1 00:00:03,520 --> 00:00:07,040 Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every 2 00:00:07,120 --> 00:00:09,680 Speaker 1: day we bring you insight an analysis into the most 3 00:00:09,720 --> 00:00:12,200 Speaker 1: important legal news of the day. You can find more 4 00:00:12,240 --> 00:00:16,160 Speaker 1: episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud 5 00:00:16,280 --> 00:00:20,040 Speaker 1: and on Bloomberg dot com, slash podcast x on mobile 6 00:00:20,120 --> 00:00:22,840 Speaker 1: beat New York State and a high profile trial over 7 00:00:22,880 --> 00:00:26,360 Speaker 1: its accounting for the financial risks of climate change. A 8 00:00:26,480 --> 00:00:29,840 Speaker 1: trial judge flatly rejected New York States claim that the 9 00:00:30,000 --> 00:00:33,760 Speaker 1: energy giant engaged in a cynical scheme to mislead investors 10 00:00:33,760 --> 00:00:36,800 Speaker 1: for years, in a blow to the state's Attorney General, 11 00:00:36,920 --> 00:00:40,720 Speaker 1: Letitia James. Joining me as pat Parento professor at Vermont 12 00:00:40,800 --> 00:00:46,000 Speaker 1: Law School, Exxon had managed to whittle down and narrow 13 00:00:46,040 --> 00:00:48,599 Speaker 1: the case. It went from this sort of broad climate 14 00:00:48,720 --> 00:00:52,400 Speaker 1: change case to a narrow securities fraud case with a 15 00:00:52,520 --> 00:00:55,280 Speaker 1: law unique to New York. So how much of a 16 00:00:55,400 --> 00:00:58,920 Speaker 1: victory is this for Exxon. Well, it's a victory for sure. 17 00:00:59,160 --> 00:01:02,880 Speaker 1: I don't think it's has a lot about Exn's liability 18 00:01:02,920 --> 00:01:05,280 Speaker 1: in some of these other torque cases that have been 19 00:01:05,360 --> 00:01:09,240 Speaker 1: filed by the municipalities and the states across the country 20 00:01:09,240 --> 00:01:12,319 Speaker 1: that are working their way through the federal courts. Exxon 21 00:01:12,440 --> 00:01:16,440 Speaker 1: may try to claim vindication for what it's done, but 22 00:01:16,600 --> 00:01:20,680 Speaker 1: I don't think a narrow victory in securities fraud case 23 00:01:20,760 --> 00:01:26,520 Speaker 1: says much about exns responsibilities for not disclosing what it 24 00:01:26,640 --> 00:01:31,039 Speaker 1: knew about the dangers of climate change for so many years, 25 00:01:31,160 --> 00:01:37,600 Speaker 1: and for its failure to warn people, producers, investors, regulators 26 00:01:37,600 --> 00:01:40,600 Speaker 1: of what it knew was a growing danger. I think 27 00:01:40,720 --> 00:01:44,039 Speaker 1: those cases have yet to be tried. The standard of 28 00:01:44,040 --> 00:01:48,040 Speaker 1: proof here was preponderance of the evidence, the lowest standard, 29 00:01:48,440 --> 00:01:51,120 Speaker 1: and the judge said that the AG's office failed to 30 00:01:51,200 --> 00:01:54,440 Speaker 1: prove by a preponderance of the evidence that Exxon made 31 00:01:54,440 --> 00:01:58,720 Speaker 1: any material misstatements or omissions about its practices and procedures 32 00:01:58,760 --> 00:02:03,440 Speaker 1: that misled any reasonable investors. The judge also said that 33 00:02:03,760 --> 00:02:09,200 Speaker 1: the AG's office didn't introduce any witnesses any investors to 34 00:02:09,360 --> 00:02:12,120 Speaker 1: say that they were misled. How could the a G 35 00:02:12,400 --> 00:02:16,359 Speaker 1: miss that in its case? Yes, I found that shocking. Frankly, 36 00:02:16,880 --> 00:02:20,080 Speaker 1: the judge that they failed to produce any witness or 37 00:02:20,120 --> 00:02:24,200 Speaker 1: any investor who claimed to have been misled by any disclosure, 38 00:02:24,720 --> 00:02:28,240 Speaker 1: even though, said the