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Exxon Climate Securities Litigation

People of the State of New York v. ExxonMobil Corp., case number 452044/2018, in the Supreme Court of the State of New York, County of New York


The office of New York Attorney General Letitia James filed a complaint against ExxonMobil (“Exxon”) in October 2018 in New York state court. The case alleges a violation of New York’s Martin Act, which provides the attorney general broad powers to investigate financial fraud. The New York State Attorney General (the “State”) claims that Exxon misled investors on its evaluation of the impact of future climate regulations on its business through its use of internal metrics compared to published “proxy costs” or estimates of the cost of carbon emissions.

The State alleged that if Exxon had accurately and consistently applied its proxy costs of carbon emissions, instead of the lower costs used internally, it would have reported significantly lower reserves, which would have impacted the stock value, and that such misstatement cost shareholders between $476 million and $1.6 billion.

Exxon has argued that the two costs the State refers to were legitimately used for different purposes and that, even if misleading, the use of the proxy costs was of minimal investor interest at the time.

The State’s Case

The trial commenced on October 22. The State detailed its argument that, beginning in 2010, Exxon told the public that it had assigned a price to carbon internally to model how government climate regulation would affect its business. However, the State alleged that Exxon used one high figure for presentations to investors and a lower number in internal documents used as the basis for business decision-making. The State attempted to demonstrate that the discrepancy between the “greenhouse gas costs” used and the proxy costs as published was fraudulent and resulted in Exxon telling investors that it had fully considered the effects of future government climate regulations, when in fact it had not. Peter Boukouzis, an expert for the State, argued that if Exxon had used the higher proxy costs in its business decision-making, certain investments, such as the Alberta tar sands, would have appeared significantly less profitable and may not have been pursued.

On October 30, the State called Rex Tillerson, CEO of Exxon during the time of the events in question, as an adverse witness. The State questioned Tillerson’s influence on the proxy costs’ application and his use of an email account dubbed “Wayne Tracker”. Prosecutors also asked about the alleged failure to preserve emails from that account. Tillerson responded that Exxon had taken a systematic approach to carbon costs and, on cross-examination, stated that the company would have no incentive to undercut cost assumptions because “we’d be misinforming ourselves.” In addressing the separate email account, Exxon representatives repeatedly stated that the purpose was efficiency, not secrecy.

The State argued that Tillerson knew of the allegedly misleading nature of the proxy costs and that Exxon set price projections for its products based upon Tillerson’s preferences instead of any process influenced by the proxy costs of carbon emissions.

Tillerson testified that climate change was one of the many risks Exxon had to manage, and that he supported a carbon tax as a regulatory measure since it could be adapted as the science around global warming evolves. Exxon has indicated that, in the absence of a globally-accepted cost of carbon, Exxon used two distinct metrics to account for the impact of current and potential climate-related regulations – a proxy cost to reflect the impact of all climate polices that could reduce demand for oil and natural gas globally and a “greenhouse gas cost” reflecting actual costs that might be imposed directly on the emissions of oil and gas projects as a result of specific laws in the jurisdiction at issue.

Exxon’s Defense

After nine days, the State rested its case against Exxon. Some observers critiqued that the State struggled to prove its case, the presiding Justice Ostrager at one point calling the State’s questioning of witnesses repetitive and “agonizing” as the State attempted to show that Exxon misled investors. However, the broad leeway given by the Martin Act means that Justice Ostrager could still rule in the State’s favor, as no intent is required under the state law.

Exxon’s first witness in its defense was Richard Auter, head of the Exxon auditing team at PricewaterhouseCoopers (“PWC”). Auter stated that he had used the terms “proxy cost” and “greenhouse gas costs” interchangeably in memoranda prior to 2017. The two costs were harmonized shortly after the publication of reports in 2014, but from publications to date it is unclear if Auter’s statement only referred to this 2014–2017 time period or prior to the 2014 reports as well. In 2014, internal projections were aligned with the publicly-represented proxy costs but only for countries in the Organisation for Economic Co-operation and Development.

