The oil-rig chasers are at it again. New York Attorney General Barbara Underwood recently filed suit against ExxonMobil, alleging the energy company failed to account for the real future cost of complying with greenhouse-gas emissions regulations, thereby artificially inflating the valuation of its stock.
The allegation is bogus and, as New York University School of Law professor Richard A. Epstein says in a recent Forbes column, “Nothing could be further from the truth.”
On the face of it, how can any company guess exactly what future regulatory costs will be? It’s an impossible proposition. The lawsuit against Exxon, and those like it, are frivolous and need to stop. They are expensive to defend, and these costs are not absorbed by any of the companies, they are simply passed along to consumers in the form of higher prices.
The company itself, in a document titled “Managing the Risks,” admits the formula it uses to calculate the future regulatory burden on investors is exactly that: an estimate. It also admits it’s more difficult to make comprehensive cost projections than it is to estimate costs for a single project within the broader Exxon community. Of course, an estimate is just that, an estimate. The future is always fraught with unknowns, especially for a subject with so many variables.
Furthermore, the decision by attorneys general to peg their climate-change wrath on a handful of asset-rich energy companies reeks of a shakedown effort. As the federal courts have already ruled, one can hardly punish a handful of players for contributing to greenhouse gas emissions when everyone is partially responsible. These lawsuits, which attempt to settle policy questions that belong to elected legislatures, only serve to harm the hard-working communities who are employed by the energy companies, and the consumers who must pay the higher costs as a result of these frivolous lawsuits. Trial lawyers, green groups, and their political benefactors, on the other hand, laugh all the way to the bank.
This most recent arbitrary lawsuit aimed at Exxon is no more than the latest in a series of shakedowns by attorneys general across the country. These attempted shakedowns are a reflection of the fact that government officials have failed to find more constructive ways to solve their city budget woes or fund pet projects. It’s more expedient for them to go after deep corporate pockets and the everyday Americans whose hard-earned retirement money is wrapped up in those industries.
Fortunately, none of these cases has gotten traction. Democrat- and Republican-appointed judges and justices have tossed out such frivolous climate change cases, as in American Power Electric v. Connecticut and in the recent case of two California cities that filed lawsuits against British Petroleum, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell. Still, energy companies are forced to defend themselves and to pay hefty litigation costs that ultimately cause hardship to the hardworking Americans who depend on healthy returns from retirement investments tied up in the fate of energy companies.
A recent study conducted by the U.S. Chamber Institute for Legal Reform estimates that nearly half of the costs and compensation paid out in our tort system — specifically, $184 billion — isn’t part of the money awarded to plaintiffs but money that goes to cover “the cost of litigation, insurance expenses, and risk transfer costs.”
On average, for nearly every dollar awarded to a plaintiff, another dollar goes toward attorney fees and other miscellaneous expenses. The bulk of these risk-related court expenses falls under commercial liability — specifically, on the shoulders of the energy companies.
It’s time to expose these frivolous lawsuits for what they are: thinly veiled ploys to line attorneys’ pockets and fill otherwise empty state coffers.
Craig Richardson is the president of the Energy & Environment Legal Institute.