judge, the Attorney General had promised 39 00:02:28,520 --> 00:02:30,839 Speaker 1: that they were going to call such individuals. I don't 40 00:02:30,880 --> 00:02:33,760 Speaker 1: know what happened. I mean, it's just a complete failure 41 00:02:34,400 --> 00:02:37,840 Speaker 1: of the lawsuit. Frankly, I would say the judge at 42 00:02:37,880 --> 00:02:40,880 Speaker 1: times sort of wraps the knuckles of of the a 43 00:02:41,040 --> 00:02:46,000 Speaker 1: G or whoever was trying the case. Yes, he characterized 44 00:02:46,040 --> 00:02:50,560 Speaker 1: the complaint as hyperbolic. He criticized the lawyers for the 45 00:02:50,600 --> 00:02:53,679 Speaker 1: way they were presenting the case, going on and on. 46 00:02:53,800 --> 00:02:57,720 Speaker 1: He mentioned fifty pages of transcript where he finally had 47 00:02:57,760 --> 00:03:01,239 Speaker 1: to ask a question to clarify what the witness was saying. 48 00:03:01,760 --> 00:03:05,400 Speaker 1: So it's really surprising because the New York AG is 49 00:03:05,480 --> 00:03:10,120 Speaker 1: known for having quality legal talent. They have an incredible 50 00:03:10,160 --> 00:03:14,360 Speaker 1: record of success bringing Martin Act cases in the past. 51 00:03:14,680 --> 00:03:16,680 Speaker 1: I don't know what happened with this one. They got 52 00:03:16,840 --> 00:03:21,480 Speaker 1: over their skis, as we say in Vermont. And also 53 00:03:21,720 --> 00:03:24,080 Speaker 1: the judge, this has to be one of the worst 54 00:03:24,120 --> 00:03:27,160 Speaker 1: things that a trial lawyer will hear. The judge said, 55 00:03:27,240 --> 00:03:31,400 Speaker 1: the AG's own witnesses ended up giving testimony that backed 56 00:03:31,720 --> 00:03:35,960 Speaker 1: XNS defenses. In fact, one of the things that surprised 57 00:03:36,000 --> 00:03:39,200 Speaker 1: me was the New York AG was trying to win 58 00:03:39,280 --> 00:03:42,400 Speaker 1: the case based on xns own witnesses. They kept calling 59 00:03:42,680 --> 00:03:45,960 Speaker 1: people like Rex Tillerson and like some of the senior 60 00:03:46,040 --> 00:03:50,400 Speaker 1: financial advisors and other people from within the corporation. I 61 00:03:50,440 --> 00:03:52,600 Speaker 1: don't know what the AG was thinking they were going 62 00:03:52,640 --> 00:03:55,920 Speaker 1: to get from these witnesses, but what they got was 63 00:03:56,040 --> 00:03:59,600 Speaker 1: explanations of what EXN was doing that satisfied the judge. 64 00:04:00,200 --> 00:04:03,600 Speaker 1: XN wasn't doing anything that was misleading. So the whole 65 00:04:03,640 --> 00:04:07,400 Speaker 1: case blew up in their face. Were they just outlawyered 66 00:04:07,520 --> 00:04:10,240 Speaker 1: by Ted Wells, who is known as one of the 67 00:04:10,240 --> 00:04:13,920 Speaker 1: best trial lawyers in the country. Were they outlawyered by him, 68 00:04:14,240 --> 00:04:17,160 Speaker 1: or did they just not have the evidence. I think 69 00:04:17,200 --> 00:04:19,440 Speaker 1: they just didn't have the evidence. I don't know whether 70 00:04:19,480 --> 00:04:22,360 Speaker 1: they thought they had better evidence and what they came 71 00:04:22,400 --> 00:04:25,240 Speaker 1: forward with. They had over a year to prepare for 72 00:04:25,279 --> 00:04:28,200 Speaker 1: this case, and there was depositions, the usual kinds of 73 00:04:28,240 --> 00:04:31,520 Speaker 1: discovery that you do. There shouldn't have been any surprises, 74 00:04:32,120 --> 00:04:35,440 Speaker 1: and it may just be that they overpromised, not only 75 00:04:35,440 --> 00:04:38,280 Speaker 1: the court but sort of the public at large of 76 00:04:38,320 --> 00:04:40,680 Speaker 1: what they were going to be able to prove, and 77 