Court Rejects New York Attorney General's "Hyperbolic" Complaint Alleging That ExxonMobil Defrauded Investors Regarding Climate Change Risk

Following 12 days of trial and testimony from 18 witnesses, ExxonMobil Corporation ("EM") won a resounding victory in a closely watched securities fraud trial brought by the New York Attorney General ("NYAG"). The December 10, 2019, decision by trial-level New York Supreme Court Justice Ostrager concluded an investigation that lasted more than three years and entailed extensive discovery by the NYAG into EM's representations about the projected impact of climate change on EM's finances and operations.

The NYAG brought claims for four counts of fraud against EM but ultimately pursued only two claims arising under New York's Martin Act, General Business Law § 352 et seq., and Executive Law § 63(12). The Martin Act is one of the broadest state antifraud securities statutes in the country. One can be liable under the Martin Act for making a misrepresentation or omission of material fact in connection with the issuance, sale, or purchase of securities. New York's test for materiality is the same as the federal standard in securities fraud cases: "[a] statement or omission is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to act." Fraudulent acts that violate the Martin Act also violate Executive Law § 63(12) when they are repeated. Neither statute requires proof of intent or actual reliance by investors.

In late 2013, EM received various shareholder inquiries asking EM for information about how it factored climate change risk and regulation into its business decisions. EM also received two shareholder proposals requesting that EM produce a report describing its strategic plan to address climate change risk. In exchange for the withdrawal of the shareholder proposals, EM agreed to publish two reports that outlined the manner in which it factored climate change regulation into its business decisions. EM published two reports on March 31, 2014 (together, "March Reports"). The NYAG's complaint principally alleged that the March Reports and subsequent related public statements contained material misrepresentations and omissions. In particular, the NYAG argued that EM used different, less demanding metrics to account for the costs of climate change in its internal business analyses than the metrics it disclosed to the public.

Referring to the NYAG's complaint as "hyperbolic," the court held both that EM's statements were not false or misleading, and that EM's statements were not material. First, the evidence showed that EM's business units used a "proxy cost of carbon" and "GHG costs" as standard gap fillers for their business analyses, and that these metrics, though related, were distinct and intended to quantify the long-term costs and effects of existing and future environmental regulation. The evidence also showed that, where appropriate, EM business units used additional facts on the ground to generate localized projections of regulatory risk and cost, which they used in making business decisions. The court found that EM did not make any false or misleading statements with respect to these metrics.

Second, the court held that there was no proof adduced at trial that EM's statements in the March Reports (or any other related statements) affected EM's balance sheet, income statements, or any other financial disclosure. The court found that the NYAG had built its case, in part, on testimony from an investor-witness who was "manifestly biased" against EM. The court concluded that the NYAG's case was "largely focused on projections of proxy costs and GHG costs in 2030 and 2040" and that "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."

This victory is a landmark case in several respects. It is only the second climate change case to go to trial in the United States and the first where plaintiffs were able to obtain significant discovery from an energy company defendant. More cases continue to come down the pipeline, however. Last fall, Massachusetts Attorney General Maura Healey brought a similar but broader case against EM, arguing that the company misrepresented the projected impact of climate change on its finances, both to investors but also to consumers in its advertisements for "greener" product lines. Additionally, more than a dozen public nuisance lawsuits have been brought against oil and gas companies of various sizes.

Climate change-based litigation is still only beginning, and plaintiffs continue to bring lawsuits based on novel legal theories to hold energy companies financially liable for climate change. Although oil and gas companies have been the early and most obvious targets of many of these lawsuits, companies of all types and sizes could foreseeably be hauled into court on similar grounds. Judge Ostrager's opinion is an important bellwether decision. Moreover, it presents a positive example of a judge focusing on the actual claims and evidence in a particular climate change case as opposed to greater political or cultural concerns around climate change.

Insights by Jones Day should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request permission to reprint or reuse any of our Insights, please use our “Contact Us” form, which can be found on our website at This Insight is not intended to create, and neither publication nor receipt of it constitutes, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.