Texas asks Fifth Circuit to unblock law targeting companies that boycott fossil fuels

The state is seeking to lift an injunction issued by a federal judge who found the law violates the First Amendment by punishing companies for anti-oil and gas rhetoric.(CN) — A Fifth Circuit panel Thursday wrestled with the constitutionality of a Texas law prohibiting the state from investing in or contracting with companies boycotting fossil fuels.Senate Bill 13, passed in 2021, was the first major state law penalizing corporate climate initiatives. The law prohibits Texas’ retirement and school funds from investing in financial firms that boycott fossil fuel companies, and also bans state contracts worth $100,000 or more with companies that boycott fossil fuels.Texas is asking the Fifth Circuit to reverse a federal judge’s ruling that the law violates the First Amendment. U.S. District Judge Alan Albright, a Donald Trump appointee in the Western District of Texas, issued an injunction blocking the law in February, but a separate Fifth Circuit panel put that judgment on hold pending appeal.On Thursday, the panel judges — all also Trump appointees — grappled with whether the law allows the state to punish companies for anti-oil and gas rhetoric.The dispute comes down to a phrase in the statute saying a company is boycotting fossil fuels if it takes “any action that is intended to penalize” fossil fuel companies. Plaintiff American Sustainable Business Council, a coalition of businesses that advocate for sustainable practices, argues this includes anti-fossil fuel speech.U.S. Circuit Judge Cory Wilson asked Beth Klusmann, a lawyer with the Texas Attorney General’s Office, about the plaintiff’s argument that the Texas Comptroller of Public Accounts has used the law to blacklist companies like major investment firm Blackrock for speech critical of fossil fuels, even though Blackrock still invests in fossil fuel companies.Blackrock was initially added to Texas’ blacklist in 2022, but it was later removed after it withdrew from environmental initiatives like Climate Action 100+ that aim to reduce corporate greenhouse gas emissions.Klusmann told the panel a company can be boycotting fossil fuels under the law’s definition while still investing in fossil fuel companies if it’s holding such companies to different standards.“Think about it this way: In the context of, for example, a discrimination case under Title VII, you can hire women and still discriminate against them by holding them to higher standards, by paying them less, things of that nature,” she said. “You can still invest in fossil fuel companies, but hold them to higher standards or require certain things of them that you don’t require from other investments. That would be considered penalizing under the statute, but it still falls within boycott, and it’s not focused on speech.”The law exempts actions taken for “an ordinary business purpose.” Wilson questioned whether that phrase is unconstitutionally vague, as firms have been blacklisted despite providing commercial reasons for not investing in fossil fuels.Klusmann responded that refusing to invest in a fossil fuel company because of environmental harm, rather than based on the financial viability of the company, would not be an “ordinary business purpose.” She returned to the comparison to Title VII.“You can discriminate on the basis of sex if it is a bona fide occupational qualification, such as, for example, a sex-segregated locker room attendant,” she said. “Now, I couldn’t therefore say, well, I think women miss work more often because they stay home with their kids when they’re sick, and therefore that’s my bona fide occupational qualification. We can look through that and see, no, you’re just discriminating against women at that point. And so that’s what the comptroller is essentially trying to do here.”The American Sustainable Business Council’s attorney, Rachel Nguemaha, argued excluding ordinary business purposes from the law’s definition of boycott is problematic because it “takes out commercial actions from the core of the definition, so you’re left with essentially a null set unless you include expressive activity.”“Well, of course, there would be a problem if you didn’t put that in, right? Because then there could be any number of business decisions that would be eminently reasonable because you looked at P/E ratios or whatever, and you decided you weren’t going to invest in a particular asset class or a different particular group of securities, right?” U.S. Circuit Judge Andrew Oldham responded. “I mean, this is literally what business managers do all day, every day, is make decisions. We’re going to be long in this, short in that. We’re going to exclude this other thing. I mean, that’s the essence of being an investment advisor.”The judges also pressed Nguemaha on Texas’ authority to regulate state investments.“Why does the state have to join your boycott?” Wilson asked. “You’re saying that no matter what we do, that we have a right to compete for these funds and have state funds invested in our funds, regardless of whether we hurt the state.”“It’s not no matter what we do,” Nguemaha responded. “It’s that the state cannot penalize companies on account of their protected expression.”U.S. Circuit Judge Don Willett joined Wilson and Oldham on the panel. The judges took the case under submission and did not indicate when they would rule.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads