When we last checked in on the ExxonMobil litigation against Arjuna Capital, LLC and Follow This—in which Exxon sought a declaratory judgment that it may exclude the two defendants’ proposal from its 2024 annual meeting proxy statement—the Federal District Court for the Northern District of Texas had just dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but allowed the case against Arjuna to proceed on the basis of both subject matter and personal jurisdiction. (For background on this case, see this PubCo post.) The two proponents had contended that, because Arjuna and Follow This had withdrawn their proposal and promised not to refile, there was no live case or controversy. As a result, they asserted, Exxon’s claim was moot, and the Court had no subject matter jurisdiction. However, the court held that Exxon had the “winning argument,” 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.” 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.’” After the decision was rendered, Arjuna submitted a letter to Exxon in which Arjuna “unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change.” End of story? Not quite.
On Friday, Exxon filed a response contending that “Arjuna’s second attempt, although broader than the first, likewise fails to moot the case.” Arjuna, Exxon argues, has failed to satisfy its “formidable burden” of showing it is “absolutely clear” “that the 2024 Proposal will not resurface.” Given the second letter from Arjuna, why is the case not moot? Citing Fifth Circuit precedent, Exxon argues that “[v]oluntary cessation of an action cannot moot a case if ‘there is no controlling statement of future intention, the change in conduct is suspiciously timed, and the defendant continues to defend the challenged behavior.’” Here, Exxon contends, there is no controlling statement of future intent—the proposal could still resurface. For example, as it has in the past, Arjuna could coordinate or collude with another activist behind the scenes to submit a substantially similar proposal, perhaps through the Interfaith Center on Corporate Responsibility, of which Arjuna is a member. Or Arjuna could act as a representative of another shareholder. Given Arjuna’s mission and history of submitting proposals, Exxon asserts, “this is ‘far from a ‘sky-is-falling’ hypothetical.’”
In addition, Exxon contends that “Arjuna ‘continues to defend’ the propriety of the 2024 Proposal as not excludable under the SEC’s Ordinary Business and Resubmission Rules [cite omitted], claiming that it was ‘consistent with, and indeed necessary for, securing future financial success’ and characterizing this lawsuit (and ExxonMobil’s motives) as an ‘assault on the system of shareholder democracy,’…. Its continued defense of the 2024 Proposal deprives ExxonMobil of the relief that it seeks—’a legal determination of excludability,’…and demonstrates that there remains a live ‘dispute over the legality of the challenged practices.’” Arjuna, Exxon asserts, alleges that Exxon’s “‘management and the Board have abandoned any commitment to good governance.’” Further, Arjuna “goes to the extreme of working with activist organizations of which they are a member to call on shareholders to vote against ExxonMobil’s directors.” All of that conduct, Exxon argues, “undermines Arjuna’s assertion that this case is moot.” Effective relief, Exxon argues, will come only from a declaratory judgment that Exxon has the right to exclude the proposal.
Further, Exxon maintains, in light of Arjuna’s continued defense of its proposal, the new letter is “suspiciously timed,” confirming “that it is purely litigation tactic, not a genuine change of position.”
Moreover, Exxon contends, Arjuna’s letter does not render the case moot because it is no more than “a unilateral promise” dressed up as an “‘irrevocable’ ‘covenant,’” not an enforceable contract or binding judgment. In short, “there has been no ‘meeting of the minds’ between the parties about the scope of relief.” Exxon reveals that, following Arjuna’s letter, it sent a response to Arjuna “identifying the terms Arjuna needed to commit to in order to provide ExxonMobil the relief it seeks in this case…. Those include: an admission that the proposal is excludable under both the SEC’s Ordinary Business and Resubmission Rules; an agreement not to act as a representative for, or coordinate with, Follow This or other shareholders in submitting the same or similar future proposals; and agreeing to a stipulated judgment that the Court could enter and enforce.… Arjuna has not yet agreed to these terms.” Unless Arjuna’s letter is transformed into a binding judgment enforceable by the court, Exxon maintains, the chance of resubmission remains live. As it stands, Arjuna’s promise is not “backed by the preclusive effect of a judgment on the merits”; dismissing the case on purely jurisdictional grounds would not suffice.
In conclusion, Exxon asks the Court for three forms of relief: first, declaratory relief in the form of “a legal determination of excludability” under the Ordinary Business and Resubmission Rules; second, declaratory relief that would “‘elucidate Exxon’s rights regarding the 2024 Proposal’ so ExxonMobil knows it has the right to exclude the proposal if another shareholder submits it”; third, “the Court could order Arjuna not to act as a representative of any ExxonMobil shareholder in resubmitting the 2024 Proposal or any substantially similar proposal. The Court could also order Arjuna not to work behind the scenes with ICCR, Follow This, and other activist shareholders to resubmit such a proposal.”
In the end, Exxon asserts, “Arjuna should not be allowed to so easily deprive ExxonMobil of its ‘right to a declaratory judgment.’…Its promise is both too narrow and too uncertain.” If the court were to dismiss this case as moot, it would just “embolden” others to flood Exxon and other public companies with “improper shareholder proposals, knowing they always have ‘a get-out of-court-free card’ in their back pockets,…and a regulator supporting their efforts.” A dismissal would also deter companies from seeking relief from the courts and “cede the field to the SEC’s flawed shareholder proposal and proxy voting process. ExxonMobil, public companies, shareholders, and the SEC would all benefit from this Court’s application of the Ordinary Business and Resubmission Rules to the 2024 Proposal in this live case or controversy.”
Now the question is: how will the court respond?
