Fourteen years ago Sir John Browne, then chief executive of
We’d been talking about the risk of drilling in unruly places like Angola and Kazakhstan, but Browne was trying to turn my attention toward a carbon tax or some other regulation designed to cut down on the use of fossil fuels in the developed world.
So there was a certain amount of eye-rolling inevitability to New York Attorney General Eric Schneiderman’s announcement this week that he’s going to start rooting around in ExxonMobil’s records for evidence the company knew things about global climate change that it wasn’t sharing with the public. Of course the attorney general would do that. When you can’t achieve your agenda in the legislature, as environmentalists have failed to do with most forms of CO2 regulation, you turn to the judicial branch instead. It's just another form of political risk.
Schneiderman’s probe fits into a long history of such litigation, from the AG-led attack on Big Tobacco to his predecessor Andrew Cuomo’s assault on electric utilities for supposedly downplaying the risks of climate change and related regulation on their businesses. That one ended with pacts like this 2008 consent agreement in which Excel Energy agreed to analyze how it would be affected by climate change litigation and regulations, its own emissions, and last but not least, state its position on human-induced climate change.
Expect a similar outcome with ExxonMobil, after much publicity surrounding careful leaks of documents Schneiderman uncovers with his subpoena powers. In a comeback to a PBS reporter’s question about whether the L.A. Times and Inside Climate News had taken ExxonMobil’s documents out of context, Schneiderman said: “Then they should welcome this investigation. Because unlike journalists, my staff will be able to view all the documents in context.”
The point won’t necessarily be a big monetary settlement, although that can’t be ruled out. (Unlike tobacco, oil can't be directly tied to specific injuries and medical costs.) More likely are concessions that create the impression ExxonMobil has done something wrong and has been forced to change its act.
“In a world where if you are the New York Attorney General, you can create public theater to bring pressure on a particular defendant,” said Jeffrey Smith, a partner with Crowell & Moring who focuses on environmental law, and frequently consults with the firm’s securities lawyers on disclosure. “If you want to use it, it’s a pretty potent weapon.”
Schneiderman gave some strong clues about his method of attack in the PBS interview. He will look at ExxonMobil’s engineering documents to see if the company used projections for global sea-level rise when designing its Arctic drilling platforms. If those don't agree with other public statements then, gotcha!
This is a targeted approach that is similar to the ones lawyers are using against BP over a pair of leaks in the company’s Alaska pipeline system that spilled hundreds of thousands of gallons of oil in 2006. The Ninth Circuit ruled in Reese v. Malone that a securities lawsuit could proceed on allegations BP had spoken out of both sides of its mouth about the cause of the spills. While BP told investors and the public it had adequate corrosion monitoring systems, regulators and pipeline maintenance executives later testified in Congress that BP had failed to comply with its own protocols.
Most disturbing for a company in ExxonMobil’s position was the Ninth’s ruling that BP could be sued over a boilerplate statement in its 10-K filing that "Management believes that [its] activities are in compliance in all material respects with applicable environmental laws and regulations." A district court ruled that statement too vague to be grist for a lawsuit but the Ninth Circuit disagreed, saying executives must have known of the corrosion problems and therefore the statement could have compounded the falsity of BP’s statements. The upshot?
“If you’re just putting out boilerplate year after year, you are in perpetual risk of having that boilerplate contradicted by facts on the ground,” said Smith of Crowell & Moring.
At least persistent problems with pipeline corrosion are facts that can be ascertained from the records. Can Scheiderman, an Amherst and Harvard Law grad, really ascertain the truth or falsity of ExxonMobil’s statements about climate change given even the world’s best scientists can’t agree on the magnitude of change in the earth’s temperature, or the precise effect of human activities upon it? Can the attorney general really make a case ExxonMobil’s own scientists did a better job of it and hid the results?
Again, companies and their lawyers have been down this path before. The pulp and paper industry wrestled with the financial implications of a new “cluster rule” in the late 1990s that required them to pair their water and air emissions in a single analysis, said Smith. Every company came up with a different estimate and those estimates were constantly updated as details of the regulations and costs of compliance emerged.
“It was a very actively debated question, when you know something internally how ripe does it have to be?” Smith told me. “How certain do you have to be in your knowledge?”
There is no good answer other to be accurate, Smith said. Under New York’s broad Martin Act, the AG can sue companies for any practice he deems misleading or fraudulent, and unlike with federal securities laws in the Ninth Circuit ruling against BP, he doesn’t even have to prove scienter, or guilty knowledge by executives.
A decade ago, plaintiff lawyers were still optimistic they could pry tobacco-sized damages out of ExxonMobil with lawsuits seeking compensation for the effects of global warming. That effort failed as courts dismissed the cases as raising political questions best handled by the legislature.
Schneiderman’s renewed attack on the oil giant raises similar policy questions, including whether it is a good thing to target companies for performing research on topics as important as the impact of human activities on climate change.
“If the net net net is to discourage companies from devoting internal resources to this kind of study because of the downside,” Smith said, “I’m not sure the world is a better place for it.”
