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Why Climate Plaintiffs Are Filing Securities, Consumer Suits

March 15, 2022

By Nick Dolejsi and Kyle Espinola
To read this article in PDF format, please click here.

A growing trend has emerged in the ongoing effort to hold greenhouse gas emitters accountable for their contributions to global climate change.

The first wave of climate change lawsuits in the U.S. against carbon majors — such as ExxonMobil Corp., Chevron Corp. and BP PLC — relied upon public nuisance tort claims, which largely ended up stuck in a procedural and jurisdictional maze.

However, plaintiffs are increasingly relying upon other legal bases for their claims — including state securities and consumer protection laws. This article summarizes the key differences between securities and consumer protection law actions and the traditional tort-based claims.

To date, climate change lawsuits alleging tort-based claims have largely been unsuccessful. Carbon major defendants have successfully removed tort-based lawsuits to federal court, which has traditionally been a more defendant-friendly venue than state court.

Some courts have even dismissed the tort-based lawsuits against carbon majors altogether due to federal preemption, which can apply to dismiss state law claims when the state law directly conflicts with federal law.

For example, in City of New York v. BP PLC, New York City sought to hold five carbon majors responsible for their contributions to climate change by relying exclusively on New York state tort law.[1] In 2018, the city sued certain carbon emitters in the U.S. District Court for the Southern District of New York, asserting three causes of action: public nuisance, private nuisance and trespass under New York law arising from the defendants' production, promotion and sale of fossil fuels.[2]

According to the city, despite having known for decades that their fossil fuel products posed a serious risk to global climate, these carbon majors "downplayed the risks and continued to sell massive quantities of fossil fuels."[3] In order to pay for the future costs of protecting the city from the effects of climate change, the city sought damages from the defendant-emitters.[4]

One of the questions before the court was whether the city's claims conflicted with the federal government's interests in handling environmental problems by regulating carbon emissions. Ultimately, the court found that federal common law and the Clean Air Act preempted the state law tort claims, and therefore dismissed the case.[5]

The court reasoned that permitting state law tort claims against carbon majors for damages allegedly caused by climate change would:

risk upsetting the careful balance that has been struck between the prevention of global warming, a project that necessarily requires national standards and global participation, on the one hand, and energy production, economic growth, foreign policy, and national security, on the other.[6]

Understanding the shortcomings inherent in state tort law, enterprising attorneys general — including those of New York and Massachusetts — have turned to bringing claims under their states' securities and consumer protection laws, to evade the hurdles of federal preemption and federal court jurisdiction that befell earlier climate change lawsuits.

Unlike the state-law tort claims asserted in City of New York v. BP that seek to hold carbon majors responsible for their actual impact on global warming, securities and consumer protection claims do not seek to regulate or curb greenhouse gas emissions. Nor do they invade the province of the Clean Air Act.

Rather, claims asserted under state securities and consumer protection laws allege economic harm resulting from carbon majors' failure to be sufficiently candid with investors and customers about the impact their practices have on the climate change crisis. Because the state laws they rely on are not preempted by federal law, and do not harbor an embedded federal question, these new claims should not be subject to federal preemption or federal question jurisdiction.

The securities and consumer protection law claims also avoid certain causation hurdles. State law tort claims require plaintiffs to prove that the defendants' actions caused the alleged harms to the plaintiffs. In the context of climate change, proving causation is difficult, because the causal chain is complicated.

A plaintiff usually must show that the carbon major emitted harmful materials, that those emissions had an effect on the earth's climate and that this effect caused a specific harm to the plaintiff. In doing so, the plaintiff must usually distinguish between the emissions of the many carbon emitters, and then show that the specific emissions from the specific defendant caused them harm.

State securities and consumer protection laws largely avoid these convoluted questions of causation. When asserting securities or consumer protection law claims, plaintiffs generally need only show that a purchaser or investor was deceived or misled, or potentially could have been deceived or misled, by a carbon major's representations.

People of the State of New York v. ExxonMobil Corp.

In People of the State of New York v. ExxonMobil Corp.,[7] for example, the state of New York alleged that ExxonMobil violated New York General Business Law Section 352, known as the Martin Act, as well as Executive Law Section 63(12).

To prove a violation of the Martin Act, the state needed to show that ExxonMobil made misrepresentations to investors, and that investors were actually deceived. In an effort to meet this burden, the state alleged that ExxonMobil misled investors during meetings and in public disclosures about how the company planned to manage climate change risk and future regulation.

Specifically, the state argued that ExxonMobil used two different measurements to assess future demand for its products: a proxy cost of carbon — a tool for accounting for the social, economic and legal cost of emitting carbon — and an internal, nonpublic measurement that the company used for its own purposes.

After more than three years of pre-trial discovery and investigation, which required ExxonMobil to produce millions of documents and dozens of employees for depositions, the case proceeded to trial. Ultimately, the state did not satisfy its burden of proof at trial.

The court concluded that publications from ExxonMobil had been "essentially ignored by the investment community," and therefore did not have a market impact. The court similarly found that the attorney general failed to produce testimony from any investor who claimed to have been misled by any disclosure.

Commonwealth of Massachusetts v. ExxonMobil Corp.

In Commonwealth of Massachusetts v. ExxonMobil Corp., the Massachusetts attorney general filed a similar suit against ExxonMobil for alleged violations of the Massachusetts Consumer Protection statute, Massachusetts General Laws Chapter 93A, which prohibits "unfair methods of competition" and "unfair or deceptive acts or practices in the conduct of any trade or commerce."[8]

Unlike the New York law discussed above, the Massachusetts law does not require a showing that investors were deceived, or even that the defendant intended to deceive. It provides a wider basis on which to bring a claim.

An action under Chapter 93A requires a showing that the defendant's acts or practices had the "capacity to mislead consumers, acting reasonably under the circumstances, to act differently from the way they otherwise would have acted (i.e., to entice a reasonable consumer to purchase the product)."[9]

To meet that burden, Massachusetts alleged that, among other things, ExxonMobil misled Massachusetts consumers by advertising that the use of certain Exxon products would reduce greenhouse gas emissions, and that ExxonMobil engaged in "greenwashing," which the complaint defines as "advertising and promotional materials designed to convey a false impression that a company is more environmentally responsible than it really is, and so to induce consumers to purchase its products."[10]

The lawsuit survived the first two attacks in the climate change litigation playbook: removal to federal court and a motion to dismiss the lawsuit. ExxonMobil tried to remove the lawsuit to federal court, but the U.S. District Court for the District of Massachusetts remanded the case back to state court.

The district court found that there was no federal issue embedded in the complaint, because "Massachusetts relies exclusively on mundane theories of fraud against consumers and investors, without seeking to hold ExxonMobil liable for any actual impacts of global warming."[11]

Once back in state court, ExxonMobil moved to dismiss the lawsuit on the grounds of failure to state a claim. The court denied this motion, finding that Massachusetts had stated a valid claim under the Massachusetts Consumer Protection statute, Chapter 93A.

The lawsuit proceeded to pretrial discovery. Time will tell whether the Massachusetts action succeeds where the New York action failed, but the more deferential standard under the Massachusetts law could be outcome determinative.

New York and Massachusetts are not alone in using securities and consumer protection law claims as a sword against carbon majors. When legislatures in the U.S. are slow to act to address a pressing issue, it is common for parties to try to force change through litigation. In the context of climate change, this "legislation through litigation" approach is being adopted by state and municipal governments.

The following states and municipalities have all asserted claims similar to the New York and Massachusetts lawsuits based upon similar state laws:

  • Minnesota;[12]
  • Connecticut;[13]
  • Hoboken, New Jersey;[14]
  • Baltimore, Maryland;[15] and
  • Charleston, South Carolina.[16]

In City of Hoboken v. Exxon Mobil Corp., for example, plaintiffs allege violations of the New Jersey Consumer Fraud Act, which prohibits merchants, salespeople and contractors from using deceptive practices in the sale of goods or services to consumers. Like the Massachusetts law, the New Jersey Consumer Fraud Act does not require the deceptive practice to be explicit, and the false information need not even be intentionally deceptive if it had the effect of misleading the consumer.

