Case 3:19-cv-01067 Document 1 Filed 05/02/19 Page 1 of 142 PageID 1 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION SARAH VON COLDITZ, Derivatively on ) Case No. Behalf of EXXON MOBIL ) CORPORATION, ) ) VERIFIED SHAREHOLDER Plaintiff, ) DERIVATIVE COMPLAINT FOR v. ) VIOLATIONS OF THE FEDERAL ) SECURITIES LAWS, BREACH OF DARREN W. WOODS, ANDREW P. ) FIDUCIARY DUTY, WASTE OF SWIGER, DAVID S. ROSENTHAL, ) CORPORATE ASSETS, AND UNJUST JEFFREY J. WOODBURY, STEVEN S. ) ENRICHMENT REINEMUND, MICHAEL J. BOSKIN, ) SAMUEL J. PALMISANO, KENNETH C. ) FRAZIER, URSULA M. BURNS, ) HENRIETTA H. FORE, WILLIAM C. ) WELDON, REX W. TILLERSON, ) WILLIAM W. GEORGE, LARRY R. ) FAULKNER, DOUGLAS R. ) OBERHELMAN, and PETER BRABECK- ) LETMATHE, ) ) Defendants, ) -and- ) ) EXXON MOBIL CORPORATION, a New ) Jersey corporation, ) ) Nominal Defendant. ) ) ) ) ) DEMAND FOR JURY TRIAL Case 3:19-cv-01067 Document 1 Filed 05/02/19 Page 2 of 142 PageID 2 TABLE OF CONTENTS Page I. NATURE AND SUMMARY OF THE ACTION ...............................................................1 II. JURISDICTION AND VENUE ........................................................................................10 III. THE PARTIES...................................................................................................................11 A. Plaintiff ..................................................................................................................11 B. Nominal Defendant ................................................................................................11 C. Individual Defendants ............................................................................................11 IV. STATEMENT OF FACTS ................................................................................................19 A. Oil And Gas Industry Background ........................................................................19 1. Reporting Requirements For “Proved” Oil And Gas Reserves .................21 2. Capitalized Oil And Gas Projects Impairments .........................................23 3. Oil And Gas Pricing ...................................................................................24 B. Exxon’s Business Operations ................................................................................25 1. Crude Bitumen ...........................................................................................30 2. Natural Gas Expansion ..............................................................................34 C. Oil And Gas Prices Began A Prolonged Slump In 2014 ......................................36 1. Exxon’s Competitors Took Massive Impairment Write-Downs ..............37 2. Exxon Refused To Record Any Impairment Write-Downs .......................39 D. Exxon’s Use Of Proxy Cost Of Carbon .................................................................41 E. Rocky Mount Dry Gas Operations ........................................................................47 F. Canadian Bitumen Operations ...............................................................................51 G. Exxon’s Kearl Operations ......................................................................................53 H. Exxon’s $12 Billion March 2016 Debt Offering ...................................................56 - i - Case 3:19-cv-01067 Document 1 Filed 05/02/19 Page 3 of 142 PageID 3 I. Exxon “De-Books” And Takes $2 Billion Impairment Charge After Its Investment And Valuation Process And Reporting Came Under Fire ..................57 V. DEFENDANTS’ IMPROPER STATEMENTS ................................................................63 A. Defendants’ Misstatements And Omissions ..........................................................63 1. Defendants’ 2014 Misstatements And Omissions .....................................63 2. Defendants’ 2015 Misstatements And Omissions .....................................67 3. Defendants’ 2016 Misstatements And Omissions .....................................76 B. Defendants’ Violations of GAAP and SEC Accounting and Disclosure Rules ....................................................................................................................101 1. Relevant GAAP and SEC Provisions ......................................................102 a. Materiality Of Misstatements And Omissions: SEC Staff Accounting Bulletin No. 99 – Materiality ...................................102 b. ASC 360-10-35, Impairment Or Disposal Of Long-Lived Assets ...........................................................................................104 Trigger Events ..................................................................105 Impairment Testing and Loss Recognition ......................105 c. Proved Reserve Accounting Overview: ASC 932, Extractive Industries: Oil And Gas And SEC Regulation S- X Rule 4-10 ..................................................................................106 d. ASC 275 – Risks And Uncertainties ............................................108 e. SEC Regulation S-K Item 303 – Management’s Discussion And Analysis ................................................................................110 2. Failure To Disclose The Canadian Bitumen Operations Were Operating At A Loss ................................................................................110 3. Failure To Disclose Likelihood That The Kearl Operation Would Not Qualify As Proved Reserves At Year-End 2016 ...............................112 4. Failure To Disclose That Carbon “Proxy Cost” Was Not Used In Processes For The Canadian Bitumen Operations ...................................114 5. Failure To Incorporate A Carbon “Proxy Cost” Into Proved Reserves And Asset Impairment Calculations .........................................116 - ii - Case 3:19-cv-01067 Document 1 Filed 05/02/19 Page 4 of 142 PageID 4 6. Failure To Record An Asset Impairment Charge For Rocky Mountain Dry Gas Operations .................................................................117 VI. DEFENDANTS BREACHED THEIR FIDUCIARY DUTIES ......................................121 A. Derivative Allegations .........................................................................................121 B. Fiduciary Duties ...................................................................................................122 C. Breaches Of Fiduciary Duties Including Demand Refusal ..................................123 VII. CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION ..............128 VIII. Damages to Exxon ...........................................................................................................129 COUNT I .....................................................................................................................................131 Against the Individual Defendants for Breach of Fiduciary Duty ...................................131 COUNT II ....................................................................................................................................133 Against the Individual Defendants for Waste of Corporate Assets .................................133 COUNT III ...................................................................................................................................134 Against the Individual Defendants for Unjust Enrichment ..............................................134 COUNT IV...................................................................................................................................134 Against the Class Action Defendants for Contribution Under Section 10(b) and 21D of the Exchange Act .....................................................................................134 COUNT V ....................................................................................................................................135 Against the Class Action Defendants for Violations of Section 29(b) of the Exchange Act .......................................................................................................135 PRAYER FOR RELIEF ..............................................................................................................136 - iii - Case 3:19-cv-01067 Document 1 Filed 05/02/19 Page 5 of 142 PageID 5 Plaintiff, by her attorneys, submits this Verified Shareholder Derivative Complaint for Violations of the Federal Securities Laws, Breach of Fiduciary Duty, Waste of Corporate Assets, and Unjust Enrichment. Plaintiff alleges the following on information and belief, except as to the allegations specifically pertaining to Plaintiff which are based on personal knowledge. This complaint is also based on the investigation of Plaintiff’s counsel, which included, among other things, a review of public filings with the U.S. Securities and Exchange Commission (“SEC”) and a review of news reports, press releases, and other publicly available sources. I. NATURE AND SUMMARY OF THE ACTION 1. This is a shareholder derivative action brought by Plaintiff on behalf of Nominal Defendant Exxon Mobil Corporation (“Exxon” or the “Company”) against certain of its officers and directors for breaches of fiduciary duties and violations of law. These wrongs resulted in hundreds of millions of dollars in damages to Exxon’s goodwill and business reputation. Moreover, the misconduct has exposed the Company to billions of dollars in potential liability for violations of state and federal law. 2. Exxon’s corporate worth is closely tied to the amount and value of its oil and gas reserves. These