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North Carolina Supreme Court Rules That State Can Bring Companies Into State Court For Liabilities Related To Past Pfas Production In Exception To General Rule

In State ex rel. Stein v. E. I. du Pont de Nemours & Co., the North Carolina Supreme Court considered whether two companies spun off from E.I. DuPont de Nemours and Company (“DuPont”) could avoid personal jurisdiction in cases regarding claims involving the release of PFAS by asserting that those companies had never done business in North Carolina. 2022 WL 16703256, *1 (Nov. 4, 2022).

DuPont manufactured PFAS for decades at its plant in Fayetteville, North Carolina. This included manufacturing PFOA for a time in the 2000s, after its suppliers of the chemical had stopped production. In doing so, DuPont allegedly released PFAS, including PFOA, into the surrounding environment. ¶ 5.

Confronted with mounting lawsuits regarding these chemicals, DuPont underwent a dramatic restructuring, which the State asserted was an attempt to limit its liability related to cases involving PFAS. ¶ 6. Notably, The Chemours Company (“Chemours”) was to receive parts of DuPont that contained all of the liability for those chemical products. ¶ 7. The State argued that the company was purposefully undercapitalized, and that this was an attempt by DuPont to avoid responsibility to preserve its assets. Id.

According to the State, DuPont then restructured further, forming a holding company with Dow Chemical Company, and then creating and separating from DuPont de Nemours, Inc. (“New DuPont”), and Corteva, Inc. (“Corteva”). ¶ 8-10. New DuPont and Corteva took much of DuPont’s assets with them. ¶ 9-10.

When North Carolina sued DuPont, Corteva, New DuPont, and Chemours, Corteva and New DuPont moved to dismiss. ¶ 11. The companies claimed to be Delaware holding companies that had never done business in North Carolina, and so were not subject to personal jurisdiction. Id.

The North Carolina Supreme Court disagreed. ¶ 12. The general rule is that when company purchases all the assets of another, the liabilities of the company from whom the assets are purchased do not follow. However, the Court noted four exceptions. Id. One of those exceptions is where the transaction in which the assets were sold was intended to defraud the first company’s creditors. ¶ 13.

The Parties brought two questions before the Court: (1) whether due process allows the imputation of a predecessor’s conduct and liabilities to obtain personal jurisdiction over an out-of-state successor, and (2) whether the actions of DuPont and the other companies would allow the Court to exercise jurisdiction based on the United States Supreme Court case Calder v. Jones. 465 U.S. 783 (1984). ¶ 14. The Court held that “due process permits courts to exercise successor jurisdiction whenever (1) the predecessor is subject to personal jurisdiction in a particular forum; and (2) that forum’s law permits courts to impute the liabilities of the predecessor to its successors.” ¶ 21.

The second issue, that of imputing “the liabilities of the predecessor to its successor,” the Court found in the exception related to the defrauding of creditors set out in Budd Tire Corp. v. Pierce Tire Co. ¶ 22; 90 N.C. App. 684, 687 (1988). The Court reasoned that when a company accepts large categories of assets and liabilities from another, like what occurred among these companies, it is likely aware of the previous company’s potential liabilities and the places in which they may come into play. ¶ 23.

New DuPont and Corteva’s argued that past cases in which liability was transferred from the predecessor to the successor all involved mergers. ¶ 25. In this case, the companies argued merger was not the means by which the new companies came into the assets of the old company, and so it would not be appropriate to attribute liability to them as if they are still the same entity. Id.

The Court disagreed, denying that mergers were the only circumstances under which liability would flow in this way. ¶ 26. The Business Court from which the case was appealed found that the language of the Separation Agreement by which New DuPont and Corteva split from DuPont explicitly transfers liability from DuPont to New DuPont and Corteva related to PFAS. ¶ 29. Because of this explicit transfer of liabilities, and a thorough showing of evidence by the State that DuPont and the offshoot companies were attempting to avoid these liabilities, the Supreme Court held that the Budd Tire exception applied, and that jurisdiction over New DuPont and Corteva was appropriate in North Carolina. ¶ 29-34.

The Court held that it need not visit the State’s argument that Calder would provide personal jurisdiction because it was found in the first issue. This decision potentially opens New DuPont and Corteva to millions of dollars in damages related to the production of PFAS.