Rocky Mountain Farmers Union et al v. Corey, et al
Filing
343
ORDER RE #326 Motion to Dismiss and Motion for Partial Summary Judgment signed by District Judge Lawrence J. O'Neill on 8/13/2015. (Second Amended Complaint due by 9/18/2015).(Lundstrom, T)
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UNITED STATES DISTRICT COURT
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FOR THE EASTERN DISTRICT OF CALIFORNIA
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Lead Case: 1:09-cv-2234-LJO-BAM
AMERICAN FUELS & PETROCHEMICAL
MANUFACTURERS ASSOCIATION, et al.,
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Consolidated with member case:
1:10-cv-163-LJO-BAM
Plaintiffs,
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ORDER RE DEFENDANTS’ MOTION
TO DISMISS AND MOTION FOR
PARTIAL SUMMARY JUDGMENT
(Doc. 3261)
v.
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RICHARD W. COREY, in his official capacity
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Resources Board, et al.,
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Defendants.
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I. INTRODUCTION
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Currently before the Court is Defendants’ and Defendant-Intervenors’2 motion to dismiss certain
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claims in Plaintiffs’ First Amended Complaint, Doc. 325 (“the FAC”).3 Doc. 327. Defendants move to
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Unless otherwise indicated, all citations to the docket refer to the docket in Rocky Mountain Farmers Union v. Goldstene,
09-cv-2234-LJO-BAM.
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Defendants are Richard W. Corey, in his official capacity as Executive Officer of the California Air Resources Board
(“CARB”); Mary D. Nichols, Daniel Sperling, Phil Serna, John Eisenhut, Barbara Riordan, John R. Balmes, Hector de la
Torre, Sandra Berg, Ron Roberts, Alexander Sherriffs, John Gioia, and Judy Mithcell, in their official capacities as members
of CARB; Edmund G. Brown, in his official capacity as Governor of the State of California; and Kamala Harris, in her
official capacity as Attorney General of the State of California. Defendant-Intervenors are Natural Resources Defense
Council, Inc., Conservation Law Foundation, Sierra Club, and Environmental Defense Fund (collectively, “DefendantIntervenors”). Defendants and Defendant-Intervenors shall be referred to collectively as “Defendants.”
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Plaintiffs are American Fuel & Petrochemical Manufacturers Association (“AFPM”), American Trucking Associations, and
23 The Consumer Energy Alliance (collectively, “the AFPM Plaintiffs”). The parties refer to the other Plaintiffs in this case,
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who are not named as Plaintiffs in the FAC, as the Rocky Mountain Farmers Union (or “RMFU”) Plaintiffs. Other plaintiffs
involved in this litigation are no longer parties to this action. See Doc. 1 at 1 (“Plaintiffs Rocky Mountain Farmers Union,
Redwood County Minnesota Corn and Soybean Growers, Penny Newman Grain, Inc., Growth Energy, and Renewable Fuels
Association . . . .”). For clarity, the Court will refer to both sets of Plaintiffs collectively as “Plaintiffs” unless otherwise
indicated.
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dismiss the claims largely on the ground previous litigation in this case has resolved the claims or
precludes Plaintiffs from asserting them. See id. at 2. In addition, Defendants move for judgment to be
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entered in their favor and against Plaintiffs on various aspects of Plaintiffs’ claims. See id. The Court did
not set a hearing for the motion and the parties did not request one. The Court finds it appropriate to rule
on the motion without oral argument. See Local Rule 230(g). For the following reasons, the Court
GRANTS IN PART and DENIES IN PART the motion.
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II. FACTUAL AND PROCEDURAL BACKGROUND
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A.
The Court incorporates by reference the summary of the extensive procedural history of this
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consolidated action contained in the Court’s recent Memorandum Decision on Plaintiffs’ motion to
amend. See Rocky Mountain Farmers Union v. Goldstene, No. 1:09-cv-2234-LJO-BAM, 2014 WL
7004725, at *1-8 (E.D. Cal. Dec. 11, 2014) (“RMFU Amendment”). Only a brief recitation of the factual
and procedural background necessary to resolve Defendants’ motion to dismiss follows.
The RMFU Plaintiffs filed this consolidated action in December 2009 (Doc. 1), a first amended
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complaint on January 11, 2010 (Doc. 7), and a second amended complaint on January 28, 2010 (Doc.
11). Plaintiffs filed their complaint on February 2, 2010. See 1:10-cv-163-LJO-BAM, Doc. 1. The cases
were consolidated on October 18, 2010. See 1:10-cv-163-LJO-BAM, Doc. 99.
Plaintiffs challenge the constitutionality of California’s Low Carbon Fuel Standard (“the
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Abbreviated Facts and Procedural History.
LCFS”), 17 Cal. Code Regs. §§ 95480–90.4 RMFU Amendment, 2014 WL 7004725, at *1. The LCFS
“is a collection of regulations promulgated by Defendant California Air Resources Board (‘CARB’) to
implement provisions of California Assembly Bill 32 (‘AB 32’), California’s Global Warming Solutions
Act of 2006.” Id. (citations omitted). Plaintiffs challenged both the original LCFS regulations, which
went into effect on January 1, 2011 (“the 2011 provisions” or “the Original LCFS”), as well as the
LCFS’s provisions pertaining to crude oil, which were amended in 2012 (“the Amended LCFS”). See id.
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All statutory references are to Title 17 of the California Code of Regulations unless otherwise indicated.
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at *7.
The parties filed complex cross-motions for summary judgment, which the Court resolved in
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three separate orders, primarily in Plaintiffs’ favor. See RMFU Amendment, 2014 WL 7004725, at *1
(citing Rocky Mountain Farmers Union v. Goldstene, 843 F. Supp. 2d 1042 (E.D. Cal. 2011) (“Rocky
Mountain Preemption”); Rocky Mountain Farmers Union v. Goldstene, 843 F. Supp. 2d 1071 (E.D. Cal.
2011) (“Rocky Mountain Ethanol”); Rocky Mountain Farmers Union v. Goldstene, Nos. 09-cv-2334-
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LJO-DLB, 10-cv-163-LJO-DLB, 2011 WL 6936368 (E.D. Cal. Dec. 29, 2011) (“Rocky Mountain
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Crude”). Defendants timely appealed those orders. See Rocky Mountain Farmers Union v. Goldstene,
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730 F.3d 1070, 1086 (9th Cir. 2014) (“RMFU”), reh’g denied, 740 F.3d 507, 508 (9th Cir. 2014), cert.
denied, 134 S.Ct. 2875 (2014), 134 S.Ct. 2884 (2014).
1. Rocky Mountain Crude.
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In Rocky Mountain Crude, this Court addressed Plaintiffs’5 challenges to the crude oil provisions
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of the Original LCFS. 2011 WL 6936368. The Court found that those provisions “discriminate[d]
against out-of-state and foreign crude oil while giving an economic advantage to in-state crude oil.” Id.
at *1. Specifically, the Court found that “[t]he design and practical effect of the LCFS [was] to favor
California [high carbon intensity crude oils (‘HCICOs’)] and discriminate against foreign HCICOs and
out-of-state and foreign existing crude sources.” Id. at *12.6
The LCFS did so by giving California TEOR “an artificially favorable and lower carbon
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intensity value” while “all other existing crude sources [were] assigned higher carbon intensity values
than the actual carbon intensity values for those crudes.” Id. at *12. Similarly, the LCFS gave
“California’s HCICO favorable treatment by assigning it the baseline average carbon intensity value, a
value that is substantially lower than its actual carbon intensity score; no other HCICOs receive[d] this
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The plaintiffs have changed between Rocky Mountain Crude and now. For clarity, however, the Court will refer to them
collectively as “Plaintiffs” in its discussion of Rocky Mountain Crude and RMFU.
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Under the Original LCFS, “existing crude sources” were “[t]hose crude oil sources that made up more of the 2% California
25 crude market in 2006.” Rocky Mountain Crude, 2011 WL 6936368, at *6.
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favorable treatment.” Id. Conversely, “[c]rude oils from Alaska and foreign countries are disadvantaged
because they are assigned a carbon intensity value that is higher than the actual carbon intensity value
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for those crudes.” Id. at *14. The Court “included two tables that showed some of the crude oils in the
California market and compared their assessed carbon intensities with their individual carbon
intensities.” RMFU, 730 F.3d at 1098 (citing Rocky Mountain Crude, 2011 WL 6936368, at *11 n.5,
*12 n.6). Based on these two tables, the Court observed that “California TEOR was treated favorably
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compared to out-of-state sources based on a comparison of a fuel's individual carbon intensity to its
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assigned carbon intensity.” Id. at 1099.
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The Court found that the “LCFS gives an economic advantage to California TEOR over foreign
HCICOs and assigns a mandatory economic disadvantage to out-of-state and foreign existing crude
sources.” Id. at *17. Accordingly, the Court held that the LCFS discriminated against interstate
commerce by design and in practical effect because it was “designed to discourage the entry of foreign
HCICOs from entering the California market, while giving an advantage to California’s HCICO,”
thereby giving “an economic advantage to an in-state interest.” Id. at *14. “The LCFS’ favorable
treatment of California’s TEOR as compared to other HCICOs and other existing crude sources
violate[d] the Commerce Clause even though the distinctions drawn appear[ed] to be neutral.” Id. at *13.
The Court found that even though the LCFS’s crude oil provisions were “related to economic
protectionism,” they served a legitimate local purpose. Id. at *15. Nonetheless, because the LCFS’s goal
of reducing global warming could be achieved by other, nondiscriminatory alternatives, the Court found
that the LCFS’s crude oil provisions were impermissibly discriminatory against interstate and foreign
commerce, in violation of the Commerce Clause. Id. at *16. The Court therefore struck down the LCFS
as unconstitutional. Id.
2. RMFU.
On appeal, the Ninth Circuit affirmed in part, reversed in part, vacated in part, and remanded the
case to this Court. Id. at 1077.
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The Ninth Circuit disagreed with this Court’s determination that the Original LCFS’s crude oil
provisions “treated crude oil in a facially neutral manner but . . . taken as a whole . . . discriminated
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against out-of-state crude oil in purpose and effect.” RMFU, 730 F.3d at 1097. The Ninth Circuit held
that this Court erred by failing to analyze “the full market” for crude oils in California. See RMFU, 730
F.3d at 1099.
The Ninth Circuit acknowledged that, according to the two tables relied on by this Court, the
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LCFS appeared to treat California TEOR favorably compared to other foreign crude oils. See id. at
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1099. But the Ninth Circuit noted that those “tables left out several significant parts of the 2006 [crude
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oil] market,” and “[t]he remainder—almost one quarter of the market—alters the impression of the”
LCFS’s crude oil provisions. Id. The Ninth Circuit provided the following table, which “show[ed] the
full California crude-oil market in 2006”:
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17 Id. Based on the data contained in this table, the Ninth Circuit concluded:
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Seen in context of the full market, the [LCFS’s crude oil provisions] do not appear protectionist,
though they do assess California TEOR a carbon intensity well below its individual value.
California TEOR benefited from an assessed carbon intensity lower than its individual carbon
intensity. But California Primary has the lowest individual carbon intensity in the market; it
suffered more from the same arrangement than light crude from Alaska or abroad. Under the
[LCFS’s crude oil provisions], California Primary and Water Flood were both assessed carbon
intensity values higher than their individual values. Those burdened sources together made up
22.6% of the 2006 market; the benefited California sources formed only 16.1%. This burden on
“major in-state interests . . . is a powerful safeguard against legislative abuse.”
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The Ninth Circuit observed that CARB’s stated purposes for enacting the Original LCFS’s crude
25 oil provisions “were: (1) to prevent an increase in the carbon intensity of California's crude oil market;
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(2) to avoid fuel shuffling; and (3) to direct innovation toward the development of alternative fuels
rather than the search for more efficient methods of crude-oil extraction.” RMFU, 730 F.3d at 1098. The
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Ninth Circuit that these stated purposes for enacting the Original LCFS were “genuine,” id. at 1100, and
therefore held that the LCFS’s crude oil provisions had “no protectionist purpose, no aim to insulate
California firms from out-of-state competition.” Id.
