By Lene Powell, J.D.
In a new court filing, ExxonMobil argues the withdrawal of a shareholder proposal on greenhouse gas emissions does not moot its claim for declaratory relief. Responding to the court’s concern that it “struggles to see what the ongoing case or controversy is,” ExxonMobil says the shareholders have a “lengthy history of repeatedly targeting ExxonMobil with improper shareholders proposals” and could submit substantively identical proposals in the future. The company says it needs a court ruling to resolve the issue (Exxon Mobil Corporation v. Arjuna Capital, LLC, February 5, 2024).
Seeking declaratory relief. ExxonMobil is seeking a declaratory judgment that it can lawfully exclude a shareholder proposal from consideration at its upcoming annual meeting.
Submitted by climate-focused impact investors Arjuna Capital and Follow This, the proposal would adopt an advisory resolution that ExxonMobil should reduce its greenhouse gas emissions more quickly and provide new plans, targets, and timetables for emissions reduction.
The shareholders withdrew the proposal, but ExxonMobil did not withdraw its complaint. The court asked ExxonMobil to explain the ongoing case or controversy given the withdrawal.
Argument for exclusion. In a status report filed February 5, ExxonMobil said that despite withdrawing the proposal, the shareholder defendants maintain the proposal is proper under the rules.
“[T]heir promise not to resubmit the 2024 Proposal in the future is meaningless because ExxonMobil has no assurance that Defendants will not submit a slightly modified but substantively identical proposal,” the company wrote.
ExxonMobil said a court ruling on the application of the Ordinary Business Exclusion and the Resubmission Exclusion to the 2024 Proposal is needed to resolve these issues.
Not moot. ExxonMobil cited Supreme Court precedent that “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued.”
The company also cited Fifth Circuit precedent in Waste Connections, Inc. v. Chevedden that a claim did not become moot as a result of the defendants’ promise not to sue a corporation for excluding a shareholder proposal.
“Goldilocks Trojan Horse.” More broadly, ExxonMobil painted the shareholders as environmental activists who are not interested in increasing shareholder value. They have submitted fourteen proposals in the past eleven years and “have a long history of coordinating with other activist organizations to pursue their anti-fossil-fuel agenda.”
ExxonMobil said the shareholders are pursuing a “Goldilocks Trojan Horse” strategy with the objective of constraining ExxonMobil’s ability to provide affordable, reliable energy from fossil fuels. In this strategy, they own nominal shares or advise nominal shareholders “for the sole purpose of attacking ExxonMobil from within.”
The shareholders “have not disavowed the ‘Goldilocks Trojan Horse’ strategy that seeks to disrupt ExxonMobil’s ordinary business operations and cause ExxonMobil to stop exploring for oil and gas,” ExxonMobil wrote.
SEC relief not sought. As a side matter, ExxonMobil said it is seeking judicial relief because the SEC has said staff guidance in no-action letters and sub-regulatory guidance is informal and has no legal force or effect. The SEC also it cannot decide the merits of a company’s position regarding a shareholder proposal—only a court can.
ExxonMobil added that SEC staff currently interprets securities regulations in a way that is inconsistent with the regulations and encourages the defendants and other activist organizations to “submit shareholder proposals designed to disrupt the ordinary business operations of public companies and harm their shareholders.”
Next steps. ExxonMobil declined to withdraw its complaint, saying the shareholders should be required to answer or otherwise move against the complaint.
ExxonMobil said if the shareholders move to dismiss on mootness grounds, it will further explain why the defendants cannot carry their burden on the issue.
This is case No. 4:24-cv-00069-P.