurchase increase and the dividends stated that the Board

believed the return of capital complied with the DGCL, though the Complaint asserts

that this belief was based solely on accounting-based reserves.126

Two months later, in April 2019, the Board announced a $0.25 quarterly cash

dividend. Specifically, on April 29, 2019, the Audit Committee met, along with

Defendants Brown, Vergnano and Newman, and received a litigation update that

discussed the environmental litigation.127 The following day, on April 30, 2019, the

Board met, with Defendant Newman and the law firm Wachtell, Lipton, Rosen &

Katz (“Wachtell”) in attendance. 128 At the meeting, the Board participated in a

“Litigation Discussion” and announced the $0.25 dividend. 129

The resolutions approving the dividend stated that the Board believed the

dividend complied with the DGCL.130 However, the Complaint asserts that the

Board relied solely on accounting-based reserves in forming this belief, and that

there is no indication that the Board quantified or considered the contingent

environmental liabilities “in connection” with the stock repurchases.131 The

following day, May 1, 2019, the Board met, along with Wachtell and Defendant

126
Id. ¶ 191.
127
Id. ¶ 201.
128
Id. ¶ 202.
129
Id. ¶¶ 202–03.
130
Id. ¶ 203.
131
Id.

24
Newman. 132 At the meeting, the Board participated in another “litigation

discussion,” with Defendant Brown noting “the sensitive nature of the items to be

discussed for the day.” 133

In total, Chemours expended approximately $1.07 billion in connection with

the 2017 and 2018 Stock Repurchase Programs and approximately $667 million in

connection with the dividend payments from July 2015 through February 10,

2021.134

6. The DuPont Complaint

In May 2019, as the environmental liabilities continued to mount, Chemours

filed a complaint against DuPont in this Court seeking to hold DuPont liable for any

amounts above the Maximums that DuPont certified in connection with the Spin-

Off (the “DuPont Complaint”). 135

Just before the Company filed the DuPont Complaint, on May 6, 2019, Larry

Robbins, a hedge fund CEO, gave a presentation at the Sohn Investment Conference

in which he discussed liabilities faced by PFAS manufacturers.136 Robbins

estimated that Chemours’s environmental liabilities were around “$4 to 6 billion,”

and he added that “[t]he liabilities are now Chemours’s. Every time you see DuPont

132
Id. ¶ 204.
133
Id.
134
Id. ¶¶ 226, 230, 241.
135
Id. § III.D.
136
Id. ¶ 211.

25
losing a suit, you should assume that that liability will stay with Chemours.”137

Although the Company publicly disputed Robbins’s statements, 138 the day after

Robbins’s presentation, on May 7, 2019, Chemours stopped the 2018 Stock

Repurchase Program. 139

A week later, on May 13, 2019, Chemours filed the DuPont Complaint, which

was verified by Defendant Newman.140 The DuPont Complaint sought “to hold

DuPont accountable for [the Maximums],” which it alleged “have proven to be

systematically and spectacularly wrong.”141 It further alleged that “if Chemours had

unlimited responsibility for the true potential maximum liabilities, it would have

been insolvent as of the time of the spin-off.” 142 Thus, the DuPont Complaint sought

a holding that DuPont, and not Chemours, was responsible for any amounts that

exceeded the Maximums. 143 The DuPont Complaint also sought, in the alternative,

the return of the $3.91 billion dividend that Chemours paid to DuPont prior to the

Spin-Off.144

137
Id. ¶ 212–13.
138
Id. ¶ 214.
139
Id. ¶ 215.
140
Id. ¶ 216.
141
Id. ¶ 217.
142
Id. ¶ 219 (emphasis added).
143
Verified First Amended Compl. ¶¶ 120–79, The Chemours Company v. DowDuPont Inc., C.A.
No. 2019-0351-SG (Dkt. No. 33) [hereinafter the “DuPont Complaint”].
144
Id. ¶¶ 180–201.

26
 The instant Complaint alleges that in the DuPont Complaint, Chemours

“admitted” to $2.56 billion in liabilities that it inherited from DuPont at the time of

the Spin-Off. Specifically, the Complaint alleges that the DuPont Complaint

admitted to $335 million in liability for the Ohio MDL, $1.7 billion in liability for

New Jersey litigation, $200 million in liability for the Fayetteville Works site, $111

million in liability for benzene, and $194 in liability for PFAS, including GenX.145

The Complaint alleges that these figures, taken from the DuPont Complaint, were

Chemours’s “conservative estimates.”146

On December 18, 2019, at oral argument regarding DuPont’s motion to

dismiss, Chemours’s counsel reiterated the assertion in the DuPont Complaint that

Chemours would have been insolvent at the time of the Spin-Off if it were liable

above the Maximums:

[CHEMOURS’S COUNSEL]: The Complaint alleges
very specifically that as of the date of the spin, Chemours
was insolvent. I think [DuPont’s counsel] this morning
said that that is not the case. Paragraph 125 of the
complaint alleges that point in no uncertain terms and very
directly. But quite apart from that allegation, the whole
theory of the complaint supports the inference and we
think compels the inference that the disequilibrium at the
time of the spin created the specter of insolvency.147

145
Compl. ¶ 222.
146
Id. ¶ 223.
147
Oral Argument re Plaintiff’s Motion to Stay Arbitration and Cross-Motions to Compel
Production, Defendants’ Motion to Stay Discovery and Motion to Dismiss, and the Court’s Partial
Ruling, at 72:16–73:1, The Chemours Company v. DowDuPont Inc., C.A. No. 2019-0351-SG
(Dkt. No. 56) [hereinafter “DuPont Oral Argument Tr.”].

27
 * * *
[CHEMOURS’S COUNSEL]: . . . . [The case] rests on the
allegation that Chemours was insolvent at the time of the
spin, provided that DuPont’s present interpretation of the
complete inutility of its estimated maximum liabilities is
credited. The Court was quite right in terms of
understanding what our position had been in the complaint
in terms of the cushion, in your colloquy with [DuPont’s
counsel].
THE COURT: That was my understanding, is that you
were saying that setting aside the excess over the
estimation of the environmental liabilities, there was no
cushion. Is that what you were --
[CHEMOURS’S COUNSEL]: That was our position,
Your Honor. You have that straight on. And we have
alleged that the liability maximums were undertaken to
satisfy Delaware law; that they were undertaken in a way
that can only lead to an inference of bad faith, because they
were just manifestly evidently designed to undercount the
liability hugely; and that they did, in fact, undercount the
liability hugely, as has been demonstrated; and that, in
consequence, the company was not solvent at the time it
was spun.148

According to the Complaint, Chemours “admitted” in the DuPont Complaint

that, because of the environmental liabilities, Chemours had been insolvent since the

time of the Spin-Off and therefore lacked adequate “surplus” to declare dividends or

repurchase stock.149 The Complaint alleges that the Company also lacked net profits

from which to declare dividends.150

148
Id. at 149:3–150:1.
149
Compl. § III.D.
150
Id. ¶ 243.

28
with unfiled matters. 154 Under the settlement, expenses are split 50-50 between

DuPont and Corteva, on the one hand, and Chemours on the other. 155 The settlement

provides that this 50-50 split will be for a term not to exceed 20 years or $4 billion

of qualified spending and escrow contributions, in the aggregate. 156 In addition,

DuPont, Corteva, and Chemours agreed to settle ongoing matters related to the Ohio

MDL for $83 million, with DuPont and Corteva paying $27 million each, and

Chemours paying $29 million.157

7. The Stock Trades

In addition to the stock repurchases and dividend payments, the Complaint

also challenges certain stock sales by Defendants Vergnano and Newman.

