Oil Companies Fail to Convince the Eighth Circuit Climate Cases Should Be Removed to Federal Court (Updated)

The Eighth Circuit joins the First, Third, Fourth, Ninth, and Tenth in rejecting the arguments for removal, but Judge David Stras writes an interesting concurrence.

On Thursday, a unanimous panel of the U.S. Court of Appeals for the Eighth Circuit rejected arguments by fossil fuel companies that state-law-based tort claims concerning climate change should be heard in federal court. On this basis the panel in Minnesota v. American Petroleum Institute affirmed the district court's remand of the case to state court.

Judge Kobes wrote for the court, joined by Judges Grasz and Stras, making quick work of the various arguments for removal. The arguments here are straight-forward, and align with the conclusions of the five other federal circuit courts to have considered such claims (the 1st, 3rd, 4th, 6th, and 9th Circuits). [This post is long, so the rest is below the jump.]

 Of particular interest (to me at least) the Court explained why the oil companies were mistaken to argue that state-law-based climate change claims are completely preempted by federal law. (Note that to justify removal, the defendant oil companies have to demonstrate complete preemption of the state law claims, not mere federal preemption, and this is a higher hurdle to clear.)

To determine whether a state-law claim is completely preempted, we ask whether Congress intended a federal statute to provide "the exclusive cause of action for the claim asserted and also set forth procedures and remedies governing that cause of action." Beneficial Nat'l Bank, 539 U.S. at 8. Because "[t]he lack of a substitute federal [cause of] action would make it doubtful that Congress intended" to preempt state-law claims, "without a federal cause of action which in effect replaces a state law claim, there is an exceptionally strong presumption against complete preemption." Johnson, 701 F.3d at 252. Complete preemption is very rare. The Supreme Court has applied it to only three statutes: § 301 of the Labor Management Relations Act, Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557, 560–61 (1968); § 502(a) of ERISA, Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987); and §§ 85 and 86 of the National Bank Act, Beneficial Nat'l Bank, 539 U.S. at 10–11.

Contrary to the Energy Companies' insistence, federal common law on transboundary pollution does not completely preempt Minnesota's claims. At several points in our nation's history, courts have applied federal common law to public nuisance claims involving transboundary air or water pollution. Boulder III, 25 F.4th at 1258–61 (detailing the history of federal common law in pollution cases); City of New York v. Chevron Corp., 993 F.3d 81, 91 (2d Cir. 2021) (collecting cases). And the Second Circuit recently held that federal common law still provides a defense—ordinary preemption—to state-law public nuisance. New York, 993 F.3d at 94–95. Though, there is a serious question about whether, and to what extent, this area of federal common law survived subsequent federal environmental legislation.

Even if federal common law still exists in this space and provides a cause of action to govern transboundary pollution cases, that remedy doesn't occupy the same substantive realm as state-law fraud, negligence, products liability, or consumer protection claims. There is no substitute federal cause of action for the state-law causes of action Minnesota brings, which means we apply the strong presumption against complete preemption. And more importantly, the federal law at issue is common law, not statutory. Because Congress has not acted, the presence of federal common law here does not express Congressional intent of any kind—much less intent to completely displace any particular state-law claim. Boulder III, 25 F.4th at 1262.

Because Congress has not acted to displace the state-law claims, and federal common law does not supply a substitute cause of action, the state-law claims are not completely preempted.

As Judge Kobes notes, the U.S. Court of Appeals for the Second Circuit concluded that similar claims were preempted by federal law. That court did not need to reach the question of  complete preemption, however, as that case had been filed in federal court and there was thus no need to contest removal. Also, for what it's worth, I believe the Second Circuit bollixed the preemption analysis for reasons I explain in this post and this article.

Judge Stras wrote separately to address the seemingly anomalous result that concerns about transboundary pollution are able to brought in state court rather than federal court. I agree with Judge Stras's suggestion that this is odd, and that problems like climate change are better addressed at the federal level than the state level. Yet for reasons I explain below, fixing this would require more than relaxing the standard for complete preemption or removal.

Here are some excerpts from Judge Stras's opinion:

Artful pleading comes in many forms. This is one of them. Minnesota purports to bring state-law consumer-protection claims against a group of energy companies. But its lawsuit takes aim at the production and sale of fossil fuels worldwide. I agree with the court that, as the law stands now, the suit does not "aris[e] under" federal law. 28 U.S.C. § 1331. I write separately, however, to explain why it should. . . .

