Pyrrhic Victories
Exxon's litigation against climate shareholder activist Arjuna Capital is over. Who actually won?
"Another such victory over the Romans, and we are undone" - Pyrrhus
Merriam-Webster Dictionary defines a pyrrhic victory as one “that comes at a great cost, perhaps making the ordeal to win not worth it. It relates to Pyrrhus, a king of Epirus who defeated the Romans in 279 BC but lost many of his troops.”
Two Lone Star state examples – a recent legal ruling in a case we covered back in February, and an old Texas waterfowler’s joke – bring that definition to life. We’ll give you the joke first.
A rainmaker attorney from a prestigious New York law firm takes some clients down to Eagle Lake, Texas to entertain them hunting snow geese in the area’s flooded rice fields. On a cool, windy January morning with low scudding clouds, the group is enjoying great sport, when a single snow goose is shot by the host. Wing hit, it sails out of the impoundment, across a fence line and crashes in the neighboring landowner’s patch of prairie.
The attorney walked down the dike to the fenceline, jumped the cattle fence, and walked out into the pasture to collect the goose. He had not walked more than fifty steps into the pasture when a big diesel F250 pickup truck came flying out of nowhere, skidding to a stop in a cloud of dust. A lanky old Texas rancher wearing boots and a cowboy hat stepped out of the truck. He had watched the whole episode from afar while putting ear tags in his cattle.
Addressing the New York attorney with his Texas twang he said, “hey there fella, what you doin’ on my land?” The trespasser told Tex “I’m just picking up this goose I shot over in the rice next door. He was wing hit and died in your pasture.” Old Tex responded, “well, in these parts, that goose is on my land so that’s my goose.”
The attorney began to get angry and argue with the rancher, but he was stopped before he could start lawyerin.’ Interrupting him mid-sentence, Old Tex said, “look we got a simple way to settle these things around these parts. Goes like this: I kick you. Then you kick me. We go back and forth until one of us gives up. The one who don’t gets to keep the goose.”
The New York attorney was a fit, early-40s, athletic guy, maybe 6’2 and 205 pounds. But he was clearly out of his element.
The old Texas cowboy was a lanky, slow moving dusty fella who looked to be about 70, and like he had seen his better days. So, as stupid as the custom seemed to him, the lawyer wanted that goose, and said, “OK, partner, you’re on!”
Tex was wearing a worn, dusty old pair of Tony Lama boots, the kind with pointed toes. He said to the attorney, “OK, I go first, home field advantage.” And with that, so swiftly the recipient had no time to react, he reared back and kicked that New York attorney as hard as he could, right square in the unmentionables. Dropped him to the ground like a sack of potatoes.
Back in the blind, his clients had been watching the exchange from a distance, but could not hear the conversation. When they saw the guy in camo hit the deck and heard the expletives instantly emanating from that pasture, they knew something bad had happened to their friend.
It took the attorney a couple of minutes to gather himself. Old Tex pulled out a can of Skoal, packed a wad behind his lower lip, launched a caramel-colored stream of spit on the ground, and leaned up against the fender of his King Ranch to wait.
Using a nearby fencepost to pull himself to his feet (barely, and wobbly at that), Mr. New York Rainmaker stood up, shook himself off, and prepared to take his turn and unleash an even more brutal kick on the old cowboy.
But never underestimate an old Texas cowboy in his natural habitat. And never overestimate a New York attorney outside of his.
Still coughing and holding his business, but steadying himself, the attorney squinted and grinned at the old cowboy, “ok, old geezer, now it’s my turn!” As he started in the direction of the rancher, Tex held up his hand like a traffic cop a few feet before the attorney could reach him.
The attorney stopped and said, “what is it?” Old Tex smiled, launched another stream of spit at the ground and answered, “I give, you win, you can have the goose.”
And with that, the old Texas rancher tossed the white bird to the attorney, hopped back into his truck and gunned it, spinning the truck sideways and intentionally covering the attorney and his brilliant white trophy in a cloud of dust. He drove away laughing. The Ivy League educated rainmaker attorney with the seven figure income stood in that pasture dumbfounded, wondering how he just got outsmarted by a high school dropout in a pickup truck.
He got his goose. But he paid for it dearly. Pyrrhic victory.
In our February post Big Evoil Punches Back, we wrote about Exxon’s lawsuit against two environmental shareholder activist groups. Exxon turned the tables, fighting back against a relentless string of shareholder proposals related to climate change and the company’s Scope 1, 2, and 3 CO2 emissions by U.S. based Arjuna Capital and Netherlands-based Follow This. Exxon had enough, especially after the SEC obsequiously failed to use its shareholder proposal boundaries to limit the relentless attacks.
