The Chemours Company v. DowDupont Inc. ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
THE CHEMOURS COMPANY, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0351-SG
)
DOWDUPONT INC., CORTEVA, INC., )
AND E.I. DU PONT DE NEMOURS )
AND COMPANY, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: December 18, 2019
Date Decided: March 30, 2020
Joel Friedlander, Jeffrey Gorris, Christopher Foulds, and Christopher P. Quinn, of
FRIEDLANDER & GORRIS P.A., Wilmington, Delaware; OF COUNSEL: William
Savitt, of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York,
Attorneys for Plaintiff The Chemours Company.
Robert S. Saunders, Jennifer C. Voss, Arthur R. Bookout, and Jessica R. Kunz, of
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware,
Attorneys for Defendants DowDuPont Inc., Corteva, Inc., and E.I. du Pont de
Nemours and Company.
GLASSCOCK, Vice Chancellor
Shortly after the American Revolution, in 1802, what would become E. I. du
Pont de Nemours and Company (“DuPont”) began construction of its powder mills
on the falls of the Brandywine Creek.1 The enterprise took advantage of the happy
fact that the potential power of the Brandywine was available just a few city blocks
from a deep-water port, in Wilmington. DuPont grew to be a chemical giant. To
point out that DuPont and the family that founded it dominated Delaware’s
economic, civic, and cultural life for most of the State’s existence is to state a truism.
If an example were needed at this time of the inherent frailty and impermanence of
the works of man,2 then one could look to the serial reorganizations that DuPont
found necessary over the past few years. The origins of this litigation are found in
one such, the spin-off from DuPont of its Performance Chemicals unit (the “Spin-
Off”) as The Chemours Company (“Chemours”).
Chemours was created as a wholy-owned subsidiary of DuPont in 2015, then
spun off as an independent entity shortly thereafter. The terms of the Spin-Off were
provided by contract, notably a separation agreement (the “Separation Agreement”).
Among the assets and liabilities assigned to Chemours in the Separation Agreement
were certain historical environmental liabilities, including a duty to indemnify
DuPont for any damage it may incur relating to those liabilities. In this Action,
1
DuPont de Nemours, Inc., Our History, https://www.dupont.com/about/our-history.html.
2
As I write, Delaware’s courthouses are closed to the public due to the COVID-19 virus.
1
Chemours alleges that DuPont vastly and wrongfully underestimated the size of
these historic environmental liabilities, and seeks to limit its indemnification
obligations to, at most, the amount that it purports DuPont certified as Chemours’
maximum pecuniary exposure at the time of the Spin-Off.
This Memorandum Opinion resolves the Defendants’ Motion to Dismiss for
lack of subject matter jurisdiction. DuPont points to a broad provision in the
Separation Agreement referring all disputes arising from the agreement to binding
arbitration. The Separation Agreement provides explicitly that arbitrability is a
question for the arbitrator. Thus, per DuPont, I am without jurisdiction to hear the
matter.
Chemours, for its part, maintains that it did not consent to any terms of the
Separation Agreement, and thus the arbitration provisions are unenforcable,
contractually; alternatively, it argues that the arbitrability provisions are
unconscionable, and thus void. The matter was ably briefed and passionately
argued, with each side maintaining strenuously that public policy requires that the
matter be decided in its favor. Nonetheless, my decision does not rest on those policy
grounds; I find the issues are governed by rather straightforward application of
settled law. I find the language of the Separation Agreement referring arbitrability
to the arbitrator controlling here. Accordingly, I have no jurisdiction to entertain
2
this matter, and the Defendants’ Motion to Dismiss must be granted. My reasoning
is below.
I. BACKGROUND3
A. The Parties and Relevant Non-parties
Plaintiff Chemours is a Delaware corporation headquartered in Delaware.4
Chemours is a manufacturer of performance chemicals with customers in more than
120 countries and nearly 7,000 employees worldwide.5 Pursuant to the Spin-Off,
Chemours was separated from DuPont’s ownership in a transaction whereby
Chemours stock was distributed to DuPont stockholders.6 Since the Spin-Off
Chemours has been an independent, publicly traded company.7
Defendant DuPont is a Delaware corporation headquartered in Delaware.8
DuPont merged with The Dow Chemical Company (“Dow”) in 2017.9 Before its
merger with Dow, DuPont was a publicly traded company that operated businesses
including agriculture, electronics and communications, industrial biosciences,
3
The facts, except where otherwise noted, are drawn from the well-pled allegations of The
Chemours Company’s Verified First Amended Complaint, Docket Item (“D.I.”) 33 (the “First
Amended Complaint” or “First Am. Compl.”) and exhibits or documents incorporated by reference
therein, which are presumed true for purposes of evaluating the Defendants’ Motion to Dismiss.
4
First Am. Compl., ¶ 11.
5
Id.
6
Id.
7
Id.
8
Id. ¶ 12.
9
Id.
3
nutrition and health, performance materials, and protection solutions segments.10
DuPont is now a wholly-owned subsidiary of Defendant Corteva, Inc. (“Corteva”).11
Defendant DuPont de Nemours, Inc. (“DuPont de Nemours”) is a Delaware
corporation headquartered in Delaware.12 DuPont de Nemours was formerly known
as DowDuPont Inc. (“DowDuPont”), and was formed following DuPont’s merger
with Dow.13 Following a series of reorganization transactions in 2019, DuPont de
Nemours became an independent company and retained DowDuPont’s specialty
products business along with the balance of the financial assets and liabilities of
historical DuPont not assumed by Corteva.14
Defendant Corteva is a Delaware corporation headquartered in Delaware.15
Pursuant to the reorganization of DowDuPont, DowDuPont distributed all issued
and outstanding shares of Corteva common stock to DowDuPont’s stockholders by
a pro rata dividend.16 Corteva thereafter became an independent company.17
Corteva contains DowDuPont’s agricultural and nutritional businesses, along with
10
Id.
11
Id.
12
Id. ¶ 13. Somewhat confusingly, DuPont de Nemours refers to itself currently as “DuPont”—
however, the DuPont that is the focus of this Memorandum Opinion is the separate predecessor
entitiy E. I. du Pont de Nemours and Company, which also referred to itself as DuPont.
13
Id. DowDuPont is the entity name indicated in the case caption.
14
Id. ¶¶ 13, 72.
15
Id. ¶ 14.
16
Id.
17
Id. ¶ 72.
4
all of the outstanding common stock of the historical entity DuPont exclusive of its
subsidiaries.18
Non-party Dow Inc. was the third independent entity (along with DuPont de
Nemours and Corteva) resulting from the reorganization of DowDuPont.19 Dow Inc.
contains DowDuPont’s materials sciences businesses, along with all financial assets
and liabilities of historical Dow not related to its agriculture, specialty products, or
materials sciences businesses.20
B. Events Leading Up to the Spin-Off
In 2013, DuPont’s management began consideration of restructuring
transactions in an initiative entitled “Project Beta.”21 Project Beta focused on
DuPont’s Performance Chemicals unit, which historically manufactured and sold a
variety of industrial and specialty chemicals.22 The manufacturing processes of
these businesses created chemical byproducts and consequently the unit had given
rise to many of DuPont’s environmental liabilities.23 Project Beta ultimately became
the Spin-Off (of Chemours), which was announced in October of 2013.24 Chemours
18
Id.
19
Id.
20
Id.
21
Id. ¶ 15.
22
Id. ¶ 16. These chemicals included “titanium dioxide and a range of fluorochemicals and
fluoroproducts used as and in refrigerants, lubricants, propellants, solvents, fire extinguishants and
electronic gases.” Id.
23
Id. This included remediation of prior emissions and substantial investment in pollution
abatement technology. Id.
24
Id. ¶¶ 17, 27.
5
was incorporated in April 2015 in preparation for the Spin-Off (which was
effectuated on July 1, 2015), but even prior to Chemours’ incorporation DuPont
designated Chemours’ prospective management team.25 Post-incorporation and pre-
Spin-Off, Chemours was a wholly-owned subsidiary of DuPont.26
The First Amended Complaint alleges that in structuring the Spin-Off, DuPont
“made no effort to install procedural protections for Chemours or otherwise replicate
an arm’s-length bargain.”27 The First Amended Complaint details other alleged
procedural defects regarding the Spin-Off transaction:
• Chemours was not permitted to retain independent counsel and
DuPont’s counsel, Skadden, Arps, Slate, Meagher & Flom LLP
(“Skadden”) “unilaterally prepared all of the documents underlying
and effectuating the [Spin-Off]”28
• DuPont did not permit Chemours’ prospective management team to
review drafts of the Separation Agreement until approximately fourteen
months after the transaction was announced29
• When DuPont eventually sent Chemours’ general counsel designate a
draft of the Separation Agreement, Skadden informed him that, among
other things, that Skadden would not provide Chemours legal advice
and that Chemours “[would] not be relying on Skadden to advocate for
it or to protect its interests” in connection with the Spin-Off30
25
Id. ¶ 27.
26
Id.
27
Id. ¶ 25.
28
Id. ¶ 26
29
Id. ¶ 27.
30
Id. ¶ 28.
6
• The draft of Separation Agreement sent to Chemours’ general counsel-
designate did not include schedules listing the assets and liabilities to
be allocated to Chemours31
The First Amended Complaint alleges that DuPont repeatedly refused to provide
Chemours’ prospective management team with drafts of liability schedules which
left them “unable to evaluate central economic terms” of the proposed Spin-Off.32
DuPont made clear that Chemours’ prospective management “had no reason or right
to assess the economic terms” of the Spin-Off and that any discussions between
Chemours’ representatives and DuPont were not “negotiations” but, rather,
“calibration sessions.”33
In order for the Spin-Off to be consistent with Delaware law, Chemours had
to emerge from the Spin-Off “solvent and viable.”34 In the course of structuring the
Spin-Off, and ostensibly to fulfil such requirements, DuPont engaged Houlihan
Lokey to prepare a financial analysis and opinion concluding that Chemours would
be solvent as of the Spin-Off date.35 To value Chemours’ liabilities for this analysis,
Houlihan Lokey relied on a “High End (Maximum) Realistic Exposure”—supplied
and certified by DuPont—for 87 separate categories of transferred liabilities.36
These liabilities included, among others, environmental contingent remediation
31
Id. ¶ 29.
32
Id.
33
Id. ¶ 30 (internal quotation marks omitted).
34
Id. ¶¶ 47–48.
35
Id. ¶ 49.
36
Id. ¶¶ 50, 52.
7
liabilities and multiple categories of environmental-related litigation.37 DuPont
certified both the “accuracy of the maximum liability numbers” and that they
“represent[ed] DuPont’s ‘best judgment’ of the ‘maximum realistic exposure range
for each such contingent liability.’”38 Houlihan Lokey ultimately determined “that
it was appropriate, desirable, and in the best interests of DuPont and its stockholders
to conduct the [Spin-Off], including the assignment of liabilities to Chemours.”39
The Spin-Off was ultimately effectuated through a series of agreements and
transactions. On May 15, 2015, Chemours (at this point a wholly-owned subsidiary
of DuPont) assumed $4 billion in debt and used the proceeds of this debt to authorize
a $3.91 billion dividend to DuPont.40 The Chemours board that authorized the
dividend consisted of three DuPont employees who were not expected to join
Chemours post-Spin-Off.41 This same Chemours board held a meeting on June 9,
2015 where they “took notice” that DuPont’s board had determined the Spin-Off and
the Separation Agreement were in DuPont’s best interests, and approved resolutions
approving the Spin-Off and the Separation Agreement on Chemours’ behalf.42
Immediately after approving the Spin-Off and Separation Agreement as members of
37
Id. ¶¶ 57–58.
38
Id. ¶ 55.
39
Id. ¶ 70 (internal quotation marks and alterations omitted).
40
Id. ¶ 35.
41
Id. These individuals were Nigel Pond (DuPont’s M&A Counsel), Michael Heffernan
(DuPont’s Treasury Manager), and Steven Zelac (DuPont’s M&A Manager). Id.
42
Id. DuPont’s board had authorized the Spin-Off on June 5, 2015. Id. ¶ 70.
8
Chemours’ board, the three DuPont employees resigned from Chemours’ board.43
One of these individuals, Nigel Pond, was later designated as a Vice President of
Chemours, and on June 26, 2015, Mr. Pond executed the Separation Agreement on
Chemours’ behalf.44 The Spin-Off was finalized by a stock distribution of Chemours
shares to DuPont stockholders on July 1, 2015.45
C. Environmental Damage and Liabilities; Indemnification for
Environmental Liabilites
This litigation primarily concerns a challenge by Chemours of the assignment
of certain environmental liabilities to Chemours in the Separation Agreement.
Chemours takes issue with the scope of the liabilities assigned to it and what it views
as its limited recourse in challenging such assignments.
1. Environmental Liabilities Assigned to Chemours
The First Amended Complaint details a number of environmental liabilities
assigned to Chemours in the Separation Agreement. For instance, Chemours was
assigned liability for an Ohio multi-district litigation in which 3,500 plaintiffs were
seeking damages for cancer and other diseases allegedly caused by exposure to
PFOA, a compound used by DuPont historically to manufacture fluoropolymers and
fluoroelastomers.46 This liability had a DuPont-certified “High End (Maximum)
43
Id. ¶ 35.
44
Id.
45
Id. ¶ 11.
46
Id. ¶ 82.
9
Realistic Exposure” of $128 million, including defense costs.47 Chemours and
DuPont later agreed to a term sheet which provided that DuPont would settle the
litigation for $670.7 million.48 In connection with the PFOA settlement, Chemours
and DuPont amended certain provisions of the Separation Agreement regarding
Chemours indemnification obligations to DuPont specific to PFOA liability.49
The Separation Agreement also assigned liabilities to Chemours in connection
with DuPont’s Fayetteville Works operation in North Carolina.50 Fayetteville Works
discharged perfluoroalkyl and polyfluoroalkyl substances (“PFAS”) into the Cape
Fear River—which is a source of drinking water for thousands of people—for at
least thirty years.51 DuPont certified $2.09 million as the “High End (Maximum)
Realistic Exposure” liability for Fayetteville Works.52 In February 2019, Chemours
entered a consent order with the State of North Carolina to settle claims brought by
the State regarding PFAS-related liability.53 The consent order requires the
installation of abatement technology and extensive remediation at a cost to
Chemours of over $200 million.54 Chemours still faces civil litigation associated
47
Id. ¶ 84.
48
Id. ¶ 90.
49
Id. ¶¶ 91–92.
50
Id. ¶ 93.
51
Id. ¶ 94.
52
Id. ¶ 96.
53
Id. ¶ 99.
54
Id.
10
with Fayetteville Works, specifically a class action in North Carolina federal court
that recently survived a motion to dismiss.55
Chemours was additionally assigned environmental liabilities across the State
of New Jersey.56 At the time of the Spin-Off, the certified “High End (Maximum)
Realistic Exposure” for New Jersey environmental liabilities was $337 million.57 In
2018—in connection with the DowDuPont reorganization—DuPont estimated the
liabilities at $620 million.58 The State of New Jersey stated that it was “implausible”
that the $620 million estimate could represent “good-faith estimates of [DuPont’s
historical New Jersey] environmental obligations and liabilities.”59 The State of
New Jersey has brought claims against both Chemours and DuPont in connection
with the New Jersey environmental liabilities.60 Additionally, a New Jersey
municipality has brought suit against DuPont seeking over $1 billion to address
alleged environmental clean-up costs, and New Jersey’s Department of
Environmental Protection “has issued directives to DuPont and Chemours . . .
