City of Birmingham Relief & Ret. Sys. v. ExxonMobil Corp., DOCKET NO. A-4279-17T3

CITY OF BIRMINGHAM RELIEFAND RETIREMENT SYSTEM, Plaintiff-Appellant/Cross-Respondent, v. EXXONMOBIL CORPORATION, Defendant-Respondent/Cross-Appellant.

DOCKET NO. A-4279-17T3

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

Argued March 18, 2019

May 6, 2019

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Before Judges Fasciale and Rose.

On appeal from Superior Court of New Jersey, Chancery Division, Mercer County, Docket No. C-000003-18.

Judith S. Scolnick argued the cause for appellant /cross-respondent (Scott + Scott, attorneys; Judith S. Scolnick, Thomas L. Laughlin, IV (Scott + Scott) of the New York bar, admitted pro hac vice, and Rhiana L. Schwartz (Scott + Scott) of the New York bar, admitted pro hac vice, on the briefs).

Daniel J. Kramer (Paul, Weiss, Rifkind, Wharton & Garrison, LLP) of the New York bar, admitted pro hac vice, argued the cause for respondent/cross-appellant (Day Pitney LLP and Paul Weiss Rifkind Wharton & Garrison, LLP, attorneys; Daniel J. Toal (Paul, Weiss, Rifkind, Wharton & Garrison, LLP) of the New York bar, admitted pro hac vice, Jonathan H. Hurwitz (Paul, Weiss, Rifkind, Wharton & Garrison, LLP) of the New York bar, admitted pro hac vice, Daniel J. Kramer, and Theodore V. Wells, Jr., of counsel and on the brief; Anthony J. Marchetta, Dennis R. LaFiura, and Elizabeth J. Sher, on the briefs).

PER CURIAM

Plaintiff City of Birmingham Relief and Retirement System is a beneficial owner of approximately 60,000 shares of defendant ExxonMobil Corporation's common stock, held in street name through a brokerage firm. Plaintiff is not a shareholder of record nor a holder of trust certificates. After ExxonMobil denied plaintiff's written demands to inspect its books and records, plaintiff filed a summary action in the Chancery Division seeking a judgment permitting inspection.

Plaintiff's verified complaint alleged violations of statutory and common law rights of inspection. Plaintiff alleged "upon information and belief" that ExxonMobil participated in a decades-long surreptitious practice of funding "outside groups" to discredit the scientific community's opinions about climate change. Plaintiff further claimed ExxonMobil's internal scientists nonethelessshared the view "that human-influenced global climate change was real and required a dramatic reduction in the dependence of [sic] fossil fuels."

Accordingly, plaintiff sought "to investigate evidence that Exxon[Mobil]'s management violated state and federal laws by (i) fraudulently funding efforts to deceive the public and government about the risks of global climate change, and (ii) misleading investors about how such risks could harm the [c]ompany." Plaintiff also sought inspection to "potentially" file a shareholder derivative lawsuit.

To support its purpose for inspection, plaintiff's complaint referenced New York Times and Wall Street Journal newspaper articles, reporting the Securities Exchange Commission and New York State Attorney General had commenced separate investigations concerning ExxonMobil's purported wrongdoing regarding "global climate change." Plaintiff's complaint also briefly mentioned similar investigations commenced by the Attorneys General of Massachusetts, California and the Virgin Islands, along with a referral by the Department of Justice to the Federal Bureau of Investigation; and findings by trial courts in Massachusetts and New York compelling ExxonMobil to comply with subpoenas issued by the respective Attorneys General.

Claiming recent revisions to the New Jersey Business Corporation Act barred demand-excused lawsuits, ExxonMobil asked plaintiff to dismiss its action, but plaintiff declined. Thereafter, ExxonMobil filed an answer and asserted several defenses, including lack of standing and a proper purpose for inspection. ExxonMobil also contended plaintiff's demand was overly broad.

Following issuance of an order to show cause (OTSC), both parties filed briefs. Among other things, plaintiff appended an academic article, which generally concluded ExxonMobil "misled non-scientific audiences about climate science[.]" Notably, neither party requested a plenary hearing, as permitted under the OTSC. Following oral argument on April 20, 2018, the trial judge rendered an oral decision, denying plaintiff's application, and entered a memorializing order on May 4, 2018.

