Securities Regulation Daily Wrap Up, PUBLIC COMPANY REPORTING AND DISCLOSURE—E.D. Cal.: Exxon can’t avoid California climate disclosure requirement, (Aug 12, 2026)

By Mark S. Nelson, J.D.

The district court concluded that Exxon’s federal preemption theory failed to state a claim, although a related First Amendment claim is still pending.

Nearly a year ago, ExxonMobil Corporation filed a lawsuit asserting as-applied federal constitutional law claims against California, which had enacted two laws requiring companies doing business in the state to make certain public disclosures about their climate (carbon) footprints. The case has since been diverted on to parallel tracks, one of which has resulted in an injunction pending a decision on Exxon’s as-applied First Amendment claim, while the second track, focused on Exxon’s as-applied preemption claim and addressed in the district court opinion reported here, has been dismissed by a judge for failure to state a claim upon which relief can be granted. Also, because the case turned on a pure question of law, Exxon was denied a chance to amend its preemption claim (ExxonMobil Corporation v. Sanchez, No. 25-cv-03104 (Aug. 11, 2026)).

Multi-claim, multi-track cases. Exxon filed a lawsuit challenging California’s twin climate disclosure laws in October 2025. According to Exxon, California’s climate laws violate the federal First Amendment by regulating speech that involves unsettled, politically controversial topics in a content-based manner.

For purposes of the instant opinion, Exxon’s lawsuit also claimed that portions of California’s climate laws violated the federal Supremacy Clause by disregarding a preemption provision contained in the National Securities Markets Improvement Act of 1996 (NSMIA) (Securities Act Sections 18(a)(1) and 18(a)(2)) that bar states from placing limits on the registration or qualification of securities or which limit the use of offering documents, proxy statements, shareholder reports, and other disclosure documents. The key to the preemption provision is that the state regulations must concern “covered securities.” Exxon said that its “publicly held stock and its bonds” fall within the meaning of “covered securities.”

The state law specifically at issue in this case is referred to as Section 261 and it would require any business with total annual revenues in excess of $500 million, and that does business in California to prepare a climate-related financial risk report. The first report would be due on or before January 1, 2026, and would be required to be posted on the business’s website.

The district court noted that a separate proceeding in the Ninth Circuit had upheld an injunction against California’s climate laws on First Amendment grounds last November. As a result, the case pending before the district court addressed only Exxon’s as-applied claim regarding federal preemption of California’s climate disclosure regime.

Exxon’s preemption claim dismissed. The Supreme Court has in two precedential cases explained that facial plausibility is the key consideration in ruling on a motion to dismiss for failure to state a claim. Factual allegations are taken as true and construed in favor of the nonmoving party. “If the complaint’s allegations do not ‘plausibly give rise to an entitlement to relief,’ the motion must be granted,” said the district court, citing one of the Supreme Court’s precedential civil procedure opinions.

Exxon argued that the NSMIA provisions addressing qualification of offerings and the use of disclosure documents, especially Form 10-K, were implicated by California’s climate laws because the company cannot rely on its annual report and must issue a separate report on its climate activities. Thus, Exxon argued that preemption is necessary because California seeks to limit the company’s “use” of a disclosure document to inform investors of material business risks. California countered that its law does not affect the ability of Exxon to issue securities in California and, thus, does not constitute the type of “use” Congress sought to preempt via the NSMIA.

The court began its analysis with a brief examination of the title of the federal statute section, which refers to exemptions from state regulation of securities offerings. While such language is not dispositive of a statute’s meaning, the court explained, the totality of the preemption provision in the NSMIA operates to “…preempt[] designated state laws insofar as they regulate securities offerings,” said the court (emphasis in original). “That is, those state statutes that regulate the terms under which securities can be validly offered within the state.”

According to the court, a state could not require a company to amend or supplement its federal disclosures with state-mandated disclosures, but a state can require a company to provide additional, separate disclosures that would not affect the company’s ability to issue its securities in the state.

The court then concluded that California’s climate law did not impose any requirements on Exxon’s federal securities filings, nor did it impose any requirement regarding state securities notice requirements. Moreover, noncompliance with the California law would result in only an administrative penalty without any effect on Exxon’s ability to issue its securities in California. As a result, the court said the state law was not preempted by the NSMIA.

The case is No. 25-cv-03104.

Judge: Calabretta, D.

Attorneys: Dawn Sestito (O'Melveny & Myers LLP) for Exxon Mobil Corp. Caitlan L. McLoon, Office of the California Attorney General, for Lauren Sanchez.

Companies: ExxonMobil Corporation

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