A US court has dismissed a class action lawsuit that alleged Exxon Mobil and fiduciaries of its employee stock ownership plan violated their Employee Retirement Income Security Act (ERISA) duties because they knew, or should have known, that the company’s stock “had become artificially inflated in value due to fraud and misrepresentation.”
The plaintiffs are current and former employees of Exxon Mobil who were participants in, and beneficiaries of, the Exxon Mobil Savings Plan, in which the company’s stock represented the single largest holding with a value of approximately $10 billion.
The lawsuit claimed that Exxon failed to disclose that its reserves had become impaired due to the proxy cost of carbon, which incorporated the future effects of global climate change, thus making its public statements “materially false and misleading.” The plaintiffs also alleged that the defendants should have sought out those responsible for Exxon’s securities disclosures “and tried to persuade them to refrain from making affirmative misrepresentations regarding the value of Exxon’s reserves.”
The plaintiffs said the fiduciaries violated their duty to plan participants because they continued to invest in Exxon’s stock despite knowing the share prices were artificially inflated. The complaint said the plan purchased at least $800 million worth of Exxon stock during the class period, which was from November 1, 2015, through November 1, 2016.
But the US District Court for the Southern District of Texas ruled against the plaintiffs, saying they failed to meet the pleading standards for a claim under ERISA of failure to prudently manage the company’s savings plan assets.
“The court cannot say that attempting to prevent Exxon’s alleged misrepresentations would have been so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it,” wrote Judge Keith Ellison in his ruling. He added that the “complaint does not show that a prudent fiduciary could not conclude that remaining silent could have resulted in a drop in stock prices that would have done more harm than good to the plan.”
Ellison also emphasized that the court’s ruling “does not decide whether Exxon or any of its affiliates engaged in false advertising, concealed negative financial or environmental information, or contributed to climate change.”