55
Id. From the First Amended Complaint it appears DuPont is a defendant in this class action
along with Chemours. Id.
56
Id. ¶ 101.
57
Id. The First Amended Complaint states that “DuPont certified that the ‘maximum’ Chemours
could have to pay for total New Jersey environmental liabilities was $337 million.” Id. It is unclear
from the First Amended Complaint if Chemours purposefully chose not to use the phrase “High
End (Maximum) Realistic Exposure” or was simply attempting to vary its word choice. For
purposes of this Motion to Dismiss, I assume that the $337 million maximum is of the same kind
as the “High End (Maximum) Realistic Exposure” certified by DuPont for other liabilities assigned
to Chemours.
58
Id.
59
Id.
60
Id. ¶¶ 101–105.
11
regarding remediation and clean-up that threaten to impose very substantial
additional costs.”61
DuPont also assigned benzene-related liabilities to Chemours for which
DuPont certified a “High End (Maximum) Realistic Exposure” of $17 million,
inclusive of defense costs.62 In 2017, DuPont studied the availability of insurance
for benzene liability which valued the potential maximum costs at over $111
million.63
Finally, DuPont certified a “High End (Maximum) Realistic Exposure” of
$194 million for all other “General Litigation . . . to Perpetuity” which “Houlihan
Lokey reflected as including everything not separately valued.”64 In addition to the
litigation described above, the First Amended Complaints details separate PFAS
litigations brought against DuPont and Chemours by the States of New Hampshire,
Ohio, Vermont, and New York.65 Chemours does not estimate the liabilities
associated with these claims but states that it is “clear” they are “not what DuPont
certified they were.”66
61
Id. ¶ 106.
62
Id. ¶ 108.
63
Id.
64
Id. ¶ 110.
65
Id. ¶¶ 112–15.
66
Id. ¶ 116.
12
2. Environmental Liability Indemnification Provisions in the
Separation Agreement
The Separation Agreement contains indemnification provisions concerning
environmental liabilities. Section 6.3 of the Separation Agreement requires
Chemours to “indemnify, defend and hold harmless the DuPont Indemnitees from
and against any and all Indemnifiable Losses of the DuPont Indemnitees to the extent
relating to, arising out of, by reason of or otherwise in connection with (a) the
Chemours Liabilities . . . .”67 The “Chemours Liabilities” includes, among other
things, the “Chemours Assumed Environmental Liabilities.”68 The “Chemours
Assumed Environmental Liabilities” includes, among other things, a “non-
exhaustive list” of environmental liabilities listed on Schedule 1.1(19)(ii)(B).69 The
First Amended Complaint alleges that DuPont “unilateral[ly] allocate[ed]” such
liabilities.70
According to the Separation Agreement, “[a]ny allocation of liability set forth
on Schedule 1.1(19)(ii)(B) shall be deemed to be finally determined in accordance
with the allocation reflected on such Schedule and [Chemours and DuPont] agree
not to . . . bring any Action71 challenging any such allocation thereunder or assert
67
First Am. Compl., Ex. A (“Separation Agreement”), § 6.3.
68
Id. § 1.1(34).
69
Id. § 1.1(19)(ii).
70
First Am. Compl., ¶ 62. The First Amended Complaint also alleges that the indemnification
provisions may cover DowDuPont and Corteva in addition to DuPont. Id. ¶ 73.
71
“[A]ny demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation,
proceeding or investigation (whether civil, criminal, administrative or investigative) by or before
13
any right to dispute resolution under Article VIII of [the Separation Agreement] with
respect thereto.”72 With respect to existing matters of the same type as those listed
on Schedule 1.1(19)(ii)(B), but not identified on the Schedule, DuPont is to, “in its
reasonable determination,” determine whether they shall be listed on the Schedule,
consistent with the provisions of the Separation Agreement, a determination which
Chemours can challenge via Article VIII’s dispute resolution procedures but, “[t]he
burden of proof to rebut such determination shall be borne by [Chemours].”73
Furthermore, “to the extent” that a dispute “arises out of or relates to any Chemours
Assumed Environmental Liabilities” all costs borne by the prevailing party shall be
paid by the other party, but “only to the extent such liabilities are determined to be
‘primarily associated’ with Chemours.”74 Thus, the Separation Agreement allocates
certain environmental liabilities to Chemours by schedule; Chemours alleges that
DuPont has unilaterally allocated such liabilities to Chemours, and that Chemours
has limited rights (and faces an unequal cost burden) to challenge such allocation.75
any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.”
Separation Agreement, § 1.1(1).
72
Id. § 1.1(19)(ii). Article VIII of the Separation Agreement concerns arbitration and is discussed
infra, Section I.D.
73
Separation Agreement, § 1.1(19)(ii).
74
Id., § 8.2(f). The implications of this provision are that the losing party must pay the prevailing
party’s costs, but only if there has been a ruling that, pursuant to the Separation Agreement,
Chemours should bear such liabilities—i.e. they are “primarily associated” with Chemours.
75
First Am. Compl., ¶ 62. Chemours also alleges that the Separation Agreement’s indemnification
scheme “seek[s] to prohibit Chemours from pursuing any indemnity, contribution or other claim-
over seeking reimbursement from DuPont for the liabilities being transferred” because “Chemours
may not ‘make any claim for offset, or commence any action, including any claim of contribution
or any indemnification’ against DuPont with respect to any of those liabilities.” Id. ¶ 46 (quoting
14
D. Arbitration Provisions in the Separation Agreement
In the “event of a controversy, dispute or Action arising out of, in connection
with, or in relation to the interpretation, performance, nonperformance, validity or
breach” of the Separation Agreement, the Separation Agreement requires DuPont
and Chemours to negotiate to settle such Dispute.76 If the Dispute is not resolved by
negotiation during a specified negotiation period, then “such Dispute shall be
submitted to final and binding arbitration administered in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (‘AAA’)
then in effect (the ‘Rules’), except as modified [in the Separation Agreement].”77
The arbitration is to be conducted by a three-member arbitral tribunal (the “Arbitral
Tribunal”) and held in New York, New York.78 With respect to any disputes relating
to environmental liabilities, the arbitrators “shall be attorneys with experience in
Environmental Laws79 or technical or scientific experts whose work relates to
Separation Agreement, § 6.1(c)). Chemours continues: “[i]n other words, if Chemours has to pay
any of the liabilities (either because a regulator or plaintiff pursued it directly or because it had to
indemnify DuPont), the Indemnification Provisions seek to preclude Chemours from having any
recourse against DuPont.” Id.
76
Separation Agreement, § 8.1. The clause reads in full: “In the event of a controversy, dispute
or Action arising out of, in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or the Ancillary Agreements or otherwise
arising out of, or in any way related to, this Agreement or the Ancillary Agreements or the
transactions contemplated hereby, including any Action based on contract, tort, statute or
constitution (collectively, ‘Disputes’) . . . .” Id.
77
Id. § 8.2.
