WEBVTT - Exxon Beats New York in Climate Change Fraud Case

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you insight an analysis into the most

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<v Speaker 1>beat New York State and a high profile trial over

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<v Speaker 1>its accounting for the financial risks of climate change. A

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<v Speaker 1>trial judge flatly rejected New York States claim that the

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<v Speaker 1>energy giant engaged in a cynical scheme to mislead investors

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<v Speaker 1>for years, in a blow to the state's Attorney General,

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<v Speaker 1>Letitia James. Joining me as pat Parento professor at Vermont

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<v Speaker 1>Law School, Exxon had managed to whittle down and narrow

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<v Speaker 1>the case. It went from this sort of broad climate

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<v Speaker 1>change case to a narrow securities fraud case with a

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<v Speaker 1>law unique to New York. So how much of a

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<v Speaker 1>victory is this for Exxon. Well, it's a victory for sure.

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<v Speaker 1>I don't think it's has a lot about Exn's liability

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<v Speaker 1>in some of these other torque cases that have been

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<v Speaker 1>filed by the municipalities and the states across the country

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<v Speaker 1>that are working their way through the federal courts. Exxon

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<v Speaker 1>may try to claim vindication for what it's done, but

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<v Speaker 1>I don't think a narrow victory in securities fraud case

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<v Speaker 1>says much about exns responsibilities for not disclosing what it

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<v Speaker 1>knew about the dangers of climate change for so many years,

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<v Speaker 1>and for its failure to warn people, producers, investors, regulators

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<v Speaker 1>of what it knew was a growing danger. I think

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<v Speaker 1>those cases have yet to be tried. The standard of

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<v Speaker 1>proof here was preponderance of the evidence, the lowest standard,

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<v Speaker 1>and the judge said that the AG's office failed to

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<v Speaker 1>prove by a preponderance of the evidence that Exxon made

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<v Speaker 1>any material misstatements or omissions about its practices and procedures

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<v Speaker 1>that misled any reasonable investors. The judge also said that

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<v Speaker 1>the AG's office didn't introduce any witnesses any investors to

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<v Speaker 1>say that they were misled. How could the a G

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<v Speaker 1>miss that in its case? Yes, I found that shocking. Frankly,

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<v Speaker 1>the judge that they failed to produce any witness or

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<v Speaker 1>any investor who claimed to have been misled by any disclosure,

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<v Speaker 1>even though, said the judge, the Attorney General had promised

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<v Speaker 1>that they were going to call such individuals. I don't

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<v Speaker 1>know what happened. I mean, it's just a complete failure

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<v Speaker 1>of the lawsuit. Frankly, I would say the judge at

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<v Speaker 1>times sort of wraps the knuckles of of the a

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<v Speaker 1>G or whoever was trying the case. Yes, he characterized

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<v Speaker 1>the complaint as hyperbolic. He criticized the lawyers for the

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<v Speaker 1>way they were presenting the case, going on and on.

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<v Speaker 1>He mentioned fifty pages of transcript where he finally had

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<v Speaker 1>to ask a question to clarify what the witness was saying.

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<v Speaker 1>So it's really surprising because the New York AG is

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<v Speaker 1>known for having quality legal talent. They have an incredible

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<v Speaker 1>record of success bringing Martin Act cases in the past.

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<v Speaker 1>I don't know what happened with this one. They got

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<v Speaker 1>over their skis, as we say in Vermont. And also

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<v Speaker 1>the judge, this has to be one of the worst

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<v Speaker 1>things that a trial lawyer will hear. The judge said,

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<v Speaker 1>the AG's own witnesses ended up giving testimony that backed

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<v Speaker 1>XNS defenses. In fact, one of the things that surprised

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<v Speaker 1>me was the New York AG was trying to win

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<v Speaker 1>the case based on xns own witnesses. They kept calling

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<v Speaker 1>people like Rex Tillerson and like some of the senior

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<v Speaker 1>financial advisors and other people from within the corporation. I

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<v Speaker 1>don't know what the AG was thinking they were going

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<v Speaker 1>to get from these witnesses, but what they got was

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<v Speaker 1>explanations of what EXN was doing that satisfied the judge.

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<v Speaker 1>XN wasn't doing anything that was misleading. So the whole

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<v Speaker 1>case blew up in their face. Were they just outlawyered

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<v Speaker 1>by Ted Wells, who is known as one of the

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<v Speaker 1>best trial lawyers in the country. Were they outlawyered by him,

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<v Speaker 1>or did they just not have the evidence. I think

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<v Speaker 1>they just didn't have the evidence. I don't know whether

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<v Speaker 1>they thought they had better evidence and what they came

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<v Speaker 1>forward with. They had over a year to prepare for

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<v Speaker 1>this case, and there was depositions, the usual kinds of

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<v Speaker 1>discovery that you do. There shouldn't have been any surprises,

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<v Speaker 1>and it may just be that they overpromised, not only

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<v Speaker 1>the court but sort of the public at large of

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<v Speaker 1>what they were going to be able to prove, and

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<v Speaker 1>when it actually came time to prove it, they didn't

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<v Speaker 1>have it. What about the allegations that Exxon Mobile was

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<v Speaker 1>keeping two sets of books. I think that's true. That

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<v Speaker 1>came through pretty clearly. Now they explained why they kept

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<v Speaker 1>these two different books, these two different proxies for how

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<v Speaker 1>you evaluate the risks of continued investment in fossil fuel production.

