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In re The Chemours Company Derivative Litigation
Citation: Not availableDocket: CA No. 2020-0786-SG (Consol.)
Court: Court of Chancery of Delaware; November 1, 2021; Delaware; State Appellate Court
Original Court Document: View Document
The Delaware Court of Chancery is addressing a consolidated derivative litigation involving The Chemours Company. Plaintiffs, including the City of Hialeah Employees’ Retirement System and Roberto Pinto, are represented by various law firms. The court examines the Delaware General Corporation Law (DGCL), particularly Sections 160 and 173, which restrict corporations from repurchasing stock or issuing dividends that exceed corporate surplus to protect the entity and its creditors. Violations of these provisions are actionable under Section 174, which holds directors jointly and severally liable for such violations if they occur during their tenure. This liability appears to conflict with the general principle limiting directors' liability to gross negligence or loyalty breaches, as Section 174 imposes strict liability for negligence, making directors liable even if no actual harm to corporate interests occurs. The plaintiffs aim to enforce this liability against the directors of Chemours Company. The Chemours Company was created in 2015 as a spin-off from E. I. DuPont de Nemours and Company, during which DuPont transferred certain environmental liabilities to Chemours. Chemours later claimed that the value of these liabilities was significantly underestimated by DuPont. In 2019, Chemours initiated a lawsuit against DuPont, asserting that if the liabilities were fully transferred, the Spin-Off would be deemed illegal due to Chemours' insolvency at inception. The court determined that the issue fell under an arbitration clause and dismissed the case; the parties eventually reached a settlement for shared responsibility regarding the environmental liabilities. While the dispute was ongoing, Chemours engaged in stock buybacks and paid dividends, which the Board justified as being based on corporate surplus according to Generally Accepted Accounting Principles (GAAP). Plaintiffs allege that these financial actions stemmed from negligence or willful misconduct, claiming Chemours should have recognized its lack of surplus due to contingent environmental liabilities. They argue that reliance on GAAP, which they believe did not account for these liabilities, constitutes willful wrongdoing or negligence. The Plaintiffs, who have received what they claim were improper dividends, seek to pursue derivative action against the Director Defendants for repayment to Chemours. To do so, they must satisfy the demand requirement of Rule 23.1, which they argue is excused because a majority of the directors are allegedly at risk of substantial liability. However, the court found that the Plaintiffs did not present sufficient facts to suggest that the Directors face a substantial likelihood of liability, thereby not raising a reasonable doubt about the Board's ability to exercise its business judgment. Additionally, the court noted that under Section 174, directors are protected from liability if they rely in good faith on corporate records and advice from experts, which shields the Director Defendants in this instance. The court concluded that the allegations did not sufficiently imply willful or negligent misconduct regarding reliance on GAAP, and thus, the demand requirement was not excused, leading to the dismissal of the case. The lead Plaintiff is the City of Hialeah Employees’ Retirement System, with additional Plaintiff Roberto Pinto, both of whom are Chemours stockholders. Chemours, a Delaware corporation, serves various markets including plastics, refrigeration, and mining, and employed approximately 6,500 individuals as of December 31, 2020. Mark P. Vergnano has served as President, CEO, and director of Chemours since July 2015, while Richard H. Brown has been the Chairman of its Board since the same date. Other directors include Curtis V. Anastasio, Bradley J. Bell (Chairman of the Audit Committee), Mary B. Cranston, Curtis J. Crawford (previously a DuPont director), Dawn L. Farrell, Sean D. Keohane, Erin N. Kane (who joined the Audit Committee in July 2019), and Stephen D. Newlin (director from July 2015 to May 2018). Mark E. Newman has been Chemours’s Senior Vice President since November 2014 and its COO since June 2019, having previously been its CFO. The document details that non-party DuPont, Chemours's former parent, merged with Dow Chemical on August 31, 2017, creating DowDuPont, which then split into three separate entities in April 2019. The complaint alleges that DuPont transferred substantial environmental liabilities to Chemours during its Spin-Off, particularly from its Performance Chemicals division, which manufactured hazardous substances like PFAS, including PFOA. PFAS are known for their durability and potential to bio-accumulate, causing serious health risks, including cancers. Following growing public concern and litigation related to PFAS discharges, DuPont's Spin-Off, initiated in 2013 under "Project Beta," resulted in Chemours being established as an independent company with a $3.3 billion dividend paid to DuPont, financed through significant