California Municipalities’ Climate-Change Litigation Against Energy Companies Takes a Surprising New Turn

Andrew-Varcoe-vert-1Guest Commentary

By Andrew R. Varcoe, Boyden Gray & Associates, PLLC*

In recent years, some environmentalists and their political allies have pursued aggressive lawsuits and investigations as part of an effort to change public policy on climate change. These activities include civil lawsuits that some California municipalities brought last year, seeking compensation from energy companies for the costs of responding to climate change.

Earlier this month, one of the private defendants in the California lawsuits fired back in a surprising way. On January 8, 2018, the Exxon Mobil Corporation (“Exxon”) filed a petition in a Texas state court to obtain pre-suit discovery against officials of the California localities and their legal counsel.

Exxon’s Texas petition points out what appears to be a striking contradiction. In their civil lawsuits, the localities have asserted that climate change will result in specific harms to them and to their citizens. Exxon’s petition suggests that in the very recent past, those same California localities have advertised bond offerings that did not disclose these harms to investors.

Indeed, Exxon argues that some of the municipalities’ bond-offering documents affirmatively contradict the specific statements of harm that the municipalities made in their litigation complaints.

Background

Exxon’s Texas petition—accompanied by about 1700 pages of exhibits—alleges the following facts. A campaign targeting Exxon and other companies originated in a workshop held in 2012 in La Jolla, California. The participants in the workshop gravitated toward pressuring private energy companies into abandoning fossil-fuel investments through tort litigation and enforcement actions. The campaigners thereafter made efforts to enlist state attorneys general to embrace aggressive litigation tactics against the companies.

According to Exxon, this effort bore fruit in late 2015, when New York State Attorney General Eric Schneiderman subpoenaed Exxon under New York’s Martin Act to investigate Exxon’s alleged failure to disclose the risks of climate change to investors. The subpoena was followed by an unusual press conference that featured an array of state AGs plus former Vice President (and renewable energy investor) Al Gore.

In the press conference, the AGs sought to publicize their campaign against energy companies that did not embrace their views on climate change. Some of the AGs made seemingly imprudent statements on this topic, which could be interpreted to suggest that dissent as to climate-change policy was not to be tolerated. These statements were followed by the issuance of additional subpoenas or document demands, and by litigation wrangling in various U.S. courts (which wrangling is not recounted here).

Last year, several California city and county governments, including the governments of San Francisco and Oakland, embarked on what Exxon describes as a new phase of the La Jolla effort. Represented by plaintiffs’ law firms, they filed separate complaints against several large energy companies.

Some of the complaints assert only one claim, for public nuisance. Other complaints assert several claims, including nuisance and trespass claims. Some complaints name a few defendants. Others name a few dozen.

Taken together, the municipalities’ suits seek the award of billions of dollars in compensation (see, e.g., paragraphs 91-93 and 99 of San Francisco’s complaint). Most of the suits focus on sea-level-rise damages allegedly caused by the companies’ contributions to atmospheric carbon-dioxide concentrations over the last century. The complaints filed by the City and County of Santa Cruz (and, more recently, by the City of Richmond) focus on a broader array of climate-change impacts, including disruptions to the hydrologic cycle.

There are sound reasons for doubting whether the California localities’ lawsuits will succeed in the courts. For example, it seems hard, if not impossible, to assess whether or how the individual defendants’ past, current, and future expected contributions to climate change have caused or will cause the municipalities’ alleged injuries. After all, a world of other parties has contributed and continues to contribute to the phenomenon of global climate change.

Of course, significant contributors to climate change include the United States government and its citizens, as well as the governments and citizens of many other countries. Most prominently, in 2015, China emitted nearly twice the United States’ greenhouse gas emissions.  And many countries heavily subsidize the consumption of fossil fuels.

More narrowly, the category of climate-change abettors includes the California municipalities themselves, along with the state of California, which produces (and, needless to say, consumes) a considerable amount of oil and natural gas.

That brings us to the relief requested in Exxon’s recently filed petition for pre-suit depositions. In the petition, Exxon has asked a Tarrant County, Texas, court to issue an order that authorizes Exxon to obtain depositions and documents from several of the municipalities’ officers and lawyers. These include persons who reviewed or approved the municipalities’ bond offerings and litigation complaints, as well as a plaintiffs’ lawyer, allegedly involved in the La Jolla gathering in 2012, who now represents San Francisco and Oakland in their lawsuits.

The goal of Exxon’s intended discovery is to investigate whether climate activists and California municipal officials may have committed abuse of process under Texas law by using court processes for an improper purpose, and whether they may have conspired to deprive Exxon of its federal and state constitutional rights, including its free-speech rights.

In an odd coincidence, the City of New York filed its own climate-change suit against BP, Exxon, and three other global energy companies the day after Exxon filed its Texas discovery petition. New York City Mayor Bill de Blasio announced the filing at a news conference in which he also promised to move toward divestment of city pension funds’ investments in fossil-fuel companies. The press reaction was mixed, in part because the mayor’s preferred mode of travel and positions on transportation policy do not seem entirely consistent with an aggressive commitment to preventing and mitigating climate change.

More recently, the city of Richmond, California, filed another climate-change suit in state court on January 22.

Discussion

Exxon’s Texas petition is an opening salvo in what may become a significant battle. No responsive papers have yet been filed by parties who would be adversely affected by the petition. So it would be premature for observers to opine in any definitive way on the ultimate merits of the petition, or of key legal or factual questions raised by the petition.

