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US DuPont Teflon Case Resembles Tronox

Posted on July 28th, 2016 by in Chemical R&D

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The Dow-DuPont merger won shareholder approval this week, but is danger looming on the horizon for the fate of the super-merger?  Chemours, the 2014 DuPont spin-off, faces significant personal-injury litigation over the use of PFOA as a feedstock in the creation of Teflon.  Since this feedstock was phased out around the time of the spin-off, Chemours stresses that DuPont is directly responsible for any damages.  The sum-total of these damages could put significant burden on the future of Dow-DuPont, and the three future spin-off companies.


By Al Greenwood, ICIS

The recent $5.6m verdict against DuPont in a Teflon lawsuit is one more example of the many similarities between its spin-off of Chemours and Kerr-McGee’s spin-off of Tronox.

To recall: Kerr-McGee, an energy producer, spun off titanium dioxide producer Tronox in 2006. Shortly thereafter, Kerr-McGee was acquired by Anadarko for $18bn.

Tronox then filed for bankruptcy protection in 2009. It sued Kerr-McGee, accusing its former parent of burdening it with decades’ worth of environmental liabilities, much of which had nothing to do with Tronox’s main product, titanium dioxide (TiO2).

The US government intervened and won a $14bn judgment in 2014. This was lowered to $5.15bn under a settlement agreement.

Like Tronox, Chemours is a spin-off, it has inherited legacy liabilities, it is in the midst of litigation, and its former parent, DuPont, is considering a merger with Dow Chemical.

The question for Dow and DuPont shareholders is whether Chemours’ liabilities could come back and bite the parent company.

This is not the first time that similarities were brought up between Chemours and Tronox.

Citron Research also mentioned Tronox in a highly critical report it issued earlier this year, one that Chemours aggressively refuted.

For all of their similarities, however, Chemours and Tronox still have significant differences.

The merger between Dow and DuPont is still pending. Chemours has not filed for bankruptcy protection and it shows no signs of doing so.

Unlike Tronox, Chemours was a much more diverse company from the time it was spun off.

In 2015, titanium dioxide made up 42% of Chemours sales. Fluoroproducts – which includes Teflon – made up 39%. The rest of Chemours’ 2015 sales came from its chemical solutions segment, which includes cyanides, sulphur products and chemicals used to make water-treatment products and cleaners.

Other differences lay among the details of the companies’ lawsuits.

Many of Tronox’s were connected to cleaning up Kerr-McGee’s legacy businesses. These businesses treated wood products, made rocket fuel, refined and sold petroleum products and processed nuclear materials – all activities unrelated to making TiO2.

For Chemours, the lawsuits that are receiving so much attention are personal-injury claims connected to the feedstocks used to make Teflon, a fluoropolymer produced by the company. The feedstocks, perfluorooctanoic acid (PFOA or C8) and its ammonium salt, were used to make Teflon up until the fourth quarter of 2014.

About 3,500 people have since filed personal-injury claims, alleging that they have developed health problems as a result of their exposure to PFOA.

According to Chemours, only 7% of the cases – or 245 – allege that exposure to PFOA caused cancer. The majority of the complaints involve high cholesterol or thyroid disease.

If any of the plaintiffs prevail, it is unclear which company will be responsible for the damages.

The lawsuits name DuPont and not Chemours. However, Chemours said that as part of its spinoff from DuPont, it had agreed to indemnify – or reimburse – DuPont for some of the company’s damages resulting from the lawsuits.

Recent statements from Chemours have further obscured which company would ultimately be responsible.

In these statements, Chemours stressed that DuPont is directly liable for any judgment. “In the event DuPont claims that it is entitled to indemnification from Chemours as to some or all of the judgment, Chemours retains its defenses to such claims,” it said.

Among the claims, juries have reached a verdict in two of them. DuPont has appealed against one and plans to appeal against the second.

The first, Bartlett versus DuPont, resulted in a $1.6m verdict against the company, Chemours said in its annual report. The Bartlett case did not involve punitive damage.

The second, Freeman versus DuPont, resulted in a $5.6m judgment, including $500,000 in punitive damages.

Three other cases (Dowdy, Baker and Wolf) had been settled for amounts well below those it would have been paid to prepare for the trials, Chemours said.

The PFOA litigation is not the only legacy liability of Chemours. Others include cleaning up polluted sites covered under the US Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The CERCLA sites are also known as Superfund sites.

At least one of the sites, Pompton Lakes in New Jersey, has little apparent relationship with the chemicals that Chemours makes now. DuPont made explosives at the site from 1902-1994.

At the end of 2015, Chemours had accrued $87m for Pompton Lakes, it said. Clean-up costs could reach up to $119m.

Based on Chemours’ annual report, it is unclear if the other sites are related to the company’s current products. It is not even clear how many sites Chemours could be liable for.

Through DuPont, Chemours has been notified that it could be liable for about 174 sites in the US. Of those, Chemours said 22 should be struck out.

Of the remainder, Chemours said 66 have been resolved and 53 are in the process of being cleaned up. For all of the sites, Chemours has set aside $290m, it said. However, Chemours warned that it could pay another $611m on top of the amount it has set aside.

Other liabilities include 2,212 pending asbestos lawsuits filed against DuPont, Chemours said. At the end of 2015, Chemours had an accrual of $42m to address these claims. Chemours doubts that losses from these claims could exceed that amount.

DuPont also assigned its benzene docket to Chemours, the company said. These are 29 cases filed by contractors and former employees who alleged that they became sick from their exposure to benzene, mostly from the 1960s to the 1980s.

One case filed in Texas state court, Hood versus DuPont, led to a $6.9m award in compensatory damages and $1.5m in punitive damages. Chemours is appealing the case through DuPont.

For all of the lawsuits, many of them have not gone to trial, so the size of any possible judgments is unknown. Moreover, these judgments could be appealed. Final resolution could take years.

Clean-up costs for the environmental liabilities are also hard to estimate, since they vary from site to site, Chemours said. Other companies could have also operated in the sites, so they could pay for part of the clean-up costs.

However, Chemours’ latest statement about the PFOA litigation hinted that DuPont could be on the hook for some of the damages in the PFOA litigation.

Who’s ultimately liable could be up to the courts. That’s what happened to Tronox and Anadarko.


To find out how to read more news and analysis stories from ICIS, go to www.icis.com/about/news/


 

All opinions shared in this post are the author’s own.

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