Opinion

Underwood’s Exxon probe is doomed to fail

In October, with less than three months to go before stepping down, New York Attorney General Barbara Underwood launched a desperate bid to salvage her predecessor’s failed three-year fishing expedition by filing suit against ExxonMobil in Manhattan Supreme Court. Talk about a stretch: It’s hard to understand even what wrongdoing Underwood is alleging, never mind how she can prove it.

Disgraced ex-AG Eric Schneiderman, like other headline-hunting pols, targeted the company solely for political reasons: to burnish his street cred as a crusader against fossil fuels and endear himself to “progressive” climate-change warriors. Yet Exxon’s only sin was to sell oil to people (and even New York) who demanded it for their cars, electricity and other vital purposes.

By using the state’s powerful Martin Act, enacted in 1921 to crack down on securities fraud, Underwood has broad power to pursue possible fraudulent activity without ever having to deal with the pesky issue of proving intent, or even that anyone was actually aggrieved. As AG, Schneiderman and Eliot Spitzer each used the due-process-neglecting law to boost their “Sheriff of Wall Street” image.

What specifically is Underwood’s claim? It’s that the company and its top brass, including former CEO and Secretary of State Rex Tillerson, defrauded investors by misrepresenting financial risks related to current and future climate-change regulations.

This seems the best she can do after Schneiderman’s probe came up short. Recall that at first Schneiderman alleged Exxon hoodwinked investors by knowingly concealing the future effects of climate change on the value of oil reserves. Yet in the October lawsuit, Underwood charged instead that the oil giant misled shareholders by improperly accounting for the impact of climate-related regulations on the company’s bottom line.

This theory supposes that, for internal purposes, Exxon relied on lower estimates of the cost of complying with government regulations than the estimates it used to report costs to investors. Those lower estimates led the company to invest in projects that might’ve seen lower-than-advertised returns.

Exxon calls the charge “wholly untethered to reality.” Fact is, the company utilizes widely accepted, standard accounting practices to analyze and project relevant costs. At the same time, more precise calculations are furnished when it comes to specific project costs, based on known regional factors such as local taxes and existing regulations.

Together these principles form a sound method for accurately estimating costs and revenue.

Why would Underwood file such a weak case? Well, aside from any residual loyalty to Schneiderman or colleagues who worked on the probe, and aside from any ideological motivation of her own, there may be something else driving her action: She’s being pushed by outside lawyers (some who may dream of fame or fortune from such cases).

Indeed, one of the lawyers who signed the complaint is paid through the third-party NYU State Environmental Impact Center, which got funding from the city’s former billionaire-mayor, Mike Bloomberg. The contract requires the attorneys to focus on “matters relating to clean energy, climate change and environmental matters of regional and national importance.”

And outside lawyers don’t always need Bloomberg-style funding: Firms like Hagens Berman Sobol Shapiro have roped zealous “progressive” mayors, like Mayor Bill de Blasio, into suing Big Oil, claiming it created a “public nuisance.”

Yet that doesn’t fly either. Judges have tossed suits filed by Oakland, San Francisco and New York City. Alas, de Blasio & Co. remain unfazed: Last week, the city appealed Judge John Keenan’s dismissal of the suit. A group of Democratic attorneys general, led by Underwood, filed a brief supporting the city.

Perhaps it’ll take the US Supreme Court, which agreed to hear a case involving Massachusetts AG Maura Healey’s Exxon probe, to put an end to these frivolous legal actions.

Meanwhile, though, the lawsuits represent a worrying trend: They are driven by private ideologues and contingency-fee lawyers who are not accountable to the public and have usurped the government’s power to enforce the law, including the extraordinary powers of New York’s top prosecutor under the Martin Act.

Yet policy decisions, as Judge William Alsup reminded plaintiffs in the West Coast case, should not be made by judges in courtrooms but by legislative bodies. Let’s hope New York’s incoming AG, Tish James, understands that, ends the AG’s abuse of the Martin Act — and makes clear her office is not for rent.

Adam Morey is public affairs manager at the Lawsuit Reform Alliance of New York.