# Yoshikawa v. Exxon Mobil Corporation

> District Court, N.D. Texas · September 29, 2022

URL: https://www.frixlaw.com/law-library/cases/10451923

## Case

- **Court:** District Court, N.D. Texas
- **Decided:** September 29, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10451923

## How later opinions describe it (automated extraction)

- finding cautionary language inadequate because defendants “recognized signs that those risks had already materialized”
- finding that statements that defendants “have got to show more progress” and “need to do something to fix” revenue numbers were insufficient to support an inference of scienter because of lack of identifying details about the source
- finding that broad statements regarding Blockbuster’s plans for the business’ future direction were nonactionable puffery
- finding trades of 17.8% and 12.4% not suspicious

## Opinion text

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

MENDI YOSHIKAWA, et al., §
§
Plaintiffs, §
§
v. § Civil Action No. 3:21-CV-00194-N
§
EXXON MOBIL CORP., et al., §
§
Defendants. §

MEMORANDUM OPINION AND ORDER
This Order addresses Defendants’ Motion to Dismiss filed on November 24, 2021
[69]. For the reasons stated below, the Court grants the motion and gives Plaintiffs leave
to amend, if it is possible to do so, in a manner consistent with this opinion.
I. THE ORIGINS OF THE DISPUTE
This is a federal securities putative class action on behalf of all persons and entities
who purchased or otherwise acquired Exxon Mobil Corp. (“ExxonMobil”) common stock
(“XOM”) between March 7, 2018 and January 15, 2021 (the “Class Period”). See
Amended Complaint 1–2 [53] (“Compl.”). In January 2017, ExxonMobil purchased
additional oil and gas assets in the Permian Basin in January 2017, and it announced an
“aggressive growth strategy” for the region in 2018. Compl. ¶¶ 3, 49, 51, 54–56.
Throughout 2018 and 2019, ExxonMobil forecast strong progress toward its goal of
producing 1 million oil-equivalent-barrels per day in the Permian by 2024. Id. ¶¶ 232, 238,
350, 400, 405, 415, 425. But on January 31, 2020, ExxonMobil disclosed that Permian
barrel-per-day production was essentially flat quarter-over-quarter, and in May 2020, it
announced infrastructure and expenditure cuts in the region. Id. ¶¶ 439, 444. On January
15, 2021, the Wall Street Journal reported that the SEC was investigating ExxonMobil’s

valuation of its Permian Basin assets in response to a fall 2020 whistleblower complaint.
Id. ¶ 448. The XOM price per share dropped 4.1, 7.2, and 4.8 percent immediately
following each respective announcement. Id. ¶¶ 440, 445, 449.
Plaintiffs1 bring suit under Section 10(b) of the Securities and Exchange Act and
Rule 10b-5 against ExxonMobil and several of its personnel, Darren Woods, Neil

Chapman, Jack Williams, Neil Hansen, David Rosenthal, Liam Mallon, Jeffrey Woodbury,
and Sara Ortwein (the “Individual Defendants”). Plaintiffs also bring suit under section
20(a) of the Securities and Exchange Act against Woods, Rosenthal, and Chapman as
control persons of Exxon. Plaintiffs allege that Defendants committed securities fraud by
both affirmatively misrepresenting the success of its Permian Basin drilling project and

omitting material information about the project’s obstacles.
A. Statements that Production Goals Were “On Track”
Over the course of the Class Period, Defendants stated several times that
ExxonMobil was “on track,” “on plan,” or “on schedule” to meet its 2024 1-million-barrel
goal. Id. ¶¶ 232, 238, 350, 400, 405, 415, 425. Plaintiffs contend that these statements

1 “Plaintiffs” refers to co-lead plaintiffs, The State of Rhode Island, Office of the General
Treasurer, on behalf of the Employees’ Retirement System of Rhode Island (“Rhode
Island”) and Amalgamated Bank.
were misleading because there were numerous problems with the Permian project that
made ExxonMobil’s 2024 goal impossible. Id. ¶¶ 166–70.
B. Statements Regarding Proved Reserves

ExxonMobil several times attributed increases of its Proved Reserves to its Permian
Basin activity. Id. ¶¶ 54, 140, 235. The Generally Acceptable Accounting Principles
(“GAAP”) and SEC regulations specify how to determine Proved Reserves; Plaintiffs
allege that Defendants intentionally inflated ExxonMobil’s Proved Reserve calculations by
using overly optimistic assumptions about drilling time. Id. ¶¶ 60–62.

C. Statements Regarding the Permian Resource Base
Defendants also made several statements about ExxonMobil’s Permian Resource
Base, which is its proved reserves “plus other discovered resources that are expected to be
ultimately recovered.” Id. ¶¶ 90, 138, 145. Plaintiffs contend that Defendants knowingly
published misleading Resource Base estimates based on the erroneous drilling time

assumptions and never properly revised them down. Id. ¶¶ 124–27, 138–40, 177.
D. Statements and Omissions Regarding Production Conditions
Defendants often made statements about ExxonMobil’s processes and assets in
general terms, such as describing its position as “unique,” announcing “increased” drilling,
or calling its wells “the best.” Id. ¶¶ 355, 359, 233. Plaintiffs allege that these statements,

coupled with a failure to disclose the project’s obstacles, created a false impression of
success in the Permian. Id. ¶¶ 362, 404, 418, 435.
E. Failure to Disclose Additional Information Alongside Data Presentations
During a 2018 Analyst Meeting, Defendants displayed a chart comparing
ExxonMobil’s U.S. production to that of its competitors and presented that it demonstrated

its “unique position in getting value out of the Permian.” Plaintiffs argue that the slide was
misleading because it included non-Permian data and failed to state that competitors
performed better than ExxonMobil in drilling time, production, well performance, and well
quality. Id. ¶¶ 57, 81–88, 356.
F. The Motion to Dismiss

Defendants move to dismiss the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) on several grounds, including the following: (1) Plaintiffs have engaged
in impermissible group pleading, failing to allege scienter adequately as to each Defendant;
(2) the “on track” statements are protected by the Private Securities Litigation Reform
Act’s (“PSLRA”) safe harbor provision, 15 U.S.C. § 78u–5; (3) Plaintiffs have not pleaded

with particularity that the Proved Reserves or Resource Base figures were incorrect; and
(4) its generic statements about processes and assets were “soft” statements that are
immaterial.
II. PLAINTIFFS HAVE NOT CREATED A STRONG INFERENCE OF SCIENTER
Federal Rule of Civil Procedure 9(b) requires complaints alleging fraud or mistake

to state claims with particularity, or set forth “the ‘who, what, when, where, and how’ of
the events constituting fraud or mistake.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333,
339 (5th Cir. 2008) (quoting ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 350
(5th Cir. 2002) (internal quotations omitted)). The PSLRA incorporates Rule 9(b)’s
particularity requirement, and courts pay careful attention to allegations made on
information and belief, as Plaintiffs have done here, to ensure that they have carried their
burden to “state with particularity all facts on which that belief is formed.” ABC Arbitrage,

291 F.3d at 350 (quoting 15 U.S.C. § 78u-4(b)(1)) (emphasis in original).
The PSLRA further specifies that Plaintiffs must plead facts “giving rise to a strong
inference that the defendant acted with the required state of mind.” 15 U.S.C.
§ 78-u4(b)(2). The state of mind requirement is scienter: an “intent to deceive, manipulate,
or defraud or severe recklessness.” Owens v. Jastrow, 789 F.3d 529, 535–36 (5th Cir.

