Federal Preemption As A Vehicle To Supreme Court Review Of Climate Change Cases

On February 20, 2024, the City of Chicagosueddefendant fossil fuel companies in Illinois state court, asserting state law claims, including nuisance, violations of consumer protection laws, and products liability. Chicago now joins other plaintiffs that have filed similar lawsuits in state courts across the country against corporations involved in the production, marketing, and downstream distribution of oil and gas-based products. In general, these climate change lawsuits are based on alleged injuries resulting from the defendants' production, marketing, and/or sale of fossil fuels. The cases should be closely followed as they will have significant implications on the availability of state law to redress injuries allegedly resulting from greenhouse gas (GHG) emissions-related activities.

In each of these cases, the defendants will likely argue that the state law claims should be dismissed because they are preempted by federal common law and/or the Clean Air Act. This article proceeds as follows. Part I discusses the defendants' failed attempts to remove the cases to federal court on federal preemption grounds. Part II predicts that as the cases now move through the state courts, a patchwork of state court decisions on the federal preemption question will develop, depending on the state courts' characterization of the complaints at issue. Part III explores the possibility of federal preemption serving as a vehicle to Supreme Court review. Part IV concludes by discussing recent federal and state efforts to regulate GHG emissions.

1. Failed Attempts to Remove Climate Change Cases to Federal Court

The defendants in these climate change cases originally attempted to remove the cases from state to federal district court (generally seen as a more neutral forum), arguing, among other things, that the state law claims are preempted by federal common law and/or the Clean Air Act. However, their attempts were unsuccessful. The U.S. Courts of Appeals for theFirst,Third,Fourth,Eighth,Ninth,Tenth, andDistrict of Columbia, citing the "well-pleaded complaint" rule (also known as theMottleyrule), remanded the cases back to state court. Under the "well-pleaded complaint" rule, federal question jurisdiction under 28 U.S.C. § 1331 must be based on the plaintiff's complaint, and affirmative defenses, like federal preemption, cannot serve as a basis for federal question jurisdiction. The Supreme Court has so far declined review of these cases (seehere,here, andhere).

2. Federal Preemption in State Courts

As these climate change lawsuits now move through state courts, those courts will be adjudicating federal preemption defenses. This is likely to lead to a patchwork of decisions on the federal preemption question, best exemplified by comparing two cases that have already considered this defense.

InCity of New York v. Chevron Corp., a case originallyfiledin federal court, the City of New York asserted nuisance and trespass claims under New York law against domestic and foreign fossil fuel defendants. The claims were based on the defendants' production, marketing, and sale of fossil fuels and sought compensatory damages for the costs incurred and to be incurred by the City to protect its infrastructure, property, and residents from the impacts of climate change. The Second Circuit affirmed the district court's dismissal of the City's claims on federal preemption grounds.

First, the Second Circuit held that the City's claims were displaced by federal common law because they conflicted with federal interests in the uniformity of national energy and environmental policy and federalism. Although the City had not sought injunctive relief, the court still found significant conflict with federal interests because a substantial damages award would effectively regulate the defendants' behavior far beyond New York's borders by compelling them to develop new means of pollution control to avoid liability. See also Kurns v. R.R. Friction Prods. Corp., 565 U.S. 625, 637 (2012) ("[S]tate regulation can be ... effectively exerted through an award of damages, and [t]he obligation to pay compensation can be, indeed is designed to be, a potent method of governing conduct and controlling policy.") (cleaned up).

The Court of Appeals continued that permitting the suit to proceed would risk upsetting "the careful balance that has been struck between the prevention of global warming, on one hand, and energy production, economic growth, foreign policy, and national security, on the other."City of N.Y. v. Chevron Corp., 993 F.3d 81, 93 (2d Cir. 2021) (citations omitted). The court went on that, as states will invariably differ in their assessment of such proper balance, there is a real risk that subjecting the defendants' global operations to a "welter of different states' laws" could undermine important federal policy choices. Cf.Mayor & City Council of Balt. v. BP P.L.C., 31 F.4th 178, 203 (4th Cir. 2022) (explaining that the Second Circuit's analysis failed to mention any obligatory statutes or regulations explaining the specifics of energy production, economic growth, foreign policy, or national security and how New York law conflicts with them and therefore evaded the careful analysis that the Supreme Court requires for preemption based on a significant-conflict analysis).

The Second Circuit then held that the federal common law that displaced the City's claims with respect to domestic emissions was, in turn, displaced by the Clean Air Act. In so holding, the court relied onAm. Elec. Power Co. v. ConnecticutandNative Vill. of Kivalinav. ExxonMobil Corp.InAm. Elec. Power Co., the Supreme Court held that the Clean Air Act displaces federal common law public nuisance claims seeking injunctive relief in the form of abatement of carbon dioxide emissions. Then, inNative Vill. of Kivalina, the Ninth Circuit held that this includes the displacement of public nuisance claims seeking damages allegedly resulting from the climate change effects of such emissions (as opposed to injunctive relief). Ultimately, the Second Circuit explained that, because the City's claims, if successful, would operate as ade factoregulation on GHG emissions, they were displaced by the Clean Air Act. The court rejected the City's argument that its claims focused on the production, promotion, and sale of fossil fuels, which the Clean Air Act does not regulate. The court explained that while these may have been the claims' focus, the claims ultimately depended on harms stemming from the emissions themselves.

