Exxon’s climate trial is over, but the legal war is just beginning

NEW YORK (Bloomberg) - When New York’s climate change lawsuit against Exxon Mobil went on trial last month in a Manhattan courtroom, the energy giant’s lead lawyer took great pains to emphasize that the state’s allegations weren’t really about climate change.

After all, Theodore Wells said, Exxon was accused of hatching a cynical, arguably pedestrian scheme to mislead investors. The alleged securities fraud may have been intended to mask the impact global warming will have on Exxon’s finances, but it wasn’t a grand reckoning of its responsibility for the man-made phenomenon.

The reason, of course, was that New York couldn’t find enough evidence to back up its initial contention that Exxon hid its knowledge of global warming. In the end, however, that may not matter: Regardless of who wins, there are states, municipalities and environmental groups lined up around the block, suing or planning to sue Exxon and other energy companies for being the main perpetrators of a planetary catastrophe.

And while a victory for New York could be a public relations boon for plaintiffs in those pending cases, a win for Exxon is unlikely to stop their litigation—most of which is based on very different legal arguments.

Just as the New York trial was getting underway last month, Massachusetts Attorney General Maura Healey hit Exxon with a new consumer lawsuit. Her complaint cut to the chase, accusing the company of withholding dire climate warnings from its own scientists for decades and duping the state’s consumers with bogus “green” gasoline ads, among other things.

“It’s well past time for Exxon to tell the truth and be held accountable for the misrepresentations it has made to every investor, at every gas station, on every television, and online,” Healey said in a statement. Exxon has repeatedly denied any wrongdoing.

Additionally, more than a dozen “public nuisance” lawsuits seek to hold energy companies responsible for billions of taxpayer dollars spent on acclimating to a warming world, or picking up the pieces following unprecedented hurricanes, floods and wildfires.

Rhode Island filed such a complaint last year, while a dozen city governments from California, Washington, Colorado, Maryland and New York have also sued. In just the last few weeks, the mayor of Honolulu said his city would soon file a nuisance suit of its own, comparing the litigation to lawsuits against Big Tobacco that led to a $246 billion industry settlement. The Hawaiian island of Maui, it’s own county, has also said it plans to sue.

Since the cost of slowing global warming (and acclimating to damage already done) could reach tens of trillions of dollars, the stakes in these cases—if they survive—may be significantly higher than those faced by cigarette makers.

Patrick Parenteau, an environmental law professor at Vermont Law School, said the growing number of nuisance cases are supported by claims of a well-funded “campaign of deception” and Big Oil’s history of opposing legislation intended to address the problem.

So far, nuisance cases have met with mixed success, as the companies fight to move them from state to federal courts, where they often get more favorable treatment. Last month, the U.S. Supreme Court let officials from Maryland, Rhode Island and Colorado press ahead with three state lawsuits that accuse more than a dozen oil and gas companies, including Exxon, of contributing to climate change.

Local governments have won rulings in California, where a federal judge moved a climate change lawsuit by the City of Imperial Beach and San Mateo and Marin counties back to state court. (The companies have appealed.)

Plaintiffs have lost nuisance cases as well. In a federal lawsuit filed in early 2018, New York City accused Exxon, Chevron, BP, Royal Dutch Shell and ConocoPhillips of promoting fossil fuel sales despite knowing the damage it poses to the planet. A U.S. district judge threw out the lawsuit, which was based on a state law, saying federal law governs carbon dioxide emissions. The city appealed, with arguments scheduled for Nov. 22.

A spokesman for Shell said the company doesn’t “believe the courtroom is the right venue to address climate change.” None of the other defendant companies responded to emails seeking comment.

Lawsuits filed by the cities of Oakland and San Francisco met the same fate when they were dismissed. Appeals are pending in those cases as well.

“Unless governments take adequate action against climate change, which is highly unlikely, lawsuits will continue to pile up,” said Michael B. Gerrard, director at the Sabin Center for Climate Change Law at Columbia Law School.

But states and cities seeking redress in the courts say it is the only avenue open to them. The federal government under President Donald Trump has spent the past three years trying to undo climate regulations put in place by President Barack Obama, including taking the U.S. out of the landmark Paris Agreement intended to reduce fossil fuel emissions globally.

Hana Vizcarra, a staff attorney at Harvard Law School Environmental and Energy Law Program, said nuisance lawsuits are difficult to make because plaintiffs must “draw the line” from a company’s actions to the damage done. The continued fight over state jurisdiction will be crucial, she said.

“If they survive the fights over venue, there will be a continued appetite to bring these cases,” Vizcarra said.

As for the New York case, it’s now up to Supreme Court Justice Barry Ostrager, who presided over the non-jury trial. He is scheduled to hand down a verdict in the coming weeks. Whoever loses is almost certain to appeal.

The trial turned on the two ways Exxon measured how much climate change—and specifically climate change-related laws—would affect its bottom line. According to the company, its so-called “proxy cost” was a public number representing how much fossil fuel prices would fall as those regulations diminished fossil fuel demand. The other number was an internal “greenhouse gas cost” associated with new extraction projects, such as fracking or oil sands, it said. New York said the proxy cost was at one point $80 a ton while the greenhouse gas cost was $40.

New York said the two gauges were like keeping two sets of books—clear evidence that Exxon was lying to the investing public. The proxy cost made the company look like it was being fully transparent about its financial future, New York argued, but since Exxon used the lower cost when deciding whether to dig up more oil, it was a classic case of securities fraud, since investors were buying stock based in part on a lie.

Exxon responded that New York’s case made no sense, since the greenhouse gas cost was narrowly focused, used to measure the viability of specific projects, and—most importantly—more optimistic. What, Exxon argued, would it gain by fooling itself?

During the course of the trial, former Exxon CEO Rex Tillerson took the stand in what may have been the most dramatic point of the three week-proceeding. New York often elicited testimony intended to show that Exxon sought to defraud investors, a strategy that seemed to annoy Ostrager.

The lawsuit was filed in part under New York’s powerful Martin Act, which doesn’t require a showing of intent. It only requires that New York show Exxon shareholders could have been misled by the company’s actions. As the trial ended, the state dropped counts based on common law fraud alleging that Exxon’s statements about its accounting were intended to defraud investors, and that investors relied on them when buying stock. The remaining two counts, brought under the Martin Act, require the judge find only that Exxon’s statements were sufficient to mislead to investors, regardless of whether Exxon meant to do so.

Robert McTamaney, a New York-based corporate attorney, calls the Martin Act “an atrocity,” given how low the bar for victory can be. As for the nuisance lawsuits, he concurred that they may gain traction if they are allowed to proceed in state courts. Nevertheless, he said he believes the courts are the wrong place to settle the question of climate change.

“The correct outcome, in my judgment, is to leave this area to the Congress and legislatures,” McTamaney said. “And in any event, it is a global problem which demands a global solution.”

Others are intent on using the courts to make those responsible for the global crisis pay to fix it. New York’s lawsuit against Exxon, said Daniel Rohlf, a lawyer at Earthrise Law Center, is the first battle in a larger war. A professor at Lewis and Clark Law School in Portland, Oregon, Rohlf said a ruling against Exxon would have a big impact on pending litigation elsewhere.

“It would send a loud and clear signal to both corporations and the public that carbon emissions aren’t free,” he said. “The time has come to account for those costs in the way we do business, and in the way we live.