Specifically, the Complaint alleges that Defendant Vergnano sold 200,151 shares of

Chemours stock for proceeds of over $10 million, and that Defendant Newman sold

155,047 shares of Chemours stock for proceeds of over $6.8 million. 158 The

Complaint alleges that Defendants Vergnano and Newman undertook these sales

while aware that Chemours was “insolvent” or “teetering on insolvency” and that

the public was “not aware of the true extent of the Company’s environmental

liabilities.”159

154
Id. ¶ 253.
155
Id.
156
Id.
157
Id. ¶ 254.
158
Id. ¶¶ 249–50.
159
Id. ¶ 248.

30
 C. Procedural History

Plaintiff Hialeah Retirement initiated this action on September 16, 2020.160

On December 17, 2020, I ordered a temporary stay of this action pending a

supplemental document production by the Defendants. 161 On February 22, 2021,

after a review of the supplemental production, Plaintiff Roberto Pinto filed a

Verified Stockholder Derivative Complaint in the action captioned Pinto v.

Vergnano, et al., C.A. No. 2021-0152-SG. 162 On February 23, 2021, I (i) ordered

the consolidation of the two actions because they presented common issues of law

and fact, (ii) appointed Hialeah Retirement as lead plaintiff and Pinto as an

additional plaintiff, (iii) appointed Bernstein Litowitz Berger & Grossmann LLP as

lead counsel, and (iv) deemed the Pinto Complaint the operative complaint.163

The Complaint brings derivative claims against the Director Defendants for

violations of 8 Del. C. §§ 160 and 174 in connection with the 2017 and 2018 Stock

Repurchase Programs (Count I); violations of 8 Del. C. §§ 170, 173, and 174 in

connection with the dividend payments (Count II); and breaches of fiduciary duty in

connection with the stock repurchases and dividend payments (Count III).164 The

Complaint also brings claims against the Officer Defendants for breach of fiduciary

160
Verified Stockholder Derivative Compl., Dkt. No. 1.
161
Order Temporarily Staying Action Pending Suppl. Produc., Dkt. No. 22.
162
See generally Compl.
163
Order Consolidation, Appointment Lead Pl. Lead Counsel, Setting Briefing Schedule, Dkt. No.
25 ¶¶ 1, 5–7, 9.
164
Compl. ¶¶ 263–76.

31
duty (Count IV) and unjust enrichment (Count V) in connection with their stock

sales.165 Finally, the Complaint brings claims in the alternative against Defendant

Vergnano (Count VI) and Defendant Newman (Count VII) for breaches of the duty

of candor to the other Director Defendants in connection with the stock repurchases

and dividend payments.166

The Defendants moved to dismiss the Complaint (the “Motion to Dismiss”)167

and filed an opening brief in support of their Motion to Dismiss on April 23, 2021.168

The Plaintiffs filed an answering brief in opposition to the Motion to Dismiss on

May 24, 2021, 169 and the Defendants filed a reply brief in further support of the

Motion to Dismiss on June 23, 2021.170 On July 19, 2021, I heard oral argument on

the Motion to Dismiss, and I considered the Motion to Dismiss submitted for

decision as of that date.

II. LEGAL STANDARDS

“‘A cardinal precept’ of Delaware law is ‘that directors, rather than

shareholders, manage the business and affairs of the corporation.’” 171 “The board’s

165
Id. ¶¶ 277–86.
166
Id. ¶¶ 287–300.
167
Defs.’ Mot. Dismiss, Dkt. No. 26.
168
Defs.’ Mem. Law Supp. Defs.’ Mot. Dismiss Verified Stockholder Derivative Compl., Dkt.
No. 26 [hereinafter “Defs.’ Opening Br.”].
169
Pls.’ Answering Br. Opp. Defs.’ Mot. Dismiss, Dkt. No. 50 [hereinafter “Pls.’ Answering Br.”].
170
Defs.’ Reply Mem. Law Further Supp. Defs.’ Mot. Dismiss Verified Stockholder Derivative
Compl., Dkt. No. 54 [hereinafter “Defs.’ Reply Br.”].
171
United Food and Commercial Workers Union and Participating Food Indus. Emp’rs Tri-State
Pension Fund v. Mark Zuckerberg et al., 2021 WL 4344361, at *6 (Del. Sept. 23, 2021) (quoting

32
authority to govern corporate affairs extends to decisions about what remedial

actions a corporation should take after being harmed, including whether the

corporation should file a lawsuit against its directors, its officers, its controller, or an

outsider.”172 In other words, a chose in action is a corporate asset like any other,

under our model subject to the control of the board of directors. “‘In a derivative

suit, a stockholder seeks to displace the board’s [decision-making] authority over a

litigation asset and assert the corporation’s claim.’”173 “Thus, ‘[b]y its very nature[,]

the derivative action’ encroaches ‘on the managerial freedom of directors’ by

seeking to deprive the board of control over a corporation’s litigation asset.”174 The

rationale for permitting derivative litigation to proceed is that the directors are

disabled from monetizing the asset, and that the litigation must proceed derivatively

or not at all.

“‘In order for a stockholder to divest the directors of their authority to control

the litigation asset and bring a derivative action on behalf of the corporation, the

stockholder must’ (1) make a demand on the company’s board of directors or

(2) show that demand would be futile.” 175 The demand requirement “is a substantive

Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled on other grounds Brehm v. Eisner,
746 A.2d 244 (Del. 2000)).
172
Id.
173
Id. (quoting United Food & Commercial Workers Union v. Zuckerberg, 250 A.3d 862, 876
(Del. Ch. 2020), aff’d sub nom. Zuckerberg, 2021 WL 4344361).
174
Id. (quoting Aronson, 473 A.2d at 811).
175
Id. (quoting Lenois v. Lawal, 2017 WL 5289611, at *9 (Del. Ch. Nov. 7, 2017)).

33
requirement that ‘[e]nsure[s] that a stockholder exhausts his intracorporate

remedies,’ ‘provide[s] a safeguard against strike suits,’ and ‘assure[s] that the

stockholder affords the corporation the opportunity to address an alleged wrong

without litigation and to control any litigation which does occur.’” 176

Under Court of Chancery Rule 23.1, a shareholder seeking to assert a

derivative claim must “allege with particularity the efforts, if any, made by the

plaintiff to obtain the action the plaintiff desires from the directors or comparable

authority and the reasons for the plaintiff’s failure to obtain the action or for not

making the effort.” 177 “Rule 23.1 is not satisfied by conclusory statements or mere

notice pleading. On the other hand, the pleader is not required to plead evidence.

