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Focus: Product Liability – October 2006

Climate change litigation – California takes carmakers to court

In brief: On 20 September 2006, the State of California commenced an action in US federal court seeking compensation from six leading car manufacturers for contributing to global warming. Partner Annette Hughes(view CV) and Lawyer Julie-Anne Pearce consider the relevant backdrop and emerging trend of suing industry for damages caused by emissions.

Introduction

In United States District Court, Northern District of California, the State of California (California) is suing six leading United States and Japanese car manufacturers, alleging that the vehicles produced by the defendants have contributed significantly to global warming and harmed the resources, infrastructure and environmental health of California. (People of the State of California v General Motors Corporation, Toyota Motor North America Inc., Ford Motor Company, Honda North America Inc., Chrysler Motors Corporation and Nissan North America Inc., (The People v GM)). California is seeking compensation for the alleged cost of addressing current and future effects of the emissions. While this is the first lawsuit which attempts to hold manufacturers liable for the damages caused by the greenhouse gases that their products emit, the case is part of a growing body of litigation known as 'climate change litigation'. Climate change litigation seeks redress for damage arising from human activity which has caused, and will continue to cause, global climate change. Although in its infancy, The People v GM raises issues for all potential defendants to climate change actions. 

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Background: Litigation and legislation as a tool against climate change

In February 2005, the Kyoto Protocol entered into force without ratification from several key countries including the United States and Australia. In response to perceived inaction in relation to climate change at the federal level, several American states decided to take matters into their own hands. These states, including California, seek to curb harmful environmental activity with state legislation (eg, emissions controls) and litigation. Environmental groups and other interested parties have also sought to use litigation to force the government (or government agencies) and private actors to effect change to reduce greenhouse gas emissions.

Indeed, The People v GM is the most recent in a string of several significant climate change-related proceedings. It is beyond the scope of this article to canvass all such proceedings. However, it is worthwhile to summarise a few in order to give context to the current case.

  • In July 2004, several US states and environmental organisations brought a public nuisance suit against the nation's five largest power producers in an attempt to force reductions in their carbon dioxide emissions.1 The court dismissed the case on the basis of the political question doctrine, finding that resolution of the issues required 'identification and balancing of economic, environmental, foreign policy, and national security interests' and that the actions presented 'non-justiciable political questions that are consigned to the political branches, not the Judiciary'.
  • In 2002, California enacted legislation directing the California Air Regulatory Board (CARB) 'to develop and adopt regulations that achieve the maximum feasible and cost-effective reduction of greenhouse gas emissions from motor vehicles.'2 In 2004, CARB established standards limiting greenhouse gas emissions from motor vehicles manufactured for sale in California. In response, a car dealership initiated a federal court action against CARB attacking the standards on several grounds, including that they are pre-empted by federal legislation addressing the fuel economy of motor vehicles. More simply put, they argue that the federal government has expressly and/or impliedly 'covered the field' of regulation on this topic, and so states cannot seek to also regulate it.3 The Association of International Automobile Manufacturers, the Sierra Club, the Natural Resources Defense Council and other environmental groups intervened in the case. In an aggressive opening thrust, the defendants and defendant intervenors filed a Motion for Judgment on the Pleadings. That motion was denied in part and granted in part in a decision issued on 22 September 2006, which means that the case will proceed on three of the original five causes of action (pre-emption of the CARB regulations by the Energy Policy and Conservation Act, the Clean Air Act , and US foreign policy). The pre-emption claims are complex, and the court will no doubt tread carefully. The outcome of this case may have wide-ranging impact on future litigation and legislation.
  • The US Supreme Court is currently reviewing a case that grew out of a petition which environmental groups filed with the US Environmental Protection Agency (EPA) in 1999, seeking to force the EPA to regulate greenhouse gas emissions from new vehicles using its authority under the Clean Air Act . After a long period of inaction, the EPA denied the petition, stating that it did not have the authority under the Act to issue such regulations, and, even if it did, it would not exercise that authority as (essentially) the science is unsettled. A coalition of twelve states, including Massachusetts, California and New York, three major cities and environmental groups sought judicial review of the of the EPA's decision in the US Court of Appeals for the DC Circuit. Interestingly, the petition for review was opposed not just by the EPA and industry associations, but by ten other states. A three judge panel of the Court of Appeal denied the appeal in a 2-1 decision, with three separate opinions filed. Rehearing was denied, but in June of this year, the US Supreme Court granted certiorari4  and the court is scheduled to hear argument in December. The appeal is limited to the following two issues:

1. whether the EPA has authority under the Act to regulate carbon dioxide and other air pollutants associated with climate change; and

2. whether the EPA can decline to issue emission standards for motor vehicles based on policy considerations not enumerated in the Act.

