Securities Regulation Daily Wrap Up, ESG NEWS—8th Cir.: Iowa argues that challenge to SEC climate rules should move forward, (Apr 16, 2025)

By Rodney F. Tonkovic, J.D.

The petitioners say that until the court issues a decision, the rule "hangs like the Sword of Damocles."

Led by Iowa, a group of twenty-five states filed a consolidated opposition against a motion seeking to hold in abeyance the action challenging the SEC's climate disclosure rules. In late March, the SEC withdrew its defense of the rules. Afterwards, a group of eighteen intervenor states, plus D.C., asked the Eighth Circuit to hold the proceedings in abeyance while the SEC charted its course of action. The petitioners' filing in opposition asks the court to set the cases for argument or to submit the case for decision (Iowa v. SEC, No. 24-1522 (8th Cir. Apr. 14, 2025)).

Hard on the heels of the new disclosure regime's adoption, the rules were challenged in multiple jurisdictions, and the petitions were then consolidated in the Eighth Circuit. In April 2024, the Commission stayed the final rules pending judicial review but indicated that it would still defend their validity.

SEC drops defense. In late March 2025, the SEC voted to drop its defense of the rules. Following this vote, the Commission sent a letter to the Eighth Circuit stating that its counsel would no longer advance the arguments presented in the Commission's response brief.

Motion to hold in abeyance. On April 7, 2025, a group of eighteen states, plus the District of Columbia, moved to hold the cases in abeyance. The motion noted that the Commission had changed its position but did not indicate whether it would amend or rescind the rules. Holding the matter in abeyance, the intervenors argued, would maintain the status quo and prevent the court from spending time on arguments and writing a potentially unnecessary opinion only to have the SEC amend or rescind the regulations.

Opposition. In opposition, twenty-five states, plus several non-state petitioners, ask the court to set the consolidated cases for argument and submission or, alternatively, to submit the case for decision in an appropriate and timely manner.

The states argue that staying the case would seriously harm the regulated entities, the states, and others with no benefit in return. Those being regulated need the certainty of a court decision vacating the rule, the states contend. Here, briefing ended in September 2024, and the court does not need to hold any argument before issuing an opinion: there are no resources to be conserved. On the other hand, the climate rule with its burdensome requirements remains on the books, the states say. Plus, the SEC will benefit from having the scope of its authority clarified, since there is no guarantee that a new rule would cure the problems of the current one.

The states also disagree with the intervenors' contention that the SEC needs time to reconsider its action. The Commission has not said what it will do, the states say, but while the agency will not defend the rule, the intervenors remain in the case and are vigorously defending it. And courts can issue a merits opinion despite the federal government withdrawing its position.

In sum, the states maintain that abeyance would cause significant prejudice to the petitioners in the form of huge compliance costs. While the rule is stayed, the cost of compliance imposed on companies will be enormous and almost immediate should the penalties accompanying the rule go into effect. The uncertainty and scope of the costs is huge enough to impose significant potential compliance prejudice as the petitioners wait for final resolution, the states say.

The case is No. 24-1522.

Attorneys: Patrick Cannon Valencia, Office of the Attorney General, for State of Iowa. Nicholas J. Bronni, Office of the Attorney General, for State of Arkansas. Alan M. Hurst, Office of the Attorney General, for State of Idaho. Joshua Divine, Office of the Attorney General, for State of Missouri. Christian Brian Corrigan, Office of the Attorney General, for State of Montana. Grant Donald Strobl, Office of the Attorney General, for State of Nebraska. Philip J. Axt, Office of the Attorney General, for State of North Dakota. Charles David McGuigan, Office of the Attorney General, for State of South Dakota. Stanford Purser, Office of the Attorney General, for State of Utah. Jonathan Andrew Berry (Boyden Gray PLLC) for American Free Enterprise Chamber of Commerce. Megan Barbero for the SEC.

Companies: American Free Enterprise Chamber of Commerce

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