What the pleader must set forth are particularized factual statements that are essential

to the claim.” 178 “When considering a motion to dismiss a complaint for failing to

comply with Rule 23.1, the Court does not weigh the evidence, must accept as true

all of the complaint’s particularized and well-pleaded allegations, and must draw all

reasonable inferences in the plaintiff’s favor.” 179

176
Id. (quoting Lenois, 2017 WL 5289611, at *9).
177
Ct. Ch. R. 23.1.
178
Brehm, 746 A.2d at 254.
179
Zuckerberg, 2021 WL 4344361, at *7.

34
 III. ANALYSIS

The Plaintiffs did not make a demand on the Company’s Board to institute

this action. 180 Therefore, to survive a motion to dismiss, the Plaintiffs must plead

with particularity that demand would be futile. That inquiry is satisfied if, given the

truth of the particularized facts alleged and the reasonable inferences therefrom, the

complaint creates a reasonable doubt that a majority of the Board is able to “bring

[its] business judgment to bear” on behalf of the Company to assess the substance

of the demand.181 To determine whether demand would be futile, this Court asks the

following three questions on a director-by-director basis:

(i) whether the director received a material personal
benefit from the alleged misconduct that is the subject of
the litigation demand;
(ii) whether the director faces a substantial likelihood of
liability on any of the claims that would be the subject of
the litigation demand; and
(iii) whether the director lacks independence from
someone who received a material personal benefit from
the alleged misconduct that would be the subject of the
litigation demand or who would face a substantial
likelihood of liability on any of the claims that are the
subject of the litigation demand.182

180
Compl. ¶ 259.
181
Ryan v. Armstrong, 2017 WL 2062902, at *2 (Del. Ch. May 15, 2017), aff’d, 176 A.3d 1274
(Del. 2017).
182
Zuckerberg, 2021 WL 4344361, at *17.

35
If the court determines that, for at least half of the members of the demand board,

the answer to any of these questions is, “yes,” then demand is excused as futile. 183

The Plaintiffs here do not attempt to meet the requirements of (i) or (iii)

above.184 Instead, the Plaintiffs contend that seven of the nine Chemours’s directors

who have been on the Board since the Spin-Off face a substantial likelihood of

liability for the alleged statutory violations and breaches of fiduciary duty relating

to the stock repurchases, dividend payments, and stock sales.185

Chemours’s certificate of incorporation contains an exculpatory provision, as

authorized by 8 Del. C. § 102(b)(7), which provides as follows:

To the fullest extent permitted by the DGCL, as it now
exists and as it may hereafter be amended, no director of
the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary
damages for breach of a fiduciary duty as a director, except
for liability of a director (a) for any breach of the director’s
duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper
personal benefit . . . . 186

Therefore, the Plaintiffs must plead with particularity that a majority of the

demand Board faces a substantial likelihood of liability for a non-exculpated claim.

183
Id.
184
See Compl. § V.
185
See id.
186
Friedlander Decl., Ex. 2 § 7.01 (emphasis added).

36
For the reasons below, I find that the Plaintiffs have failed to establish that a majority

of Chemours’s directors face a substantial likelihood of liability with respect to any

of the Plaintiffs’ claims.

A. Demand Is Not Excused as to the Plaintiffs’ Statutory Claims (Counts I
and II)

Counts I and II of the Complaint seek to hold the Director Defendants liable

under 8 Del. C. § 174 for the stock repurchases and dividend payments. Claims

under Section 174 are not exculpated under the exculpatory provision in Chemours’s

certificate of incorporation. 187

Section 174 provides that “[i]n case of any wilful or negligent violation of

§ 160 or § 173 of this title, the directors under whose administration the same may

happen shall be jointly and severally liable . . . to the corporation, and to its creditors

in the event of its dissolution or insolvency, to the full amount of the dividend

unlawfully paid, or to the full amount unlawfully paid for the purchase or redemption

of the corporation’s stock . . . .” 188 In other words, in the event of a willful or

negligent violation by the entity of Section 160 or Section 173 (which set out the

requirements for a corporation to repurchase stock and pay dividends), Section 174

by its explicit terms imposes liability upon the directors in place at the time of the

187
See id. Nor is exculpation for such a claim permitted by Delaware law.
See 8 Del. C. § 102(b)(7)(iii).
188
8 Del. C. § 174(a).

37
violation, in the amount so distributed, running to the corporation and, if applicable,

its creditors. 189 This rigorous liability scheme is tempered by Section 172 of the

DGCL, however. 190 In the event of a violation, directors are “fully protected” under

Section 172 from liability if they rely “in good faith” upon the corporation’s records,

officers and employees, committees of the board, or experts, in determining that the

corporation has adequate funds to repurchase stock or pay dividends. 191 In other

words, as I read the statute,192 directors generally remain liable for a violation of

Sections 160 or 173 arising from their own negligence or bad faith.

189
Id. Section 174 further provides that even directors who were “absent when the same was
done” may be liable unless they “caus[e] [their] dissent to be entered on the books containing the
minutes of the proceedings of the directors at the time the same was done, or immediately after
such director[s] ha[ve] notice of the same.” Id.
190
8 Del. C. § 172.
191
Id.
192
At oral argument, the Plaintiff’s counsel aptly referred to this action and its underlying theory
as sui generis. See Oral Argument on Defs.’ Mot. to Dismiss, Dkt. No. 59, at 90:7. So far as I am
aware, this is the first time a court had occasion to consider an attempt by a stockholder to impose
liability on the corporate behalf against directors for a violation of Sections 160 or 173, as
vindicated by Section 174. See, e.g., JPMorgan Chase Bank, N.A. v. Ballard, 213 A.3d 1211,
1216 (Del. Ch.) (Section 174 claim brought by creditor); Quadrant Structured Prod. Co. v. Vertin,
102 A.3d 155, 201 (Del. Ch. 2014) (Section 174 claim brought by noteholder); In re Verizon Ins.
Coverage Appeals, 222 A.3d 566, 576 (Del. 2019) (Section 174 claim brought by trustee);
Johnston v. Wolfe, 1983 WL 21437, at *2 (Del. Ch. Feb. 24, 1983) (Section 174 claim brought by
purported creditors), aff’d sub nom. Johnston v. Wolf, 487 A.2d 1132 (Del. 1985); In re Sheffield
Steel Corp., 320 B.R. 405, 410 (Bankr. N.D. Okla. 2004) (Section 174 claim brought by
corporation as debtor-in-possession in bankruptcy adversary proceeding); In re Magnesium Corp.
of Am., 399 B.R. 722, 776–77 (Bankr. S.D.N.Y. 2009) (Section 174 claim brought by Chapter 7
bankruptcy trustee); In re Tribune Co. Fraudulent Conv. Litig., 2018 WL 6329139, at *11–12
(S.D.N.Y. Nov. 30, 2018) (Section 174 action brought by litigation trustee on behalf of creditors),
aff’d, 10 F.4th 147 (2d Cir. 2021); Fotta v. Morgan, 2016 WL 775032, at *4 (Del. Ch. Feb. 29,
2016) (derivative claim sought “declaratory judgment that the stock issued as the dividend is void
ab initio,” not director liability under Section 174). Although a derivative Section 174 action was
brought in Feldman v. Cutaia, the claim was extinguished by a merger under the continuous
ownership rule, and thus the Court did not reach the merits. 956 A.2d 644, 651, 660–63 (Del. Ch.
2007), aff’d, 951 A.2d 727 (Del. 2008).

