Exxon Mobil world headquarters in Irving, Texas/Katherine Welles/Shutterstock.com Exxon Mobil world headquarters in Irving, Texas. Photo: Katherine Welles/Shutterstock.com

The Manhattan judge who is expected to handle the fraud lawsuit filed against Exxon Mobil by New York Attorney General Barbara Underwood should recuse himself from the case because he holds up to $250,000 in stock in the energy company.

The Attorney General’s Office said in a filing that Manhattan Supreme Court Justice Barry Ostrager of the Commercial Division has somewhere between $100,000 and $250,000 in Exxon Mobil stock, according to his latest financial disclosure form with the Ethics Commission for the Unified Court System.

Assistant Attorney General Jonathan Zweig asked Ostrager in a letter last week to recuse himself from the case because he is an Exxon Mobil shareholder.

“A Justice who is an Exxon shareholder, or was an Exxon shareholder during the period in question, would have economic interests in both the subject matter in controversy and in the party defendant,” Zweig wrote.

It’s actually not the first time Ostrager has been presented with the conflict. He has presided over a separate case involving Exxon Mobil since 2016, when the state filed a petition to compel the oil company to comply with a subpoena. The state has been investigating Exxon Mobil’s representations to investors for more than three years now.

That subpoena, which Ostrager ordered Exxon Mobil and its outside auditor, PricewaterhouseCoopers, to comply with, largely helped deliver the state’s lawsuit against the company announced last week. Underwood’s office alleged the company misled its investors on the financial risks posed by more stringent regulations promulgated to mitigate the effects of climate change.

When Ostrager was assigned to hear the state’s argument for the subpoena in 2016, he first offered to recuse himself given his shares in Exxon Mobil, according to a transcript from a court appearance in the matter.

“So I’m prepared to disqualify myself if that’s the desire of the parties,” Ostrager said at the time. “I’m prepared to continue on the case if the parties are comfortable that I can be impartial.”

Theodore Wells Jr., a partner at Paul, Weiss, Rifkind, Wharton & Garrison who represents Exxon Mobil and PricewaterhouseCoopers, said after a short recess that his clients and the state had agreed to let Ostrager stay on the case.

“I have been authorized to say on behalf of all three parties that we have no objection to your Honor sitting on this case,” Wells said, according to the transcript.

That moment is what Wells is now using to argue against Zweig’s request for Ostrager’s recusal. He wrote in his own letter to the court last week that the waiver, agreed to in 2016, should refute the state’s attempt to get Ostrager off the case two years later.

“NYAG was informed of the potential conflict, and voluntarily waived any objection to it on the record,” Wells wrote. “That affirmative waiver conclusively forecloses NYAG’s eleventh-hour attempt to reassign this case to a justice lacking the Court’s familiarity with these proceedings.”

A spokesman for the Office of Court Administration echoed that argument in a statement on Thursday.

“This has been addressed. At the case’s inception, Judge Ostrager immediately disclosed, on the record, his financial interest in Exxon Mobil stock,” OCA spokesman Lucian Chalfen said. “Made aware, attorneys both for Exxon Mobil, who consulted with their clients, and the Attorney General’s Office waived any objection. Subsequently, the parties have appeared before him multiple times.”

But that was then, and this is now, Zweig indicated in another letter to Ostrager this week addressing the waiver.

He said the investigative phase of the matter is plainly different than the attorney general’s fraud lawsuit against Exxon Mobil. When evaluating the former, Ostrager only had to determine whether there was a factual basis for the investigation. The latter will, instead, require Ostrager to evaluate the merits of a case against a company in which he has stock, Zweig wrote.

“In contrast, in the instant fraud action, the Court will have to adjudicate the merits of OAG’s several causes of action,” Zweig wrote. “When OAG agreed to waive the Court’s conflict for purposes of the subpoena enforcement proceeding, it did not knowingly and expressly waive that conflict for purposes of adjudicating the merits of any claims that it might assert in a subsequent fraud action.”

Zweig also argued that the two matters, while related, are separate. One involved an investigation by the state, and the other is a lawsuit over the company’s alleged fraudulent behavior. A waiver in the first matter means something entirely different than in the second matter, he argued.

“OAG’s waiver in that proceeding did not and could not have operated as a waiver of the Court’s disqualification with respect to a potential fraud action that was in the process of being investigated, and was nonexistent at the time of the waiver,” Zweig wrote. “In fact, at the time of OAG’s waiver, OAG was in the process of its investigation, and had not reached a determination as to whether Exxon’s representations were actionable under New York law.”

Ostrager has not been assigned to the state’s lawsuit against Exxon Mobil yet, but it’s likely that he will be since the two cases are related. In order for another judge to be assigned to the case, he would have to recuse himself from the matter. That doesn’t seem likely, given Ostrager’s response to Zweig’s letter last week.

“If, as Mr. Wells represents, the parties waived any conflict that might inhere by reason of the Court’s ownership of the ExxonMobil shares, the Court is disinclined to recuse itself for the reasons state in Mr. Wells’ letters,” Ostrager wrote. “The Court does not believe that its ownership of the ExxonMobil shared would, in any way, affect the Court’s impartiality in dealing with the issues raised by the recently filed case.”

Ostrager wrote that his shares in the company represent less than 1 percent of his household’s net worth, and that he has not modified his investment in the company since he was assigned to the state’s case on the subpoena two years ago.

The shares are not an insignificant part of his investment portfolio, however. Ostrager’s financial disclosure shows that his investment in Exxon Mobil ranges from 8 percent to 10 percent of his securities outside his retirement account. He owns an additional 2,000 shares in an IRA, he said in 2016.

Wells, meanwhile, argued in an additional letter to the court that Ostrager is well-positioned to hear the state’s lawsuit because he’s already been well-versed in the facts of the case and the arguments presented by both sides.

A spokesman for Exxon Mobil did not immediately respond to a request for comment on Thursday.

READ MORE:

NY AG Lawsuit Says ExxonMobil Misled Investors on Its Climate-Change Regulatory Risk

Underwood, Coalition of State AGs Promise Lawsuit Over EPA’s Fuel Efficiency Rollback

Underwood Promises Lawsuit Over EPA’s Latest Obama-Era Rollback