2015) (quoting Lormand v. US Unwired, Inc., 565 F.3d 228, 251 (5th Cir. 2009) (internal
quotation marks omitted)). Severe recklessness is a high bar, “limited to those highly
unreasonable omissions or misrepresentations that involve not merely simple or even
inexcusable negligence, but an extreme departure from the standard of ordinary care.”
Abrams v. Baker Hughes Inc., 292 F.3d 424, 430 (5th Cir. 2002). The “danger of

misleading buyers or sellers” must be “either known . . . or . . . so obvious that the
defendant must have been aware of it.” Id. A strong inference of scienter is one that is
more than merely reasonable; it is “cogent” and “at least as compelling as any opposing
inference one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 324 (2007).

A. Plaintiffs Improperly Rely on Group Pleading
Plaintiffs must “distinguish among those they sue and enlighten each defendant as
to his or her particular part in the alleged fraud.” Southland Sec. Corp. v. INSpire Ins.
Solutions, Inc., 365 F.3d 353, 365 (5th Cir. 2004) (emphasis in original). Allegations
against the Defendants as a group, without more specific connections between an
individual Defendant and an allegedly fraudulent statement, should be disregarded.
Owens, 789 F.3d at 537–38. Scienter must be shown as to each Defendant, and group

allegations “are not properly imputable as to any particular defendant.” Id. at 537.
Plaintiffs’ allegations, while detailed, are largely impermissible group pleading.
1. Employee Groups. – The Complaint frequently refers to “senior ExxonMobil
management,” “corporate officials,” “executives,” or similar terms when describing who
had access to certain records or performed certain review functions. See, e.g., Compl.

¶¶ 253, 256, 261, 263, 267. In doing so, Plaintiffs contend that because Defendants
belonged to those categories of personnel who had record access or review responsibilities,
it is proper to infer that Defendants in fact accessed records or signed off on documents
containing information that rendered the disputed statements false and misleading.
Plaintiffs argue that, at the very least, the Defendants were severely reckless in not noticing.

Id. at ¶ 269. But it is well established that an officer’s position on its own is insufficient to
support an inference of scienter, Abrams, 292 F.3d at 433, barring special circumstances
which are inapplicable here.2 Plaintiffs must go further to explain which specific
individuals personally knew or failed to apprehend what information and when in order to
allege the necessary state of mind with particularity.

2 This is the core operations theory of scienter, discussed further infra Part II.A(4).
2. Common Knowledge. – Plaintiffs contend that the Defendants spoke with intent
or severe recklessness when they used the “green blob” slide3 demonstrating the 2024 1-
million-barrel goal because it was “common knowledge throughout the company” that the

goal was not achievable. Compl. ¶ 278. But allegations that certain practices or
information are common knowledge are “too vague and conclusory to support a finding
that defendants knew they were making false statements or made those statements with
reckless disregard for their truth or falsity.” Callinan v. Lexicon Pharma., Inc., 479 F.3d
379, 432 (S.D. Tex. 2020) (quoting In re Citigroup Inc. Sec. Litig., 753 F. Supp. 2d 206,

245 (S.D.N.Y. 2010)).
3. Corporate Culture. – Plaintiffs also allege that the Individual Defendants
operated as a “God Pod” and created pressure downwards through the company not to ever
take write-downs of its reserves. Compl. ¶¶ 96–97. Courts are mixed on their treatments
of culture allegations; some have found that “tone at the top” can support scienter, while

others have said that tone is less plausible than other inferences, such as typical
mismanagement. Compare Luna v. Marvell Tech. Grp., 2017 WL 2171273, at *4–5 (N.D.
Cal. 2017) with In re Hertz Global Holdings Inc., 905 F.3d 106, 121 (3d Cir. 2018). Tone
can be circumstantial evidence that supports an inference of scienter, but it cannot replace
particularized allegations as to each Defendant as required by the group pleading rule.

Plaintiffs still must connect each Defendant to the tone or culture issues, which they have

3 In various presentations, Exxon Mobil used what it referred to internally as “the green
blob” to show how it expected to scale its production in the Permian. The trajectory begins
in 2015, grows steadily before trending sharply upward in 2019, and rounds out from 2021
to 2025. The area under the curve, shown in green, resembles a wedge or blob.
not done with particularity. See, e.g., Ind. Elec. Workers’ Pension Trust Fund IBEW v.
Shaw Group, Inc., 537 F.3d 527, 537 (5th Cir. 2008) (finding that statements that
defendants “have got to show more progress” and “need to do something to fix” revenue

numbers were insufficient to support an inference of scienter because of lack of identifying
details about the source).
4. Core Operations. – Typically, plaintiffs may not infer that defendants must have
been aware of their misstatements based on their positions within the company.
Crutchfield v. Match Group, Inc., 529 F. Supp. 3d 570, 603 (N.D. Tex. 2021). However,

under the core operations doctrine, in special circumstances, plaintiffs may do so. It is the
rare case where core operations doctrine is applicable. Courts consider: (1) the size of the
company; (2) whether the transaction at issue is critical to the company’s continued vitality;
(3) apparentness of the alleged misrepresentations to the speaker; and (4) internal
inconsistencies among the defendants’ statements. Local 731 I.B. v. Diodes, Inc., 810 F.3d

951, 958–59 (5th Cir. 2016). The special circumstances do not guarantee an exception, but
“might tip the scales in favor” of scienter. Id. (emphasis added).
At any rate, none relates to this case. ExxonMobil is not a small company, and size
alone can render the exception inapplicable. See In re Plains All Am. Pipeline, L.P. Sec.
Litig., 245 F. Supp. 3d 870, 924 (S.D. Tex. 2017) (“Plains I”) (finding that the defendant

having approximately 5,000 employees during the class period and a large and complex
business took the case outside the scope of the exception). Plaintiffs also have not pleaded
that any of Defendant’s statements were internally inconsistent. Further, Plaintiffs’
allegations that ExxonMobil “centered” the Permian Basin assets in its turnaround plans
lack the particularity necessary to establish that the project was “critical to the company’s
continued vitality.” Compl. ¶ 52. Finally, Plaintiffs cannot use the exception for “readily
apparent” information, without more, to bypass its failure to plead exactly that — that

Defendants must have been aware of certain information by virtue of their positions within
the company. See Crutchfield, 529 F. Supp. 3d at 604.
5. Miscellaneous Arguments. – Plaintiffs also allege that ExxonMobil is using
nondisclosure agreements and terminating employees to silence opposition, supporting an
inference of scienter. But these allegations are not sufficiently particularized.

Nondisclosure agreements are legal and quite common; Plaintiffs must go beyond broad
speculation, such as by pointing to specific examples of interference with employees’
interactions with regulatory bodies, silencing employees from speaking about the
company’s true activities, or illegal retaliatory termination, which they have not done. See,
e.g., Diodes, 810 F.3d at 960 (finding no inference of scienter based on early shipping of

orders because it was a “legal practice” “supported by ‘any number of legitimate reasons,’”
which “usually does not support a strong inference of scienter”).
Moreover, several courts have held that SEC investigations are relevant to scienter,
but insufficient to support a strong inference on their own. See, e.g., Carlton, 184 F. Supp.
3d at 480–81 (citing Konkol v. Diebold, Inc., 590 F.3d 390, 402 (6th Cir. 2009), abrogated

on other grounds by Frank v. Dana Corp., 646 F.3d 954 (6th Cir. 2011)); In re Ceridian
Corp. Sec. Litig., 542 F.3d 240, 248–49 (8th Cir. 2008). The decision to investigate is
somewhat relevant, but so is the fact that the investigation has since been closed. Def.
Reply App. 3 [77].
B. Plaintiffs’ Allegations as to Each Individual Defendant Do Not Establish Scienter
With the group allegations addressed, the Court turns to the contentions as to each
Defendant, first one by one, then holistically. See Owens, 789 F.3d at 537.

