By Mark S. Nelson, J.D.
The SEC filed the required notice to the Judicial Panel on Multidistrict Litigation informing the MDL panel that the agency had received multiple petitions for review of its recently adopted climate risk disclosure regulation that were filed in multiple federal appeals courts. The next step will be for the MDL panel to hold a random drawing to determine which of the six U.S. Courts of Appeal in which petitions for review have been filed will hear the consolidated petitions for review. Following a ten-day race to court, nine petitions for review have been filed, although four of them were filed in the Fifth Circuit, where two of the petitioners had already sought to join the petition filed by Liberty Energy Inc. that resulted in the Fifth Circuit issuing a stay of the SEC’s regulation (IN RE: Securities and Exchange Commission, MCP No. ___ The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release Nos. 33-11275, 34-99678 (issued Mar. 6, 2024), March 19, 2024).
MDL designation process. The MDL panel becomes involved under 28 U.S.C. §2112 in selecting the federal appeals court to hear a petition for review of an agency order or rule when petitions for review of that rule are filed in multiple federal appeals courts within 10 days of the issuance of the rule. The agency, in this instance the SEC, must then notify the MDL that such a situation exists, and that will trigger a random drawing by the MDL by which it will designate one federal appeals court to hear the consolidated petitions for review.
Specifically, MDL Rule 25.5(a) states: “Upon filing a notice of multicircuit petitions for review, 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. Multiple petitions for review pending in a single circuit shall be allotted only a single entry in the drum.”
The second sentence of Rule 25.5(a) would appear to apply regarding the SEC’s climate risk disclosure regulation because four petitions for review were filed in the Fifth Circuit. The circuit courts that could hear the consolidated petitions for review are the Second, Fifth, Sixth, Eighth, Eleventh, and D.C. Circuits.
Looking ahead. As the designation and appeal process unfolds, look for several issues to arise. First, the applicable statute governing the review of agency orders allows a court to issue a stay, which the Fifth Circuit granted regarding the climate risk disclosure regulation late last week. However, the federal appeals court designated by the MDL panel can modify, revoke, or extend the stay.
Second, expect the SEC to assert that at least some of the petitioners lack standing to bring their petitions. The SEC hinted at this approach in its opposition to Liberty Energy’s request for an administrative stay or stay pending appeal before the Fifth Circuit. There, the SEC said Liberty Energy neither resides nor has its principal place of business within the Fifth Circuit and that the final climate risk disclosure regulation does not require Liberty Energy to investigate another, related, petitioner in which Liberty Energy is a more than 10 percent shareholder, because the regulation grants companies leeway to define their organizational boundaries for purposes of emissions metrics, provided they disclose how they chose the boundaries. Article III standing issues also can arise regarding whether states can challenge federal agency regulations.
Beyond the procedural issues to be worked out in the days and weeks ahead, expect the petitioners’ substantive arguments to focus on the Supreme Court’s major questions doctrine and whether the SEC is seeking to displace EPA regulations that mandate similar GHG emissions disclosures. Also expect the petitioners to argue that the SEC’s regulation ran afoul of the Administrative Procedure Act and that at least portions of the regulation violate the First Amendment. This much has been previewed in the filings made by Liberty Energy and the SEC regarding the stay that was eventually issued by the Fifth Circuit (See, Liberty Energy’s request for stay and SEC’s opposition).
The case is No. Pending MCP No. 8.