debt. Concerns about Chemours’s financial stability emerged among its new management during this process. In June 2015, Newman, the CFO of Chemours, requested $200-300 million in cash reserves, which DuPont denied. Concerns were raised regarding a $100 million dividend declared by DuPont before Chemours's Spin-Off. DuPont's board commissioned Houlihan Lokey to assess the solvency of both companies post-Spin-Off, focusing on environmental liabilities transferred to Chemours. Houlihan Lokey's analysis utilized DuPont-provided figures labeled "High End (Maximum) Realistic Exposure" (the "Maximums"), which allegedly understated environmental liabilities by excluding those deemed "possible" rather than "probable" as of December 31, 2014, even if they were reasonably estimable. Newman declined to certify the Maximums for 87 liability categories but signed a certification stating he relied on DuPont's accuracy. On June 5, 2015, DuPont's board approved the Spin-Off, which became effective on July 1, 2015. Chemours assumed substantial liabilities, including 67% of DuPont's environmental liabilities across 80 sites and $4 billion in debt linked to a $3.91 billion dividend to DuPont. The Separation Agreement mandated that Chemours defend and indemnify DuPont against these liabilities and barred Chemours from seeking recourse from DuPont. Post-Spin-Off, Chemours faced significant challenges, including laying off 1,000 employees, closing plants, and experiencing a steep decline in stock price from $21.00 to $3.06 per share within months. To improve its financial standing, Chemours initiated a "Five-Point Transformation Plan," selling assets (e.g., a Texas facility for $140 million) and securing a $190 million advance from DuPont. Additionally, Chemours reduced its quarterly dividends from $0.55 to $0.03 in September 2015. Despite these efforts, environmental liabilities, particularly related to PFAS, persisted as a significant concern. The Company is involved in litigation concerning PFOA and PFAS in Ohio, New Jersey, and North Carolina. In Ohio, the Company, through Chemours, agreed to indemnify DuPont under a Separation Agreement for a multidistrict action involving approximately 3,550 individuals affected by PFOA exposure. DuPont initially certified a maximum indemnification of $128 million, which included defense costs. Despite estimating a 68% win rate, DuPont lost all trials, incurring $19.7 million in damages from the first three bellwether cases. Chemours later asserted that its indemnification obligation was capped at the $128 million. DuPont contested this, claiming it was merely an estimate with no legal effect. Ultimately, in February 2017, the parties settled the Ohio MDL for $670.7 million, with both companies contributing equally, while DuPont agreed to pay an additional $125 million towards PFOA-related costs. This settlement resolved the 3,550 cases but left other PFOA exposure claims unresolved. In New Jersey, a municipality filed a lawsuit against DuPont and Chemours for over $1.1 billion in remediation costs related to the Chambers Works site. DuPont had certified a maximum liability of $337 million for all New Jersey litigation at the time of the Spin-Off. Chemours also inherited three other New Jersey sites that became subjects of litigation. In North Carolina, litigation began in September 2017 from various plaintiffs, including the State of North Carolina, regarding the Fayetteville Works site, which discharged GenX, a type of PFAS. DuPont had certified a maximum liability of $2.09 million for this site during the Spin-Off. During 2017 and 2018, Chemours' Board approved stock repurchase programs and increased dividends twice, while regularly discussing environmental liabilities. A financial update in January 2017 highlighted the low dividend yield of Chemours compared to other public chemical companies and advised that any capital return strategies should consider liquidity and potential liabilities from settlements. The Board emphasized prioritizing contingent liabilities over stock repurchases, despite investor interest in offsetting dilution. In April 2017, Defendant Vergnano expressed to the Board that returning capital would enhance confidence in Chemours' stock price. Leading up to the 2017 Stock Repurchase Program and dividend increase, the Audit Committee and Board frequently discussed environmental liabilities. Specifically, on January 3, 2017, a director suggested the need for careful assessment of potential future environmental liabilities post-PFOA litigation. The Audit Committee held meetings on April 20 and August 1, 2017, to discuss ongoing litigation related to environmental issues, including reserves and remediation efforts. On August 2, 2017, the Board reviewed presentations from Barclays and Dyal Partners advocating for increased dividends or stock repurchase to align with industry standards and positively signal to the market. This meeting also included updates on environmental litigation at the Fayetteville Works site. On October 30, 2017, the Audit Committee received further updates on environmental litigation and reserves. On November 30, 2017, the Board approved a $500 million Stock Repurchase Program and declared a quarterly dividend of $0.17, an increase from $0.03. The Board asserted that these actions