1. Defendant Woods. – Among the individual Defendants, Plaintiffs set out the most
substantial contentions against Darren Woods, ExxonMobil’s Chief Executive Officer
(“CEO”) and Chairman of the Board of Directors. They allege that he signed a public
letter, signed several of ExxonMobil’s filings with the SEC, and made several public
statements about ExxonMobil’s success in the Permian with knowledge that drilling times,

production rates, and resource estimates were worse than ExxonMobil was indicating.
Compl. ¶ 474. To establish Woods’ state of mind, Plaintiffs allege that: (1) he and other
Defendants spoke about their knowledge of the Permian Basin business; (2) he, other
Defendants, and the Public Issues and Contributions Committee (“PICC”) visited the
Permian site, which would have exposed him to the project’s obstacles; (3) he regularly

communicated with “executives,” and Defendant Melissa Bond was an executive who
Plaintiffs allege instructed employees to use false drilling assumptions; (4) he had access
to reserves and production data; (5) he was motivated by his compensation package to
make ExxonMobil perform; and (6) he signed Sarbanes–Oxley certifications. Id. at ¶¶ 122,
130, 257, 267, 270–73, 309–11.

These contentions are insufficient because they fail to raise an inference that Woods
in fact learned of or was severely reckless in failing to discover the allegedly falsified
valuations or technical issues with drilling. First, the challenged statements of the
Defendants’ knowledge about the Delaware Basin4 region were vague references to their
level of understanding; Defendants said they were learning about the resource “rapidly,”
“improving” their understanding, and “working very hard to delineate” it. Id. at ¶ 281–83.

Plaintiff has not alleged any facts suggesting that Defendants did not believe these
statements, such as by pointing to internally inconsistent statements.5 Nor has Plaintiff
explained how making these statements was severely reckless. The Court agrees with
Defendants that these statements were “innocuous.” Def. Mot. to Dismiss Brief 40 [69].
Additionally, Plaintiffs have not set forth any facts detailing the itinerary of the site

visit. Id. at ¶¶ 270–73. Without knowing more about the duration of the visits, what the
Defendants and the PICC saw while there, or with whom they spoke, it is implausible to
infer that the site visit necessarily advised Woods of all the issues Plaintiffs allege. See
McNamara v. Bre-X Minerals Ltd., 197 F. Supp. 2d 622, 695–97 (E.D. Tex. 2001) (finding
that highly detailed site visits involving laboratory tours and sample analysis were

insufficient for scienter, showing “at most . . . negligence.”).
Similarly, taking as true Plaintiffs’ allegations regarding Bond, Plaintiffs still have
not pleaded facts connecting Woods to Bond’s conduct. Plaintiffs “cannot simply point to
the fact that some other person at the corporation knew of facts that make [a] statement

4 The Delaware Basin is an area within the larger Permian Basin.
5 Plaintiffs are correct that scienter does not have an “inconsistent statement requirement”
for scienter, Pls.’ Response Brief [75] 36, but without one, Plaintiffs must allege other facts
that suggest that a Defendant spoke with intent or severe recklessness. Evidence
suggesting that the statements were false and misleading, such as Plaintiffs’ Expert’s
analysis, goes to materiality; it cannot provide insight into Defendants’ states of mind, at
least without relying on improper “should have known” inferences, discussed infra.
misleading and impute that knowledge” to Woods as a speaker. Plains I, 245 F. Supp. 3d
at 892. To support scienter on this basis, Plaintiffs must be able to allege with particularity
that Bond actually informed Woods that the reports were being manipulated or that Woods

was severely reckless as to their falsity. In re Plains All Am. Pipeline, L.P. Sec. Litig., 307
F. Supp. 3d 583, 64 2 (S.D. Tex. 2018) (“Plains II”). In either case, Plaintiffs must set
forth additional details about Bond’s and Woods’ communications. Plaintiffs have asserted
only that Bond was an executive and that Woods regularly communicated with executives.
That plausibly includes her, but Plaintiffs fail to do more than speculate that these

communications must have covered the alleged falsification of the reserves calculations.
Compl. ¶ 257. It is true that “significant contact” between the two is not required, Response
Br. 41, but even “direct and steady contact” does not give rise to an inference of scienter,
and nor does reporting structure, without more. Plains II, 307 F. Supp. 3d at 642.
Because the Complaint lacks details about Bond’s and Woods’ interactions,

Plaintiffs also have not alleged with particularity that Woods departed from the ordinary
standard of care in their working relationship, if one existed. Further, Plaintiffs may rely
on confidential witness statements which have an adequate basis, ABC Arbitrage, 291 F.3d
at 353, but it is unclear from the pleadings how Former Employee 4 (“FE4”) would have
specific knowledge of Bond’s and Woods’ communications. Compl. ¶ 129, 257.

Plaintiffs’ record access arguments do not create a strong inference of scienter
either; courts in this Circuit have consistently held that “simply pleading that a defendant
had access to internal information that contradicted his or her public statements is not
enough.” Plains II, 307 F. Supp. 3d at 616. See also, e.g., Jacobowitz v. Range Resources
Corp., 2022 WL 976003, at *16 (N.D. Tex. 2022), In re BP p.l.c. Sec. Litig., 843 F. Supp.
2d 767, 817 (S.D. Tex. 2012), In re Dell Inc., Sec. Litig., 591 F. Supp. 2d 877, 902–903
(W.D. Tex. 2008). For the same reasons that Bond’s purported knowledge cannot be

imputed to Woods without facts supporting that link, neither can the knowledge in the
records themselves.
Nor can knowledge be presumed based on Woods’ position within Exxon, as
already discussed. To establish Woods’ state of mind, Plaintiffs must plead facts
connecting specific documents containing the allegedly false information with actual

notice or recklessness on Woods’ part. Dell, 591 F. Supp. 2d at 894. Plaintiffs allege that
Woods had access to vast amounts of ExxonMobil records and perhaps was part of the
“senior management” to whom twice-daily drilling reports were sent. Compl. ¶ 264. But
they have not alleged any specifics about when Woods actually accessed these records or
if he discussed their contents with anyone; they have not contended that close review of

these records was within the scope of his position and that he was severely reckless to not
discover their contents. Plaintiffs do not distinguish between the Individual Defendants
and their respective responsibilities when they describe the report review process. Id. at
¶ 260.
The difficulty with alleging falsified records is that Plaintiffs must explain how

Woods would or should have discovered that they were incorrect, and they have not done
so here. See BP p.l.c, 843 F. Supp. 2d at 783 (finding scienter for CEO who made numerous
specific statements about process safety goals, identified himself as the “key individual”
tracking progress, and implemented and attended safety courses), In re Netsolve, Inc. Sec.
Litig., 185 F. Supp. 2d 684, 697 (W.D. Tex. 2001) (finding that top officers “must have
been aware” of accurate records of declining sales with the company’s primary customer
based on specific allegations about their roles in corporate functions); Neiman v. Bulmahn,

854 F.3d 741, 748 (5th Cir. 2017) (finding that scienter was not established by mere receipt
of reports without supporting allegations that the defendant read the relevant information).
Plaintiffs’ compensation structure arguments go only to “allegations of motive,”
which cannot create an inference of scienter alone. Diodes, 810 F.3d at 957. Were it true
that incentive compensation sufficed, “the executives of virtually every corporation in the

United States would be subject to fraud allegations.” Abrams, 292 F.3d at 434. This type
of circumstantial evidence “can enhance the strength of the inference of scienter,” Diodes,
810 F.3d at 957, but requires further factual basis than Plaintiffs have alleged.
The same is true for the signing of Sarbanes–Oxley certifications. The PSLRA does
not create strict liability for any allegedly incorrect statement in an SEC filing; the Plaintiffs

must plead facts establishing Woods’ severe recklessness or intent to defraud. Inferring
scienter from a Sarbanes–Oxley certification is appropriate only “if plaintiff has alleged
the defendants had reason to know the financial statements contained material
misstatements because of obvious accounting irregularities or other red flags.” Ramirez v.
Exxon Mobil Corp., 334 F. Supp. 3d 832, 854 (N.D. Tex. 2018) (citing Cent. Laborers’

