By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
New York Supreme Court Judge Barry Ostrager yesterday blocked three of Exxon’s four possible affirmative defenses against New York state’s lawsuit for alleged climate fraud.
Then-New York state attorney general Barbara Underwood filed the suit under the state’s Martin Act last year (see complaint here), following a three-year investigation by her predecessor, Eric Schneiderman (who was forced to resign his office after several women accused him of physical abuse).
Judge Ostrager’s ruling clears the way for current New York attorney general, Letitia James to take the company to trial in October.
New York’s Martin Act, enacted in 1921, is a powerful tool for forcing corporate accountability for fraud and other misdeeds. Many other states also have similar statutes in place, including California and Massachusetts.
Beginning with the Clinton-era tobacco litigation, state attorney generals evolved into a more formidable force taking up a small bit of the slack as the Department of Justice and other federal regulators have shied away from taking tough prosecutorial stances against corporate misconduct (on the tobacco issue, see this summary of the Master Settlement Agreement by the Public Health Law Center). While serving as New York’s attorney general, Eliot Spitzer undertook successful actions against financial industry transgressions. His prosecutorial successes propelled him to the governor’s office, until a 2008 sex scandal forced his resignation.
As Bloomberg reports in Exxon’s Defense Against Climate Change Suit Narrowed by Judge:
Justice Barry Ostrager in Manhattan on Wednesday dismissed three lines of attack by Exxon, including its claim that former New York Attorney General Eric Schneiderman engaged in “official misconduct” when he started the investigation three years ago as part of an “activist agenda.”
Exxon’s only remaining so-called “affirmative defense” is that the attorney general’s office engaged in selective enforcement when it sued because the probe was brought in bad faith. Such defenses are used to undercut legal claims without addressing the merits of the case.
Ostrager reserved judgment on the selective enforcement issue, but noted (according to Bloomberg):
“At the end of the day you’re going to either prove a Martin Act violation or not,” Ostrager said to the attorney general’s lawyer, Marc Montgomery. “These affirmative defenses are irrelevant to that case.”
What Happens Next?
Judge Ostrager’s rejection of Exxon’s affirmative defenses allows the case to proceed, meaning Exxon now must produce documents in response to New York’s discovery requests, according to this Climate Liability News account, Judge Rejects Exxon Challenges to New York’s Climate Fraud Suit.
Many relevant documents may already have been disclosed, as the commonwealth of Massachusetts is separately pursuing its own climate change litigation. As Vox reported in January in The Supreme Court just declined to hear Exxon Mobil’s appeal in a climate change lawsuit:
The Massachusetts Supreme Judicial Court decided last April that Exxon would have to start turning over internal documents about its knowledge about the impacts of fossil fuel combustion on the global climate. Exxon appealed the decision to the Supreme Court, arguing that the Massachusetts attorney general doesn’t have jurisdiction to compel the company to release documents.
By refusing to hear Exxon Mobil’s appeal, the United States Supreme Court left the Massachusetts Supreme Judicial Court decision standing, requiring the company to begin handing over documents.
As Climate Liability New reports:
New York contends that Exxon violated the Martin Act when it “employed internal practices that were inconsistent with its representations, were undisclosed to investors, and exposed the company to greater risk from climate change regulation than investors were led to believe.”
New York’s lawsuit said “this fraud reached the highest levels of the company” and included former chief executive Rex Tillerson, who became President Trump’s first Secretary of State in 2017.
This is the second time a judge has turned aside misconduct claims by Exxon. U.S. District Judge Valerie Caproni dismissed a case last year that Exxon filed in federal court to stop New York’s investigation.
The company has maintained that the attorney general’s suit is politically motivated and claimed that Schneiderman used his email account to communicate with third-party attorneys during a nearly three-year investigation he launched in 2014 into the company’s actions and communications about climate change.
The investigation revealed that Exxon used two methods of climate accounting— one for public disclosure to investors and one for private internal use—to potentially defraud investors. It also revealed that Tillerson used an alias email account for certain internal communications.
Trump Administration Policy
The Trump administration is pursuing a constellation of pro-fossil fuel policies , largely denying that the phenomenon exists, let alone is a problem, and that remedies are urgently needed (but see today’s crosspost, Adding to Planetary Alarm Bells, Top US Finance Official Warns Climate Crisis a Recipe for Global Economic Collapse).
Denial at the federal level leaves it to state attorneys general and private litigants to bring climate change lawsuits. State AGs don’t face the formidable standing hurdles that stymie many private lawsuits – particularly when the matter at issue concerns, arguably, a public policy question. Just as an aside, this contrasts starkly with the situation in India, which allows for a public interest litigation, in which the person or group bringing the action cannot have any personal interest in the litigated matter (see this wikipedia summary, Public interest litigation in India).
In addition, shareholders in fossil fuel companies have also put forward resolutions intended to force fossil fuels companies to alter their climate changes responses (see this Reuters account,Exxon shareholders reject resolutions on climate and splitting CEO, chairman roles).
For those interested in following ongoing developments in this area, I recommend the Climate Liability News website. Their articles are thorough, but not unduly legalistic; that means they’re accessible to non-lawyers, but written carefully enough so as not to exasperate lawyers. I check the website often, and occasionally find material for links, as well as fodder for posts. Their scope isn’t limited to the US alone; the current site includes article about issues in Canada, the European Union, Italy, and Romania.