Since we’ve been preoccupied with the litigation over SEC’s climate disclosure rules, it’s time for a break. Something new and different. How about the litigation over the California climate disclosure rules: Senate Bill 253, the Climate Corporate Data Accountability Act, and Senate Bill 261, Greenhouse gases: climate-related financial risk? (See this PubCo post.) In January, the U.S. and California Chambers of Commerce, the American Farm Bureau Federation and others filed a complaint (and in February, an amended complaint) against two executives of the California Air Resources Board and the California Attorney General challenging these two California laws. The lawsuit seeks declaratory relief that the two laws are void because they violate the First Amendment, are precluded under the Supremacy Clause by the Clean Air Act, and are invalid under the Constitution’s limitations on extraterritorial regulation, particularly under the dormant Commerce Clause. The litigation also seeks injunctive relief to prevent CARB from taking any action to enforce these two laws. (See this PubCo post.) CARB has just filed a motion to dismiss the amended complaint for lack of subject matter jurisdiction and failure to state a claim. Interestingly, however, the motion does not seek dismissal of Plaintiffs’ First Amendment claim (except as to the Attorney General, whom the motion seeks to exclude altogether on the basis of sovereign immunity), even though CARB asserts that Plaintiffs’ First Amendment challenge is “legally flawed.” No further explanation is provided.
As you may recall, Senate Bill 253, the Climate Corporate Data Accountability Act, mandates disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities (public or private) with total annual revenues in excess of a billion dollars that “do business in California.” SB 253 has been estimated to apply to about 5,300 companies. The companion bill, SB261, Greenhouse gases: climate-related financial risk, requires subject companies to prepare reports disclosing their climate-related financial risk in accordance with TCFD framework and describing their measures adopted to reduce and adapt to that risk. With a lower reporting threshold of total annual revenues in excess of $500 million, SB 261 has been estimated to apply to over 10,000 companies.
According to the motion, the two laws were intended “to increase transparency and improve access to information about the greenhouse gas (GHG) emissions and climate-related financial risks of the largest companies doing business in California. Both laws reference existing climate change reporting protocols that provide metrics for determining the required information. And both laws are complementary additions to an expanding suite of climate reporting regimes. The disclosures required by these two laws are intended to help California residents, consumers, companies, and investors make decisions informed by greater understanding of the sources and volumes of GHG emissions produced by major companies doing business in California and the climate-related financial risks those companies face.”
The motion contends that Plaintiffs’ “claims arising under the Supremacy Clause and the limits on extraterritorial regulation are not justiciable,” because CARB “has not yet proposed regulations governing their enforcement, and Plaintiffs have not pled an injury-in-fact.” SB 253 directed CARB to “develop and adopt regulations,” but, to date, CARB had not even “initiated the rulemaking process to issue and adopt” the implementing or enforcing regulations required by the statute. Similarly, CARB has not initiated the rulemaking process to issue the regulations required under SB261 related to administrative penalties recoverable when a covered entity fails to publish the required report.
Accordingly, with regard to SB 253, the motion contends that, in the absence of these implementing regulations, Plaintiffs’ Supremacy Clause and extraterritoriality claims are “not ripe for adjudication.” The “mere existence of a statute is not sufficient,” and there has not yet been a threat of enforcement against a “concrete plan” to violate the law. In addition, CARB advocates, “even if the minimum constitutional requirements were met here, the Court should decline to exercise jurisdiction on prudential grounds.” Given that many of Plaintiffs’ allegations are “based on speculation about how the disclosure requirements will be applied and enforced,” the Court “should avoid deciding a pre-enforcement challenge that does not permit CARB to first propose and finalize its regulations.” In addition, if there are no regulations, Plaintiffs will “not suffer any substantial hardship.” Further, CARB takes issue with the claims related to extraterritoriality and the Supremacy clause regarding provisions of both laws because, without having established the danger of a direct injury under the laws, Plaintiffs have no standing.
In addition, CARB contends that the claim under the Supremacy Clause “relies on an erroneous factual premise and…lacks a cognizable legal theory.” CARB asserts that Plaintiffs have “failed to identify any federal law that preempts these state disclosure laws”: the Clean Air Act—the only law identified by Plaintiffs—is not applicable to the reporting frameworks under the two California laws, and “Plaintiffs fail to identify any provision of the Clean Air Act that even arguably conflicts with these state statutes.” That is, the two California statutes don’t regulate GHG emissions; they simply require disclosures. Moreover, the Clean Air Act, they argue, “preserves state authority in the field of air pollution.” As a result, CARB maintains, Plaintiffs have not stated a claim under the Supremacy Clause. Nor, CARB asserts, have Plaintiffs identified “any provision of the Constitution—or any specific ‘principle of federalism’—that conflicts with the challenged state statutes.”
CARB also argues that there is no violation of the dormant Commerce Clause or claim for “extraterritorial regulation” because neither of the California laws “is driven by economic protectionism” (see Nat’l Pork Producers Council v. Ross), or “imposes a cognizably significant burden on interstate commerce” under Pike v. Bruce Church, Inc. In Pork Producers, they contend, SCOTUS reaffirmed an anti-protectionist focus in the dormant Commerce Clause, distinguishing the case before the Court from cases “where the State ‘deliberately prevented out-of-state firms from undertaking competitive pricing or deprived businesses and consumers in other States of whatever competitive advantages they may possess.’… In other words, the decisions in those cases manifested ‘the familiar concern with preventing purposeful discrimination against out-of-state economic interests’ and did not establish an extraterritoriality doctrine.” Citing Pork Producers, CARB asserts that “the ‘very core of … dormant Commerce Clause jurisprudence’ is its ‘antidiscrimination principle’—the prohibition against ‘state laws driven [] by economic protectionism.’” But, CARB contends, “Plaintiffs cannot state a claim under this actual dormant Commerce Clause principle because they cannot allege any facts that, if proven, could establish that either Senate Bill 253 or 261 is ‘designed to benefit in-state economic interests by burdening out-of-state competitors.’” The laws will apply to all companies in any state that satisfy the conditions and meet the thresholds. Nor do Plaintiffs state a claim under Pike, which would require that “the application of these state statutes imposes a ‘substantial burden on interstate commerce’”; in this instance, CARB contends, there is no discriminatory purpose or interference with the flow of goods interstate. According to CARB, the “courts have consistently rejected mere compliance costs as substantial burdens on interstate commerce, even when the compliance costs are purportedly sizable.”
