In the recent months, the public has learned more about ExxonMobil’s attempt to bury its own early corporate research on climate change. In July, the media exposed email from one of ExxonMobil’s in-house scientists. This email led to investigations that showed corporate knowledge of climate change issues going back to the late ‘70s, and research going back to the early ‘80s. The investigations also indicated that after revelations about climate damage, ExxonMobil funded anti-climate change research and political activity for decades. While the company began to mend its ways in late 2000’s, there are still questions of liability for the initial cover-up.
Many have likened ExxonMobil’s actions to the actions of tobacco companies many years ago. For years, the tobacco industry manipulated data about the risks of its products as sold in the United States. As the New York Times recently mentioned, actions taken by attorney generals were the first steps in bringing the tobacco industry to account for its past deceptions.
New York’s Attorney General is investigating ExxonMobil, potentially bringing more accountability to a new industry. It’s possible that the public was misinformed by ExxonMobil about the risks associated with climate change, and this may bring about unforeseen consequences. The main focus of the New York investigation, however, is whether or not ExxonMobil investors specifically were properly informed of the risks that climate change could present to a company that deals in fossil fuels.
What Shareholder Actions Will ExxonMobil Face?
Civil environmental lawsuits may arise now that states and classes of plaintiffs have ammunition to take to court. However, this kind of lawsuit has rarely succeeded, and the Supreme Court has already ruled that states cannot sue companies that produce greenhouse gas emissions for creating a public nuisance. The Alaskan village of Kivalina also recently failed to sue major emitters for a public nuisance due to sea level increases, and in 2013, the Supreme Court chose not to hear that case. That said, it is not completely impossible that ExxonMobil may face a novel and successful civil lawsuit based on these new facts.
ExxonMobil executives may also face derivative shareholder suits, in which shareholders sue officers and directors on behalf of the company. Most executives’ actions are protected by the business judgment rule, which is a rule that states judges should not second guess the business decisions of corporate executives.
However, actions taken in bad faith, without due care, or against the best interest of the corporation, are not protected by the business judgment rule. ExxonMobil’s stock have lost some value since these investigations have brought past actions to light. Shareholders may question whether ExxonMobil deceived them about climate change in order to make their investment seem wiser, or whether the company has truly reversed course now. A shareholder that has already made a written demand that ExxonMobil accept more past responsibility, disclose more information, or take other corrective actions to avoid harm may now file suit if the company does not comply.
What Government Actions Will ExxonMobil Face?
Like the tobacco companies, ExxonMobil may be prosecuted under the Racketeer Influenced and Corrupt Organization Act (RICO). RICO requires a pattern of racketeering (in other words, illegal business) and, thus, would require proof of an ExxonMobil conspiracy involving securities fraud and other crimes. In the case of the tobacco company Phillip Morris, for example, the Department of Justice was able to establish a scheme in which the public was misled in multiple ways and deceptive marketing practices were used. It remains to be seen whether such a strong organized crime case could be pursued against ExxonMobil.
One final (and possibly best) option is for Attorney General Schneiderman to employ the Martin Act, which is a very powerful New York-specific law that allows his office to prosecute securities fraud. The Attorney General’s Office is the only agency that can enforce the civil portion of the Act. It can also work with the District Attorney to press criminal charges. The Martin Act allows for both confidential and public investigations into corporate actions, and its definition of securities fraud is broader than under federal law. This Act has been used to pursue action against investment banks and other major corporations in the past.
While it’s likely that some of these legal strategies will not work, ExxonMobil will have to face the music somehow in the coming year. This may also send a warning signal to other corporations relying on carbon emissions to turn a profit.
Authored by Alexis Watts, LegalMatch Legal Writer