The Ninth Circuit observed that “[h]aving found a protectionist purpose, which [the Ninth
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Circuit] conclude[d] was incorrect,” this Court “did not discuss evidence of an actual adverse effect
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created by” the Original LCFS’s crude oil provisions, “though [this Court] did hold that [those]
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provisions in design and practical effect” discriminated against out-of-state crude oils. Id. at 1100. In the
Ninth Circuit’s view, “[w]hen challenged by CARB to present such evidence in [their] brief,” Plaintiffs
“instead relied on [their] claim that the [Original LCFS’s crude oil provisions] had a discriminatory
purpose,” and asked the Ninth Circuit “‘to speculate and infer’” that those provisions necessarily had a
discriminatory effect on out-of-state crude oils. Id. (quoting Black Star Farms, LLC v. Oliver, 600 F.3d
1225, 1232 (9th Cir. 2010)).
The Ninth Circuit observed that “[i]n cases such as this, where neither facial discrimination nor
an improper purpose has been shown, the evidentiary burden to show a discriminatory effect is
particularly high.” Id. (citing Black Star, 600 F.3d at 1232). The Ninth Circuit found that Plaintiffs
failed to meet that burden. Id. Instead, the Ninth Circuit recognized that Plaintiffs “ha[d] not presented
the ‘substantial evidence of an actual discriminatory effect’ necessary ‘in order to take advantage of
heightened scrutiny and shift the burden of proof to the State.’” Id. (quoting Black Star, 600 F.3d at
1233) (citation and internal quotation marks omitted). The Ninth Circuit therefore (1) affirmed this
Court’s determination that the Original LCFS’s crude oil provisions were not facially discriminatory, but
(2) reversed this Court’s holding that those provisions were discriminatory in purpose and effect, (3)
directed this Court “to enter an order of partial summary judgment in favor of [Defendants] on those
issues,” id. at 1107, and (4) remanded for this Court “to consider whether [the Original LCFS’s crude oil
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provisions] placed an undue burden on interstate commerce under Pike.” Id. at 1100-017; see also id. at
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The Ninth Circuit summarized its relevant holdings as follows:
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The [Original LCFS’s] ethanol provisions are not facially discriminatory, so we reverse that
portion of the district court's decision and remand for entry of partial summary judgment in favor
of CARB. We also reverse the district court’s decision that the [Original LCFS] is an
impermissible extraterritorial regulation and we direct that an order of partial summary judgment
be entered in favor of CARB on those grounds. We remand the case for the district court to
determine whether the ethanol provisions discriminate in purpose or effect and, if not, to apply
the Pike [v. Bruce Church, Inc., 397 U.S. 137 (1970)] balancing test.8
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We affirm the district court’s conclusion that the [Original LCFS’s crude oil provisions] are not
facially discriminatory, but we reverse its holding that [they] are discriminatory in purpose and
effect, and we direct the district court to enter an order of partial summary judgment in favor of
CARB on those issues.
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10 Id.9 The case is now on remand before this Court. See RMFU Amendment, 2014 WL 7004725, at *1.
11 B.
Plaintiffs’ First Amended Complaint.
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After the Court granted in part and denied in part Plaintiffs’ motion to amend, see id. at *18,
13 Plaintiffs filed a First Amended Complaint (“the FAC”)—currently the operative complaint—on
14 January 9, 2015. Doc. 324.10 “Plaintiffs seek injunctive and declaratory relief enjoining the
15 implementation and enforcement of the [LCFS] as promulgated and subsequently amended, and
16 declaring the LCFS unlawful under federal law.” Id. at ¶ 2. Specifically, Plaintiffs bring three causes of
17 action in which they assert the LCFS violates the Commerce Clause in three discrete ways. See id. at 1518
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Plaintiffs have abandoned their Pike claims. See RMFU Amendment, 2014 WL 7004725, at *12.
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The Pike balancing test provides that where a statute or regulation “even-handedly . . . effectuate[s] a legitimate local public
interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the putative local benefits.” 397 U.S. at 142. Plaintiffs, however, have abandoned
their Pike claims. See RMFU Amendment, 2014 WL 7004725, at *12.
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The Court acknowledges that these holdings do not represent the entire panel because Judge Murguia disagreed with the
panel majority’s conclusion that the Original LCFS’s ethanol provisions were not facially discriminatory. RMFU, 730 F.3d at
1107-08 (Murguia, J., concurring in part and dissenting in part) (“While I agree with the majority’s conclusions concerning
the crude oil regulations and preemption under the Clean Air Act, I respectfully dissent from the majority’s conclusion that
the [Original LCFS’s ethanol] ethanol regulations do not facially discriminate against interstate commerce.”).
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Although the RMFU Plaintiffs filed a second and third amended complaint, the AMFU Plaintiffs did not file any amended
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19. Plaintiffs briefly summarized their claims as follows:
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First, the LCFS as promulgated (Original LCFS) violates the Commerce Clause because it has
directly regulated interstate and foreign commerce and extraterritorial conduct, including the
extraction, production and transport of transportation fuels and fuel feedstocks outside of
California . . . .
Second, the LCFS as amended (Amended LCFS) violates the Commerce Clause and principles
of interstate federalism embodied in the Federal structure of the United States Constitution
because it directly regulates interstate and foreign commerce and extraterritorial conduct,
including the extraction, production and transport of transportation fuels and fuel feedstocks
outside of California . . . .
Third, the Original LCFS and Amended LCFS discriminate both on their face, and as applied,
against transportation fuels and fuel feedstocks imported from outside of California with the
intended effect of (i) promoting in-State production of transportation fuels, and (ii) “keep[ing]
consumer dollars local by reducing the need to make fuel purchases from beyond [California’s]
borders,” all in violation of the Commerce Clause of the United States Constitution.
10 Id. at ¶¶ 4-7.
11 C.
Defendants’ Motions to Dismiss and for Summary Judgment.
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Defendants maintain that this Court should enter judgment on Plaintiffs’ first claim and, in part,
13 on their third claim, and dismiss under Fed. R. Civ. P. 12(b)(6) Plaintiffs’ second claim entirely and their
14 third claim in part. See Doc. 327 at 2. Defendants also argue that, if any part of the FAC survives,
15 Defendant Governor Brown should be dismissed as a defendant. Id.
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Plaintiffs concede that partial summary judgment can be entered for Defendants on some aspects
17 of their first and third claims pursuant to RMFU. See Doc. 330 at 11, 18 (emphasis omitted). But
18 Plaintiffs contend that Defendants’ motion to dismiss their second and third claims should be denied in
19 part. See id. at 12, 18.
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III. STANDARDS OF DECISION
21 A.
Motion to Dismiss.
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A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) is a challenge to the sufficiency of the
23 allegations set forth in the complaint. A 12(b)(6) dismissal is proper where there is either a “lack of a
24 cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.”
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Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss
for failure to state a claim, the court generally accepts as true the allegations in the complaint, construes
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the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the
pleader’s favor. Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).
To survive a 12(b)(6) motion to dismiss, the Plaintiffs must allege “enough facts to state a claim
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to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim
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has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
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reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
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662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for
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more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at
556). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops
short of the line between possibility and plausibility for entitlement to relief.’” Id. (quoting Twombly,
550 U.S. at 557).
“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
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allegations, a Plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). Thus, “bare assertions . . . amount[ing]
to nothing more than a ‘formulaic recitation of the elements’ . . . are not entitled to be assumed true.”
Iqbal, 556 U.S. at 681. In practice, “a complaint . . . must contain either direct or inferential allegations
respecting all the material elements necessary to sustain recovery under some viable legal theory.”
Twombly, 550 U.S. at 562. To the extent that the pleadings can be cured by the allegation of additional
facts, the Plaintiffs should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. N. Cal.
Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted).
B.
Summary Judgment.
Summary judgment is appropriate when the pleadings, disclosure materials, discovery, and any
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affidavits provided establish that “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A material fact is one that may affect the
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outcome of the case under the applicable law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A dispute is genuine “if the evidence is such that a reasonable trier of fact could return a verdict
in favor of the nonmoving party.” Id.
The party seeking summary judgment “always bears the initial responsibility of informing the
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district court of the basis for its motion, and identifying those portions of the pleadings, depositions,
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answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes
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demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986) (internal quotation marks omitted). The exact nature of this responsibility, however, varies
depending on whether the issue on which summary judgment is sought is one in which the movant or the
nonmoving party carries the ultimate burden of proof. See Soremekun v. Thrifty Payless, Inc., 509 F.3d
978, 984 (9th Cir. 2007); Cecala v. Newman, 532 F. Supp. 2d 1118, 1132 (D. Ariz. 2007). If the movant
will have the burden of proof at trial, it must demonstrate, with affirmative evidence, that “no reasonable
trier of fact could find other than for the moving party.” Soremekun, 509 F.3d at 984. In contrast, if the
nonmoving party will have the burden of proof at trial, “the movant can prevail merely by pointing out
that there is an absence of evidence to support the nonmoving party’s case.” Id. (citing Celotex, 477 U.S.
at 323).
If the movant satisfies its initial burden, the nonmoving party must go beyond the allegations in
its pleadings to “show a genuine issue of material fact by presenting affirmative evidence from which a
jury could find in [its] favor.” FTC v. Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009) (emphasis in
original). “[B]ald assertions or a mere scintilla of evidence” will not suffice in this regard. Id. at 929; see
also Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (“When the
moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that
there is some metaphysical doubt as to the material facts.”) (citation omitted). “Where the record as a
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whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue
for trial.’” Matsushita, 475 U.S. at 587 (quoting First Nat’l Bank of Arizona v. Cities Serv. Co., 391 U.S.
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253, 289 (1968)).
In resolving a summary judgment motion, “the court does not make credibility determinations or
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weigh conflicting evidence.” Soremekun, 509 F.3d at 984. That remains the province of the jury or fact
finder. See Anderson, 477 U.S. at 255. Instead, “[t]he evidence of the [nonmoving party] is to be
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believed, and all justifiable inferences are to be drawn in [its] favor.” Id. Inferences, however, are not
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drawn out of the air; the nonmoving party must produce a factual predicate from which the inference
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may reasonably be drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal.
1985), aff’d, 810 F.2d 898 (9th Cir. 1987).
IV. DISCUSSION
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Plaintiffs filed the FAC on January 9, 2015. Doc. 324.11 The FAC contains three claims.
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A.
Plaintiffs’ first claim alleges that “[t]he Original LCFS violates the Commerce Clause of the
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Plaintiffs’ First Claim – Original LCFS
United States Constitution by directly regulating interstate and foreign commerce and purporting to
regulate conduct that occurs in other States and Nations.” FAC at ¶ 84. Specifically, Plaintiffs allege
[b]y regulating the ‘fuel pathway’ of transportation fuels – i.e., the manner in which
transportation fuels are produced and ultimately reach the California market – the Original LCFS
impermissibly penalizes producers and importers based upon the manner in which their
transportation fuels are produced and the manner in which they move in interstate and foreign
commerce . . . . By design and in practical effect, the Original LCFS impermissibly regulates
conduct occurring outside of California by making it more difficult to market and sell
transportation fuels based upon where the fuels are produced, the manner in which they are
produced, and the manner in which they reach the California market.
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21 Id. at ¶¶ 86, 88.
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Defendants assert they are entitled to the entry of judgment on Plaintiffs’ first claim under the
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In light of the filing of the FAC, some Plaintiffs previously associated with this case apparently are no longer named as
Plaintiffs. See supra note 3. The parties refer to those Plaintiffs as “the RMFU Plaintiffs” and refer to Plaintiffs named in the
FAC as “the AFPM Plaintiffs.” The Court will refer to the AFPM Plaintiffs as “Plaintiffs” unless otherwise indicated.