78
Id. §§ 8.2(a)–(b)
79
“[A]ll Laws relating to pollution or protection of human health or safety or the environment,
including Laws relating to the exposure to, or Release, threatened Release or the presence of
Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use,
15
environmental science, remediation or pollution control issues, as appropriate to the
specific disputes.”80 The Separation Agreement and “any dispute arising out of, in
connection with or relating to” the Separation Agreement is to be “governed by and
construed in accordance with the Laws of the State of Delaware, without giving
effect to the conflicts of laws principles thereof.”81
Section 8.2(c) of the Separation Agreement provides that Chemours and
DuPont “expressly agree” that “by submitting their dispute to arbitration under the
Rules . . . all issues of arbitrability, including all issues concerning the propriety and
timeliness of the commencement of the arbitration (including any defense based on
a statute of limitation, if applicable), the jurisdiction of the Arbitral Tribunal, and the
procedural conditions for arbitration, shall be finally and solely determined by the
Arbitral Tribunal.”82 The Arbitral Tribunal “shall have the power to grant any
remedy or relief that it deems just and equitable and that is in accordance with the
terms of [the Separation] Agreement, including specific performance and temporary
or final injunctive relief, provided, however, that the Arbitral Tribunal shall have no
authority or power to limit, expand, alter, amend, modify, revoke or suspend any
treatment, storage, transport or handling of Hazardous Substances and all Laws with regard to
recordkeeping, notification, disclosure and reporting requirements respecting Hazardous
Substances, and all laws relating to endangered or threatened species of fish, wildlife and plants
and the management or use of natural resources.” Id. § 1.1(77).
80
Id. § 8.2(a).
81
Id. § 10.16.
82
Id. § 8.2(c).
16
condition or provision of [the Separation] Agreement . . . nor any right or power to
award punitive, exemplary or treble damages.”83 The authority to grant “any pre-
arbitral injunction, pre-arbitral attachment, interim or conservatory measure or other
order in aid of arbitration proceedings” is granted exclusively to the Arbitral
Tribunal or, prior to its constitution, an “Emergency Arbitrator” appointed consistent
with the Rules.84 Section 8.2(g) of the Separation Agreement states that
arbitration—under Article VIII of the Separation Agreement—“shall be the sole and
exclusive remedy for any Dispute, and any award rendered thereby shall be final and
binding upon [Chemours and DuPont] as from the date rendered.”85
E. Procedural Posture
Chemours initiated this Action on May 13, 2019 and filed the First Amended
Complaint on August 14, 2019. The First Amended Complaint alleges eleven counts
associated with the Spin-Off and the assignment of certain environmental liabilities
to Chemours.86 Chemours alleges that if DuPont had disclosed the “true maximum
potential liabilities,” assigned to Chemours, Houlihan Lokey “would have arrived at
a valuation of Chemours’ total liabilities that rendered the $3.91 billion dividend
83
Id. § 8.2(e).
84
Id. § 8.2(d).
85
Id. § 8.2(g). As discussed, supra, the Separation Agreement was amended on August 17, 2017,
in connection with PFOA liability, but no changes were made to the specific provisions discussed
herein. First Am. Compl., Ex. C.
86
At this procedural juncture I need not recount Chemours’ allegations in full.
17
unlawful under 8 Del. C. §§ 170, 173, 174.”87 Thus, Chemours seeks a declaration
that the Separation Agreement’s indemnification provisions are not enforceable or
do not apply in excess of the DuPont-certified liability maximums. In the
alternative, Chemours asks to be compensated by DuPont for the environmental
liabilities it faces (including indemnification in connection therewith) in excess of
the certified maximums. In essence, Chemours asks for liability capped at DuPont’s
certified “High End (Maximum) Realistic Exposure” (inclusive of any
indemnification obligation of Chemours to DuPont) or that DuPont return “all or a
portion of Chemours’ $3.91 billion dividend to DuPont, in an amount to be
determined at trial.”88 On August 28, 2019, the Defendants moved to dismiss this
Action.89 I heard Oral Argument on the Defendants’ Motion on December 18, 2019
and considered the matter submitted for decision on that date.
II. ANALYSIS
The Defendants have moved to dismiss this Action in favor of arbitration
under Chancery Court Rule 12(b)(1).90 In evaluating the Defendants’ Motion, “[t]he
87
First Am. Compl., ¶ 133.
88
Id. at 74. Additionally, Chemours asks for damages for breach of fiduciary duty in the event of
a determination that Chemours “has unlimited responsibility for the true maximum potential
liabilities.” Id. ¶ 194.
89
Opening Br. in Support of Defs.’ Mot. to Dismiss the Verified First Am. Compl., D.I. 40 (“Defs.’
Opening Br.”). A Motion to Stay Discovery and Cross Motion to Compel are also outstanding;
given my determination in this Memorandum Opinion that I am without jurisdiction, I consider
these motions moot. See Defs.’ Mot. to Stay Discovery, D.I. 29; Pl.’s Opp’n to Defs.’ Mot. to Stay
Discovery and Cross-Mot. to Compel, D.I. 34.
90
Ch. Ct. R. 12(b)(1).
18
court is ‘confine[d] . . . to the allegations of the complaint and exhibits thereto, which
must be accepted as true for purposes of the motion to dismiss,’” “and ‘all inferences
therefrom should be construed in the non-moving party’s favor.’”91 This Court “will
dismiss an action under Rule 12(b)(1) ‘if it appears from the record that the Court
does not have subject matter jurisdiction over the claim.’”92 The 12(b)(1) Motion is
appropriate at this juncture because “Delaware courts lack subject matter jurisdiction
to resolve disputes that litigants have contractually agreed to arbitrate.”93
Where parties agree to arbitrate a dispute involving interstate commerce,
absent a clear expression in the contract to the contrary, the rules of the Federal
Arbitration Act (the “FAA”) govern.94 Section 2 of the FAA states:
A written provision in any . . . contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction . . . shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.95
91
Orix LF, LP v. Inscap Asset Mgmt., LLC, 2010 WL 1463404, at *5 (Del. Ch. Apr. 13, 2010)
(quoting Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 287 n.1 (Del. 1999)); de Adler v. Upper
New York Inv. Co. LLC, 2013 WL 5874645, at *7 (Del. Ch. Oct. 31, 2013) (quoting Harman v.
Masoneilan Int’l, Inc., 442 A.2d 487, 489 (Del.1982)) (internal alterations omitted).
92
Lewis v. AimCo Properties, L.P., 2015 WL 557995, at *2 (Del. Ch. Feb. 10, 2015) (quoting
AFSCME Locals 1102 & 320 v. City of Wilmington, 858 A.2d 962, 965 (Del. Ch. 2004)).
93
Gomes v. Karnell, 2016 WL 7010912, at *3 (Del. Ch. Nov. 30, 2016) (quoting Legend Nat. Gas
II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del. Ch. Sept. 28, 2012)).
94
Id.; see 10 Del. C. § 5702. The parties agree that the FAA controls this matter.
95
9 U.S.C. § 2.
19
This provision reflects “both a ‘liberal federal policy favoring arbitration,’ . . . and
the fundamental principle ‘that arbitration is a matter of contract[.]’”96 Courts are to
“apply[] general state-law principles of contract interpretation [in] the interpretation
of an arbitration agreement within the scope of the [FAA]” and in doing so “must
place arbitration agreements on an equal footing with other contracts.”97
Additionally, while “any doubts concerning the scope of arbitral issues should be
resolved in favor of arbitration . . . if the dispute at issue concerns either contract
formation or whether parties have agreed to submit a particular dispute to arbitration,
the court must make an initial determination prior to compelling arbitration.”98
The Defendants contend that Section 8.2(c) of the Separation Agreement
mandates dismissal of this Action.99 That Section reads:
96
AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H. Cone Mem’l
Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Rent-A-Ctr., W., Inc. v. Jackson, 561
U.S. 63, 67 (2010)).
97
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 475 (1989);
Concepcion, 563 U.S at 339.
