City Of New York v. Exxon Mobil Corporation

Background

The City sued Exxon Mobil Corporation, Exxon Mobil Oil Corporation, Royal Dutch Shell PLC, Shell Oil Company, BP P.L.C., BP America Inc., and the American Petroleum Institute in state court under the New York City Consumer Protection Law. The City alleged that the defendants used false and misleading advertising to misrepresent the climate effects of their fossil-fuel products and to portray themselves as leaders in addressing climate change. The City sought an injunction, civil penalties, attorney fees, and costs.

The defendants removed the case to federal court. The City moved to remand, meaning it asked the federal court to return the case to state court. After the case was stayed while a similar Connecticut case was litigated, the court allowed the City to renew its remand request in light of the Second Circuit’s decision in that case.

Federal jurisdiction

The court began with the rule that federal courts generally may hear a case removed from state court only when the federal courts would have had original jurisdiction over it. The removing defendants had the burden of showing that removal was proper, and doubts about federal jurisdiction had to be resolved against removal.

Federal common law and complete preemption. The defendants argued that the City’s claims were really governed by federal common law concerning pollution crossing state or national borders and foreign affairs. The court rejected that argument. It held that the complaint addressed allegedly false and misleading advertising, not pollution itself. The court also concluded that the claims were not completely preempted. Complete preemption is a doctrine under which federal law replaces a state-law claim so thoroughly that the claim is treated as federal. The court noted that it was an open question whether federal common law could have that effect, but held that, even if it could, it would not preempt these ordinary consumer-protection claims.

The court also held that the City’s claims did not implicate the foreign affairs of the United States. An order addressing allegedly misleading advertisements in New York City would not affect the treaties, legislation, executive actions, or international agreements identified by the defendants.

Federal officer removal. The defendants argued that they could remove the case under the federal officer removal statute. The court held that the statute did not apply because there was no causal connection between the defendants’ work for the federal government and the allegedly false or misleading advertisements. The court stated that it was bound by the Second Circuit’s decision in the similar Connecticut case.

Federal enclave jurisdiction. The defendants argued that federal jurisdiction existed because some fossil-fuel operations or advertisements could involve federal enclaves, such as military bases or other federally controlled locations. The court rejected both versions of that argument. It held that the complaint did not target extraction, production, or sales occurring on federal enclaves. It also held that the possibility that people in a federal enclave might see or hear an advertisement could not create federal jurisdiction.

Diversity jurisdiction and alleged fraudulent joinder. The defendants argued that the City had joined Exxon Mobil Oil Corporation, described in the opinion as the only non-diverse party, only to defeat diversity jurisdiction. This argument relied on the doctrine of fraudulent joinder, which can permit federal jurisdiction when a plaintiff has added a party against whom there is no possible viable claim or whose joinder involved outright fraud.

The court held that the defendants had not met their heavy burden. The complaint alleged that Exxon Mobil Oil Corporation marketed gasoline to City consumers using misleading advertisements in violation of the Consumer Protection Law. Although the allegations could have been more specific about that company’s conduct, the court found that they stated a colorable claim under New York’s liberal pleading rules.

The defendants also argued that the City’s claims were barred by res judicata, a rule that can prevent a party from bringing a claim that was already finally resolved. The court rejected that argument because this case involved different causes of action, different alleged conduct during different periods, and different defendants from the City’s earlier related case. The court therefore concluded that the defendants had not shown that the City had no possibility of stating a viable claim against Exxon Mobil Oil Corporation in state court.

Class Action Fairness Act. The defendants argued that the case could be removed under the Class Action Fairness Act because it resembled a class action. The court disagreed. The complaint was not filed under the federal class-action rule or its New York equivalent. The City’s consumer-protection law authorizes the City—not individual consumers—to bring the action and does not provide a procedure allowing a typical class member to sue on behalf of others. The court therefore held that the case was not removable under that statute.

First Amendment defense and federal-question jurisdiction. The defendants argued that the City’s claims necessarily raised a substantial federal constitutional issue because the advertisements involved protected speech about climate change. The court rejected that theory under the narrow exception for state-law claims that necessarily raise important federal questions. It distinguished between an element of the City’s claim and a defense: the City had to prove that the defendants’ statements were deceptive, while the defendants’ argument that their statements were truthful or constitutionally protected was a defense. A federal defense, including a First Amendment defense, does not by itself create federal-question jurisdiction.

Costs and attorney fees

The City requested costs and attorney fees incurred because of the removal. The court explained that such an award may be appropriate when the removing party lacked an objectively reasonable basis for removal; bad faith is not required.

The court found that the defendants’ renewed opposition pressed five removal grounds that were unreasonable to pursue at that stage: federal common law, federal officer removal, First Amendment defenses, federal enclaves, and the Class Action Fairness Act. The court did not find it unreasonable for the defendants to continue pressing the diversity-jurisdiction argument, even though that argument failed.

Disposition

The court granted the City’s motion to remand and directed the Clerk of Court to return the case to the Supreme Court of the State of New York, County of New York. It granted the City’s request for costs and fees in part as to five of the six removal grounds and denied the request as to the diversity-jurisdiction ground. The parties were ordered to meet and confer about the amount; if they could not agree by June 28, 2024, the City was required to submit a fee application by July 19, 2024. Judge Valerie Caproni signed the opinion on May 8, 2024.