complied with the Delaware General Corporation Law (DGCL), though the Complaint claims they only considered GAAP-based reserves in their decision-making. In early 2018, the Board continued to receive updates on environmental litigation and reserves. A director expressed the need for a sustainability strategy to mitigate future litigation costs. The Audit Committee met on February 12, 2018, discussing litigation and share repurchases but allegedly did not link these discussions. The following day, the Board was updated on litigation and received further information on Fayetteville Works in April 2018. By May 2018, the company completed its stock repurchases under the 2017 program and declared another quarterly dividend of $0.17. The Board's resolutions approving the dividend asserted compliance with the Delaware General Corporation Law (DGCL), based solely on Chemours' GAAP-calculated accounting reserves for contingent environmental liabilities. The Complaint alleges that during meetings on May 1 and 2, 2018, the Audit Committee and the Board, with Defendant Newman, received updates on environmental litigation and reserves. Following the $500 million 2017 Stock Repurchase Program, a new $750 million repurchase program was approved on August 1, 2018. The Board increased the quarterly dividend from $0.17 to $0.25 per share on August 2, 2018, maintaining that these actions complied with the DGCL, despite reliance solely on accounting reserves. In October 2018, another $0.25 dividend was declared after the Audit Committee discussed environmental litigation and reserves, with no evidence that share repurchases were considered alongside these reserves. Subsequent meetings in late 2018 and early 2019 continued to address environmental risks and litigation without linking share repurchases to these discussions. The Company received a litigation update and discussed reserve accounting for the Fayetteville site and share repurchases in a meeting. The Complaint claims there was no indication that share repurchases were discussed in relation to environmental and litigation reserves. On February 13, 2019, the Board increased the 2018 Stock Repurchase Program by allowing up to $1 billion in share repurchases and announced a $0.25 quarterly cash dividend, asserting compliance with the Delaware General Corporation Law (DGCL). The Complaint alleges the Board did not consider contingent environmental liabilities in connection with these discussions. In April 2019, the Audit Committee received an environmental litigation update, and the Board again announced a $0.25 dividend, reiterating its belief in DGCL compliance based on accounting reserves. The Board had multiple meetings, including discussions on litigation, but the Complaint contends there was no connection made between the stock repurchases and environmental liabilities. Chemours spent about $1.07 billion on stock repurchases and approximately $667 million on dividends between July 2015 and February 2021. In May 2019, amid rising environmental liabilities, Chemours filed a complaint against DuPont seeking to hold it liable for amounts exceeding previously certified Maximums from the Spin-Off. This action followed a presentation by hedge fund CEO Larry Robbins, who estimated Chemours's environmental liabilities at $4 to $6 billion and asserted that Chemours would bear the brunt of any liabilities from DuPont's legal losses. Although Chemours publicly disputed Robbins's claims, it ceased the 2018 Stock Repurchase Program the day after his presentation and filed the DuPont Complaint on May 13, 2019. This Complaint claimed DuPont's Maximums were misleading and argued that Chemours would have been insolvent if it were fully liable for the actual potential maximum liabilities, seeking to establish DuPont's responsibility for any excess amounts. The DuPont Complaint requests the return of a $3.91 billion dividend that Chemours paid to DuPont before their Spin-Off. It claims that Chemours acknowledged $2.56 billion in liabilities inherited from DuPont, detailing specific amounts for various liabilities: $335 million for the Ohio MDL, $1.7 billion for New Jersey litigation, $200 million for the Fayetteville Works site, $111 million for benzene, and $194 million for PFAS, including GenX. Chemours's estimates are characterized as conservative. During oral arguments on December 18, 2019, Chemours's counsel asserted that Chemours would have been insolvent at the time of the Spin-Off if its liabilities exceeded the stated Maximums, supporting this with claims of insolvency at the time of the spin and alleging that the liability maximums were intentionally underestimated to reflect bad faith. The Complaint also alleges that Chemours was insolvent due to environmental liabilities, lacking the surplus to declare dividends or repurchase stock, and that it lacked net profits for such declarations. Furthermore, it details a settlement arrangement where expenses related to ongoing matters are split evenly between DuPont, Corteva, and Chemours, along with a specific settlement of $83 million for ongoing Ohio MDL matters. Additionally, the Complaint challenges stock sales by defendants Vergnano and Newman, noting Vergnano sold 200,151 shares for over $10 million and Newman sold 155,047 shares for over $6.8 million. The Complaint