There is no hiding the obvious, and Minnesota does not even try: it seeks a global remedy for a global issue. According to the complaint, energy production has "caused a substantial portion of global atmospheric greenhouse-gas concentrations." Those gases, the argument goes, have resulted in "climate change"—a label that appears in the complaint over 200 times. The relief sought is ambitious too: a far-reaching injunction, restitution, and disgorgement of "all profits made as a result of [the companies'] unlawful conduct." . . .

Minnesota has strong views about how to deal with the issue. Other states do too. . . . This is, in effect, an interstate dispute.

Not surprisingly, disputes between states are as old as the country itself. . . . Interstate disputes were so common and complicated, in fact, that the Framers specifically vested original jurisdiction over them in the Supreme Court. . . . The rule of decision in these cases has always been "known and settled principles of national or municipal jurisprudence"—what we now know as the federal common law. . . .

State law is no substitute. . . . When it comes to "outside nuisances" like this one, courts have long looked to common-law principles like "considerations [of] equity," "quasi-sovereign interests," and the need for "caution." Georgia v. Tenn. Copper Co., 206 U.S. 230, 237–38 (1907) (emphasis omitted); . . . Applying state law, by contrast, only raises the risk of conflict between states, which never "agree[d] to submit to whatever might be done" to their citizens. . . . For that reason, state law has never "st[oo]d in the way" of using "recognized" (federal) common-law principles. . . . see The Federalist No. 80 (Alexander Hamilton) ("Whatever practices may have a tendency to disturb the harmony between the States, are proper objects of federal superintendence and control.").

The point is that federal law still reigns supreme in these types of disputes, notwithstanding Erie's famous declaration that "[t]here is no federal general common law." Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); . . . The reason is the "'overriding . . . need for a uniform rule of decision' on matters influencing national energy and environmental policy." City of New York, 993 F.3d at 91–92 (quoting Illinois v. City of Milwaukee, 406 U.S. 91, 105 n.6 (1972), superseded by statute, Federal Water Pollution Control Act Amendments of 1972, Pub. L. No. 92-500, 86 Stat. 816). As the Second Circuit has put it in circumstances like these, conflicts between states with different tolerances for greenhouse-gas emissions can only be resolved at the federal level because of the "unique[] federal interests" involved. . . .

Today's lawsuit is as good an example as any. . . .

The problem, of course, is that the state's attempt to set national energy policy through its own consumer-protection laws would "effectively override . . . the policy choices made by" the federal government and other states. Ouellette, 479 U.S. at 495. Regulating the production and sale of fossil fuels worldwide, in other words, is "simply beyond the limits of state law." City of New York, 993 F.3d at 92. . . .

The complaint itself all but dares the companies to raise a federal-preemption defense. And no one doubts that they will or that it will be the focal point of the litigation. There is no reason for the removal rules to operate in such a confounding way.

And at one point, they didn't. See Tennessee v. Union & Planters' Bank, 152 U.S. 454, 460 (1894) (collecting cases). If there was a "real and substantial dispute or controversy which depend[ed] altogether upon the construction and effect of an act of Congress," even if "the claim . . . might[] possibly be determined by reference alone to State enactments," it was removable. R.R. Co. v. Mississippi, 102 U.S. 135, 140 (1880); see Union & Planters' Bank, 152 U.S. at 460–62 (discussing the history). Perhaps for a "uniquely federal interest[]" like interstate pollution, it should still be that way. City of New York, 993 F.3d at 90; see Franchise Tax Bd., 463 U.S. at 11–12 (describing the well-pleaded complaint rule "as a quick rule of thumb" that "may produce awkward results").

But only Congress or the Supreme Court gets to make that call. And we have our marching orders: even the strongest arguments for removal don't work here.

I agree with Judge Stras that it is odd that these sorts of cases are being brought in state court under state law, and cannot be brought under federal law. The problem, however, is not that current removal jurisprudence is particularly stingy. The problem is that under current law — Milwaukee II and AEP v. Connecticut in particular, there is no federal law to govern the dispute, and thus no federal law to preempt the state law claims (a point I explain at greater length here).

Under Milwaukee II and AEP, the federal common law of interstate nuisance is displaced by the enactment of the Clean Water Act and Clean Air Act, leaving only state law to address such claims, a point the Supreme Court expressly affirmed in Ouellette. Put another way, even if the cases could be removed (and contrary to the conclusions of the Second Circuit in City of New York v. Chevron), there would still be no federal law to preempt the state law claims.