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Ninth Circuit’s decision in RMFU. Doc. 327 at 10. Defendants contend the “claim has been fully
litigated and was resolved against [Plaintiffs] by the Ninth Circuit” because that court “expressly
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concluded that the LCFS does not control out-of-state conduct” and therefore “explicitly resolved
[Plaintiffs’] extraterritoriality claim as to the ‘Original LCFS.’” Id.12 Defendants assert that, “[u]nder the
rule of mandate, this Court may not ‘vary [the Ninth Circuit’s mandate], or examine it for any other
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purpose than execution.” Id. (quoting United States v. Thrasher, 483 F.3d 977, 981 (9th Cir. 2007)).
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Defendants further assert that, “because the rule of mandate is jurisdictional, this Court lacks
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jurisdiction, with respect to [Plaintiffs’] ‘First Claim,’ to do anything other than enter judgment for
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Defendants.” Id. at 11 (citing Thrasher, 483 F.3d at 982).
Plaintiffs do not dispute Defendants’ assertions. See Doc. 330 at 11-12. Plaintiffs concede that
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“under the Ninth Circuit’s mandate, partial summary judgment can be entered for Defendants on the first
claim that the Original LCFS is extraterritorial in violation of the Commerce Clause.” Id. at 11
(emphasis omitted). Plaintiffs acknowledge that the Ninth Circuit resolved their first claim, “holding that
the Original LCFS ‘regulates only the California market,’” id. at 12 (quoting RMFU, 730 F.3d at 1101).
As Plaintiffs further acknowledge, the Ninth Circuit reversed this Court’s “decision that the [Original
LCFS] is an impermissible extraterritorial regulation” and “direct[ed] that an order of partial summary
judgment be entered in favor of [Defendants] on those grounds.” Id. (quoting RMFU, 730 F.3d at 1107).
Accordingly, “[p]ursuant to the Ninth Circuit’s mandate, [Plaintiffs] submit[] that partial summary
judgment can be entered for [D]efendants on the First Claim that the Original LCFS is an extraterritorial
regulation in violation of the Commerce Clause.” Id. (citing Thrasher, 483 F.3d at 981).
The Ninth Circuit has summarized the principles underlying the rule of mandate as follows:
21
“The rule of mandate is similar to, but broader than, the law of the case doctrine.” United States
v. Cote, 51 F.3d 178, 181 (9th Cir. 1995). A district court that has received the mandate of an
appellate court cannot vary or examine that mandate for any purpose other than executing it. Id.
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Defendants also argue that Plaintiffs’ first claim can be dismissed on other grounds if this Court “declines to enter
judgment for Defendants.” See Doc. 327 at 11 n.5. For the reasons discussed below, the Court finds it appropriate to enter
judgment for Defendants on the claim, so the Court need not discuss whether the claim can or should be dismissed.
12
At the same time, the rule of mandate allows a lower court to decide anything not foreclosed by
the mandate. Herrington v. Cnty. of Sonoma, 12 F.3d 901, 904 (9th Cir. 1993). A district court is
limited by our remand when the scope of the remand is clear. Mendez–Gutierrez v. Gonzales,
444 F.3d 1168, 1172 (9th Cir. 2006). Violation of the rule of mandate is a jurisdictional error.
United States v. Thrasher, 483 F.3d 977, 982 (9th Cir. 2007).
1
2
3
4
Hall v. City of Los Angeles, 697 F.3d 1059, 1067 (9th Cir. 2012).
Here, the Ninth Circuit’s mandate is explicit and unambiguous. That court held in RMFU: “We
5
also reverse the district court’s decision that the [Original LCFS] is an impermissible extraterritorial
6
regulation and we direct that an order of partial summary judgment be entered in favor of CARB on
7
those grounds.” 730 F.3d at 1107 (emphasis added). Accordingly, Defendants’ motion for partial
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summary judgment on Plaintiffs’ first claim that the Original LCFS is an impermissible extraterritorial
regulation in violation of the Commerce Clause is GRANTED.
B.
Plaintiffs’ Second Claim – Extraterritoriality as to the Amended LCFS.
Plaintiffs’ second claim contains largely the same allegations as the first claim, but pertains to
the Amended LCFS, not the Original LCFS. See FAC at ¶¶ 92-98. That is, Plaintiffs’ second claim
alleges that the Amended LCFS is an impermissible extraterritorial regulation for essentially the same
reasons as the Original LCFS. As with the Original LCFS, Plaintiffs claim that
[b]y regulating the “fuel pathway” of transportation fuels – i.e., the manner in which
transportation fuels are produced and ultimately reach the California market – the Amended
LCFS impermissibly penalizes producers and importers based upon the manner in which their
transportation fuels are produced in other States and countries and the manner in which they
move in interstate and foreign commerce . . . . By design and in practical effect, the Amended
LCFS impermissibly regulates conduct occurring wholly outside of California by making it more
difficult to market and sell transportation fuels based upon where the fuels are produced, the
manner in which they are produced, and the manner in which they reach the California market
. . . . The Amended LCFS improperly extends California’s police power beyond its jurisdictional
bounds by regulating conduct that lies within the regulatory jurisdiction of other States and
countries.
Id. at ¶¶ 94, 96-97; see also SAC at ¶¶ 86, 88. Plaintiffs contend that, “[b]y regulating interstate and
foreign commerce that occurs wholly outside of California,” the Amended LCFS violates the Commerce
Clause, as well as “principles of interstate federalism embodied in the Federal structure of the United
States Constitution.” Id. at ¶ 98.
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1
Defendants move to dismiss the entire claim on the grounds that (1) it is barred by the law of the
case and (2) therefore it fails to state a claim on which relief can be granted. Doc. 327 at 12. Defendants
2
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contend that RMFU’s holding that the Original LCFS is not an impermissible extraterritorial regulation
forecloses Plaintiffs’ claim that the Amended LCFS is such a regulation because the “claim asserts, as
4
5
[Plaintiffs’] already-resolved extraterritoriality claim did, that the application of lifecycle analysis to
fuels constitutes impermissible extraterritorial regulation of all aspects of the lifecycle.” Id. According to
6
Defendants, Plaintiffs have “not altered [their] main factual allegation concerning extraterritoriality”
7
because they “still maintain[] that, by using lifecycle analysis to determine carbon intensity, the LCFS
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regulates all aspects of the lifecycle,” which includes “‘the manner in which transportation fuels are
produced outside California, their movement in interstate commerce to California, and the manner in
which they ultimately reach the California market.’” Id. (quoting FAC at ¶ 70). Defendants contend that
“[a]lthough [Plaintiffs’] ‘Second Claim’ purports to challenge the [Amended LCFS], it alleges no facts
about the 2012 crude provisions that could render them extraterritorial or could present issues other than
those already decided by the Ninth Circuit.” Doc. 327 at 12. Thus, Defendants maintain that Plaintiffs’
second claim is barred by RMFU because the claim’s “extraterritoriality challenge still relies on an
argument that, through the lifecycle analysis, the [Amended] LCFS regulates something other than
California’s fuels market,” and “[t]he Ninth Circuit has already held to the contrary.” Id. at 13 (citing
RMFU, 730 F.3d at 1103).
Plaintiffs oppose Defendants’ motion to dismiss, contending that because “the Ninth Circuit
considered extraterritoriality only in the context of the Commerce Clause,” that court “did not expressly
or implicitly decide a claim that the LCFS violates principals [sic] of federalism.” Doc. 330 at 15.
Plaintiffs “submit that [RMFU] does not control [their] challenge under principles of horizontal
federalism,” id., for three primary reasons:
First, the Ninth Circuit did not and could not address [Plaintiffs’] claim that the Amended LCFS
regulates in an extraterritorial manner because it did not evaluate any challenges to the Amended
LCFS . . . .
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1
Second, although the Ninth Circuit did not expressly address the Amended LCFS, [Plaintiffs]
agree that the Ninth Circuit’s prior ruling would govern [Plaintiffs’] claim that the Amended
LCFS violates the prohibition on extraterritorial regulation under the Commerce Clause . . . .
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3
Finally, the Ninth Circuit’s ruling does not resolve [Plaintiffs’] claim that the Amended LCFS is
impermissibly extraterritorial under principles of horizontal federalism reflected in the structure
of the Constitution.
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Id. at 13-14 (emphasis in original).
6
1. Law of the Case Doctrine.
7
The law of the case doctrine generally precludes a court from “reconsidering an issue that
8
already has been decided by the same court, or a higher court in the identical case.” United States v.
9
Alexander, 106 F.3d 874, 876 (9th Cir. 1997). “The United States Supreme Court and the Ninth Circuit
10 alike have recognized that an action brought following a reversal and remand for further proceedings in
11 the same litigation is the same case for purposes of application of the law of the case doctrine.” Ischay v.
12 Barnhart, 383 F. Supp. 2d 1199, 1218 (C.D. Cal. 2005) (citing Hartford Life Ins. Co. v. Blincoe, 255
13 U.S. 129, 136 (1921); Hansen & Rowland v. C.F. Lytle Co., 167 F.2d 998, 998-99 (9th Cir. 1948)).13
14 “For the doctrine to apply, the issue in question must have been decided explicitly or by necessary
15 implication in the previous disposition.” United States v. Lumni Nation, 763 F.3d 1180, 1185 (9th Cir.
16 2014) (emphasis in original) (quoting United States v. Lumni Indian Tribe, 235 F.3d 443, 452 (9th Cir.
17 2000)). “An argument is rejected by necessary implication when the holding stated or result reached is
18 inconsistent with the argument.” United States v. Jingles, 702 F.3d 494, 502 (9th Cir. 2012) (quoting
19 United States v. Jordan, 429 F.3d 1032, 1035 (11th Cir. 2005)).
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The law of the case doctrine has three exceptions that may permit departure from the law of the case when: (1) the original
decision is clearly erroneous and its enforcement would work a manifest injustice, (2) intervening controlling authority
makes reconsideration appropriate, or (3) substantially different evidence was adduced at a subsequent trial. Old Person v.
Brown, 312 F.3d 1036, 1039 (9th Cir. 2002). No party suggests that any of these exceptions applies here. United States v.
Alexander, 106 F.3d 874, 876 (9th Cir. 1997) (“A court may have discretion to depart from the law of the case where: 1) the
first decision was clearly erroneous; 2) an intervening change in the law has occurred; 3) the evidence on remand is
substantially different; 4) other changed circumstances exist; or 5) a manifest injustice would otherwise result.”).
15
2. Analysis.
1
Plaintiffs’ first argument as to whether the law of the case bars their claim—that the Ninth
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Circuit did not and could not have addressed whether the Amended LCFS regulates extraterritorially—
misses the mark. That the Ninth Circuit did not consider the Amended LCFS does not necessarily mean
that RMFU’s reasoning and conclusions do not apply to the Amended LCFS. In fact, Plaintiffs “agree
that [RMFU] . . . would govern [their] claim that the Amended LCFS violates the prohibition on
6
extraterritorial regulation under the Commerce Clause.” Doc. 330 at 14 (emphasis in original). In other
7
words, that RMFU did not address the Amended LCFS is not dispositive of whether the decision bars
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Plaintiffs’ claim under the law of the case. Likewise, that RMFU addressed Plaintiffs’ challenge to the
LCFS only under Commerce Clause principles is not dispositive.
As this Court explained in RMFU Amendment, any allegations “concerning the alleged
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extraterritorial reach of the LCFS would require this Court to find that the [Original] LCFS regulates
conduct outside of California, which directly conflicts with RMFU’s explicit holdings to the contrary,
and this Court’s duty to respect the decision of the Ninth Circuit.” 2014 WL 7004725, at *14.14 And as
this Court held in RMFU Amendment, the Ninth Circuit’s decision in RMFU “forecloses any claim that
the LCFS is an impermissible extraterritorial regulation, regardless of the basis of the claim, because any
extraterritorial regulation claim necessarily is contingent on a finding that the LCFS regulates
extraterritorially.” Id. at *14. Accordingly, any challenge to the Amended LCFS premised on the
assertion that it impermissibly regulates extraterritorially is foreclosed by RMFU unless it regulates fuels
in a different (i.e., extraterritorial) way than does the Original LCFS such that RMFU did not address the
Amended LCFS’s regulatory method(s) either directly or indirectly.