alleges that Defendants Vergnano and Newman engaged in stock sales while knowing that Chemours was insolvent or close to insolvency and that the public lacked awareness of the company's environmental liabilities. Hialeah Retirement filed the action on September 16, 2020, which was temporarily stayed on December 17, 2020, pending supplemental document production from the Defendants. Following a review of these documents, a Verified Stockholder Derivative Complaint by Roberto Pinto was filed on February 22, 2021, leading to the consolidation of two actions due to common legal and factual issues. Hialeah Retirement was appointed as lead plaintiff, Pinto as an additional plaintiff, and Bernstein Litowitz Berger Grossmann LLP as lead counsel, with Pinto's complaint deemed the operative one. The Complaint includes derivative claims against the Director Defendants under Delaware law for violations related to the 2017 and 2018 Stock Repurchase Programs and dividend payments, as well as breaches of fiduciary duty associated with these transactions. Additionally, claims against the Officer Defendants for breach of fiduciary duty and unjust enrichment due to stock sales are included. Alternative claims for breaches of the duty of candor against Vergnano and Newman are also presented. The Defendants filed a Motion to Dismiss, with several briefs exchanged between the parties. Oral arguments were heard on July 19, 2021, and the Motion was submitted for decision thereafter. The document emphasizes that, under Delaware law, the management of a corporation is the responsibility of its directors, not shareholders. The authority to govern corporate affairs includes decisions on remedial actions, such as filing lawsuits against directors, officers, controllers, or outsiders. A chose in action is considered a corporate asset, managed by the board of directors. In a derivative suit, a shareholder seeks to challenge the board’s authority over this litigation asset. Derivative actions inherently limit directors' managerial freedom by transferring control of the litigation from the board to the shareholder. This is justified when directors cannot effectively monetize the asset, necessitating derivative action. To initiate a derivative suit, a shareholder must either make a formal demand on the board or demonstrate that such demand would be futile. The demand requirement serves to ensure shareholders exhaust internal remedies, prevent frivolous lawsuits, and allow the corporation to address issues without litigation. Under Court of Chancery Rule 23.1, a shareholder must plead with particularity the efforts made to obtain the desired action from the board and the reasons for any failure to do so. General or vague statements are insufficient; specific factual allegations are required. When a motion to dismiss is filed for non-compliance with Rule 23.1, the court accepts the well-pleaded allegations as true and draws reasonable inferences in favor of the plaintiff. In this case, the plaintiffs did not demand action from the board, thus needing to plead futility with particularity. This futility is assessed by determining if there is reasonable doubt about the board's ability to exercise business judgment regarding the demand, evaluated on a director-by-director basis, starting with whether any director received a material personal benefit from the alleged misconduct. A litigation demand may be excused as futile if a majority of the demand board faces a substantial likelihood of liability or lacks independence from individuals who have received a personal benefit from alleged misconduct. In this case, the Plaintiffs assert that seven of Chemours's nine directors, who have served since the Spin-Off, are likely liable for statutory violations and breaches of fiduciary duty concerning stock repurchases, dividend payments, and stock sales. Chemours's certificate of incorporation includes an exculpatory provision under Delaware law, which protects directors from personal liability for breaches of fiduciary duty except in specific circumstances, including breaches of loyalty and intentional misconduct. To succeed, the Plaintiffs must show that a majority of the demand board faces substantial likelihood of liability for claims that are not protected by this exculpatory provision. The court finds that the Plaintiffs have not established such a likelihood regarding their statutory claims under 8 Del. C. § 174 related to stock repurchases and dividends. Section 174 holds directors liable for willful or negligent violations of the corporation's requirements for stock repurchases and dividend payments, thus indicating that liability is not exculpated under Chemours's provisions. As a result, the court concludes that demand is not excused for the Plaintiffs' statutory claims. Section 172 of the Delaware General Corporation Law (DGCL) protects directors from liability for violations if they act in good faith based on the corporation's records, officers, employees, board committees, or experts when determining the corporation's ability to repurchase stock or pay dividends. Directors remain liable for violations of Sections 160 or 173 due to their own negligence or bad faith. Section 174 stipulates that directors who are absent during a violation may still be liable unless they formally