The California municipalities accused of misleading their investors on climate change responded last week with a report from a former Securities and Exchange Commission (SEC) official, who claims that the cities and counties had adequately disclosed the risks of climate change. But in an unanticipated twist, the report also demonstrates how the municipalities may have exaggerated the risks of climate change in their lawsuits against fossil fuel companies.
ExxonMobil, one of the defendants of the municipalities’ lawsuits, filed a petition in a Texas District Court in January describing dramatic inconsistencies between the municipalities’ disclosure of climate risks in their bonds and their allegations of past and future damage from climate change in their lawsuits. ExxonMobil suggested that the municipalities were either downplaying the risks of climate change in their bond disclosures or exaggerating the risks of climate change in their lawsuits. The Competitive Enterprise Institute and National Association of Manufacturers later petitioned the SEC to investigate the municipalities for possible securities fraud.
Recognizing the massive legal trouble this could cause, the plaintiffs hired Martha Mahan Haines, the head of the SEC’s Office of Municipal Securities from 2001 to 2011, to produce a report in their defense. Haines finds that the municipalities did not defraud their investors on the risks of climate change, because those disclosures adequately captured the “speculative” and “cautionary” element of assessing climate change risks and damages.
Haines repeatedly emphasizes the uncertainty and inability to predict the effects of climate change, writing, “disclosures of speculative information or projections, when included, are appropriately accompanied by cautionary language in order to emphasize their uncertainty.”
That sentence is stunning because Haines is praising the municipalities for emphasizing the uncertainty of climate projections. Without a doubt, had ExxonMobil used this same language in its disclosures it would spread like wildfire across the climate activist echo chamber as evidence of oil and gas companies manufacturing doubt and denial of climate change. Indeed, activists recently jumped to criticize an energy industry lawyer for quoting from the United Nations’ Intergovernmental Panel on Climate Change’s assessments on climate change, which have consistently noted the uncertainty inherent in climate projections.
To bolster her embrace of uncertainty, Haines adds, “Information that does not yet exist or is unknown necessarily cannot be disclosed.” The Rockefeller-funded website InsideClimate News correctly commented that this argument ironically “echoes what Exxon lawyers” have said when defending the company against accusations that it has not adequately disclosed how it will be impacted by future climate regulations.
Haines also argues that “[t]he maturity of the securities was so short that it was not reasonable to foresee any impact on their timely repayment from long-term sea level change.” Haines adds that “…in the case of sea-level rise and certain other climate impacts, municipal entities generally will not be greatly affected for decades…”
In other words, any potential damage from climate change is speculative, uncertain, and nearly impossible to quantify.
In a separate but related case before a federal judge in Massachusetts, the Conservation Law Foundation (CLF) argued that ExxonMobil had failed to prepare one of its facilities for rising sea levels resulting from climate change. CLF’s complaint relied on the projected effects of climate change by 2050 or 2100, which the judge ruled were not “imminent” enough to allow the complaint to proceed as written. If the plaintiffs were concerned about the effects of climate change in 2050, the judge said, they should refile their case in 2045.
Referring to San Mateo County’s lawsuit, which is nearly identical to the lawsuits filed by Santa Cruz, Imperial Beach, and several others, Haines says San Mateo’s “complaint generally referenced sea level change expected to occur by 2100, long after the maturity of the bonds in question.”
But the lawsuits filed by these cities and counties stress that the threat from climate change is not only imminent, but that some of the impacts have already occurred. For example, San Mateo’s complaint states:
“Sea level rise already adversely affects the County and jeopardizes San Mateo’s sewer systems, beaches, parks, roads, civil infrastructure, and essential public services, and communities…
“Much of the County’s infrastructure and real property is on or near the Pacific Ocean and San Francisco Bay coasts, and has already suffered damage from rising sea levels…
“…the injury giving rise to the County’s claims occurred in San Mateo County…
“Plaintiffs have already incurred, and will foreseeably continue to incur, injuries and damages because of sea level rise caused by Defendants’ conduct…
“San Mateo County has experienced significant sea level rise over the last half century attributable to Defendants’ conduct.” (emphasis added)
Haines plays the same card again when discussing the City of Imperial beach, writing:
“The City completed a sea level rise vulnerability assessment in September 2016. According to that report, although a sea level rise of 1.6 feet or more would negatively affect large portions of the City, the ‘worst-case scenario’ for sea level rise projects a 1.6 foot increase to be reached in 2047 assuming no mitigation or adaptation efforts…Furthermore, even assuming a 2-foot sea level rise, only 0.1 square miles of land in the City that isn’t potentially protected by levees or other flood control structures is below two feet of elevation.”
Haines appears to suggest that 1.6 feet of sea level rise “would negatively affect large portions of the City,” while 2 feet of sea level rise would only impact “0.1 square miles of land in the City.” As a refresher, 2 is more than 1.6, and 0.1 square miles of a 4.2 square mile city is less than “large portions of the City.”
In a recent interview with Legal Newsline, Former California Attorney General Dan Lungren called on the municipalities to be held to a higher standard when discussing climate risks. “I don’t think public entities should be held to such low standard that all we do is make sure they’re not found liable for intentional fraud,” Lungren said. “I would expect those acting in the name of the people to be held to a higher standard.” Lungren continued:
“‘I find it difficult to understand how, on one hand you can make a statement to the court with 92% certainty that these things are going to happen, and going to the people and saying it is unknown,’ Lungren said.
“As AG, Lungren was tasked with making sure state bond offerings were accurate – ‘Had we come across anything contrary to pleadings we were making with the courts, we would have corrected that.’
“No matter how embarrassing it is, lawyers for the California plaintiffs should tell the judges presiding over their cases that they need to withdraw or amend their claims, Lungren said.” (emphasis added)
In defending their bonds from the threat of a SEC investigation, these municipalities have either provided additional evidence that their lawsuits exaggerated the risks of global warming – or, even worse, that they downplayed those risks to investors and then paid someone to say otherwise. The municipalities have not disclosed how much they paid Haines for her review or who covered that cost. Whatever the price, these cities and counties may ultimately regret asking for a report that does more harm than good.
Indeed, this latest stunt tells you everything you need to know about these climate liability lawsuits. They are both internally and externally incongruent, and show that these municipalities and their hired hands will do and say anything to score headlines – even if it means directly contradicting what they said before. In this case, the trial lawyers may even be setting their clients up for additional legal trouble.