98
Saizhang Guan v. Uber Techs., Inc., 236 F. Supp. 3d 711, 720 (E.D.N.Y. 2017) (quoting Moses
H. Cone, 460 U.S. at 24–25; Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 296 (2010))
(internal alterations and quotation marks omitted). The Third Circuit Court of Appeals recently
noted that: “[d]eciding whether arbitration is required is a two-step process: in the first step, the
court determines whether ‘there is an agreement to arbitrate,’ and then in the second step, the court
decides whether ‘the dispute at issue falls within the scope of that agreement.” Jaludi v. Citigroup,
933 F.3d 246, 254 (3d Cir. 2019) (quoting Century Indem. Co. v. Certain Underwriters at Lloyd’s,
London, 584 F.3d 513, 523 (3d Cir. 2009)). The court continued that the first step “is governed
by state law” and “[i]n applying state law at step one, we do not invoke the presumption of
arbitrability.” Id. at 254–55. Because this Memorandum Opinion deals solely with step one, I
apply “ordinary state-law principles that govern the formation of contracts” and do not invoke the
presumption of arbitrability. Id. at 254 (quoting First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944 (1995)).
99
Defs.’ Opening Br., at 18.
20
For the avoidance of doubt, by submitting their dispute to arbitration
under the Rules, the Parties expressly agree that all issues of
arbitrability, including all issues concerning the propriety and
timeliness of the commencement of the arbitration (including any
defense based on a statute of limitation, if applicable), the jurisdiction
of the Arbitral Tribunal, and the procedural conditions for arbitration,
shall be finally and solely determined by the Arbitral Tribunal.100
This clause, which delegates resolution of questions of arbitrability—i.e. “threshold
questions concerning the arbitration agreement”—to the Arbitral Tribunal is known
(and referred to by the parties) as a “delegation clause” or a “delegation
provision.”101 I adopt this convention and refer to Section 8.2(c) of the Separation
Agreement herein as the “Delegation Clause.” The United State Supreme Court has
held that under the FAA “parties can agree to arbitrate ‘gateway’ questions of
‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their
agreement covers a particular controversy.”102 “The question of who decides
arbitrability is itself a question of contract. The [FAA] allows parties to agree by
contract that an arbitrator, rather than a court, will resolve threshold arbitrability
questions as well as underlying merits disputes.”103 An agreement to arbitrate a
gateway issue, such as the arbitration of arbitrability, “is simply an additional,
100
Separation Agreement, § 8.2(c).
101
Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010); see David Horton, Arbitration About
Arbitration, 70 Stan. L. Rev. 363, 393 (2018); see also Defs.’ Opening Br., at 21; The Chemours
Company’s Br. in Opp’n to Defs.’ Mot. to Dismiss for Lack of Subject Matter Jurisdiction, D.I.
43 (“Chemours’ Answ. Br.”), at 50.
102
Rent-A-Ctr., 561 U.S. at 69.
103
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 527 (2019).
21
antecedent agreement the party seeking arbitration asks the federal court to enforce,
and the FAA operates on this additional arbitration agreement just as it does on any
other.”104 “When the parties’ contract delegates the arbitrability question to an
arbitrator, a court may not override the contract. In those circumstances, a court
possesses no power to decide the arbitrability issue.”105 Per the Defendants, the
Delegation Clause is valid and binding on the parties, meaning that the parties have
agreed to “arbitrate arbitrability,” and that this Court is consequently deprived of
jurisdiction to determine that threshold matter.106
A. Chemours Consented to Arbitration
In the first instance, Chemours urges that it is not bound by the Separation
Agreement’s arbitration provisions because it did not consent to arbitration. In
Granite Rock Co. v. International Brotherhood of Teamsters, the United States
Supreme Court emphasized the “first principle that underscores all of [its] arbitration
decisions: Arbitration is strictly ‘a matter of consent.’”107 “Consent is essential
under the FAA because arbitrators wield only the authority they are given. That is,
they derive their ‘powers from the parties’ agreement to forgo the legal process and
104
Rent-A-Ctr., 561 U.S. at 70.
105
Henry Schein, 139 S. Ct. at 529. Delaware law is generally consistent with the FAA in this
regard. See James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 79 (Del. 2006).
106
See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995).
107
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 299 (2010) (quoting Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)).
22
submit their disputes to private dispute resolution.’”108 The FAA respects the
primacy of consent and “does not require parties to arbitrate when they have not
agree to do so.”109 Thus, unless Chemours consented to arbitration, I cannot dismiss
this Action in favor of arbitration.110
I must apply state contract law to determine whether Chemours consented to
arbitration.111 Section 2 of the FAA mandates that arbitration agreements are to be
enforced as contracts and it does not “alter background principles of state contract
law regarding the scope of agreements (including who is bound by them).”112 Thus,
“state law . . . is applicable to determine which contracts are binding under [Section]
2 . . . if that law arose to govern issues concerning the validity, revocability, and
enforceability of contracts generally.”113 In considering the agreement to arbitrate,
108
Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1416 (2019) (quoting Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010)).
109
Volt, 489 U.S. at 478.
110
I note that I do not consider whether there is “clear and unmistakable” evidence of an agreement
to arbitrate—as articulated by Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) and
interpreted under Delaware law by James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del.
2006)—because Chemours has not argued that the plain language of the Delegation Clause and
the Separation Agreement, if applied, do not mandate arbitration. In fact, the contractual scheme
clearly does so. Chemours instead insists that it did not consent to arbitration in the first place.
111
Jaludi v. Citigroup, 933 F.3d 246, 254 (3d Cir. 2019) (quoting First Options, 514 U.S. at 944 )
(“When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability),
courts generally . . . should apply ordinary state-law principles that govern the formation of
contracts.”).
112
Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630 (2009); Rent-A-Ctr., W., Inc. v. Jackson,
561 U.S. 63, 67 (2010) (“The FAA thereby places arbitration agreements on an equal footing with
other contracts, and requires courts to enforce them according to their terms.” (internal citations
omitted)).
113
Arthur Andersen, 556 U.S. at 630–31 (quoting Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987))
(internal alterations omitted).
23
general state law contract principles, and not any special rules separate to arbitration
agreements, must apply.114 The Separation Agreement—which contains the
arbitration provisions in dispute—and any “dispute arising out of, in connection with
or relating to” the Separation Agreement is to be “governed by and construed in
accordance with the Laws of the State of Delaware.”115 Therefore, I must determine
if, under Delaware contract law, Chemours has consented to arbitration.
The Delaware Supreme Court has echoed the Restatement (Second) of
Contracts in stating the bedrock principle that “the formation of a contract requires
a bargain in which there is a manifestation of mutual assent to the exchange and a
consideration.”116 In Chemours’ view, it did not consent to arbitration as required
under the FAA because that foundational requirement of contract formation—
mutual assent—is absent.117 Under Delaware law, “overt manifestation of assent—
not subjective intent—controls the formation of a contract.”118 Furthermore,
“[w]hether both of the parties manifested an intent to be bound ‘is to be determined
objectively based upon their expressed words and deeds as manifested at the time
114
See Perry, 482 U.S. at 492 n.9.
115
Separation Agreement, § 10.16.
116
Eagle Force Holdings, LLC v. Campbell, 187 A.3d 1209, 1212 (Del. 2018) (quoting
Restatement (Second) of Contracts § 17 (1981)) (emphasis added).
117
Chemours’ Answ. Br., at 24–25.
118
Eagle Force Holdings, 187 A.3d at 1229 (quoting Black Horse Capital, LP v. Xstelos Holdings,
Inc., 2014 WL 5025926, at *12 (Del. Ch. Sept. 30, 2014)).
