## Facts

- Chemours, formed from a 2015 DuPont spin-off, assumed significant and uncertain environmental liabilities tied to legacy chemical manufacturing and related litigation.
- From 2015 to 2020, Chemours’ board authorized multiple stock repurchases and quarterly dividend payments.
- The board determined Chemours had sufficient “surplus” to fund these distributions, relying on GAAP-based reserves for contingent environmental liabilities and related financial inputs.
- Stockholders filed a consolidated derivative action against directors and certain officers, alleging the GAAP reserves materially understated the company’s “true” environmental liabilities.
- Plaintiffs claimed the repurchases and dividends therefore exceeded surplus and violated DGCL §§ 160 (stock repurchases) and 173 (dividends), triggering director liability under DGCL § 174.
- Plaintiffs made no pre-suit demand on the board, asserting demand futility because a majority of directors allegedly faced a substantial likelihood of liability under § 174.
- Defendants moved to dismiss under Court of Chancery Rule 23.1 for failure to plead demand futility.

## Issues

1. Whether the complaint pleaded particularized facts showing that a majority of the board faced a substantial likelihood of liability under DGCL § 174 for alleged violations of DGCL §§ 160 and 173, excusing demand under Rule 23.1.
2. Whether allegations that GAAP-based reserves understated contingent environmental liabilities sufficiently showed the board’s surplus determination was so defective as to fall outside statutory protection for good-faith reliance under DGCL § 172.

## Decision

- The court granted the motion to dismiss under Rule 23.1.
- Plaintiffs failed to plead demand futility because they did not allege particularized facts showing a majority of directors faced a substantial likelihood of § 174 liability.
- The court held plaintiffs did not adequately plead that the board’s GAAP-based surplus determination violated §§ 160 or 173, or that the calculation was so erroneous as to suggest actual or constructive fraud.
- Because demand was not excused, the derivative complaint was dismissed.

## Legal Principles

- Under the demand-futility framework, demand is excused only if particularized allegations show at least half of the directors received a material personal benefit, face a substantial likelihood of liability, or lack independence from someone who does.
- DGCL §§ 160 and 173 prohibit stock repurchases and dividends that impair capital by exceeding available surplus; DGCL § 174 provides for director liability for willful or negligent violations occurring under their administration.
- DGCL § 172 “fully” protects directors, including against § 174 liability, when they rely in good faith on corporate records and on information, opinions, reports, or statements presented by officers, employees, or experts.
- A board’s surplus determination is entitled to deference if made in good faith using acceptable data and valuation methods reasonably believed to reflect present values; liability risk increases only if the calculation is so far off the mark as to constitute actual or constructive fraud.
- Use of GAAP-based accounting for contingent liabilities, without particularized allegations of bad faith or knowingly unreliable inputs, does not by itself support an inference of an unlawful distribution or a substantial likelihood of § 174 liability.

## Conclusion

The Court of Chancery dismissed the derivative action for failure to plead demand futility, holding that good-faith reliance on GAAP-based reserves and other customary financial information supported deference to the board’s surplus determinations and did not create a substantial likelihood of director liability under DGCL § 174.


In re Chemours Co. Derivative Litig., 2021 WL 5050285 (Del. Ch. Nov. 1, 2021)