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ExxonMobil Loses Bid in Fraud Lawsuit to Keep Auditor Records Private

New York’s highest court on Tuesday opened the door for state officials to demand an ExxonMobil Corp. auditor turn over internal records in a wide-ranging investigation ostensibly about climate change.

The New York Court of Appeals rejected ExxonMobil’s argument that the advice of PricewaterhouseCoopers (PwC) was protected under “accountant-client privilege.” The court also dismissed as moot ExxonMobil’s motion for a stay pending appeal. The supermajor has been twice rejected by lower state courts.

The finding affirms a ruling last year that ExxonMobil must comply with a subpoena by New York Attorney General (AG) Eric Schneiderman. Under broad authority provided under New York’s Martin Act, the state’s top lawyer has expanded a probe into ExxonMobil that he initially launched in 2015. The case is People of the State of New York v PricewaterhouseCoopers LLP and ExxonMobil Corp., No. 451962/2016.

Schneiderman claims ExxonMobil has misled investors about how its operations may impact climate change and is seeking financial records, emails and other documents that date back to the 1970s. Also sought areinternal documents from PwC and ExxonMobil about how accounting and reporting are conducted for oil and gas reserves, how assets are evaluated for potential impairment charges, as well as energy price projections and projected carbon costs.

The appeals court’s order “affirms that Exxon and its outside auditor have an obligation to produce all the documents that our office rightfully subpoenaed,” Schneiderman said. “ As we’ve said from the start, Exxon had no legal basis to interfere with PwC’s production. Our fraud investigation continues to move full speed ahead, despite Exxon’s continued strategy of delay.”

In June Schneiderman published detailed findings from his investigation, which he called “significant evidence” that ExxonMobil may have used two sets of numbers, one private and one public, to calculate the impact of climate change on its oil and gas reserves.

ExxonMobil responded, accusing Schneiderman of making "inflammatory, reckless and false allegations" with "ever-shifting and unraveling investigative theories" when he misstated how the supermajor assesses the potential impacts of climate policy on its business.

A separate lawsuit by ExxonMobil is seeking to quash investigations by Schneiderman and Massachusetts AG Maura Healey. That lawsuit was moved earlier this year against ExxonMobil’s request, from Texas to a New York court, where the dispute is continuing. ExxonMobil claims the investigations by the two Democrats is politically motivated and said the AGs reached a conclusion before an official probe had begun.

Meanwhile, in another first of its kind lawsuit filed against ExxonMobil last year, Judge Mark L. Wolf of the U.S. District Court, District of Massachusetts, granted in part and dismissed in part claims by the Conservation Law Foundation (CLF).

CLF’s lawsuit claims that ExxonMobil’s Everett oil transfer and storage facility in Boston Harbor has failed to comply with its National Pollutant Discharge Elimination System permit and the U.S. Clean Water Act. The lawsuit also claims the marine terminal has not been sufficiently upgraded to handle climate change impacts. The lawsuit is Conservation Law Foundation v. ExxonMobil, No. CV-16:11950.

Wolf is allowing the lawsuit to continue, but CLF has to remove the climate change references, he said. He wrote that he wanted to avoid the “Scopes Monkey Trial of the 21st Century,” referring to the famous 1925 trial about whether evolution should be taught in Tennessee schools. The trial devolved into a debate about human origin.

ExxonMobil sought to have the lawsuit dismissed, claiming it lacked merit. Wolf said the 14-count complaint had to be narrowly focused on the alleged lack of good engineering practices. References have to stripped out regarding harm caused by climate change that would occur in 2050 or later.

Material to the case is whether there is a foreseeable risk of substantial change in sea level, Wolf said. However, it is not important whether the cause of the sea level change is because of “warming of the atmosphere or a Noah’s Ark phenomenon.”

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