Pension Fund v. Integrated Elec. Servs. Inc., 497 F.3d 546, 555 (5th Cir. 2007)). Plaintiffs
have not alleged that the certifications contained any issues glaring enough to alert Woods
to the potential for the filings to be misleading.
Taken together, Plaintiffs’ allegations against Wood are largely circumstantial and
lack facts suggesting that he was informed of the issues that Plaintiffs contend made his
statements false. And while Plaintiffs are correct that actual knowledge is not the only path

to scienter, Response at 44, they have also not created an inference that Woods was
severely reckless; the Complaint does not set out facts alleging the ordinary standard of
care for someone in Woods’ position or that he extraordinarily departed from it.
Accordingly, the inferences opposing scienter outweigh those in support.
2. Defendants Chapman and Williams. – Plaintiffs assert that Defendants Neil

Chapman and Jack Williams, Senior Vice Presidents at Exxon, made several statements
and omissions regarding ExxonMobil’s Permian Basin activities that were fraudulent or
misleading. Compl. ¶ 474. To establish scienter, Plaintiffs raise some of the same
allegations they made against Woods: (1) Chapman’s referring to his understanding of the
Permian; (2) Williams’ reference to well quality and his attendance at the Permian site

visit; (3) their role as “senior management” in reviewing reserve reports; and (4) their
compensation structure. Id. at ¶ 282, 290, 294.
For the same reasons discussed with respect to Woods, these contentions do not
create an inference of scienter. Plaintiffs have not alleged facts demonstrating that
Chapman spoke with intent or severe recklessness about his “understanding” of the

Delaware Basin resource, nor Williams about well quality, and their financial incentives
for ExxonMobil to perform are weak circumstantial support. Further, as already discussed,
state of mind cannot be presumed from mere position or access to records. And as with
Woods, Plaintiffs have not alleged with sufficient differentiation between Defendants that
either Chapman or Woods actually viewed records rendering their statements false and
misleading, that they regularly viewed similar records, or that adequately performing their
roles would have required them to do so.

3. Defendants Mallon, Hansen, and Rosenthal. – Plaintiffs assert that Defendants
Liam Mallon, Neil Hansen, and David Rosenthal participated in the alleged scheme to
deceive investors, and that their states of mind can be established by suspicious insider
stock sales during the Class period. Id. at ¶¶ 299–306. Insider trading is “probative of
scienter” when done “in suspicious amounts or at suspicious times.” Abrams, 292 F.3d at

435. The Court looks to whether trades are out of line with prior practice or timed to
maximize personal profit as well as the size of the trades. Id.
These trades were not suspicious. Mallon traded 16% of his portfolio during the
Class Period, Rosenthal traded 8%, and Hansen traded 25%. Compl. ¶¶ 299–306. These
amounts are consistent with trades this Court has previously considered insufficient to

establish scienter. Congregation of Ezra Sholom v. Blockbuster, Inc., 504 F. Supp. 2d 151,
165 (N.D. Tex. 2007) (finding trades of 17.8% and 12.4% not suspicious) (citing In re Sec.
Litig. BMC Software, Inc., 183 F. Supp. 2d 860, 901–902 (S. D. Tex. 2001) (finding 22%
trade insufficient)). The trades that took place within a two-month window of the January
2020 corrective disclosure were even smaller portions of the Defendants’ portfolios—3%

for Rosenthal and 7% for Hansen. Def. Br. [69] 39. Further, Plaintiffs have not alleged
that the other individual Defendants made suspicious trades, and typically, the “fact that
the other defendants did not sell their shares during the relevant class period undermines”
scienter. Nathenson v. Zonagen Inc., 267 F.3d 400, 421 (5th Cir. 2001). Indeed, it seems
implausible that some Defendants and not others would profit from the securities fraud
scheme in which all Defendants are allegedly acting in concert to artificially inflate share
prices. Without more beyond the stock trades, Plaintiffs have not established a strong

inference of scienter as to Defendants Mallon, Hansen, or Rosenthal.
Plaintiffs’ allegations as to Rosenthal regarding his signature on the Sarbanes–
Oxley certifications fail to create scienter for the same reasons explained previously with
respect to Woods.
4. Defendant Woodbury. – Plaintiffs allege that Defendant Jeffrey Woodbury,

former ExxonMobil VP of Investor Relations and Secretary, made fraudulent or misleading
statements on an earnings call about progress on Permian objectives. Plaintiffs have not
made any allegations as to Woodbury individually; he is named as one of the “Executive
Defendants,” but that term refers to various groupings of the Defendants throughout the
Complaint. See Compl. ¶ 281 (naming the Executive Defendants at Part I, but only

referring to Woods, Chapman, Hansen, and Williams by name). Without any clear,
individual references to how Woodbury spoke with intent or severe recklessness, Plaintiffs
have failed to enlighten him as to his particular part in the alleged fraud. Southland, 365
F.3d at 365. Plaintiffs have not established scienter as to Woodbury.
5. Defendant Ortwein. – Plaintiffs allege that Defendant Sara Ortwein, former

President of XTO, made a false and misleading statement about ExxonMobil’s ability to
drill horizontal wells in the Permian at a presentation in October 2018. Compl. ¶¶ 365–68.
To establish her state of mind, Plaintiffs point to the fact that: (1) she was at the top of the
reporting structure for the Reservoir Engineers; (2) Reservoir Engineers reported a culture
of being told to make certain numbers; (3) she had access to forecasting reports and the
ability to change them; and (4) she attended team meetings where employees questioned
the feasibility of the “green blob” presentation slide showing the 2024 barrel-per-day goal.

Id. at ¶¶ 103, 121–23, 144, 163.
First, it would have been impossible for Ortwein to attend the meeting Plaintiffs
allege. The “green blob” slide was presented on March 6, 2019, by which point she had
already retired. Id. at ¶¶ 144, 162–63. Ortwein made the statement Plaintiffs allege was
fraudulent and misleading several months prior on October 2, 2018. Id. at ¶ 365–68.

Beyond that, Plaintiffs’ other allegations about Ortwein are tenuous. The
confidential witness Reservoir Engineer FE3 described a culture of being told to make
certain numbers on his reports — but the Complaint contains no allegations that such
directions came from Ortwein, that she knew about them, or that adequate performance of
her role would require her to know about them. Id. at ¶ 121. FE3 says that he often had to

revise forecasts and when he would get reports back the next year they would have been
drastically changed, but Ortwein was one of at least three people who had access to those
documents, and Plaintiffs have not alleged any facts beyond mere access suggesting that
Ortwein changed the reports. Id. at ¶ 122. Additionally, it does not seem that Ortwein and
FE3 overlapped in the Reservoir Engineer reporting structure; FE3 served as a Reservoir

Engineer until 2016 when he moved on to other roles, and Ortwein did not begin serving
as President of XTO until 2016. It is unclear that the patterns FE3 described had anything
to do with Ortwein. Id. at ¶¶ 39, 120.
Taken as a whole, because assuming knowledge based on position or access to
records is improper as discussed previously and because few facts connect Ortwein directly
to manipulation of drilling reports, the inferences opposing scienter outweigh those

supporting.
6. ExxonMobil. – To establish the scienter of a corporation, courts in this Circuit
focus “on the state of mind of the corporate officials who make, issue, or approve the
statement rather than the ‘collective knowledge of all the corporation’s officers and
employees.’” Diodes, 810 F.3d at 957 (citing Shaw Group, Inc., 537 F.3d at 533). Because