The Second Circuit further held that the Clean Air Act does not authorize the City's claims. The court explained that, while the Clean Air Act's savings clause does permit state claims brought under the law of the source state, this was not the case. Rather, the court explained that the City was attempting to impose New York nuisance standards on emissions emanating "simultaneously from all 50 states and the nations of the world."City of N.Y., 993 F.3d at 100.

The City's complaint was not limited to domestic emissions. As to foreign emissions, the court reasoned that the Clean Air Act has no extraterritorial reach and therefore does not displace the City's claims to the extent that they seek recovery from harms caused by foreign emissions. However, the court refused to recognize a federal common law cause of action targeting foreign emissions given "the need for judicial caution in the face of delicate foreign policy considerations."Id.at 103.

By comparison, inCity & Cty. of Honolulu v. Sunoco LP, the Supreme Court of Hawaii affirmed acircuit court's orderdenying fossil fuel defendants' motions to dismiss the case (amended complainthere) on federal preemption grounds.

In this case, the City and County of Honolulu is asserting state law claims for nuisance and trespass (as was the case inCity of New York) but also failure to warn. The claims are based on the defendants' promotion and sale of fossil fuel products and, in particular, their alleged concealment of the hazards that fossil fuel products pose, as well as the alleged misleading of customers, consumers, and regulators regarding the risk of climate change and its consequences. The City asserts that the alleged tortious behavior caused or will cause injuries to infrastructure, real property, and public resources in Hawaii and is seeking compensatory damages and equitable relief, including abatement of the nuisances.

In finding no federal preemption, the Hawaii Supreme Court reasoned that the federal common law that used to govern transboundary pollution abatement and damage suits no longer exists because it was displaced by the Clean Air Act and therefore no longer has a preemptory effect. The court then explained that, even if the federal common law has not been displaced, it does not preempt the City's claims, which are tortious marketing and failure to warn claims, not transboundary pollution abatement and damage claims (interestingly, as indicated above, the complaint also included nuisance and trespass claims).

Ultimately, the court characterized the defendants'alleged tortious marketing conductas the source of the plaintiffs' alleged injury and the emissions themselves as being merely a "link in the causal chain." 153 Haw. 326, 360, 537 P.3d 1173 (2023). Compare withCity of New York,supra(acknowledging this argument but reasoning that the claims ultimately depended on harms stemming from the emissions themselves). The court then held that the Clean Air Act does not preempt the City's claims because there is no potential conflict. The court explained that the City's claims potentially regulate marketing conduct while the Clean Air Act regulates pollution.

It is unclear exactly how other state courts will rule on this issue; indeed, we may begin to see a patchwork of state court decisions on federal preemption, depending on the courts' characterization of the complaints at issue. Some state courts may view the complaints before them, as the Second Circuit did, as disguised attempts to regulate emissions. This is more likely to be the case where the complaints are more easily read as seeking damages resulting from the emissions themselves. Other state courts may view the complaints before them, as the Supreme Court of Hawaii did, through a narrower lens as attempts to seek damages resulting from the alleged tortious conduct, the emissions themselves being merely a "link in the causal chain."

3. Federal Preemption as a Vehicle to Supreme Court Review

As these climate change cases move through the state courts, an important question will be whether the defendants will ultimately be able to appeal to the U.S. Supreme Court. The "well-pleaded complaint" rule, the basis for the federal circuit courts' rejection of federal question jurisdiction, does not apply to the Supreme Court's appellate jurisdiction, which is broader. Two groups of defendants inSunocohave already petitioned the Supreme Court for certiorari based on conflicts with the Second Circuit's decision inCity of New York. The petitions were filed in late February.

4. Climate Change Regulations

As these climate change lawsuits proceed in the background, companies are having to continually assess and evaluate the business implications of climate-related regulatory developments.

The EPA already regulates GHG emissions from stationary and mobile sources and hasindicatedthat enforcement efforts aimed at mitigating climate change—particularly methane emissions from oil and gas facilities and landfills—will be prioritized (California is also taking significant actions to reduce mobile source emissions in the State). Of particular relevance with respect to the EPA, the Agency recentlyfinalizedmethane rules for oil and natural gas facilities and new emissions standards and guidelines forpower plants. The EPA also recentlyfinalizeda rule setting new, more restrictive GHG emissions standards for model years 2027 and later light-duty and medium-duty vehicles.

Moving beyond the EPA, California and the U.S. Securities and Exchange Commission's (SEC) climate disclosure requirements are on the horizon (although the SEC's climate disclosure rule is stayed pending judicial review by the Eighth Circuit), the Federal Acquisition Regulatory (FAR) Council's climate disclosure rule is pending, and the federal-backed energy transition is moving forward.

This is all while agency rulemakings related to climate change are likely to face continued legal challenges under the Major Questions Doctrine. Energy and environmental agencies defending against such threats may be forced to do so without deference or at least under a weakened form of deference, should the Supreme Court overturn or drastically limitChevron, as argued by petitioners in two pending cases that will be decided later this term.

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