With regard to extraterritoriality, Plaintiffs have not alleged facts that could support a finding
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23
that the Amended LCFS regulates fuels differently than does the Original LCFS. The basis for Plaintiffs’
24
14
Plaintiffs explicitly state in their opposition that they disagree with this conclusion, but they provide no explanation for
25 their disagreement. See Doc. 330 at 16.
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1
claim that the Amended LCFS regulates extraterritorially is premised on its use of a life-cycle analysis
to determine a fuel’s carbon intensity—the same basis for their challenge to the Original LCFS that the
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Ninth Circuit rejected. See FAC at ¶¶ 86, 94; Doc. 330 at 14. Plaintiffs claim that “[t]he Amended
LCFS, like the [O]riginal LCFS, employs a ‘life-cycle’ analysis that determines a fuel’s carbon intensity
based on economic activities that occur wholly outside of California.” Doc. 330 at 14 (citing FAC at ¶
5
94) (emphasis added). Plaintiffs further claim that “[t]he Amended LCFS, like the Original LCFS,
6
continues to regulate physically-identical fuels based on the manner in which those fuels were produced
7
and brought through interstate commerce into the California market.” Id. (citing FAC at ¶¶ 93-97)
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(emphasis added). Plaintiffs contend that,
[e]ven if California’s regulation of economic conduct – i.e., the production and transport of crude
oil outside of California – were insufficient to qualify as extraterritorial regulation under the
Commerce Clause, California’s application of its life-cycle analysis to regulate the production
and transport of crude oils outside of California on its face regulates economic conduct occurring
wholly outside of California and therefore is extraterritorial regulation that violates the structural
limits on California’s authority under the United States Constitution.
13 Id. at 16-17.
14
For the reasons explained more thoroughly in RMFU Amendment, the Ninth Circuit has resolved
15 with finality any claim that the Original LCFS is an impermissible extraterritorial regulation. See 2014
16 WL 7004725, at *13-14 (citations omitted). Any claim premised on the assertion that the Original LCFS
17 regulates outside of California therefore fails under RMFU. Plaintiffs “disagree[] with that conclusion,”
18 but provide no explanation of their disagreement. See Doc. 330 at 16.
19
As discussed in more detail below, the crude oil provisions of the Amended LCFS operate
20 differently than did those of the Original LCFS. But with regard to extraterritoriality, Plaintiffs have
21 alleged no facts and have provided no argument to support a finding that the the Amended LCFS
22 operates differently. In fact, Plaintiffs’ extraterritoriality claim is premised solely on the LCFS’s life23 cycle analysis, and Plaintiffs explicitly state that the Amended LCFS’s life-cycle analysis is the same as
24 that contained in the Original LCFS. In other words, Plaintiffs effectively allege that the Amended
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1
LCFS regulates extraterritorially in the exact same way as did the Original LCFS.
In sum, Plaintiffs have not alleged facts demonstrating that the Amended LCFS regulates fuels
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differently such that RMFU’s extraterritoriality analysis should not apply to bar Plaintiffs’ challenge that
the Amended LCFS also is an impermissible extraterritorial regulation. As such, the Court finds that
Plaintiffs’ claim that the Amended LCFS is an impermissible extraterritorial regulation contained in the
Second Claim is barred by RMFU under the law of the case. RMFU Amendment gave Plaintiff ample
6
warning of the need to allege facts that would distinguish the Amended LCFS in some way that would
7
preclude dismissal of this claim. As the FAC contained no such distinguishing facts and because
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Plaintiffs do not here suggest any such facts could be alleged, further amendment appears futile.
Accordingly, the Court GRANTS WITHOUT LEAVE TO AMEND Defendants’ motion to dismiss
Plaintiffs’ Second Claim that the Amended LCFS is an impermissible extraterritorial regulation.
C.
13
Plaintiffs’ Third Claim – Violation of the Commerce Clause (Original LCFS and Amended
LCFS)
Plaintiffs’ third claim alleges both the Original LCFS and the Amended LCFS impermissibly
14 discriminate against interstate commerce in violation of the Commerce Clause. See FAC at ¶¶ 103-05.
15 Specifically, Plaintiffs allege “[t]he Original LCFS and Amended LCFS violate the Commerce Clause
16 . . . by discriminating against transportation fuels produced in other States and other countries” because
17 they “treat chemically identical fuels and fuel feedstocks differently based, in part, on where they are
18 produced.” Id. at ¶¶ 103-04. Plaintiffs further allege that “[b]y assigning lower carbon intensities to
19 California fuels and higher carbon intensities to fuels from outside California, the Original LCFS and
20 Amended LCFS encourage the use of fuels produced in California as compared to chemically identical
21 fuels produced outside of California.” Id. at ¶ 104. Thus, Plaintiffs claim that “[t]he discrimination
22 inherent in the Original LCFS and Amended LCFS is designed to provide an unfair competitive
23 advantage to local economic interests and to promote the use of California fuels in California.” Id. at ¶
24 105.
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1. Defendants’ Motions to Dismiss and for Summary Judgment on Plaintiffs’ Third Claim.
Defendants assert they are entitled to judgment on Plaintiffs’ entire third claim under the rule of
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mandate and Fed. R. Civ. P. 12(b)(6). See Doc. 327 at 13, 14 (“None of the claims in [Plaintiffs’] ‘Third
Claim’ should survive this motion.”). Defendants claim this Court should enter judgment on Plaintiffs’
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discrimination claims against the Original LCFS because the Ninth Circuit in RMFU directed this Court
to enter partial summary judgment in Defendants’ favor on those claims on remand. Doc. 327 at 14
6
(citing RMFU, 730 F.3d at 1107). Defendants contend they are entitled to judgment “on all of the
7
discrimination claims in [Plaintiffs’] ‘Third Claim’ that are directed at the ‘Original LCFS’ because
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[RMFU] resolved all of those claims.” Id. at 14.
Defendants claim that “[w]hile the Ninth Circuit remanded the RMFU Plaintiffs’ claim that [the
LCFS’s ethanol provisions] discriminate in purpose of effect,” Plaintiffs “expressly disavowed that
[their] challenge to the LCFS encompassed” claims concerning the Original LCFS’s ethanol provisions
when they moved for summary judgment. Id. Defendants also claim that Plaintiffs “asserted that the
discovery Defendants sought was irrelevant to [their] discrimination claims because the discovery
concerned ethanol and not petroleum fuels.” Id. at 15 (citing Doc. 155 at 5 n.2). In Defendants’ view,
“[t]he Ninth Circuit resolved all discrimination claims concerning petroleum fuels and the facial
discrimination claim concerning ethanol.” Id. (emphasis in original). Accordingly, Defendants contend
that the Ninth Circuit’s order on remand for this Court “to consider whether [the Original LCFS’s]
ethanol provisions discriminate in purpose or in practical effect,” RMFU, 730 F.3d at 1078, applies to
the RMFU Plaintiffs only, and does not apply to Plaintiffs. Doc. 331 at 5.
In addition, Defendants move to dismiss Plaintiffs’ discrimination claim against the crude oil
provisions of the Amended LCFS under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Doc. 327 at
15; Doc. 331 at 8. Defendants argue that Plaintiffs’ “discrimination claims against the 2012 crude oil
provisions are internally inconsistent and represent nothing more than a re-hash of the claims already
decided by the Ninth Circuit.” Doc. 331 at 10.
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2. Plaintiffs’ Opposition.
Plaintiffs agree with Defendants that, pursuant to the Ninth Circuit’s mandate, partial summary
2
judgment can be entered in Defendants’ favor on Plaintiffs’ (1) discrimination claim against the crude
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oil provisions of the Original LCFS, Doc. 330 at 18, and (2) on Plaintiffs’ facial discrimination claim
against the ethanol provisions of the Original LCFS. Id. at 21.
Plaintiffs, however, oppose Defendants’ motion to dismiss in all other respects. Plaintiffs
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contend that the FAC “states a valid claim that the [Amended LCFS’s] crude oil provisions violate the
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Commerce Clause by discriminating against interstate and foreign commerce,” and are not barred by the
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law of the case “because these provisions were not at issue in [RMFU].” Doc. 330 at 19-20. Likewise,
Plaintiffs contend their claim that the Original LCFS’s ethanol provisions discriminate in purpose and
effect should not be dismissed and are not barred by the law of the case because “the Ninth Circuit
expressly left open this claim for this Court’s consideration, holding that ‘we remand the case for the
district court to determine whether the ethanol provisions discriminate in purpose or effect.’” Id. at 22
(quoting RMFU, 730 F.3d at 1107). Plaintiffs argue that, contrary to Defendants’ assertions, because
they “never disavowed its claim that the ethanol provisions discriminate in purpose and effect,” the
“claim is properly before this Court now.” Id. at 23.
3. Analysis.
a. The Original LCFS’s Crude Oil Provisions.
The parties agree that Defendants are entitled to judgment on Plaintiffs’ claim that the crude oil
provisions of the Original LCFS are impermissibly discriminatory and that the ethanol provisions of the
Original LCFS are facially discriminatory. Accordingly, Defendants’ motion for partial summary
judgment on Plaintiffs’ claim that the crude oil provisions of the Original LCFS are impermissibly
discriminatory either facially, purposefully, or in effect, and on Plaintiffs’ claim that the ethanol
provisions of the Original LCFS are facially discriminatory is GRANTED in Defendants’ favor and
against Plaintiffs.
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b. Whether the Original LCFS’s Ethanol Provisions Discriminate in Purpose
and Effect.
2
The parties dispute whether Plaintiffs can state a claim that the Original LCFS’s ethanol
3
provisions discriminate in purpose and effect. Specifically, Defendants assert that Plaintiffs “expressly
4
disavowed” its challenge to the Original LCFS’s ethanol provisions. Doc. 327 at 15-16. Defendants
5
claim Plaintiffs did so because they “asserted that [their] summary judgment motion encompassed all of
6
[their] discrimination claims.” Id. (emphasis in original).
7
The Court disagrees with Defendants’ contention that Plaintiffs “disavowed” their claims that the
8
Original LCFS discriminates in purpose and effect, much less that they did so “expressly.” Defendants’
9
argument that Plaintiffs “never suggested that it held back any discrimination claims” in their motion for
10 partial summary judgment lacks support. Doc. 331 at 6. In moving for partial summary judgment,
11 Plaintiffs explained “that the [Original] LCFS is preempted by federal law and violates the Commerce
12 Clause in each of the ways described in Plaintiffs’ Complaint. However, [Plaintiffs’] partial summary
13 judgment motion focuses on two claims.” Doc. 126 at 8 (emphasis in original).
14
There is no indication that Plaintiffs abandoned or disavowed their claim that the Original
15 LCFS’s ethanol provisions discriminated against interstate and foreign commerce in purpose and effect.
16 Rather, Plaintiffs only moved for partial summary judgment on other claims. And as Defendants
17 acknowledge, Doc. 327 at 14, the Ninth Circuit expressly remanded “the case for [this Court] to
18 determine whether the [Original LCFS’s] ethanol provisions discriminate in purpose or effect.” RMFU,
19 730 F.3d at 1100. Because Plaintiffs’ claims that the Original LCFS’s ethanol provisions discriminate in
20 purpose or effect remain pending, Defendants’ motion to dismiss those claims is DENIED.
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c. The Amended LCFS’s Crude Oil Provisions.
The parties dispute whether Plaintiffs can and do state a claim that the Amended LCFS’s crude
23 oil provisions discriminate in purpose and effect. Defendants contend that Plaintiffs cannot do so
24 because the FAC’s pertinent allegations are internally inconsistent, Doc. 327 at 15, and, even if they
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were consistent, RMFU bars them under the law of the case. Id. at 17.
Because the parties’ initial briefs concerning the Amended LCFS’s crude oil provisions were did
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not clearly articulate the parties’ positions on certain issues, the Court directed the parties to submit
supplemental briefs. Doc. 332. Specifically, the Court directed the parties to submit supplemental briefs
“outlin[ing] their understanding of how the Amended LCFS’s crude oil provisions function . . . and
whether and why RMFU has precluded Plaintiffs’ pending claims against them.” Id. at 4 (footnote
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omitted). In addition, Plaintiffs were directed to explain “[h]ow and why the Amended LCFS’s crude oil
7
provisions are alleged to be impermissibly discriminatory” and whether the FAC sufficiently articulates
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a claim (or claims) that are not barred by RMFU. See id. at 3. The parties timely complied with those
directives.