24
rather than by their after-the-fact professed subjective intent.’”119 “[W]here the
putative contract is in the form of a signed writing, that document generally offers
the most powerful and persuasive evidence of the parties’ intent to be bound.”120
Chemours—the party to the Separation Agreement and the entity that the
Defendants seek to compel to arbitrate—is a corporation, and “[a] corporation is an
artificial being, invisible, intangible, and existing only in contemplation of law.”121
As it is a “purely metaphysical creature, having no mind with which to think, no will
with which to determine and no voice with which to speak, [a corporation] must
depend upon the faculties of natural persons to determine for it its policies and direct
the agencies through which they are to be effectuated.”122 Thus, “[b]ecause it lacks
a body and mind, a corporation only can act through human agents.”123
Chemours concedes that a duly appointed board of directors approved the
Spin-Off and the Separation Agreement, and that a duly appointed executive of
Chemours, Nigel Pond, Chemours’ then-Vice President, executed the Separation
Agreement on behalf of Chemours.124 There is no dispute whether Nigel Pond
119
Black Horse, 2014 WL 5025926, at *12 (quoting Debbs v. Berman, 1986 WL 1243, at *7 (Del.
Ch. Jan. 29, 1986)).
120
Eagle Force Holdings, 187 A.3d at 1230.
121
Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 59 (Del. Ch. 2015) (quoting
Trs. of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 636 (1819)).
122
Id. (quoting N. Assur. Co. v. Rachlin Clothes Shop, 125 A. 184, 188 (Del. 1924)).
123
Id. at 60.
124
First Am. Compl., ¶ 35.
25
signed the Separation Agreement in his capacity as Vice President of Chemours.125
Delaware law views such a signature as “the most powerful and persuasive
evidence” of Chemours’ intent to be bound by the Separation Agreement, and,
consequently, its consent to arbitration.126
Notwithstanding Mr. Pond’s signature on the Separation Agreement,
Chemours contends that it did not really consent to arbitration, because “all the
arbitration provisions of the Separation Agreement were conceived, drafted, and
executed by DuPont alone.”127 Chemours alleges that its prospective management
team had no opportunity to bargain with DuPont regarding the terms of arbitration
nor was it entitled to retain counsel.128 Chemours points to a sworn statement by
DuPont’s former Chief Executive Officer and board chair that states that “DuPont
unilaterally determined the terms of the Separation Agreement, including its
arbitration provisions, and unilaterally consummated the Separation Agreement
without any consent from Chemours.”129 In essence, Chemours argues that, as a
subsidiary, pre-Spin-Off Chemours had no will of its own; it was animated solely by
the will of its parent, DuPont, and thus was unable to independently and effectively
consent to arbitration.
125
See Separation Agreement.
126
See Eagle Force Holdings, LLC v. Campbell, 187 A.3d 1209, 1230 (Del. 2018).
127
Chemours’ Answ. Br., at 25.
128
Id.129
Chemours’ Answ. Br., Ex. A, ¶ 2.
26
While Chemours challenges its consent to arbitration in this “real-world” or
intuitive sense, it cannot show that it did not consent in the contractual sense
required by the FAA. Chemours can point to no case that has declined to enforce a
parent-subsidiary contract because the subsidiary could not manifest assent due to
its domination by the parent.130 Simply because the parent dictates terms to its
wholly-owned subsidiary is not a grounds under Delaware law to infer lack of
consent such that the contract would not be enforceable. Consent to arbitration under
the FAA is contractual consent under state law and, as explained above, I may not
130
Chemours references Highlands Ins. Grp., Inc. v. Halliburton Co., 2001 WL 287485 (Del. Ch.
Mar. 21, 2001), aff’d, 801 A.2d 10 (Del. 2002), but that case stands for a different concept
concerning parent-subsidiary contracts—mutual mistake—which is inapposite here. In
Highlands, this Court held there could be no mutual mistake in the spin-off agreements at issue in
that case “because as a legal matter [the subsidiary] had no independent ability to negotiate the
Spinoff agreements” and thus “lacked any ability to change the terms of the Spinoff or to make a
‘mistake’ about what those terms meant.” Highlands, 2001 WL 287485, at *8. Under Delaware
law, a mutual mistake is “where each [party] labors under a misconception with respect to the same
terms of the written instrument sought to be corrected.” Home Life Ins. Co. of Am. v. McCarns,
16 A.2d 587, 589 (1940). Per the Restatement (Second) of Contracts “[w]here a mistake of of
both parties at the time a contract was made as to a basic assumption on which the contract was
made has a material effect on the agreed exchange of performances, the contract is voidable by the
adversely affected party unless he bears the risk of the mistake. . . . .” Restatement (Second) of
Contracts § 152 (1981). As manifestation of mutual assent is an “external or objective standard
for interpreting conduct,” mutual mistake is a justification for making a contract voidable even
though the parties have objectively manifested an intent to be bound. See id. § 2 cmt. b (1981)
(explaining the external or objective standard). Highlands rejected the mutual mistake argument
based on the futility of the contention that the respective manifestations of assent made by each
party were based on a mistake when, as in the parent-subsidiary relationship, it is the same party
on both sides of the table. However, the fact that there can be no mutual mistake in a parent-
subsidiary contract does not mean that the legally required manifestation of assent (i.e. consent) is
absent, but rather simply that the contract is not subject to challenge based on the oxymoronic
concept of the same party simultaneously making a mistake separately on behalf of each
contracting party.
27
construe consent uniquely simply because an arbitration agreement is at issue.131
Under Delaware contract law, Chemours’ board resolution and Mr. Pond’s signature
on the Separation Agreement evidence Chemours’ overt manifestation of assent—
and, therefore, Chemours’ consent—to the Separation Agreement.132
In an effort to escape this conclusion, Chemours contends that the Separation
Agreement is not really a contract at all, but a form of quasi-constitutional corporate
document. Chemours argues, tautologically, that certain corporate agreements, such
as separation agreements, are generally enforceable as contracts “not because they
reflect the consented-to agreement that is fundamental to offer and acceptance but
because, as a matter of sound administration of the corporate law and public policy,
they will generally be enforceable.”133 But accepting Chemours’ argument would
131
Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1426 (2017) (quoting AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 339, 341 (2011)) (“[Section 2 of the FAA] establishes
an equal-treatment principle: A court may invalidate an arbitration agreement based on ‘generally
applicable contract defenses’ like fraud or unconscionability, but not on legal rules that ‘apply only
to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.’
The FAA thus preempts any state rule discriminating on its face against arbitration—for example,
a ‘law prohibit[ing] outright the arbitration of a particular type of claim.’ And not only that: The
[FAA] also displaces any rule that covertly accomplishes the same objective by disfavoring
contracts that (oh so coincidentally) have the defining features of arbitration agreements.” (internal
citations omitted)).
132
Quoting Weber v. Kirchner, 2003 WL 23190392 (Del. Ch. Dec. 31, 2003), Chemours argues
that Chemours’ consent was “coerced,” noting that Weber “defin[ed] ‘coercion’ in term of
‘overcoming [] free will.’” Chemours’ Answ. Br., at 27. However, Chemours leaves out the full
quote, which reads: “[t]o prove duress at trial, Weber would have to demonstrate that there was a
wrongful act that overcame his free will and that he had no adequate legal remedy to protect his
interests.” Weber, 2003 WL 23190392, at *2. Chemours makes no serious effort to argue that the
Separation Agreement is invalid under this rubric, instead focusing on the lack-of-consent
argument under the FAA.
133
Oral Arg. Tr., at 103:15–103:23.
