Chemours Securities Fraud Litigation to Continue

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The New York State Teachers’ Retirement System and others (Teachers) will be able to continue pursuing claims that Chemours kept investors in the dark about the billions in potential environmental liabilities.  On February 24th, a federal judge in Delaware ruled that Teachers’ claims of securities fraud plead sufficient facts to survive Chemours’ motion to dismiss.  Specifically, plaintiffs allege that Chemours financial statements “dramatically mischaracterized Chemours’ true financial condition and vastly understated Chemours’ liabilities from decades of environmental pollution.”

The court found that starting in February 2017, Chemours disclosed that “higher clean-up costs that might result ‘under adverse changes in circumstances, although deemed remote.’ … once Chemours chose to make that disclosure-even if not required by [Generally Accepted Accounting Practices] GAAP or otherwise-it had to speak truthfully … [and that] a reasonable investor could have plausibly inferred from the language Defendants used to ‘provide’ in the challenged SEC reports Chemours’ ‘higher clean-up costs’ that Chemours was disclosing its maximum potential remediation liabilities.”  The court explained that “the question then is whether Plaintiff has alleged in the Complaint facts sufficient to plausibly imply that Defendants did not in fact believe that Chemours’ s environmental remediation liabilities were capped at the sums disclosed in the SEC reports.”

Teachers drew on two sources to supports their claim that Chemours did not in fact believe that its environmental remediation liabilities were capped at the sums disclosed in the SEC reports.  First, Teachers argued that Chemours “specifically itemized” $2.5 billion of inherited liabilities as of the time it was spun-off from DuPont, in a complaint against DuPont in a 2019 Delaware Chancery Court Complaint – in that unrelated case, Chemours asserted that “DuPont violated New Jersey law by spinning off Chemours on the basis of underestimated environmental liabilities without providing the State with the ‘financial assurance necessary to ensure’ that the necessary clean-up can be done.”  Second, Teachers asserted that a 2018 internal evaluation of total environmental remediation costs company-wide identified costs of more than $2 billion.  The court held that Chemours’s allegations in the Chancery Court Complaint do not plausibly imply that the company made false representations about its maximum potential environmental remediation liabilities in the challenged SEC reports.  However, it also found that “a rational juror could plausibly infer from the [internal evaluation] that … Defendants believed that Chemours’ s environmental remediation liabilities were approximately two billion dollars,” a significantly greater amount than Chemours had said its liabilities were; that is, that Chemours had made false statements about liability.

Chemours argued that “even if Plaintiff had identified any error in Chemours’ environmental liability disclosures, they would nevertheless be inactionable because they were accurate statements of opinion.” However, the court held that “statements of opinion … are ‘actionable under the securities laws if they are not honestly believed and lack a reasonable basis.’”  In addition, the court explained that Teachers’ allegations plausibly implied that Chemours did not consider the maximum remediation liability disclosures accurate, and therefore, those disclosures could be actionable opinions.

The court also held the Teachers had adequately pleaded its claims against Chemours’ President and CEO and the company’s Senior Vice President and COO (previously its CFO) for the two to continue as defendants in the case.

 

EPA Implements Collaborative Research Program to Support PMN Reviews

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On February 24, EPA announced a new effort “to modernize the process and bring innovative science to the review of new chemicals.”  In addition, the effort is expected to “increase the transparency of the human health and ecological risk assessment process.”  The Office of Chemical Safety and Pollution Prevention (OCSPP) is collaborating on this effort with the Agency’s Office of Research and Development (ORD) and other federal entities including the National Toxicology Program at the National Institute of Environmental Health Sciences.

The draft Strengthening the Science and Process to Evaluate New Chemicals Under TSCA; TSCA New Chemicals Collaborative Research Program: Problem Statement, Vision and Action Plan was released for public comment on March 9.  Written comments will be accepted through April 26, 2022.  In addition, stakeholders may comment at a virtual public meeting on April 20 and 21, 2022.  Instructions for registering for the meeting are available here.

EPA explains that the Collaborative Research Program (CRP) “will refine existing approaches and develop and implement new approach methodologies (NAMs) to ensure the best available science is used in TSCA new chemical evaluations.”  Components of this effort include:

  • Updating the methodology for using data from analogous chemicals to determine potential risks from new chemicals where health effects data on the new substance are not available.
  • Updating and augmenting the models used for predicting a chemical’s physical-chemical properties and environmental fate/transport, hazard, exposure, and toxicokinetics.
  • Developing a decision support tool to integrate the information streams used in new chemical risk assessments into a final risk assessment.