This shift in tactics to utilize state securities and consumer protection laws to prosecute alleged misrepresentations poses a new risk to carbon majors, and is likely only one of many evolutions in climate change litigation we will see in the coming decade.

Like the tobacco and asbestos litigation of prior decades, it is likely that creative plaintiffs will adopt a trial-and-error approach in search of a successful strategy to hold carbon emitters accountable. At this early stage of the climate change litigation lifecycle, it is unknown whether asserting state securities and consumer protection law claims will ultimately be a successful strategy that plaintiffs around the country adopt.

It is equally possible that a new and currently untested theory emerges that plaintiffs universally adopt to assert claims against carbon majors. But one thing is a near certainty: Should any of these claims be successful against a carbon major, it will look to its liability insurer for indemnity.

The securities law and consumer protection claims therefore represent a new risk to liability carriers that insure carbon majors. These lawsuits have successfully avoided federal jurisdiction, survived motions to dismiss, proceeded to discovery and, in at least one case, gone to trial.

Even if a lawsuit is ultimately unsuccessful, defending these claims through discovery and trial — as in the case of New York v. ExxonMobil — could be an expensive proposition. Plaintiffs are alleging wrongdoing going back several decades, which will inevitably translate to drawn-out discovery, the production of millions of documents and a parade of depositions.

Given the stakes and money involved, climate change lawsuits will continue to proliferate. Defendant carbon majors will undoubtedly look to their liability insurers to absorb the cost of defending such suits.

Liability insurers should continue to consider whether their insureds are exposed to climate change litigation — and whether and how their policies respond to climate change claims.

Nick A. Dolejsi is a partner and Kyle R. Espinola is an associate at Zelle LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] City of New York v. BP PLC, 325 F. Supp. 3d 466, 469 (S.D.N.Y. 2018).

[2] Id. at 88.

[3] Id. at 86-87.

[4] Id. at 87.

[5] Id. at 100.

[6] Id. at 93.

[7] People v. ExxonMobil Corp. , 452044/2018, 2019 WL 6795771 (N.Y. Sup. Ct. Dec. 10, 2019).

[8] Commonwealth of Massachusetts v. ExxonMobil Corp., No. 1984CV03333BLS1, 2021 WL 3493456 (Super. Ct. Mass. June 22, 2021).

[9] Id. at *9.

[10] Id. at *13.

[11] Commonwealth of Massachusetts v. ExxonMobil Crop ., 462 F.Supp.3d 31 (D. Mass. 2020).

[12] Minnesota v. Am. Petroleum Inst. , No. 20-1636 (JRT/HB), 2021 WL 1215656 (D. Minn. March 31, 2021), appeal filed, No. 21-1752 (8th Cir. April 5, 2021).

[13] Connecticut v. ExxonMobil Corp ., No. 3:20-cv-1555 (JCH), 2021 WL 2389739 (D. Conn. June 2, 2021) (asserting eight claims under Connecticut Unfair Trade Practices Act ("CUTPA")).

[14] City of Hoboken v. Exxon Mobil Corp ., No. 20-cv-14243, 2021 WL 4077541 (D. N.J. Sept. 8, 2021) (asserting one claim under New Jersey Consumer Fraud Act).

[15] BP PLC v. Mayor and City of Council of Baltimore , 141 S.Ct. 1532 (2021) (remanding to U.S. Court of Appeals for the Fourth Circuit).

[16] City of Charleston v. Brabham Oil Co., 2:20-cv-03579, (D. S.C. June 27, 2021) (Order filed staying proceedings pending the Fourth Circuit's decision on remand in the Baltimore case).

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