dissent and have it recorded in the minutes. The document notes that this case is significant as it is the first instance where a court addresses a stockholder's attempt to impose liability against directors for violations of Sections 160 or 173, as allowed by Section 174. Sections 160 and 173 outline limitations on a corporation’s ability to repurchase stock and issue dividends, respectively. Specifically, Section 160 prohibits stock purchases that impair the corporation's capital, while Section 173 mandates that dividends must be paid in accordance with the DGCL, with Section 170 allowing dividends to be declared only from surplus. A corporation is restricted from issuing dividends or repurchasing stock beyond its surplus, as defined by Delaware law, specifically Sections 160, 170, and 173. Surplus is calculated based on net assets, which are the total assets minus total liabilities, with surplus defined by 8 Del. C. 154. Chemours’s stock has a nominal par value of $0.01 per share, making the surplus calculations reliant on its net assets. Plaintiffs argue that due to potential environmental liabilities, Chemours's liabilities exceeded its assets, thus violating the aforementioned sections. They also claim that the Director Defendants were negligent for relying on generally accepted accounting principles (GAAP) that allegedly exclude contingent environmental liabilities. However, the court finds that the Complaint does not adequately allege violations of Sections 160, 170, or 173, nor demonstrate negligence under Section 174. The court notes that the Director Defendants are largely shielded from liability under Section 172. The Complaint concedes that most dividends paid by Chemours between 2015 and 2020 complied with Delaware law, particularly Section 170, which allows dividends to be declared from net profits if no surplus exists. Specifically, the Complaint acknowledges that Chemours had sufficient net profits to cover dividends in the fiscal years 2017, 2018, and 2020, as well as for the dividends paid in 2015 and 2019 based on profits from 2014 and 2018. Therefore, for those fiscal years, Chemours adhered to Section 170, although Plaintiffs argue that there were periods when the company lacked sufficient net profits to pay dividends. The Complaint does not allege violations of Section 170 regarding dividend payments from 2015 to 2020, meaning the Director Defendants are unlikely to face liability, and the demand for legal action is not excused for these years. For the 2016 dividends, while Chemours paid $16,345,494, it recorded only $7,000,000 in net profits, with the prior year showing negative profits. Thus, $7,000,000 of the 2016 dividends are compliant with Section 170, resulting in no substantial likelihood of liability for the Director Defendants concerning that amount. The Plaintiffs have additional claims related to the 2017 and 2018 Stock Repurchase Programs and $9,345,494 in dividends from 2016 that exceeded Chemours's net profits. They allege these actions violated Sections 160 and 170 due to a lack of "surplus." The parties dispute the standard of review for a Board's surplus determination, with Plaintiffs arguing for a simple negligence standard under Section 174, while Defendants assert that this standard applies only if a surplus was miscalculated, and that showing bad faith or fraud is necessary to prove an improper surplus calculation. Both sides reference the case Klang v. Smith’s Food, Drug Centers, Inc., where the court upheld a Board's surplus calculation. Defendants argue that the Plaintiffs must prove bad faith or fraud to challenge the Board's surplus assessment, while Plaintiffs contend that Klang allows for reasonable latitude only if the Board evaluates assets in good faith, using acceptable data and methods reflecting present values. The determination of corporate surplus is primarily within the discretion of the board of directors, as outlined in the Delaware General Corporation Law (DGCL). It is established that there is no mandated method for calculating surplus; instead, certain factors, including total assets and total liabilities, must be considered. The court in Klang emphasized that as long as directors evaluate these factors in good faith and using acceptable data, their calculations will be upheld unless they are grossly inaccurate to the point of actual or constructive fraud. The complaint against the directors hinges on their alleged unreasonable reliance on Generally Accepted Accounting Principles (GAAP) in making surplus determinations, arguing that this approach did not adequately account for significant contingent environmental liabilities, which GAAP does not require to be recognized unless certain criteria are met. The plaintiffs assert that the directors should have revalued the company's assets and liabilities to incorporate these contingent liabilities, suggesting that failure to do so may breach the standards set forth in Klang. If the Board's surplus determinations are shown to comply with the DGCL criteria, the directors cannot be held liable for negligence or willful misconduct. The Plaintiffs argue that contingent environmental liabilities should not be discounted for probability of success, claiming their inclusion would show these liabilities significantly exceed the GAAP