Federal common law can have preemptive effect, as Judge Stras notes, but that requires there to be federal common law, and the federal common law of interstate nuisance has been displaced. Further, neither the Clean Water Act nor the Clean Air Act preempts state-law claims of this sort. Indeed, contrary to the Second Circuit's analysis, pollution control has historically been handled under state law (whether through common law causes of action or state and local regulation). Federal pollution control statutes were enacted against this background of state law, and only preempt state law in a few narrow instances (usually involving goods that are sold across state lines). Thus even if one were to adopt a broad notion of field or conflict preemption, it is still exceedingly difficult to argue that federal law—in this case, the Clean Air Act—was intended to preempt state-law-based claims arising out of climate change concerns.

Congress could change this state of affairs by enacting a federal climate change statute that preempts or constrains state law claims, but it has yet to do so. Indeed, other than the Inflation Reduction Act [sic], a spending bill, Congress has never enacted a statute for the purpose of controlling greenhouse gases or otherwise mitigating climate change. (It has enacted a few small statutes that have such effect, such as laws implementing international treaties concerning ozone-depleting substances, but the purpose of such laws was not to address greenhouse gases as such). [See update below.]

The Supreme Court could also address Judge Stras's concern. Yet, as indicated above, a more permissive removal doctrine would not do the trick. Unless the justices are inclined to invent a good-for-climate-change-only carve out to existing doctrine, the only way for the Court to allow for the preemption of state law claims would be to resurrect the federal common law of interstate nuisance, and this would require overturning the doctrine of displacement announced in Milwaukee II and applied to air pollution in AEP.

Overturning Milwaukee II would be a dramatic step. Nonetheless, I would be okay with this result, as I believe the doctrine of displacement was invented to relieve the Court of having to consider interstate pollution disputes under its original jurisdiction. In my view, the displacement doctrine makes little sense in those contexts in which there needs to be federal law, such as in the context of interstate pollution, as it makes it too easy to eliminate federal common law causes of action, particularly where Congress has neither indicated its intention to displace such claims nor created a viable substitute.

A better approach would be to allow federal common law to operate unless preempted. The analysis here should be similar to what occurs under state law all the time. When states enact pollution control statutes (as they did long before the federal government got into the act), state courts would consider whether state legislatures expressly or necessarily barred state law claims from operating. The result is a test that it far more difficult to meet than under existing displacement doctrine, but a little bit more permissive than federal preemption doctrine under cases like Virginia Uranium (as the federalism concerns that may justify a presumption against preemption are not in play when a sovereign is preempting its own common law). It would also be perfectly fine for Congress to preempt all climate-based litigation in the process of enacting a meaningful climate policy, such as a carbon tax. (Indeed, I would support such a move.)

What would not be a satisfactory or justifiable outcome would be for the Supreme Court to hold that climate-related claims can be removed and preempted by a federal common law that otherwise does not exist for the purpose of bringing climate-based claims. Such overt policy-making is not the province of federal courts, and a Court holding to such effect, in the absence of such an instruction from Congress, would be lawless and unprincipled. And this is all the more reason why Congress needs to get off the climate policy sidelines.

UPDATE: I have received some comments about my claim that "Congress has never enacted a statute for the purpose of controlling greenhouse gases or otherwise mitigating climate change," beyond the IRA, as well as some comments on the IRA itself, so a few notes in response.

Some point to provisions in the American Innovation in Manufacturing (AIM) Act of 2020, which authorize the EPA to reduce emissions of HFCs. Because HFCs are greenhouse gases, controlling HFCs has climate benefits. But I would argue the purpose of the AIM Act was to fulfill the U.S. obligation under the Montreal Protocol to limit ozone-depleting substances, HFC emissions affect stratospheric ozone, and such reductions would have been required under the (subsequently ratified) Kigali Amendment whether or not HFCs also contribute to climate change. That said, it is fair to note that some politicians and industry groups openly encouraged passage of the AIM Act as a means of helping to address climate change by controlling a small subset of particularly potent GHGs. None of this affects my broader argument about the preemption of state-law-based climate suits. At most, the AIM Act could provide the basis for a (weak) argument that a state-law-based suit targeting HFCs was preempted, but even that would be a stretch.

On the IRA itself, I've previously explained why reports that the IRA reinforces EPA's authority to regulate GHGs are overstated. Further, how effective the IRA is at subsidizing GHG emission reductions will depend, in large part, on the extent to which there are regulatory or statutory reforms that accelerate permitting processes and remove barriers to the deployment clean energy sources and greater transmission capacity. The IRA is nonetheless significant legislation—certainly the most significant climate-related bill ever to make it to a President's desk—and might well encourage GHG emission reductions, but it does not "control" or regulate GHG emissions and thus provides no support for preemption claims.