Supremacy Clause and Dormant Commerce Clause claims against SB 253 and SB 261 were dismissed, while claims under the First Amendment proceed to discovery.
By Joshua Bledsoe, Nikki Buffa, Betty M. Huber, and Matthew Green
On February 3, 2025, in Chamber of Commerce of the United States of America et al. v. California Air Resources Board et al.,1 the US District Court for the Central District of California granted the state’s motion to dismiss the plaintiffs’ Supremacy Clause and Dormant Commerce Clause claims against Senate Bill (SB) 253 and SB 261.2
SB 253 and SB 261
Senate Bill 253, the Climate Corporate Data Accountability Act (SB 253), requires entities doing business in California, with annual revenues over $1 billion, to annually report their Scope 1 and Scope 2 greenhouse gas (GHG) emissions starting in 2026, and their Scope 3 emissions starting at a date to be determined by the California Air Resources Board (CARB).
Senate Bill 261, the Greenhouse Gases: Climate-Related Financial Risk Act (SB 261), requires entities doing business in California, with annual revenues over $500 million, to publish a climate-related financial risk report in accordance with the recommended framework and disclosures in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures, starting on January 1, 2026, and biennially thereafter.
Read this Latham Client Alert for more detail on these laws.
Read this Latham blog post for more detail on the implementation of these laws by CARB, which issued an Enforcement Notice for SB 253 stating that CARB will not penalize in-scope entities for incomplete compliance when first disclosures under the law are due in 2026.
Lawsuit
The US Chamber of Commerce, the California Chamber of Commerce, and other business groups sued the State of California and CARB on January 31, 2024, alleging that SB 253 and SB 261 were unconstitutional because the laws: (1) violate the First Amendment by compelling speech; (2) violate the Supremacy Clause by regulating GHG emissions when the US Clean Air Act and federalism principles reserve that authority to the federal government; and (3) violate the limitations on extraterritorial regulation, such as the Dormant Commerce Clause, because they impose significant burdens on interstate and foreign commerce.3
The plaintiffs filed an early motion for summary judgment on their first claim, that SB 253 and SB 261 facially violate the First Amendment. The court denied the motion, ruling that discovery was necessary to develop a factual record to determine which level of scrutiny it should apply: (1) strict scrutiny because the laws are content-based restrictions on speech; (2) intermediate scrutiny because the laws regulate commercial speech; or (3) rational-basis scrutiny because the regulated speech is purely factual and uncontroversial.
Read this Latham blog post for more detail on the denial of summary judgment for the First Amendment claim.
Dismissal of Supremacy Clause and Dormant Commerce Clause Claims
SB 253 Challenges
The court dismissed the Supremacy Clause and Dormant Commerce Clause challenges to SB 253 without prejudice, citing a lack of standing and ripeness — two doctrines which ensure that a case has developed sufficiently to be adjudicated.4 The court emphasized the following statutory language of SB 253, which only obligates action from reporting entities when CARB adopts implementing regulations: “[CARB] shall develop and adopt regulations to require a reporting entity to annually disclose … all of the reporting entity’s scope 1 emissions, scope 2 emissions, and scope 3 emissions.”
Therefore, the court found that until CARB issues such regulations, SB 253 does not mandate any emissions disclosures, or any other action, from any reporting entity, including the plaintiffs. The court thus concluded that SB 253 poses no credible threat of prosecution, and that plaintiffs did not show a concrete plan to violate SB 253, because the law currently imposes no obligations. The court found that this lack of ripeness precludes a current justiciable controversy. Moreover, the court recognized that the plaintiffs did not identify any hardship to delaying the court’s consideration of these challenges until after CARB issues regulations which actually impose requirements on the plaintiffs.
SB 261 Challenges
The court found that plaintiffs’ challenges to SB 261 under the Supremacy Clause and Dormant Commerce Clause were ripe because, unlike SB 253, SB 261 does mandate action from reporting entities in the absence of CARB implementing regulations: it requires them to submit a climate-related financial risk report, and non-compliance would violate the law.
The court subsequently dismissed the Supremacy Clause claim against SB 261 with prejudice, finding that no federal law preempts SB 261’s compelled disclosure of climate-related financial risks. Key to this decision was the court’s conclusion that SB 261 does not regulate GHG emissions directly, but rather mandates disclosure of climate-related financial risks. Therefore, the court did not accept plaintiffs’ claims that federal law — particularly the Clean Air Act, which regulates GHG emissions by empowering the Environmental Protection Agency to set emissions standards — preempts the legislation. SB 261 does not conflict with the Clean Air Act because in the court’s opinion, SB 261 “does not set emission limits.” The court ruled that since the plaintiffs did not identify any federal law that preempted the mere disclosure of climate-related financial risks, the Supremacy Clause claim against SB 261 should be dismissed.
