After four years, three different legal theories, four million documents, hundreds of hours of depositions, 11 embarrassing days of trial for the New York Attorney General (NYAG) and a month long wait, the verdict is in: ExxonMobil did not deceive or mislead investors over climate change impacts. The decision from New York Supreme Court Justice Barry Ostrager will have ramifications for Massachusetts Attorney General Maura Healey’s related lawsuit against the company, which copied and pasted portions of New York’s lawsuit.
In his verdict, Justice Ostrager highlighted:
“The Office of the Attorney General offered no testimony from any investor who claims to have been misled.”
“The testimony of the expert witnesses called by the Office of the Attorney General was eviscerated on cross-examination and by ExxonMobil’s expert witnesses.”
“What the evidence at trial revealed is that ExxonMobil executives and employees were uniformly committed to rigorously discharging their duties in the most comprehensive and meticulous manner possible. More than half of the current and former ExxonMobil executives and employees who testified at trial have worked for ExxonMobil for the entirety of their careers. The testimony of these witnesses demonstrated that ExxonMobil has a culture of disciplined analysis, planning, accounting, and reporting. The Court heard testimony from ten present and former ExxonMobil employees, most of whom were called by the Office of the Attorney General as adverse witnesses. There was not a single ExxonMobil employee whose testimony the Court found to be anything other than truthful.”
“Significantly, there is no allegation in this case, and there was no proof adduced at trial, that anything ExxonMobil is alleged to have done or failed to have done affected ExxonMobil’s balance sheet, income statement, or any other financial disclosure. More importantly, the Office of the Attorney General’s case is largely focused on projections of proxy costs and GHG costs 2030 and 2040. No reasonable investor during this period from 2013-2016 would make investment decisions based on speculative assumptions of costs that may be incurred 20+ or 30+ years in the future with respect to unidentified future projects.”
“In sum, the Office of the Attorney General failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor. The Office of the Attorney General produced no testimony either from any investor who claimed to have been misled by any disclosure, even though the Office of the Attorney General had previously represented it would call such individuals as trial witnesses.” (emphasis added)
This rebuke of the NYAG’s case is further compounded by the fact that two charges related to intentional misconduct were dropped at the 11th hour during the NYAG’s closing statement once it was clear that the evidence presented at trial did not support those claims. In an attempt to avoid an unfavorable ruling the NYAG only pursued charges related to the Martin Act—which only requires proof that investors could have been confused by public information.
The final charges are a far cry from the original allegations of a “longstanding fraudulent scheme” conducted on the part of ExxonMobil and the creation of a “Potemkin village” to craft an “illusion” of what the realities of climate risk were. But even with the benefit of the expansive Martin Act, the NYAG still came up empty-handed. This ruling further underscores that this case was a clear waste of time and taxpayer money that resulted in no actual climate solutions.
What This Means for the Company – and Other Lawsuits
Just before the start of trial, InsideClimate News – who published the initial stories that kicked off the “Exxon Knew” campaign – stated that “[w]hat happens in the New York courtroom will reverberate in the climate cases yet to come.” While they probably were hoping for different “reverberations,” the statement holds true: this verdict confirms the fact that ExxonMobil did not mislead investors on climate risks, casting a shadow on Massachusetts Attorney General Maura Healey’s case, which had already cost taxpayers $63,000 in its first year – nearly three years before she even filed her complaint.
More broadly, this also strikes a significant blow to the broader crop of climate-related public nuisance lawsuits bring pursued across the country. Considering the potential cost to taxpayers – with over $800,000 spent for just two “expert” witnesses in the NYAG’s case alone – taxpayers should hold officials who have announced similar politically motivated lawsuits against energy companies accountable for their use of public funds and resources.
Part of an Activist Playbook
Although the NYAG’s sham investigation was allowed to continue for far too long, the ultimate verdict wasn’t particularly surprising – for anyone actually paying attention to the facts. Let’s looks back on the countless signs that the NYAG’s case was doomed from the start.
In March 2016, then-NYAG Eric Schneiderman, along with 16 other AGs and Al Gore, held a press conference announcing they “agree[d] to coordinate efforts” for a “historic state-based effort to combat climate change.” It was at this press conference where Massachusetts AG Maura Healey announced her investigation into ExxonMobil – yet it would be over three years before she actually brought a case against the company, conveniently during the NYAG’s trial.
Just one month later in April 2016, this coalition began to crumble as their true motivations were exposed. As Reuters reported at the time, this coalition received “guidance” in a private presentation from activist Peter Frumhoff from the Union of Concerned Scientists (UCS) and Matt Pawa, a trial lawyer who had sued ExxonMobil in the past. Frumhoff and Pawa’s involvement is notable as they both participated in the 2012 conference in La Jolla, California, which sought ways to bring litigation against energy companies – a key strategy of which was finding a “single sympathetic state attorney general” who could help bring “key internal documents to light.”
In August 2016, additional emails showed several of the 17 AGs in the coalition expressed concern about being associated with the NYAG investigation. The Iowa AG’s office called Schneiderman a “wild card” and the Virginia AG’s office said his investigation against the company made them “nervous” and were reluctant to be associated with the investigation. In fact, the Delaware AG’s office was so uncomfortable with the investigation that they pulled out of the coalition all together, and ultimately only Schneiderman, Healey, and the U.S. Virgin Islands AG opened investigations, with the Virgin Islands backing out within three months.
Changing Legal Theories
While the NYAG initially focused its investigation on “Exxon Knew” allegations about hiding climate change research, its failure to find anything to substantiate this theory – as well as a second legal theory – ultimately left the NYAG with charges about obscure accounting practices around applications of a “proxy cost of carbon” to its business operations. This theory was equally unfounded, and a separate U.S. Securities and Exchange Commission investigation into the company over the same issue “concluded nothing warranted enforcement action or additional scrutiny of the company.”
In 2018, after reviewing more than four million internal ExxonMobil documents and failing to find any “smoking gun” over the course of its three year investigation, ExxonMobil told the NYAG to “put up or shut up,” and Justice Ostrager ordered the office to either drop their investigation or bring charges against the company. Deciding to take these baseless claims to trial, the result was nothing short of disastrous and embarrassing for the NYAG.
‘Trial of the Century’ Turned Flop
Originally, the NYAG ExxonMobil lawsuit was advertised as the “climate trial of the century” and “historic” by the media and activists who built this trial up as the bellwether for all other climate cases, even comparing it to the takedown of Al Capone.
What these groups failed to realize is that the NYAG’s allegations against the company were completely unfounded and had nothing to do with climate change, with the NYAG failing “to produce any definitive evidence that the oil company intentionally misled investors about how it accounted for climate-change risks.” In fact, multiple witnesses for the NYAG testified that they didn’t even read the company’s Managing the Risks or Energy and Climate reports, even though these are the documents that supposedly misled investors.
Ultimately this failure to provide any real evidence against the company and the obvious political motivations behind the case led some to call the case “a tragic waste of taxpayer money” and a “parody of a climate trial” in which the NYAG “totally disgraced itself.” Once the writing was on the wall, about halfway through the trial, even the NYAG’s biggest proponents started walking back the significance of the case.
Conclusion
With Justice Ostrager’s ruling, after four years and 4 million pages of company records, and using the most powerful securities law on the books, the only thing the NYAG has to show for their effort is a massive bill to taxpayers and years of false allegations. Let’s hope other municipalities considering lawsuits learn from the NYAG’s example and use their resources to better their communities, rather than embark on a four-year wild goose chase.