While ExxonMobil battles high-profile investigations by the attorneys general of New York and Massachusetts, another legal complaint alleging false claims on climate change by the company was quietly filed by a group of current and former employees against the oil giant earlier this year.
In Attia v. Exxon, those employees are suing ExxonMobil under the Employee Retirement Income Security Act (ERISA). The reason? Plaintiffs claim that the company has endangered the value of their retirement accounts by fraudulently inflating its stock and misrepresenting what it knows about the risks of climate change to its business.
The ERISA claim, filed in U.S. District Court for Northern Texas in February, alleges that executives in charge of the employee retirement plan knew the company was committing fraud and thus should have avoided investing in its stock. They argue this was most irresponsible when the stock was at its most-inflated price and that the company should have written off its stranded assets when the stock price was low and had less distance to fall. In failing to do so, the employees claim the company abdicated its fiduciary responsibility.
The complaint was filed as the New York attorney general’s investigation revealed that Exxon has been using two sets of figures to account for climate risks to the company: one it used for internal calculations and one for public dissemination. New York Attorney General Eric Schneiderman asserts this is evidence the company is misleading the public and investors. Previously, a class action suit, Ramirez v. Exxon, had been filed against the company by a group of shareholders alleging Exxon had defrauded its investors by intentionally misrepresenting climate risks. That case is pending in U.S. District Court for Southern Texas.
Lawyers in the employees’ case could have stuck to just financial facts, but their complaint is also filled with information about the company’s behavior on climate change.
“We see the two issues as being related,” said Sam Bonderoff, a partner at Zamansky LLC and the lead attorney on the case. “I don’t think it’s an accident or an aberration that Exxon misrepresented the value of its reserves because it fits in with this larger narrative the company has been promulgating for decades: that climate change isn’t really happening, and then okay maybe it is, but to what extent, it’s been overblown, and in any event we won’t be harmed by it, and so on. If you’re a company that doesn’t think climate change is a serious threat you’d be less concerned about stranding reserves so the value you’d deduct for stranded reserves would be lower.”
Ultimately, the success of the case will rest on whether it can meet the burden of proof, a standard that has been set very high by other cases. According to Bonderoff, only three cases have made it past the motion to dismiss since 2014. And since justices threw out an ERISA case against the medical device company Amgen in 2015, the number of cases allowed to move forward is zero.
That’s because ERISA cases must prove that there are alternate actions a plan’s trustees could have taken that would have caused less harm. “It’s difficult to prove because you really need to show causation,” said Daniel Riesel, principal at Sive, Paget & Riesel, one of the country’s first environmental law firms. “Here they would have to show that it’s only because the company withheld this information that the stock plummeted, so they need to eliminate any other causes, and then they also have to prove it was an unreasonable position for the trustees to take.”
Riesel said it’s probably not a tough case for Exxon to beat. “They could take the position that even though they knew assets were stranded, really the best way to protect the company’s stock price would be to not disclose that information,” he said. “Which is plausible. It may not be admirable from a public or environmental standpoint, but from a trustee standpoint it’s reasonable that they might say ‘if we disclose that a lot of the assets on our books will never be tapped that will knock our stock prices down,’ and that it would be best to keep quiet.”
The Attia plaintiffs say Exxon could have written down its reserves earlier, executives in charge of the employee plan could have frozen purchases of Exxon stock at its inflated price point, or that plan managers could have bought other stock to hedge against the impact of the fraud.
In their motion to dismiss, Exxon lawyers claim that the first two alternatives have been ruled by other courts to be invalid and the third would have been illegal. “‘Hedging’ based on inside information would run afoul of the securities laws, and the ERISA duty of prudence ‘does not require a fiduciary to break the law,’” the motion read.
Exxon did not respond to several requests for comment on the case.
In an ERISA case in Missouri against Peabody Energy, employees faulted retirement plan managers for mismanaging their retirement fund as Peabody misrepresented what it knew about the future of coal. The case was dismissed in March. The court said the plaintiffs had not established that a prudent fiduciary “could not have concluded that alternatives to continued investment in Peabody stock would do more harm than good.”
Bonderoff is realistic about his chances. “Really anyone who beats a motion to dismiss in an ERISA case these days is a hero in the field,” he said. “The courts have overcorrected and made it almost impossible to plead these cases.”
Still, he has some hope. “We’ve pleaded more specific facts in this case than have been pleaded in most cases,” he said. “These are facts that couldn’t just be pleaded against any old company in any old ERISA case. Exxon’s stock price is related to the price of oil, so the oil price going up with the stock price, artificially inflated by fraud, means it will have farther to fall when you come out with the truth. These executives being experienced in their field should have known that would happen, and then you have their top two competitors doing their write-downs the years before, which establishes what would have been the appropriate time to do that.”
The case is before Judge Keith P. Ellison, who also presided over an ERISA case against British Petroleum related to the disastrous Deepwater Horizon oil spill. He ultimately dismissed it after several rounds of appeals. Bonderoff said that’s a concern, but he also sees a silver lining. “No judge has thought more about these types of cases, so we’re at least going in front of someone who really gets the issues,” he said.
Should the case be reviewed after the New York and Massachusetts attorneys general case, and if Exxon is found to have committed fraud, that could bolster the plaintiffs’ case, according to Riesel. He likens it to what happened in various chemical tort cases, where the government investigated first and found evidence of wrongdoing, and private cases followed on from there.
“If that case is decided against Exxon, it would help this case significantly,” he said. “Then all they’d have to say is that other factors were not in play because all other things being equal the stock wouldn’t have plunged.”
Judge Ellison will decide whether to hear oral arguments in the case before deciding whether or not to dismiss it. His final decision could come as soon as August or as far off as 2020.