The docket for this effort is EPA-HQ-OPPT-2022-0218.

 

IRIS Review of PFHxA and its Related Salts

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EPA’s Integrated Risk Information System (IRIS) program is developing assessments for five PFAS:  perfluorobutanoic acid [PFBA], perfluorohexanoic acid [PFHxA], perfluorohexane sulfonate [PFHxS], perfluorononanoic acid [PFNA], perfluorodecanoic acid [PFDA], and their associated salts.  On February 2, EPA released the draft IRIS assessment for PFHxA.

The IRIS assessment followed a systemic review protocol that outlines the related scoping and problem formulation efforts, including a summary of other federal and state assessments of PFHxA. The protocol also lays out the systematic review and dose-response methods used to conduct the review.

The review found that PFHxA exposure is likely to cause hepatic, developmental, and hematopoietic effects in humans.  In addition, the review reported that current evidence suggests that PFHxA exposure might cause endocrine effects in humans.

Litigation Over the De Minimis Concentration and Alternate Threshold Exemptions in the PFAS TRI Reporting Rules

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On January 20, 2022, the National PFAS Contamination Coalition, Sierra Club, and Union of Concerned Scientists (collectively the “Coalition”) filed a complaint in the District Court for the District of Columbia challenging two final rules promulgated by EPA related to TRI PFAS Reporting.  Specifically, the Coalition asserts that two rules violate the National Defense Authorization Act for Fiscal Year 2020 (NDAA) by allowing two exemptions to the Act’s PFAS reporting mandate — the de minimis concentration and alternate threshold exemptions.  These rules are “Implementing Statutory Addition of Certain Per- and Polyfluoroalkyl Substances; Toxic Chemical Release Reporting” (85 Fed. Reg. 37,354) and the “Implementing Statutory Addition of Certain Per- and Polyfluoroalkyl Substances (PFAS) to the Toxics Release Inventory Beginning With Reporting Year 2021” (86 Fed. Reg. 29,698) (collectively the “TRI PFAS Rules”).

According to the Coalition, allowing the de minimis exemption means that PFAS otherwise subject to the rule “will not be reported to the TRI because they are used in mixtures in low concentrations —even where the total amount of the PFAS manufactured, processed, or otherwise used is well over the 100-pound threshold set by Congress.”  The compliant further explains that the alternate threshold exemption permits covered facilities that release and disposal of less than 500 pounds per year of a TRI-listed PFAS to submit “a bare-bones certification rather than the detailed toxic chemical release form, reducing the information disclosed to the public.”

Adopting these rules without allowing for notice and opportunity for comment, promulgation violated the notice and comment provisions of the Administrative Procedure Act, according to the Coalition.  The Coalition further asserts that the NDAA did not authorize EPA to allow an exemption for de minimis concentrations.  Nor, according to the Coalition, does the NDAA allow for alternate threshold exemptions.  The Coalition argues that “the TRI PFAS Rules are also arbitrary and capricious because they are premised on the idea that communities do not need to know about releases of small amounts of toxic chemicals, or even releases of large amounts where the chemical of concern is present in low concentrations, flouting evidence that exposure to even extremely low levels of PFAS is dangerous.”

The complaint argues that Plaintiffs’ members are deprived of critical information by the de minimis concentration and alternate threshold exemptions.   According to the Coalition, the exemptions deprive Plaintiffs of knowledge about the toxic air and water pollution that they and their families are exposed to, which impairs their ability to advocate for stronger protections from that pollution.  The absence of these data also impairs Plaintiff’s ability to “conduct the research and analysis needed to inform communities and guide policy development.”

As previously posted, EPA complied a roadmap outlining key actions and commitments on PFAS for 2024.  This roadmap states that EPA intends to propose a rulemaking in 2022 to remove the “de minimis eligibility” from supplier notification requirements for Chemicals of Special Concern for TRI reporting, and categorize PFAS as such.

Recent State Activity on PFAS Regulation

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Since January 2022, many states have passed and proposed dozens of laws regulating PFAS substances.  These legislative efforts address topics including setting drinking water standards for PFAS, banning PFAS in consumer products, banning or restricting the use of firefighting foams containing PFAS, and adding PFAS substances to toxic and hazardous substances lists.

Virginia and Washington will soon adopt regulations establishing maximum contaminant levels for drinking water.  Indiana and Rhode Island have also proposed doing so.  California is considering legislation that would establish a Central Basin Communities water fund that would, in-part, offset treatment costs of PFAS-contaminated public water systems.

Minnesota, California, and Rhode Island have proposed legislation that would ban the use of PFAS in consumer products.  Products that would be subject to these bans range from cosmetics and cookware to carpets and clothing.