reserves. However, the Complaint lacks specific allegations demonstrating that the Board's reliance on GAAP reserves failed to account for the corporation's assets and liabilities adequately. Delaware corporations typically adhere to GAAP for accounting purposes, and the Complaint does not explain why the Board should have deviated from this standard. Furthermore, the Complaint does not provide facts indicating that, at the time the Board approved stock repurchases and dividend payments, the contingent environmental liabilities were categorized as neither "probable" nor "reasonably estimable," justifying their exclusion from GAAP reserves. The Plaintiffs refer to an admission from a prior DuPont Complaint regarding the exclusion of certain liabilities as not "probable" but fail to connect this to the Board's decisions in the years following 2014. The Complaint details subsequent developments in environmental litigation but does not establish that these liabilities remained unrecognized under Chemours' accounting methods. Additionally, the Plaintiffs have not specifically demonstrated that including these liabilities would have indicated Chemours was insolvent. They rely on figures from the DuPont Complaint, totaling $2.56 billion, labeling them as "Company Conservative Estimates," and argue these imply Chemours' responsibility for the liabilities. However, they assert that the Board could not discount these estimates for present value in their surplus assessment, which the text suggests is flawed reasoning. Key points highlight that the figures cited by the Plaintiffs from the DuPont Complaint for their $2.56 billion calculation do not accurately reflect Chemours's contingent environmental liabilities. The $335 million attributed to the Ohio MDL stems from a prior settlement between DuPont and Chemours, finalized in February 2017, prior to the Board's approval of stock repurchases, meaning it was not contingent at that time. The Plaintiffs also misinterpret a $194 million liability figure as an admission of PFAS liabilities; the DuPont Complaint clarified it as a maximum estimate encompassing various liabilities, not solely PFAS. Additionally, estimates related to New Jersey sites and benzene liabilities were derived from DuPont or claimant demands, not Chemours. The only figure directly associated with Chemours is a $200 million estimate for Fayetteville Works remediation costs, which was not excluded from GAAP accounting when stock repurchase decisions were made. The DuPont Complaint does not admit Chemours's liability for these estimates; rather, it suggests that Chemours would have faced insolvency if responsible for liabilities exceeding the certified maximums at the time of the spin-off. Furthermore, the Plaintiffs' legal assertion regarding the treatment of contingent liabilities is incorrect. Their reliance on Boesky v. CX Partners, L.P. is misplaced, as the case did not involve relevant corporate matters like surplus determinations or stock repurchases. In Boesky, the Court did not defer to a liquidating trustee's judgment regarding adequate liability reserves before making partnership distributions. The Court considered whether it was appropriate to discount contingent claims but refrained from concluding on the issue, noting that discounting might be valid for numerous similar claims but could pose risks for residual claimants in cases of few or diverse claims. The Plaintiffs failed to provide support for their claim that contingent claims cannot be discounted, and under Klang, a valuation must reflect present values, which inherently includes a probability component. Even if the Complaint alleged the Company lacked surplus, it did not specify that a majority of the demand Board acted in bad faith regarding GAAP-based reserves. Plaintiffs argued that the Director Defendants were negligent due to overwhelming information about the Company's liabilities jeopardizing solvency. They highlighted that two Directors had prior knowledge of DuPont's intent to divest its Performance Chemicals division due to environmental liabilities, and a third Director had extensive experience in that division. The Plaintiffs asserted that the Directors received regular updates on environmental litigation risks and sought indemnification post-Spin-Off, implying concern over potential liability. However, these allegations do not sufficiently establish that a majority of the demand Board faced a substantial likelihood of liability, as only three out of nine Directors were linked to knowledge of these liabilities. Thus, it is unreasonable to conclude that the majority “knew or should have known” about the inaccuracy of GAAP metrics. Defendant Newman is not a member of the board or a Director Defendant and did not certify the accuracy of the Maximums related to the Spin-Off. The Plaintiffs claim that the Director Defendants understated liabilities and that their reliance on GAAP was unreasonable. However, the indemnification agreements approved by the Director Defendants do not imply negligence or bad faith; such agreements are intended to encourage capable individuals to serve on corporate boards. The Plaintiffs' assertion that the indemnification was motivated by fears of Chemours' insolvency is speculative and lacks supporting allegations. The Complaint