Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight an analysis into the most
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Speaker 1: beat New York State and a high profile trial over
Speaker 1: its accounting for the financial risks of climate change. A
Speaker 1: trial judge flatly rejected New York States claim that the
Speaker 1: energy giant engaged in a cynical scheme to mislead investors
Speaker 1: for years, in a blow to the state's Attorney General,
Speaker 1: Letitia James. Joining me as pat Parento professor at Vermont
Speaker 1: Law School, Exxon had managed to whittle down and narrow
Speaker 1: the case. It went from this sort of broad climate
Speaker 1: change case to a narrow securities fraud case with a
Speaker 1: law unique to New York. So how much of a
Speaker 1: victory is this for Exxon. Well, it's a victory for sure.
Speaker 1: I don't think it's has a lot about Exn's liability
Speaker 1: in some of these other torque cases that have been
Speaker 1: filed by the municipalities and the states across the country
Speaker 1: that are working their way through the federal courts. Exxon
Speaker 1: may try to claim vindication for what it's done, but
Speaker 1: I don't think a narrow victory in securities fraud case
Speaker 1: says much about exns responsibilities for not disclosing what it
Speaker 1: knew about the dangers of climate change for so many years,
Speaker 1: and for its failure to warn people, producers, investors, regulators
Speaker 1: of what it knew was a growing danger. I think
Speaker 1: those cases have yet to be tried. The standard of
Speaker 1: proof here was preponderance of the evidence, the lowest standard,
Speaker 1: and the judge said that the AG's office failed to
Speaker 1: prove by a preponderance of the evidence that Exxon made
Speaker 1: any material misstatements or omissions about its practices and procedures
Speaker 1: that misled any reasonable investors. The judge also said that
Speaker 1: the AG's office didn't introduce any witnesses any investors to
Speaker 1: say that they were misled. How could the a G
Speaker 1: miss that in its case? Yes, I found that shocking. Frankly,
Speaker 1: the judge that they failed to produce any witness or
Speaker 1: any investor who claimed to have been misled by any disclosure,
Speaker 1: even though, said the judge, the Attorney General had promised
Speaker 1: that they were going to call such individuals. I don't
Speaker 1: know what happened. I mean, it's just a complete failure
Speaker 1: of the lawsuit. Frankly, I would say the judge at
Speaker 1: times sort of wraps the knuckles of of the a
Speaker 1: G or whoever was trying the case. Yes, he characterized
Speaker 1: the complaint as hyperbolic. He criticized the lawyers for the
Speaker 1: way they were presenting the case, going on and on.
Speaker 1: He mentioned fifty pages of transcript where he finally had
Speaker 1: to ask a question to clarify what the witness was saying.
Speaker 1: So it's really surprising because the New York AG is
Speaker 1: known for having quality legal talent. They have an incredible
Speaker 1: record of success bringing Martin Act cases in the past.
Speaker 1: I don't know what happened with this one. They got
Speaker 1: over their skis, as we say in Vermont. And also
Speaker 1: the judge, this has to be one of the worst
Speaker 1: things that a trial lawyer will hear. The judge said,
Speaker 1: the AG's own witnesses ended up giving testimony that backed
Speaker 1: XNS defenses. In fact, one of the things that surprised
Speaker 1: me was the New York AG was trying to win
Speaker 1: the case based on xns own witnesses. They kept calling
Speaker 1: people like Rex Tillerson and like some of the senior
Speaker 1: financial advisors and other people from within the corporation. I
Speaker 1: don't know what the AG was thinking they were going
Speaker 1: to get from these witnesses, but what they got was
Speaker 1: explanations of what EXN was doing that satisfied the judge.
Speaker 1: XN wasn't doing anything that was misleading. So the whole
Speaker 1: case blew up in their face. Were they just outlawyered
Speaker 1: by Ted Wells, who is known as one of the
Speaker 1: best trial lawyers in the country. Were they outlawyered by him,
Speaker 1: or did they just not have the evidence. I think
Speaker 1: they just didn't have the evidence. I don't know whether
Speaker 1: they thought they had better evidence and what they came
Speaker 1: forward with. They had over a year to prepare for
Speaker 1: this case, and there was depositions, the usual kinds of
Speaker 1: discovery that you do. There shouldn't have been any surprises,
Speaker 1: and it may just be that they overpromised, not only
Speaker 1: the court but sort of the public at large of
Speaker 1: what they were going to be able to prove, and
Speaker 1: when it actually came time to prove it, they didn't
Speaker 1: have it. What about the allegations that Exxon Mobile was
Speaker 1: keeping two sets of books. I think that's true. That
Speaker 1: came through pretty clearly. Now they explained why they kept
Speaker 1: these two different books, these two different proxies for how
Speaker 1: you evaluate the risks of continued investment in fossil fuel production.
