Chamber Fights For Fracking, Against Pensioners

by Gabriel Slaughter, March 13, 2021

Richard Hamilton Smith—Getty Images

In November 2020, the U.S. Chamber of Commerce’s Chamber Litigation Center filed an amicus curiae brief in a lawsuit between a pension fund for Florida firefighters and a fracking company. 

The Chamber’s argument prioritized the short-term interests of the fossil fuel industry over the urgent need for a sustainable investment system.

The St. Lucie County firefighter pension fund was the plaintiff. They were suing Southwestern Energy Co. They alleged that the company made material omissions in its public business plan (“registration statement”) that was released in tandem with a stock offering in 2015. The stock offering raised $1.672 billion from a variety of investors. However, within 18 months, the company’s stock fell by 39% thanks to undisclosed debts and overvalued drilling assets. This was devastating for the pension fund’s finances.

The Chamber Litigation Center is a pro-corporate legal powerhouse.* To write the brief, it hired Judson O. Littleton from Sullivan & Cromwell, an expensive and politically powerful law firm.

One of the Chamber’s biggest strengths is that it claims to speak for the whole business community. For example, this brief describes the Chamber as:

“the world’s largest business federation. It directly represents approximately 300,000 members and indirectly represents more than three million businesses and organizations of every size, in every sector, and from every geographic region of the country [...] the U.S. Chamber regularly files amicus curiae briefs in cases that raise issues of concern to the nation’s business community.”

But this brief was not in the interests of the larger business community. Despite what the quote suggests, the Litigation Center is not a consensus-driven organization. In the past, it went against the consensus of the Chamber’s wider membership to fight tobacco regulation as well as to support pension deregulation. It is pay-to-play. It sells the Chamber’s brand to impress judges who don’t know better.

The crux of their argument was that ruling for the plaintiff would hamper investment in the Texan economy by encouraging opportunistic litigation against companies. The Chamber argued that if the court ruled for the plaintiff, it would turn “Texas into a ‘shangri-la’ for vexatious ‘33 Act class actions [...] This development will disadvantage Texas businesses that seek access to capital markets.”

Their evidence? First, they cite the NERA economic consulting group. Note that NERA is the privately funded think-tank which wrote the economic policy paper that Trump used to justify leaving the Paris Agreement in 2017. They also cite themselves twice, referring to publications by the U.S. Chamber Institute for Legal Reform.

Notwithstanding their sources, the Chamber’s argument misses a crucial point about our economy, the role of corporations, and the importance of intelligent, long-term investment. In the wake of the financial crisis, a group of the country’s top lawyers - ranging from America’s biggest corporations, to the AFL-CIO, and to the Ontario Teachers’ Pension Plan - came together to re-think and clarify how corporations can play a productive role in society. Despite many disagreements, they agreed on this much:

“the publicly-traded corporation has had unprecedented success in aggregating capital from various sources and putting that capital to use in large scale projects that benefit society. Corporations have created wealth on a scale previously unseen [...] they provide employment, support innovation, purchase goods and services, pay taxes, and support various social and charitable programs which benefit society at large. The corporation’s ability to aggregate capital and commit it over the long term to projects of uncertain but promising outcome is the foundation for these broad benefits.” (Emphasis added).

In other words, corporations can play a positive role when they serve as investment vehicles for long-term projects with “uncertain but promising” outcomes. To state the obvious: investments in the fossil fuel industry are not long-term, and they do not provide promising outcomes.

The fracking industry has seen widespread financial failure for years. In September, 2015, energy analysts at Wells Fargo & Co. said as much as half of the available fracking capacity in the U.S. was sitting idle, because there were so many new entrants to the industry. In July, 2019, the Wall Street Journal reported that almost 180 service companies had filed for bankruptcy since 2015. Those bankruptcies affected more than $57 billion of investment. By 2020, the figures rose to more than 230 bankruptcies, affecting $152 billion of investment. 

The problem? Producers consistently “wooed investors by touting rosy estimates of how much crude oil they could profitably drill,” according to the Washington Post.

This was exacerbated by a culture of fraud pervading the oil and gas industry. In June 2016, the Securities and Exchange Commission charged four companies and eight individuals in an $80 million oil and gas fraud scheme. In August 2017, the SEC charged two people for orchestrating a $15 million scheme, defrauding investors with false promises of returns on investment. In November 2020, the SEC charged the company Covia, which manufactured the fracking mix that was used to break up shale to release hydrocarbons, for fraud. Covia and three of its major competitors also filed bankruptcy that year. Most recently, in January 2021, the SEC opened a probe into Exxon Mobil, because an employee whistleblower told law enforcement that the company was fraudulently overvaluing its Permian Basin assets.

Meanwhile, our increasingly unstable climate suggests that we must rapidly change our energy mix away from fossil fuels to mitigate climate change’s worst effects. As the world’s largest economy and financial powerhouse, the US could, and should, aggressively lead this energy transition. By any rational assessment of the risks posed by climate change, this would be an intelligent investment. It’s worth remembering that, in February 2020, analysts from JP Morgan Chase & Co. - the private bank with the largest global investments in the fossil fuel industry - concluded that climate change is an existential threat to our species. 

Estimates vary, but there is no doubt that the renewable energy investment required to meet the science-based target of less than 2C warming must be very large. A January 2021 study, by energy economists working at the federally-funded Lawrence Berkeley National Laboratory, put the figure at $600 billion per year for the next ten years. Our economy cannot afford to waste hundreds of billions in hydrocarbon pipe dreams: they crowd out this urgently needed investment, and yield barrels which we cannot afford to burn.

The Chamber’s recent brief was the latest piece of the larger legal puzzle protecting the fossil fuel industry from facing this reality. In part thanks to the Chamber’s brief, the court ruled against the plaintiff. The case did not move to discovery, which would have allowed the plaintiff’s lawyers to review the evidence to uncover any fraud. This hurts investors and the general public, because it enables more unwise investment into a financially flagging and socially suicidal industry.

The fossil fuel industry is responsible for the global economy’s most dangerous market externality. For decades, the Chamber has used a unique combination of electioneering, PR, lobbying, and litigation to protect the interests of the fossil fuel industry. This must stop. The Chamber must show real leadership on behalf of the business community by using its unparalleled political ground-game to enable intelligent, large-scale investment into renewable energy.

#ChangeTheChamber

*For the sake of your political education, spend ten minutes reviewing the cases of the Chamber Litigation Center.