38
 Sections 160 and 173, in turn, impose limits on a corporation’s ability to

repurchase stock and issue dividends, respectively. As relevant to this action,

Section 160 provides that “no corporation shall . . . [p]urchase or redeem its own

shares of capital stock for cash or other property when the capital of the corporation

is impaired or when such purchase or redemption would cause any impairment of

the capital of the corporation.” 193 “A repurchase impairs capital if the funds used in

the repurchase exceed the amount of the corporation’s ‘surplus.’” 194

Section 173, through Section 170, provides for a similar requirement with

respect to dividends, albeit with more wiggle room. Specifically, Section 173 states

that “[n]o corporation shall pay dividends except in accordance with this chapter.”195

Section 170 states that “[t]he directors of every corporation . . . may declare and pay

dividends upon the shares of its capital stock either: (1) Out of its surplus . . . ; or

(2) In case there shall be no such surplus, out of its net profits for the fiscal year in

which the dividend is declared and/or the preceding fiscal year.” 196

In short, Sections 160, 170 and 173 preclude a corporation from issuing

dividends or repurchasing stock in an amount that exceeds “surplus,” except that

dividends may also be issued from the corporation’s net profits of the fiscal year in

193
8 Del. C. § 160(a)(1).
194
Klang, 702 A.2d at 153.
195
8 Del. C. § 173.
196
8 Del. C. § 170(a)(1)–(2).

39
which the dividend is declared or the preceding fiscal year. “Surplus” is “defined

by 8 Del. C. § 154 to mean the excess of net assets over the par value of the

corporation’s issued stock.”197 Because Chemours’s issued stock has a nominal par

value of $0.01 per share, the surplus calculations at issue here effectively boil down

to a calculation of Chemours’s net assets.198 Net assets is defined by 8 Del. C. § 154

to mean “the amount by which total assets exceed total liabilities.” 199

The Plaintiffs contend that, because of the potential environmental liabilities,

Chemours’s net liabilities exceeded its net assets, such that the stock repurchases

and dividend payments violated Sections 160, 170, and 173.200 The Plaintiffs further

contend that the Director Defendants themselves were at least negligent by relying

on GAAP-based accounting reserves to calculate surplus, which the Plaintiffs argue

exclude contingent environmental liabilities. 201

As explained below, I find that the Complaint does not allege with

particularity that the stock repurchases and dividend payments violated Sections

160, 170 or 173, or that the Director Defendants were negligent under Section 174.

197
Klang, 702 A.2d at 153.
198
See Pls.’ Answering Br. at 37 (“Thus, if the fair value of a company’s liabilities . . . exceed the
fair value of its assets, its capital is statutorily impaired.”); Defs.’ Opening Br. at 28 n. 10 (“Like
many companies, the par value of Chemours’s stock is set at the nominal amount of $0.01 per
share.”).
199
8 Del. C. § 154.
200
Pls.’ Answering Br. at 37–38.
201
Id. at 48–52.

40
I also find that the Director Defendants are “fully protected” from liability under

Section 172.

1. The Complaint Concedes that Most of the Dividend Payments
Complied with Delaware Law

As an initial matter, the Director Defendants do not face a substantial

likelihood of liability with respect to the dividends paid in 2015, 2017, 2018, 2019

or 2020, and $7,000,000 of the dividends paid in 2016, because the Complaint

concedes that those dividends complied with 8 Del. C. § 170. Specifically, Section

170 provides that, “[i]n case there shall be no such surplus” from which to declare

dividends, “[t]he directors of every corporation . . . may declare and pay

dividends . . . out of its net profits for the fiscal year in which the dividend is declared

and/or the preceding fiscal year.”202

The Complaint concedes that Chemours’s net profits exceeded its dividend

payments in the 2017, 2018 and 2020 fiscal years.203 The Complaint further

concedes that Chemours had sufficient net profits in 2014 and 2018 from which to

pay its 2015 and 2019 dividend payments.204 Thus, for the fiscal years 2015, 2017,

2018, 2019, and 2020, the Company complied with Section 170 by paying “out of

its net profits for the fiscal year in which the dividend is declared and/or the

202
8 Del. C. § 170(a)(2).
203
Compl. ¶ 243.
204
Id. ¶ 243.

41
preceding fiscal year.” 205 The Plaintiffs do not appear to dispute this point, and

contends only that the “Defendants recognize, as they must, that there were other

points in time that the Company lacked sufficient net profits to pay dividends.”206

Accordingly, because the Complaint does not allege a violation of Section 170 in

connection with the 2015, 2017, 2018, 2019 or 2020 dividend payments, the Director

Defendants do not face a substantial likelihood of liability, and demand is not

excused, with respect to those dividends.

With respect to the dividends issued in the 2016 fiscal year, the Complaint

alleges that Chemours issued $16,345,494 in dividends, but recorded only

$7,000,000 in net profits, with negative net profits in the preceding year.207 In other

words, the Complaint concedes that at least $7,000,000 of the dividend payments

from the 2016 fiscal year complied with Section 170, because they were paid out of

net profits. Accordingly, with respect to that portion of the 2016 dividend payments,

the Director Defendants do not face a substantial likelihood of liability, and demand

is not excused.

205
8 Del. C. § 170. See also Defs.’ Opening Br. at 29 n.9 (“[T]he Complaint’s own allegations
dictate that the Company’s net profits defeat liability for all of the Company’s dividends in 2015,
2017, 2018, 2019, and 2020.”).
206
See Pls.’ Answering Br. at 38 n.7.
207
Compl. ¶ 243.

42
 2. The Complaint Does Not Plead that The Board’s Surplus
Determinations Violated Delaware Law

The Plaintiffs’ remaining statutory claims concern the 2017 and 2018 Stock

Repurchase Programs and the $9,345,494 in dividends issued in 2016 that exceeded

Chemours’s net profits in that year and the preceding year. The Plaintiffs contend

that these capital returns violated Sections 160 and 170 because the Company

allegedly did not have “surplus” from which to issue dividends or repurchase

stock.208

The parties disagree on the standard of review that the Court should apply to

a Board’s surplus determination. The Plaintiffs contend that, under Section 174, the

standard is simple negligence. 209 The Defendants, in contrast, argue that the Section

174 negligence standard is only implicated “if, in fact, a board failed to calculate

surplus appropriately.” 210 The Defendants further argue that “bad faith or fraud,”

not negligence, is the standard to show an improper surplus calculation.211

Both the Plaintiffs and the Defendants rely largely on the same case to support

their arguments: Klang v. Smith’s Food & Drug Centers, Inc. 212 In Klang, this Court

declined to rescind a stock repurchase, finding that the board’s surplus calculation

208
Pls.’ Answering Br. at 37–38.
209
See id. at 43 (“The DGCL’s negligence standard firmly applies.”).
210
See Defs.’ Opening Br. at 29.
211
See id.at 29 (citing Klang, 702 A.2d at 156).
212
702 A.2d 150. See also Klang v. Smith’s Food & Drug Centers, Inc., 1997 WL 257463 (Del.
Ch. May 13, 1997), aff’d, 702 A.2d 150.