Defendants move to dismiss Plaintiffs’ claim against the Amended LCFS’s crude oil provision
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for four primary reasons: (1) the claim’s allegations are incoherent because they are internally
inconsistent and incorrectly allegs the crude oil provisions of the Amended LCFS apply to foreign and
out-of-state crude oils when, in fact, it applies only to “regulated parties”; (2) the claim is barred by
RMFU under the law of the case; and (3) the claim fails to state a claim under the Dormant Commerce
Clause. The Court addresses each argument in turn.
(1) Summary of the Relevant Amended LCFS’s Crude Oil Provisions.15
17
The purpose of the LCFS is to “reduce greenhouse gas emissions by reducing the full fuel-cycle,
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carbon intensity of the transportation fuel pool used in California.” § 95480. Each year, regulated parties
“must meet the average carbon intensity requirements set forth” in section 95482 for the fuel for which
they are responsible. See § 95482(a)-(b).
Pursuant to the 2012 amendments to the LCFS, CARB adopted the “California Average
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Approach” to “account for [greenhouse gas] emissions from all crude oil used by California refineries.”
15
What follows is a summary and explanation of only the Amended LCFS’s crude oil provisions relevant to Defendants’
motion to dismiss. It is not intended to provide a thorough summary or explanation of the entire Amended LCFS.
22
1
CARB, Initial Statement of Reasons for Proposed Rulemaking, Proposed Amendments to the Low
Carbon Fuel Standard (2011) (“2011 ISOR”) at 56, available at http://www.arb.ca.gov/regact/2011
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/lcfs2011/lcfsisor.pdf. Under this scheme, the annual average carbon intensity value for gasoline and
diesel fuels that a regulated party must meet, sometimes referred to as “the compliance target,”
decreases each year. § 95482(b). If a regulated party’s fuel is below the annual average carbon intensity
value, then that party receives “credits”; if it is above the annual average carbon intensity value, the
6
party receives “deficits.” See § 95485(b)(3); CARB, Low Carbon Fuel Standard, “Question and Answer
7
Guidance Document (Version 1.0)” (“CARB Q&A”) at 4 (“Credits are generated when a regulated
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party’s fuel has carbon intensity that is less than the CI standard. Conversely, a deficit occurs when a
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regulated party’s fuel has carbon intensity that is higher than the CI standard.”); available at
http://www.arb.ca.gov/fuels/ lcfs/LCFS_Guidance_(Final_v.1.0).pdf. In general, a party complies with
the LCFS if its credits are greater than or equal to its deficits. § 95488(a).
With regard to Plaintiffs’ challenge to the Amended LCFS’s crude oil provisions, this litigation
concerns how those credits/deficits are calculated for crude-oil-based fuels. Specifically, this case
concerns how CARB assesses regulated parties’ compliance with the LCFS vis-à-vis the credit/deficit
scheme contained in the Amended LCFS’s crude oil provisions. The parties and the Court agree that
scheme operates in a two-step process. That scheme is similar to the Original LCFS’s crude oil
provisions “in that it will continue to require refiners to account for both a ‘baseline deficit’ and an
‘incremental deficit,’” but it differs from the Original LCFS “in several ways,” discussed below. CARB,
Updated Informative Digest, Amendments to the Low Carbon Fuel Standard (“Amended LCFS
Digest”), at 5, available at http://www.arb.ca.gov/regact/2011/lcfs2011/uidrev.pdf.
a. Step One – Base Deficits.
At the first step, CARB calculates a regulated party’s “base deficits.” A regulated party’s base
deficits are calculated, in part, by taking into consideration (1) the amount of CARBOB or Ultra Low
Sulfur Diesel (“ULSD”) the regulated party uses and (2) the difference between the carbon intensity
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value assigned to CARBOB16 or ULSD and the annual average carbon intensity. See § 95846(b)(2)(A)1;
see also 2011 ISOR at 80 (“Regulated parties would only calculate and be subject to the Base Deficit for
2
all CARBOB and diesel regardless of the crude oil used for refining.”).
3
The full equation for calculating base deficits is:
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§ 95486(b)(2)(A)1.17 “CIXDstandard” stands for the compliance target average, which is the required annual
average carbon intensity that gasoline and diesel fuels must meet. See id. Section 95846(b)(2)(A)1
defines CIXDstandard as having the “same meaning as specified in section 95485(a)(3)(A),” which, in turn,
defines CIXDstandard as “the average carbon intensity requirement of either gasoline (XD = ‘gasoline’) or
diesel fuel (XD = ‘diesel’) for a given year as section 95482(b) and (c), respectively.” Sections 95482(b)
and (c) thus provides the compliance targets for gasoline and diesel fuels, respectively, for each calendar
year from 2011 through “2020 and subsequent years.” See § 95482(a).
“Starting January 1, 2011 and for each year thereafter, a regulated party must meet the average
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14
15
16
17
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carbon intensity requirements set forth in Table 1 and Table 2 [in section 95482] for its transportation
gasoline and diesel fuel, respectively, in each calendar year.” Id. As memorialized in sections 95482(b)
and (c), the compliance targets for CARBOB and ULSD decrease annually until 2020. The compliance
target for gasoline began at 95.61 gCO2e/MJ in 2011 and will reduce incrementally each year until
2020, where it will remain at 89.06 gCO2e/MJ “for subsequent years.” See § 95482(b). Similarly, the
compliance target for diesel began at 94.47 gCO2e/MJ in 2011 and will reduce incrementally each year
until 2020, where it will remain at 88.23 gCO2e/MJ “for subsequent years.” See § 95842(c).
“CIXDBaselineAvg” stands for the Baseline Average carbon intensity values for either CARBOB or
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25
.
ULSD, which are set forth in their respective “Carbon Intensity Lookup Tables.” § 95486(b)(2)(A)1.
The Baseline Average replaced categories in the Original LCFS concerning HCICOs/non-HCICOs and
16
“CARBOB” stands for California Reformulated Gasoline Blendstock for Oxygenate Blending.
17
“EXD is the amount of fuel energy, in MJ, from CARBOB . . . or diesel . . . either produced in California or imported into
California during a specific calendar year.” § 95486(b)(2)(A)(1). “C is a factor used to convert credits to units of metric tons
of gCO2E.” § 95485(a)(2)((3)(A).
24
1
existing/emerging sources. See Amended LCFS Digest at 5.
The Carbon Intensity Lookup Table for CARBOB is found in section 95486(b), Table 6 (“Table
2
3
4
5
6”), and provides a carbon intensity value of 99.18 gCO2e/MJ for CARBOB. The Carbon Intensity
Lookup Table for ULSD is found in section 95486(b), Table 7 (“Table 7”), and provides a carbon
intensity value of 98.03 gCO2e/MJ for ULSD. These “Look-Up Table values for CARBOB and diesel
[will] not be updated,” 2011 ISOR at ES-10, and represent the average carbon intensity for
6
CARBOB/ULSD. See CARB, “Updated Informative Digest: Amendments to the Low Carbon Fuel
7
Standard” (“Amended LCFS Digest”) at 4, available at http://www.arb.ca.gov/regact/2011/lcfs2011/
8
9
uidrev.pdf.
How, exactly, CARB calculates the Baseline Average carbon intensity values for CARBOB and
10
11
12
13
14
ULSD is not entirely clear based on either the LCFS regulations themselves or the current record. But it
appears the complicated processes through which their “pathways”18 (i.e., their resultant carbon intensity
values) are determined are thoroughly explained in CARB documents that are “incorporated . . . by
reference” into section 95486. See § 95486(b)(A)-(Z).
The Amended LCFS “explicitly accounts for and tracks the overall average [carbon intensity] for
15
16
17
18
19
20
21
22
23
24
the transport and production of crudes used by California refineries.” 2011 ISOR at 82. Section
95486(b)(A) incorporates by reference a CARB document entitled “(Feb. 27, 2009, v.2.1), ‘Detailed
California-Modified GREET Pathway for California Reformulated Gasoline Blendstock for Oxygenate
Blending (CARBOB) from Average Crude Refined in California,’ Pathway CBOB001” (“the CARBOB
Pathway Document”).19 That document “provides detailed calculations, assumptions, input values and
other information required to calculate the energy use and [greenhouse gas] emissions for the CARBOB
pathway,” and explains that the CARBOB pathway “includes crude recovery, transport, [and] refining of
18
Under the LCFS, a fuel’s “pathway” is, in effect, its ultimate carbon intensity value, which accounts for “all aspects of the
production, refining, and transportation of a fuel.” RMFU, 730 F.3d at 1081.
19
25
Available at http://www.arb.ca.gov/fuels/lcfs/022709lcfs_carbob.pdf.
25
1
crude in a typical California refinery and transport of finished product (CARBOB).” CARBOB Pathway
Document at 2-3.
2
Similarly, section 95486(b)(C) incorporates by reference a CARB document entitled “(February
3
4
5
28, 2009, v.2.1), ‘Detailed California-Modified GREET Pathway for Ultra Low Sulfur Diesel (ULSD)
from Average Crude Refined in California,’ Pathway ULSD001” (“the ULSD Pathway Document”).20
Like the CARBOB Pathway Document, the ULSD Pathway Document also “provides detailed
6
calculations, assumptions, input values and other information required to calculate the energy use and
7
[greenhouse gas] emissions for the ULSD pathway,” and explains that the ULSD pathway also “includes
8
9
10
crude recovery, transport, refining of crude in a typical California refinery and transport of finished
product (ULSD).” ULSD Pathway Document at 2-3.
Plaintiffs claim that the carbon intensity values for CARBOB and ULSD, as contained in Table 6
11
12
13
14
15
16
and Table 7, respectively, “are based on the ‘baseline crude average’ for production and transport
included in Table 8.” Doc. 333 at 8. Put another way, Plaintiffs assert that the 2010 Baseline Crude
Average of 11.39 gCO2e/MJ memorialized in Table 8 was used to determine the carbon intensity values
of CARBOB contained in Table 6 (99.18 gCO2e/MJ) and of ULSD in Table 7 (98.03 gCO2e/MJ).
Defendants provide no argument or explanation addressing this issue.
Table 8 contains the carbon intensity values associated with only “the production and transport
17
18
19
20
21
22
23
of the crude oil supplied to California refineries.” As discussed above, the extensive process by which
CARB determined the pathways for CARBOB and ULSD (i.e., their total carbon intensity values as
memorialized in Tables 6 and 7) are outlined in the CARBOB Pathway Document and the ULSD
Pathway Document, respectively. See §§ 95486(b)(A)(A.1), (C). In calculating those pathways, CARB
took into account the carbon intensity values associated with the recovery and transportation of
CARBOB and ULSD. In 2012, CARB determined a supplement to both the CARBOB Pathway
24
20
25
Available at http://www.arb.ca.gov/fuels/lcfs/022709lcfs_ulsd.pdf.
26
1
Document and ULSD Pathway Document was necessary because Table 8 originally was based on data
from 2006, but needed to be updated to reflect data from 2010.21 Accordingly, CARB substituted the
2
3
4
5
2010 Baseline Crude Average of 11.39 gCO2e/MJ for the lower 8.07 gCO2e/MJ carbon intensity value
associated with crude recovery and transport contained in the CARBOB Pathway Document and the
ULSD Pathway Document.22 Simply put, Plaintiffs appear to be correct that the Baseline Crude Average
in Table 8 (11.39 gCO2e/MJ) was the carbon intensity value related to production and transport used to
6
determine the pathways (i.e., overall carbon intensity) for CARBOB contained in Table 6 (99.18
7
gCO2e/MJ) and for ULSD contained in Table 7 (98.03 gCO2e/MJ).
