Judge inclined to back California in climate report dispute with Exxon

SACRAMENTO, Calif. (CN) — A federal judge said Thursday that he didn’t think a California statute requiring certain companies to report climate data is preempted by federal law.

However, U.S. District Judge Daniel Calabretta made no final decision on the state’s motion to dismiss the case filed by Exxon Mobil over two laws California says heighten transparency and provide access to data about greenhouse gas emissions.

The laws, passed in 2023, require businesses operating in California with annual revenues over $1 billion to publicly reveal their emissions. They also require businesses bringing in over $500 million to issue forward-looking reports on climate-related business risks.

Exxon has argued the laws violate its First Amendment rights and the supremacy clause, the latter of which subordinates state laws that conflict with federal statute.

“I don’t think the statute’s preempted,” the Joe Biden appointee said, giving attorneys his tentative ruling.

The state law focuses on specific information — climate-related financial risk, the judge said. Disclosures required by the federal government, in turn, hinge on a different form of risk — what Calabretta called a separate concept.

Exxon attorney Jonathan Schneller said federal law prohibits states from requiring companies to reveal specific data. He argued that if California could impose climate-related reports on companies, then any state could create similar obligations on a host of other topics.

States can’t place reporting requirements on companies that federal authorities already have imposed. Congress intended to stop states from placing burdensome reporting duties on such businesses, Schneller said.

“I don’t see anything in the law that says that,” Calabretta said. He questioned why Congress wouldn’t clearly state in law that states couldn’t impose reporting requirements.

In its lawsuit, Exxon says the state laws force it to become a mouthpiece for ideas it opposes. The oil giant claims California wants to embarrass corporations it believes shoulder the blame for climate change, leading them to reduce emissions.

But states can’t demand certain speech from private parties and make them adhere to a specific ideological view, it adds.

“We need a good reason to think that this is what Congress was trying to accomplish,” Schneller said.

Arguing for the state, Deputy Attorney General Katherine Gaumond said a carveout does exist in federal law, enabling states to impose specific reporting requirements.

“A state can dictate what sort of content is in a proxy statement,” she said.

That carveout “contemplates” states having the power to require the inclusion of certain data from companies. Also, it’s clear Congress had no intention of broadly preempting all disclosure laws a state might pass, Gaumond said.

Calabretta questioned whether the laws could apply to businesses other than those that offer securities. Gaumond noted they’re tailored to affect only businesses that meet an annual revenue threshold.

Exxon has argued California law is preempted by the National Securities Markets Improvement Act of 1996. The state pushed back on that in its motion to dismiss, arguing Congress had no intention to usurp a state’s ability to require disclosure of important financial information.

The act preempts a state’s power over regulating the registration or qualification of securities, California argued. Its laws don’t regulate issues like that.

“Moreover, if Congress had wanted to preempt state laws establishing additional, separate financial reporting requirements for issuers, Congress knew how to do so,” the state said in its motion.

Calabretta appeared to agree.

“That’s not what the state is trying to do here,” he said.

He noted he has no background in securities litigation, as the Eastern District of California isn’t a “hotbed” of such legal disputes. However, he said Exxon’s suit is also about interpreting the law.

“I do that a lot,” he quipped.