43
did not violate Section 160.213 The Defendants argue that, under Klang, this Court

should defer to the Board’s surplus calculation “unless [the Plaintiffs] can show that

the directors ‘failed to fulfill their duty to evaluate the assets on the basis of

acceptable data and by standards which they are entitled to believe reasonably reflect

present values.’”214 Thus, the Defendants argue that Klang requires the Plaintiffs to

plead particularized facts showing “bad faith or fraud on the part of the board,” or

“actual or constructive fraud.”215

The Plaintiffs take a contrary view. The Plaintiffs argue that Klang does not

mandate a “bad faith or fraud” standard, but rather, it says that the Board’s surplus

determination can only be given “reasonable latitude” if the Board (i) “evaluate[s]

assets and liabilities in good faith,” (ii) “on the basis of acceptable data,” (iii) “by

methods that they reasonably believe reflect present values,” and (iv) “arrive[s] at a

determination of the surplus that is not so far off the mark as to constitute actual or

constructive fraud.”216

213
1997 WL 257463, at *2–5.
214
Defs.’ Opening Br. at 29 (quoting Klang, 702 A.2d at 155–56). The Defendants also cite to SV
Inv. Partners, LLC v. ThoughtWorks, Inc., for the same proposition. 7 A.3d 973, 988 (Del. Ch.
2010), aff’d, 37 A.3d 205 (Del. 2011).
215
Defs.’ Opening Br. at 30 (quoting Klang, 702 A.2d at 156).
216
Pls.’ Answering Br. at 39 (quoting Klang, 702 A.2d at 152).

44
 Although Klang did not involve an action seeking to hold directors liable to

the corporation for negligence under Section 174,217 it does provide guidance as to

how this Court should evaluate a Board’s surplus determination under Sections 160

and 170. As a general proposition, the DGCL “contains no prescriptions as to the

form or manner of preparing and maintaining books of account and financial

statements nor of the manner in which the corporation values its assets for such

purposes.”218 As a result, “[t]he determination of the amount that is to be ‘capital’

and the amount that is to be ‘surplus’ is one that essentially is within the control and

discretion of the board of directors.”219

Likely for this reason, the Klang Court observed that Section 154, which

defines surplus, “does not require any particular method of calculating surplus, but

simply prescribes factors that any such calculation must include.” 220 Those factors

are the corporation’s “total assets” and “total liabilities.” 221 Thus, as the Klang Court

explained, “compliance with Section 160”—and, by extension, Section 170, which

requires the same surplus determination—is satisfied “by methods that fully take

217
In Klang, the plaintiff sought “rescission of a series of transactions including a . . . stock
repurchase,” on the basis that the corporation lacked surplus to repurchase stock. 1997 WL
257463, at *1. Thus, the Court had no reason to consider Section 174.
218
Balotti and Finkelstein, The Delaware Law of Corporations and Business Organizations § 5.22
(4th ed., Dec. 2020 update).
219
Id. See also In re Color Tile, Inc., 2000 WL 152129, at *3 (D. Del. Feb. 9, 2000) (explaining
in dicta that “[t]he directors . . . have almost unfettered discretion in defining the extent of the
corporation’s surplus”).
220
702 A.2d at 155.
221
8 Del. C. § 154.

45
into account the assets and liabilities of the corporation.” 222 Therefore, under Klang,

this Court will defer to the Board’s surplus calculation “so long as [the directors]

evaluate assets and liabilities in good faith, on the basis of acceptable data, by

methods that they reasonably believe reflect present values, and arrive at a

determination of the surplus that is not so far off the mark as to constitute actual or

constructive fraud.”223 The Klang Court’s ruling—according deference to directors’

“reasonable belief” as to corporate “present values”—is consistent with the Section

174 standard that directors are liable in case of their bad faith or negligent actions

regarding surplus. If the Complaint does not allege with particularity that the

Board’s surplus determinations fell short of the criteria outlined in Klang, the

determinations comply with Sections 160, 170, and 173. And if the Board’s surplus

determinations comply with those sections, there is no “willful or negligent”

violation for which to hold the Director Defendants liable.

The Plaintiffs argue that the Board’s alleged reliance on GAAP-based

accounting reserves in connection with its surplus determinations was unreasonable

under the circumstances known to the directors, in that it failed to “fully take into

account the assets and liabilities of the corporation.”224 Specifically, the Plaintiffs

argue that because GAAP “does not require recognition of liabilities unless they are

222
702 A.2d at 155.
223
Id.
224
See Pls.’ Answering Br. at 43 (quoting Klang, 702 A.2d at 155).

46
both ‘probable’ and ‘reasonably estimable,’” any GAAP-based calculation may

exclude the significant contingent environmental liabilities.225 Thus, the Plaintiffs

argue that the Director Defendants were required under Klang to revalue the

Company’s assets and liabilities to fully account for the contingent environmental

liabilities. 226 According to the Plaintiffs, the inclusion of those contingent

environmental liabilities—which the Plaintiffs say must not include any discount for

the probability of success—would reveal that “such liabilities greatly exceed GAAP

reserves.”227

The Complaint does not allege particularized facts showing that by relying on

GAAP-based accounting reserves, the Director Defendants failed to “fully take into

account the assets and liabilities of the corporation.”228 Generally, “Delaware

corporations . . . follow generally accepted accounting principles” (i.e., GAAP)

when “preparing and maintaining books of account and financial statements” and

“valu[ing] its assets for such purposes.”229 The Complaint does not allege with

particularity why the Board was required to depart from this “generally accepted”

approach here.

225
See id. at 40–41.
226
See id. at 42–43.
227
See id. at 42.
228
See id. at 43 (quoting Klang, 702 A.2d at 155).
229
Balotti and Finkelstein, The Delaware Law of Corporations and Business Organizations § 5.22
(4th ed., Dec. 2020 update).

47
 To begin, the Complaint does not allege particularized facts suggesting that,

at the time the Board approved the 2017 and 2018 Stock Repurchases and the 2016

dividend payments, the contingent environmental liabilities were neither “probable”

nor “reasonably estimable,” such that they were in fact excluded from the GAAP

accounting reserves. At most, the Plaintiffs allege that the DuPont Complaint

admitted that, “as of December 31, 2014,” GAAP accounting reserves excluded

liabilities that were not “viewed as ‘probable’” and “also excluded liabilities that

were regarded as probable at the time, but for which DuPont had not yet made an

estimate.”230

But this admission says nothing about whether the contingent environmental

liabilities remained improbable and not yet estimated at the time the Board approved

the 2017 and 2018 Stock Repurchase Programs, years later, on November 30, 2017,

August 1, 2018, and February 13, 2019,231 or when the Board approved the 2016

dividend payments between April 2016 and November 2016.232 Indeed, the

Complaint includes pages of allegations detailing the developments in the

environmental litigation after December 31, 2014, including the settlement of the

Ohio MDL in February 2017 and the bellwether cases that DuPont lost in mid-

230
Compl. ¶ 70.
231
See id. ¶¶ 229–30.
232
See id. ¶ 241.

48
2016. 233 Without more, it is not reasonable to infer that, for years after December 31,

2014, the contingent environmental liabilities continued to be unrecognized under

the accounting methods used by Chemours.