Plaintiffs have failed to show scienter as to the Individual Defendants, as explained above,
ExxonMobil’s scienter may only be established by imputing that of Melissa Bond.
Plaintiffs allege that Bond, the manager for the Delaware Basin region, knew that
the Delaware assets’ true value was lower than ExxonMobil’s original estimates. Compl.
¶ 18. Based on the SEC whistleblower’s account, Plaintiffs say that Bond asked employees

to “claw back” lost value by calculating drilling time with overly optimistic assumptions
about how quickly Exxon would improve. Compl. ¶¶ 18, 130, 257, 448. Allegedly, at
least one employee submitted a manipulated report in a file named “This is a Lie.” Compl.
¶¶ 18, 130, 257. Taking these facts as true, Plaintiffs still must set forth facts demonstrating
that Bond furnished information or language for inclusion in the allegedly false and

misleading statements in ExxonMobil’s press releases, investor presentations, and SEC
filings, “consistent with the general common law rule that . . . the required state of mind
must actually exist in the individual making (or being a cause of the making of) the
misrepresentation.” Lee v. Active Power, Inc., 29 F. Supp. 3d 876, 883 (W.D. Tex. 2014)
(quoting Southland, 365 F.3d at 366) (emphasis in original).
The Court agrees with Defendants that Plaintiffs have failed to plead facts

demonstrating Bond’s intent to defraud the public. She is not an executive and is several
levels removed from the employees at the top of the reporting structure who interact with
investors. For example, this Court has declined to find scienter as to an employee who
falsified records to make her department “appear to be efficient, organized, and
wellmanaged” because she lacked the intent to “initiate company-wide fraud.” Rains v.

Zale Corp., 2011 WL 3331213, at *5 (N.D. Tex. 2011). The Court holds that Bond’s role
in the production of allegedly false records does not constitute furnishing information so
as to make her a speaker of the disputed statements, and thus her scienter could not be
imputed to ExxonMobil if established. Accordingly, Plaintiffs have not adequately pleaded
scienter as to ExxonMobil.

Because Plaintiffs have not created a strong inference of scienter as to any
Individual Defendant or Exxon, their claims fail.6 But to provide guidance if Plaintiffs
choose to amend, the Court turns to the remainder of Defendant’s arguments.
III. THE PSLRA SAFE HARBOR
SEC Rule 10b–5, implementing section 10(b) of the Securities Exchange Act,

prohibits the making of any “untrue statement of a material fact” or the omission of any

6 Plaintiffs must be able to connect unattributed statements to at least one Defendant with
the requisite scienter, of which there is none here. Southland, 365 F.3d at 365. Similarly,
control person liability is not available without a viable primary liability claim. Id. at 383
(citing Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1021 n.8 (5th Cir. 1996)).
material fact “necessary in order to make the statements made . . . not misleading.” 17
C.F.R. § 240.10b–5. However, there is a safe harbor for some forward-looking statements.
Defendants argue that their statements in press releases and investor presentations that the

Permian drilling objectives were “on track” or “on schedule” qualify for the safe harbor.
Compl. ¶¶ 144, 166, 238, 287, 350.
The safe harbor provision has two independent prongs. First, defendants will not
be held liable for immaterial statements nor forward-looking statements that are identified
as such and are accompanied by cautionary language. 15 U.S.C. § 78u-5(c)(1)(A).

Second, to evade the safe harbor, plaintiffs must properly plead that the forward-looking
statement was made with actual knowledge that it was false and misleading. 15 U.S.C.
§ 78u-5(c)(1)(B). Unlike with the scienter requirement, severe recklessness does not
suffice. The safe harbor provision is “disjunctive;” it may apply even when a plaintiff
adequately alleges that the speaker had such knowledge if meaningful cautionary language

was provided, and it also may apply even without that language if the plaintiff fails to allege
facts sufficient to satisfy the second prong. Carlton v. Cannon, 184 F. Supp. 3d 428, 453
(S.D. Tex. 2016).
A. Whether the Statements Were Accompanied by Cautionary Language
Courts must determine how each statement is “specifically and meaningfully”

protected. Lormand v. US Unwired, Inc., 565 F.3d 228, 248 (5th Cir. 2009). Courts
typically analyze each statement on its own, but Plaintiffs have challenged them in a single
allegation, and Defendants’ cautionary statements for each were largely identical. The use
of the same disclaimer or one with only slight variations is often evidence that the warning
is “generic and formulaic . . . boilerplate and not meaningful cautionary language. Id. at
245. But in this case, the statements used the same language regarding the same projects,
so warning of the same risks would be appropriate. Accordingly, the Court addresses

cautionary language first, and addresses the statements together.
To qualify for the safe harbor provision, forward-looking statements must be
“accompanied by meaningful cautionary statements identifying important factors that
could cause actual results to differ materially” from those described. 15 U.S.C.
§ 78u-5(c)(1)(A). Boilerplate cautionary language does not suffice. Lormand, 565 F.3d at

248. If “reasonable minds could disagree as to whether the mix of information in the
allegedly actionable document is misleading,” dismissal based on the safe harbor is not
appropriate. Id. (cleaned up).
Oral statements may also be covered so long as they refer to a readily available
written document or portion thereof that explains how actual results could materially differ

from those described. 15 U.S.C. § 78u-5(c)(2).
ExxonMobil began its calls and presentations by referring the audience to its
cautionary statement and supplementary information. See, e.g., Def. App. 171 [70]. The
cautionary statement informs readers that several types of information are forward-looking
statements, including “projections, estimates, goals, discussions of potential,” and

“descriptions of business plans.” Id. at 169. It also explains that actual future results,
including future earnings, proved and other reserve, project plans, completion dates,
timing, and production rates and capacities may vary due to numerous factors, including
change in market conditions, reservoir performance and demand, and unforeseen technical
difficulties. Id. Further, the cautionary statement directs readers to ExxonMobil’s SEC
website, filings, and a supplemental information section that explains definitions,
assumptions, and other details about how ExxonMobil arrived at the forward-looking

statements presented. Id.
Plaintiffs argue that these warnings were inadequate because the listed risks had
already begun to materialize. Response Br. at 12. But liability on that basis turns on
Defendants’ knowledge of that, which Plaintiffs have failed to establish, as discussed in
Part I. See Lormand, 565 F.3d at 249 (finding cautionary language inadequate because

defendants “recognized signs that those risks had already materialized”) (emphasis added);
Ga. Firefighters’ Pension Fund v. Anadarko Petroleum Corp., 514 F. Supp. 3d 942, 953
(S.D. Tex. 2021). Imposing liability for inadequate warnings when Defendants did not in
fact apprehend the problems would render the PSLRA’s requirement that Plaintiffs plead
actual knowledge meaningless. Legislative records reflect that “[f]ailure to include the

particular factor that ultimately causes the forward-looking statement not to come true”
was not intended to foreclose application of the safe harbor. Id. (quoting H.R. Conf. Rep.
104–369, at 44 (1995), reprinted at 1995 U.S.C.C.A.N. 730, 743).
ExxonMobil’s warnings do not recite “merely a boilerplate litany of generally
applicable risk factors.” Carlton, 184 F. Supp. 3d at 454 (quoting Southland Sec. Corp. v.

INSpire Ins. Solutions, Inc., 365 F.3d 353, 372 (5th Cir. 2004)). The risks described are
those that Plaintiffs allege actually materialized, demonstrating the “fit between the
disclaimer and the challenged forward-looking statement” that the PSLRA requires.
Carlton, 184 F. Supp. 3d at 455. Cautionary language satisfies the safe harbor provision
when it warns investors “of risks of a significance similar to that actually realized.” Harris,
182 F.3d at 807. If this lengthy statement outlining risks specifically tailored to oil and gas
drilling projects is not sufficiently cautionary, it is difficult to imagine what would be.