28
violate the FAA’s equal treatment principle because it would permit me to search
for a form of consent other than contractual consent, in Chemours’ words: “real
world” consent.134 The FAA mandates the application of ordinary state law contract
principles, and Delaware law recognizes no subspecies of consent applicable to
agreements such as the Separation Agreement. Instead, Delaware law enforces such
agreements as contracts, and searches for the requisite contractual manifestation of
assent by reference to foundational contractual principles—rendering Mr. Pond’s
signature near ironclad.135 A rule that requires an elevated level of consent for
purposes of an arbitration agreement where state contract law otherwise recognizes
the consent as sufficient would derivate from Delaware law contract principles
where an agreement to arbitrate is at issue. Again, the United States Supreme Court
has continually held that such a rule violates the FAA.136 Therefore, Chemours has
consented to arbitration under Delaware law.
134
See Chemours’ Answ. Br., at 27.
135
Chemours, I note, fails to identify an applicable principle under which provisions of a separation
agreement may be classified as contractual or non-contractual.
136
Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1431 (2019) (“So any state rule treating arbitration
agreements worse than other contracts ‘stand[s] as an obstacle’ to achieving the Act’s purposes—
and is preempted.”); Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1616 (2018) (stating that the FAA
does not permit “defenses targeting arbitration either by name or by more subtle methods . . . .”);
Concepcion, 131 S. Ct. at 1742–43 (“Section 2’s saving clause permits agreements to be
invalidated by generally applicable contract defenses, but not by defenses that apply only to
arbitration or derive their meaning from the fact that an agreement to arbitrate is at issue.” (internal
quotation marks omitted)); Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (“By
enacting § 2, we have several times said, Congress precluded States from singling out arbitration
provisions for suspect status, requiring instead that such provisions be placed upon the same
footing as other contracts.” (internal quotation marks omitted)).
29
B. The Delegation Clause is Not Unconscionable
Chemours contends that, even if a binding contract to arbitrate exists in the
Separation Agreement, I must decline to enforce it as unconscionable. Chemours
points to purported contractual limitations on the remedies available to the Arbitral
Tribunal, unequal cost splitting for challenges to environmental liabilities, and what
it alleges are flaws in the bargaining process.
In Rent-A-Center West, Inc. v. Jackson, the United Stated Supreme Court held
that in determining whether an arbitration agreement is enforceable, only a
“challenge[] specifically [to] the validity of the agreement to arbitrate” is relevant,
whereas a court may not consider “challenges [to] the contract as a whole, either on
a ground that directly affects the entire agreement . . . or on the ground that the
illegality of one of the contract’s provisions renders the whole contract invalid.”137
This holding was grounded in Section 2 of the FAA. That Section “states that a
‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and
enforceable’ without mention of the validity of the contract in which it is contained,”
and therefore, the Court held that “a party’s challenge to another provision of the
contract, or to the contract as a whole, does not prevent a court from enforcing a
specific agreement to arbitrate.”138 Arbitration provisions are thus severable from
137
561 U.S. 63, 70 (2010) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444
(2006)).
138
Id.30
the remainder of the contract, “and may therefore be separately enforced and their
validity separately determined.”139
Consequently, an attack on a delegation clause must refer to the
unconscionability of that clause and not the broader contractual provisions regarding
arbitration.140 “[U]nder the severability principle, [courts] treat a challenge to the
validity of an arbitration agreement (or a delegation clause) separately from a
challenge to the validity of the entire contract in which it appears.”141 Therefore,
“[u]nless a party specifically challenges the validity of the agreement to arbitrate,
both sides may be required to take all their disputes—including disputes about the
validity of their broader contract—to arbitration.”142
The severed Delegation Clause may be invalidated by “generally applicable
contract defenses such as . . . unconscionability.”143 Chemours has argued that the
Delegation Clause is unconscionable. Under Rent-A-Center, I must examine
whether Chemours’ unconscionability challenge is a challenge to the Delegation
Clause itself, or a broader challenge to the Separation Agreement and/or its
139
Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 229 (3d Cir. 2012);
140
See MacDonald v. CashCall, Inc., 883 F.3d 220, 226–27 (3d Cir. 2018). As discussed, supra,
the FAA treats a delegation clause as simply an antecedent arbitration agreement and operates on
a delegation clause just as it would on any other agreement to arbitrate. See Rent-A-Ctr., 561 U.S.
at 70.
141
New Prime Inc. v. Oliveira, 139 S. Ct. 532, 538 (2019).
142
Id.143
Rent-A-Ctr., 561 U.S. at 68 (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687
(1996)).
31
arbitration provisions (other than the Delegation Clause). Where Chemours has
made such a direct challenge, I analyze unconscionability under Delaware law.144
Procedural unconscionability “examines the procedures that led to the
contract with the goal of evaluating whether seemingly lopsided terms might have
resulted from arms’-length bargaining,” and courts focus on “the relative bargaining
strength of the parties and whether the weaker party could make a meaningful
choice.”145 Chemours contends that the Separation Agreement’s arbitration
provisions, including the Delegation Clause, are procedurally unconscionable
because they “were written into the Separation Agreement over Chemours’ express
objection.”146
Substantive Unconscionability, on the other hand, tests the substance of the
exchange: a contract will be deemed substantively unconscionable “if the terms
evidence a gross imbalance that ‘shocks the conscience’” or if the bargain is on terms
“so extreme as to appear unconscionable according to the mores and business
practices of the time and place.”147 Procedural and substantive unconscionability
are not “separate elements of a two prong test”—instead, the “analysis is unitary,
144
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 475 (1989)
(noting that courts “apply[] general state-law principles of contract interpretation to the
interpretation of an arbitration agreement within the scope of the [FAA]”).
145
James v. Nat’l Fin., LLC, 132 A.3d 799, 815 (Del. Ch. 2016).
146
Chemours’ Answ. Br., at 32 n. 6, 48.
147
James, 132 A.3d at 815 (quoting Coles v. Trecothick, 32 Eng. Rep. 592, 597 (Ch. 1804);
Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 450 (D.C. Cir. 1965)).
32
and it is generally agreed that if more of one is present, then less of the other is
required.”148 Chemours offers the following arguments for substantive
unconscionability:
1. “The arbitration provisions of the Separation Agreement would deny
Chemours basic rights and remedies available under Delaware law and
in the Delaware courts—including the right to raise an
unconscionability challenge”149
2. “The arbitration provisions reflect an unenforceable imbalance in the
parties’ rights and obligations” because the parties cannot challenge
certain of the Separation Agreement’s terms to the Arbitral Tribunal or
that Chemours bears the burden to make such a challenge150
3. “[T]he arbitration provisions impose one-sided penalties . . . only
against Chemours,” specifically concerning the costs associated with a
challenge to environmental liabilities in arbitration151
Number 3 above is not a direct challenge to the Delegation Clause.152 It argues
that Chemours must pay the presumptive costs of a challenge to environmental
liabilities.153 However, this challenge does not attack propriety of the power of the
Arbitral Tribunal to determine arbitrability, instead, it concerns the burden and costs
of the substantive challenge of arbitrable claims. That is, any disparity in cost
148
Id. at 815 (internal quotation marks omitted).
149
Chemours’ Answ. Br., at 49.
150
Id. at 51.
151
Id. at 52. Chemours also protested the limitations on arbitrator selection to environmental
experts in certain circumstances, but DuPont has submitted that it “will not object if Chemours
appoints an arbitrator without experience in environmental law.” See Id. at 56–57; see also
DuPont’s Opening Br., at 40 n.35. In any event, that provision is not unconscionable.
152
The relevant provision is Section 8.2(f) of the Separation Agreement, discussed, supra, Section
I.C.2.
153
Chemours’ Answ. Br., at 57.
33
allocation to a challenge of liabilities is irrelevant until it is determined whether such
claims are arbitrable.154 Therefore, this is a challenge to the terms of arbitration
rather than an attack on the Delegation Clause itself.