Nor does the Complaint plead with particularity that, even if the GAAP-based

accounting reserves excluded the contingent environmental liabilities as improbable

and not reasonably estimable, their inclusion would have rendered Chemours

without surplus. To arrive at their conclusion that the contingent environmental

liabilities rendered Chemours insolvent, the Plaintiffs compile a list of figures

asserted by Chemours in the DuPont Complaint, which the Plaintiffs label

“Company Conservative Estimate[s],” that add up to $2.56 billion. 234 The Plaintiffs

argue that, by asserting these figures in the DuPont Complaint, the Company

“admitted” that it was responsible for these liabilities. 235 The Plaintiffs then contend

that the Board was precluded from discounting those supposed estimates to their

“present value” in connection with their surplus determination.236

These arguments fail for several reasons. First, most of the figures from the

DuPont Complaint that the Plaintiffs rely on to arrive at their $2.56 billion

calculation do not actually represent the Company’s “conservative estimates” of

233
See e.g., id. ¶¶ 95–100, 104–18.
234
See id. ¶ 222.
235
Id.
236
See Pls.’ Answering Br. at 42–43.

49
Chemours’s contingent environmental liabilities. For instance, the Complaint

attributes a $335 million figure to the Ohio MDL, 237 which appears to be derived

from the $670 million settlement that was “split evenly between DuPont and

Chemours.”238 But as the Complaint admits, that settlement occurred in February

2017—before the Board approved the 2017 and 2018 Stock Repurchase

Programs. 239 The $335 million figure thus was not “contingent” at the time the

Board approved the stock repurchases (let alone “improbable” or “not estimated”

such that it would be excluded from GAAP).

Likewise, the Plaintiffs claim that the DuPont Complaint admitted $194

million in PFAS liabilities.240 But the DuPont Complaint actually alleged that the

$194 million figure was a “catch-all” Maximum that “included everything from

PFAS liability to commercial litigation.”241 And the figures that the Plaintiffs say

the DuPont Complaint ascribed to the four New Jersey sites, the Chambers Works

site, and benzene liability are actually estimates made by DuPont or demands from

the claimants themselves, not estimates made by Chemours.242 Indeed, the only

237
Compl. ¶ 222.
238
Id. ¶ 98.
239
Id.
240
Id. ¶ 222.
241
DuPont Complaint ¶ 8. See also id. ¶ 110 (“[DuPont] certified a catch-all [Maximum] of $194
million for all other ‘General Litigation . . . to Perpetuity,’ which Houlihan Lokey reflected as
including everything not separately valued—from PFAS liability to commercial litigation.”).
242
See id. ¶ 106 (“[A] New Jersey municipality has brought suit against DuPont seeking over $1
billion to address alleged clean-up costs” for Chambers Works.); id. ¶¶ 8, 108 (“[I]n 2018,
[DuPont] provided Chemours with a more comprehensive study valuing the potential maximum

50
figure the Plaintiffs cite that actually appears to be an estimate by Chemours was the

$200 million for remediation of Fayetteville Works, 243 as the DuPont Complaint

alleged that “the cost to Chemours of implementing the consent order will be more

than $200 million.”244 Again, there is no indication that this amount was excluded

under GAAP accounting at the time the stock repurchase and dividend decisions

were made.

Significantly, moreover, the DuPont Complaint did not “admit,” as the

Plaintiffs contend, that Chemours was on the hook for any of these purported liability

estimates. Instead, the DuPont Complaint alleged that “if Chemours had unlimited

responsibility for the true potential maximum liabilities, it would have been insolvent

as of the time of the spin-off.”245 In other words, the DuPont Complaint was simply

seeking to enforce DuPont’s putative liability for amounts that exceeded the

Maximums DuPont certified in the Spin-Off; it was not admitting Chemours’s

liability for those amounts. The statements made by Chemours’s counsel at the

December 18, 2019 oral argument are not to the contrary. There, Chemours’s

counsel reiterated that Chemours would have been insolvent at the time of the Spin-

Off if it was responsible for amounts beyond the Maximums: “provided that

costs at over $111 million” for benzene.); id. ¶ 101 (“In 2018, in connection with the DowDuPont
spin-off, DuPont revised its liability estimate upward to approximately $620 million” for New
Jersey liabilities.).
243
Compl. ¶ 222.
244
DuPont Complaint ¶ 6.
245
See Compl. ¶ 219.

51
DuPont’s present interpretation of the complete inutility of its estimated maximum

liabilities is credited,” “Chemours was insolvent at the time of the [Spin-Off].”246

Furthermore, the Plaintiffs are incorrect as a matter of law that “contingent

liabilities should not be discounted to present value.” 247 In support of this argument,

the Plaintiffs invoke Boesky v. CX Partners, L.P., a case involving the liquidation of

a Delaware limited partnership.248 Boesky is not controlling, because it did not

involve a surplus determination under Sections 160 and 170, nor did it involve a

dividend, a stock repurchase, or even a corporation.249 But it also does not support

the Plaintiffs’ position. In Boesky, this Court declined to defer to the business

judgment of a liquidating trustee’s determination that the partnership had adequate

liability reserves before making partnership distributions.250 In dicta, the Court

discussed whether, in that context, it was appropriate to discount contingent claims,

noting that “discount[ing] the claim by a probability of its success and . . . reserv[ing]

only the discounted value might work” with “a sufficiently large number of similar

claims so that statistical techniques might apply,” but “[w]here . . . there are few

claims or each is quite different, such a technique obviously raises a danger . . .” to

residual claimants who would otherwise lack recourse.251 The Court ultimately

246
See DuPont Oral Argument Tr. at 149:3–150:1 (emphasis added).
247
Pls.’ Answering Br. at 42.
248
1988 WL 42250, at *1 (Del. Ch. Apr. 28, 1988).
249
Id.
250
Id. at *16.
251
Id.

52
declined to “address the question whether discounting is appropriate.”252 The

Plaintiffs cite no other support for the proposition that contingent claims cannot be

discounted. To the contrary, under Klang, Sections 160 and 170 only require a

valuation that “‘reasonably reflect[s] present values.’”253 Such a valuation would

necessarily include a probability component.

Finally, even if the Complaint did adequately plead that the Company lacked

surplus, the Complaint does not allege with particularity that a majority of the

demand Board did not “reasonably believe” in good faith that the GAAP-based

accounting reserves “reflect present values.” 254 The Plaintiffs argue that the Director

Defendants were “inundated with information that the Company’s liabilities would

take it to—or beyond—the precipice of solvency,” such that the Director Defendants

were negligent in their reliance on GAAP.255 Namely, the Plaintiffs contend that

two of the Director Defendants, Brown and Crawford, who were former DuPont

directors, “knew that DuPont wanted to shed its Performance Chemicals division in

order to rid itself of massive environmental liabilities,” and that a third Director

Defendant, Vergnano, “ran the Performance Chemicals division for years prior to

the Spin-Off and was intimately involved in the business.”256 The Plaintiffs also

252
Id. at *17.
253
702 A.2d at 155 (quoting Morris v. Standard Gas & Elec. Co., 63 A.2d 577, 582 (1949)).
254
Id.
255
See Pls.’ Answering Br. at 40–41.
256
See id. at 40.