Arkansas, California, Illinois, Maine, and Louisiana have passed laws banning or restricting the use of firefighting foams containing PFAS.  Rhode Island and Ohio have proposed legislation that would restrict the use of firefighting foams.

Minnesota has added PFAS substances to its list of Toxic and Hazardous Substances.  California has added PFAS to the list of substances subject to Prop 65.  A Rhode Island bill would include PFAS in the definition of “hazardous substances” for purposes of industrial property remediation.

Legislative efforts have also addressed notice requirements.  Maine enacted legislation that requires manufacturers to provide notification if any personal, residential, commercial, or industrial product contains PFAS.  A bill pending in the California General Assembly would create a publicly accessible registry of products containing PFAS.  The bill would also require manufacturers to register PFAS-containing products.  A Minnesota bill would require manufacturers of products for sale in the state that contain intentionally added PFAS to provide written notice of the PFAS, its amount, and its purpose.

Other legislative proposals would enact the following:

  • A prohibition on products containing PFAS from being classified as recyclable.
  • A requirement for state-owned solid waste disposal facilities to establish leachate treatment to reduce PFAS.
  • A requirement for screening for PFAS in sludge or sludge-derived compost that is applied to land.
  • A requirement to adopt groundwater quality standards for certain PFAS.
  • A prohibition on the sale of products labeled as “compostable” or “home compostable” if it has a total organic fluorine concentration greater than 100 parts per million (ppm).

Four PFAS Added to TRI

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On January 28, EPA announced the addition of four per- and polyfluoroalkyl substances (PFAS) to the Toxics Release Inventory (TRI) list.  These additions were prompted by the fiscal year 2020 National Defense Authorization Act (NDAA).  Section 7321 of the NDAA provides a framework for adding PFAS to the TRI.  Specific PFAS were added to the TRI by the act including perfluorooctanoic acid (PFOA) and its salts and perfluorooctane sulfonic acid (PFOS) and its salts. These were added to the TRI list on January 1.

The NDAA mandates the addition of other PFAS substances to the TRI list when they are the subject of certain regulatory actions.  Such actions include finalizing a toxicity value, issuing a significant new use rule (SNUR), and the addition of a PFAS substance to an existing significant new use rule.  The reporting requirement goes into effect January 1 the year following the regulatory action.

In April 2021, EPA finalized a toxicity value for perfluorobutane sulfonic acid (PFBS) (CASRN 375-73-5) and potassium perfluorobutane sulfonate (CASRN 29420-49-3). These two PFAS substances are being added to the TRI list because EPA finalized a toxicity value. PFBS-based compounds are replacement chemicals for PFOS, a chemical that the primary U.S. manufacturer voluntarily phased out by 2002.

A third PFAS, a substance being regulated by an existing SNUR, was designated as “active” on the TSCA Inventory.  Therefore, this substance has also been added to the TRI.

The fourth PFAS is a substance for which EPA had to review CBI claims before adding it to the TRI list: CASRN 203743-03-7.  The NDAA provides for Agency review of any CBI claims before adding any PFAS to the TRI list whose identity is listed on the confidential Inventory.  For this substance, CBI claims were “declassified.”

Reporting requirements for these PFAS substances are in effect for 2022.  Facilities that manufacture, process or otherwise use more than 100 pounds of any listed PFAS substance during 2022 are required to submit an EPCRA Section 313 report.  Reporting for calendar year 2022 is required by July 1, 2023.  Reports are submitted through EPA’s CDX TRIMEweb.

EPA Announces Order for PFAS Testing – Response to Petition from Public Health and Environmental Justice NGOs

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On December 28, 2021, EPA announced that the Agency was granting a petition from several North Carolina public health and environmental justice organizations to require companies to conduct health and toxicity testing of certain PFAS.  In its announcement, EPA explained that the petitioners’ request “plays a key role in advancing the Agency’s plans for a National PFAS Testing Strategy.”

The National PFAS Testing Strategy requires PFAS manufacturers to provide EPA with toxicity data and other information on categories of PFAS.  This approach breaks the thousands of PFAS into categories based on characteristics and assesses what data are presently available for each category.  The test data will eventually be used to inform regulatory efforts to protect human health and the environment.

The petition asking the Agency to require testing on the health and environmental impacts of 54 PFAS was first submitted in October 2020.  The petition was submitted by the Center for Environmental Health, Cape Fear River Watch, Clean Cape Fear, Democracy Green, Toxic Free NC, and the NC Black Alliance.   The petition identified the 54 substances at issue as PFAS manufactured by the Chemours Company.   In January 2021, the previous Administration denied the petition.  In March 2021, the petitioners asked EPA to reconsider its denial.  In September 2021, EPA agreed to do so “in light of the change in administration and in policy priorities concerning PFAS.”

