Chemical titan DuPont (DD) and its spinoff Chemours (CC -4.62%) lost round one in a court case that could have huge implications for both companies. Now they're hoping to win round two, as well as for fellow chemical giant 3M (MMM -0.63%).

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 2004.

As part of the settlement, a science panel was created that 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 C-8 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."

In the 2004 settlement, DuPont 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 Bartlett's exposure to PFOA was too low to have caused her cancer. 

Bartlett's lawyers objected, arguing that the agreement prohibited DuPont from making arguments about exposure levels. In response, DuPont disputed the meaning of the word "among," claiming that "among class members" doesn't necessarily refer to a condition affecting every single member of the class -- just some of them. DuPont claimed that if the authors of the settlement agreement wanted to refer to every single class member, the agreement should have used the wording "in every individual class member" instead, according to Bloomberg, which covered the trial.

The original trial judge sided with the plaintiff. Now DuPont is making the same argument to the appeals court.

Uncertain outlook

DuPont is 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. So, statistically speaking, DuPont is probably going to lose the appeal. According to Bloomberg, litigation analyst Thomas Claps of Susquehanna Financial Group, also thinks DuPont will lose, based on the judges' apparent skepticism of its argument.

A loss at appeal could lead to huge financial consequences for DuPont and Chemours. Two other "bellwether" cases have ended in judgments against DuPont for a total of $7.6 million in damages (although the company is appealing both). Multiply those kinds of multi-million-dollar judgments by 3,500 plaintiffs and you get numbers that could easily run into the billions, or even the tens of billions. To put that into perspective, DuPont's annual revenue in 2015 was only $25 billion, and Chemours' entire market cap is just over $4 billion.

Chemours might be forced to shell out most if not all of those payments -- if it can even afford them -- because it indemnified DuPont against all PFOA-related cases as part of its spinoff. Recently, though, it has made statements casting doubt on the extent of its liability. But somebody's going to be on the hook for those payments, and neither DuPont nor Chemours have that kind of cash laying around. 

Investor takeaway

Clearly, this whole situation doesn't look good for DuPont or Chemours. And it could even have an impact on 3M, which is facing PFOA-related lawsuits of its own. The only silver lining for the companies here is that chemical companies are constantly being sued, settling, and/or losing on numerous different topics, so these PFOA lawsuits are unlikely to do further damage to their reputations.

However, even if DuPont wins the appeal, the upside is minimal at best. Sure, it would get a (perhaps temporary) reprieve from a $1.6 million payout, and it may have a better shot at winning future cases at trial or settling them for less money. But depending on the outcomes of the other bellwether cases and appeals, and whether DuPont or Chemours is held liable, there's no guarantee. Before buying any of these companies, investors should be aware of these big risks presented by PFOA litigation.