Kannon Shanmugam: Welcome to “Court Briefs,” a podcast from Paul Weiss. I'm your host, Kannon Shanmugam, the chair of the firm's Supreme Court and Appellate Litigation Practice, and co-chair of our Litigation Department. In this podcast, we analyze Supreme Court decisions of interest to the business community.
One issue that perennially recurs in litigation involving businesses is the question of standing – that is, whether or not the plaintiff has the ability to bring suit. And the Supreme Court recently issued a significant decision in that area in a case called Diamond Alternative Energy v. EPA, involving a challenge to a California regulation concerning auto manufacturers.
And with me today to talk about that decision is my colleague from our San Francisco office, Anna Stapleton. So Anna, maybe we should start by providing just a little bit of legal background about the statute at issue in this case and the doctrine of standing.
Anna Stapleton: So under the Clean Air Act, EPA approved California regulations that require auto manufacturers to make more electric vehicles and fewer gasoline-powered vehicles by limiting average greenhouse gas emissions across each manufacturer's fleet of vehicles. And the issue presented to the court was simply whether fuel producers who are indirectly impacted by the regulations have standing under Article III of the U.S. Constitution, meaning do they have the ability to bring suit against EPA to challenge the agency's approval.
To establish standing, plaintiffs, of course, must satisfy the familiar requirements of injury, causation and redressability. The key question here was whether the fuel producers’ asserted harm would be redressed by invalidation of the challenged rule.
Kannon Shanmugam: Who are the parties to this case and what took place in the lower courts?
Anna Stapleton: So petitioners here are Diamond Alternative Energy, together with several other fuel producers, and they brought suit against EPA, the regulating agency.
The fuel producers sued EPA in the D.C. Circuit, arguing that approving California's regulations exceeded the scope of EPA's authority under the Clean Air Act because the rule targeted global carbon emissions rather than local air quality problems.
The state of California actually intervened to defend EPA's approval of its regulations and argued that, as a threshold matter, the fuel producers lacked standing to sue because they could not demonstrate redressability. The state's theory was that, in light of growing consumer demand for electric vehicles, automobile manufacturers would not change course to produce more gasoline-powered vehicles, even if EPA's approval were vacated, such that vacatur would not remedy the harm that the fuel producers asserted.
The D.C. Circuit agreed with California, holding that the fuel producers had failed to establish that automakers would likely respond to any invalidation of the approval by increasing production of gasoline-powered vehicles and therefore lacked standing.
Kannon Shanmugam: So the Supreme Court granted review here and it proceeded to reverse the D.C. Circuit. What was the court's reasoning?
Anna Stapleton: So Justice Kavanaugh's opinion for seven members of the Court recognizes that this case presented a familiar circumstance in which the government's regulation of one business may be likely to cause injuries to other linked businesses. In such circumstances, issues of causation and redressability often depend on how directly regulated parties, who were not before the court, will act in response to the regulation.
To establish whether indirectly impacted parties have standing, courts have to draw a line between those effects of such third-party actions that are predictable and so can support a finding of standing from those that are merely speculative and so cannot.
Here, the majority held the effects on fuel producers from the response of directly regulated vehicle manufacturers to the California rule and its potential vacatur are sufficiently predictable to establish redressability.
As the court explained, redressability doesn't require that the plaintiff's injury will be completely cured. It's enough to show even one dollar of relief could likely be obtained. And here, common sense economic principles support the conclusion that when car manufacturers are required to produce fleets of cars that, in aggregate, use less liquid fuel, fuel producers are likely to lose sales. After all, use of less liquid fuel overall was the very goal the rule was intended to achieve.
And record evidence, the court went on, confirmed that common sense reasoning that a predictable chain of events would lead to redress for the fuel producers should a court invalidate the rule. That evidence included California's own assertions that the rule would reduce emissions partly through reductions in fuel production, the state's representations to EPA that the rule would be critical for reducing future emissions, and EPA's own assessment that the rule would reduce emissions in California through at least 2037.
The evidence also included the assertions of five automakers who actually intervened to support California and the EPA that absent the rule, they would face competitive pressure to sell more gas-powered vehicles.
Kannon Shanmugam: So there were a couple of dissenting opinions in this case, and one of them in particular got a fair amount of attention. What did those dissents say?
Anna Stapleton: That's right. So Justice Sotomayor and Justice Jackson each filed dissenting opinions, and both focused on whether the court should have properly granted review to address the standing issue in this case in the first place.
Justice Jackson in particular voiced concerns that the court had failed to apply principles of standing even-handedly. She suggested that the majority had gone out of its way to find standing for petitioners in a case that in any event is likely to be mooted if EPA withdraws its approval of the rule following a review directed by the Trump administration.
Kannon Shanmugam: So I think most observers thought that the Court was likely to conclude that there was standing in this particular case, but Anna, what does this mean for other cases involving different plaintiffs?
Anna Stapleton: That's right. So the Court left open two big issues that really bear noting.
First, the majority noted the possibility that fuel producers could be considered the direct targets of the California rules, noting that when government regulation bars one type of company from using a certain type of product (the court gave the example of a prohibition on selling hot dogs in stadiums), then both the company barred from the use of the product and the product manufacturer might sue.
Although the court ultimately did not need to decide whether the fuel producers here fall into that category of directly regulated parties, it certainly did not reject that possibility.
Second, the court also recognized that in some conceivable set of circumstances, invalidation of a rule that had caused harm to indirectly regulated parties would not be likely to redress that harm. Although there are good reasons why such circumstances will rarely occur, it's important to note that indirectly regulated businesses can't just assume that if they've shown injury caused by a rule, they've shown by implication that invalidation of the rule would redress that harm.
On the whole, the outcome here really just confirms that existing principles of standing allow indirectly regulated parties to challenge government regulations that will impact their businesses in demonstrably predictable ways.
Kannon Shanmugam: So a very practical decision from the Supreme Court in this case, and probably not the last we will have heard from the Supreme Court on the question of standing. So Anna, thank you for that summary.
If you have any questions about the Court's decision in the Diamond case, please feel free to reach out to either Anna or me. In the meantime, that brings us to the end of today's episode. We hope you enjoyed it.
For more information about Paul Weiss's Supreme Court and Appellate Litigation Practice, please visit us at our website paulweiss.com. And please subscribe to “Court Briefs” wherever you listen to your podcasts. And if you enjoyed today's episode, please rate and review us on your favorite platform. We'll be back again soon with another episode. But until then, thank you for joining us and take care.
