Stating exaggerated claims at the beginning of a lawsuit can be a standard practice in litigation; however, a recent climate change lawsuit filed by seven California municipalities should remind litigators that unsupported exaggerations can cause collateral damage.
The essence of the cities’ case is a public nuisance claim filed in California state court against several large U.S. oil producers including Exxon Mobil Corp. (“Exxon”) for contributing to climate change through the production of fossil fuels which could in theory cause rising sea levels.1 The cities are seeking billions in funds to pay for projects to mitigate the effects of future increases in sea levels.2
The plaintiffs’ complaints make dire predictions about the effects climate change will have on the municipalities. Marin County, for instance, claims that there is a 99% chance of a devastating three-foot flood occurring throughout the county by 2050.3 There was one major problem with the municipalities’ case: none of the municipalities had disclosed any significant climate change risks to investors when they recently issued municipal bonds.4 Even more counterproductive were disclosures from two cities that explicitly state that the cities were “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.”5
Unsurprisingly, this contradiction was soon noticed by Exxon, who filed a countersuit suit in Tarrant County, Texas, based on the apparent inconsistency.6 Exxon’s complaint argues that it is not possible for both of these statements to be true at once; either the municipalities fraudulently did not disclose the risks of rising sea levels to their investors or they did not really believe the claims made in their suit against Exxon.
As NYU professor Richard Epstein points out, such public nuisance-based suits regarding climate change were unlikely to succeed even before the recent factual inconsistency.7 First, a unanimous 2011 Supreme Court decision in American Electric Power Co. v. Connecticut held that the Clean Air Act, together with actions by the Environmental Protection Agency regulating greenhouse gas emissions, prevented suits from being brought under federal nuisance laws.8 Although the suit did not address the question of bringing a public nuisance case under state law, the ruling does put a dark cloud over the strategy’s viability. Another problem is that the suit attempts to attribute liability for carbon emissions to just a few producers out of all sources of such emissions worldwide, raising serious fairness questions in assigning responsibly.9
For the municipalities involved, the outcome is unlikely to be favorable. Epstein points out that backing out of the suit at this point might open them up to liability for misrepresentations to the SEC, so they will likely be forced to sludge through discovery with perhaps the most likely outcome being an eventual dismissal of their case. A likely instance of collateral damage to the plaintiffs from the suit could take the form of new questions from bond investors and even a lower credit rating which could in turn increase borrowing costs.10 A think tank, the Competitive Enterprise Institute, has already filed a request with the SEC to investigate potential fraud for the municipalities’ bond disclosures.11
The case highlights the risks of exaggerating one’s claims in filings. It can lead to bad outcomes that can extend well beyond losing the case. Before going with the largest possible damages calculations in a case, it is imperative that a litigator consult the client’s other legal counsel to make sure they have not staked out contradictory positions in the past.
The case also serves as a cautionary tale about the risks of accepting “free” representation in what was clearly a politically motivated suit. As Exxon points out in its filings, the municipalities’ lead attorney Mathew Pawa is an environmental activist who took the case on contingency. Mr. Pawa is a key backer of a wider strategy to attack energy companies through legal channels after legislative attempts have floundered.12 The municipalities are learning that using attorneys who have their own ulterior motivations for involvement in a lawsuit can be a recipe for disaster.
See Alejandro Lazo & Bradley Olson, Two California Cities Sue Oil Majors Over Climate Change, Wall St. J. (Sept. 20, 2017), https://www.wsj.com/articles/two-california-cities-sue-oil-majors-over-climate-change-1505950981. ↩
Petitioner’s Verified Petition for Pre-suit Depositions at 33, Exxon Mobil Corp. v. Pawa et. al. No. 096-297222-18 (Tex. Dist Jan. 1, 2018). ↩
Id. at 5. ↩
Id. at 29. ↩
Karen Kidd, ‘Cross Examination Is Going To Be Brutal’: NYU Law Prof Says Climate Change Litigation Is A Loser, Forbes (Feb. 20, 2018), https://www.forbes.com/sites/legalnewsline/2018/02/20/cross-examination-is-going-to-be-brutal-nyu-law-prof-says-climate-change-litigation-is-a-loser/. ↩
Am. Elec. Power Co. v. Connecticut, 564 U.S. 410, 415 (2011). ↩
Richard Epstein, Is Global Warming A Public Nuisance?, Hoover Inst. (Jan. 15, 2018), https://www.hoover.org/research/global-warming-public-nuisance. ↩
Kidd, supra note 7. ↩
Ann Maher, SEC asked to investigate potential fraud in California bond offerings over climate change risk, Legal News Line (Feb. 2, 2018), https://legalnewsline.com/stories/511327528-sec-asked-to-investigate-potential-fraud-in-california-bond-offerings-over-climate-change-risk. ↩
Alana Goodman, Billionaire Democratic Donor Funding $10 Million Campaign to Impeach Trump Is Linked to National Lawsuits Against Oil Companies Through Memo to His Environmental Nonprofit Group, Daily Mail (Nov. 14, 2017, 7:11 AM) http://www.dailymail.co.uk/news/article-5078897/Wealthy-Democratic-donor-linked-oil-companylawsuits.html. ↩
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