California lawsuits against “Big Oil” are in BIG trouble

A number of political entities from across the country have filed nuisance lawsuits against ExxonMobil and other petroleum companies in which Los Angeles may end up as the latest city to join in this legal extortion racket. The general complaint is that oil companies are causing climate change and all of the bad things that climate models forecast will happen.

Big Oil stands accused of failing to disclose the risks that climate change may pose to their investors. However, a fascinating article on Seeking Alpha suggests that plaintiffs from California may have undermined their case before the ink dried on their attorney’s legal brief.

Given the severity and specificity of the claimed harm and damages sought, it is peculiar that the disclosures in the plaintiff’s municipal and city bond issuance documents make very limited disclosures of any climate change risks. As a result, it appears these suits will either (A) create new economic risks and hazards for bond investors and, in the case of ‘wrapped’ deals, the bond insurers that wrap those California municipal debts or (B) provide the investors and bond insurers with the information with which to claim they have been defrauded by those municipalities.

Ironically, as a result of the subprime mortgage crisis, many of the same California counties that brought these latest environmental lawsuits filed suits against the five largest municipal bond insurers for “forcing” local governments to needlessly buy bond insurance in order to get higher credit ratings and issue debt with lower interest rates.

The article goes on to point out:

While the lawsuits claim significant harms to those cities and counties, those harms were not disclosed in the hundreds of bond issuances by those governments. In fact, while the plaintiffs in the suits claim grave and specific harms, their bond filings were largely silent on those risks and harms. As The Wall Street Journal highlighted in a headline today: “California Municipalities’ Debt Disclosures Contrast With Climate Warnings.” As a result, the issuers were almost certainly able to benefit from lower issuance costs that they would have been had they disclosed the risk to investors and, in the case of bonds that were wrapped by bond insurers, they likely paid lower insurance premiums than they would have had they fully disclosed the risks to the insurers.

As example, the City of Oakland claimed, in the lawsuits massive fossil-fuel production causes a gravely dangerous rate of global warming and ongoing and increasingly severe sea level rise harms to Oakland and that by 2050, a hundred year flood will occur every 2.3 years. These claims are in stark contrast to Oakland’s disclosures in its bond disclosures in this they state:

“The City is unable to predict when seismic events, fires or other natural events, such as sea rise or other impacts of climate change or flooding from a major storm, could occur, when they may occur, and, if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the City or the local economy.”

Similarly, San Francisco, another plaintiff, claims it is planning to fortify its Seawall in an effort to protect itself from rising sea levels and that the short-term costs of doing so will be more than $500 million with long-term upgrade costs of $5 billion. In San Francisco’s bond disclosures, it has stated:

“The City is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur, when they may occur, and if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the City and the local economy.”

Similar inconsistencies exist between the claimed harms and bond disclosures of Marin County, San Mateo County, the City of Imperial Beach, the County and City of Santa Cruz (the other plaintiffs in the lawsuits).

Golden State municipalities are so confident they will soon suffer damages resulting from human-caused climate change due to carbon emissions generated by fossil fuel use that they have filed nuisance lawsuits seeking large amounts of money in compensation from petroleum companies they blame. Yet, these same municipalities aren’t sure about the risks from man-made climate change, that they failed to disclose them in municipal bond offerings? It’s likely the non-California plaintiffs have the same problem.