Nonetheless, it seems fair to say at this stage that Exxon’s counsel has identified a remarkable, and perhaps irresolvable, tension between the California local governments’ statements in their climate-change lawsuits and those same governments’ statements (and omissions) in their securities offerings to U.S. investors. In the bond offerings (according to Exxon), the municipalities either fail to mention sea-level rise from climate change as a risk factor or disclaim the ability to predict the risks posed by such sea level rise in any meaningful way.

As Exxon argues, the municipalities’ statements and omissions in their securities offerings are difficult to reconcile with the municipalities’ allegations in litigation that they face a climate-change catastrophe (or, more prosaically, immense climate-change mitigation costs) with a high degree of certainty.

For example, San Mateo County’s litigation complaint (paragraphs 70, 170) states that its analyses anticipate that “extreme sea level rise events” would “inundate thousands of acres of County land, breach flood protection infrastructure and swamp San Francisco International Airport,” that the County faces a “93% chance that the County experiences a devastating three-foot flood before the year 2050,” and that “[a]verage sea level rise along the County’s shores are expected to rise by almost three feet by the year 2100, causing multiple, predictable impacts, and exacerbating the impacts of extreme events.”

But the County’s 2016 Refunding Lease Revenue Bonds state that “[t]he County is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur, when they may occur, and if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the County and the local economy.”

San Francisco’s 2017 General Obligation Bonds contain the same sweeping disclaimer. Yet San Francisco’s litigation complaint (paragraphs 1, 89) states that “[g]lobal warming-induced sea level rise is already causing flooding of low-lying areas of San Francisco, increased shoreline erosion, and salt water impacts to San Francisco’s water treatment system,” that “[s]hort-term seawall upgrades are expected to cost more than $500 million,” and that “[l]ong-term upgrades to the seawall are projected to cost $5 billion.”

These and other apparent inconsistencies, recited by Exxon in its petition, seem to have caught the California municipalities on the horns of a dilemma (recently discussed in detail by Professor Richard Epstein in Forbes).

In brief: If the municipalities’ allegations in their complaints as to climate-change harms are accurate, there would appear to be a plausible argument that the municipalities omitted (or, in some cases, denied) material information about those harms in disclosures that the municipalities made to investors in their role as bond issuers. Indeed, it seems possible that the complaints might be deemed to contain admissions as to material risks that could be used against the municipalities in investor suits or in other proceedings.

Also, the municipalities’ statements in the complaints could increase their future borrowing costs. The Wall Street Journal reported that late last year, Moody’s Investors Service “flagged environmental disruptions as a ‘growing negative credit factor’ for coastal municipalities,” warning “local governments to start dealing with climate risks or else possibly lose their access to low-cost financing.”

On the other hand, if the California municipalities’ statements (and omissions) in their bond documents are given greater weight, that seems to undermine the municipalities’ allegations in their lawsuits. As Exxon suggests, the bond documents may even support an argument that the allegations were not asserted in good faith. Less dramatically, there may be an argument that the municipalities’ counsel failed to thoroughly investigate the accuracy of the allegations before filing the complaints (which, if true, would be distressing enough).

Neither possibility would augur well for the climate-change suits—and, possibly, for the individuals who filed and approved them.

Of course, as with any discovery maneuver, the Texas filing carries potential risks for Exxon (and perhaps for other companies). Some or all of the targets of the petition will likely push back against Exxon on an array of issues, including venue.

Conclusion

Exxon has aggressively argued that the California municipalities are blatantly contradicting themselves over the likelihood and severity of climate-change impacts. Exxon’s petition is a reminder that lawyers for any complex enterprise—including both governmental entities and for-profit corporations—must tread carefully before authorizing litigation that commits the client to positions that may be inconsistent with positions asserted by the client in other capacities and contexts.

It seems likely that at least some in-house counsel for the California localities are privately wishing that they, or their clients, had more carefully reviewed their bond offering documents before approving the litigation filings that seem to have landed them in hot water. If ExxonMobil’s argument gains traction, then the localities and their officials will have some explaining to do.

It is not only judges who may want explanations. Local voters may ask their elected officials whether their tax dollars are being used wisely in pursuing aggressive but legally questionable civil lawsuits to advance national policy agendas (or private political agendas) in ways that seem unlikely to secure broader public support for climate-change action among U.S. citizens.

Other municipalities may face political pressure to join in the California localities’ litigation efforts. Such municipalities may now ask whether their limited resources and political capital should be focused on tort suits or on other ways to advocate for responses to climate change.

Advocates for more aggressive government action on climate change might argue that although the localities’ lawsuits (and private parties’ litigation against federal government officials) are not perfect vehicles for achieving climate policy goals, there are few good alternatives, given the political branches’ inaction on climate policy at the federal level.

Nonetheless, a continued push for comprehensive regulatory and market solutions seems more likely to lead to results that are legally defensible, are regarded as equitable and legitimate by a broad array of citizens and stakeholders, and thus are truly effective and long-lasting.

* Andrew R. Varcoe is a Partner with Boyden Gray & Associates, PLLC, in Washington, D.C. The firm’s clients and lawyers have a mix of views on climate-change policy issues, and one or more of the firm’s clients have interests in one or more of the matters discussed in this WLF Legal Pulse column. Mr. Varcoe thanks his colleagues for their contributions to the ideas in the column; he alone is responsible for any errors.

 

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