New SEC Climate Rules Stayed by Fifth Circuit – For Now

On March 6, 2024, the SEC adopted expansive new climate disclosure rules (the “Rules”). As noted in our March 12, 2024 client alert summarizing and analyzing the new Rules, litigation challenging the Rules was already pending. Additional litigation seeking to strike down the Rules is currently pending in four federal courts of appeals—the U.S. Courts of Appeals for the Fifth, Sixth, Eighth and Eleventh Circuits—and we expect that additional challenges will be filed in the federal courts of appeal. In addition, the U.S. Courts of Appeals for the Second and DC Circuits are considering challenges by environmental groups claiming that the Rules do not go far enough.

In the Fifth Circuit case, Liberty Energy Inc. and Nomad Proppant Services LLC (the “Petitioners”) sought review of the Rules by the Fifth Circuit, and shortly thereafter filed a motion seeking an administrative stay pending review by the Fifth Circuit. The Petitioners argued that, without a stay, they would incur irreparable injury from the costs of compliance, in addition to other constitutional injuries. On March 15, 2024, in a one-sentence, unpublished order, the Fifth Circuit granted the motion and imposed the temporary stay.

Because multiple challenges to the Rules have been filed in the courts of appeals, the Judicial Panel on Multidistrict Litigation will consolidate the challenges and select a single court of appeals to hear all the challenges. The Fifth Circuit’s stay will likely remain in effect at least until then. If another court of appeals is selected as the designated forum for the consolidated challenges, that court has the power to dissolve the Fifth Circuit’s stay and allow the Rules to take effect.

The results of this litigation will be important, particularly for companies that are large accelerated filers under SEC rules. For example, the new Rules will require many companies to design, test and implement significant changes in their internal control over financial reporting and disclosure controls and procedures. These changes are likely to require significant amounts of time and internal and external costs. We will continue to follow this matter closely. Please subscribe to our Public Company mailing list for updates.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.