Judge OK's Deposition of Tar Sands Employee in Exxon Climate Fraud Probe

The judge appeared exasperated with both sides, suggesting that neither Exxon nor the N.Y. Attorney General's office had conducted itself in an exemplary manner.

Exxon is under investigation by the New York attorney general

New York attorney general Eric Schneiderman is investigating whether Exxon misled investors about climate change. Credit: Scott Olson/Getty Images

A judge on Friday approved a request by the New York Attorney General's office to grill several ExxonMobil employees as part of its widening probe into whether the oil giant misled investors about its risks from climate change.

Justice Barry R. Ostrager refused a request by Exxon to block two of the depositions at a hearing in which he ordered the two sides to meet outside of court to hash out their differences over New York Attorney General Eric Schneiderman's demand for more documents.

The contentious hearing did little to resolve the ongoing dispute between Exxon and the attorney general's office, which is investigating whether the company committed financial fraud involving what it told investors about climate change risk. Ostrager declined to rule on whether Exxon would have to produce additional documents that were subpoenaed Schneiderman in May. Exxon had asked the judge to throw out the requests.

Instead, Ostrager told Exxon and the attorney general's office they should work together outside of court to agree on specific questions for the company to answer about the details of its climate accounting. Those questions, together with the depositions, would provide a quicker resolution to the case, he said.

"If you had done that on day one," he told state lawyers, "you'd be 1,000 yards ahead of where you are today."

The judge did hand Schneiderman one victory. Ostrager ordered Exxon to provide testimony of an employee of its Canadian affiliate, Imperial Oil.

The employee had been involved in evaluating the future costs of potential climate regulations for a project in the tar sands, and Exxon apparently told him not to apply the estimates contained in the company's corporate directives, but instead to use the much lower levels of Alberta's provincial carbon tax, according to documents filed by the attorney general. That decision was a key piece of evidence Schneiderman filed with the court earlier this month to argue that Exxon's climate accounting "may be a sham."

Exxon had resisted making the employee available, arguing it doesn't control its Canadian affiliate. It also tried to block the deposition of one of the company's in-house lawyers, though it had agreed to offer several other employees as witnesses, including the executive who oversees the company's long-term assessment of global energy demand.

At the heart of the current dispute is whether Exxon has supplied all the documents required under a subpoena Schneiderman issued in 2015. The attorney general requested documents related to what the company knew about climate change and what it told shareholders and the public about the risks it posed to the company.

In May, Schneiderman issued new subpoenas, saying the investigation had uncovered evidence that Exxon may have withheld some documents that should have been included with the initial request.

Exxon says it has provided everything that was asked of it as part of 2.8 million pages of documents already surrendered. At the hearing, however, lawyers for the company offered to update their original submission of documents to include material through 2016. Ostrager included this in his ruling.

"You have engaged in a 16-month process requesting and receiving documents," Ostrager told Assistant Attorney General John Oleske. "You can't start round two to produce documents all over again."

The May subpoenas have led to heated charges between the parties, with the attorney general's office publishing documents that it says show that the company misled investors, and Exxon accusing Schneiderman's office of releasing proprietary information and of political posturing.

The judge appeared exasperated at times during the hearing and at one point suggested that neither party had conducted itself in an exemplary manner.

To support its new subpoenas, Schneiderman's office presented evidence earlier this month suggesting the company was using two sets of numbers to account for potential costs of future climate change regulations: a higher figure it presented to the public, and a secret, lower one that it used internally.

Last week, Exxon said in a court filing that it used the two sets of figures for distinct reasons, one as a global look at the possible effects of future climate policies on energy demand and the other as a more targeted assessment of impacts on specific projects. "ExxonMobil has truthfully and consistently told the public that, when projecting the global demand for energy, it addresses potential impacts of future climate-related policies," the company's lawyers wrote.

On Friday, Ostrager urged the parties to reach an agreement on the specific questions Exxon should answer and which, if any, additional documents it should produce. If they failed to do so, he warned, he'd be forced to issue his own ruling on the matter at a future hearing.

Exxon also has been fighting Schneiderman's investigation and a similar probe by Massachusetts Attorney General Maura Healey in federal court.

The company has been trying to derail the parallel investigations based on constitutional claims: Exxon has argued that the probes are a violation of the company's right to free speech, unreasonable searches and seizures; and due process.

Schneiderman and Healey's office disagree and have said the purpose of Exxon's federal action is to investigate the two attorneys general, according to a brief filed last month by the New York prosecutor. Schneiderman and Healey argue that the proper venue for Exxon to fight the investigations that are focused on each state's fraud statutes are in New York and Massachusetts state courts.  Having a federal court intervene could mean that states might lose their autonomy in future investigations, they say.

In its most recent rebuttal to Schniderman and Healey, Exxon maintained federal review is proper because precluding it would leave organizations that embrace ideas opposed to those of public officials "exposed and unprotected."

"It is manifestly the role of federal courts to interpose themselves between the potential abuse of state power and the free exercise of constitutional rights," Exxon attorneys wrote in a brief filed Friday in U.S. District Court in New York.

If U.S. District Judge Valerie Caproni agrees with attorneys generals' position and dismisses Exxon's complaint, it will set a precedent with nationwide consequences, Exxon argued. Exxon said that "would amount to granting state officials license to harass perceived political opponents unimpeded by review in federal courts."

Schneiderman and Healy have until June 30 to respond. Caproni is then expected to set dates for hearings to resolve Exxon's challenge.

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