On February 20, 2024, the City of Chicago sued defendant 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.
The defendants in these climate change lawsuits originally attempted to remove the cases from state to federal court (generally seen as a more neutral forum), arguing that the state law claims are preempted by federal law. However, their attempts were unsuccessful. The U.S. Courts of Appeals for the First, Third, Fourth, Eighth, Ninth, Tenth, and District of Columbia, citing the “well-pleaded complaint” rule, remanded the cases back to state court. Under the “well-pleaded complaint” rule, federal question jurisdiction 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.
State courts will thus 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.
In City of New York v. Chevron Corp., a case originally filed in federal court, the City of New York asserted nuisance and trespass claims under New York law against domestic and foreign fossil fuel producers. The city 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. A substantial damages award, the court reasoned, 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.
The court additionally concluded that the case could upset “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.” Subjecting the defendants’ global operations to a “welter of different states’ laws” could undermine important federal policy choices.
Relying on American Electric Power Co. v. Connecticut and Native Village of Kivalina v. ExxonMobil Corp., the court further 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 (CAA). In American Electric, the Supreme Court held that the CAA displaces federal common law public nuisance claims seeking injunctive relief in the form of abatement of carbon dioxide emissions. Then, in Native Village of Kivalina, the Ninth Circuit held that this includes the displacement of public nuisance claims seeking damages allegedly resulting from climate change attributed to such emissions. The Second Circuit explained that, because the city’s claims, if successful, would de facto regulate GHG emissions, they were displaced by the CAA. The court notably rejected the city’s argument that its claims focused on the production, promotion, and sale of fossil fuels, which the CAA 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 CAA does not authorize the city’s claims. The court explained that, while the CAA’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.
As to foreign emissions, the court reasoned that the CAA has no extraterritorial reach and therefore did not displace the city’s claims to the extent that they sought 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.”
By comparison, in City and County of Honolulu v. Sunoco LP, the Supreme Court of Hawaii affirmed a circuit court’s order denying fossil fuel defendants’ motions to dismiss on federal preemption grounds.
In this case, the City and County of Honolulu is asserted state law claims for nuisance and trespass (as in City of New York), and also failure to warn. The claims were 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 asserted 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 governed transboundary pollution abatement and damage suits was displaced by the CAA and 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 conduct as the source of the plaintiffs’ alleged injury and the emissions themselves as being merely a “link in the causal chain.” The court then held that the CAA 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 CAA 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.”
As these 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 in Sunoco have already petitioned the Supreme Court for certiorari based on the conflicts with the Second Circuit’s decision in City of New York. The petitions were filed in late February.
While these cases proceed in the background, companies are having to continually assess and evaluate the business implications of climate-related regulatory developments.
Of particular relevance with respect to the EPA, the agency recently finalized methane rules for oil and natural gas facilities and new emissions standards and guidelines for power plants. The EPA also recently finalized a 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 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 limit Chevron, as argued by petitioners in two pending cases that will be decided later this term.
