Pomerantz and Investors are Spearheading Accountability in the Environmental Space

Jeremy Lieberman and Justin D’Aloia are leading the charge for investors holding corporations accountable for their environmental impacts.

In the last five years, corporate America has undergone a seismic shift as environmental, social and governance (ESG) practices have rocketed up the priority list of shareholder concerns. As scandals in these areas have shaken stock prices, investors are looking to hold corporations accountable for the ethical and social impacts of their policies. Securities litigation is a key tool that investors are utilizing to hold corporations to their ESG commitments.

Leading securities firm Pomerantz has been at the forefront of litigation responding to poor ESG corporate governance. They have an impressive track record in cases concerning complex, hot-button issues in the environmental space. They have represented shareholders who suffered losses related to corporations’ misstatements and failures to disclose material information about their breaches of environmental regulations and the environmental disasters that have sometimes ensued. On behalf of damaged investors, Pomerantz successfully went up against Fiat Chrysler following its emissions cheating scandal and oil giant BP following its historic Gulf of Mexico oil spill. Now, the firm is leading litigations against telecommunications companies for claims related to the environmental and health effects of their lead-sheathed cable networks.

“There are important issues that investors, governments and the financial community care about that go far beyond simply, ‘were the financial statements accurately reported,’” says Managing Partner Jeremy Lieberman. “If a corporation’s misstatements on environmental issues cause financial losses, that corporation should be held accountable and the shareholders should be vindicated. That’s the philosophy we espouse and that is reflected throughout all our cases.”

Pomerantz is the world’s longest-running firm dedicated to investor-side representation, with a nearly ninety-year history of championing investor rights. The firm prides itself on creating precedent-setting case law – shaping the future of securities litigation as it has shaped its past.

Looking at activity in the securities bar and at new government regulations, it’s clear: Environmental practices are of major concern to investors and will continue to make up a significant portion of the bar’s immediate future. The team at Pomerantz is forcefully taking on the mantle.

CURRENT EVENTS: AT&T AND LUMEN

Pomerantz is litigating shareholder claims as lead counsel in separate class actions against major telecommunications companies Lumen Technologies and AT&T. The actions come after historic nosedives in stock prices for both companies following an explosive Wall Street Journal report in July 2023. The report detailed the undisclosed use and abandonment of lead-sheathed cables across the country by the nation’s largest telecom companies, including AT&T and Lumen. The cases allege that the companies were aware of the dangers posed by these cables while simultaneously professing their commitment to good corporate citizenship.

The lead-covered cables were originally placed in the late 19th century; their use was standard practice until the mid-20th century, when telecom companies transitioned to plastic sheathing, and, eventually, to the current fiber optic network. The Journal investigation tallied more than 2,000 abandoned or unaltered lead-covered cables across the country. It concluded that those leftover cables resulted in dangerous lead levels in waterways and surface soil, and posed health hazards to telecom employees and individuals who live near the exposed cables, including customers.

If a corporation’s misstatements on environmental issues cause financial losses, that corporation should be held accountable and the shareholders should be vindicated. That’s the philosophy we espouse.

USTelecom professed in a recent statement that the industry prioritizes the health and safety of its workers and that the science does not indicate that the cables are a public health issue. AT&T, Lumen and Verizon, three of the companies named in the Journal report, are currently working with the Environmental Protection Agency (EPA) as the Agency conducts a multi-stage investigation into the lead cables left behind by these companies.

After the Journal report was published, stocks dipped to 30-year lows. “The market responded with complete shock,” says Justin D’Aloia, the Pomerantz partner leading the cases. In the AT&T case, for example, the firm is representing the New York City Public Pension Funds, which suffered losses of around $102.5M during the class period.

“Through our investigation, we uncovered that these companies had known about the cables and the dangers that they posed for decades,” D’Aloia claims. “They were professing their commitment to environmental stewardship and the safety of their employees while not disclosing the fact that they were, in fact, abandoning these cables across the United States and subjecting their employees to handling the ones that continue to remain in their network to lead exposure.”

D'Aloia joined Pomerantz in 2022 after more than a decade on the securities defense side at Weil, Gotshal & Manges. Ready for a change post-pandemic, D’Aloia joined Pomerantz as a partner in pursuit, he says, of the intellectual freedom a plaintiffs’ practice could provide. He was drawn by Pomerantz’s existing roster of influential institutional clients that were signing on to some of the largest cases in the securities bar, and by the firm’s record of creating new law with cutting-edge legal strategies.

D’Aloia’s work on these particular cases, though, has a more personal connection: The Wall Street Journal article highlighted cable hanging by a middle school in West Orange, New Jersey – just blocks away from his grandmother’s house. “It is such a compelling matter to me,” says D’Aloia, given both the gravitas of the allegations and the intimate connection.

The cases are in early stages, with the Lumen action pending in the Western District of Louisiana and the AT&T case in the Northern District of Texas. “It's obviously a very relevant topic right now, and I couldn't be more excited to be involved in litigation to hold these companies accountable for their misdeeds,” D’Aloia adds.

HISTORIC WINS: BP AND FIAT

The telecom cases involve litigating hot-button topics and going up against household-name corporations. That’s standard practice for Pomerantz lawyers.

In 2019, Pomerantz, as lead counsel, achieved a $110M settlement with automobile company Fiat Chrysler, as well as several of its former executives, in the wake of the company’s safety and emissions regulations scandal.

Plaintiffs alleged that the defendants misled shareholders by claiming that the company was complying with various regulations governed by the National Highway Traffic Safety Administration (“NHTSA”), the EPA and the European Union. As it was ultimately revealed, Fiat Chrysler had long violated NHTSA safety rules by purposefully delaying notifying vehicle owners of defects and failing to repair the defects for months or even years. It was also cheating on emission tests by employing “defeat device” software designed to allow cars to limit emissions of nitrogen oxides while in a testing environment but allowing dangerous amounts of the chemicals to be released under normal driving conditions.

