This 1 Word Could Lead to a Big Loss for DuPont and Chemours

Chemical titans DuPont (DD) and its spinoff Chemours (CC -6.18%) lost round one. Now they're hoping to win round two in a court case that could have huge implications for both companies, as well as fellow chemical giant 3M (MMM 0.66%).

The case, Bartlett v. DuPont, was the first in a series of 3,500 lawsuits filed against DuPont over alleged health problems caused by exposure to PFOA (perfluorooctanoic acid, or "C8"). PFOA is a chemical used in manufacturing Teflon, and DuPont is accused of contaminating the water supply near one of its West Virginia plants with the toxic chemical. The initial judgment against DuPont was for $1.6 million. Now DuPont is appealing, and its defense comes down to just one word.

Chemical plants can release harmful substances into local water supplies. Image source: Getty Images.

"Among" the lawyers

These cases have been slowly moving through the courts for more than 15 years. It all started in 2001, with a suit alleging that PFOA in the water supply was responsible for various health problems in residents who lived near DuPont's Parkersburg, West Virginia plant. That case was settled in a 2004 agreement.

As part of the settlement, a science panel was created that studied blood samples and medical records of 70,000 people in West Virginia and Ohio who were exposed to PFOA, to see if a "probable link" could be established between any of the health problems and the chemical. Eight years later, the panel found that six conditions, including kidney cancer and thyroid disease, had a "probable link" with C8.

In the settlement, "probable link" was defined as being "more likely than not that there is a link between exposure to C8 and a particular human disease among class members." [Emphasis mine.]

DuPont's appeal hinges on what the word "among" means in this case.

I do not think it means what you think it means

It might seem silly to argue over the meaning of a common word like "among," but in the world of legal contracts, millions of dollars can hang on alternate interpretations of common words like this. You may recall a certain high-profile dispute from the '90s about the meaning of the word "is."

Basically, the lawyers for the plaintiff in this case, Ms. Bartlett, are arguing that the word's meaning is the "plain English" meaning: in other words, that "among class members" refers to a condition that applies to all of the class's members.

However, DuPont is disputing that interpretation. Its lawyers argue that "among class members" doesn't necessarily refer to a condition affecting every single member of the class: just to some of them. If the authors of the settlement agreement wanted to refer to every single class member, they argued, the agreement should have said "in every individual class member" instead.

Why it matters

In the 2004 agreement, DuPont agreed to accept the outcome of the science panel's findings, and further agreed not to dispute whether PFOA was capable of causing the conditions identified by the panel. However, in the original Bartlett v. DuPont trial, DuPont attempted to do just that, alleging that Ms. Bartlett's obesity caused her cancer because her exposure to PFOA was too low to have done so.

Ms. Bartlett's lawyers objected, pointing to the 2004 agreement. They argued that the agreement prohibited DuPont from making arguments about exposure levels. In response, DuPont disputed the meaning of the word "among," but the original trial judge sided with the plaintiff. Now DuPont is making the same argument to the appeals court.

DuPont is probably fighting an uphill battle here. Research from Cornell University indicates that of all cases appealed by the defendant, the appeals court only reverses the verdict about 10% of the time. But considering that the judgment against DuPont was for $1.6 million, and there are 3,500 more outstanding cases, it makes sense that DuPont would try to get the ruling reversed, even if it is a long shot.

However, even if the ruling is overturned, DuPont might not be off the hook. The case could be sent back to the lower court for a retrial, allowing DuPont to make its obesity argument...and the company could still lose. Worse, as one appellate judge pointed out, if the 2004 agreement is voided, it could open the door again for more PFOA lawsuits against the company: "What is to keep the other 75,000 people who were excluded from the class as a result of the science panel from suing you based on another epidemiological study?"

Investor takeaway

Statistically speaking, DuPont is probably going to lose the appeal. At least one litigation analyst who is following the case, Thomas Claps of Susquehanna Financial Group, agrees. 

A loss would probably mean DuPont needs to start settling the outstanding cases, which could mean payments totaling half a billion dollars or more. Chemours, which indemnified DuPont against all PFOA-related cases, might be forced to shell out most if not all of those payments, although it has made statements casting doubt on the extent of its liability. A loss could impact 3M, which is facing PFOA-related lawsuits of its own.

However, even if DuPont wins the appeal, the effect on the company's bottom line will still be uncertain. It may be able to lower its settlement payouts or have a better shot at winning future cases at trial, but it also might find itself faced with further legal liabilities from people who had been prevented from suing the company under the terms of the 2004 agreement. Before buying any of these companies, investors should be aware of the potential fallout from this litigation.