thursday, 22 november of 2018

Exxon Embraces Activism, at Least in the Courts

Steven H. Shiffrin and Shanna Cleveland

On October 24, 2018, New York Attorney General Barbara Underwood sued Exxon for defrauding investors about the business risks of climate change. Of course, Exxon will probably deny that it committed fraud. But, in anticipation of this day, the oil giant has spent the last two years preparing a far more insidious legal defense: that its fraud is actually protected by the Constitution’s guarantee of freedom of speech.

Ever since the New York and Massachusetts attorneys general announced that they were investigating Exxon for possible fraud, the company has been suing to block the investigations themselves. Exxon lost this argument in both the Massachusetts state supreme court and in New York federal court, where the judge took Exxon to task for its “implausible” theories and “thin allegations.” But Exxon is doubling down by appealing both decisions, even to the United States Supreme Court.

Facing an investor revolt, a federal investigation, and investigations by multiple attorneys general into its financial disclosures and public statements on climate change, Exxon chose to go on the offensive. It filed a federal lawsuit arguing that the attorney general investigation into potential violations of securities and consumer protection laws was a pretext to prevent Exxon from exercising freedom of speech. Exxon’s primary basis for this meritless claim was a press conference and a mountain of speculation.

In reality, Massachusetts’ and New York’s highest law enforcement officials are treading on solid ground firmly supported by law and precedent. The New York Attorney General already reached a settlement with Peabody Energy concerning its representations about the potential impacts of climate change to investors and markets in 2015. The Securities and Exchange Commission exacted a stiff fine from Shell for violating anti-fraud provisions related to overstating its reserves in 2004, and the SEC and major investors in the company have questioned Exxon’s decisions regarding whether to report impairments or write-downs on multiple occasions.

A review of the subpoenas and civil investigative demands in the cases show a focus on how Exxon’s internal information and analysis squared with its external communications to markets and market actors, such as investors, consumers, and regulators. That is the crux of the case in any securities and consumer protection investigation. The Volkswagen diesel emissions scandal—where Volkswagen was caught cheating on air pollution tests—provides a helpful analog. Just imagine if Volkswagen, faced with fraud investigations and penalties, had claimed that it was being persecuted for its views on the science of clean air. That is exactly what Exxon is doing here.

Moreover, neither investigation has even approached Exxon’s claimed speech rights in the political arena. Exxon spends millions in political contributions, independent expenditures, and lobbying every year. But that’s not part of these investigations, and despite the company’s claims that the investigations “chill” its “speech,” Exxon has continued to spend freely to influence elections.

Not long ago, Exxon’s First Amendment argument would have been considered radical. But the reshaping of the Supreme Court into its most business-friendly incarnation in history has rewarded a decades-long corporate campaign to transform the radical into the run-of-the-mill and weaponize the First Amendment.

Unfortunately, the Exxon case could become the latest chapter in what one legal scholar has called a corporate takeover of the First Amendment. The takeover traces back to a memo to the Chamber of Commerce by Lewis Powell just before President Richard Nixon nominated him to serve on the Supreme Court. As a long-time advocate for the tobacco industry and board member of Philip Morris, Powell was concerned about the widespread public support for environmental and consumer protections. Not only did Powell call upon the Chamber to lead a coordinated attack by business, but he highlighted the importance of appealing to “an activist-minded Supreme Court.”

Gradually, corporations have sought, and increasingly, have been given protections once reserved for the most vulnerable and marginalized voices in society. Four decades later, the largest publicly traded international oil and gas company in the world is claiming that its “speech” in the economic marketplace should be exempted from the scrutiny of securities and consumer protection laws to prevent the chilling of its claimed speech in the marketplace of ideas. These arguments erode the rule of law and run the risk of exempting corporations from accountability altogether. They should be seen for what they are, a radical attack on constitutional principles and the power of the states to protect their people.

Steven H. Shiffrin is the Charles Frank Reavis, Sr. Emeritus Professor of Law at the Cornell Law School. He is the author of “What’s Wrong with the First Amendment” and served as co-counsel on an amicus brief on behalf of constitutional law professors in the U.S. Court of Appeals for the Second Circuit, challenging Exxon’s First Amendment claims.

Shanna Cleveland is Senior Counsel at Free Speech For People and co-counsel on an amicus brief, filed in the U.S. Court of Appeals for the Second Circuit, challenging Exxon’s First Amendment claims. She formerly directed the Carbon Asset Risk Initiative at Ceres and coordinated a global investor coalition that successfully passed a shareholder resolution calling for better climate risk disclosures at Exxon in 2017.

(Published by Jurist, November 22, 2018)

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