New York Court of Appeals Denies Exxon Mobil’s Motion to Appeal in Ongoing Climate Change Investigation by New York Attorney General
On September 12, 2017, the New York Court of Appeals denied Exxon Mobil’s motion for leave to appeal a decision of the Appellate Division, First Department, which had held that the accountant-client privilege is not recognized in New York and therefore does not protect documents held by PricewaterhouseCoopers (“PwC”), Exxon’s auditor, from subpoena by New York’s Attorney General. Attorney General Eric Schneiderman has requested information from PwC regarding, among other things, Exxon’s research on climate change impacts and related policies, and decision-making based on such research.
The decision is the latest in an ongoing New York state court lawsuit filed by the Attorney General to enforce its subpoenas of Exxon and PwC, which were issued as part of Schneiderman’s high-profile Martin Act investigation into Exxon’s climate change research and related business decisions and public filings. The Attorney General’s litigation papers allege that Exxon’s public disclosures were contradictory, inaccurate, and misleading, pointing to a statement made by then-CEO Rex Tillerson that due to the large scale and short timeframe of Exxon projects, the theoretical cost of carbon would not affect the company’s decision making.
The Martin Act prohibits publicly traded companies from making false or misleading statements in their public financial disclosures and gives the State Attorney General broad powers to investigate financial fraud. Schneiderman’s November 2015 subpoena of Exxon, issued pursuant to this Act, requests documents regarding Exxon’s research on climate change causes and impacts; analysis of the effects of climate change on the market for fossil fuels and renewable energy; related financial projections and business decisions; and disclosure of this research, analysis, and decision making in filings with the U.S. Securities and Exchange Commission and investor reports. Under similar consumer and investor protection laws, attorneys general in Massachusetts and the Virgin Islands also subpoenaed Exxon for information regarding its climate change disclosures. While the Virgin Islands has since withdrawn its subpoena, the Massachusetts investigation and attendant litigation are ongoing.
Due to this pending litigation in New York state court, and a similar case in Massachusetts, the New York and Massachusetts attorneys general have moved to dismiss a federal lawsuit Exxon filed in the Northern District of Texas in 2016, which has since been transferred to the Southern District of New York. Exxon seeks to prohibit enforcement of the States’ subpoenas based on allegations that the investigations violate its rights under the U.S. and Texas constitutions. Specifically, Exxon argues that the investigations are a pretext to further the States’ political objectives, that they burden Exxon’s free speech, and that the document requests are overly burdensome so as to constitute an unreasonable search. The Southern District has not yet ruled on the motions to dismiss.
In the midst of the states’ investigations and the related litigations, the U.S. House Committee on Science, Space, and Technology issued subpoenas in February 2017 to the attorneys general of New York and Massachusetts, seeking information about their investigations and claiming that the investigations are being conducted in bad faith because their outcome is predetermined and that the states’ inquiries may chill scientific research and development in the energy industry. The New York and Massachusetts attorneys general, with the backing of 15 other state attorneys general, have argued that the federal government does not have the authority to intervene in the investigations.
Exxon shareholders have also voiced their opinion: in May 2017, approximately 62% of voters in the company’s annual shareholder meeting voted in favor of more detailed and transparent disclosures regarding the risks climate change poses to Exxon’s business.