RUTHFULLY YOURS

https://www.manhattancontrarian.com/blog/2019-10-22-a-serious-contender-for-stup

From time to time here at this blog I have considered candidates for the title of “Stupidest Litigation in the Country.” For example, in this post in December 2017 I considered the candidacy of the litigation titled Kelsey Cascadia Rose Juliana v. United States, et al., brought in Oregon by a group of minor children claiming a “constitutional right” to a “stable climate,” and seeking a nationwide injunction forcing the phase-out of all use of fossil fuels in the United States. (That case is currently awaiting a decision from the Ninth Circuit Court of Appeals.) Shortly thereafter, in January 2018, I evaluated the candidacy of various litigations around the country, including some in California and one in New York, brought by municipalities seeking to hold a collection of major oil companies responsible for a variety of future environmental calamities supposedly to be caused by “climate change.” (Many, but far from all of those cases have since been dismissed; others remain pending.)

Today I have a new candidate for the coveted title. I actually spent most of the afternoon today attending the opening statements in the trial of this case, so I can assure you that there is some serious stupidity going on here. The title of the case is People of the State of New York v. ExxonMobil Corp., currently pending in the New York State Supreme Court, New York County. (This is state rather than federal court. For those with access to the court electronic records system, the index number is 452044/2018.) Yes, it is another of the now many, many cases somehow accusing Exxon of destroying the world by causing climate change. But what is the case about, and what is the New York AG trying to accomplish? Excellent question.

The case is the subject of the lead editorial in the Wall Street Journal today, so you can go there for detailed background. (At the WSJ, they call this the “Climate Show Trial.”) Here’s the short version. The history of the case goes back to a big press conference held by then NY AG Eric Schneiderman, together with AGs from some 20 or so other states, and Al Gore, in March 2016, to breathlessly announce that they were commencing a prosecution of Exxon for lying to the public for years about the dangers of human-caused climate change when knowing all along how catastrophic it was and that they were causing it. A massive investigation commenced. After a flurry of subpoenas and some 4 million or so documents produced, many documents emerged wherein Exxon openly acknowledged the risks of climate change, thus contradicting the theory of the investigation; the 20 or so AGs who had previously supported Schneiderman all walked away from the case; Schneiderman himself resigned in disgrace in May 2018 in a sex scandal involving much physical violence on his part; and the whole theory that Exxon had lied to the public about the dangers of climate change or its role in same was quietly withdrawn. There then followed a further investigation under a second theory that Exxon had violated federal securities law by making misrepresentations to investors. But, unfortunately for those seeking to punish Exxon, the SEC walked away from that one in 2018, leaving the NY AG at that point high and dry.

So what is a good New York AG to do? After a big press conference and a massive multi-year investigation involving teams of highly-paid lawyers, and spending probably in the tens of millions of taxpayer dollars, you don’t just walk away. Let alone, we now have a new AG, Letitia James, who has vowed to make “climate change” one of her top priorities. Surely, there must be something in those 4 million documents with which to nail Exxon!

In October 2018 the NY AG’s office filed a new Complaint against Exxon. Here is a link (but you probably will need a password to get through). The Complaint is some 91 pages long, but remarkably there’s almost nothing there. The fundamental theory is that Exxon lied to its investors about the prospective costs of climate change-related regulation, using one monetary figure ($40 or even less per ton of carbon emissions) for the costs to it of future government regulations when evaluating prospective investments, but another figure (up to $80 per ton of carbon emissions) when publicly projecting the future demand for energy.

In his opening statement, the lawyer for the AG’s office (I think it was Assistant AG Jonathan Zweig) went on and on reading from documents, mostly external, using the $80 figure, and from other documents, entirely internal, using the $40 figure. Nefarious! So Exxon gave a conservative figure publicly — what’s wrong with that? More important, at least seven years in (the main evidence as to supposed start date was 2012), the cost of “climate change” regulation to the oil business is still +/- $0. How do we know that any of this will ever happen at all? And also, what if anything does this have to do with somehow putting a dent in the actual physical “climate change”? If anyone among the readership can figure that one out, I’d sure like to hear the explanation.

At the end of his opening, Zweig said he will have an expert to present a damages case for a so-called “restitution fund” of “between” $476 million and $1.6 billion. That’s rather imprecise! He didn’t give any clues as to how that would be calculated. If you had known that Exxon was using lower numbers for cost of carbon for internal purposes versus external, would you have paid more for the stock, or less — or maybe more likely, you wouldn’t have cared in the least? I’d surely go with the last. And on the same assumption, would the stock be worth more or less today, or on the day that you sold it? I have no idea even how to begin to answer those questions. The allegedly “damaged” shareholders seem to be everybody who bought Exxon stock from 2000 up to the present; and the defendant who will have to pay the “restitution” is the Exxon corporate entity. So how exactly does anyone come out ahead in this game, where money is just taken out of the corporate treasury and cycled back to essentially every investor who owned any part of the company for a couple of decades? No explanation was offered. Hey, they’re bad guys, so they have to pay! Meanwhile, even the high-end $1.6 billion figure is essentially a rounding error in Exxon’s corporate existence, with its market cap currently hovering around $300 billion.

The opening for Exxon was delivered by Ted Wells of Paul Weiss, who is legitimately one of the top corporate litigators in the country. What I thought most remarkable about his opening was the small amount of time that he devoted to the fundamental ways in which the case doesn’t make any sense. Instead, he almost entirely argued on the ground laid out by the AG. His fundamental point was that the higher and lower figures for potential future costs of regulation of carbon emissions were two different things used for two different purposes. The lower figure, sometimes called the “greenhouse gas cost,” was used for evaluating prospective as-yet-unfunded investment projects; and the higher figure, sometimes called the “carbon proxy cost,” was used externally for projections of future world demand for energy. Thus the two should be seen as completely consistent. And anyway, Wells asked at one point, “Why would a company lowball itself on costs in evaluating a prospective investment?”

Wells did take a couple of minutes at the end of his 45 minute presentation to argue that this was fundamentally a political case, having little to nothing to do with investor protection, and explicitly designed (quoting meeting minutes from a meeting hosted by the Rockefeller Family Fund and attended by representatives of the NY AG’s office) only to “delegitimize Exxon in the public sphere.” A perfectly valid point.

But it’s not just that this case, now in its third iteration, has no discernible relationship to its supposed purpose of investor protection. (Are we really to believe that the NY AG is trying to help you make more money by investing in Exxon?) And then consider the category of supposedly addressing “climate change.” That is nowhere stated as a purpose of the litigation in its current configuration, and I would really challenge anyone to come up with an articulation of how this case might have anything to do with that cause. Other than, I suppose, “we hate Exxon.”