US: Fifth Circuit Stays the SEC’s Climate Rules

The Fifth Circuit Court of Appeals has ordered a stay of the SEC’s climate-related disclosure rules in the lawsuit brought by Liberty Energy, Inc. and Nomad Proppant Services, LLC, pending the court’s review of the rules. 

This means that the rules are temporarily not in effect, though they could come into force by their original compliance dates if the Fifth Circuit ultimately upholds the rules. 

The court did not explain its rationale; it merely issued an order stating that the petitioners' “motion for an administrative stay is granted.” If the court ultimately finds in favor of the petitioners on the merits, some or all elements of the rules may be permanently invalidated, which would mean that the SEC would have to decide whether to re-propose a new version of the rules.  

In their petition, the energy companies had argued that the rules violated the “major questions” doctrine under the Supreme Court’s decision in West Virginia v. EPA, that they were unconstitutional under the First Amendment, and that the SEC violated the Administrative Procedure Act. With respect to the stay, the companies had claimed that they would be “irreparably harmed” if the court did not grant the administrative stay notwithstanding their not being subject to the rules until 2026, as the companies would have to begin putting systems in place now in order to collect the data required to prepare the requisite disclosure. The states of Texas, Louisiana and Mississippi have joined the companies in their petition for Fifth Circuit review. 

The lawsuit was just one of at least four legal challenges brought in the week following the SEC’s adoption of the rules, which mandate climate-related disclosures from SEC registrants, including foreign private issuers. Three of the petitions to review the rules were filed by different coalitions of Republican states, in the Fifth Circuit, the Eighth Circuit and the Eleventh Circuit. The Sierra Club has also filed a petition for review in the D.C. Circuit, arguing that the SEC arbitrarily decided to remove robust emissions disclosure requirements and other key elements from the proposed rule. 

It is not clear when the Fifth Circuit will make its final decision on the rules, and it is difficult to predict the outcome of the other challenges, which we expect will be consolidated in the next few weeks. At least for now, until there is a ruling on the merits of the rule, companies may want to consider preparing for compliance with the rules as adopted. 

Please contact us to discuss how these decisions will affect the timing and implementation of the SEC’s rules.