NEW YORK (Legal Newsline) – Closing arguments were made Thursday in a historic civil trial in New York Supreme Court in which the state’s attorney general alleges the oil giant Exxon Mobil deceived investors by minimizing the future cost impacts of climate change to paint a rosier fiscal picture.
Two complaint counts against the company alleging deliberate fraud were dropped by AG Letitia James' office after closing arguments over the protest of Ted Wells, attorney for ExxonMobil. Wells said the company’s executives had been slandered and asked Supreme Court Judge Barry Ostrager for a finding that the fraud claims had been unsupported by the evidence.
Ostrager instead ruled to dismiss the claims with prejudice.
The bench trial lasted two weeks and the questioning of witnesses was closed to broadcast media. Courtroom View Network streamed the opening and closing remarks.
The outcome of the trial could signal a flood of new lawsuits intended to hold oil and gas companies accountable for costs associated with global warming. Massachusetts AG Maura Healey recently filed her own lawsuit, dubbed an attack on free speech by a Northwestern law professor. This article lays out the effort by advocates, private lawyers and government officials to attack Exxon.
Former New York Attorney General Eric Schneiderman launched the investigation against ExxonMobil three years ago. After leaving office when women accused him of abuse, the case has been inherited by current Attorney General James.
The suit states that ExxonMobil officials cooked their books to deceive the public about the future cost of oil and gas development in the face of stricter government regulations to combat climate change. State attorneys said the company had what amounted to two sets of books, estimating the cost of future climate regulations based on $80 per ton of carbon emissions by the year 2040 in developed countries, but instead used a figure half that amount or lower.
The scheme was intended, state attorneys alleged, to make oil and gas projects like a tar sands development in Alberta, Canada to appear more profitable.
Wells, an attorney with the law firm of Paul, Weiss, Rifkind, Wharton & Garrison in New York, appeared first, telling the court the case against Exxon Mobil was “meritless.”
“The allegations are just not true,” he said. “ExxonMobil has done nothing wrong.”
Wells indicated there was no way the company could exactly predict costs of unfunded and unknown future oil and gas projects. He said the case was unlike any other in the country’s history.
“This case is a joke, but a cruel joke," Wells said. "A lot of people have been injured and disparaged because of the complaint. These are people (ExxonMobil employees) trying to bring energy to the world. There is no impact on the company’s books and records. There is no impact on decision-making. Nothing happened.”
Wells said two expert witnesses who appeared for the state were not credible and one seemed as though he was doing a sketch on "Saturday Night Live."
“Cost assumption for the year 2040 is a totally speculative number,” Wells said.
Wells said there is no denial that global climate change is a problem.
“But it does not give them the right to bring a meritless case,” he said. “They have produced not one witness in two weeks who was an investor or who represents investors.”
Wells said some of the witnesses who appeared for the state such as Natasha Lamb, director of research for Arjuna Capital, an investment firm based in Durham, North Carolina, had an animus toward ExxonMobil.
Rex Tillerson, former CEO of ExxonMobil and U.S. Secretary of State from 2017 to 2018 appeared as a witness for the defense. Wells said Tillerson testified that internal metrics to estimate climate regulation risks had been properly applied for new oil and gas projects.
“They (Exxon Mobil) had no reason to deceive investors,” Wells said. “The proxy cost (cost of carbon emissions) is embedded in the price assumptions.”
Tillerson reportedly expressed sorrow for the ExxonMobil employees, calling them “diligent professionals” unfairly accused of fraud.
“We have confidence the New York Attorney General has not sustained the burden of proof on each count,” Wells said.
Kevin Wallace, an attorney with the New York Attorney General's Office, told the court that the case came down to two issues: falsity and materiality.
“ExxonMobil misrepresented the carbon costs and the misrepresentations were material to the investors,” he said.
Wallace cited violations of the Martin Act, a law that prohibits deceitful securities practices.
“The evidence and relief we are seeking is straightforward,” Wallace said. “They (ExxonMobil) were using a lower (carbon emission) cost internally.”
Wallace called future GHG (greenhouse gas) costs potentially “massive.”
“Corporate Planning (Exxon Mobil) decided to apply an alternate estimate that showed costs flat into the future,” Wallace said.
Wallace said it’s likely that governments around the world will rise to the challenge of climate change and enact stricter regulations. He added that the issue was not essentially the intent to mislead, but whether investors understood the true picture.
“It’s whether the disclosures were accurate,” Wallace said. “The evidence shows they were not.”
Wallace said Lamb’s testimony expressed a concern that the company’s assets would be stranded in a lower-carbon future. He cited a Standard and Poor’s financial statement that read, “Climate and carbon risks are increasingly material.”
“The (estimated) carbon costs are less protective against risks than what investors were led to believe,” Wallace said. “A decrease in profitability could be significant. The difference is between what it (Exxon Mobil) was doing and what it was saying.”
Wallace asked Ostrager for equitable relief.
“To not mislead investors is not too much to ask,” Wallace said.