Shepstone Management Company, Inc.
The NRDC gang, a/k/a the Rockefeller family, has just lost a big one and in New York County, New York, no less! #ExxonKnew has just gone up in flames.
Four years I wrote about “The NRDC Gang and It’s Battle Against Exxon.” I noted the NRDC gang (the Rockefeller family) was behind the campaign against Exxon (a/k/a “ExxonKnew”). Subsequently disgraced New York State Attorney General Eric Schneiderman was their water boy and did their dirty work. It all grew out of a legal strategy conceived by NRDC co-founder Richard Ayres and refined by the La Jolla Junta. Read the junta’s report and you’ll see what I mean. Time has not treated the strategy with much success, though, as we noted here and here. And, now they’ve suffered a major defeat right there in the belly of the beast: New York County, New York.
Yes, New York County Supreme Court Judge Barry R. Ostrager has blown the New York State Attorney General’s case, and the NRDC gang strategy, out of court with a decision we only have to quote to make our point (emphasis added):
Following twelve days of trial and testimony from eighteen witnesses, the Court finds that the Office of the Attorney General has failed to establish by a preponderance of the evidence that ExxonMobil either violated the Martin Act or Executive Law§ 63(12) in connection with its public disclosures concerning how ExxonMobil accounted for past, present and future climate change risks.
The trial was the culmination of three and one-half years of investigation and pre-trial discovery that required ExxonMobil to produce millions of pages of documents and dozens of witnesses for interviews and depositions. During the investigation and pre-trial discovery phase of the case, ExxonMobil produced, voluntarily and at the Court’s direction, reams of proprietary information relating to its historic and contemplated investments. In addition, multiple nonparties, including various financial institutions, were interviewed or deposed.
At the trial, the Office of the Attorney General made public scores of proprietary internal models and memoranda ExxonMobil used in connection with the planning and operation of its business. It is undisputed that ExxonMobil does not publish the details or the economic bases upon which ExxonMobil evaluates investment opportunities due to competitive considerations. Significantly, many of the internal models published at trial related to projects that ExxonMobil either has not yet pursued or may never pursue.
The Complaint in this action asserted four claims for relief prefaced by allegations asserting, inter alia, that ExxonMobil engaged in a “longstanding fraudulent scheme” “sanctioned at the highest levels of the company,” “effect[ively] erect[ing] a Potemkin village to create the illusion that it had fully considered the risks of climate change regulation and had factored those risks into its business operations.” The Complaint further alleges that “in reality [ExxonMobil] knew that its representations were not supported by the facts and were contrary to its internal business practices” (NYSCEF Doc. No. 1, Complaint ,r 1, 8, and 9).
The events leading up to the filing of the Complaint were detailed at length during the trial, including certain politically motivated statements by former New York Attorney General Eric Schneiderman. In 2013, ExxonMobil received various inquiries and shareholder proposals requesting more information about how ExxonMobil factored climate change risks and regulations into its business decisions. Thereafter, ExxonMobil held a meeting on December 17, 2013 with representatives of the sponsors of the inquiries and shareholder proposals. Ultimately, in exchange for the withdrawal of two shareholder proposals, ExxonMobil agreed to publish two reports with additional information about the manner in which ExxonMobil addresses the evolving policies and regulations governments may implement to reduce the emissions of greenhouse gases in a rapidly growing world population. Those reports, entitled Managing the Risks and Energy and Climate, were published on March 31, 2014. The Office of the Attorney General asserted at trial that beginning with the December 2013 meeting, continuing with the publication of the two March 2014 reports, and continuing further through 2016, ExxonMobil made various material written and oral misrepresentations and omissions that tended to mislead the public in violation of the Martin Act and Executive Law§ 63(12). The Court finds these allegations to be without merit…
Significantly, there is no allegation in this case, and there was no proof adduced at trial, that anything ExxonMobil is alleged to have done or failed to have done affected ExxonMobil’s balance sheet, income statement, or any other financial disclosure. More importantly, the Office of the Attorney General’s case is largely focused on projections of proxy costs and GHG costs in 2030 and 2040. No reasonable investor during the period from 2013 to 2016 would make investment decisions based on speculative assumptions of costs that may be incurred 20+ or 30+ years in the future with respect to unidentified future projects…
What the evidence at trial revealed is that ExxonMobil executives and employees were uniformly committed to rigorously discharging their duties in the most comprehensive and meticulous manner possible. More than half of the current and former ExxonMobil executives and employees who testified at trial have worked for ExxonMobil for the entirety of their careers. The testimony of these witnesses demonstrated that ExxonMobil has a culture of disciplined analysis, planning, accounting, and reporting.
The Court heard testimony from ten present and former ExxonMobil employees, most of whom were called by the Office of the Attorney General as adverse witnesses. There was not a single ExxonMobil employee whose testimony the Court found to be anything other than truthful. Each ExxonMobil and Imperial Oil employee who testified in person at trial swore under oath that he or she was unaware of any scheme at ExxonMobil to mislead investors about the manner in which ExxonMobil managed climate risk…
The Court has no reason to discredit the testimony of these witnesses…
In sum, the Office of the Attorney General failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor. The Office of the Attorney General produced no testimony either from any investor who claimed to have been misled by any disclosure, even though the Office of the Attorney General had previously represented it would call such individuals as trial witnesses. ExxonMobil disclosed its use of both the proxy cost and the GHG metrics no later than 2014. Perhaps, the 2014 paragraph in Managing the Risks which indicated that ExxonMobil applied a GHG cost “where appropriate” and which was the subject of questioning of virtually every witness in the case could have been written in bold type, but the sentence was consistent with other ExxonMobil disclosures and ExxonMobil’s business practices. The publication of Managing the Risks had no market impact and was, as far as the evidence adduced at trial reflected, essentially ignored by the investment community.
The testimony of all the present and former ExxonMobil employees who were called either as adverse witnesses by the Office of the Attorney General or as defense witnesses by ExxonMobil was uniformly favorable to ExxonMobil, and the Court credited the testimony of each of those witnesses. The testimony of the expert witnesses called by the Office of the Attorney General was eviscerated on cross-examination and by ExxonMobil’s expert witnesses. Confronted with the disclosures in ExxonMobil’s Corporate Citizenship Reports, Form IO-K’s, and ExxonMobil’s annually published Outlook, the Office of the Attorney General failed to prove by a preponderance of the evidence that any alleged misrepresentation in Managing the Risks and Energy and Climate (or any other disclosure by ExxonMobil) was false and material in the context of the total mix of information available to the public.
It doesn’t get much clearer than that. The decision gets deep into the weeds but to understand how big a loss this was for the NRDC gang, the junta of other NRDC friends and the Rockefellers, you only need the above. Nice!