Exxon Mobil Corp. v. Schneiderman

• Decision Date: 29 March 2018
• Docket Number: 17-CV-2301 (VEC)
• Citation: 316 F.Supp.3d 679
• Parties: EXXON MOBIL CORPORATION, Plaintiff, v. Eric Tradd SCHNEIDERMAN, Attorney General of New York, in his official capacity, and Maura Tracy Healey, Attorney General of Massachusetts, in her official capacity, Defendants.
• Court: U.S. District Court — Southern District of New York

316 F.Supp.3d 679

EXXON MOBIL CORPORATION, Plaintiff,

v.Eric Tradd SCHNEIDERMAN, Attorney General of New York, in his official capacity, and Maura Tracy Healey, Attorney General of Massachusetts, in her official capacity, Defendants.

17-CV-2301 (VEC)

United States District Court, S.D. New York.

Signed March 29, 2018

Ralph H. Duggins, Alix Dean Allison, Philip A. Vickers, Pro Hac Vice, Ralph Hereford Duggins, Cantey Hanger LLP, Fort Worth, TX, Daniel E. Bolia, Patrick Joseph Conlon, Pro Hac Vice, Exxon Mobil Corporation, Houston, TX, Daniel John Toal, Pro Hac Vice, Michele S. Hirshman, Pro Hac Vice, Theodore Von Wells, Jr., Pro Hac Vice, Paul Weiss, New York, NY, Justin Anderson, Pro Hac Vice, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Washington, DC, Nina Cortell, Pro Hac Vice, Haynes & Boone LLP, Dallas, TX, for Plaintiff.

Christophe Courchesne, Pro Hac Vice, Melissa Ann Hoffer, Richard Alan Johnston, Pro Hac Vice, I. Andrew Goldberg, Pro Hac Vice, Massachusetts Attorney General's Office, Richard A. Johnston, Pro Hac Vice, Wilmerhale, Boston, MA, Douglas A. Cawley, Richard Alan Kamprath, McKool Smith PC, Peter D. Marketos, Tyler J. Bexley, Reese Gordon Marketos LLP, Jeffrey Mark Tillotson, Lynn Tillotson Pinker & Cox, LLP, Dallas, TX, Peter Charles Mulcahy, Pro Hac Vice, Massachusetts Attorney General's Office, Worcester, MA, Leslie Byrne Dubeck, S. Jason Brown, Andrew Rhys Davies, Eric Del Pozo, Roderick Leopold Arz, New York State Office of the Attorney General, John Daniel Castiglione, Smith Valliere PLLC, New York, NY, for Defendants.

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:

Running roughshod over the adage that the best defense is a good offense, Exxon Mobil Corporation ("Exxon") has sued the Attorneys General of Massachusetts and New York (collectively "the AGs"),¹ each of whom has an open investigation of Exxon. The AGs are investigating whether Exxon misled investors and the public about its knowledge of climate change and the potential effects that climate change may have on Exxon's business. Exxon contends the investigations are being conducted to retaliate against Exxon for its views on climate change and thus violate Exxon's constitutional rights. The relief requested by Exxon in this case is extraordinary: Exxon has asked two federal courts—first in Texas, now in New York—to stop state officials from conducting duly-authorized investigations into potential fraud. It has done so on the basis of extremely thin allegations and speculative inferences. The factual allegations against the AGs boil down to statements made at a single press conference and a collection of meetings with climate-change activists. Some statements made at the press conference were perhaps hyperbolic, but nothing that was said can fairly be read to constitute declaration of a political vendetta against Exxon.

Healey and Schneiderman have moved to dismiss Exxon's First Amended Complaint (the "Complaint") (Dkt. 100) on numerous grounds: personal jurisdiction, ripeness, res judicata , abstention pursuant to Colorado River Water Conservation District v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and that the Complaint fails to state a claim. The AGs have reserved their other defenses, including abstention pursuant to Younger v. Harris , 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), and qualified immunity, for subsequent motion practice, if necessary. Exxon has opposed the AGs' motions and cross-moved for leave to amend in order to file the SAC. The AGs argue that leave to amend should be denied as futile because the SAC also fails to state a claim.

For the reasons given below, the Court concludes that Healey is subject to this Court's jurisdiction and that Exxon's claims against the AGs are ripe for adjudication. The Complaint and SAC suffer from a more fundamental flaw, however:

Exxon's allegations that the AGs are pursuing bad faith investigations in order to violate Exxon's constitutional rights are implausible and therefore must be dismissed for failure to state a claim. For the same reason, amendment and filing of the SAC would be futile. Additionally, Exxon's lawsuit against Healey is precluded by res judicata. The Court does not reach whether abstention would be appropriate pursuant to Colorado River. The motions to dismiss are GRANTED, leave to amend is DENIED, and the Complaint is DISMISSED WITH PREJUDICE.