Speaker 1: And the thing that the judge pointed out in his
Speaker 1: long opinion it's fifty five pages of discussion, is that
Speaker 1: Exxon was filing a lot of other documents, you know,
Speaker 1: their ten K filings for securities compliance, their shareholder reports,
Speaker 1: their Outlook of Energy into the Future reports, a lot
Speaker 1: of different documents containing a lot of information about the
Speaker 1: risks of climate change, the fact that the nations of
Speaker 1: the world we're getting more serious about imposing a price
Speaker 1: on carbon, and Exxon was beginning to react to that.
Speaker 1: So the the overall story that XN told was quite positive, frankly,
Speaker 1: and the a G just didn't have a sufficient rebuttal
Speaker 1: to all of the other information that Exxon was providing
Speaker 1: over the years. Exxon has repeatedly said that this prosecution
Speaker 1: by the New York AG's office was political and that
Speaker 1: it was driven by environmentalists pressuring the a G s office.
Speaker 1: Did that have any effect do you think on the judge?
Speaker 1: I'm not sure that environmentalists pressure had anything to do
Speaker 1: with x On bringing the case. I do think that
Speaker 1: the AG probably made too big a political and public
Speaker 1: splash about this case, going to the press and making
Speaker 1: pretty bold predictions about what was going to happen. That
Speaker 1: rankled the judge. Clearly he did not find that kind
Speaker 1: of hype suitable for a serious prosecution of a fraud allegation,
Speaker 1: so that that did effect I think the way the
Speaker 1: case unfolded. But the fundamental problem is simply one of
Speaker 1: just not having the evidence that you needed to make
Speaker 1: your case. And I don't know what happened on that end,
Speaker 1: but perhaps we'll find out more later. How much did
Speaker 1: Rex Tillers, in the former c e O of x On,
Speaker 1: taking the stand and denying the allegations that the AG
Speaker 1: had made. Was that convincing for the judge? It was
Speaker 1: partly convincing because he cited Tillerson's testimony at several key
Speaker 1: points of his decision. And Tillerson, of course cuts you know,
Speaker 1: a suave figure, and I'm sure he was a good
Speaker 1: witness in that regard. Now, he was also able to,
Speaker 1: oftentimes when they were attempting to corner him, say well,
Speaker 1: I don't really recall exactly that conversation, So he was
Speaker 1: he was an elusive witness. But my point would be,
Speaker 1: why on earth would you call Rex Tillerson thinking that
Speaker 1: you were somehow going to trip him up. That just
Speaker 1: wasn't gonna happen, and it didn't. So the a G.
Speaker 1: S Office says it's considering appealing the judge's decision. Any
Speaker 1: point in appealing here? I don't see any grounds for
Speaker 1: appeal serious grounds for appeal. There's no clear error. He
Speaker 1: heard twelve days of testimony, he was an actively involved
Speaker 1: judge asking questions. He is the I are a fact
Speaker 1: in a case like this, and appellate courts are required
Speaker 1: to defer to the fact finder who actually observed the
Speaker 1: witnesses weighed their testimony. So no, I see no serious
Speaker 1: grounds for appeal. I think the a G better licked
Speaker 1: their wounds and move on to the next case. Pat
Speaker 1: Does this have any effect at all on Massachusetts case
Speaker 1: against Exxon? Well, Massachusetts is bringing their case under their
Speaker 1: consumer protection law, which is different than the Martin Act.
Speaker 1: It's not a securities fraud law, it's a broader consumer
Speaker 1: protection law. But still, this is a cautionary tale for sure,
Speaker 1: for the mass A g S Office. If they don't
Speaker 1: have better evidence in the ones that the Age New
Speaker 1: York AG tried to bring forward, they probably better either
Speaker 1: rethink their case or tailor it down, narrow it down
Speaker 1: to the things that they can actually prove that we're
Speaker 1: misleading and that violates the state law. It's a different case,
Speaker 1: but I think if I were the mass A G
Speaker 1: I would be very cautious about how I proceeded with
Speaker 1: that case. Thanks Pat. That's Pat Parento, Professor, Vermont Law School.
Speaker 1: Thanks for listening to the Bloomberg Law Podcast. You can
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Speaker 1: and on Bloomberg dot com slash podcast. I'm June Brosso.
Speaker 1: This is Bloomberg Ye.