00:04:40,720 --> 00:04:43,200 Speaker 1: when it actually came time to prove it, they didn't 78 00:04:43,240 --> 00:04:47,560 Speaker 1: have it. What about the allegations that Exxon Mobile was 79 00:04:47,680 --> 00:04:51,440 Speaker 1: keeping two sets of books. I think that's true. That 80 00:04:51,560 --> 00:04:54,520 Speaker 1: came through pretty clearly. Now they explained why they kept 81 00:04:54,560 --> 00:04:58,360 Speaker 1: these two different books, these two different proxies for how 82 00:04:58,440 --> 00:05:03,680 Speaker 1: you evaluate the risks of continued investment in fossil fuel production. 83 00:05:04,279 --> 00:05:06,839 Speaker 1: And the thing that the judge pointed out in his 84 00:05:06,920 --> 00:05:11,159 Speaker 1: long opinion it's fifty five pages of discussion, is that 85 00:05:11,240 --> 00:05:14,760 Speaker 1: Exxon was filing a lot of other documents, you know, 86 00:05:14,920 --> 00:05:21,600 Speaker 1: their ten K filings for securities compliance, their shareholder reports, 87 00:05:21,720 --> 00:05:25,400 Speaker 1: their Outlook of Energy into the Future reports, a lot 88 00:05:25,440 --> 00:05:29,279 Speaker 1: of different documents containing a lot of information about the 89 00:05:29,400 --> 00:05:32,640 Speaker 1: risks of climate change, the fact that the nations of 90 00:05:32,640 --> 00:05:36,400 Speaker 1: the world we're getting more serious about imposing a price 91 00:05:36,560 --> 00:05:40,000 Speaker 1: on carbon, and Exxon was beginning to react to that. 92 00:05:40,400 --> 00:05:46,600 Speaker 1: So the the overall story that XN told was quite positive, frankly, 93 00:05:46,920 --> 00:05:49,760 Speaker 1: and the a G just didn't have a sufficient rebuttal 94 00:05:50,240 --> 00:05:53,280 Speaker 1: to all of the other information that Exxon was providing 95 00:05:53,800 --> 00:05:59,080 Speaker 1: over the years. Exxon has repeatedly said that this prosecution 96 00:05:59,160 --> 00:06:03,800 Speaker 1: by the New York AG's office was political and that 97 00:06:03,880 --> 00:06:08,720 Speaker 1: it was driven by environmentalists pressuring the a G s office. 98 00:06:09,440 --> 00:06:11,720 Speaker 1: Did that have any effect do you think on the judge? 99 00:06:12,480 --> 00:06:15,960 Speaker 1: I'm not sure that environmentalists pressure had anything to do 100 00:06:16,040 --> 00:06:19,520 Speaker 1: with x On bringing the case. I do think that 101 00:06:19,640 --> 00:06:23,919 Speaker 1: the AG probably made too big a political and public 102 00:06:24,000 --> 00:06:28,040 Speaker 1: splash about this case, going to the press and making 103 00:06:28,400 --> 00:06:31,960 Speaker 1: pretty bold predictions about what was going to happen. That 104 00:06:32,240 --> 00:06:35,680 Speaker 1: rankled the judge. Clearly he did not find that kind 105 00:06:35,720 --> 00:06:41,640 Speaker 1: of hype suitable for a serious prosecution of a fraud allegation, 106 00:06:41,800 --> 00:06:44,760 Speaker 1: so that that did effect I think the way the 107 00:06:44,839 --> 00:06:48,680 Speaker 1: case unfolded. But the fundamental problem is simply one of 108 00:06:48,760 --> 00:06:51,640 Speaker 1: just not having the evidence that you needed to make 109 00:06:51,720 --> 00:06:54,760 Speaker 1: your case. And I don't know what happened on that end, 110 00:06:54,839 --> 00:06:58,280 Speaker 1: but perhaps we'll find out more later. How much did 111 00:06:58,520 --> 00:07:00,800 Speaker 1: Rex Tillers, in the former c e O of x On, 112 00:07:00,920 --> 00:07:05,120 Speaker 1: taking the stand and denying the allegations that the AG 113 00:07:05,320 --> 00:07:08,760 Speaker 1: had made. Was that convincing for the judge? It was 114 00:07:08,839 --> 00:07:13,320 