Because Plaintiffs have not pleaded facts showing that Defendants knew the
warned-of risks were already coming to fruition, as discussed in Part II, supra,7
ExxonMobil’s cautionary language is adequate.
B. Whether the “On Track” Statements Were Forward-Looking
Saying that a project is “on track” “merely declar[es] or reaffirm[s] the objective

itself” and is thus forward-looking. Wochos v. Tesla, Inc., 985 F.3d 1180, 1192 (9th Cir.
2021). Statements about “assumptions intrinsic to those forward-looking
statements . . . are also immunized.” In re Twitter, Inc. Sec. Litig., 2021 WL 4166725, at
*1 (N.D. Cal. 2021) (citing Wochos, 985 F.3d at 1192). But “on track” statements are often
accompanied by assertions of specific past or present circumstances that make the objective

possible, the truth or falsity of which is discernable at the time the statement is made. See
Taubenfeld v. Hotels.com, 385 F. Supp. 2d 587, 591 (N.D. Tex. 2004) (quoting Harris v.
Ivax Corp., 182 F.3d 799, 805 (11th Cir. 1999)). Such mixed statements are “not entitled
to the safe harbor with respect to the part of the statement that refers to the present.”
Spitzberg v. Houston Am. Energy Corp., 758 F.3d 676, 691 (5th Cir. 2014).

7 The safe harbor provision requires a higher state of mind than does pleading scienter. As
Plaintiffs’ allegations did not satisfy the severe recklessness standard, they also have not
adequately alleged the actual knowledge required to evade the safe harbor.
For example, in Carlton, the Court evaluated a statement that a plant was “currently
producing” additional oil, making the company “well positioned” to make progress on its
targets. The court held that this statement was not protected because it “justified the

projection in terms of a particular aspect of the company’s situation.” 184 F. Supp. 3d at
495 (quoting Inst. Investors Grp. v. Avaya, 564 F.3d 242, 255 (3d Cir. 2009)) (cleaned up).
However, the goal of full-year production exceeding 1 million gallons was “clearly forward
looking.” Carlton, 184 F. Supp. 3d at 495. In other words, even if the “on track” portion
of a statement satisfies the safe harbor requirements, other factual assertions in the

statement cannot be saved merely by proximity to forward-looking language. Present
statements alongside forward-looking statements are actionable.
With that, the Court turns to examine ExxonMobil’s contested statements.
1. March 6, 2019 Investor Day. – During the March 6, 2019 Investor Day
presentation, Defendants stated that ExxonMobil was “on track” and “on schedule” to

achieve its 2024 production goal. Compl. ¶ 350. These statements do not reference
specific factual circumstances beyond the possibility of achieving the goal in the future;
accordingly, they are within the scope of the safe harbor provision.8
During the Investor Day call, Defendant Woods made various representations about
ExxonMobil’s accomplishments. He stated that the “Upstream” business9 had “made very

8 Plaintiffs’ expert evidence demonstrating the feasibility of this goal is irrelevant to
whether the safe harbor applies.
9 “Exxon operates through three business segments: (i) Upstream, through which Exxon
explores for and produces crude oil and natural gas, including its oil resources in the
Permian Basin; (ii) Downstream, through which Exxon manufactures and sells petroleum
good progress” on four key focus areas, including “accelerated value capture in the
Permian.” The accompanying slide also said that production was on plan for the 2024 goal.
Compl. ¶ 391. While “on plan” is forward-looking, “accelerated value capture” suggests

that Exxon is extracting resources in the Permian a faster rate than before, which would be
measurable in the present. To the extent that this statement was false or misleading, it is
actionable.
Accordingly, the March 6, 2019 “on track” statements are not actionable.
2. April 26, 2019 Call. – On ExxonMobil’s Q1 2019 earnings call, Defendant

Hansen said that ExxonMobil remained “on track with plans to increase production” to its
1-million-barrels-per-day goal by 2024. Compl. ¶ 400. This statement by itself is forward-
looking.
However, Defendant Williams presented the accompanying slide, which stated that
“extensive well inventory supports [the] production profile” and that ExxonMobil had 46

operational rigs in the Permian at that time. Compl. ¶ 401. Saying that the current well
inventory supports future production expectations is distinct from ExxonMobil saying that
it expects to be able to scale its drilling capacity in the future; “current well inventory” is
much more akin to the “currently producing additional oil” statement found to be
actionable in Carlton. Additionally, quantity of currently operational rigs is easily

measured at the time of the statement. To the extent that either of these statements were
false or misleading, they are actionable.

products; and (iii) Chemical, through which Exxon manufactures and sells
petrochemicals.” Compl. ¶ 31.
3. November 1, 2019 Call. – On ExxonMobil’s Q3 2019 earnings call, Defendant
Hansen presented the “green blob” slide. He represented that “Permian growth remains on
track,” and the accompanying slide stated, “continued strong well performance.” Compl.

¶ 415. This is a mixed statement. The “on track” statement is forward-looking; the well
performance is immediately measurable and therefore actionable, assuming it is material,
discussed infra Part III.C(1).
4. January 31, 2020 Call. – On ExxonMobil’s Q4 2019 earnings call, Defendant
Woods told investors “we are making very good progress,” that ExxonMobil was “on

track” to achieve its 1-million-barrel-per-day goal, and that ExxonMobil was above what
it said it would do the previous year by “about 20,000 barrels a day, so that’s clearly on
track.” Compl. ¶¶ 237, 238. The only statement discernable immediately without
reference to a future goal is Woods’ reference to ExxonMobil’s current production being
above target by a margin of 20,000. If that statement was false or misleading, it is

actionable; the rest is protected by the safe harbor.
5. March 5, 2020 Press Release. – On March 5, 2020, ExxonMobil released a press
release that stated Permian Basin production volumes had increased and remain on track
to exceed the 2024 goal. Compl. ¶ 425. This is a mixed statement; “on track” is forward-
looking, but whether production volumes had increased would be easily discerned at the

time of the statement, making it actionable if false and misleading.
IV. MATERIALITY AND FALSITY
Rule 10b-5 makes unlawful “any untrue statement of a material fact” or omission
of a material fact when otherwise the statement is misleading. 17 C.F.R. § 240.10b-5. A
fact is material if there is a substantial likelihood that a reasonable investor would have
placed significance on the withheld or misrepresented information. Southland Sec. Corp.
v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 362 (5th Cir. 2004) (citing Basic Inc. v.

