By Karen Savage
Institutional investors suing ExxonMobil in New Jersey have asked a federal court judge in Texas for permission to intervene in a lawsuit filed against the company by shareholders in that state.
Those investors—Saratoga Advantage Trust Energy & Basic Materials Portfolio and the City of Birmingham Retirement and Relief System—argue that if the Texas case is dismissed with prejudice, as Exxon has requested, it could result in the dismissal of their suit.
“If this court grants dismissal, it should do so without prejudice, or alternatively, with prejudice to the named Texas plaintiffs only,” the New Jersey investors wrote in their motion to intervene, which was filed Friday in the U.S. District Court for the Northern District of Texas in Dallas.
When cases are dismissed with prejudice, the court is indicating it has made a final decision on the merits of the case and it cannot be filed again.
Plaintiffs in both states allege that current and former Exxon executives and board members failed to protect their investments and the company from the risks of climate change.
The institutional and individual investors are demanding the oil giant hold several company officials accountable for harming the company, including current chief executive Darren Woods and his predecessor, Rex Tillerson. They also want Exxon to implement internal procedures to manage and disclose the risks of climate change.
In the Texas case, district court Judge Ed Kinkeade is presiding over several suits filed by individual shareholders, including Von Colditz v. Woods, et al and Montini v. Woods, et al which he consolidated last year, and a recently filed suit, Walker v. Woods, et al, which he folded into the case last month.
The suits are derivative suits, which allow shareholders to sue on behalf of themselves and the corporation. This type of suit often arises when fraud, mismanagement or dishonesty is ignored by a corporation’s officers and board of directors.
Exxon has refused the investors’ demands and filed a motion to move the New Jersey case to Texas or alternately to pause the case pending the outcome of its motion to dismiss it. That motion, which was filed in April, will be discussed in a telephone conference scheduled for Sept. 14 and a decision is pending.
In August, Exxon asked Kinkeade to dismiss the Texas case with prejudice.
In that motion to dismiss, Exxon told the Texas court it had assembled a working group composed of board members, who investigated the Texas shareholders’ claims and found them to be “entirely without merit.” The company said the group was guided by the New York law firm Simpson Thacher & Bartlett,
But the New Jersey investors say they’ve obtained documents the Texas shareholders have not had access to, including a confidential 275-page report related to Exxon’s internal investigation into the claims.
The report shows that Exxon’s “investigation was procedurally deficient and lacked the requisite independence,” according to an amended complaint filed by the New Jersey investors in May.
They contend Exxon’s board did not act independently when it refused their demands. They said the decision was made by the full board “even though each director on the board knew that his or her conduct was at issue in the investigation.”
The investors say there is no evidence that “any of the most culpable directors recused themselves from the process or vote.” Several current board members are named in the suits, including Woods, Samuel J. Palmisano, Kenneth C. Frazier, Ursula M. Burns, William C. Weldon, and Douglas R. Oberhelman.
Frazier and Weldon were also part of an internal working group formed by Exxon to “conduct an independent inquiry” into the allegations, according to Exxon’s motion to dismiss the Texas case.
“The working group was also conflicted because it was investigating itself,” the New Jersey investors wrote.
The working group was charged with reviewing allegations against Exxon by the New York attorney general, as well as a separate securities fraud class action filed by stockholders. As a result, it had conflicting responsibilities, the New Jersey investors told the court.
“On the one hand, they were required to oversee the company’s defense to allegations that it committed wrongdoing through its executives against claims in which bad acts by the executives are imputed to the company. On the other hand, they were simultaneously evaluating whether the company has claims against officers who committed wrongdoing,” the New Jersey investors wrote in the amended complaint. “If they were to reach an affirmative conclusion in response to the latter, they would prejudice their defense in connection with the former.”
Additionally, “the board was not aided by independent counsel,” the New Jersey investors told the court, adding that several Exxon defendants have been on the boards of companies represented by Simpson, Thatcher and Bartlett.
Exxon declined to comment, but has previously touted that the working group’s conclusion mirrors that of former Simpson Thacher & Bartlett partner and current New York Supreme Court Judge Barry Ostrager, who in December ruled that the New York attorney general’s office failed to prove that Exxon deceived investors after a 12-day trial.