Speaker 1: partly convincing because he cited Tillerson's testimony at several key 115 00:07:13,360 --> 00:07:17,040 Speaker 1: points of his decision. And Tillerson, of course cuts you know, 116 00:07:17,160 --> 00:07:20,000 Speaker 1: a suave figure, and I'm sure he was a good 117 00:07:20,000 --> 00:07:23,040 Speaker 1: witness in that regard. Now, he was also able to, 118 00:07:23,520 --> 00:07:26,200 Speaker 1: oftentimes when they were attempting to corner him, say well, 119 00:07:26,240 --> 00:07:29,640 Speaker 1: I don't really recall exactly that conversation, So he was 120 00:07:30,120 --> 00:07:32,800 Speaker 1: he was an elusive witness. But my point would be, 121 00:07:32,840 --> 00:07:36,120 Speaker 1: why on earth would you call Rex Tillerson thinking that 122 00:07:36,160 --> 00:07:38,520 Speaker 1: you were somehow going to trip him up. That just 123 00:07:38,640 --> 00:07:41,800 Speaker 1: wasn't gonna happen, and it didn't. So the a G. 124 00:07:42,040 --> 00:07:46,800 Speaker 1: S Office says it's considering appealing the judge's decision. Any 125 00:07:46,840 --> 00:07:49,680 Speaker 1: point in appealing here? I don't see any grounds for 126 00:07:49,720 --> 00:07:52,640 Speaker 1: appeal serious grounds for appeal. There's no clear error. He 127 00:07:52,720 --> 00:07:57,320 Speaker 1: heard twelve days of testimony, he was an actively involved 128 00:07:57,360 --> 00:08:00,800 Speaker 1: judge asking questions. He is the I are a fact 129 00:08:00,960 --> 00:08:04,200 Speaker 1: in a case like this, and appellate courts are required 130 00:08:04,200 --> 00:08:07,080 Speaker 1: to defer to the fact finder who actually observed the 131 00:08:07,120 --> 00:08:11,720 Speaker 1: witnesses weighed their testimony. So no, I see no serious 132 00:08:11,760 --> 00:08:14,920 Speaker 1: grounds for appeal. I think the a G better licked 133 00:08:14,960 --> 00:08:17,480 Speaker 1: their wounds and move on to the next case. Pat 134 00:08:17,600 --> 00:08:21,320 Speaker 1: Does this have any effect at all on Massachusetts case 135 00:08:21,360 --> 00:08:26,120 Speaker 1: against Exxon? Well, Massachusetts is bringing their case under their 136 00:08:26,160 --> 00:08:29,560 Speaker 1: consumer protection law, which is different than the Martin Act. 137 00:08:29,600 --> 00:08:33,079 Speaker 1: It's not a securities fraud law, it's a broader consumer 138 00:08:33,200 --> 00:08:37,920 Speaker 1: protection law. But still, this is a cautionary tale for sure, 139 00:08:38,040 --> 00:08:40,480 Speaker 1: for the mass A g S Office. If they don't 140 00:08:40,559 --> 00:08:45,280 Speaker 1: have better evidence in the ones that the Age New 141 00:08:45,360 --> 00:08:48,839 Speaker 1: York AG tried to bring forward, they probably better either 142 00:08:48,920 --> 00:08:51,720 Speaker 1: rethink their case or tailor it down, narrow it down 143 00:08:51,720 --> 00:08:54,440 Speaker 1: to the things that they can actually prove that we're 144 00:08:54,440 --> 00:08:58,680 Speaker 1: misleading and that violates the state law. It's a different case, 145 00:08:59,360 --> 00:09:01,360 Speaker 1: but I think if I were the mass A G 146 00:09:01,720 --> 00:09:05,040 Speaker 1: I would be very cautious about how I proceeded with 147 00:09:05,080 --> 00:09:09,520 Speaker 1: that case. Thanks Pat. That's Pat Parento, Professor, Vermont Law School. 148 00:09:11,080 --> 00:09:14,040 Speaker 1: Thanks for listening to the Bloomberg Law Podcast. You can 149 00:09:14,080 --> 00:09:17,840 Speaker 1: subscribe and listen to the show on Apple podcast, SoundCloud, 150 00:09:17,920 --> 00:09:21,800 Speaker 1: and on Bloomberg dot com slash podcast. I'm June Brosso. 151 00:09:22,280 --> 00:09:26,080 Speaker 1: This is Bloomberg Ye.