fails to provide specific facts that challenge the Board's adherence to GAAP in determining compliance with the Delaware General Corporation Law (DGCL) regarding stock repurchases and dividends. As a result, the Director Defendants are not likely to face liability under Sections 160, 170, 173, or 174. Furthermore, they are “fully protected” under 8 Del. C. § 172, which allows directors to rely in good faith on corporate records and information from qualified individuals. The Plaintiffs argue that Section 172 is an affirmative defense inappropriate for consideration at the pleading stage, citing a case where good faith reliance was not applied at that stage. However, this case involved a different statute, and precedent exists where good faith reliance was considered at the pleading stage in another context. Section 172 and Section 141(e) provide defenses at the pleading stage when allegations in the Complaint and related documents clearly indicate that the Board relied on expert advice. The Plaintiffs contend that the Complaint does not show the Director Defendants reviewed or were informed about the Company's capital or surplus. However, the Complaint acknowledges that the Board confirmed, at every dividend declaration and stock repurchase meeting, compliance with Delaware law regarding capital returns. It also admits that the Board was informed about evaluating return of capital strategies in light of liquidity and potential contingent liabilities, and that discussions on legal and environmental reserves occurred at these meetings. The Board received presentations from financial advisors detailing statutory requirements under Delaware law before declaring dividends and approving stock repurchases. The Complaint establishes that the Board, after consulting management and financial advisors, considered the legality of capital returns and was informed about environmental liabilities. The Plaintiffs argue that the Board relied blindly on management's reports, suggesting it should have requested quantification of capital and surplus considering environmental liabilities. However, legal precedent indicates that detailed balancing of assets and liabilities is not necessary for surplus determination. The Plaintiffs reference two cases to support their argument about the Board's duty to second-guess management's calculations, but the cited cases involve distinct circumstances where boards acted without adequate information or oversight. The Board received regular updates on the Company’s environmental litigation and financial reserves. These updates were provided during meetings where dividends and stock repurchases were approved, indicating that the Director Defendants relied in good faith on the Company’s records and advisors, thus being "fully protected" under Section 172. The Complaint does not allege any "willful or negligent" violations of relevant sections, indicating the Director Defendants are unlikely to face liability for Counts I and II. Regarding the breach of fiduciary duty claim (Count III), the Complaint asserts that the Director Defendants breached their duties by authorizing capital returns despite knowing the Company faced insolvency risks. However, the Company’s certificate of incorporation protects the Board from fiduciary duty breaches, except for those committed in bad faith. To succeed, the Plaintiffs must present specific facts showing a substantial likelihood of liability for bad faith, which requires demonstrating a conscious disregard for duties. The Plaintiffs fail to meet this standard, as they only argue that the Board's monitoring and reliance on advisors were unreasonable, which does not satisfy the bad faith criterion. Additionally, the Complaint does not specifically allege insolvency, further supporting that the Director Defendants do not face substantial liability, and demand is not excused for Count III. Lastly, demand is also not excused concerning the claims against the Officer Defendants in Counts IV–VII. Counts VI and VII allege that the Officer Defendants are liable for stock sales conducted while they were purportedly aware of Chemours's insolvency. Alternatively, these counts accuse the Officer Defendants of failing to inform the Board about the extent of Chemours's liabilities. The Plaintiffs assert that demand is futile because a majority of the demand Board faces a substantial likelihood of liability. However, they acknowledge that only one member, Defendant Vergnano, is named in Counts IV-VII. The Plaintiffs argue that courts have excused demand even when not all current directors are implicated, particularly when a Board member's interest in derivative claims extends to claims against co-defendants. They contend that since a majority of the demand Board could be liable in Counts I-III, demand should be excused for Counts IV-VII, which involve similar facts. The court counters this argument by stating that it has previously determined that the Director Defendants do not face a substantial likelihood of liability for Counts I-III. As a result, even if Counts VI-VII share factual elements with Counts I-III, they do not present a significant liability risk to the demand Board, allowing it to exercise its business judgment regarding the demand. Consequently, the court grants the Motion to Dismiss in full.