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Is Oil the Next Target for Tobacco Like Litigation?

The Law Office of C. William Smalling, P.C. June 28, 2016

In 1998, after years of legal skirmishes, the attorneys general from 46 states won a landmark, $200 billion settlement from the tobacco industry. The huge pot of money was divided up between the states, and used to fund tobacco cessation programs, fill budget gaps, and line the pockets of private attorneys that had assisted the attorneys general. States and attorneys viewed the settlement as such a success that ever since then there has been constant chatter in the legal community speculating about what industry will be the next Big Tobacco? Who can the states sue to get their next windfall?

Over the past few months, it has become clear that the new target is the oil industry. Fortunately, it is not at all clear that the oil industry will be as easy of a target as the tobacco industry was.  

The past decade has seen many unsuccessful lawsuits filed by plaintiffs against oil and gas producers arguing that the industry is responsible for climate change. Though these lawsuits have been unsuccessful, they have been expensive to fight off, and as in the similarly unsuccessful suits against the tobacco industry that preceded the 1998 Master Settlement, the plaintiffs have been able to experiment with different tactics and gain new information through the discovery process.

Now we are seeing all that information rolled into a large lawsuit filed by 17 state attorneys general against Exxon Mobil. The main argument is that the company knows climate change poses a risk to its business because it has done research on the phenomenon, yet it has not fully disclosed this information to investors. This would be a form of securities fraud, punishable by hefty civil penalties or perhaps even jail time.

You can see how this echoes the tobacco litigation where the crux of the states’ argument was that tobacco companies knew their product caused health problems, but they hid that information and kept on selling them, causing the states to spend a lot more money paying for the healthcare of their Medicaid population than they would have otherwise had to spend.

Both cases involve allegations of a cover-up, but it is not clear that the Exxon Mobil case will turn out the same way the tobacco case did. In the tobacco case there were “smoking gun” documents proving the companies knew smoking caused health problems, but chose to deny that information and keep selling. There has not been a similar smoking gun revealed in any litigation over climate change.

There was also plenty of evidence of the bad health effects of smoking. It is much more difficult to precisely link the bad effects of climate change to oil and gas production since there are many causes of climate change, and no real control group allowing comparison between production and non-production or disclosure of research vs. non-disclosure.

However, these are the same sort of arguments and rationalizations that were being made before the tobacco settlement…

Obviously, not every oil and gas company is an Exxon Mobil. So, what should the take-away be for smaller businesses in the industry? In short, it’s time to get your house in order. If the litigation against Exxon Mobil appears to be at all successful, the oil and gas industry is going to become a prime target for all sorts of fanciful legal claims. The best thing you can do to protect yourself from such uncertainty is to limit your liability under the existing system, and hope that counts for something down the road. You can start by making sure all your activities are properly permitted, and being very careful about what sort of companies you contract with.