Levinson, 485 U.S. 224, 240 (1988)). To satisfy Federal Rule of Civil Procedure 9(b)’s
heightened pleading standards, Plaintiffs must set forth why a statement is false or
misleading. See id. at 362. While materiality “typically presents a mixed question of fact
and law,” making it ultimately “a decision for the jury,” In re Venator Materials PLC Sec.
Litig., 2021 WL 2980581, at *18 (S.D. Tex. 2021), Plaintiffs cannot survive a motion to

dismiss without setting forth facts that make materiality at least plausible Lormand v. US
Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 556 (2007)) (“Asking for [such] plausible grounds to infer [the element of a
claim] does not impose a probability requirement at the pleading stage; it simply calls for
enough facts to raise a reasonable expectation that discovery will reveal [that the elements

of the claim existed].”) (emphasis and brackets in original). Defendants argue that
Plaintiffs have not carried their burden to set forth facts demonstrating that some statements
and omissions they challenge were both false and material.
A. Allegedly Inaccurate Proved Reserves Figures Are Actionable
“Proved Reserves” is a term of art meaning “those quantities of oil and gas, which,

by analysis of geoscience and engineering data, can be estimated with reasonable certainty
to be economically producible . . . under existing economic conditions, operating methods,
and government regulations . . . regardless of whether deterministic or probabilistic
methods are used for the estimation.” 17 C.F.R. § 210.4–10(a)(22). Defendants included
their Proved Reserves estimates in several public statements, including their Form 8-Ks
and 10-Ks filed with the SEC. Compl. ¶¶ 376, 383, 419. Defendants argue that Plaintiffs’
claims as to these statements should be dismissed because they have not pleaded falsity

with particularity and because the Permian reserves are immaterial to the larger Proved
Reserves calculation.
1. Falsity. — Plaintiffs have alleged, based on testimony from several employees,
that ExxonMobil’s Permian Basin management instructed engineers to manipulate
calculations to increase the apparent value of the company’s assets in the region. Response

at 17. They also allege that those assumptions and figures were incorporated into the
Proved Reserves estimates. Compl. ¶¶ 317–21, 341–43.
Defendants reject Plaintiffs’ interpretation, differentiating the drilling assumptions
from the “learning curve”10 and asserting that the alleged false drilling assumptions were
not incorporated into the Proved Reserves calculations. Def. Br. at 16. Further, Defendants

say that Plaintiffs’ information supporting its allegations are inadequate to satisfy the
particularity requirement because, in their view, its supporting witnesses lack sufficient
knowledge. Id. at 16–17.
Defendants’ arguments demand too much of Plaintiffs at this early stage of
litigation. The parties dispute the facts surrounding how the Proved Reserves were

calculated and whether allegedly false information was included; in resolving a motion to
dismiss, the Court takes all of Plaintiffs’ alleged facts as true, so long as there is a

10 The learning curve is a calculation Exxon Mobil uses to predict the rate at which it will
be able to scale its drilling. Compl. ¶ 18.
sufficiently particularized basis for their contentions. See ABC Arbitrage, 291 F.3d at 342,
350. Plaintiffs need not set forth facts disproving Defendants’ theories nor even creating
an inference that is the most likely; all that is required is that Plaintiffs’ allegations work

together to create a plausible narrative of fraud. Carlton, 184 F. Supp. 3d at 456 (quoting
United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009) (interpreting
Federal Rule of Civil Procedure 9(b)’s requirements following Twombly, 550 U.S. 544).
Plaintiffs have supported their allegations about the Proved Reserves calculations
with testimony from two Reservoir Engineers, Rhodes and FE3, who worked on

forecasting well performance, including in the Permian. Compl. ¶¶ 102–27. Rhodes and
FE3’s statements specifically address how manipulation of data was allegedly being used
“to increase the proven reserves.” Id. at ¶ 117. Defendants may dispute their credibility,
but such determinations are improper on motion to dismiss. See, e.g., Wieland v. Stone
Energy Corp., 2007 WL 2903178, at *11 (W.D. La. 2007) (finding that a determination of

credibility was a “fact-specific inquiry” “not appropriately disposed of on a motion to
dismiss”). Plaintiffs have pleaded sufficient facts to set forth a theory that is at least
plausible of how the Proven Reserves allegedly were fraudulently formulated, when, by
whom, and why. See Dorsey, 540 F.3d at 339 (quoting ABC Arbitrage Plaintiffs Grp. v.
Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002)).

Now, the Court turns to materiality.
2. Materiality. — Defendants argue that regardless of whether the Proved Reserves
estimates were inaccurate, any errors were immaterial. Def. Br. at 15. But in the Fifth
Circuit, “alleged accounting violations are sufficient to plead material misstatements.”
Ramirez v. Exxon Mobil Corp., 334 F. Supp. 3d 832, 848 (N.D. Tex. 2018) (citing Barrie
v. Intervoice-Brite, Inc., 397 F.3d 249, 257–58 (5th Cir. 2005) (holding that plaintiff
pleaded a material misstatement by alleging with particularity that defendants violated

GAAP)). It does not matter that Plaintiffs have not honed in on the precise impact of the
alleged Permian miscalculations on the larger Proved Reserves figures; they have
sufficiently alleged a plausible theory connecting the two, and the total Reserves would be
relevant to investor decision-making as well as the figures for the Permian Basin.
Accordingly, these statements are actionable.

B. Allegedly Inaccurate Resource Base Figures Are Actionable
The Resource Base is a less stringent term that refers to all estimated quantities of
oil and gas that are expected to be ultimately recoverable, including but not limited to
ExxonMobil’s Proved Reserves. Def. Br. at xi. The parties raise arguments similar to
those addressed regarding the Proved Reserve Figures.

As with the Proved Reserves, Defendants argue that Plaintiffs have not shown that
inflated Proved Reserves necessarily inflated the Resource Base, rather than simply
reallocating the resources from one component of the Resource Base to another without
affecting its overall total quantity. Id. at 20. But again, Plaintiffs’ theory need not disprove
Defendants’ argument; it is enough for Plaintiffs to allege with particularity how and why

their theory occurred, so long as, taken as true, the facts make their narrative plausible.
Despite Defendants’ factual disputes about the methods of calculation, which are
“insufficient to support a motion to dismiss,” Barrie, 397 F.3d at 257, Plaintiffs have set
forth enough facts supporting their theory of fraud to “raise a right of relief above the
speculative level.” Twombly, 550 U.S. at 555.
C. Puffery

Defendants contend that several of the statements Plaintiffs have challenged are
mere puffery, the kind of “generalized positive statements about a company’s progress”
that are not actionable as misrepresentations. Venator, 547 F. Supp. 3d at 649–50. Such
comments are immaterial as a matter of law because “no reasonable investor would rely”
on such “vague assertions of the condition of the company.” Taubenfeld, 385 F. Supp. 2d

at 593 (citing Rosenzweig v. Azurix Corp., 332 F.3d 854, 869–70 (5th Cir. 2003)). Because
“analysts ‘rely on facts in determining the value of a security,’” rather than “generalized,
positive statements about the company’s competitive strengths . . . and future prospects,”
statements of corporate optimism do not “perpetrate a fraud on the market.” Southland,
365 F.3d at 372 (collecting cases). One simple distinction between misstatements and

puffery “is that the latter is incapable of objective verification.” Sanders v. Realreal, Inc.,
2021 WL 1222525, at *9 (N.D. Cal. 2021) (citation omitted).
1. Drilling and Well Success. — Defendants made various statements throughout
the Class Period about ExxonMobil’s drilling progress, including descriptions that it was
“on track,” “decent,” “continuing,” “optimized,” and “within the range of what

[ExxonMobil] expected.” Response at 24. Defendants also stated that ExxonMobil
“increased” and “ramped up” its drilling activity, id. at 26, and described its wells as “very,
very high quality” — the “best wells.” Id. at 27.
Attempting to “objectively verify” these statements would prove difficult, as either
there would be no clear standard or verification would yield few or no additional details.
See Sanders, 2021 WL 1222525, at *9. These are all the type of “vague expressions of

corporate optimism” that “investors and analysts are too sophisticated to rely on” over the
more specific factual information that was available. In re Blockbuster Inc. Sec. Litig.,
2004 WL 884308, at *7 (N.D. Tex. 2004). Plaintiffs cannot characterize them as more
specific than they are by connecting them to ExxonMobil’s goal of 1 million barrels per
day by 2024;11 goal statements can nevertheless be puffery when they lack connections to

specific facts and instead are broad “corporate cheerleading” statements. See, e.g., Police
and Fire Retirement Sys. of City of Detroit v. Plains All American Pipeline, L.P., 777 F.
App’x 726, 731 (5th Cir. 2019) (holding that several statements made at Investors’ Day
events were nonactionable “aspirational statements” about goals the defendant was seeking
to reach); Ezra Sholom, 504 F. Supp. 2d at 162 (finding that broad statements regarding

Blockbuster’s plans for the business’ future direction were nonactionable puffery).
Because no reasonable investor would rely on or be misled by Defendants’ generic
qualitative statements about ExxonMobil’s drilling activities and its wells over the
extensive quantitative information available in its numerous public presentations and
disclosures, such statements are not actionable.

