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Sunday, December 15, 2019

New York's incredible shrinking lawsuit against Exxon could mean trouble for Massachusetts

Attorneys & Judges

Nov 15, 2019

Jamesletitia
James

New York’s surprising decision to drop half its case against ExxonMobil in the closing arguments of a closely watched trial over climate-fraud claims was unusual and probably indicates the state never had the evidence it needed, said an experienced litigator who has handled environmental lawsuits for government clients.

Whether Massachusetts heeds the warning and trims its nearly copycat lawsuit filed against ExxonMobil last month is unknown. But the fact New York Attorney General Letitia James decided not to try to convince a judge of the merit of the state’s fraud claims should be “persuasive” in Massachusetts, said Brian Glasser, an attorney with Bailey Glasser in West Virginia and D.C. who has won tens of millions of dollars in civil verdicts over his career.

“Massachusetts can’t be bound by the failure of New York’s case,” said Glasser, who isn’t involved in the litigation. “But if it’s the exact same fraud claim, I don’t know where the evidence is going to come from.”

After a multiyear investigation started by her predecessor Eric Schneiderman (who stepped down after being accused of assault by multiple women), AG James sued ExxonMobil last year on claims it kept two sets of climate books - one to reassure investors it was considering the future cost of carbon in its planning and another with lower carbon costs it used to evaluate the profitability of future investments. 

That was a 180-degree switch from Schneiderman’s initial theory, which was that ExxonMobil knew the true costs of global warming but was hiding them from the public. 

The final switch came in the first sentence of New York Assistant Attorney General Jonathan Zweig’s closing argument, when he said he would only address claims based on the Martin Act, an all-purpose statute that doesn’t require the state to prove fraudulent intent. Judge Barry Ostrager, an experienced securities litigator before he became a judge, interrupted Zweig.

“And what about the fraud claim?” he asked. 

“Not advancing that at this time, your Honor,” Zweig answered.

The state’s last-minute concession angered ExxonMobil’s attorney, Paul Weiss partner Theodore Wells, who said it wasn’t fair for the state to subpoena 4 million documents, depose numerous ExxonMobil executives and subject the company to a trial only to drop half its case on the close.

“Right before we started this trial, as you know, the state of Massachusetts copied the claim word for word,” he told the judge. “And we have a right, after trying the case, I submit to either a stipulation that says they didn't produce evidence to support the claims and a dismissal with prejudice.”

Judge Ostrager shut Wells down immediately, saying the state’s maneuver meant the fraud claims had been dismissed with prejudice and the matter was out of his hands. 

Plaintiffs frequently prune their cases before trial based on which claims they believe they have the best chance of proving in court, Glasser said. In a contract dispute, for example, there may be four breaches of contract but the client only needs to prove one to win so an attorney might drop the other three on the eve of trial to concentrate on the strongest one.

“To take it all the way to the end and walk at closing arguments, though, that’s very uncommon,” Glasser said. "At the end of the day the reason they dropped those claims must have been they didn’t have good evidence to prove a fraud. You must have clear and convincing evidence.”

ExxonMobil argued from the beginning the state didn’t have any evidence of fraud or misleading statements to the public. New York argued ExxonMobil misled investors by applying lower future costs of carbon in internal models it used to evaluate potential projects but the company said its highly confidential planning documents were invisible to outsiders and couldn’t have influenced the price of its stock.

To find a Martin Act violation, Judge Ostrager must decide if ExxonMobil made a false statement when it said it applied a uniform future price of carbon across all its operations and that the statement was material to investors. The state doesn’t need to prove intent, but it must prove materiality, which it attempted to do with a $1,050-an-hour expert who found news of California’s climate investigation – but not New York’s – influenced ExxonMobil’s stock price.

In Massachusetts, Attorney General Maura Healey faces a higher bar, because she must show that ExxonMobil made fraudulent statements with the intent of deceiving investors and the public. Her sweeping claims also raise the prospect of a First Amendment defense, since she accuses ExxonMobil of using its public statements to delay what she considers to be necessary efforts to transition away from fossil fuels toward renewables. ExxonMobil will likely argue its statements are protected speech about matters of public debate.

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Organizations in this Story

New York Attorney GeneralExxon MobilMassachusetts Attorney General's OfficeBailey & Glasser, LLP

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