Ironically, if the decision of the Supreme Court were to compel the EPA to regulate in this area (and absent legislative intervention), the case might offer some support for the pre-emption arguments raised to defeat the states' efforts to regulate emissions (eg in litigation such as the CARB case discussed above). At least, to the extent such regulations were inconsistent, the federal regulations would likely override the state regulations (whether they were weaker or stronger).

Against this backdrop, many commentators have forecast a wave of climate change litigation, with parallels being drawn with the tobacco and asbestos litigation, no doubt in part because of the involvement of states and the potential scope of the proceedings.

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The People v GM: the latest missive

In The People v GM, California tries a different approach to the vehicle emissions problem, shifting its attention from the regulators to the product manufacturers. The state alleges that the defendants produce vehicles that emit a combined 289 million metric tons of carbon dioxide in the United States each year from the combustion of fossil fuels. According to the pleadings, those emissions account for nearly 20 per cent of the current carbon dioxide emissions in the United States and more than 30 per cent of those in California. Two causes of action are being pursued – the first is a public nuisance action under federal common law and the second is a public nuisance action under California statute.

At common law a 'public nuisance' is an unreasonable interference with a public right or an action that interferes with or causes harm to life, health or property. Under California Civil Code sections 3479 et seq., a 'nuisance' is 'anything which is injurious to health,... or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property...' To be a 'public nuisance', a nuisance must be experienced by a considerable number of persons, although individuals' annoyance may be unequal.

In both causes of action, generally, the defendants are said to have created a public nuisance by producing 'millions of vehicles that collectively emit massive quantities of carbon dioxide' a greenhouse gas that causes global warming. The complaint seeks damages and declaratory relief for harm, including future harm, caused by the defendants' ongoing, substantial contribution to the public nuisance of global warming.

The claim was filed on 20 September 2006 and, as has been the case with most of the cases to date, will probably attract intervenors, including industry associations and environmental groups. It remains to be seen if the case will survive probable early challenges. It seems likely that a major hurdle for the state will be establishing causation, that is, demonstrating that it was the defendants' actions that caused the alleged harm. This is particularly the case where there is still considerable dispute about the science in this area, at least enough to allow, for example, the DC Circuit Court of Appeal to uphold the EPA's refusal to act to regulate emissions in part based on the lack of scientific consensus. Should the case proceed, there will no doubt be lengthy Daubert motions challenging the admissibility of any expert opinion on the issue of causation.

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Climate change litigation in Australia

Australia is no stranger to climate change litigation. Most recently, on 19 September 2006 Newcastle environmentalist Peter Gray lodged a challenge against the proposed Anvil Hill coal mine in the NSW Land and Environment Court, alleging that proposals for the Hunter Valley mine have failed to assess climate change impacts (Gray v Minister for Planning & Ors (40870/06)). Mr Gray alleges that the Director-General of the Department of Planning should instruct Centennial Coal, the developer of Anvil Hill, to submit an Environmental Assessment which considers the full greenhouse emissions from the mine, including the volumes of carbon dioxide that will be released when the mined coal is ultimately burnt. Centennial Coal's Anvil Hill project manager has stated that the project's Environmental Assessment complied with government requirements and is adequate. Like The People v GM, these proceedings are still in their infancy, but it seems likely that there will be pleadings challenges, and the outcome is far from certain.

The Gray case is an administrative law matter and no doubt some climate change litigation will use administrative law (as in the US) to seek to review ministerial conduct (or lack thereof) in relation to climate change matters. However, tort based actions are also likely to be attractive to climate change plaintiffs, as such actions may be brought, for example, in both negligence and nuisance. Potential plaintiffs could fall into the following three categories.

