The Energy 202: Why New York’s new climate lawsuit against ExxonMobil is different

Source: By Dino Grandoni, Washington Post • Posted: Friday, October 26, 2018

A February 19, 2013 photo shows taxis and cars at a Exxon station in the Foggy Bottom neighborhood of Washington. (Mandel Ngan/AFP/Getty Images)

Over the past few years, several state and local governments have sued big oil companies, seeking to hold them responsible for damages from rising seas and inland wildfires connected to climate change.

So far, none of these lawsuits have seen much success. But that may soon change with a lawsuit just filed by the state of New York.

On Wednesday, New York Attorney General Barbara D. Underwood sued the nation’s largest petroleum company, ExxonMobil, for allegedly lying to investors about the financial risk climate regulations posed to its business.

Underwood is relying on a particularly powerful, nearly 100-year-old securities law unique to New York. Other lawsuits by state and local governments — including three counties and cities in Colorado and the entire state of Rhode Island — do not have a similar measure backing them up.

The New York statute gives the state’s attorney general sweeping power to investigate and prosecute companies for potential financial fraud.

“Contrary to Exxon’s attempts to spin this as a political witch hunt,” said Patrick Parenteau, an environmental law professor at Vermont Law School, “this is a very serious enforcement action alleging illegal conduct that reaches to the highest levels of the corporate structure.”

For the past three years, Underwood and her predecessor as New York’s top prosecutor, Eric Schneiderman, have used their authority under the Martin Act of 1921 to probe the company for documents related to its scientific research into climate change and to business decisions it made because the Earth is warming.

The New York AG’s office says it has found evidence that ExxonMobil kept two sets of numbers — one internal and one external —  for calculating the cost of future greenhouse gas regulations. Doing so, the office alleged, gave investors the false impression that the company was on better financial footing than it actually was.

Acting New York state Attorney General Barbara D. Underwood speaks in Albany, N.Y. in May. (AP Photo/Hans Pennink, File)

ExxonMobil told The Post’s Steven Mufson the allegations are “baseless” and “a product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing.”

ExxonMobil and other oil companies have succeeded in court swatting down other lawsuits from left-leaning municipalities.

At the beginning of the year, New York City separately filed a lawsuit against ExxonMobil and four other oil majors for allegedly concealing the consequences of climate change to the public. The district court judge threw out the lawsuit in July, saying that climate change should be dealt with by Congress and the White House — not by the court system. A lawsuit filed by the cities of San Francisco and Oakland suffered a similar defeat over the summer.

In those suits, the cities sought financial damages that would have helped them prepare for coastal flooding and other climate impacts.

But the state of New York isn’t seeking those sorts of damages to average citizens. Rather, it wants to protect ExxonMobil’s own investors.

And New York, the nation’s investing epicenter, has significant power to protect stockholders. Unlike federal securities law, New York’s Martin Act does not require the state to prove a company intended to defraud investors. Prosecutors only need to show that a firm misrepresented information or withheld it from investors.

“It’s an unusually strong state-level securities law,”  said Michael Gerrard, an environmental law professor at Columbia Law School. “New York State’s law is stronger than that of most other states.”

The Martin Act has been the bane of Wall Street banks for years as New York’s attorneys general have wielded it to police the financial sector. Earlier this year, for example, Bank of America Merrill Lynch agreed to pay a record $42 million penalty after admitting to fraudulent practices in electronic tradings.

Even through ExxonMobil moved from its Manhattan headquarters to Irving, Tex., in 1990, the New York statute applies to all companies doing business in the state.

The law’s broad power has earned it the ire of many conservatives who say it is often used by overambitious attorneys general to target politically vulnerable industries, like the financial sector and now the oil business. The Wall Street Journal’s editorial board has even called for its repeal.

“Today’s lawsuit filed against ExxonMobil in New York is nothing more than a contortion of the securities litigation system,” Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform, said in a statement Wednesday. “In bringing this case, the state is yet again using the Martin Act as a political weapon. Litigation will not help us confront the challenge of climate change.”