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DUPONT’S PLANNED SPINOFF COMPANY, SLATED TO ACCEPT COMPANY’S ENVIRONMENTAL LIABILITIES, DRAWS CONCERN

DuPont Co., one of the nation’s largest chemical manufacturers, is proceeding with its plan to spin off several of its businesses into a new company called The Chemours Co.  In what might ordinarily be considered a business page story, environmentalists and New Jersey residents have reacted with concern over DuPont’s proposal, which would include a spin-off of the company’s environmental liabilities into the new, smaller entity.  Some believe that the move could be part of a strategy by DuPont to decrease exposure to hefty claims for environmental cleanups at about 190 contaminated sites in New Jersey and elsewhere. About one-fifth of DuPont’s contractual obligations involve environmental remediation of some kind.  Officials from the Environmental Protection Agency (EPA) and New Jersey Department of Environmental Protection (DEP) agree that some companies have historically taken similar steps as a way of limiting exposure to potential environmental contamination claims. 

One place where DuPont’s spin off has drawn strong reaction is in Pompton Lakes, in Passaic County, New Jersey, where DuPont currently faces exposure to about $87 million in expected cleanup costs for PCE, TCE, and mercury contamination to Pompton Lake and area groundwater.  Residents now worry that Chemours could become unable to pay for the required cleanup.

Efforts by large entities to evade environmental cleanup responsibility through similar means have had mixed success.  In 2013, a Federal Bankruptcy Court in New York addressed an attempt by Kerr-McGee to spin-off its chemical business, along with billions of dollars in potential environmental liabilities, from a profitable entity in the energy business.  The Court eventually disallowed the spin-off as a “fraudulent conveyance,” finding that rather than intending the creation of two separate, profitable companies, the transactions were designed to clear the profitable entity of environmental liability.

Outside the bankruptcy context, State and Federal Courts often face the question of whether a limited liability entity that owns contaminated property is a legitimate profit-making business, or rather a liability shield for another entity.  Courts have inquired into a variety of factors including: whether the subsidiary is adequately capitalized and solvent, whether it observes corporate formalities (i.e., holding board meetings and maintaining corporate records), and whether there is evidence that the parent siphons funds from the subsidiary.

The Toxic Injury Lawyers at Lieberman & Blecher, P.C. regularly assist clients with concerns regarding the management of environmental cleanups, cost recovery, and environmental insurance.  We closely follow all related developments in State and Federal law.

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