United States: U.S. Supreme Court Rules In Favor Of Power Companies On Global Warming But Leaves Important Questions Undecided

On Monday, June 20, 2011, the Supreme Court of the United States issued its much anticipated decision in American Electric Power Co., Inc. v. Connecticut, Supreme Court No. 10-174. Following oral argument in April, most observers agreed that the Court would reverse the decision of the 2nd Circuit Court of Appeals, and the only real question was the basis of the opinion. These predictions turned out to be accurate as the Court reversed the decision of the 2nd Circuit in an 8-0¹ opinion written by Justice Ginsburg². However, the opinion of the Court leaves some important questions unanswered. The Court deadlocked on what some considered the central issue in the case: whether the plaintiffs had standing to bring their claims. The Court based its opinion on the relatively narrow ground that the injunctive relief sought was "displaced" by the EPA's authority to regulate carbon dioxide emissions under the Clean Air Act. The Court left unresolved a number of important issues, including whether state nuisance claims would be preempted by federal law. Moreover, the opinion will not resolve the viability of claims for damages, as opposed to injunctive relief.

The AEP case was commenced when two groups of plaintiffs filed separate complaints in the U.S. District for the Southern District of New York against the same five electric power companies. AEP, slip op. at 3-4. The first group of plaintiffs included eight states and the city of New York, the second group included three private nonprofit land trusts. Id. at 4. The defendants were four private power companies and the Tennessee Valley Authority. The complaints alleged that the defendants are the five largest emitters of carbon dioxide in the United States. Id. The plaintiff's alleged that by contributing to global warming, the defendants' carbon dioxide emissions created a substantial and unreasonable interference with public rights in violation of the federal common law of interstate nuisance, or in the alternative, state tort law. Although each of the plaintiffs alleged that they had suffered and would continue to suffer damage to property that they owned or controlled, they did not seek any compensatory damages. Instead, they "sought injunctive relief requiring each defendant 'to cap its carbon dioxide emissions and then reduce them by a specified percentage each year for at least a decade.'" Id. at 4-5.

The district court dismissed both suits as presenting nonjusticiable political questions. 406 F. Supp. 2d 265 (S.D.N.Y. 2005). The 2nd Circuit reversed. 582 F.3d 309 (2d Cir. 2009). In lengthy discussions, the court found that the claims were not barred by the political questions doctrine and that both sets of plaintiffs had adequately alleged Article III standing. The Court of Appeals also found that the Clean Air Act did not "displace" federal common law. At the time of the 2nd Circuit's ruling, the EPA had not yet promulgated any rule regulating greenhouse gasses, a fact the court found dispositive. AEP, slip op. at 5-6.

The Supreme Court began its analysis by addressing the argument that the federal courts did not have jurisdiction to decide the case because the plaintiffs lacked standing. The Court stated that four justices would hold that at least some of the plaintiffs had Article III standing, and that four justices would hold that none of the plaintiffs had Article III standing. The 2nd Circuit's exercise of jurisdiction was therefore affirmed by an equally divided Court. Id. at 6.

The Court did not identify which justices would rule which way. As Justice Sotomayor did not participate in the case, it is interesting to speculate how the issue would be resolved if she were participating. This will be a very important issue in future global warming cases that will inevitably come before the Court. This may not be an issue that neatly breaks down into the typical "liberal/conservative" split with Justice Kennedy as the deciding vote. At oral argument, Justice Scalia indicated that he would be concerned about barring the plaintiffs from suing in federal court and thereby sending them into a multitude of state courts. He admitted, "I would frankly have federal judges do it." See, Stephen A. Miller, "Global-Warming Litigation Gets Frosty Reception at the Supreme Court," The Legal Intelligencer (Philadelphia), 5/24/2011.

Turning to the merits, the Court stated that it need not decide whether the plaintiffs could state a claim for federal common law nuisance because "any such claim would be displaced by the federal legislation authorizing EPA to regulate carbon dioxide emissions." AEP, slip op. at 9. In addressing "displacement," the Court stated that the test for whether congressional legislation excludes the declaration of federal common law is whether the statute speaks directly to the question at issue. Id. at 10. The Court then stated:

AEP, slip op. at 10.

