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Business interests, Republican state attorneys general, and environmentalists flocking to upend the SEC’s recently approved emissions reporting rules have spread at least nine lawsuits across six federal courts. Each case has been filed in a circuit with an ideological bent that meshes with the filers, though they have no sway in what’s expected next.
Ultimately, the cases are poised to land as soon as this week in one randomly selected court that would begin to determine the regulations’ fate.
That single court would be determined through a more than three-decade-old lottery process triggered by a request from the Securities and Exchange Commission to consolidate the cases against its March 6 rules that some argue went too far and others say didn’t do enough to provide investors with information about companies’ risks from climate change.
The courts that have received cases related to the SEC rules would each get one entry in a “drum,” from which a clerk based in Washington would draw the name of the venue to hear the consolidated case. The entrants in the drum would be the US appeals courts for the Second, Fifth, Sixth, Eighth, Eleventh, and District of Columbia circuits, which all have received at least one petition related to the SEC’s climate regulation, Bloomberg Law has confirmed.
The Fifth Circuit, which has received at least four lawsuits over the rules, would have the same chance of snagging the case as the five other courts that collected single challenges.
The lottery system has been used in other situations where a federal regulation attracts an influx of litigation. In November 2021, for example, the Sixth Circuit was selected using the same process to hear a consolidated case targeting the Biden administration’s policy asking large employers to make their workers get vaccinated against Covid-19 or test for the virus regularly.
Though the courts poised to enter the lottery have different political leanings, the procedure was designed to fight manipulation by giving each venue an equal shot at the litigation, said Elizabeth Chamblee Burch, a University of Georgia law professor who studies multi-district litigation.
“The whole point of it is to ensure faith in the judicial system such that this is really a random selection and that that doesn’t feel like people are gaming the system,” Burch said.
Republican-appointed judges hold the majority on four of the six courts expected in the drawing, increasing the odds the case will land before a conservative-leaning panel. Of the nine challenges confirmed overall, seven came from 25 Republican state attorneys general and companies that sought less stringent reporting than what the SEC required on companies’ greenhouse gas emissions and other climate-related matters. The two others were from environmental groups that have said the agency’s regulations didn’t go far enough.
Lawyers for the challengers said they weren’t attempting to manipulate the lottery toward a court with a certain leaning by filing their lawsuits where they did.
The Texas Alliance of Energy Producers falls on the side arguing the SEC’s rules went too far and filed its petition in the conservative-leaning Fifth Circuit. But that choice of venue is simply because the oil and gas industry group is located within the Fifth Circuit’s boundaries, said Rachel Paulose, a Pacific Legal Foundation attorney representing the organization.
The Sierra Club is one of the groups that will argue the rules should have gone further and required disclosures of indirect greenhouse gas emissions from companies’ suppliers and customers. The nonprofit decided to bring its challenge in the liberal-leaning DC Circuit due to that court’s experience with cases concerning the SEC, which is headquartered in Washington, said Hana Vizcarra, an Earthjustice senior attorney representing the Sierra Club.
Vizcarra said she expected challengers would bring cases anywhere they could.
“It doesn’t improve the validity of their claims by any means that they’ve managed to convince that many states and other players to participate,” Vizcarra said of those who sought leaner rules.
(The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg. Bloomberg Law is operated by entities controlled by Michael Bloomberg.)
The SEC appeared skeptical of the intentions of at least one of the litigants, however.
As part of its first formal response to the flood of lawsuits, the commission urged the Fifth Circuit to reject what the agency said was “forum shopping” by fracking company Liberty Energy Inc., which asked to pause the agency’s rules after it sued in the court.
The agency told the Fifth Circuit a ruling on whether to pause the rules would be premature given a lottery has yet to determine which court would get the case that consolidates the various challenges. But Liberty said the Fifth Circuit had the power to rule on a stay request at this time. The court placed a temporary hold on the rules March 15.
Any possible SEC suggestion that politics are at play by litigating the case in the Fifth Circuit is “ironic,” Paulose said. Democratic SEC Chair Gary Gensler has said the commission is “merit neutral” on investment decisions based on climate change and created the rules in response to investor demands for more robust disclosures. The rules didn’t have the support of the agency’s two Republican commissioners, however.
Playing politics is “exactly what they did with this rule,” Paulose said.
An SEC spokesperson and a lawyer for Liberty declined to comment.
Challengers have 10 days after the SEC issues regulations to file petitions asking courts to review them under federal rules for multi-circuit litigation.
It’s unclear when that window closes for the climate rules. The earliest that period could have ended is March 16, 10 days after the SEC adopted the regulations. But it may extend to 10 days after the rules are published in the Federal Register, which has yet to happen.
The Washington-based Judicial Panel on Multidistrict Litigation handles the lottery process, which Congress created in 1988. Before then, the court that got the first petition heard the challenges.
The SEC must send a notice to the panel to trigger the raffle. The drawing itself is closed to the public and is effective when the panel’s clerk enters a consolidation order.
“The Clerk of the Panel shall randomly select a circuit court of appeals from a drum containing an entry for each circuit wherein a constituent petition for review is pending,” according to the multi-circuit litigation rules. The rules add: “a designated deputy other than the random selector shall witness the random selection.”
“It’s kind of just a pretty humdrum procedure,” Burch said.
To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com
To contact the editors responsible for this story: Amelia Gruber Cohn at agrubercohn@bloombergindustry.com; Jeff Harrington at jharrington@bloombergindustry.com
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