In granting the petition, EPA is requiring testing under the National PFAS Testing Strategy.  EPA’s first test orders under the Testing Strategy, for 24 categories of PFAS, will provide human health hazard data that covers 30 of the 54 petition chemicals.  Nine of the PFAS identified in the petition belong to a single category included in the Testing Strategy.  EPA is assessing if the existing data is sufficient and will likely order testing in the future.  EPA explained that the 15 remaining petition chemicals do not fit the definition of PFAS used in developing the Testing Strategy.  However, the Agency will analyze available data on these substances to inform later phases of testing.

In response to the petition, EPA also announced that the Agency is taking part in and analyzing many ongoing human studies on PFAS.  This includes evaluations of potentially exposed workers and communities in North Carolina.

The petition requested the development or submission of analytical standards with the test orders.  In response, EPA is requesting comment on whether to require the submission of existing analytical methods for PFAS.  This would occur through a future PFAS rulemaking.

The Agency’s press release on the petition quotes Administrator Michael S. Regan: “By taking action on this petition, EPA will have a better understanding of the risks from PFAS pollution so we can do more to protect people.”

New Jersey PFAS Litigation Against 3M, DuPont, and Others to Continue

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New Jersey litigation against Dupont, Chemours, Corteva, and 3M over PFAS contamination will proceed following a federal district court ruling on a 3M motion to dismiss in December 2021.  The case involves contamination of four different sites in New Jersey, two of which were at issue in the motion to dismiss — 3M is not a defendant in the litigation over the other two sites.  Claims against 3M were brought under New Jersey’s Spill Compensation and Control Act (the “Spill Act”) and under New Jersey common law.

Spill Act

In its assessment, the Court explained that the Spill Act provides that generally “any person who has discharged a hazardous substance, or is in any way responsible for any hazardous substance, shall be strictly liable, jointly and severally, without regard to fault, for all cleanup and removal costs no matter by whom incurred.” It went on to say that although the Spill Act does not define the phrase “in any way responsible for any hazardous substance,” that the Act, does, however, instruct that it is to “be liberally construed to effect its purposes.” The Court further found that another court in this district had considered a motion by 3M to dismiss another Spill Act claim in Giordano v. Solvay Specialty Polymers USA, LLC, and had found that the plaintiffs in that case had sufficiently alleged that 3M was “in any way responsible for the contaminated water supply.”  It then held that Giordano was persuasive and found that the State had sufficiently “pled that 3M is ‘in any way responsible for’ the discharge of hazardous substances at both of the Sites at issue.”

Failure to Warn

New Jersey also argued that 3M owed a duty to warn the State that 3M’s PFAS-containing products could endanger New Jersey’s citizens and environment.  The State asserted that this duty arose under common law from its role as parens patriae, which is the State’s authority to act for citizens who cannot protect or advance their own interests, and the duty as trustee of New Jersey’s environment and natural resources.

The Court explained that to determine whether a duty exists at common law, the New Jersey Supreme Court first asks whether it was foreseeable that a party’s conduct was capable of harming another.  And then, where foreseeability has been established, the New Jersey Supreme Court assesses “the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care, and the public interest in the proposed solution

To assess foreseeability, the court, assessed whether it was foreseeable to 3M that its products could harm the State of New Jersey’s citizens and natural resources.  Analyzing the question in the context of a motion to dismiss, the Court presumed that New Jersey’s allegations and all reasonable inferences therefrom were true and found that the State has adequately established foreseeability of the harm.  The court then found that 3M did owe a duty to the state, explaining that “the Court again notes that the New Jersey Supreme Court has instructed that whether a duty exists ‘devolves to a question of foreseeability of the risk of harm to that individual or identifiable class of individuals.’  The New Jersey Supreme Court did not limit its inquiry to those with whom a defendant had a relationship.” And that, “New Jersey courts have not limited the duty to warn to those with whom a defendant has a direct relationship.”  Furthermore, the Court found that the public interest also favors finding of a duty as the prevention of far-reaching environmental and human harm is of paramount public concern.  The Court then held that the State had plausibly alleged a failure to warn and denied 3M’s motion to dismiss.