53
note that the Director Defendants “received regular, quarterly updates on actual and

potential environmental litigation,” and received an “Enterprise Risk Management”

presentation stating that “Legacy/Future Environmental-Operational Sustainability”

was the Company’s number one risk.257 Finally, the Plaintiffs note that, following

the Spin-Off, the Director Defendants sought individual indemnification agreements

related to their Chemours Board service. 258 Per the Plaintiffs, the latter fact

demonstrates a fear of liability engendered by the directors’ knowledge of

Chemours’s insolvency. 259 Based on these allegations, the Plaintiffs argue that it

was “unreasonable” for the Director Defendants to rely on GAAP metrics.

Even under the negligence standard that the Plaintiffs urge, that is not enough

to establish that a majority of the demand Board faces a substantial likelihood of

liability. At most, the Plaintiffs have alleged that three of the nine members of the

demand Board—Directors Brown, Crawford and Vergnano—had knowledge of the

environmental liabilities from their time at DuPont prior to the Spin-Off, and that

the Director Defendants were aware of and regularly received updates on the

environmental liabilities. It is not reasonable to infer, based on those allegations,

that a majority of the Director Defendants “knew or should have known” that GAAP

257
See id. at 40–41, 50.
258
See id. at 40. The Plaintiffs also note that Defendant Newman “refused to certify the accuracy
of the [Maximums] in connection with the Spin-Off.” Id. Defendant Newman is not, however, a
Director Defendant, nor is he a member of the demand Board.
259
See id.

54
understated those liabilities, such that their reliance on GAAP was unreasonable.

Nor does the fact that the Director Defendants approved indemnification agreements

related to their Board service support a reasonable inference of negligence or bad

faith. Director indemnification exists “to encourage capable [people] to serve as

corporate directors, secure in the knowledge that expenses incurred by them in

upholding their honesty and integrity as directors will be borne by the corporation

they serve.”260 The Plaintiffs’ bare conclusion that the Director Defendants sought

indemnification agreements “out of fear that Chemours was insolvent”261 is

speculation that is not supported by any particularized allegations.

At bottom, the Complaint alleges no particularized facts undermining the

Board’s reliance on GAAP-based accounting reserves in connection with its

determinations that the stock repurchases and dividend payments complied with the

DGCL. The Director Defendants therefore do not face a substantial likelihood of

liability under Section 174 for violations of Section 160, 170 or 173.

3. The Director Defendants are “Fully Protected” Under Section 172

Beyond the Complaint’s failure to allege a violation of Sections 160, 170, 173,

or 174, the Director Defendants also do not face a substantial likelihood of liability

260
Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 561 (Del. 2002).
261
See Pls.’ Answering Br. at 40.

55
because they are “fully protected” under 8 Del. C. § 172. Section 172 provides as

follows:

A member of the board of directors . . . shall be fully
protected in relying in good faith upon the records of the
corporation and upon such information, opinions, reports
or statements presented to the corporation by any of its
officers or employees, or committees of the board of
directors, or by any other person as to matters the director
reasonably believes are within such other person’s
professional or expert competence and who has been
selected with reasonable care by or on behalf of the
corporation, as to the value and amount of the assets,
liabilities and/or net profits of the corporation or any other
facts pertinent to the existence and amount of surplus or
other funds from which dividends might properly be
declared and paid, or with which the corporation’s stock
might properly be purchased or redeemed. 262

The Plaintiffs argue that Section 172 is an affirmative defense that cannot be

considered at the pleading stage. In support of this argument, the Plaintiffs cite

Manzo v. Rite Aid Corp., in which this Court declined to apply the defense of good

faith reliance on the reports of corporate advisors and officers under

8 Del. C. § 141(e) at the pleading stage.263 But in Manzo, “the complaint d[id] not

262
8 Del. C. § 172.
263
2002 WL 31926606, at *3 n.7 (Del. Ch. Dec. 19, 2002), aff’d, 825 A.2d 239 (Del. 2003).
Although Manzo concerned 8 Del. C. § 141(e), not Section 172, the statutes are nearly identical.
See 8 Del. C. § 141(e) (“A member of the board of directors, or a member of any committee
designated by the board of directors, shall, in the performance of such member’s duties, be fully
protected in relying in good faith upon the records of the corporation and upon such information,
opinions, reports or statements presented to the corporation by any of the corporation’s officers or
employees, or committees of the board of directors, or by any other person as to matters the
member reasonably believes are within such other person’s professional or expert competence and
who has been selected with reasonable care by or on behalf of the corporation.”). See also Klang,
702 A.2d at 156 n.12 (comparing Section 172 and Section 141(e)).

56
include allegations regarding the reports of experts.” 264 In contrast, in Brehm v.

Eisner, the Supreme Court of Delaware applied the good faith reliance defense under

8 Del. C. § 141(e) at the pleading stage where “[t]he [c]omplaint . . . admit[ed] that

the directors were advised by . . . an expert and that they relied on his expertise.”265

Accordingly, Section 172, like Section 141(e), is available as a pleading-stage

defense if it is clear from the allegations of the Complaint and the documents

incorporated by reference therein.266

The Plaintiffs argue that the Complaint does not demonstrate that the Director

Defendants ever reviewed or were advised as to the Company’s “capital” or

“surplus.”267 The Complaint admits, however, that the Board concluded, at every

meeting at which it declared a dividend or approved the stock repurchase programs,

that the capital returns complied with Delaware law. 268 The Complaint further

admits that the Board was advised that “return of capital strategies should be

evaluated in light of liquidity and credit agreement constraints from any potential

settlement of contingent liabilities,” 269 and that the Board and Audit Committee

discussed the legal and environmental reserves and received regular presentations

264
2002 WL 31926606, at *3 n.7.
265
Brehm, 746 A.2d at 261.
266
See id. Cf. Malpiede v. Townson, 780 A.2d 1075, 1094 (Del. 2001) (applying Section 102(b)(7)
defense at pleading stage).
267
Pls.’ Answering Br. at 44.
268
See Compl. ¶¶ 126, 146, 162, 171, 178, 191, 203.
269
Id. ¶ 129.

57
from management on the environmental liabilities, including during the meetings at

which the Board declared dividends and approved the repurchase programs.270

Finally, the Complaint admits that the first time the Board met to discuss dividends,

it received a presentation from its financial advisor detailing the statutory

requirements under Delaware law, and that the Board received presentations from

two different financial advisors before it proceeded with the stock repurchases.271 In

short, the Complaint itself establishes that the Board considered whether the capital

returns complied with Delaware law, that it did so after consulting with the

Company’s management and financial advisors, and that it did so after receiving

presentations on the environmental liabilities.

The Plaintiffs next argue that, even to the extent the Director Defendants were

advised that the stock repurchases and dividend payments complied with Delaware

law, the Board merely “blindly rel[ied] on reports by the Company’s officers or

advisors that omit[ted] the consideration and analysis of known, material risks,” and

that the Board should have instead “ask[ed] for a quantification of ‘capital’ and

‘surplus,’ in light of the growing environmental liabilities.”272 But the Court in

270
Id. ¶¶ 132, 138–41, 144–47, 153–54, 156, 160–62, 164–71, 174–78, 180, 187–91, 201–04.
271
See id. ¶¶ 126, 141.
272
Pls.’ Answering Br. at 44.

