Court Pares Lawsuit Challenging California’s Climate-Related Reporting Laws

In January 2024, the Chamber of Commerce of the United States of America and others filed a lawsuit challenging the constitutionality of California’s Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261). The suit asserted three claims: (1) that the laws violated the plaintiffs’ First Amendment rights by compelling certain speech, (2) that the laws seek to regulate greenhouse gas (“GHG”) emissions outside California’s borders in violation of the US Constitution’s Supremacy Clause, and (3) that the laws impose significant burdens on interstate and foreign commerce in violation of the US Constitution’s limitations on extraterritorial regulation, including the Dormant Commerce Clause. In response to a motion to dismiss the latter two claims that was filed by the State of California, on February 3, 2025, the US District Court for the Central District of California dismissed both claims without prejudice in relation to SB 253, and dismissed the second claim with prejudice and the third without prejudice in relation to SB 261 (Case 2:24-cv-00801-ODW-PVC). 

The Court dismissed the SB 253 claims without prejudice because it found that the claims were not ripe. That determination was based on the fact that, unlike SB 261, which directly imposes requirements on entities that meet the revenue threshold and do business in California, SB 253 does not directly mandate action from reporting entities, but rather directs the California Air Resources Board (“CARB”) to draft regulations to implement the law. As CARB has yet to issue its regulations, the Court reasoned that it would be premature to decide whether those regulations violate the Supremacy Clause or impermissibly burden interstate commerce. 

With regard to SB 261, the Court held that the plaintiffs failed to state a claim for violation of the Supremacy Clause, which constrains states from regulating matters regulated under federal law. The plaintiffs alleged that by requiring reporting on GHG emissions and climate-related risks, SB 253 and 261 seek to pressure entities to reduce their GHG emissions and are therefore tantamount to GHG restrictions, which are the regulatory territory of the federal Clean Air Act, and which California is not permitted to impose beyond its borders. The Court rejected that premise, stating that SB 261 “imposes no liability for failure to reduce emissions; only for failure to disclose climate-related financial risk and the measures adopted to reduce such risk.” In addition, the Court noted that there was no Clean Air Act provision covering climate risk reporting, so the plaintiffs could not establish that SB 261 was preempted by the federal law.

With regard to the plaintiffs’ claim that SB 261 impermissibly regulates interstate and foreign commerce—referred to as the “extraterritoriality claim”—the Court stated that the plaintiffs failed to “plausibly allege a significant burden on interstate commerce.” However, the Court stated that as the case progresses, the plaintiffs may be able to raise plausible facts that support a burden on interstate commerce, so it dismissed that claim without prejudice. 

Based on the Court’s reasoning in dismissing the SB 261 claims, it is possible that the plaintiffs will be able to sustain a Supremacy Clause claim with respect to SB 253 once CARB’s regulations are issued since the Clean Air Act has a GHG reporting program, albeit a limited one. It will likely be harder to sustain their extraterritoriality claim. The timing for discovery and resolution of the remaining claims remains uncertain.

We will continue to watch this case closely and report on key developments. In the meantime, companies subject to SB 253 and SB 261 should continue preparing to submit their initial reports under both bills in 2026. We discussed the revenue thresholds and reporting obligations established by SB 253 and SB 261 in an earlier client alert. We also recently issued a separate client alert discussing CARB’s latest guidance on how it intends to enforce SB 253’s initial reporting requirements.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. John Rousakis, an O'Melveny partner licensed to practice law in New York; Eric Rothenberg, an O'Melveny of counsel licensed to practice law in New York and Missouri; and Chris Bowman, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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