Ninth Circuit curtails California greenhouse gas disclosure laws

The appellate court agreed with the U.S. Chamber of Commerce that the laws in part amounted to compelled speech that wasn't merited by California's interest in reducing emissions.(CN) — The Ninth Circuit said Monday that two California laws that require large corporations to disclose their greenhouse gas emissions and report their climate-related financial risk are either in part or completely unconstitutional.In a split decision, the panel affirmed in part and reversed in part a decision by a trial judge last year who rejected the U.S. Chamber of Commerce’s bid to halt enforcement of the two state laws until their constitutionality was decided.The panel said California’s Climate-Related Financial Risk Act, also known as SB 261, runs afoul of First Amendment protections against compelled speech because the required disclosures were akin to “subjective ideological assessments” rather than commercial speech, such as warning labels, that don’t require strict scrutiny to decide if a law infringes on a constitutional right.“SB 261 requires companies to opine on whether climate change poses financial risks to their operations and business model, thereby making predictive judgments about uncertain future conditions,” U.S. Circuit Judge Jacqueline Nguyen wrote.“The compelled disclosures require companies to go beyond providing economic information tethered to any commercial transaction,” the Barack Obama appointee added. “Instead, companies must share value-laden judgments on a politically fraught subject, and thus the disclosures fall outside the commercial speech doctrine.”Given that it doesn’t regulate commercial speech, SB 261 fails strict scrutiny because it isn’t narrowly tailored enough to meet California’s purported interest in “mitigating information asymmetries for investors, reducing emissions and correcting misleading speech,” Nguyen said.The second law the U.S. Chamber of Commerce challenged is the Climate Corporate Data Accountability Act, SB 253, which requires corporations with over $1 billion in annual revenue that operate in California to report greenhouse gas emissions from sources they directly own or control, the emissions from the companies’ purchased energy and the indirect emissions from their value chain, including those from their suppliers and customers.The majority agreed the first two requirements regulate commercial speech because they compel disclosure of factual information on emissions generated through the reporting entities’ own operations and bear on capital transactions.Moreover, California has demonstrated substantial interests in mitigating information asymmetries for investors and reducing emissions, as well as a likelihood these two disclosure requirements directly advance its interests and are no more extensive than necessary, the panel said.The appellate court upheld the trial judge’s denial of a preliminary injunction for those two requirements.As for the third requirement, insofar as it concerns diffuse third-party conduct in the value chain, it is insufficientlylinked to a company’s own operations and capital transactions to qualify as commercial speech, the panel said and reversed the judge’s denial of a preliminary injunction for that part of SB 253.In November, the Ninth Circuit panel had already stayed enforcement of SB 261 pending appeal, but it declined to do so for SB 253. Part of the latter law went into effect last month.U.S. Circuit Judge Mark Bennett dissented and wrote the majority equated investors’ interest in companies with consumers’ interest in products by finding the two requirements of SB 253 passed intermediate scrutiny insofar as they address California’s interest in mitigating information asymmetries for investors.This, the Donald Trump appointee said, could open the door to states requiring companies to disclose a host of otherwise unavailable information to address information asymmetries that might be useful to investors, such as, for example, the number of undocumented immigrant workers at a company.Senior U.S. District Judge Kiyo Matsumoto, a George W. Bush appointee at the U.S. District Court in Brooklyn, New York, who was sitting by designation, rounded out the panel.“The Ninth Circuit’s decision to halt the most onerous parts of California’s climate disclosure laws is an important victory for businesses and the protection of their First Amendment rights," Daryl Joseffer, president of the U.S. Chamber Litigation Center, said in a statement. “The injunction prevents the state from imposing massive compliance costs on companies, especially small businesses, and confirms that states cannot unilaterally impose sweeping, extraterritorial mandates.”In a statement to Courthouse News, California Attorney General’s Office representatives said they “are pleased that reporting under SB 253 will move forward, providing valuable Scope 1 and Scope 2 information to California stakeholders. We are evaluating next steps and remain committed to protecting Californians’ access to critical climate data in a changing world.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads