In January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal and promised not to refile; therefore, they said, the case was moot. But Exxon refused to withdraw its complaint because it believed that there was still a critical live controversy for the Court to resolve. And the Federal District Court for the Northern District of Texas agreed—at least as to Arjuna. While the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, it allowed the case against Arjuna to proceed on the basis of both subject matter and personal jurisdiction, citing precedent that “a defendant’s voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” (For background on this case, see this PubCo post.) According to the Court, the “voluntary-cessation doctrine requires more than platitudes to render a case moot;…to moot Exxon’s claim, Defendants must show that it is ‘absolutely clear’ the relevant conduct ‘could not reasonably be expected to recur.’” But the argument continued, even after the decision was rendered, as Arjuna continued to submit letters to Exxon in which Arjuna “unconditionally and irrevocably covenant[ed] to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change,” and Exxon continued to contend that the letters were not enough. (See this PubCo post.) Finally, yesterday, after a hearing on the matter, the Court called a halt, issuing an Order that Exxon’s claim was moot and dismissing the action without prejudice. But not before the Court got in a few digs at Arjuna, activism and even at the SEC.
In its Order, the Court observed that, while it “sympathizes with Exxon’s predicament, its hands are tied by the Constitution….Exxon can only sue Arjuna if there’s an ‘actual, ongoing controvers[y]’ between them…. While one remained despite Arjuna’s withdrawal of the 2024 Proposal, none survives its current covenant.” In that covenant, Arjuna said that it “unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change,” which, in the Court’s view paralleled Supreme Court precedent, meeting “‘the burden imposed by the voluntary cessation test’ because it was ‘unconditional and irrevocable.’”
The Court did not exactly hold back on its views of Arjuna’s conduct: “Nothing says ‘dedication to the cause’ like dropping a proposal at the first hint of litigation.” But ultimately, the Court acknowledged Arjuna was just “a small boutique wealth management firm with offices in North Carolina and Massachusetts….Exxon is one of the largest multinational conglomerates on the planet….Thus, Arjuna cannot be faulted for bowing out, opting to live and fight another day. And that seems to be Exxon’s main point: that its claim isn’t moot because Arjuna can fight on.” But “voluntary-cessation precedents do not indicate defendants must recant their core convictions to moot a case.” It wasn’t a matter of “if Arjuna will resume shareholder activism, but when and against whom. Arjuna’s counsel didn’t shy away from this fact at today’s hearing. Nevertheless, Arjuna’s correspondence with Exxon—and the representations of its counsel at this morning’s hearing—foreclose bringing the fight back to Exxon.” Those representations from counsel were enforceable, the Court said, and should assuage Exxon’s concerns.
Even in the absence of assurances from counsel, “Exxon’s position was too attenuated to confer standing. That’s because hypotheses about the actions of other entities with whom Arjuna is ideologically aligned are ‘conjectural’ and ‘hypothetical.’…Even if they’re plausible. At base, the second time’s the charm for Arjuna, as its ‘unconditional and irrevocable’ pledge ensures Exxon the offending conduct won’t recur.” At this point, Exxon is just “nitpick[ing,]” which even suggested that there may be some merit to Arjuna’s arguments regarding Exxon’s motives: “If Exxon is primarily concerned with Arjuna, then Arjuna’s covenant is great news. If Exxon is using Arjuna as a proxy for a battle against the SEC, Arjuna’s covenant is a gut-punch. And if the truth is in the middle, and Exxon simultaneously wants to stop Arjuna whilst making a point to the SEC, then Arjuna’s covenant is a Pyrrhic victory. But motives aside, it is well-settled that federal judicial power ‘is legitimate only in the last resort, as a necessity in the determination of [a] real, earnest, and vital controversy.’… And none exists here.”
The Court concludes that “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” was moot and the case was dismissed without prejudice.
[View source.]
