Our Litigators of the Week are Paul, Weiss, Rifkind, Wharton & Garrison partners Ted Wells, Dan Toal and Justin Anderson. The trio led a team that prevailed on behalf of ExxonMobil in a landmark climate-change lawsuit in New York state court in what's believed to be the first such case ever to be tried to verdict.

Suing under New York's infamous Martin Act, New York Attorney General Letitia James wanted $1.6 billion in damages, alleging that ExxonMobil made material misstatements about how it accounted for climate-related risks and that its climate disclosures had a material impact on investors. 

After a 12-day trial, New York State Supreme Court Justice Barry Ostrager sided with the defense, holding that the state "failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor," and failed to offer "testimony from any investor who claimed to have been misled by any disclosure."

Wells, Toal and Anderson discussed the case with Lit Daily.

Lit Daily: Who was your client and what was at stake in this case? 

Ted Wells:  We represented Exxon Mobil Corporation in People of the State of New York v. Exxon Mobil Corp. This was a landmark securities fraud trial in New York state court alleging that the company misled investors about the risks of potential climate change regulations to its business. The New York attorney general sought $1.6 billion in damages and restitution. This was a critically important case.  

Do you think the case was politically motivated?

Ted Wells: As I said, it was a securities fraud case, but there's a broader context here. 

 In our view, this case was really about politics. When the AG's office launched its investigation in November 2015, we assumed it had been undertaken in good faith. That changed in March 2016, when former AG Eric Schneiderman convened a press conference with former Vice President Al Gore and 19 state attorneys general to announce that, because of his frustration over perceived gridlock on climate change in Washington, he planned to use state laws "creatively" and "aggressively" to go after ExxonMobil and other energy companies.  

We later learned that climate activists and plaintiffs' lawyers had secretly given closed-door presentations to these attorneys general immediately before the press conference. We also discovered that many of these climate activists had been targeting ExxonMobil since 2012. Documents revealed that they had a detailed anti-Exxon campaign, the goal of which was to "delegitimize [ExxonMobil] as a political actor." 

One of the ways they hoped to do that was to form alliances with friendly AGs and government entities to sue ExxonMobil and compel production of its internal documents. It became clear to us that these activists had found their friendly attorney general, and that no matter what the evidence showed and how innocent ExxonMobil might be, the N.Y. AG would never be willing to take the political hit of clearing one of the largest fossil fuel companies on the planet.  

That was painfully obvious during the investigation, as the AG's office lurched from one discredited investigative theory to another, in a desperate effort to fault ExxonMobil for something.  

At trial, I compared it to Captain Ahab's obsession with Moby Dick.  So the case really highlights the potential for and the dangers of prosecutorial overreach. 

What were some unusual challenges posed by this case?

Dan Toal:  This was a first-of-its-kind case. To begin with, it was a securities fraud case. As you know, those cases rarely go to trial. And as far as we're aware, it's the first climate change case to be litigated to verdict. 

It's also a suit under New York's infamous Martin Act, which doesn't require proof of either intent or reliance. It's almost unheard of for defendants to try Martin Act cases. As a result, there's no playbook or conventional wisdom out there for how to defend a case like this. We were really writing on a blank slate.

The AG's evidence also took an unusual form. The AG had no whistleblowers, no aggrieved investors, and no admissions from our client.  

Instead, they called as witnesses a series of long-serving ExxonMobil employees, conducted hostile examinations, and tried to elicit concessions from them. Not only did that require us to prepare our witnesses to deal with cross-examination first, but we also had to elicit the testimony we wanted the judge to hear during the AG's case, and to do so using the witness sequence that the AG selected. Not having control over our own narrative was a challenge.

Moreover, this case was just one part of a broad, multi-pronged campaign against ExxonMobil and other energy companies. At various times, there have been parallel regulatory investigations, private securities fraud suits, shareholder litigation demands, and climate tort suits. That meant we had to consider the implications of each decision not only for this litigation, but also for the full range of cases out there, making this a bit like playing three-dimensional chess.

Why did your client choose to go to trial, given the risks posed by a Martin Act claim?

Dan Toal:  At a very basic level, ExxonMobil chose to go to trial here because it had done nothing wrong.  As a matter of principle, ExxonMobil was determined to defend itself against years of inaccurate and unfounded allegations.  

We have to commend the company for having the conviction and courage to stand up for itself and its employees.

Who were the members of your team and what strengths did they bring to the representation?

Ted Wells:  This was a dream team. Dan and Justin are stellar trial lawyers.  Whether on the papers or on their feet, they are creative, persuasive, tenacious and devastatingly effective. I view them as the next generation of great litigators. I am blessed to have such talented and dedicated lawyers as my partners.  

We also had the benefit of working with the immensely talented in-house team at ExxonMobil, under the leadership of General Counsel Randy Ebner and Executive Counsel Pat Conlon. We have always worked together seamlessly, and any accomplishment in this case is the product of that tremendous collaboration.  