However, Auter testified that he wasn’t aware of any attempt by Exxon to conceal or manipulate the two costs. He also said proxy costs don’t have a material impact on Exxon’s financial health and aren’t required by law. Exxon maintained that it properly disclosed its use of these metrics and that the internal greenhouse gas number should not be misconstrued as applying in the same way as the proxy cost. This aligned with Tillerson’s testimony that the Company had no incentive to lowball costs internally.

Closing Statements

On Wednesday afternoon, both Exxon and the State attorney general’s office rested their cases. After nearly three weeks of testimony from executives, investors and expert witnesses, Justice Barry Ostrager directed the parties to appear on Thursday morning at 10:00 a.m. for closing statements to conclude the bench trial.

During these closing statements, the State focused on whether Exxon had adequately disclosed the cost of climate change, arguing that “the question in this case is whether Exxon’s disclosures were accurate, and the evidence shows they were not.” Exxon focused on its contention that the State wrongly conflated the two costs and misunderstood the legitimate differences in how they were used, as well as arguing that the State had failed to show that, even if the statements were misleading, investors at the time cared.

Additionally, closing statements saw the State drop its common law and equitable fraud claims against Exxon. These claims were dismissed with prejudice, although company representatives have stated that Exxon deserves a ruling to clear the company and its officials’ reputations.

After closing statements, each side has 10 business days to submit post-trial memoranda, which may include a briefing by Exxon on whether it has a right to a stipulation on the dismissed claims. After submission of these post-trial documents, Justice Ostrager is expected to rule within 30 days.

Potential Outcome

The case will be decided by Justice Ostrager without a jury. A damages award would require a finding that Exxon’s statements were misleading to investors and that such misleading statements affected Exxon’s stock value. Justice Ostrager could also choose to issue an injunction, ordering Exxon to correct its disclosures. Either such outcome would mark a major development in climate change litigation.

Exxon faces separate litigation in several other states. Massachusetts has accused Exxon of deceptive and fraudulent practices towards both investors and consumers under the Massachusetts Consumer Protection Act. Rhode Island and the City of Baltimore each seek to recover costs related to climate change mainly through numerous tort claims, including products liability claims for failure to appropriately warn consumers. While New York’s case is brought under a different legal doctrine, the ruling could have significant implications for how such additional suits against Exxon are viewed.

The cases brought by New York, Massachusetts, Rhode Island, and Baltimore all maintain that there is some form of defect in Exxon’s communications about fossil fuels and climate change, whether intentionally deceptive or just negligently miscommunicated. While New York’s case was brought under securities laws, Massachusetts’s case under consumer protection laws, and Rhode Island and Baltimore’s cases under various traditional tort theories, all have criticized the appropriateness of Exxon’s statements about climate change. If Justice Ostrager finds Exxon’s communications to investors are deficient, then plaintiffs in other cases might draw on his findings to bolster their own claims about the acceptability of Exxon’s communications in related contexts.


The disagreement between the State and Exxon fundamentally boils down to a question of context. While Exxon contends the two costs were legitimately used for distinct purposes, the State has argued that the manner of use was not clear from Exxon’s public filings. However, several of the State’s inferences from the filings are far from the only possible interpretation. Further clarification on the application of the proxy costs could have left less opportunity for such unwelcome readings.

If Exxon loses the present litigation, it will further signal that companies need to be much more precise in their communications, even if those communications are voluntary. This increase in precision applies not only to disclosures on strategy and operations — such as the scope of various policies and programs — but also to any supporting analysis. Disclosures that rely on complex analysis will likely require a more robust presentation of the methodology used, including the identification of any significant assumptions or exceptions embedded in the process.

This litigation has added context to the trend of voluntary climate change reporting. Given the rapidly evolving expectations regarding climate-related disclosures, statements can retroactively appear unreasonable in a very short timeframe. It is difficult to shed contemporary values and expectations when examining past actions. More methodologically robust reporting can help to preserve the meaning behind disclosure, so that it is read consistently with the expectations at the time of its publication and to defend that disclosure when it is reviewed at a later date.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.