Does climate change have an impact on D&O responsibility? – Company / Commercial law

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For the most part, the proliferation of climate change litigation in the United States has primarily focused on legal persons. Recently, however, lawsuits have been brought against directors and officers (“D&O”). The few documents that were tabled were mainly related to disclosures regarding fossil fuels; the same company that has come under increased regulatory oversight and environmental activism in the United States. To date, the allegations against the D&O have concerned their alleged failure to disclose the company’s exposure in relation to their company’s use of fossil fuels and the connection between that non-disclosure and a host of environmental concerns. For example, there have been claims against the D&O of major oil companies, such as Exxon Mobil, as well as against car manufacturers, including Volkswagen.

One of these questions is Ramirez v. Exxon Mobil Corporation and others in United States District Court, North Texas District (16-cv-03111). This derivative shareholder class action lawsuit against the directors and directors of Exxon concerned alleged violations of federal securities law. The complaint describes “a well-documented story of intentional public induction regarding global climate change and its link to fossil fuel use, as well as the impact climate change will have on Exxon’s reserve values ​​and long-term business prospects “. The complaint notes that a number of D&O statements “have provided investors with a misleading description of defendants’ efforts to assess and consider the potential climate change risks associated with Exxon’s reserve assets and long-term business prospects. term”.

The Ramírez The complaint also includes claims that the D&O “did not disclose these risks despite Exxon scientists warning company management that policy changes to tackle climate change could affect profitability.” . The complaint describes the alleged violations of Section 10 (b) and 20 (a) of the Federal Securities Exchange Act of 1934 and, with respect to the D&O states, in the relevant part, “they knew or recklessly ignored [and] were misleading in that they contained inaccurate statements and did not disclose the material facts necessary for the statements made, in light of the circumstances in which they were made, not to be misleading. “¶466. On August 14, 2018,
Ramírez The court found that the plaintiffs had adequately pleaded the securities fraud allegations against the D&O for certain statements related to specific investments of the company, although none of these statements were related solely to the concern. growing on climate change. The petition for collective certification has been filed, but has not yet been decided by the court.

Another noteworthy lawsuit in the same Texas court is the In Re Exxon Mobil Corporation Derivative Litigation (19-cv-01067), a 2019 derivative shareholder action for violations of federal securities law and breach of fiduciary duty also against directors and officers of Exxon Mobil. The Exxon Mobil the case involves the consolidation of six different shareholder derivative complaints, including one filed in February 2021. The allegations against the D&O in this case, are similar to the allegations against the D&O in
Ramírez. The basis for the potential liability of D&O under the same federal securities laws stems from “Exxon’s failure to use indirect carbon cost policies that actually corresponded to its public statements violates generally accepted accounting principles ( “GAAP”), SEC accounting and disclosure requirements, and established accounting practices and guidelines. ¶8. As Ramírez, this case is also still ongoing.

Disclosure-related prosecutions such as, Ramírez and Exxon Mobil may just be the start of climate change actions against D&O. Yet climate change actions for the most part continue to name only the company itself, such as the July 7, 2021 lawsuit pair. Conservation Law Foundation v. Shell Oil Co. et al., file number 3: 21-cv-00933, and
Conservation Law Foundation v. Gulf Oil LP, Case Number 3: 21-cv-00932, both in the United States District Court for the District of Connecticut. These new lawsuits brought by the Conservation Law Foundation argued that the oil companies were ignoring the increased risk of flooding, major storms and sea level rise that could impact their storage facilities. fuel and thus endanger the surrounding community. Specialized press articles on the subject have identified other potential areas of D&O litigation. These include combinations involving climatic conditions, such as United States v. Southern California Edison Company, (20-cv-11020) in United States District Court, Central District of California, the lawsuit against the California utility company over the California wildfires, as well as potential lawsuits from organizations non-governmental organizations such as Mayacama Golf Club, et al v. Pacific Gas and Electric Company, (SCV-266679) California Superior Court, Sonoma County.

Another noteworthy lawsuit is the ongoing litigation against the former CEO and chairman of Volkswagen for alleged securities violations. This action, entitled SEC c. Volkswagen Aktiengesellschaft, et al. was not contributed by any holder of VW securities; instead, it was provided by a US government agency, the US Securities and Exchange Commission (“SEC”). In the wake of the Volkswagen emissions scandal, in 2019, the SEC filed a lawsuit against VW and its CEO Martin Winterkorn in U.S. District Court for the Northern District of California (19-cv-1391). The claims against Winterkorn in the amended complaint filed on September 4, 2020 concern violations of sections 10 (b) and 20 (a) of the Exchange Act and section 17 (a) (2) of the Securities Act for conduct reckless misrepresentation of material facts in the sale of corporate bonds. Winterkorn’s false claims relate to the company’s alleged “clean diesel” engines. It is claimed that Winterkorn and other senior officials and engineers at VW knew that VW’s clean diesel engine was a fraud because it did not comply with applicable US emissions laws. Once it was revealed to the United States Environmental Protection Agency that these “clean diesel” claims were fraudulent, and after VW pleaded guilty in a US court to three counts crime, the price of his bonds has fallen. This litigation is still in its early stages.

There was also a climate change litigation, with a First Amendment, a free speech twist. That case, Roemer v. Williams, was filed with the US District Court, Eastern District of New York (19-cv-6855). In Roemer, a student filed a complaint against the president of a local college in New York for refusing his request for permission to distribute a document that “explains why the political movement to reduce the use of fossil fuels is a malicious hoax “. The complaint states that “[t]his lawsuit is based on the premise that the global political campaign to decrease the use of coal, oil and natural gas in an effort to improve the climate is beyond reason and that my 12 point document proves it .
Roemer the court subsequently dismissed the lawsuit for lack of jurisdiction over the matter because the plaintiff failed to demonstrate that he had standing to demand that teachers at the local school be required to include his position statement on climate change. The court also ruled that there was no legal basis for ordering school officials to invite the plaintiff to distribute his position paper or to hold those responsible for failure to do so. Roemer v. Williams, n ° 19-CV-6855, 2020 US Dist. LEXIS 3026 (EDNY January 7, 2020).

While the potential corporate scrutiny of climate change is likely to continue to grow, the target may not be focused directly on D&O in the United States. Shareholder activism for environmental and corporate governance (“ESG”) requires D&O to consider the global environmental impact of their organizations’ activities, which, in turn, can lead to voluntary and mandatory disclosures regarding certain issues, including climate change. For example, in May 2021, an activist hedge fund, with less than one percent stake in Exxon Mobil, arguing that the company was slow to make a strategic transition to a low-carbon economy, was able to gain seats in the Exxon Board of Directors due to its strong commitment to ESG. On a related note, a group of state attorneys general, led by New York and California, recently sent the SEC a letter urging them to impose broad ESG disclosures on companies regarding the financial risks of change. climate.

Regulatory review, as well as lawsuits brought by environmental groups, could also have an impact on companies’ D&O decisions. In the short term, this could increase the number of A&D subject to government summonses and investigations. However, at least at this point, for the foreseeable future, there does not appear to be a growing concern for class actions naming D&O defendants in the United States. There are a number of other event disputes in the United States that actively target D&O, including their response to: cybersecurity incidents; racial diversity; sexual harassment and, more recently, the Covid-19 pandemic. For now, at least, these other issues are more likely to represent greater exposure to D&O than climate change. Yet, with increased awareness of the importance of climate change, business leaders around the world and their D&O will continue to be in the spotlight.

Originally posted by Blog PLUS.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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