In the federal lawsuit challenging the constitutionality of California's landmark Senate Bills 253 and 261, Judge Wright of the Central District of California narrowed the constitutional claims the court will consider at trial.
SB 253 requires companies doing business in California whose total revenues exceed $1 billion to disclose emissions related to their own operations, emissions generated by their energy consumption in carrying out business activities, and all other emissions in their operations and supply chains. SB 261 requires companies doing business in California with total revenues exceeding $500 million to disclose climate-related financial risks.
The California Chamber of Commerce is the lead plaintiff in a federal lawsuit challenging various elements of the two bills on constitutional grounds, alleging, among other things, that the new reporting requirements violate the First Amendment.
Judge Wright determined that the plaintiffs' Supremacy Clause and extraterritoriality challenges to SB 253 are not ripe for review because the plaintiffs' failed to establish that their challenge is timely despite there being no published CARB regulations imposing any obligation on covered entities. Judge Wright concluded that the plaintiffs' failed to identify an "enforcement threat" or establish that SB 253 imposes any obligations on the plaintiffs' members.
Judge Wright determined SB 261 does not violate the Supremacy Clause, noting that SB 261 regulates speech and is not a de facto regulatory scheme subject to preemption. He distinguished liability for failure to reduce emissions from failure to disclose climate-related financial risk, thus rejecting the plaintiffs' claims that federal laws like the Clean Air Act preempt SB 261.
Judge Wright also held that SB 261 does not violate the dormant Commerce Clause and granted the State's motion to dismiss the plaintiffs' extraterritoriality cause of action. The court found that the plaintiffs' failed to establish that California enacted SB 261 with a "discriminatory purpose" and that the law treats in-state and out-of-state actors equally.
In addition, the court did not find that SB 261 created a burden on interstate commerce that clearly exceeds the local benefits, as the plaintiffs did not plausibly allege a significant burden on interstate commerce.
Manatt will continue to provide updates as the litigation plays out.
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