58
Klang held that this sort of “facts and figures balancing of assets and liabilities” is

not required in a surplus determination. 273

The Plaintiffs cite two cases in support of their argument that the Board was

“duty bound” to second guess the GAAP-based legal and environmental reserves

provided by the Company’s management in calculating surplus. I find neither

cogent. In Smith v. Van Gorkom, the board of directors approved a company sale at

a “hastily call[ed] . . . meeting without prior notice of its subject matter,” “without

any prior consideration of the issue or necessity therefor,” during which the directors

“had before [them] nothing more than [a conflicted executive’s] statement of his

understanding of the substance of an agreement which he admittedly had never read,

nor which any member of the Board had ever seen.”274 And in Cornell v. Seddinger,

a Pennsylvania case from 1912, the directors relied on a “method of accounting [that]

was entirely wrong,” and the “minutes show[ed] that . . . there was a shortage of

working capital, and the directors were considering the necessity of borrowing

money, both upon notes and by mortgaging the real estate.”275 In contrast, as

discussed above, the Board here received regular updates on the environmental

litigation and the Company’s legal and environmental reserves, which were

273
Klang, 702 A.2d at 155.
274
488 A.2d 858, 874–75 (Del. 1985), overruled on other grounds Gantler v. Stephens, 965 A.2d
695 (Del. 2009).
275
85 A. 446, 448 (1912).

59
calculated in accordance with “generally accepted accounting principles,” including

during the meetings at which the dividends and stock repurchases were approved.

In sum, the Complaint establishes that the Director Defendants are “fully

protected” by Section 172 because they relied “in good faith upon the records of the

[Company] and upon” the Company’s officers and financial advisors.276 For this

reason, and because, as discussed above, the Complaint does not plead a “willful or

negligent” violation of Sections 160, 170, 173, the Director Defendants do not face

a substantial likelihood of liability with respect to Counts I and II.

B. Demand Is Not Excused as to the Plaintiffs’ Breach of Fiduciary Duty
Claim (Count III)

In the alternative, the Complaint brings a claim for breach of fiduciary duty in

connection with the stock repurchases and dividend payments. Specifically, the

Complaint alleges that, “even if Chemours did not lack sufficient ‘capital,’ ‘surplus,’

and/or ‘net profits’ at the time of each of the stock repurchases and the dividends,”

the Director Defendants breached their fiduciary duties by authorizing the capital

returns “when they knew that the Company faced a serious risk of insolvency.” 277

The Company’s certificate of incorporation exculpates members of the Board

for breaches of fiduciary duty except bad faith.278 Accordingly, to prevail on their

276
See 8 Del. C. § 172.
277
Compl. ¶ 30. See also id. ¶¶ 273–76.
278
Friedlander Decl., Ex. 2 § 7.01.

60
breach of fiduciary duty claim, the Plaintiffs must allege particularized facts

establishing that the Director Defendants face a substantial likelihood of liability for

bad faith in connection with the stock repurchases and dividends.

To state a bad faith claim, the Plaintiffs must allege particularized facts that

the Director Defendants “demonstrate[d] a conscious disregard for [their] duties” by

approving the stock repurchases and dividend payments.279 The Plaintiffs do not

attempt to meet this standard, and instead contend only that the Board’s “monitoring

of the Company’s environmental liability exposure” and “reliance on advisors” was

not “reasonable.”280 But reasonableness is not the standard for bad faith.281

Moreover, as discussed above, the Complaint does not plead with particularity that

the Company was ever insolvent. 282 Accordingly, the Director Defendants do not

face a substantial likelihood of liability, and demand is not excused, with respect to

Count III.

279
In re Alloy, Inc., 2011 WL 4863716, at *7 (Del. Ch. Oct. 13, 2011).
280
Pls.’ Answering Br. at 53.
281
In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 125 (Del. Ch. 2009) (“[W]hen a
plaintiff seeks to show that demand is excused because directors face a substantial likelihood of
liability where ‘directors are exculpated from liability except for claims based on ‘fraudulent,’
‘illegal’ or ‘bad faith’ conduct, a plaintiff must also plead particularized facts that demonstrate that
the directors acted with scienter, i.e., that they had ‘actual or constructive knowledge’ that their
conduct was legally improper.’”) (quoting Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)).
282
See supra § III.A.2.

61
 C. Demand Is Not Excused as to the Plaintiffs’ Claims Against the Officer
Defendants (Counts IV–VII)

Finally, demand is not excused with respect to Counts IV–VII, which are

brought only against the Officer Defendants. Counts VI–V seek to hold the Officer

Defendants liable for their stock sales made while allegedly aware that Chemours

was insolvent.283 Counts VI–VII seek to hold the Officer Defendants liable, in the

alternative, for allegedly failing to “share . . . information with the Board” regarding

the “size, scope, and scale of Chemours’s inherited liabilities.” 284 The Plaintiffs’

only articulated basis for demand futility for these claims is that “a majority of the

demand Board faces a substantial likelihood of liability.”285

As the Plaintiffs concede, Counts IV–VII are brought against only one

member of the demand Board, Defendant Vergnano.286 The Plaintiffs contend,

however, that “this Court . . . has excused pre-suit demand for claims even when

such claims were not brought against a majority of the corporation’s current

directors.”287 In particular, the Plaintiffs argue that “‘where a member of the demand

board’s interest extends beyond derivative claims asserted against him to claims

283
Compl. ¶¶ 277–86.
284
Id. ¶¶ 287–300.
285
Id. ¶ 260–62.
286
See Pls.’ Answering Br. at 53.
287
See Pls.’ Answering Br. at 54 (citing Hughes v. Xiaoming Hu, 2020 WL 1987029, at *17–18
(Del. Ch. Apr. 27, 2020); Teamsters Loc. 443 Health Servs. & Ins. Plan v. Chou, 2020 WL
5028065, at *26 (Del. Ch. Aug. 24, 2020); In re CBS Corp. S’holder Class Action & Derivative
Litig., 2021 WL 268779, at *47 (Del. Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021)).

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asserted against his co-defendants, he is deemed unfit to consider a demand to pursue

those claims as well.’” 288 Therefore, the Plaintiffs contend that because a majority

of the demand Board faces a substantial likelihood of liability as to Counts I–III,

demand is excused as to Counts IV–VII, which purportedly “implicate the same set

of facts” as Counts I–III. 289

The problem with this argument, of course, is that I have held above that the

Director Defendants do not face a substantial likelihood of liability with respect to

Counts I–III.290 Therefore, even to the extent that Counts VI–VII implicate the same

set of facts as Counts I–III, they do not pose a substantial likelihood of liability to

the demand Board, which accordingly, could deploy its business judgment to

evaluate a demand. Demand is not excused.

IV. CONCLUSION

For the foregoing reasons the Motion to Dismiss is GRANTED in its entirety.

The parties should confer and submit a form of order consistent with this opinion.

288
See Pls.’ Answering Br. at 54 (quoting CBS, 2021 WL 268779, at *47).
289
See id. at 54–55.
290
See supra §§ III.A–B.

63