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<v Speaker 1>And the thing that the judge pointed out in his

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<v Speaker 1>long opinion it's fifty five pages of discussion, is that

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<v Speaker 1>Exxon was filing a lot of other documents, you know,

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<v Speaker 1>their ten K filings for securities compliance, their shareholder reports,

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<v Speaker 1>their Outlook of Energy into the Future reports, a lot

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<v Speaker 1>of different documents containing a lot of information about the

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<v Speaker 1>risks of climate change, the fact that the nations of

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<v Speaker 1>the world we're getting more serious about imposing a price

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<v Speaker 1>on carbon, and Exxon was beginning to react to that.

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<v Speaker 1>So the the overall story that XN told was quite positive, frankly,

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<v Speaker 1>and the a G just didn't have a sufficient rebuttal

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<v Speaker 1>to all of the other information that Exxon was providing

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<v Speaker 1>over the years. Exxon has repeatedly said that this prosecution

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<v Speaker 1>by the New York AG's office was political and that

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<v Speaker 1>it was driven by environmentalists pressuring the a G s office.

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<v Speaker 1>Did that have any effect do you think on the judge?

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<v Speaker 1>I'm not sure that environmentalists pressure had anything to do

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<v Speaker 1>with x On bringing the case. I do think that

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<v Speaker 1>the AG probably made too big a political and public

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<v Speaker 1>splash about this case, going to the press and making

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<v Speaker 1>pretty bold predictions about what was going to happen. That

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<v Speaker 1>rankled the judge. Clearly he did not find that kind

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<v Speaker 1>of hype suitable for a serious prosecution of a fraud allegation,

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<v Speaker 1>so that that did effect I think the way the

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<v Speaker 1>case unfolded. But the fundamental problem is simply one of

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<v Speaker 1>just not having the evidence that you needed to make

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<v Speaker 1>your case. And I don't know what happened on that end,

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<v Speaker 1>but perhaps we'll find out more later. How much did

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<v Speaker 1>Rex Tillers, in the former c e O of x On,

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<v Speaker 1>taking the stand and denying the allegations that the AG

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<v Speaker 1>had made. Was that convincing for the judge? It was

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<v Speaker 1>partly convincing because he cited Tillerson's testimony at several key

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<v Speaker 1>points of his decision. And Tillerson, of course cuts you know,

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<v Speaker 1>a suave figure, and I'm sure he was a good

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<v Speaker 1>witness in that regard. Now, he was also able to,

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<v Speaker 1>oftentimes when they were attempting to corner him, say well,

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<v Speaker 1>I don't really recall exactly that conversation, So he was

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<v Speaker 1>he was an elusive witness. But my point would be,

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<v Speaker 1>why on earth would you call Rex Tillerson thinking that

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<v Speaker 1>you were somehow going to trip him up. That just

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<v Speaker 1>wasn't gonna happen, and it didn't. So the a G.

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<v Speaker 1>S Office says it's considering appealing the judge's decision. Any

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<v Speaker 1>point in appealing here? I don't see any grounds for

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<v Speaker 1>appeal serious grounds for appeal. There's no clear error. He

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<v Speaker 1>heard twelve days of testimony, he was an actively involved

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<v Speaker 1>judge asking questions. He is the I are a fact

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<v Speaker 1>in a case like this, and appellate courts are required

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<v Speaker 1>to defer to the fact finder who actually observed the

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<v Speaker 1>witnesses weighed their testimony. So no, I see no serious

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<v Speaker 1>grounds for appeal. I think the a G better licked

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<v Speaker 1>their wounds and move on to the next case. Pat

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<v Speaker 1>Does this have any effect at all on Massachusetts case

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<v Speaker 1>against Exxon? Well, Massachusetts is bringing their case under their

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<v Speaker 1>consumer protection law, which is different than the Martin Act.

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<v Speaker 1>It's not a securities fraud law, it's a broader consumer

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<v Speaker 1>protection law. But still, this is a cautionary tale for sure,

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<v Speaker 1>for the mass A g S Office. If they don't

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<v Speaker 1>have better evidence in the ones that the Age New

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<v Speaker 1>York AG tried to bring forward, they probably better either

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<v Speaker 1>rethink their case or tailor it down, narrow it down

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<v Speaker 1>to the things that they can actually prove that we're

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<v Speaker 1>misleading and that violates the state law. It's a different case,

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<v Speaker 1>but I think if I were the mass A G

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<v Speaker 1>I would be very cautious about how I proceeded with

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<v Speaker 1>that case. Thanks Pat. That's Pat Parento, Professor, Vermont Law School.

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<v Speaker 1>Thanks for listening to the Bloomberg Law Podcast. You can

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<v Speaker 1>subscribe and listen to the show on Apple podcast, SoundCloud,

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<v Speaker 1>and on Bloomberg dot com slash podcast. I'm June Brosso.

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<v Speaker 1>This is Bloomberg Ye.