8
Base deficits are calculated, in part, by determining the difference between CARBOB’s or
9
10
11
12
13
14
15
16
17
18
19
20
ULSD’s carbon intensity value, which remains constant, and the applicable compliance target average,
which decreases annually.23 For instance, when determining base deficits for CARBOB in 2011,
CARBOB’s carbon intensity value of 99.18 would be subtracted from the compliance target average of
95.61 gCO2e/MJ. That difference of -3.57 gCO2e/MJ is then input into the remaining base deficit
calculation, meaning that, in 2011, CARBOB produced base deficits because its carbon intensity value
was 3.57 gCO2e/MJ above the 2011 compliance target.24 Because CARBOB’s and ULSD’s carbon
intensity values remain constant while the compliance targets remain at lower values and decrease each
year, regulated parties always will accrue increasing base deficits, by volume, for the CARBOB and
21
See § 95486(b)(A.1); § 95486(b)(C.1) “(Supplement Version 2.0 (September 12, 2012) to Stationary Source Division, Air
Resources Board (February 28, 2009, v.2.1), ‘Detailed California-Modified GREET Pathway for Ultra Low Sulfur Diesel
(ULSD) from Average Crude Refined in California,’” (“ULSD Pathway Document Supplement”) at 2, available at
http://www.arb.ca.gov/regact/2011/lcfs2011/ulsd.pdf; CARBOB Pathway Document Supplement at 2.
22
See CARBOB Pathway Document Supplement at 2 (“The Baseline Average carbon intensity value for CARBOB, 99.18
21 gCO2/MJ, was determined by substituting the 2010 Baseline Crude Average carbon intensity value discussed above for the
22
23
24
25
crude recovery (6.93 gCO2/MJ) and crude transport (1.14 gCO2/MJ) values reported in the CARBOB pathway document.”);
ULSD Pathway Document Supplement at 2 (“The Baseline Average carbon intensity value for ULSD, 98.03 gCO2/MJ, was
determined by substituting the 2010 Baseline Crude Average carbon intensity value discussed above for the crude recovery
(6.93 gCO2/MJ) and crude transport (1.14 gCO2/MJ) values reported in the ULSD pathway document.”).
23
See supra n. 16 (explaining remaining factors used in the base deficit calculation).
24
If the difference is a negative value, the party incurs deficits; if it is a positive value, the regulated party incurs credits. See
§ 95486(b)(2)(A)(1) (“DeficitsXDBase(MT) and DeficitsXDIncremental20XX mean the amount of LCFS deficits incurred (a negative
value)”).
27
1
ULSD they use, and must produce sufficient credits to off-set those deficits through the use of other
fuels with lower carbon intensities. See Doc. 334 at 3-4 (Defendants explaining that because “crude-oil-
2
3
4
5
based fuels, such as CARBOB or conventional diesel, generally produce only deficits . . . the credits
needed to comply with the LCFS . . . must come from lower-carbon alternative fuels”). Further, because
of the annually increasing difference between CARBOB’s and ULSD’s carbon intensity values and the
annual compliance target average, CARBOB and ULSD will produce more base deficits by volume each
6
year.
7
b. Step Two – Incremental Deficits.
8
9
10
11
12
13
14
At the second step, CARB calculates a regulated party’s “incremental deficits,” which are used
to mitigate increases in the carbon intensity of the California crude oil market. See § 95846(b)(2)(A)1.
This step was intended “to ensure that the LCFS benefits are not diminished due to increases in
[greenhouse gas] emissions from higher carbon intensity crude supplies,” Amended LCFS Digest at 4,
and replaced the Original LCFS’s use of a “bright line” value of 15.00 gCO2e/MJ used “for
differentiating between HCICOs and non-HCICOs.” Id. at 5. Accordingly, “an incremental deficit is
applied to all companies [only] if the average crude slate refined in California becomes more carbon
15
intensive over time.” 2011 ISOR at 78. “This allows for an individual company to shift its crude slate and not
16
be required to mitigate increased emissions as long as the average [carbon intensity] of the California crude
17
slate used by the industry as a whole does not increase over time relative to the baseline year.” 2011 ISOR at
18
19
20
21
22
23
78. According to CARB, “[t]here is likely greater flexibility to purchase worldwide crude supplies than [the
Original LCFS’s] approach as oil companies have the discretion to shift among crude sources without
incurring an incremental deficit, as long as the overall California average [carbon intensity] does not
increase.” Id. at 82.
To determine if incremental deficits will be assessed for regulated parties, CARB determines each
year if the “California average crude oil carbon-intensity value . . . attributed to the production and transport
24 of the crude oil supplied . . . to California refineries” (the “Annual Crude Average”) is greater than the
25
28
“California average crude oil carbon-intensity value . . . attributed to the production and transport of the
1
crude oil supplied . . . to California refineries during the baseline calendar year, 2010” (the “Baseline Crude
2
Average”). See § 95486(b)(2)(A)1. “[I]f the annual crude average [carbon intensity] in a given year is greater
3
than the baseline crude average [carbon intensity], the incremental [carbon intensity will] be used in the
4
following year to calculate the additional deficits to be incurred by regulated parties that supply CARBOB
5
and ULSD.” 2011 ISOR at 35.
6
7
For purposes of calculating incremental deficits for CARBOB and diesel fuel, the Baseline Crude
Average is the “Baseline Crude Average carbon intensity value set forth in the Lookup Table.”
8
§ 95486(b)(2)(A)1. Although not explicitly stated, this refers to the “Lookup Table” found at section
9
95486(b), Table 8 (“Table 8”), which provides a “Baseline Crude Average” of 11.39 gCO2e/MJ. That value
10 remains constant because it is “[b]ased on production and transport of crude oil supplied to California
11 refineries during the baseline calendar year, 2010.” Table 8 at *. The remaining data in Table 8 shows the
12 average carbon intensity values of various crude oils from around the world, including California (12.90
13 gCO2e/MJ), based on data from 2010.25
Like the Baseline Crude Average, the Annual Crude Average is “[b]ased on production and transport
14
15 of the crude oil supplied to California refineries.” Table 8 at **. The Annual Crude Average, however, “will
16 be first calculated for calendar year 2012 and subsequently updated annually using data for crude oil supplied
26
17 to California refineries during the specified calendar year or years.” Id. Each time the Annual Crude
18 Average must be recalculated, CARB produces a document that shows “a breakdown of the sources of crude
19 oil supplied to California refineries during [the relevant year] and the carbon intensity values assigned to
20
21
22
23
24
25
25
CARB initially used data from 2006, but updated Table 8 in 2012 based on data from 2010. See CARB, “Supplement
Version 2.0 to: ‘Detailed California-Modified GREET Pathway for California Reformulated Gasoline Blendstock for
Oxygenate Blending (CARBOB) from Average Crude Refined in California,’” (Sept. 12, 2012) at 2 (“CARBOB Pathway
Document Supplement”), available at http://www.arb.ca.gov/regact/2011/lcfs2011/carbob.pdf.
26
“CIXD2012CrudeAvg will be calculated using data for crude oil supplied to California refineries during the calendar year
2012. CIXD2013CrudeAvg will be calculated using data for crude oil supplied to California refineries during the calendar years
2012 and 2013. CIXD2014CrudeAvg will be calculated using data for crude oil supplied to California refineries during the calendar
years 2012, 2013, and 2014. All subsequent updates toCIXD20XXCrudeAvg will be calculated using data for crude oil supplied to
California refineries during the most recent three calendar years.” § 95486(b)(2)(A)(1).
29
those crude sources,” as well as the resulting Annual Crude Average. See, e.g., CARB, Calculation of 2012
1
Crude Average CI Value (“2012 CI Calculation Table”), available at http://www.arb.ca.gov/fuels/lcfs/
2
crude-oil/2012-crude-ave-ci.pdf.27 If the Annual Crude Average is greater than the Baseline Crude Average,
3
then all regulated parties will receive incremental deficits; if the Annual Crude Average is less than or equal
4
to the Baseline Crude Average, then incremental deficits are not incurred. See § 95486(b)(2)(A)1; see also
5
CARB, Final Statement of Reasons, Amendments to the Low Carbon Fuel Standard Regulation (2012)
6
7
(“2012 FSOR”), at 29 (“Incremental deficits are earned, however, when the California [Crude] Average
rises.”), available at http://www.arb.ca.gov/regact/2011/lcfs2011/lcfsfsor.pdf.
8
9
Incremental deficits are calculated, in part, by subtracting the corresponding Annual Crude Average,
which is recalculated annually or every three years, starting in 2014, from the Baseline Crude Average,
10 which remains constant at 11.39 gCO2e/MJ. Because this calculation only occurs when the Annual Crude
11 Average is greater than the Baseline Crude Average, the result is always a negative value, which represents a
12 deficit. Because the Annual Crude Average was 11.36 gCO2e/MJ in 2012 and 2013, and 11.35 gCO2e/MJ in
13 2014 (i.e., below the Baseline Crude Average of 11.39 gCO2e/MJ), it appears that incremental deficits were
14 not assessed for the corresponding years. See § 95486(b)(2)(A)1 (incremental deficits formula providing that
15 if the Annual Crude Average is less than or equal to the Baseline Crude Average, then the annual
16 incremental deficits assessed are equal to zero).
(2) Whether Plaintiffs Challenge Both Steps in the FAC.
17
After a review of the initial briefs and a first round of supplemental briefing on Defendants’
18
19 motion to dismiss, the Court ordered the parties to file a second round of supplemental briefs concerning
20 the first step of the regulatory process of the Amended LCFS’s crude oil provisions. Doc. 335 at 3.
21
22
23
24
25
27
See also CARB, Calculation of 2014 Crude Average CI Value (“2014 CI Calculation Table”), available at
http://www.arb.ca.gov/fuels/lcfs/crude-oil/2014-crude-ave-ci.pdf; CARB, Calculation of 2013 Crude Carbon Intensity Value
(“2013 CI Calculation Table), available at http://www.arb.ca.gov/fuels/lcfs/crude-oil/2013-crude-ave-ci.pdf (collectively,
“the CI Calculation Tables”). The Court takes judicial notice of the 2012, 2013, and 2014 CI Calculation Tables as matters of
public record not subject to reasonable dispute. See Fed. R. Evid. 201(b); Lee v. City of Los Angeles, 250 F.3d 668, 688-89
(9th Cir. 2001); MGIC Idem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (“On a motion to dismiss, we may take
judicial notice of matters of public record outside the pleadings.”) (citations omitted).
30
1
Among other things, the Court directed Plaintiffs “to explain . . . which allegations in the FAC
demonstrate that Plaintiffs challenge the first step.” Doc. 335 at 3. The Court found this necessary
2
because it was not clear from the FAC (or Plaintiffs’ briefs) whether Plaintiffs challenged the first step.
3
4
5
Id. at 2.
Plaintiffs confirmed they intended to challenge the first step in the FAC. Doc. 336 at 5. Plaintiffs
contend that “paragraphs 73 through 76 [of the FAC] describe the process used to assign base deficits,
6
and paragraphs 81 to 82, 102, and 103, allege that this first step discriminates against out-of-state and
7
foreign crude oils, and in favor of California crude oils.” Id. at 9. Plaintiffs acknowledge that paragraphs
8
9
10
11
12
13
14
15
16
17
18
73-76 “do not use the specific term ‘base deficits,’ but they explain that carbon intensity scores for crude
oil are assigned using the baseline ‘California average’ from 2010, rather than the individual carbon
intensities of the particular crude oils that a regulated party uses.” Id. Further, Plaintiffs assert “the ‘base
deficits’ and ‘incremental deficits’ unconstitutionally discriminate in the same manner,” which is why
the FAC “does not have separate allegations of discrimination covering the two types of deficits;
instead, its allegations of discrimination include both kinds of deficits.” Doc. 336 at 9-10.
The Court finds (and Defendants do not dispute) that the FAC contains a claim against step one.
See generally Doc. 337. Although not entirely clear, paragraphs 74 through 76 of the FAC sufficiently
describe step, and paragraph 81 sufficiently explains Plaintiffs’ challenge to step one, albeit in a very
truncated fashion.
19
(3) Whether the FAC’s Allegations Are Inconsistent with the
Amended LCFS.
