Tag: Dormant Commerce Clause
California moves to dismiss complaint challenging climate disclosure laws
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.
The Chamber sues California over climate legislation
You remember California’s climate legislation signed into law just last year—Senate Bill 253, the Climate Corporate Data Accountability Act, and Senate Bill 261, Greenhouse gases: climate-related financial risk? (See this PubCo post.) The U.S. and California Chambers of Commerce, the American Farm Bureau Federation and others have just filed a new complaint against the California Air Resources Board challenging these two California laws. The lawsuit seeks declaratory relief that the two laws are void because they violate the First Amendment, are precluded by federal law, 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. These California laws have the potential to affect thousands of companies, including companies domiciled in other states, and many will be alert to see if these laws survive this legal action unscathed. To some extent, the litigation will also function as a dress rehearsal for the litigation that’s likely to surface when the SEC finally adopts its long-awaited climate disclosure rules. What does this litigation augur for the SEC’s anticipated climate disclosure rules? While the dormant Commerce Clause is unlikely to play much of a role in a future challenge to the SEC’s expected climate disclosure regulations, the First Amendment claim is certainly one that we have seen used successfully in the past and are likely to see again. For example, it was raised in connection with challenges to Rule 14a-8 and to the stock repurchase rules, as well as at a recent House Financial Services subcommittee hearing on oversight of the SEC’s proposed climate disclosure, where the contention that the proposal’s compelled speech would violate the First Amendment was a topic of discussion. (See this PubCo post.) Now, we’ll see how well it plays in federal court in California.
Is California going to set the gold standard on climate disclosure?
Are you fretting about when (or if) the SEC is going to take action on its climate disclosure proposal and what exactly the SEC has in store for public companies in its final regulations? Consider this: California might just beat the SEC to the punch. You might remember that, in 2021, a California State Senator introduced the Climate Corporate Accountability Act, which failed last year after sailing through one chamber of the legislature but coming up one vote shy in the second (see this PubCo post). But that bill was re-introduced this year as the Climate Corporate Data Accountability Act (SB 253) and packaged with other bills, notably SB 261, Greenhouse gases: climate-related financial risk, into California’s Climate Accountability Package, a “suite of bills,” according to the press release, “that work together to improve transparency, standardize disclosures, align public investments with climate goals, and raise the bar on corporate action to address the climate crisis. At a time when rising anti-science sentiment is driving strong pushback against responsible business practices like risk disclosure and ESG investing,” the press release continued, “these bills leverage the power of California’s market to continue the state’s long tradition of setting the gold standard on environmental protection for the nation and the world.” (See this PubCo post.) If signed into law this time, SB 253 would mandate disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities with total annual revenues in excess of a billion dollars that “do business in California.” SB 261, with a lower reporting threshold of $500 million, would require subject companies to prepare reports disclosing their climate-related financial risk, in accordance with TCFD framework, and describe their measures adopted to reduce and adapt to that risk. If signed into law, according to Bloomberg, SB 253 would apply to over 5,300 companies and SB 261 would apply to over 10,000 companies. But, given their history, what makes anyone think these bills will be signed into law this time? As Politico observes, “[w]hen do you know a bill might have legs? When there’s a bit of horse-trading going on.” And that’s apparently just what’s been happening recently with these bills.
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