Fossil Fuels on Trial: New York’s Lawsuit Against Exxon Begins

Source: By John Schwartz, New York Times • Posted: Wednesday, October 23, 2019

Protesters gathered outside Manhattan Supreme Court before a lawsuit against Exxon Mobil began on Tuesday.
Jefferson Siegel for The New York Times

After four years of legal sparring and finger-pointing, oil-industry giant Exxon Mobil went to court on Tuesday to face charges that the company lied to shareholders and to the public about the costs and consequences of climate change.

The case turns on the claim that Exxon kept a secret set of financial books that seriously underestimated the costs of potential climate change regulation while claiming publicly that it was taking such factors into account. It follows a sprawling investigation that included millions of pages of documents and allegations of a chief executive’s secret email account.

In his opening statement, Kevin Wallace, a lawyer with the New York Attorney General’s office, argued that “the gap between what Exxon said it was doing and was actually doing was significant, and had an impact on the bottom line.”

While “we are not telling Exxon how to run its business,” Mr. Wallace said in closing, the company, he said, “has to be honest with investors.”

Representing Exxon, the attorney Ted Wells Jr. said in a vehement opening statement that while the company has long acknowledged climate change is real, “climate change does not permit the New York Attorney General to bring a meritless complaint, and one that is so unconnected from the truth.”

The case is only the second climate change lawsuit to reach trial in the United States, but it could be a bellwether for the long line of other suits awaiting trial that are intended to hold fossil fuel companies responsible for the costs of climate change.

The lawsuit was filed last year by the New York Attorney General’s office and claims that the oil industry giant engaged in a yearslong “fraudulent scheme” that “in effect erected a Potemkin village to create the illusion that it had fully considered the risks of future climate change regulation and had factored those risks into its business operations.” The deception “exposed the company to greater risk from climate change regulation than investors were led to believe,” according to the lawsuit.

Exxon has vigorously fought the charges, and maintains that the government’s theory of its financial tools is flawed at best and, at worst, disingenuous. “The evidence will show Exxon Mobil did not commit securities fraud, did not make any misleading statements,” Mr. Wells said. “Exxon Mobil did nothing wrong.”

He called the company’s procedures “robust,” and accused the attorney general’s office of engaging in a politically motivated effort to “vilify” the company with lies.

Before the trial began, about 50 protesters stood in front of the courthouse with signs and an enormous banner that read “CLIMATE CRISIS #ExxonKnew MAKE THEM PAY.”

More than 1,000 climate change lawsuits have been filed in the United States, said Michael Gerrard, founder of the Sabin Center for Climate Change Law at the Columbia University Law School. (The first to reach trial was brought more than a decade ago by automotive industry companies to challenge Vermont’s ability to set emissions standards.)

What the Exxon case is not about is whether climate change is real, or caused by human activities — or Exxon’s efforts over decades to muddy the public discussion of climate change while its own research showed the urgency of the issue. Those topics are “what everyone thought it was going to be when the investigation started,” Professor Gerrard said; instead, the case will focus on narrower, more technical grounds, he said.

Exxon has long conducted research into climate change, and published much of it in the scientific literature. In 2015, Inside Climate News and The Los Angeles Times used materials from corporate archives to show the extent of that research and how it was used in long-term planning, even while the company was funding groups that sought to spread doubt about climate science.

Exxon pledged to stop funding such groups in the mid-2000s, and now says that it accepts the science and the need for action to blunt the worst effects. The company supported the Paris climate deal, the global pact aimed at reducing emissions of planet-warming greenhouse gases.

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The state filed the lawsuit last year. Maura Healey, the attorney general of Massachusetts, has been pursuing a similar investigation and is expected to file a lawsuit soon.

In recent filings, New York said that for years, the company “repeatedly represented that it expected governments to adopt more costly and stringent climate change regulations over the coming decades” for projects like those that would extract oil from Canadian tar sands.

“Exxon Mobil’s statements would have led a reasonable investor to believe that it used this cost of carbon in projecting the costs associated with the company’s emissions from its investments and operations,” the state said. “But Exxon Mobil did no such thing.”

The suit claims the company used a lower cost of carbon in its internal estimates — and when employees did try to apply the publicly disclosed higher costs, the resulting price tags were so high that the company “instructed its employees not to apply those costs.” The result was that “Exxon Mobil made its assets appear significantly more secure than they really were, which had a material impact on its share price.” The emphasis on shareholder value is crucial to the state’s legal authority under the Martin Act, New York’s sweeping shareholder protection law.

Justice Barry R. Ostrager of New York State Supreme Court who is presiding over the case, has thrown out most of the claims of selective political prosecution as potential defenses in the case. Exxon has pursued those claims in a separate federal court case that is now before the Court of Appeals for the Second Circuit, after a federal district judge ruled forcefully against the company’s arguments

The case comes to trial as other lawsuits over climate change are making their way through the courts. In two cases involving the city of Baltimore and the state of Rhode Island, the industry has asked the Supreme Court to intervene before the process of discovery begins. The Supreme Court ruled against the companies on Tuesday, allowing the cases to proceed. And a federal case brought on behalf of young plaintiffs against the government of the United States for not fighting climate change, which was supposed to begin a year ago, is caught up in procedural appeals at the Ninth Circuit that could conceivably derail it.

If the state prevails, it could prove to be expensive for Exxon Mobil. A state expert has estimated the cost to shareholders of Exxon Mobil’s actions at somewhere between about $476 million and $1.6 billion. (The company posted earnings of $20.8 billion for 2019.)

Ann E. Carlson, co-director of the Emmett Center on Climate Change and the Environment at the University of California, Los Angeles law school who has consulted pro bono with attorneys in some of the state and local cases, said if the state proves what it is claiming, “this is a company that has been engaged in denial and deception across several fronts, and I think that denial might be coming back to haunt them and may end up costing them millions and even billions of dollars.”