As we wrote:
How did Arjuna Capital and Follow This react to being sued by the biggest U.S. target of their opposition and opprobrium? Whether it was the expense of fighting a Fortune 100 corporation or the desire to avoid having a federal court set a precent deadly to its objectives, eight days after Exxon sued Arjuna and Follow This, both parties withdrew their proposal, promised not to refile it, and retreated to the safety of their rhetoric.
But Exxon was not done with the matter. Rather than withdrawing their complaint in the North Texas District Court, they simply withdrew their motion for an expedited hearing. Last Friday, the company stated, "We believe there are still important issues for the court to resolve. There is no change to our plans, the suit is continuing.”
On June 17th, North Texas District Court judge Mark Pittman rendered his decision, concluding Exxon’s claim was moot. Pittman’s decision was, technically, a “win” for Arjuna, but it was not without consequences.
Arjuna won its goose. But in order to “win”, it paid a price that would seem to defeat its very purpose: Exxon extracted a covenant guaranteeing Arjuna won’t be going back across its fence again.
Environmentalists and activist shareholder organizations naturally cheered Pittman’s ruling. Together with the legacy media, both were too happy to avoid any consideration of the practical consequences, or simply too ignorant to understand them.
What was the basis for Judge Pittman’s ruling? And how might the ruling impact similar relentless attempts by environmental shareholder activists to try and force energy companies to disclose and reduce their CO2 emissions and invest in nonreliables (aka “renewables”) at the expense of their core business? Beneath the surface, Arjuna’s “win” and Exxon’s “loss” start to look very different.
We begin with ClimateCaseChart.com’s summary of the parties’ motions and Judge Pittman’s rulings lodged in the North Texas District Court since we published Big Evoil Punches Back:
On February 2, 2024, Reuters reported that the shareholders had withdrawn their proposal. Exxon then filed a status report stating that although the shareholders had said they would not file the proposal in future years, the withdrawal did not provide Exxon complete relief. Exxon said it would continue with the suit because a ruling from the court was needed on whether the SECs rules’ “ordinary business” or “resubmission” exclusions would allow Exxon to exclude the proposal from its proxy statement.
In a May 22nd Opinion and Order (emphasis added), Judge Pittman denied Arjuna’s Motion to Dismiss:
The court concluded that the defendant shareholders’ withdrawal of the proposal did not moot the case because the defendants did not show that it was “absolutely clear” that the challenged conduct would not recur. Although the court rejected Exxon’s contention that it had personal jurisdiction over the two shareholders under the Securities Exchange Act of 1934, the court concluded it did have personal jurisdiction over one of the shareholders (Arjuna Capital) under Texas’s “long-arm” statute but not over the other defendant (Follow This).
Five days later (May 27), Arjuna filed another brief with the Court. That brief included a copy of a letter Arjuna sent to Exxon that same day.
In the letter, Arjuna’s Managing Partner Natasha Lamb spends three paragraphs accusing Exxon of “an assault on the system of shareholder democracy”, of “false and defamatory statements made in defense of its disastrous decision to sue its own shareholders” and declaring the “the true intent behind its lawsuit – to silence any investor who may dare to raise a concern that Exxon’s management finds inconvenient to address.”
Having apparently satisfied whatever compelling need to grandstand before her inevitable mea culpa, Ms. Lamb then gets to the real point of Arjuna’s letter (emphasis added):
Arjuna cannot alone bear the brunt of Exxon’s war on shareholder rights. For that reason, Arjuna is accepting the Court’s invitation, made in its recent ruling, to provide clarity through a “broader stipulation” that Arjuna will not submit the proposal, or anything similar to the proposal, for consideration by Exxon shareholders in the future.”
Thus, Arjuna hereby unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change.
I expect that Exxon will now, albeit belatedly, do what justice and a respect for the rights of shareholders require and withdraw its lawsuit.
Exxon, never one to bring a knife to a gun fight, did not do what Ms. Lamb “expected.” Quite the contrary.
It wanted a legal ruling and a precedent, and to draw a line in the sand, forcing the SEC to administer its shareholder resolution rules consistently. It filed two more briefs on the question of “mootness” and Arjuna’s May 27th letter, one on May 31 and another on June 10th.
Judge Pittman rendered his decision seven days later after Exxon’s last brief, on June 17th. Here’s how ClimateCaseChart.com describes the ruling (emphasis in original):
Texas Federal Court Said Shareholder’s Covenant Not to Submit Future Climate Proposals Mooted Exxon’s Lawsuit to Exclude Proposal. The federal district court for the Northern District of Texas ruled that Exxon Mobil Corporation’s lawsuit asking the court to declare that it could exclude a shareholder proposal about climate change from its proxy statement was made moot by a letter in which the shareholder “unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change.” The court—which had found that an earlier letter from the shareholder did not make “absolutely clear” that the shareholder’s conduct would not recur—found that Exxon’s concerns that the shareholder would work “behind the scenes” with other activist investors to submit similar proposals was “conjectural” or “hypothetical” even if “plausible.” Because of the shareholder’s covenant, the court found that any ruling on Exxon’s claim would be advisory and therefore improper. The court therefore dismissed the case without prejudice.