Design Defect

Finally, the Court found that New Jersey had adequately stated a claim for design defect claim.  The Court explained that “to state a claim for design defect under New Jersey law, a plaintiff must plead either that the product’s risk outweighs its harm, or that an alternate design exists.”  Because the State had alleged that “PFOA and PFOS have characteristics that cause extensive and persistent environmental contamination,” that “PFOA and PFOS contamination presents a serious threat to public health through drinking water,”  that PFAS exposure “has been linked to several diseases, including kidney and testicular cancer, thyroid disease, ulcerative colitis, high cholesterol, and pregnancy-induced hypertension and low birth weight,” that the PFAS used at the sites “were defective in design and unreasonably dangerous” for similar reasons, and that “the foreseeable risk to public health and welfare posed by 3M’s PFAS outweighed the cost to 3M of reducing or eliminating such risk,” the Court held that New Jersey had “managed to plead enough facts to eke out a claim for a design defect.”

US District Court Judge John Michael Vazquez issued the unpublished opinion.

OIG to Audit EPA New Chemicals Review

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EPA’s Office of Inspector General (OIG) has informed the Office of Chemical Safety and Pollution Prevention (OCSPP) that it will audit EPA’s process for conducting reviews of new TSCA chemicals (i.e., substances submitted to the Premanufacture Notification (PMN) and PMN exemption processes).  This is a self-initiated audit to accomplish OIG’s oversight plan for fiscal year 2022, to address ensuring safe use of chemicals, and to address complaints from the OIG Hotline.  OIG seeks to determine the extent EPA is following records-management requirements, quality-assurance requirements, and employee performance standards.  OIG will also be looking at how EPA manages human health and environmental risks for approving new chemicals under TSCA.

OIG has asked OCSPP to assist in expediting the audit by providing all materials, handbooks, and anything related to the review of new chemicals; the resource allocations for chemical review from fiscal years 2018 through 2021; scopes of work for any contracts related to chemical review; any guidance they have received on chemical review; and new chemicals review program organization charts before and after the October 2020 reorganization.

OIG notes authority under the Inspector General Act of 1078, as amended, to have timely access to their requests and personnel.  In addition to the Inspector General Act, in its request, OIG references EPA Manual 6500 and statements from Administrator Michael S. Regan.

EPA Announces Improvements to the TSCA Risk Evaluation Process  

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On December 20, 2021, EPA released a draft TSCA Systematic Review Protocol. In its announcement on the new Protocol, the Agency explained that the Protocol will strengthen EPA’s approach to reviewing and selecting the scientific studies that are used to inform TSCA Risk Evaluations and ensure that EPA has the best tools under TSCA to protect human health and the environment.  The draft protocol comprises nearly 700 pages.

The draft Protocol notes that EPA’s Office of Pollution Prevention and Toxics (OPPT) applies systematic review principles in the development of its Risk Evaluations of existing chemicals.  It provides specific systematic review approaches which they use for identifying and evaluating evidence for the hazard and exposure assessments that support Risk Evaluations. OPPT added that the draft Protocol responds to key recommendations received from the National Academies of Sciences, Engineering, and Medicine (NASEM).

The Protocol was developed in response to NASEM’s critique that EPA had not previously documented how TSCA prioritization and problem formulation relate to the TSCA Systematic Review.  The Protocol aligns the TSCA prioritization and scoping processes with the steps of the Protocol.  In addition, the Protocol defines how EPA’s systematic review efforts will identify data gaps and data needs in the Risk Evaluations process.  OPPT explains that identifying these data gaps and data needs will provide the Agency with the information it needs “to strategically exercise TSCA authorities to require testing or information collection for use in TSCA prioritization and Risk Evaluation.”

The Protocol reports that for the 20 high-priority substances currently undergoing Risk Evaluation and substances undergoing manufacturer-requested Risk Evaluation, EPA has implemented a new, unified literature search process.  This process, as described in the Protocol, uses chemical identifiers to maximize the capture of relevant literature, which in turn provides consistency and efficiency to the literature search.  In addition, OPPT announced that the Protocol includes new methods to reduce bias and improve evaluation through the use of calibration exercises and data evaluation training for reviewers.  This is a response to NASEM recommendations, SACC comments, and public comments.

In addition, the Protocol includes a description of the evidence integration process.  A step that was not part of the 2018 TSCA systemic review document. This addition was also made in response to recommendations by the NASEM and the SACC. OPPT explains that the Protocol’s evidence integration approach relies on methods related to those in EPA’s IRIS Handbook.

The draft protocol will undergo peer review by at a meeting of the SACC on April 19-21, 2022.  OPPT noted that the agency will use this feedback to further improve the document. The date, time for the public peer review virtual meeting will be announced on the SACC website.