court remands NYC's false advertising case against oil companies to state court

City of New York v. Exxon Mobil Corp., 2024 WL 2091994, No. 21-CV-4807 (VEC) (S.D.N.Y. May 8, 2024)

Being a multitrillion-dollar corporation means you can survive a “ridiculous” argument or two. Here, the city successfully wins remand (and a fee award) in this opinion rejecting removal of its false advertising suit against Exxon, other fossil fuel companies, and their top trade association for violations of New York City’s Consumer Protection Law. Following a similar case, Connecticut v. Exxon Mobil Corp., 83 F.4th 122 (2d Cir. 2023), the court understandably refuses to distinguish it.

The complaint alleged that defendants “misled consumers about the impact of their products on the climate and falsely represented themselves as corporate leaders in the fight against climate change.”

Defendants removed, alleging (eventually) six bases for federal jurisdiction: (1) the City’s claims arise under federal common law because they implicate transboundary pollution and foreign affairs; (2) the action falls under the federal officer removal statute, 28 U.S.C. § 1442(a)(1); (3) Defendants’ production and sale of fossil fuels occur on “federal enclaves;” (4) the Court has diversity jurisdiction over the action under the fraudulent joinder doctrine; (5) the action is removable under the Class Action Fairness Act; and (6) the City’s claims include federal constitutional elements.

The federal removal statute allows a defendant to remove to federal court “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” “[O]ut of respect for the limited jurisdiction of the federal courts and the rights of states,” federal courts must “resolv[e] any doubts against removability.” The “well-pleaded complaint rule” provides that federal question jurisdiction “exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” However, a plaintiff cannot defeat federal question jurisdiction by pleading its complaint as if it “arises under state law where the plaintiff’s suit is, in essence, based on federal law.” Nonetheless, federal question jurisdiction cannot be created “on the basis of a federal defense, ... even if the defense is anticipated in the plaintiff’s complaint, and even if both parties concede that the federal defense is the only question truly at issue.” There are only three circumstances in which a complaint that does not allege a federal claim may nevertheless “arise under” federal law for purposes of removal: “(1) if Congress expressly provides, by statute, for removal of state-law claims; (2) if the state-law claims are completely preempted by federal law; and (3) in certain cases if the vindication of a state-law right necessarily turns on a question of federal law.”

Federal common law that completely preempts state claims based on transboundary pollution and foreign affairs: That’s not a thing. False advertising claims “do not become claims about transboundary pollution and foreign affairs just because the alleged deception relates to the impact of fossil fuels on the climate.” Plus, “there is no indication that Congress expressly authorized or intended to completely preempt state laws that have a glancing relationship to transboundary pollution or foreign affairs,” and the constitutional structure doesn’t do that all on its own. “Even if federal common law could, in the abstract, have complete preemptive effect, it would not preempt Plaintiff’s claims, which are garden-variety false advertising claims…. There is simply no conflict between the State’s interest in ensuring its consumers are not misled by false advertising and any federal interest in regulating environmental pollution.” So too with foreign affairs: “[T]his Court cannot imagine any state of affairs under which [foreign affairs] would be affected by an order enjoining Defendants from disseminating misleading ads in New York City.”

Federal officer removal: The federal officer removal statute permits removal of a state court civil action “that is against or directed to ... any officer (or any person acting under that officer) of the United States or of any agency thereof ... for or relating to any act under color of such office.” For non-federal officers to invoke this statute, they “must (1) show that [they are] a person within the meaning of the statute who acted under a federal officer, (2) show that [they] performed the actions for which [they are] being sued under color of federal office, and (3) raise a colorable federal defense.” They did not.

Federal enclave jurisdiction: This is the “silliest” of defendants’ argument. Section 8 of Article I of the U.S. Constitution authorizes Congress “[t]o exercise exclusive Legislation in all Cases whatsoever ... over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings.” Defendants’ theory, “contrary to fact,” was that the complaint targets their extraction, production, and sale of fossil fuels, including “operations that occur on military bases and other federal enclaves.” Also, the advertising the City alleged is false reaches federal enclaves, i.e., “API’s Super Bowl ads reach federal enclaves, such as Ellis Island and Fort Tilden.” This is silly because (1) the complaint doesn’t target extraction, production, and sale of fossil fuels, and (2) the “advertising reaches federal enclaves” argument is “ridiculous” and would federalize “all consumer protection laws that relate to advertisements (and probably everything else); it is self-evident that all advertisements on the internet, television, radio and in newspapers can be viewed or heard by persons who happen to be in a federal enclave.”

Diversity jurisdiction: Defendants argued that the only non-diverse party, ExxonMobil, was fraudulently joined. Not so.

CAFA: This was “[s]econd in absurdity.” The City was suing under its parens patriae power, not as a class action. As the court pointed out, the City can sue without proof that consumers have actually been injured, “a far cry from the basic requirement in Rule 23 that a class representative have a representative injury.”

First Amendment: Federal jurisdiction where a complaint doesn’t state a federal claim exists if a federal issue is: “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance.” For a federal issue to be “necessarily raised,” the “mere presence of a federal issue in a state cause of action” is inadequate; the question of federal law must be “a necessary element of one of the well-pleaded state claims.” The false advertising claim would “necessarily raise” a federal issue only if it was “affirmatively ‘premised’ on a violation of federal law.” But they didn’t: the false advertising claim requires that defendants (1) engaged in “deceptive or unconscionable trade practice[s]” and (2) those practices involved “consumer goods or services.”

Still, defendants argued that their speech was on a matter of public concern, so the court couldn’t resolve the misrepresentation claims without addressing whether the First Amendment protected the advertising. That argument confused a defense (the statements were truthful protected speech) with an element of the city’s claim. “If the law were as Defendants urge, every libel, slander, and false advertising claim in the country” would be removable.

Fee-shifting in unsuccessful removals is up to the district court’s discretion, but should deter “removals sought for the purpose of prolonging litigation and imposing costs on the opposing party.” Here, the Second Circuit rejected three of the (initially) seven grounds for removal defendants argued, plus three that weren’t before the Second Circuit, but had been “roundly rejected by countless courts throughout the country.”

Even if removal was in good faith before the Second Circuit’s ruling, the renewed motion to remand was briefed afterwards, and it made multiple already-rejected arguments. The court found it appropriate to award costs and fees “in connection with arguments that it was not reasonable for Defendants to press when the City renewed its motion for remand: arguments that had largely been decided by the Circuit in Connecticut – federal common law, federal officer removal, and First Amendment defenses, and those that were objectively absurd – federal enclaves and CAFA.” Only the diversity jurisdiction argument was not unreasonable.