Initially, the trial judge determined plaintiff's status as a beneficial owner of ExxonMobil stock did not negate standing to inspect the company's books and records under the common law. The judge did not, however, consider plaintiff's statutory right of inspection.¹

Secondly, the trial judge rejected ExxonMobil's argument that, because plaintiff's purpose for seeking inspection was premised on a potential derivative shareholder lawsuit, its complaint should be dismissed for failure to make the statutorily-mandated written demand on the company.² Instead, the judge determined a potential derivative action was only one aspect of plaintiff's application.

However, in considering whether plaintiff asserted a proper purpose for inspection, the judge found "the crux of the request" was "an interest in climate change[,]" which is "a rather amorphous concept[.]" The judge elaborated that plaintiff's request was "certainly not as specific as the request that was . . . made []in Cain [v. Merck & Co., 415 N.J. Super. 319 (App. Div. 2010)]."

As the trial judge recognized, in Cain, we limited inspection of the defendant company's minutes to its drug trial, but rejected the plaintiffs'application to the extent they sought "to explore unsubstantiated allegations of general mismanagement." Id. at 323. Accordingly, the judge in the present matter found plaintiff's general reference to "climate change" was not "a specific enough request [when compared with a drug trial] . . . to qualify as a proper purpose."

Finally, the judge determined plaintiff failed to present sufficient credible evidence to support its application pursuant to the standards we recognized in Cain. In particular, the judge here rejected plaintiff's evidence, including the researcher's opinions and various governmental investigations, as "nothing more than allegations[,]" which were inadmissible in court proceedings. Having assumed arguendo that the evidence was admissible, the judge nonetheless determined plaintiff's "evidence f[ell] woefully short" of meeting the preponderance of the evidence standard required under Cain. See id. at 332.

Plaintiff now appeals, renewing its arguments that it asserted a proper purpose for inspection, and presented sufficient credible evidence to support its inspection demand. Although plaintiff's purpose for seeking inspection might have been proper, we reject its contention that it presented reliable credible evidence to support its demand. We therefore affirm on that basis.

We begin our analysis by recognizing our well-established standard of review. We will not disturb the factual findings and legal conclusions of a trial judge unless we are convinced those findings and conclusions "are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Tractenberg v. Twp. of W. Orange, 416 N.J. Super. 354, 365 (App. Div. 2010) (internal quotation marks omitted) (quoting Rova Farms Resort, Inc. v. Inv'rs Ins. Co. of Am., 65 N.J. 474, 484 (1974)).

Further, we afford substantial deference to the trial judge's discretion on evidentiary rulings, and reverse only where the judge's ruling was "so wide of the mark that a manifest denial of justice resulted." State v. J.A.C., 210 N.J. 281, 295 (2012) (citation omitted); see also Benevenga v. Digregorio, 325 N.J. Super. 27, 32 (App. Div. 1999). "However, '[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" Tractenberg, 416 N.J. Super. at 365 (alteration in original) (quoting Manalapan Realty, LP v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

Rule 4:67-1(a) permits summary proceedings in "all actions in which the court is permitted by rule or by statute to proceed in a summary manner . . . ."As noted above, N.J.S.A. 14A:5-28 governs a shareholder's right to inspect a company's books and records. Pursuant to subsection (4), "[i]n any action for inspection the court may proceed summarily."

Actions brought in a "summary manner" are distinguishable from summary judgment actions because in a summary action, the court makes findings of fact and accords no favorable inferences to the action's opponent. O'Connell v. N.J. Mfrs. Ins. Co., 306 N.J. Super. 166, 172 (App. Div. 1997), appeal dismissed, 157 N.J. 537 (1998). If the court is "satisfied with the sufficiency of the application, [it] shall order defendant to show cause why final judgment should not be rendered for the relief sought." Courier News v. Hunterdon Cty. Prosecutor's Office, 358 N.J. Super. 373, 378 (App. Div. 2003). (alteration in original) (internal quotation marks omitted) (quoting R. 4:67-2(a)).

Further, summary actions are specifically designed to be expeditious and avoid plenary hearings. Under Rule 4:67-5,

[t]he court shall try the action on the return day, or on such short day as it fixes . . . [i]f . . . the affidavits show palpably that there is no genuine issue as to any material fact[.] . . . If any party objects to such a trial and there may be a genuine issue as to a material fact, the court shall hear the evidence as to those matters which may be genuinely in issue, and render final judgment. At the hearing or on motion at any stage of the action, the court for good cause shown may order the action to proceed as in a plenary action . . .

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