The New York State Teachers’ Retirement System and others (Teachers) will be able to continue pursuing claims that Chemours kept investors in the dark about the billions in potential environmental liabilities.  On February 24th, a federal judge in Delaware ruled that Teachers’ claims of securities fraud plead sufficient facts to survive Chemours’ motion to dismiss.  Specifically, plaintiffs allege that Chemours financial statements “dramatically mischaracterized Chemours’ true financial condition and vastly understated Chemours’ liabilities from decades of environmental pollution.”

The court found that starting in February 2017, Chemours disclosed that “higher clean-up costs that might result ‘under adverse changes in circumstances, although deemed remote.’ … once Chemours chose to make that disclosure-even if not required by [Generally Accepted Accounting Practices] GAAP or otherwise-it had to speak truthfully … [and that] a reasonable investor could have plausibly inferred from the language Defendants used to ‘provide’ in the challenged SEC reports Chemours’ ‘higher clean-up costs’ that Chemours was disclosing its maximum potential remediation liabilities.”  The court explained that “the question then is whether Plaintiff has alleged in the Complaint facts sufficient to plausibly imply that Defendants did not in fact believe that Chemours’ s environmental remediation liabilities were capped at the sums disclosed in the SEC reports.”

Teachers drew on two sources to supports their claim that Chemours did not in fact believe that its environmental remediation liabilities were capped at the sums disclosed in the SEC reports.  First, Teachers argued that Chemours “specifically itemized” $2.5 billion of inherited liabilities as of the time it was spun-off from DuPont, in a complaint against DuPont in a 2019 Delaware Chancery Court Complaint – in that unrelated case, Chemours asserted that “DuPont violated New Jersey law by spinning off Chemours on the basis of underestimated environmental liabilities without providing the State with the ‘financial assurance necessary to ensure’ that the necessary clean-up can be done.”  Second, Teachers asserted that a 2018 internal evaluation of total environmental remediation costs company-wide identified costs of more than $2 billion.  The court held that Chemours’s allegations in the Chancery Court Complaint do not plausibly imply that the company made false representations about its maximum potential environmental remediation liabilities in the challenged SEC reports.  However, it also found that “a rational juror could plausibly infer from the [internal evaluation] that … Defendants believed that Chemours’ s environmental remediation liabilities were approximately two billion dollars,” a significantly greater amount than Chemours had said its liabilities were; that is, that Chemours had made false statements about liability.

Chemours argued that “even if Plaintiff had identified any error in Chemours’ environmental liability disclosures, they would nevertheless be inactionable because they were accurate statements of opinion.” However, the court held that “statements of opinion … are ‘actionable under the securities laws if they are not honestly believed and lack a reasonable basis.’”  In addition, the court explained that Teachers’ allegations plausibly implied that Chemours did not consider the maximum remediation liability disclosures accurate, and therefore, those disclosures could be actionable opinions.

The court also held the Teachers had adequately pleaded its claims against Chemours’ President and CEO and the company’s Senior Vice President and COO (previously its CFO) for the two to continue as defendants in the case.