(Bloomberg) -- A judge blocked many of Exxon Mobil Corp.’s planned defenses in a New York state lawsuit accusing the energy giant of misleading investors about the potential impact of climate change on its finances.
Justice Barry Ostrager in Manhattan on Wednesday dismissed three lines of attack by Exxon, including its claim that former New York Attorney General Eric Schneiderman engaged in “official misconduct” when he started the investigation three years ago as part of an “activist agenda.”
Exxon’s only remaining so-called “affirmative defense” is that the attorney general’s office engaged in selective enforcement when it sued because the probe was brought in bad faith. Such defenses are used to undercut legal claims without addressing the merits of the case.
The ruling is a pre-trial victory for New York Attorney General Letitia James, whose office is set to take Exxon to trial later this year. The suit was filed in October, months after Schneiderman resigned following an abuse scandal.
The state seeks an order prohibiting Exxon from continuing to make misrepresentations, correct past claims as well as unspecified monetary damages and disgorgement of all profit derived from the alleged fraud. Exxon denies that it misled investors and will fight such claims at a trial.
What Bloomberg Intelligence Says:
Financial damages could range into the billions if remedies for an inflated share price, restitution of investor funds and disgorgement of profit are awarded.
--Brandon Barnes, senior litigation analyst
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The state’s claims stem from New York’s powerful Martin Act, an almost century-old law that gives state prosecutors the power to probe investment frauds, Ponzi schemes and other forms of white-collar crime.
“At the end of the day you’re going to either prove a Martin Act violation or not,” Ostrager said to the attorney general’s lawyer, Marc Montgomery. “These affirmative defenses are irrelevant to that case.”
Ostrager on Wednesday rejected Exxon’s request to search Schneiderman’s personal email account for evidence, after the company claimed an environmentalist had used it to send messages to the former AG.
Exxon also claimed Schneiderman coordinated improperly with environmental groups to cook up reasons to start the probe and chill the company’s ability to discuss climate change. Exxon claims the state is using its power to block it from talking about climate change in a way that differs from a liberal view.
Neither Exxon nor the attorney general’s office immediately had comments after the hearing.
New York accuses Exxon of misleading investors about how future regulations could impact its business. Central to the probe and the lawsuit are Exxon’s use of so-called proxy costs for carbon to calculate the financial impact of future regulations. The costs are supposed to assure long-term investors including institutional shareholders and pension funds that they wouldn’t be taken by surprise. New York says it was a ruse.
The attorney general claims Exxon discovered that if it actually applied the publicly represented proxy costs internally, it would result in “massive” costs, “large write-downs” and shorter asset lives.
Exxon, based in Irving, Texas, denies all aspects of the suit. It claims the attorney general’s office continues to coordinate with environmental groups improperly.
For example, the company says, James is being aided by environmentalists who are embeded with her office from an NYU School of Law environmental center financed by Bloomberg Philanthropies, the charity of Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP.
The case is People of the State of New York v. Exxon Mobil, New York State Supreme Court (Manhattan).
(Updates with comment from judge.)
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