The Court noted that the Clean Air Act directs the EPA to identify categories of stationary sources of pollution and to establish standards of performance for emission of pollutants from new or modified sources within a category. For existing sources, the EPA issues emissions guidelines. If the EPA does not set emissions limits for a particular pollutant, states or private parties may petition for a rulemaking and the EPA's response will be subject to judicial review. The Court noted that the EPA is currently engaged in rulemaking to set standards for greenhouse gas emissions from fossil-fuel fired power plants. In fact, the majority of the plaintiffs had sought the rulemaking. Id. at 11. The Court concluded that the "Act itself thus provides a means to seek limits on emissions of carbon dioxide from domestic power plants – the same relief the plaintiffs seek by invoking federal common law. We see no room for a parallel track." Id.

The Court next rejected the plaintiffs' argument that federal common law is not displaced until the EPA actually exercises its regulatory authority. The Court stated that "the critical point is that Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is what displaces federal common law." The Court also noted that if the EPA declined to regulate carbon dioxide emissions, the federal courts would still not be warranted to employ federal common law nuisance to change that determination. The Court "hasten[ed] to add" that any such decision to refrain from regulating carbon dioxide would be subject to judicial review. This raises an interesting question as to whether the Supreme Court would permit federal common law nuisance claims if Congress were to withdraw from the EPA the authority to regulate carbon dioxide. There has been discussion by some in Congress about passing that very legislation.

Finally, the Court declined to address the issue of whether the plaintiffs' state law claims were preempted by the federal law. Because the issue was not briefed by the parties, the Court left the matter open for consideration on remand.

The AEP case is interesting as much for what was decided as for what was not. The Court held that the Clean Air Act displaces only "a federal common law right to seek abatement of carbon dioxide emissions from fossil-fuel fired power plants." There is a significant question as to whether the Court would reach a different conclusion if Congress amends the Clean Air Act to withdraw the authority to regulate carbon dioxide from the EPA. In addition, the Court was unable to make a precedential decision as to whether or which plaintiffs have Article III standing to seek relief for global warming caused by carbon dioxide emissions. In addition, the Court only held that the plaintiffs could not seek an injunction capping and reducing carbon dioxide emissions from power plants. The Court did not address claims for damages and specifically declined to decide whether state law tort claims are preempted by the Clean Air Act. As the Court suggested that the standard for preemption is higher than for displacement, the Court could find that state law claims are not preempted. Id. at 9-10. The question of preemption will be critical in future cases.

The issue of state law claims for damages is not academic. There have been at least two cases in the federal courts in which plaintiffs have sought financial compensation for harm allegedly caused by global warming. For example, in Native Village of Kivalina v. ExxonMobil Corp., 633 F. Supp. 2d 863 (N.D.Cal. 2009), the plaintiffs sought, among other things, the cost to relocate the village off of the barrier island that was allegedly eroding as a result of global warming. That case is presently pending before the Court of Appeals for the 9th Circuit. In another case, which had a tortured procedural history, the plaintiffs sought compensation for damage caused by Hurricane Katrina which allegedly was more severe as a result of global warming. Comer v. Murphy Oil U.S.A., 585 F.3d 855 (2d Cir. 2009). These issues were not resolved by this week's decision. The defendants may not have the finality that they may have desired.

The fact that defendants may be sued by private plaintiffs seeking to recover damages under state nuisance law is significant for the insurance industry. When such a suit is filed, the defendant can be expected to seek coverage from its insurer. There is already an action pending before the Virginia Supreme Court in which an insured is seeking defense and indemnification for the claims asserted in the Kivalina Action. These claims will raise complicated coverage issues such as whether there is an occurrence, the number of occurrences, the application of the pollution exclusion, trigger of coverage, and allocation. Insurers and reinsurers will need to stay abreast of these issues.

Footnotes

^{1 Justice Sotomayor did not participate in the case because she was on the 2nd Circuit panel that heard the case.}

^{2 Justice Alito issued a brief concurring opinion, joined by Justice Thomas.}

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