Numbers 1 and 2 above can be considered together as a challenge that the
Delegation Clause limits the Arbitral Tribunal’s ability to grant certain relief and is
thus unconscionable. Chemours cites the Separation Agreement’s arbitration
provisions that deny the arbitrator any “authority or power to limit, expand, alter,
amend, modify, revoke or suspend any condition or provision” of the Separation
Agreement.155 Chemours has pled that certain provisions of the Separation
Agreement are invalid or unenforceable, and Chemours argues that if the arbitrators
determine arbitrability, Chemours must make its arguments regarding the invalidity
or unenforceability of the substantive provisions of the Separation Agreement “to
the arbitrators—who cannot hear it, because it would involve invalidating,
modifying or suspending the arbitration provisions.”156 Thus, because the arbitrators
allegedly cannot hear unconscionability challenges to the Separation Agreement, the
154
Namely, the unequal cost shifting in Section 8.2(f) does not apply until there has been a
determination by the Arbitral Tribunal that environmental liabilities are “primarily associated”
with Chemours—a determination which necessarily cannot take place unless the Arbitral Panel
determines that the claims are arbitrable. See Separation Agreement, § 8.2(f).
155
Id., § 8.2(e); Chemours’ Answ. Br., at 49.
156
Chemours’ Answ., Br., at 50. Chemours also argues that the Arbitral Tribunal is similarly
“barred from hearing any ‘challeng[e]’ to DuPont’s allocation of most environmental liabilities.”
Id. at 51. This argument, based on the provisions cited in Section I.C.2., supra, similarly concerns
the ability of Chemours to challenge certain of the Separation Agreement’s provisions before an
arbitrator.
34
Delegation Clause, in Chemours’ view, “operates as an unenforceable waiver of
unconscionability, and so is in itself unconscionable.”157
In order to properly challenge the Delegation Clause under United States
Supreme Court precedent, Chemours would have to argue that the limitation of the
Arbitral Tribunal’s powers causes the arbitration over the arbitrability of Chemours’
claims that the Separation Agreement is invalid or unenforceable to be
unconscionable.158 Chemours emphatically states that this is so, because the
limitations of the Arbitral Tribunal’s powers would preclude Chemours’ ability to
obtain relief. However, the Arbitral Tribunal must apply Delaware law, just as this
Court would, and nowhere does the Separation Agreement prevent Chemours from
arguing to the Arbitral Tribunal that the Separation Agreement’s arbitration
provisions (including those restricting the powers of the Arbitral Tribunal) are
inconsistent with Delaware law.159 Therefore, Chemours’ argument is not really a
direct challenge to the Delegation Clause at all; instead, it is a challenge to the
Separation Agreement’s other arbitration provisions, namely, those concerning the
157
Id. at 50.
158
See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 74 (2010).
159
The Defendants do not contest that Chemours may make such an argument to the Arbitral
Tribunal. Oral Arg. Tr., at 40:17–41:4 (“THE COURT: My question was simply whether the
arbitrator, if – let’s assume that Delaware law is such that either the limitations on the remedies
before the arbitrator make the claim unarbitrable as a matter of equity, or, conversely, that even if
arbitrable, they’re not enforceable by the arbitrator because, as a matter of public policy, they can’t
be enforced. I assume those same arguments could be made to the arbitrator as made to this Court
because the arbitrator, I assume, would be applying Delaware law. Correct? [DuPont’s Counsel]:
Absolutely.”)
35
powers of the Arbitral Tribunal and its ability to grant Chemours the relief it seeks.
These arbitral terms do not affect Chemours’ ability to arbitrate whether the
Separation Agreement’s arbitration provisions are valid or enforceable. Thus,
contrary to Chemours’ argument that the Delegation Clause operates as an
unenforceable waiver of unsconscionability, the Delegation Clause does not waive
Chemours’ ability to argue unconscionability. What the Delegation Clause does
require is for Chemours to make that argument to the Arbitral Panel, not this
Court.160
Because Chemours does not articulate a substantive unconscionability
argument specific to the Delegation Clause, I may not consider these arguments in
determining whether the Delegation Clause is unconscionable.161 Therefore, all that
remains is Chemours’ procedural unconscionability argument, which mirrors its
argument that the arbitration provisions are void for lack of consent.162
160
This answers, I believe Chemours’ public policy argument that enforcing mandatory arbitration
in spin-offs would permit a parent’s imposition of unconscionable and illegal provisions beyond,
legal review. See Chemours’ Answ. Br., at 59.
161
The same result would follow even if Chemours’ arguments were considered a direct attack on
the Delegation Clause—because the provisions cited do not operate on the Delegation Clause, they
cannot render it substantively unconscionable, and consequently any direct attack based on
substantive unconscionability would fail.
162
I consider the procedural unconscionability argument as a direct challenge to the Delegation
Clause because Chemours has argued that its lack-of-consent argument “undermines the
provisions of the Separation Agreement that purport to delegate the issue of arbitrability to
arbitration, mooting DuPont’s reliance on the severability of these delegation provisions.
Chemours no more consented to delegation than it did to any other feature of the arbitration regime
that DuPont unilaterally imposed.” Chemours’ Answ. Br., at 32 n.6 (internal citation omitted).
36
Even if the Delegation Clause was the product of procedural unfairness, it
cannot be procedurally unconscionable because such a finding cannot be squared
with settled Delaware law that “[w]holly-owned subsidiary corporations are
expected to operate for the benefit of their parent corporations; that is why they are
created.”163 To the exent the First Amended Complaint does allege sufficient facts
to infer procedural unconscionability in a typical commercial setting, that is, one
involving separate enterprises each negotiating in its own interest, the spirit of
procedural unconscionability—an “examin[ation] [of] the procedures that led to the
contract with the goal of evaluating whether seemingly lopsided terms might have
resulted from arms’-length bargaining”164—is wholly inconsistent with the routine
enforcement of parent-subsidiary contracts. Such contracts are routinely enforced
not because they reflect arms’-length bargaining between a parent and its
subsidiary—which of course they do not—but because the parent determines they
are desirable for the parent, and subsidiary fiduciaries “are obligated only to manage
the affairs of the subsidiary in the best interests of the parent and its shareholders.”165
Delaware law enforces these admittedly non-consenual contracts because they allow
163
Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 173 (Del. Ch. 2006), aff’d sub
nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007). I note that “[w]hether a contract
is unconscionable is determined at the time it was made.” James v. Nat’l Fin., LLC, 132 A.3d 799,
814 (Del. Ch. 2016) (citing Lecates v. Hertrich Pontiac Buick Co., 515 A.2d 163, 173 (Del. Super.
1986)).
164
James, 132 A.3d at 815.
165
Anadarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d 1171, 1174 (Del. 1988).
37
the corporate machinery to run smoothly—to find such a contract unenforceable
based on procedural unconscionability would be nonsensical, because their
presumptive validity acknowledges that they are not the product of fair
bargaining.166 Therefore, to the extent Chemours has directly challenged the
procedural unconscionability of the Delegation Clause, its challenge fails as a matter
of law.
Chemours has failed to show that the Delegation Clause is unconscionable
under Delaware law. The Delegation Clause properly assigns arbitrability to the
Arbitral Tribunal. I may not override the contract, and lack jurisdiction to decide
arbitrability.167 Because this Court lacks subject matter jurisdiction, this Action must
be dismissed.
III. CONCLUSION
The Defendants’ Motion to Dismiss is GRANTED. The parties should submit
a form of order consistent with this Memorandum Opinion.
166
This Court noted in Anadarko Petroleum Corp. v. Panhandle Eastern Corp. that a spun off
company offered “no authority for the proposition that, when the parties to a spin-off have
continuing contractual relations, those contracts must be negotiated at arms length.” 1987 WL
16508, at *4 (Del. Ch. Sept. 8, 1987), aff’d, 545 A.2d 1171 (Del. 1988).
167
See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019).
38