by Nathalie Camarena and Rebecca Andrews)

A California state law claim for public nuisance in a climate change lawsuit brought by the City of Oakland and the City and County of San Francisco (Cities) against five of the world’s largest energy companies (Energy Companies) did not, according to the Ninth Circuit Court of Appeals, raise issues relating to interstate disputes or conflicting states’ rights in order to justify removal to federal court. [City of Oakland v. BP, PLC et al., ___F.3d___, Case No. 18-16663

(9th. Cir., May 26, 2020).]

Factual and Procedural Background

In September 2017, the Cities sued the Energy Companies, alleging the companies’ production and promotion of massive quantities of fossil fuels caused or contributed to global warming, reduced sea shorelines, increased shoreline erosion, salt-water impacts on the Cities’ wastewater treatment systems, and interference with storm water infrastructure among other injuries. They further alleged these actions have caused, and will continue to cause, the Cities to incur significant costs to abate the harms. Accordingly, the Cities sought an order of abatement requiring the Energy Companies to fund a climate change adaption program for the Cities.

The Energy Companies removed the Cities’ action to federal court, on the grounds that the Cities’ public nuisance claim was governed by federal common law because the claim implicated “uniquely federal interests.” The Cities moved to remand the case to state court. The U.S. District Court denied the Cities’ motion, finding the Cities’ claim was “necessarily governed by federal common law” as it raised issues relating to “interstate and internal disputes implicating the conflicting rights of states or. . . relations with foreign nations” and that these issues had to be resolved pursuant to a uniform federal standard.

In response to the District Court’s ruling, the Cities amended their complaints to include a public nuisance claim under federal common law. The Energy Companies moved to dismiss the amended complaints. Thereafter, the District Court dismissed the Cities’ amended complaints for failure to “state a claim upon which relief can be granted” under Federal Rule of Civil Procedure § 12(b)(6) and dismissed four of the five Energy Companies for lack of personal jurisdiction. The District Court then entered judgments in favor of the remaining Energy Companies and against the Cities.

The Cities appealed, challenging: (1) the denial of their motions to remand; (2) the dismissal of their complaints for failure to state a claim; (3) and the dismissal of four of the five defendant Energy Companies for lack of personal jurisdiction.

The Ninth Circuit’s Decision

Denial of Cities’ Motion to Remand was Improper

Under the general “well pleaded complaint rule” a civil action arises under federal law when a federal question appears on the face of the complaint. However, there are two exceptions to the well-pleaded complaint rule. The first category of cases excepted form the general rule are those that fall into a “special and small category” of state law claims that arise under federal law. The second exception is the “artful pleading doctrine,” which allows removal to federal court where federal law completely preempts a plaintiff’s state law claim. The Energy Companies argued both exceptions to the well-pleaded rule granted federal jurisdiction.

The court first considered Energy Companies’ argument that the Cities’ state law claim raised a substantial question of federal law, because it implicated a variety of federal interests including energy policy, national security, and foreign policy. The court disagreed. It reasoned that the question of whether the Energy Companies can be held liable for public nuisance based on the production and promotion of the use of fossil fuels and thus be required to spend billions on abatement, is no doubt an important policy question, but it does not raise a substantial question of federal law for the purpose of determining federal question jurisdiction. The court further explained, that the evaluation of the Cities’ public nuisance claim would require factual determinations, and a state law claim that is fact bound and situation specific is not the type of claim for which federal jurisdiction lies.

The court next considered the Energy Companies’ argument that the Cites’ state law claim for public nuisance arises under federal law because it is completely preempted by the federal Clean Air Act (CAA). The court also disagreed with this contention. First, it determined that the exception does not apply because the CAA is not one of those three statutes recognized by the U.S. Supreme Court as having preemptive force. The court further found that the CAA’s statutory language does not indicate that Congress intended to preempt every state law cause of action within its scope. Rather, the CAA includes a savings clause, which indicates Congress intended to preserve state-law causes of action. Lastly, the CAA’s statement that “air pollution control at its source is the primary responsibility of states and local governments” further weighed against the Energy Companies’ contention. Accordingly, the court held that the second exception to the well-pleaded complaint rule did not apply. The circuit court remanded the case to the District Court to determine whether there was an alternative basis for federal jurisdiction.

Dismissal for Failure to State a Claim was Improper

The Ninth Circuit next considered whether dismissal of the Cities’ complaint for failure to state a claim was proper. The court held that although the District Court lacked jurisdiction at the time of removal, the Cities cured any subject matter jurisdiction defect by amending their complaints to include a public nuisance claim under federal law. Thus, at the time of dismissal, there was federal subject matter jurisdiction over the Cities’ claim.

Further, the court reasoned that the Cities reserved their right to argue removal was improper when they amended their complaint to expressly state they were doing so in response to the District Court’s ruling. Thus, the court rejected the Energy Companies’ contention that the Cities’ amended complaint waived the Cities ability to argue removal was improper.

Further, the Circuit Court of Appeals recognized that when a case is improperly removed to federal court, a District Court must generally remand the case to state court even if subsequent actions conferred subject matter jurisdiction. An exception to this rule exists when considerations of “finality, efficiency, and judicial economy” excuse the violation. The court held, however, that a dismissal for failure to state a cause of action, unlike a grant of summary judgement, is insufficient to present considerations of “finality, efficiency and judicial economy.” Thus, the exception did not apply.

The Court did not Rule on the Issue of Lack of Personal Jurisdiction

Lastly, in a footnote, the circuit court declined to rule on whether the District Court lacked personal jurisdiction. It held that if on remand, the District Court determines the case must proceed in state court, the Cities may then move the District Court to vacate its personal jurisdiction ruling.

Conclusion and Implications

This case addresses an important question regarding when climate change lawsuits may implicate federal question jurisdiction for purposes of removal from state court. In sum, because neither exception to the well-pleaded complaint rule applied to the Cities’ original state law claim, federal jurisdiction was not proper at the time of removal. The Ninth Circuit’s decision is available online at: https://cdn.ca9.uscourts.gov/datastore/opinions/2020/05/26/18-16663.pdf