  • A person (or group of persons) who, while present in an Australian jurisdiction, suffers personal injury as a consequence of climate change.
  • A person (or group of persons) (including a corporate entity) who suffers damage to, or interference with, their Australian-based proprietary interest(s) as a consequence of climate change.
  • A person (or group of persons) (including a corporate entity) who, while resident within an Australian jurisdiction, suffers some pure economic loss as a consequence of climate change.5

To bring an action in public nuisance like that initiated by California there would have to be 'some sort of behaviour which obstructs or causes inconvenience to the public in the exercise of rights common to all of her majesty's subjects'.6 The plaintiff would be required to show that they are affected in a manner that is above and beyond the rest of the public and that they have suffered a special damage peculiar to them. A plaintiff who is unable to satisfy the special interest criteria may approach the Federal Attorney-General to commence public nuisance proceedings on behalf of the public.7

The possibility of an Australian climate change class action has been heightened by the High Court's recent decision in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41, which seems to clear the way for litigation funding.8 The court found that there is no critical legal obstacle preventing entrepreneurial litigation funding and that funders who seek out claims which may be aggregated in class action proceedings are not necessarily acting against public policy.

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Summary and conclusion

Potential defendants to climate change litigation include any person or legal entity that can be alleged to have caused, or materially contributed to, climate change. The most likely defendants are those that are closely associated with the burning of fossil fuels. This includes producers of fossil fuels, industrial users of those fuels, and for example, the makers of equipment, such as automobiles, that burn fossil fuels.

Climate change litigation is still relatively new. Its scope and potential for success is largely unknown and at this stage it is likely developments will be led by overseas litigation in jurisdictions such as America. Nevertheless, against the backdrop of increasing alarm about the effects of global warming it seems likely that such actions will continue to be pursued in Australia, if not by states, then by, for example, non governmental organisations. This potential liability is one of many reasons Australian manufacturers and industry should consider their corporate and social responsibility in respect of climate change and implement appropriate strategies.

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AAR's Corporate Responsibility Group

AAR has been advising its clients on issues attached to their social and environmental profile, including in relation to climate change, for over a decade. We have established a dedicated advisory group within the firm, the Corporate Responsibility Group, that monitors legal developments in this area.

AAR has extensive experience advising clients on major tort claims and also on litigation that is cross-jurisdictional, where this litigation involves allegations of adverse social or environmental impacts. AAR has also been at the forefront of advising clients on their potential exposure to litigation as a result of their perceived environmental impacts.

In our experience, a preventative approach to litigation based on social or environmental issues is often in the best interests of our clients, from a reputational and financial, as well as from a legal perspective. As a result, AAR aims to keep its clients up to date on how legal developments in the area of corporate responsibility may impact on their operations.

With respect to climate change, AAR has been monitoring the activities of governments, non-government organisations and plaintiff law firms within and outside of Australia, for a number of years.  This has included undertaking an analysis of how litigation might be brought against our clients operating in different sectors of industry, where this litigation might be brought and who would be likely to bring this type of claim.  It has also included an analysis of those steps our clients might take to minimise exposure to litigation based on impact of emissions.

Footnotes
  1. State of Connecticut v American Electric Power Co., No. 1:04-cv-05669  (S.D.N.Y., July 21, 2004) consolidated with Open Space Institute v American Electric Power Co., No 1:04-cv-05670 (S.D.N.Y., July 21, 2004).
  2. Assembly Bill 1493, (codified at California Health and Safety Code s.43018.5 (see particular section 43018.5(a)).
  3. Central Valley Chrysler-Jeep, Inc. et al. v Witherspoon ex rel. California Air Resources Board, No. 043v 6663 (E.D. Cal. December 7, 2004).  The plaintiff and plaintiff intervenors claim that the regulations are invalid on a number of bases, including that they are pre-empted under the Energy Policy and Conservation Act, they violate of the Commerce Clause (of the US Constitution), they conflict with and are pre-empted by US foreign policy, and they are pre-empted by the Sherman Antitrust Act.  
  4. Massachusetts v EPA, 415 F.3d 50 (D.C. Cir. 2005), cert. granted, 126 S.Ct. 2690 (2006).
  5. Kerr M, (2002) Tort Based Climate Change Litigation in Australia,  a discussion paper prepared for the Climate Change Litigation Forum, London, March 2002 p 6.
  6. Balkin R and Davis J, (1991) The Law of Torts p 490 in Kerr M, (2002) Ibid. p 16.
  7. Kerr M, (2002) Op. cit. p 17.
  8. To review an article on the Fostif decision, go to AAR Focus: Commercial Litigation.

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