Dan Toal:  Working with Ted has been and continues to be a privilege. He is one of the best trial lawyers of this or any generation. He has a unique ability to cut to the heart of the issue, and then to communicate complex concepts in a simple and accessible way. This was truly a team effort. The day-to-day leader of the team was Nora Ahmed, our exceptionally talented senior associate. During her four years on this case, she has earned the respect and admiration of all of us and the trust of our client. At trial, Nora conducted three flawless examinations. She has a bright future. 

Justin Anderson:  I agree.  Nora has been the glue holding us all together for the past four years and for whatever comes next. She is incredible. It has been an honor working with her and the rest of this team.  

What were the over-arching themes of your defense?

Dan Toal:  The AG's claim was really that ExxonMobil deliberately underestimated the expected costs of climate regulations in its internal analyses. In confronting these claims, we had two primary themes. 

First, given that we were talking about internal metrics, none of the AG's allegations had anything to do with ExxonMobil's reported financial results. So it's hard to understand how any of this could have inflated the value of ExxonMobil stock.  

Second, and relatedly, ExxonMobil had no incentive to deceive itself by low-balling its estimates of climate regulatory costs in its internal analyses. The only thing that would have accomplished is to have caused the company to make bad investments, which it had no reason to do.

Justice Ostrager said that the expert witnesses called by the Attorney General were "eviscerated."  How did you do that?

Ted Wells:  The Attorney General called two expert witnesses: a retired investment banker and an accounting professor. Dan and Justin thoroughly and methodically dismantled the experts' conclusions and credibility.

The retired investment banker claimed that adjustments to ExxonMobil's internal, non-public financial models resulted in billions of dollars in lost value. In a masterful cross, Dan established that all this had done was adjust assumptions in models he did not understand to produce a "big number" with no apparent relevance to anything.  

Dan extracted concession after concession, including that the expert did not understand how the models worked, did not know whether they were drafts or final, and had no idea whether any of them were ever shown to senior management, let alone the public. In the end, the court gave his testimony no weight at all.

The accounting professor claimed that ExxonMobil's stock was artificially inflated by climate-related disclosures and that one of the company's assets should have been impaired. The sparks flew during the cross-examination. Justin deftly forced the professor to concede he had done no work to establish that ExxonMobil's stock price rose because of the disclosures and goaded the professor into making the absurd claim that the question was irrelevant. 

These were two of the most devastating cross-examinations I've encountered in my career.

Tell us about a low point at trial.

Justin Anderson:  For us, the lowest point came at the end of trial, when the AG dropped the two fraud counts during its closing argument.  

I know that sounds odd, but ExxonMobil pushed for this trial for one reason: to clear its name. And that's what we did at trial. That's what the ExxonMobil witnesses who testified at trial did. We viewed the AG's effort to drop these claims as an attempt to deprive ExxonMobil and its dedicated employees of vindication by a neutral fact-finder.

What testimony seemed to resonate the most with the judge?

Justin Anderson:  As you might expect, the testimony of ExxonMobil's former CEO and chairman, Rex Tillerson, was important. He and Ted obviously had great chemistry, and the court's 55-page decision referenced his testimony extensively.  

Secretary Tillerson was an outstanding witness, not only because of his gravitas and credibility, but also because of his deep knowledge and understanding of how and why ExxonMobil accounted for the risks of climate change regulation.  

But, more broadly, all of the current and former ExxonMobil employees—many of whom had spent their entire careers at the company—offered compelling testimony showing that ExxonMobil really wanted to understand and account for the potential impact of future climate regulations because that would enable the company to make the best business decisions. 

In the end, on the basis of their testimony, the court found that "ExxonMobil has a culture of disciplined analysis, planning, accounting, and reporting."  In fact, Justice Ostrager wrote that "[t]here was not a single ExxonMobil employee whose testimony the Court found to be anything other than truthful."

What impact could this case have on pending or future climate change litigation?

Justin Anderson:  We think the impact will be substantial and far-reaching. Other lawsuits filed against ExxonMobil involve allegations similar or even identical to those advanced by the N.Y. AG, including a putative class action securities suit in Texas and a host of shareholder derivative lawsuits in New Jersey that are predicated on the same claims the court rejected here.  And a few days before this trial, the Massachusetts AG filed a lawsuit against our client based, in part, on the N.Y. AG's claims.  The decision here will be significant in those cases.  

It also has implications for climate change litigation more broadly.  At a minimum, the suit calls into question whether climate change-related securities fraud claims can succeed where there is no evidence that the market reacted to any of the allegedly inaccurate climate change-related disclosures.

Are you working on these cases as well?

Ted Wells:  We're hard at work on the other climate-related cases brought against ExxonMobil, including the suit the Massachusetts AG recently filed.  As I said, the N.Y. AG's case was part of a broader constellation of suits against ExxonMobil. Just as ExxonMobil made the principled decision to fight this case, the company will continue to work to clear its name and reputation in the other suits that remain pending.  

As I said in my opening statement, the problem of climate change is real and must be confronted. The solution to the problem of climate change must come from the political branches of the nations of the world, and the judicial system is not suited to solve this global problem. So stay tuned.