The court also dismissed, initially without prejudice, the Dormant Commerce Clause claim against SB 261. The Dormant Commerce Clause prohibits laws that discriminate against interstate commerce by providing benefits to in-state economic interests, while burdening out-of-state competitors. The court found that SB 261 does not violate these limits on extraterritorial regulation because: (1) SB 261 does not discriminate (or have a discriminatory purpose) against interstate commerce because the law applies equally to both California and out-of-state businesses; and (2) the plaintiffs failed to allege a significant burden on interstate commerce. However, the court ruled that the plaintiffs may be able to raise plausible facts that support a burden on interstate commerce sufficient to state a claim. The plaintiffs had 21 days to file a Second Amended Complaint; since they did not, the court will consider the dismissal of the Dormant Commerce Clause challenge to SB 261 to be with prejudice.
Current Status of Three Claims Against SB 253 and SB 261
| SB 253 Cause of Action | Status |
| First Amendment | Discovery |
| Supremacy Clause | Dismissed without prejudice Plaintiffs could reassert this claim once CARB implements regulations |
| Dormant Commerce Clause | Dismissed without prejudice Plaintiffs could reassert this claim once CARB implements regulations |
| SB 261 Cause of Action | Status |
| First Amendment | Discovery |
| Supremacy Clause | Dismissed with prejudice |
| Dormant Commerce Clause | Dismissed with prejudice |
Implications and Next Steps for In-Scope Entities
The dismissal of the plaintiffs’ Supremacy Clause and Dormant Commerce Clause claims currently focuses the lawsuit on the alleged violations of the First Amendment. The dismissals did not affect the status of that challenge, which is set to proceed to discovery. This narrowing could be short-lived, as plaintiffs could revive the Supremacy Clause and Dormant Commerce Clause challenges to SB 253.
One critical date to track moving forward is July 1, 2025, when CARB is required to adopt implementing regulations for SB 253. Although CARB may not meet this July 1 deadline, plaintiffs will have the opportunity to revive their Supremacy Clause and Dormant Commerce Clause challenges to SB 253 upon finalization of CARB’s regulations.
In-scope entities should consider preparing to comply with SB 253 and SB 261 in the same manner that they did prior to this court decision, as the litigation will likely take months to resolve. Indeed, the case may not conclude until after January 1, 2026, the phase-in date for SB 253 and 261.
Finally, given the significance of CARB’s rulemaking to the court’s decisions, the outcome of this litigation will likely be intimately connected with the content of regulations CARB eventually publishes. To that end, CARB announced on December 16, 2024, that it is soliciting public comments on how it should implement SB 253 and SB 261. The comment period is open until March 21, 2025, and comments will be posted publicly. Reporting entities or industry groups can use this opportunity to both guide CARB in its rulemaking process and potentially impact the litigation.
- Case No 2:24-cv-00801-ODW (PVCx). ↩︎
- Senate Bill 219 (SB 219) amended both SB 253 and SB 261 to: (1) extend CARB’s rulemaking deadline from January 1, 2025, to July 1, 2025; (2) require the reporting of Scope 3 emissions under SB 253 starting at a date to be determined by CARB, rather than the previous timeline which required the disclosure of Scope 3 emissions in 2027; (3) permit covered entities under SB 253 to consolidate emissions disclosure reports at the parent company level; (4) eliminate filing fee requirements under both SB 253 and SB 261; and (5) permit, but not require, CARB to contract with a climate reporting organization to develop a program to publicize the required disclosures. ↩︎
- A third California climate disclosure bill (the Voluntary Carbon Market Disclosures Business Regulation Act (AB 1305)), which Governor Newsom signed into law at the same time as SB 253 and SB 261, was not challenged as part of this litigation. ↩︎
- To establish standing under Article III of the US Constitution, a plaintiff must demonstrate: (1) an injury in fact; (2) a causal connection between the injury and the defendant’s conduct; and (3) a likelihood that the injury will be redressed by a favorable court decision. Ripeness is a related doctrine to injury in fact, often analyzed by courts along with standing. For a pre-enforcement challenge to be ripe for a review, a plaintiff also must show: (1) an intention to engage in a course of conduct arguably affected with a constitutional interest; (2) that the conduct is proscribed by a statute; and (3) that a credible threat of prosecution exists under that statute. ↩︎