BACKGROUND

1. The New York Subpoenas and Massachusetts CID

In November 2015, the NYAG served Exxon with a subpoena seeking documents related to its historical knowledge of climate change and its communications with interest groups and shareholders regarding the same. Compl. ¶¶ 20, 65-68. The subpoena was issued in connection with an investigation into deceptive and fraudulent acts in violation of New York Executive Law Art. 5 § 63(12) and New York General Business Law Art. 22-A, and the Martin Act, New York General Business Law Art. 23-A, which prohibits fraudulent practices in connection with securities issued or sold in New York. Declaration of Justin Anderson ("Anderson Decl.") (Dkt. 227) Ex. B (the "Subpoena") at 1; Compl. ¶ 62. As Schneiderman explained at a press conference discussed in detail below, the NYAG was investigating whether Exxon's historical securities filings were misleading because they failed to disclose Exxon's internal projections regarding the potential costs to Exxon of climate change and likely climate change-related regulations. Compl. ¶ 36. Among other things, the Subpoena demanded that Exxon produce documents relevant to: Exxon's research and internal deliberations concerning climate change since 1977, Exxon's communications concerning climate change with certain oil and gas interests since 2005, Exxon's support for outside organizations regarding climate change since 1977, and Exxon's marketing, advertising, and public relations materials concerning climate change since 1977. Subpoena at 8-9; Compl. ¶¶ 65-66. The Subpoena was followed by an August 2016 subpoena served on PricewaterhouseCoopers ("PwC"), Exxon's outside auditor. Opp'n (Dkt. 228) at 12. In response, and after some disputes over the scope of the Subpoena, Exxon produced at least 1.4 million pages of documents to the NYAG. See infra at 692.

Approximately one year later, in fall 2016, the NYAG requested additional documents relevant to what Exxon calls the "stranded assets theory." Compl. ¶¶ 75-76. Under this theory, Exxon's past disclosures of the value of its oil and gas reserves may have been overstated because Exxon did not account for the potential impact of new regulations designed to reduce harmful emissions on the economics and feasibility of extracting certain oil and gas reserves. Compl. ¶ 75. These reserves would be "stranded" because it would no longer be economically feasible for Exxon to extract them. If Exxon's internal models showed that certain reserves were likely to be stranded, Exxon might have been required to disclose those facts to the market. Relatedly, according to Exxon, the NYAG is also investigating the possibility that certain of Exxon's assets may be impaired and that Exxon's public disclosures do not account for that impairment.²

Compl. ¶ 79. Exxon has engaged in a "dialogue" with the NYAG regarding these demands. Compl. ¶ 76. In May and July, 2017, the NYAG served Exxon with subpoenas for testimony and documents relative to these theories. SAC ¶ 86.

About six months after the NYAG served its first subpoena on Exxon, the MAG served Exxon with a Civil Investigative Demand (the "CID") to pursue a similar fraud theory. Compl. ¶ 69. The CID was issued as part of an investigation into potential violations of Massachusetts General Law ch. 93A § 2, which prohibits "unfair or deceptive acts or practices" in "trade or commerce." Compl. ¶ 69. Like the Subpoena, the CID demands internal Exxon documents regarding climate change since the 1970s, Compl. ¶ 72; Anderson Decl. Ex. C (Civil Investigative Demand or the "CID") at 12, and records of communications between Exxon and other energy companies, affiliated interest groups, and conservative policy organizations, CID at 13, 18; Compl. ¶ 73. The CID also demands records related to specific reports prepared by Exxon and statements by Exxon officers regarding climate change. CID at 14-16.³ For example, the CID demands any documents and communications concerning a paper entitled "CO2 Greenhouse Effect A Technical Review ," which was prepared by Exxon researchers in 1982, and a 2014 report to shareholders entitled "Energy and Carbon—Managing the Risks ." CID at 13, 16. Broadly, the CID demands "Documents and Communications concerning any public statement [former CEO Rex W. Tillerson]⁴ has made about Climate Change or Global Warming from 2012 to present." CID at 15. Like the Subpoena, the CID also demands documents relevant to Exxon's discussion of climate change in marketing materials and securities filings. See CID at 17-19.

2. Exxon's Lawsuit⁵

Exxon brought this lawsuit on June 15, 2016, two months after receiving the CID and eight months after receiving the Subpoena. The Complaint alleges that the CID and the Subpoena are part of a conspiracy to "silence and intimidate one side of the public policy debate on how to address climate change." Compl. at 1. The overt portion of this campaign is a coalition of state attorneys general, including Healey and Schneiderman, called the "AGs United for Clean Power" or "Green 20." Compl. ¶ 27. The AGs United for Clean Power held a conference and press event with former Vice President Al Gore in New York on March 29, 2016, to announce a plan to take "progressive action to address climate change." Compl. ¶ 27.

Schneiderman spoke at the March 29, 2016, press event and said that the conference's purpose was to "com[e] up with creative ways to enforce laws being flouted by the fossil fuel industry and their allies...." Anderson Decl. Ex. A (Tr. of March 29, 2016, press conference) at 1....