Exxon lost in court. Here’s what the judge said on climate

Source: Benjamin Hulac, E&E News reporter • Posted: Tuesday, April 3, 2018

Valerie Caproni, a federal judge in Manhattan, delivered a stinging rebuke to Exxon Mobil Corp. when she terminated the oil giant’s lawsuit trying to freeze probes into its climate policies by state attorneys general.

Citing “thin allegations,” Caproni, an Obama appointee for the U.S. District Court for the Southern District of New York, ruled it was “extraordinary” that Exxon urged federal judges to halt “duly-authorized investigations into potential fraud.”

Yet her 48-page decision omits a key fact: The attorneys general from New York and Massachusetts have yet to file a single charge against Exxon.

As the struggle between Exxon and the states drags toward its third year, the decision last week stands to prolong the probes by Eric Schneiderman and Maura Healey — the Democratic attorneys general of New York and Massachusetts, respectively. It also suggests that the states are controlling the pace of the legal fight, which has allowed them comb though reams of Exxon corporate records.

“At every turn in our investigation, Exxon has tried to distract and deflect from the facts at hand,” Schneiderman said. For her part, Healey said the public ought to know if Exxon withheld information about the dangers of climate change, which it began studying as early as the 1970s.

“Massachusetts customers and investors deserve answers from Exxon about what it has known about the impact of burning fossil fuels on its business and the planet, and whether it hid this information from the public,” Healey said (Greenwire, March 30).

Exxon spokesman Scott Silvestri declined to say if the company would appeal. “We are reviewing the judge’s decision and are evaluating our next steps,” he said in an email.

Schneiderman tiptoed close to unveiling charges in June 2017, when he said he had “uncovered significant evidence” that Exxon may have deceived investors about its plans for dealing with potential regulations on greenhouse gases.

The Texas-headquartered company has long said it uses a “proxy cost” in its financial calculations and investment decisions to mimic prices it might have to pay under a carbon tax or cap-and-trade scheme (Climatewire, June 5, 2017).

That might be false, according to Schneiderman. “The exercise described to investors may be a sham,” he said.

Exxon disputes that accusation.

Court papers filed by Schneiderman contain other allegations: Former Secretary of State Rex Tillerson, who was the CEO of Exxon, knew of this potential fraud; the company stonewalled legal inquiries by withholding records and witnesses; and Exxon associates knowingly allowed the destruction of key documents.

Exxon has other legal loose ends to tie up, too.

After The Wall Street Journal reported in September 2016 that the Securities and Exchange Commission was investigating how Exxon prices assets on its accounting books, in particular related to its oil fields, the company said it was “fully complying” with the agency’s requests (E&E News PM, Sept 20, 2016).

The SEC probe, like those being pursued by New York and Massachusetts, is said to focus on whether Exxon inflated its own value by failing to consider how climate regulation could affect its business.

Separately, Exxon is fighting Schneiderman in New York state court over its accounting records and Healey in Massachusetts to limit her legal reach.

Schneiderman has a muscular state law at his disposal — the Martin Act.

New York Gov. Andrew Cuomo (D), as attorney general, subpoenaed five energy companies under the act, asking for energy- and climate-related information. Before him, Eliot Spitzer used the act to crack down on Wall Street. And Schneiderman carved out his own settlement with Peabody Energy Corp., which had “repeatedly denied” it could predict how greenhouse gas regulations would alter its business, despite forecasts by in-house consultants, who said they would leave a grim future for the coal company (Climatewire, Sept. 6, 2016).

Schneiderman’s Peabody settlement is similar to his current Exxon inquiry — a spokesman once described it as the “best analogue.”

There are also two class-action securities fraud cases in federal courts in Texas that Exxon is defending against (Climatewire, June 12, 2017).

After scouring documents filed by Schneiderman’s office, a handful of trial attorneys accused Exxon of pumping up the value of its oil and gas fields, while simultaneously encouraging employees to invest in company retirement plans, which are heavily based on Exxon’s stock value.

“Exxon’s misrepresentations about its oil and gas reserves were a ticking time bomb,” plaintiffs in a suit brought by employees said in court papers.

Those allegations were based on the idea that Exxon failed to properly consider how climate regulations could make it harder to profit from oil and gas operations, the plaintiffs said. “Eventually, that bomb would go off and the truth would have to be disclosed, bringing the artificial inflation of Exxon’s stock to a painful end,” they said.

The second class-action suit covers anyone who bought Exxon stock in a specific window of 2016.

Members of Congress have also targeted Exxon.

Sens. Sheldon Whitehouse (D-R.I.) and Bernie Sanders (I-Vt.) have called for racketeering investigations into Exxon, similar to the cases brought against Big Tobacco in the 1990s for minimizing smoking risks. And California Democratic Reps. Ted Lieu and Mark DeSaulnier made similar requests of the Department of Justice, when Loretta Lynch was attorney general.

Those requests fizzled.

In her decision last week, Judge Caproni, who previously compared people who believe the Earth is flat to those who deny climate change, dismissed Exxon’s lawsuit with prejudice. That means the oil company cannot file it again.

“Exxon’s internal documents regarding reporting of reserves may be relevant to any number of theories, including, for example, whether Exxon understood the science of climate change in fundamentally different ways than it told its investors and the public,” wrote Caproni.