In a New York Times article published the day of the ruling, Natasha Lamb praised the outcome as the “right result”, further noting:
“Climate change presents real headwinds to the oil and gas industry, and deflection will not change that simple fact,” she said. “Investors understand these risks and are looking to their companies to engage with them on measured approaches to risk mitigation, not engage in litigation.”
For his part, Exxon Mobil CEO Darren Woods responded with this statement:
“Our lawsuit put a spotlight on the widespread abuse of the shareholder proxy submission process. Making repeated proposals that garner a small minority of support doesn’t serve anyone’s interest except the proponent’s.”
Exxon Mobil issued a similar statement:
“Our lawsuit put a spotlight on the abuse of the shareholder-access system. The court has made absolutely clear that Arjuna cannot continue abusing the process. Shareholder democracy is only as strong as the rules that govern it, which must be fairly and consistently applied."
Netherlands-based environmental shareholder activist group Follow This, who had been dismissed from the case purely on jurisdictional grounds, highlighted Arjuna’s “victory” the next day on its website.
Greenwire, an Energy & Environment News publication by Politico, almost had the right take. But (naturally!) they couldn’t help themselves, instead portraying Exxon’s reaction as spin instead of what the ruling actually represented (emphasis added):
“Still, Exxon, which had continued to pursue the litigation, framed the commitments from Arjuna as a win…”
Climate shareholder activists are somehow portraying Judge Pittman’s dismissing Exxon’s suit against Arjuna (for the sole reason that the latter waved the white flag) as a “win.” But a party in a legal battle forced to destroy its best weapons out of fear of an imminent and existential legal precedent does not “win”, even if its self-disarmament satisfies a judge enough to end the legal case.
The legal basis for Judge Pittman’s ruling is rooted in the limited power of federal courts, and in particular a test of standing from a 1992 environmental case, Lujan v. Defenders of Wildlife. In what became known as the Lujan Test, a litigant must show (1) an injury in fact that is (2) causally connected to a defendant and (3) likely to be redressed by a favorable decision.
As Judge Pittman noted in his ruling (emphasis added):
“Standing erodes when a case is mooted. While the Court sympathizes with Exxon’s predicament, its hands are tied by the Constitution. Exxon can only sue Arjuna if there’s an ‘actual, ongoing controversy’ between them. While one remained despite Arjuna’s withdrawal of the 2024 Proposal, none survives its current covenant.”
The exercise of judicial power is improper without a live case or controversy. As Exxon and amicus note, the trend of shareholder activism in this country isn’t going anywhere. The SEC is behind the ball on this issue. But the Court cannot advise Exxon of its rights without a live case or controversy to trigger jurisdiction. As Arjuna has eliminated any case or controversy between the Parties here, Exxon’s claim is MOOT and must be DISMISSED without prejudice.
So, bottom line: Judge Pittman rule that the case is moot because Arjuna covenanted to scram and not come back to Exxon Mobil with similar proposals and, as such, there is no present controversy. We wonder how Judge Pittman would rule had Arjuna not taken its ball and sheepishly gone home.
How will this affect future attempts to harass Exxon by climate activists with relentless shareholder proposals, clearly not in the businesses’ or shareholder’s best interests, while playing games with SEC’s “ordinary business” and “resubmission” rules? Do not expect them to relent. But, they will likely change their approach. If they do not, we suspect Exxon would be glad to bring a “live case” to that North Texas District Court given the chance.
We close by noting that, when viewed in this light, Exxon actually won its case by extracting the unconditional and irrevocable covenants from Arjuna Capital not to submit any more shareholder proposals dealing with greenhouse gases or climate change. Exxon has shown it will be open to discussing reasoned climate-related resolutions with well-intentioned activist groups. By showing other Arjuna and Follow This types that it will push back against relentless, destructive shareholder resolutions, and that it is not afraid to force the SEC to apply its rules fairly and consistently, this case turns out to have been a valuable endeavor for Exxon despite Judge Pittman’s dismissal. Some would call that an even broader win.
Arjuna and its Managing Principal Natasha Lamb have been eerily quiet since Judge Pittman’s ruling. They seem to have taken their pyrrhic “victory” for what it is. Even if you end up getting your goose, crossing the wrong fence line in Texas can be perilous and costly.
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My new favorite term that I will now always use going forward when talking about these energy types, “nonreliables”. That is best most succinct word I’ve yet seen to describe them. Kudos on coining it (assuming you did since this is the first place I’ve seen it used in this manner). 😃
Grateful for the information and the humor is a bonus!