Exxon Beats New York in Climate Change Fraud Case

its accounting for the financial risks of climate change. A trial judge flatly rejected New York States claim that the energy giant engaged in a cynical scheme to mislead investors for years, in a blow to the state's Attorney General, Letitia James. Joining me as pat Parento professor at Vermont Law School, Exxon had managed to whittle down and narrow the case. It went from this sort of broad climate change case to a narrow securities fraud case with a law unique to New York. So how much of a

victory is this for Exxon. Well, it's a victory for sure. I don't think it's has a lot about Exn's liability in some of these other torque cases that have been filed by the municipalities and the states across the country

that are working their way through the federal courts. Exxon may try to claim vindication for what it's done, but I don't think a narrow victory in securities fraud case says much about exns responsibilities for not disclosing what it knew about the dangers of climate change for so many years, and for its failure to warn people, producers, investors, regulators of what it knew was a growing danger. I think

those cases have yet to be tried. The standard of proof here was preponderance of the evidence, the lowest standard, and the judge said that the AG's office failed to prove by a preponderance of the evidence that Exxon made any material misstatements or omissions about its practices and procedures that misled any reasonable investors. The judge also said that the AG's office didn't introduce any witnesses any investors to say that they were misled. How could the a G

miss that in its case? Yes, I found that shocking. Frankly, the judge that they failed to produce any witness or any investor who claimed to have been misled by any disclosure, even though, said the judge, the Attorney General had promised that they were going to call such individuals. I don't know what happened. I mean, it's just a complete failure of the lawsuit. Frankly, I would say the judge at times sort of wraps the knuckles of of the a

G or whoever was trying the case. Yes, he characterized the complaint as hyperbolic. He criticized the lawyers for the way they were presenting the case, going on and on. He mentioned fifty pages of transcript where he finally had to ask a question to clarify what the witness was saying. So it's really surprising because the New York AG is known for having quality legal talent. They have an incredible record of success bringing Martin Act cases in the past.

I don't know what happened with this one. They got over their skis, as we say in Vermont. And also the judge, this has to be one of the worst things that a trial lawyer will hear. The judge said, the AG's own witnesses ended up giving testimony that backed XNS defenses. In fact, one of the things that surprised me was the New York AG was trying to win the case based on xns own witnesses. They kept calling people like Rex Tillerson and like some of the senior

financial advisors and other people from within the corporation. I don't know what the AG was thinking they were going to get from these witnesses, but what they got was explanations of what EXN was doing that satisfied the judge. XN wasn't doing anything that was misleading. So the whole case blew up in their face. Were they just outlawyered by Ted Wells, who is known as one of the best trial lawyers in the country. Were they outlawyered by him, or did they just not have the evidence. I think

they just didn't have the evidence. I don't know whether they thought they had better evidence and what they came forward with. They had over a year to prepare for this case, and there was depositions, the usual kinds of discovery that you do. There shouldn't have been any surprises, and it may just be that they overpromised, not only the court but sort of the public at large of what they were going to be able to prove, and when it actually came time to prove it, they didn't

have it. What about the allegations that Exxon Mobile was keeping two sets of books. I think that's true. That came through pretty clearly. Now they explained why they kept these two different books, these two different proxies for how you evaluate the risks of continued investment in fossil fuel production.

And the thing that the judge pointed out in his long opinion it's fifty five pages of discussion, is that Exxon was filing a lot of other documents, you know, their ten K filings for securities compliance, their shareholder reports, their Outlook of Energy into the Future reports, a lot of different documents containing a lot of information about the risks of climate change, the fact that the nations of the world we're getting more serious about imposing a price

on carbon, and Exxon was beginning to react to that. So the the overall story that XN told was quite positive, frankly, and the a G just didn't have a sufficient rebuttal to all of the other information that Exxon was providing over the years. Exxon has repeatedly said that this prosecution by the New York AG's office was political and that it was driven by environmentalists pressuring the a G s office. Did that have any effect do you think on the judge?

I'm not sure that environmentalists pressure had anything to do with x On bringing the case. I do think that the AG probably made too big a political and public splash about this case, going to the press and making pretty bold predictions about what was going to happen. That rankled the judge. Clearly he did not find that kind of hype suitable for a serious prosecution of a fraud allegation, so that that did effect I think the way the

case unfolded. But the fundamental problem is simply one of just not having the evidence that you needed to make your case. And I don't know what happened on that end, but perhaps we'll find out more later. How much did Rex Tillers, in the former c e O of x On, taking the stand and denying the allegations that the AG had made. Was that convincing for the judge? It was partly convincing because he cited Tillerson's testimony at several key

points of his decision. And Tillerson, of course cuts you know, a suave figure, and I'm sure he was a good witness in that regard. Now, he was also able to, oftentimes when they were attempting to corner him, say well, I don't really recall exactly that conversation, So he was he was an elusive witness. But my point would be, why on earth would you call Rex Tillerson thinking that you were somehow going to trip him up. That just wasn't gonna happen, and it didn't. So the a G.

S Office says it's considering appealing the judge's decision. Any point in appealing here? I don't see any grounds for appeal serious grounds for appeal. There's no clear error. He heard twelve days of testimony, he was an actively involved judge asking questions. He is the I are a fact in a case like this, and appellate courts are required to defer to the fact finder who actually observed the witnesses weighed their testimony. So no, I see no serious

grounds for appeal. I think the a G better licked their wounds and move on to the next case. Pat Does this have any effect at all on Massachusetts case against Exxon? Well, Massachusetts is bringing their case under their consumer protection law, which is different than the Martin Act. It's not a securities fraud law, it's a broader consumer protection law. But still, this is a cautionary tale for sure,

for the mass A g S Office. If they don't have better evidence in the ones that the Age New York AG tried to bring forward, they probably better either rethink their case or tailor it down, narrow it down to the things that they can actually prove that we're misleading and that violates the state law. It's a different case, but I think if I were the mass A G I would be very cautious about how I proceeded with that case. Thanks Pat. That's Pat Parento, Professor, Vermont Law School.

Thanks for listening to the Bloomberg Law Podcast. You can subscribe and listen to the show on Apple podcast, SoundCloud, and on Bloomberg dot com slash podcast. I'm June Brosso. This is Bloomberg Ye.