NYAG James Exxon Case Goes Down in Flames

Climate Litigation Watch is reporting the ruling by Judge Barry Ostrager ending the case brought by NYAG Leticia James against ExxonMobil.  The loss could hardly be more complete.  The full text of the ruling is here.  The juicy bits are excerpted in italics below with my bolds.

Supreme Court of New York, New York County, the Honorable Barry Ostrager presiding.

Decision After Trial

Nothing in this opinion is intended to absolve ExxonMobil from responsibility for contributing to climate change through the emission of greenhouse gases in the production of its fossil fuel products. ExxonMobil does not dispute either that its operations produce greenhouse gases or that greenhouse gases contribute to climate change, But ExxonMobil is in the business of producing energy, and this is a securities fraud case, not a climate change case. Applying the applicable legal standards, the Court finds that the Office of the Attorney General failed to prove by a preponderance of the evidence that ExxonMobil made any material misrepresentations that “would have been viewed by a reasonable investor as having significantly altered the ‘total mix’ of information made available.” TSC Indusiries, Ine. v, Northway, Inc,, 426 U.S. 438 (1976).

The Office Attorney General is Not Entitled to Any Relief.

The Court also finds that the Office of the Attorney General is not entitled to any monetary damages or injunctive relief because the Office of the Attorney General did not prevail on its first and second causes of action. If the Court had reached the issues of damages, the Court would have found that the Office of the Attorney General failed to prove any damages by a preponderance of the evidence for the reasons stated infra.

The Office of the Attorney General had the burden to prove that ExxonMobil made misrepresentations and that ExxonMobil investors would have considered any alleged misrepresentations important in light of the “total mix of information” available to them. TSC Industries, Inc, v. Northway, Inc., 426 U.S. 438, 449 (1976). The Court finds there was no proof offered at trial that established material misrepresentations or omissions contained in any of ExxonMobil’s public disclosures that satisfy the applicable legal standard. The total mix of information available to ExxonMobil investors during the relevant period included an annual, publicly-filed report called the Outlook for Energy, the two March 2014 Reports, ExxonMobil’s Form 10-Ks, ExxonMobil’s annual Corporate Citizenship Reports, and a host of other publicly available information that was not the subject of testimony at trial (including ExxonMobil’s Annual Shareholder reports).

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 in 2030 and 2040. No reasonable investor during the period from 2013 to 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. See Singh v. Cigna Corp., 918

At bottom, the case presented by the Office of the Attorney General is largely predicated upon the proposition, which this Court rejects, that during the period of time covered by the Complaint, ExxonMobil’s disclosures led the public to believe that its GHG cost assumptions for future projects had the same values assigned to its proxy cost of carbon. The existence of ExxonMobil’s DataGuide with separate sections and appendices for proxy costs and GHG costs is corroborative of ExxonMobil’s assertion that proxy cost of carbon and GHG costs are different metrics, a proposition of the Office of the Attorney General conceded before any testimony was presented at trial. Explicit statements in various publications confirmed this to be the case.

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.

To support its theory that the alleged misstatements in the March 31, 2014 publications were material, the Office of the Attorney General offered the expert testimony and expert report of Dr. Eli Bartov who concluded that there was inflation on the stock price of ExxonMobil from April 1, 2014 to June 1, 2017. Tr. 1149:25-1150:4. Dr. Bartov posited that the inflation period began after the alleged affirmative misrepresentations contained in the two March 31, 2014 publications. Significantly, the Office of the Attorney General offered no proof that there was any increase in the stock price of ExxonMobil immediately following the publication of Managing the Risk and Energy and Climate and Dr. Bartov perplexingly testified that he did not conduct an analysis of whether or not ExxonMobil’s stock increased as a result of the alleged misrepresentations in the March 31, 2014 publications “because it was completely unrelated to my analysis.” Tr. 1233:8-13. By contrast, ExxonMobil’s expert, Dr. Frank Allen Ferrell,” determined that there was no increase in ExxonMobil stock on April 1, 2014. Tr. 1967. In short, there is no evidence that any misleading statements in these publications inflated the price of ExxonMobil stock. See DX711 ¶ 15 Expert Report of Allen Ferrell.

None of Dr. Bartov’s corrective disclosures contain any statements from ExxonMobil acknowledging a misstatement or correcting a previous disclosure. Tr. 1208. They all pertain to regulatory investigations of ExxonMobil announced in the mainstream press. In short, the news of the California Attorney General’s reported investigation is precisely the kind of news that the Office of Attorney General’s witness Rodger Reed characterized as “headline risk.” Additionally, as ExxonMobil’s highly credentialed expert, Dr. Ferrell, testified, there is something circular about claiming that a stock drop precipitated by the announcement of an investigation constitutes evidence of wrongdoing. Indeed, by Dr. Bartov’s reasoning, any decline in the value of ExxonMobil stock after the June 2, 2017 filing of the Office of the Attorney General’s complaint is the result of an ill-conceived initiative of the Office of the Attorney General.

V. Conclusion

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. ExxonMobil disclosed its use of both the proxy cost and the GHG metrics no later than 2014. Perhaps, the 2014 paragraph in Managing the Risks which indicated that ExxonMobil applied a GHG cost “where appropriate” and which was the subject of questioning of virtually every witness in the case could have been written in bold type, but the sentence was consistent with other ExxonMobil disclosures and ExxonMobil’s business practices. The publication of Managing the Risks had no market impact and was, as far as the evidence adduced at trial reflected, essentially ignored by the investment community.

The testimony of all the present and former ExxonMobil employees who were called either as adverse witnesses by the Office of the Attorney General or as defense witnesses by ExxonMobil was uniformly favorable to ExxonMobil, and the Court credited the testimony of each of those witnesses. 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. Confronted with the disclosures in ExxonMobil’s Corporate Citizenship Reports, Form 10-K’s, and ExxonMobil’s annually published Outlook, the Office of the Attorney General failed to prove by a preponderance of the evidence that any alleged misrepresentation in Managing the Risks and Energy and Climate (or any other disclosure by ExxonMobil) was false and material in the context of the total mix of information available to the public.

For all of these reasons, the claims asserted by the Office of the Attorney General under the Martin Act and Executive Law § 63(12) are denied, and the action is dismissed with prejudice.
Dated: December 10, 2019
Barry R. Ostrager, JSC

Background: New York AG’s Disgraceful Exxon Trial

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