City of New York v. Exxon Mobil Corp.

The Second Circuit Court of Appeals denied fossil fuel companies’ petition for rehearing en banc of the court’s decision affirming the awarding of attorneys’ fees and costs to New York City related to five of the companies’ six unsuccessful grounds for removing to federal court the City’s suit alleging the companies violated the City’s Consumer Protection Law by misleading consumers about the climate change risks of their products and their commitments to renewable and alternative energy sources.

In a 2-1 decision, the Second Circuit Court of Appeals found that a district court did not abuse its discretion when it ordered fossil fuel companies to pay New York City for attorneys’ fees and costs related to the companies’ removal to federal court of the City’s suit alleging the companies violated the City’s Consumer Protection Law by misleading consumers about the climate change risks of their products and their commitments to renewable and alternative energy sources. The district court awarded the City fees for five of the six bases for removal asserted by the companies but only for work performed and costs incurred after the Second Circuit affirmed a remand order in September 2023 in a similar case brought by the State of Connecticut. The parties stipulated that the companies would pay the City $68,262.46 if the award of fees was affirmed on appeal. The Second Circuit first rejected Exxon’s contention that the district court erred by awarding fees and costs despite determining that one of the rejected bases for removal (diversity jurisdiction) was “objectively reasonable.” The Second Circuit found that in this case “unusual circumstances” were clearly present that justified assessment of fees and costs, including the rejection by eight circuit courts of appeals and at least 11 district courts of arguments opposing remand in similar cases around the country. The Second Circuit also found that the record supported application of the “unusual circumstances” exception even though the district court did not invoke it. The court found, moreover, that the record made clear that the district court believed the removal presented “unusual circumstances” even if it did not use that phrase. The Second Circuit also disagreed with the companies’ second argument that the district court should have considered the validity of their removal jurisdiction arguments based on the state of the law in 2021 when they initially removed the case and not in November 2023 when they renewed their opposition to remand. The Second Circuit also found that the extent of the award was reasonable, noting that the district court “exercised its discretion to award fees and costs in a measured way—that is, only with respect to fees associated with the objectively unreasonable grounds for removal and only for work required after the legal landscape had shifted significantly.”

The dissenting judge would have found that the combination of the two errors identified by the defendants required reversal or vacatur and remand of the fees and costs award. He wrote that “[w]hat is frivolous in this case is the claim, not its removal,” considering that the City’s case had been dismissed “under the indulgent New York pleading standard.” He conclude that “[i]n any event, a party that uses a local consumer protection law to combat global climate change should not be compensated on the premise that the other side is filing frivolous papers.”