20
Defendants argue Plaintiffs’ third claim should be dismissed because the FAC’s allegations are
21 inconsistent both internally and with the Amended LCFS, and therefore do not accurately describe the
22 Amended LCFS. See Doc. 327 at 5. Specifically, Defendants assert that the following allegations in the
23 FAC are inconsistent: (1) Plaintiffs’ allegation “that, under the 2012 crude provisions, [C]ARB will
24 recalculate the average carbon intensity of California’s crude slate each year” and (2) Plaintiffs’
25
31
1
allegation “that [C]ARB will assign the same ‘average baseline CI score,’ rather than individualized
‘scores,’ to numerous crude oils including ‘California HCICO’ and ‘Alaskan and foreign crude oils.”
2
3
4
5
Doc. 327 at 15; see also Doc. 334 at 8 (same).
These allegations are not inconsistent with the Amended LCFS. As explained above, CARB
recalculates the Annual Crude Average each year (or every three years, starting in 2014) by averaging
the individualized carbon intensity values of every crude oil in the California market. That average is
6
then used to determine whether incremental deficits are assessed for all regulated parties—if the Annual
7
Crude Average carbon intensity value is higher than the Baseline Crude Average carbon intensity value,
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
then the difference between the two is used to determine a regulated party’s incremental deficits. See §§
95486(b)(2)(A)1-2.a-b.
Thus, CARB calculates “individualized carbon intensity values for each crude, but then assigns
deficits based on the average carbon intensity of all crude oils used in California, regardless of the
individualized carbon intensity of the crude oils that a particular party actually uses.” Doc. 330 at 19
(citations omitted). As explained in the 2012 FSOR: CARB “agree[s] that the potential for a few refiners
driving up the Annual Crude Average carbon intensity and incurring an incremental deficit that will be
applied to all refiners is a disadvantage of the [Amended LCFS].” 2012 FSOR at 45. Because of that
concern, CARB evaluated (and will continue to evaluate) “an option for individual regulated parties to
have their deficits for gasoline and diesel determined on a refinery-specific basis that accounts for the
carbon intensity of domestic and imported crudes, intermediate products, and finished fuels.” Id. at 46.
Plaintiffs’ allegations that Defendants contend are inconsistent in fact are consistent with the Amended
LCFS’s crude oil provisions. Accordingly, the Court DENIES Defendants’ motion to dismiss on that
ground.
Defendants also argue—in their reply only—that the FAC is inconsistent with the Amended
LCFS because the Amended LCFS regulates only “regulated parties” (e.g., refiners), not crude oils or
their producers, yet Plaintiffs incorrectly alleges that the Amended LCFS discriminates against crude
32
1
oils because they are subjected to average carbon intensities instead of their actual, individualized
carbon intensity values. See Doc. 331 at 10.28 Generally, a “district court need not consider arguments
2
3
4
raised for the first time in a reply brief,” Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007), but the
Court has the discretion to do so. Lane v. Dep’t of Interior, 523 F.3d 1128, 1140 (9th Cir. 2008).
As noted, the Court directed the parties to submit two rounds of supplemental briefs. Doc. 332.
5
For the first set of briefs, the Court directed the parties to explain “[h]ow the relevant portions of the
6
Amended LCFS’s crude oil provisions operate to regulate crude oil in California” and whether RMFU
7
barred their claims against those provisions. See id. at 3-4.
8
Defendants were directed to submit their supplemental brief after Plaintiffs submitted theirs. Id.
9
10
11
12
13
14
15
16
at 4. Although not directed to do so, Defendants expanded on their argument that Plaintiffs’ claim
against the Amended LCFS’s crude oil provisions “is incorrect both because it is regulated refiners and
blenders, not out-of-state crude oil producers, who incur deficits.” Doc. 334 at 7. Defendants further
argued the FAC’s allegations are internally inconsistent because “[a]t one point, [Plaintiffs] allege[] that
‘crude-oil providers’ incur the deficits, while at another point [they] allege[] that ‘regulated parties that
provide [refined fuels like] gasoline or diesel’ incur the deficits.” Id. at 7-8 (citing FAC at ¶¶ 74, 79)
(footnote omitted).
The Court again asked for supplemental briefs. Doc. 335. Plaintiffs were directed to file a brief
17
18
19
20
21
22
23
“declaring whether or not they challenge the first step of the Amended LCFS’s crude oil provisions,”
and, if so, Plaintiffs were directed to explain “how the first step operates; which allegations in the FAC
demonstrate that Plaintiffs challenge the first step; and how the first step impermissibly discriminates in
favor of crude oils from California.” Id. at 2. Because Plaintiffs confirmed in their second supplemental
brief that they challenge the first step, Defendants were permitted to file “a responsive supplemental
brief.” See id. at 3.
Although Plaintiffs submitted two additional briefs after Defendants’ reply, the Court limited the
24
25
28
The Court will refer to this argument as “Defendants’ regulated parties argument.”
33
1
scope of the issues Plaintiffs were permitted to address in those briefs. The Court did not request or
provide Plaintiffs the opportunity to address the argument in Defendants’ reply that the FAC incorrectly
2
3
4
5
alleges to whom (or what) the Amended LCFS applies. The Court therefore is inclined to disregard
Defendants’ regulated parties argument as it was raised for the first time in the reply and Plaintiffs did
not have an adequate chance to address it.
Defendants, however, are correct that the LCFS applies only to entities deemed to be regulated
6
parties. Under the LCFS, a regulated party is “a person who, pursuant to section 95484(a), must meet the
7
average carbon intensity requirements in section 95482 or 95483.”29 As discussed above, section 95482
8
9
10
11
12
13
provides the annual compliance target, which is used, among other things, to calculate a regulated
party’s base deficits. Section 95484(a) provides “the criteria by which a regulated party is determined.”
To put it simply, those criteria are complex and provide numerous ways through which an entity may be
deemed a regulated party subject to the LCFS. But Defendants are correct that regulated parties
generally are in-state fuel refiners and blenders and are not out-of-state entities.30
Further, it may be that out-of-state crude oil providers and crude oils are not regulated parties
14
15
16
17
18
19
20
21
22
23
24
25
under the Amended LCFS, and therefore not subject to its credit/deficit scheme, but that is not material
to Plaintiffs’ claim—that the Amended LCFS’s regulation of regulated parties nonetheless discriminates
against out-of-state crude oil providers and refiners and their crude oils. Although the FAC may lack
some precision with regard to whom or what the Amended LCFS’s crude oil provisions apply, the
FAC’s allegations are not so incompatible with those provisions so as to justify dismissal of Plaintiffs’
claim against them. More importantly, Defendants cannot argue credibly that they are not on notice of
29
Section 95483 is inapplicable here, as it applies to regulated parties that provide “alternative fuels.”
30
See CARB Q&A at 2 (“Each fuel provider (generally the fuel’s producer or importer, a.k.a. ‘regulated party’) is required to
ensure that the overall CI score for its fuel pool meets the annual carbon intensity target for a given year.”), 24 (“If you do not
own the fuel in California, you do not have any reporting requirements under the LCFS.”); 2011 ISOR at ES-3 (“[S]everal
out-of-state fuel producers and some in-state fuel suppliers expressed the desire to opt into the program as regulated parties.
The current regulation does not confer regulated party status to these out-of-state entities because of jurisdictional concerns
. . . . Staff is proposing regulatory amendments that would permit such entities to voluntarily elect to become regulated
parties and become subject to California jurisdiction.”).
34
1
the basis and nature of Plaintiffs’ claim. The Court therefore DENIES Defendants’ motion to dismiss on
the ground the FAC’s allegations are internally inconsistent and contradict the Amended LCFS’s crude
2
3
oil provisions.
(4) Whether the Amended LCFS’s Crude Oil Provisions Are
Unconstitutionally Discriminatory.
4
5
Briefly summarized, Plaintiffs’ challenge to the Amended LCFS’s crude oil provisions focuses
6
on the “state-wide average carbon intensity scores [that] must be used by all regulated parties under the
7
LCFS . . . without regard to the individual carbon intensities of the particular crude oils that the
8
individual regulated party actually uses.” Doc. 336 at 8. Specifically, Plaintiffs assert “[t]he first step
9
and the second step of the Amended LCFS’s crude oil provisions unconstitutionally discriminate in the
10 same manner: they assign deficits based upon an average carbon intensity, rather than the individual
11 carbon intensities of the particular crude oils used.” Doc. 336 at 19.
12
Plaintiffs claim this discrimination occurs because the California market-wide average carbon
13 intensity values (i.e., the Baseline Crude Average and the Annual Crude Average) that a regulated party
14 must use when assessing its LCFS deficits/credits do not take into account the actual carbon intensity of
15 the fuel(s) that a regulated party uses, which results in an inaccurate and artificial deficit/credit
16 calculation. These averages, Plaintiffs claim, benefit in-state California interests while burdening out-of17 state interests.
18
According to Plaintiffs, “the Amended LCFS discriminates in favor of crude oils from California
19 which are assigned the 2010 baseline crude average market-wide carbon intensity for production and
20 transport,” in spite of the fact that “CARB has calculated that the carbon intensity for the production and
21 transport of crude oils from California . . . is higher than the baseline crude average.” Id. at 8 (citing 17
22 CCR § 95486(b), Table 8). Plaintiffs contend that, “by assigning a single average for the production and
23 transport for all crudes oil used in California,” the LCFS “discriminates (1) in favor of California crudes,
24 which CARB calculated had a higher carbon intensity for production and transport than the statewide
25
35
1
average and (2) against crudes imported into California for which CARB calculated carbon intensities
that are lower than the statewide average.” Id. at 5. “By imposing a single baseline average, CARB
2
3
4
protects California crudes (e.g., California [thermally enhanced oil recovery (‘TEOR’)]) from generating
significant deficits, and prevents low carbon intensity crudes from generating credits (or lesser deficits)
if assigned their actual carbon intensities.” Doc. 333 at 8.
5
Plaintiffs point out, for instance, that when determining a regulated party’s incremental deficits, a
6
party that uses California TEOR will benefit from the use of the Baseline Crude Average (11.39
7
gCO2e/MJ) because it is lower than CARB’s determined actual carbon intensity average for the
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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production and transport of crude oils from California (12.90 gCO2e/MJ). Doc. 336 at 11 (citing Table
8). On the other hand, a regulated party that uses foreign crude oils may be discriminated against under
the Amended LCFS at the incremental deficit step because the Baseline Crude Average is higher than
the actual average carbon intensity of those foreign oils. Id. (“For instance, crude oils from Saudi Arabia
are assigned the baseline crude average for production and transport of 11.39 gCO2e/MJ even though
their individual production and transport carbon intensities are 6.86 and 6.75 gCO2e/MJ.”) (citing Table
8).
As to the second step, Plaintiffs assert “[t]he Amended LCFS . . . discriminates by ‘mitigating’
any market-wide increases in carbon intensity by imposing ‘incremental deficits’ to all market
participants if ‘the average crude slate refined in California becomes more carbon intensive.’” Doc. 333
at 8-9 (emphasis in original) (quoting 2011 ISOR at 40-41). When the annual average carbon intensity
of crude oils used in California increases, “market participants are assessed an incremental deficit based
not on the average carbon intensity of the fuels they marketed, but based on the volume of transportation
fuel that they sold.” Id. at 9 (citing section 95486(b)(2)(A)2); see also Doc. 330 at 19.
Thus, “the Amended LCFS imposes the incremental deficit burden on all providers of crude oil
without regard to whether the crude oils they used were responsible for the incremental deficit.” Doc.
333 at 9 n.4. “By mitigating increases ‘in the aggregate,’ CARB again protects California TEOR’s
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position in the California market by insulating it from its full responsibility for any increases in carbon
intensity attributable to the continued use of California TEOR in the California market.” Id.
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Plaintiffs correctly observe that, per CARB’s calculations, in 2009 California crude had a carbon
intensity value for production and transport of 12.08 gCO2e/MJ, which is higher than the weighted
average of all crude oils in California (9.72 gCO2e/MJ). Doc. 336 at 6-7 (citing 2011 ISOR at 40).