11 Plaintiffs conflate the requirements of the safe harbor provision with the definition of
puffery. Statements outside the safe harbor may nevertheless be nonactionable as
immaterial puffery. See Response at 25 (pointing to discussion of forward-looking
statements in Carlton for interpretation of Rosenzweig’s puffery language).
2. ExxonMobil’s “Unique Position” Relative to Its Competitors. — During the
Analyst Meeting on March 7, 2018, Defendant Chapman presented a slide demonstrating
ExxonMobil’s “truly unique position in getting value” from the Permian “versus anybody

else in the industry.” Compl. ¶ 355. The slide showed Exxon outperforming select
competitors in “total horizontal wells: operated, oil and gas” and “2017 production
(KOEBD net): key unconventional liquids plays.” Id.
The slide itself contained specific data and is accordingly not puffery; further
discussion of the slide is reserved for the section below on Plaintiffs’ omissions arguments.

As for Chapman’s statement, “unique” is not the synonym for “first place” that Plaintiffs
make it out to be. See id. at ¶ 356. “Unique” may refer to numerous factors not captured
in a quantitative ranking of production rates amongst several oil and gas businesses, which
savvy investors and analysts would surely recognize. Objective verification of
ExxonMobil’s position’s uniqueness would be impossible. Sanders, 2021 WL 1222525,

at *9. The statement that ExxonMobil’s position was “unique” as compared to the select
competitors shown is too vague to mislead the market and accordingly is nonactionable
puffery.
3. Statements Regarding the Reserve Process. — Defendants stated that
ExxonMobil’s process for estimating its Proved Reserves was “well-established,”

“disciplined,” and “rigorous.” Response at 26. Though general, these terms carry meaning
with investors. Courts have held in the past that use of the word “rigorous” “can be
actionable when used as a qualifier or basis of comparison,” such as describing testing
methods and safety processes. Sanders, 2021 WL 1222525, at *10 (holding that a fashion
reseller describing authentication process as “rigorous” was not puffery) (citing Ahern v.
Apple Inc., 411 F. Supp. 3d 541, 557 (N.D. Cal. 2019) (holding that describing testing
methods as rigorous was not puffery) and Zeiger v. WellPet LLC, 304 F. Supp. 3d 837, 851

(N.D. Cal. 2018) (holding that claiming “rigorous standards and practices are put in place
to protect the nutritional integrity of our food” was not puffery)).
“Proved Reserves” is a term of art with a specific meaning as defined by GAAP.
As in Ahern, the calculation methods could be tested, and the rigor of the processes
objectively verified. Accordingly, Defendants’ statements about ExxonMobil’s Proved

Reserves calculations are not mere “rosy affirmations,” but directly encourage confidence
in the published figures. Carlton, 184 F. Supp. 3d at 455 (quoting Ind. State Dist. Council
& Hod Carriers Pension & Welfare Fund, 583 F.3d 935, 944 (6th Cir. 2009). Because
these statements could affect a reasonable investor’s decision-making, they are not puffery
and are therefore actionable.

D. Omissions
To state a claim based on an omission, Plaintiffs “must sufficiently allege ‘a
substantial likelihood that the disclosure of the omitted fact would have been viewed by
the reasonable investor as having significantly altered the ‘total mix’ of information made
available.’” Carlton, 184 F. Supp. 3d at 457 (quoting Matrixx Initiatives, Inc. v.

Siracusano, 563 U.S. 27, 38) (quotation marks omitted)). “Corporate officials need not
present an overly gloomy or cautious picture of the company's current performance,” so
“long as public statements are reasonably consistent with reasonably available data.”
Abrams v. Baker Hughes, Inc., 292 F.3d 424, 433 (5th Cir. 2002). For an omission to be
actionable, Plaintiffs must show that “the defendants created ‘an impression of a state of
affairs that differ[ed] in a material way from [the] one that actually existed.’” Carlton, 184
F. Supp. 3d at 468 (citing Shaw, 537 F.3d at 541 (quoting Brody v. Transitional Hosps.

Corp., 280 F.3d 997, 1006 (9th Cir.2002))).
Defendants have moved to dismiss Plaintiffs’ claims that ExxonMobil’s March 7,
2018 presentation was misleading because it failed to disclose several pieces of information
affecting the way ExxonMobil appeared in relation to competitors. Response at 26.
Defendants argue that the underlying statement was immaterial, meaning it had no duty to

disclose beyond the disclosures it did include, which informed the audience that the slide
included non-Permian data and that the competitor data was publicly available. Def. Br.
at 24.
The standard is summarized well in Carlton. 184 F. Supp. 3d at 457. Some
information is “of such dubious significance that insistence on its disclosure may

accomplish more harm than good.” Id. (quoting TCS Indus., Inc. v. Northway, Inc., 426
U.S. 438, 448 (1976) (cleaned up)). Unnecessarily low standards of materiality may
subject the corporation and its management to liability for insignificant omissions or
misstatements; “management's fear of exposing itself to substantial liability may cause it
simply to bury the shareholders in an avalanche of trivial information,” which is “hardly

conducive to informed decisionmaking.” Id. (quoting TCS Indus., 426 U.S. at 448–49
(internal quotation marks omitted)). “To balance these concerns, ‘the plaintiff must plead
not only why the statement at issue is incomplete but why that incompleteness makes the
statement misleading or untrue.’” Id. (quoting R2 Invs. LDC v. Phillips, 401 F.3d 638, 642
(5th Cir. 2005)). Importantly, section 10(b) and Rule 10b–5(b) “do not create an
affirmative duty to disclose any and all material information. Disclosure is required under
these provisions only when necessary ‘to make . . . statements made . . . not misleading.’”

Id. (quoting Matrixx, 563 U.S. at 44, 131 S. Ct. 1309 (quoting 17 C.F.R. § 240.10b–5)).
Plaintiffs argue that the statement was incomplete because it did not notify the
audience that other operators in the region outperformed ExxonMobil on the metrics on the
slide. However, Plaintiffs have not alleged why this slide was misleading. The language
did not purport to label ExxonMobil as the number one performer in any category, and it

directed viewers to additional information. There may be legitimate business reasons that
ExxonMobil felt it more relevant for its investors to compare itself to those operators than
the ones to whom Plaintiffs refer. To find an omission claim actionable under these
circumstances would render it virtually impossible for corporations to present data to
investors without inundating every slide and document with likely irrelevant and unhelpful

information for the sake of avoiding liability. For this reason, courts have consistently held
that businesses have “no duty to cast its business in a pejorative, rather than a positive,
light.” Rosenzweig, 332 F.3d at 869. See also Blockbuster, 2004 WL 884308, at *13
(finding that an omission was not actionable when Blockbuster did not disclose a specific
source of competition, instead discussing its plan for combating competition generally).

Accordingly, the March 7, 2018 presentation slide is not actionable.
CONCLUSION
For the reasons set forth above, the Court grants Defendants’ Motion to Dismiss.
The Court also grants Plaintiffs’ request in the alternative for leave to amend. Provided
that they can do so in a manner consistent with this opinion, Plaintiffs may file a Second
Amended Complaint within thirty (30) days of the date of this Order. The Court is unlikely
to grant any motions, agreed or otherwise, to extend pleading or response deadlines.

Signed September 29, 2022.

David C. Godbey
Chief United States District Jud

ORDER — PAGE 38

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10451923. Public record. Not legal advice.