When the violations were disclosed beginning in 2015, Fiat Chrysler’s stock price plunged, damaging investors.

The settlement was achieved after three and a half years of hard-fought litigation. Discovery involved analyzing millions of pages of documents concerning highly complex issues of emissions software programming and resulted in the exchange of reports by eleven experts on issues implicating U.S. as well as European regulations. Pomerantz created precedent-setting case law in defeating each of defendants’ several motions to dismiss the claims. The firm also significantly advanced investors’ ability to obtain critically important discovery from regulators that are often at the center of securities actions.

The SEC is announcing mandates that companies make disclosures regarding their climate impact. “That has been a watershed event," D’Aloia says, "a major recognition by regulators that ESG is truly something that investors care about.”

When Pomerantz sought a deposition from a former employee of NHTSA, the U.S. Department of Transportation (USDOT) denied the request pursuant to the “Touhy regulation,” which controls when private parties may call certain government employees to testify in private litigation. Pomerantz partner Michael J. Wernke, who led the litigation with Lieberman, then filed an action against USDOT and NHTSA arguing that the Touhy regulation only applies to current employees. The court agreed. Wernke explained, “Now, highly regulated entities like USDOT and NHTSA will be unable to stop former employees from being deposed, leading to greater transparency and critical testimony in similar future cases.”

According to Lieberman, the ability to pin the Fiat Chrysler investors’ losses on specific false statements made by the company was central to the success of the case. The company’s warranty liability disclosures contained broad statements asserting their compliance with environmental laws.

“We would say those assertions were not true because they were not complying,” says Lieberman, “but what made the case so successful was that Fiat Chrysler had warranty liability disclosures which were very precise. That’s really the hook in these cases: Can you find a demonstrably false statement, and then convince the court that it’s material because of the exposure and liability that ensues.” Lieberman, Wernke and their team ultimately convinced the court of the specificity of the statements Fiat Chrysler made, which is far from a simple task. “Many times, the court will decide that a corporate statement is too fuzzy; it’s mere puffery,” says Lieberman.

Pomerantz is accustomed to fighting such uphill battles, as it did in another massive environmental win – this time, against BP, with claims arising from the company’s infamous 2010 oil spill in the Gulf of Mexico.

The firm represented investors in BP’s London-traded ordinary shares who were seeking to recover losses in U.S. courts but were barred from doing so by the Supreme Court’s ruling in Morrison v. Nat’l Australia Bank. The groundbreaking win in this case was the first to outmaneuver the restrictions Morrison set on investors.

The hotly contested litigation lasted nine years, with Pomerantz systematically overcoming motions to dismiss in 2013, 2014 and 2017. Each of those wins had its own precedent-setting effects. Defeating BP’s forum non conveniens arguments, for instance, allowed institutional investors from both the U.S. and around the world to simultaneously pursue English common law claims regarding their losses in U.S. courts – which brought Pomerantz clients from Canada, France, the Netherlands, Australia and the U.K., in addition to the U.S.

During the litigation, the firm coordinated multi-year, in-depth discovery efforts to access and compel key information from BP, overseeing review of 425,000 initial documents and 150,000 more from the searches Pomerantz compelled.

Pomerantz persuaded the court to uphold a “holder” claim for stock retained (not purchased) in reliance on the fraud, a type of claim barred under U.S. law for decades since Blue Chip Stamps v. Manor Drug Stores, in 1975. Pomerantz also persuaded the court to reject BP’s attempt to extend the U.S. federal Securities Litigation Uniform Standards Act of 1998 (SLUSA) to reach, and dismiss, its clients’ foreign law claims in deference to non-existent remedies under the U.S. federal securities laws.

After nearly a decade, Pomerantz partner Matthew L. Tuccillo and his team prevailed with a landmark settlement for every one of the firm’s nearly three dozen institutional investor clients, several of which switched their legal counsel to have Pomerantz oversee the latter stages of litigation and settlement. While the terms are confidential, Tuccillo describes them as “highly favorable.” Beyond the monetary recovery, the firm’s work on the case opened a path for investors in foreign-traded securities to pursue recovery in U.S. courts.

BREAKING NEW GROUND IN REGULATIONS
As groundbreaking cases like these continue to be litigated for securities claims, Pomerantz expects to see climate-based securities cases ramping up – and resulting government regulations coming down.

D’Aloia explains that while the primary mechanisms for litigation have remained the same since the explosion of ESG, the SEC is now announcing mandates that companies make disclosures regarding their climate impact. “That has been a watershed event in the area of ESG,” D’Aloia says. “This is a major recognition by regulators that ESG is truly something that investors care about.”

The new SEC regulations, which were announced in March, will require disclosures of climate-related risks that relate to business strategy, operations or financial condition; material impacts of those risks; processes for managing climate-related risks; information on climate-related targets or goals and more.

“It’s a changing framework,” Lieberman says. “The more environmental issues become a concern for the investment community and society at large, the more the SEC is attempting to impose disclosure requirements. Then, all of a sudden, companies face liability under the securities laws or have regulatory issues. In a way, the fact that the issue is organically taking its own shape helps us to litigate these cases.”

With its finger on the pulse of investor concerns, as it has been for more than eight decades, the team at Pomerantz is embracing the moment.

“I don’t see this issue going away,” D’Aloia agrees. “I see it continuing to grow in scale and importance. As facts come out showing that companies are not being consistent or transparent with their environmental disclosures, you’re going to see more and more litigation to hold them accountable.”