Plaintiffs further note that “[c]rude oils produced in several other locations had scores lower than the
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[Baseline Crude] [A]verage.” Id. at 7. “[F]or instance, CARB calculated that crude oils produced in
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Saudi Arabia had a carbon intensity for production and transport of 6.37 gCO2e/MJ, and crude oil
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produced in Peru had a carbon intensity for production and transport of 5.52 gCO2e/MJ.” Id. (citing
2011 ISOR at 40 (2009 data)).
Plaintiffs argue that this process “protects California crudes . . . from generating significant
deficits, thus protecting their market share.” Doc. 336 at 11. According to Plaintiffs, if “CARB allowed
deficits (or credits) to be assigned based on the individual carbon intensities of each type of crude oil
used, then regulated parties would be economically incentivized to purchase the crude oils with the
lowest individual carbon intensities” and “disincentivized from purchasing crude oils with high carbon
intensities.” Doc. 336 at 12.
Defendants argue that, even assuming Plaintiffs’ allegations are consistent, they fail to state a
claim because the “allegations that the [Amended LCFS’s] crude provisions assign the same carbon
intensity value to numerous crude oils are, in fact, the very same allegations [Plaintiffs] made against the
[Original LCFS’s] crude provisions.” Doc. 327 at 16 (citing RMFU, 730 F.3d at 1098-1100); see also
Doc. 337 at 3 (Plaintiffs’ position “is identical to the one [they] asserted in [their] challenge to the
original crude provisions.”). In other words, Defendants contend that RMFU has resolved Plaintiffs’
claims against the Amended LCFS’s crude oil provisions because Plaintiffs’ allegations concerning the
discriminatory nature of Amended LCFS’s crude oil provisions are the same as Plaintiffs’ prior
allegations against the Original LCFS’s crude oil provisions, Doc. 331 at 8-9, and “the Ninth Circuit has
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already rejected [Plaintiffs’] claim that the use of an average value discriminates against out-of-state
crude oils.” Doc. 334 at 8.
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In addition, Defendants contend that even if RMFU has not resolved Plaintiffs’ claim against the
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Amended LCFS’s crude oil provisions, the claim fails for two primary reasons. First, Defendants assert
that Plaintiffs’ claims against those provisions “are built on a false premise that is unsupported by any
allegations that can be accepted as true” because they are based on an incorrect understanding of how
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the Amended LCFS’s crude oil provisions operate and, in turn, are internally inconsistent. See Doc. 334
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at 7.
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According to Defendants, “the crux of [Plaintiffs’] claim—that all crude oils ‘receive’ the
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baseline average carbon intensity value—is incorrect” because “it is regulated refiners and blenders, not
out-of-state crude oil producers, who incur deficits based on the average baseline value and because
crude oils ‘receive’ individualized carbon intensity values in the second step of the two-step process.”
Doc. 334 at 7. Defendants point out that Plaintiffs allege “that ‘crude-oil providers’ incur the deficits”
while also alleging that “‘regulated parties that provide [refined fuels like] gasoline or diesel’ incur the
deficits.” Id. at 7-8 (quoting FAC at ¶¶ 74, 79) (footnote omitted).
Defendants also assert that Plaintiffs contradictorily “allege[] that every year [C]ARB will
‘recalculate the average carbon intensity’ of California’s crude oil pool,” which “requires individualized
carbon intensity values,” but Plaintiffs also allege “that all crude oils ‘receive’ the same baseline average
value.” Id. at 8 (citing FAC at ¶¶ 74, 79). In Defendants’ view, Plaintiffs’ only allegations consistent
with the Amended LCFS’s crude oil provisions are those “asserting that regulated refiners and blenders
receive deficits based on the baseline average value and that crude oils are assigned their individualized
values as part of the second-step recalculation of average carbon intensity.” Id. (footnote omitted). Put
more bluntly, Defendants argue “[t]hose allegations cannot support the false premise of [Plaintiffs’]
discrimination claim [against the Amended LCFS’s crude oil provisions] because they directly
contradict it.” Id. In other words, Defendants assert that Plaintiffs’ “fundamental premise fails both
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because it misstates who incurs deficits through the use of the baseline average value and because it
disregards the second step in the two-step process—the step at which individual values are assigned to
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crude oils.” Id. at 4.
Defendants correctly point out that Plaintiffs make no mention of “all [of the] lower-carbon
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crude oils produced in California,” Doc. 337 at 4, and explain that “there were more than 60 California
crude oils with lower carbon intensities than the lowest Saudia Arabian crude oil . . . an out-of-state
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crude oil [Plaintiffs] complain[] is treated unfavorably.” Doc. 334 at 8. Defendants note that “California7
produced crude oils range from . . . ‘White Wolf’ at 1.65 [gCO2e/MJ] to . . . ‘Placerita’ at 31.66
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[gCO2e/MJ].” Doc. 337 at 5 (citing 2014 CI Calculation Tables). Defendants therefore assert that
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Plaintiffs cannot allege facts showing that the Amended LCFS’s crude oil provisions are discriminatory
“because judicially noticeable facts establish that there remain many low-carbon California crude oils
that are ‘burdened’ . . . by the use of an average that is higher than their actual values, and many highcarbon out-of-state crude oils that ‘benefit’ . . . from the use of an average that is lower than their actual
values.” Doc. 334 at 8.
Defendants therefore argue that, for purposes of Plaintiffs’ claims, the Amended LCFS’s crude
oil provisions effectively operate in the same manner as those of the Original LCFS, which the Ninth
Circuit held were not discriminatory. Defendants note that the Ninth Circuit “held that the use of
average carbon intensity values for crude oil resulted in more ‘burden’ to low-carbon California crude
oils than to out-of-state crude oils and could not, therefore, be deemed discriminatory.” Id. at 8-9 (citing
RMFU, 730 F.3d at 1099-1100). Defendants further note that “the Ninth Circuit also held that the use of
an average value did not ‘insulate California firms from out-of-state competition.” Id. (quoting RMFU,
730 F.3d at 1099). Accordingly, Defendants argue that Plaintiffs “make[] the same error that [they]
made before” because they only compare “‘higher carbon intensity crude oils from California [with] . . .
lower carbon intensity crude oils from other states and other countries,’ leaving out the rest of
California’s market.” Id. at 9 (quoting FAC at ¶ 82).
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“As to discriminatory effects,” Defendants maintain that Plaintiffs will not be able to adduce
evidence to support their claims. Id. at 9. Defendants assert that Plaintiffs have “alleged nothing about
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the effects of the [Amended LCFS’s] crude oil provisions on the market share of in-state and out-of-state
crudes.” Id. at 10. Rather, Plaintiffs only make “conclusory allegations that the [Amended LCFS’s]
crude oil provisions provide some unspecified ‘competitive advantage’ to in-state crude oils, even
though the Ninth Circuit has already held that the use of an average carbon intensity value does not do
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so.” Id. at 10 (citations omitted). Defendants argue that “express decision that the original crude
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provisions were not purposefully discriminatory provides a powerful reason to reject [Plaintiffs’]
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conclusory allegations, given that the [Amended LCFS’s] crude provisions were adopted for the same
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purpose.” Doc. 337 at 10.
Finally, Defendants argue this Court should reject as unreasonable Plaintiffs’ “inference” that
“because the [Amended] LCFS assigns deficits based on averages, refines and blenders have no
incentives under the [Amended] LCFS to select lower-carbon crude oils.” Doc. 337 at 6 (citing Doc. 336
at 7-8). In Defendants’ view, “this inference entirely disregards the second step—the step at which a
new average is calculated using the very ‘individual carbon intensities’ [Plaintiffs] claim[] are necessary
to create economic incentives ‘to purchase crude oils with the lowest individual carbon intensities.’” Id.
(quoting Doc. 336 at 7-8). And that step provides “incentives [that] are not origin-specific” because
regulated parties can “mitigate the risk of incremental deficits by purchasing for example, Australian
‘Pyrenees’ crude oil at 5.96 [gCO2e/MJ], Brazilian ‘Ostra’ crude oil at 5.71 [gCO2e/MJ], or Californian
crude oils ‘Wilmington’ at 6.36 [gCO2e/MJ] or ‘Cat Canyon’ at 5.09 [gCO2e/MJ].” Id. (footnote
omitted). On the other hand, “regulated parties create similar risk of incremental deficits when they
choose, for example, Canadian ‘Suncor Synthetic’ as 24.49 [gCO2e/MJ], Venezuelan Petrozuata at
23.58 [gCO2e/MJ] or Californian ‘Kern Front’ at 25.06 [gCO2e/MJ].” Id. at 9-10 (footnote omitted).
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a. Whether the FAC States a Claim Under the Dormant
Commerce Clause.
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i. The Dormant Commerce Clause.
The Commerce Clause provides: “The Congress shall have Power ... [t]o regulate Commerce ...
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among the several States.” U.S. Const. Art. I, § 8, cl. 3. “The Supreme Court has interpreted the
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Commerce Clause ‘to have a ‘negative’ aspect that denies the States the power unjustifiably to
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discriminate against or burden the interstate flow of articles of commerce.’” Black Star Farms, LLC v.
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Oliver, 600 F.3d 1225, 1230 (9th Cir. 2010) (quoting Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of
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State of Or., 511 U.S. 93, 98 (1994)). This doctrine is known as “the dormant Commerce Clause.” Id.
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“‘The modern law of what has come to be called the dormant Commerce Clause is driven by
11 concern about ‘economic protectionism—that is, regulatory measures designed to benefit in-state
12 economic interests by burdening out-of-state competitors.’” RMFU, 730 F.3d at 1087 (quoting Dep’t of
13 Revenue of Ky. v. Davis, 553 U.S. 328, 338 (2008) (internal quotation marks omitted)). “This principle
14 ensures that state autonomy over ‘local needs’ does not inhibit ‘the overriding requirement of freedom
15 for the national commerce.’” Sam Francis Foundation v. Christies, Inc., 784 F.3d 1320, 1333 (9th Cir.
16 2015) (quoting Great Atl. & Pac. Tea Co. v. Cottrell, 424 U.S. 336, 371 (1976)). “The primary purpose
17 of the dormant Commerce clause is to prohibit statutes that discriminate against interstate commerce by
18 providing benefits to in-state interests while burdening out-of-state competitors.” Ass’n des Eleveurs de
19 Canards et d’Oies du Quebec v. Harris, 729 F.3d 937, 947 (9th Cir. 2013) (internal quotation marks and
20 citations omitted).
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Because “[n]o State may attempt to isolate itself from a problem common to the several States by
22 raising barriers to the free flow of interstate trade,” Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334,
23 339-40 (1992) (footnote omitted), “[s]tate laws that discriminate against interstate commerce face ‘a
24 virtually per se rule of invalidity.’” Granholm v. Heald, 544 U.S. 460, 476 (2005) (quoting Philadelphia
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v. New Jersey, 437 U.S. 617, 624 (1978)). Thus, “[w]hen a statute directly regulates or discriminates
against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state
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interests,” the Supreme Court has “generally struck down the statute without further inquiry.” BrownForman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986). But when “a statute has
only indirect effects on interstate commerce and regulates evenhandedly,” courts must “examine[]
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whether the State’s interest is legitimate and whether the burden on interstate commerce clearly exceeds
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the local benefits.” Id.
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The Ninth Circuit recently summarized the applicable principles for dormant Commerce Clause
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challenges in Black Star:
Two levels of scrutiny exist for analyzing state statutes challenged under the dormant Commerce
Clause. Maine v. Taylor, 477 U.S. 131, 138 (1986). The higher level of scrutiny applies to a state
statute that “discriminate[s] against interstate commerce ‘either on its face or in practical
effect.’” Id. (quoting Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)). For the purposes of the
dormant Commerce Clause, “‘discrimination’ simply means differential treatment of in-state and
out-of-state economic interests that benefits the former and burdens the latter.” Or. Waste, 511
U.S. at 99 (emphasis added). Of course, the “differential treatment” must be as between persons
or entities who are similarly situated. See Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298-99
(1997); Nat'l Ass'n of Optometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 525,
527 (9th Cir. 2009).[31] A court must analyze such a statute under the “strictest scrutiny.”
Hughes, 441 U.S. at 337. That is, such a statute is unconstitutional unless it “‘serves a legitimate
local purpose,’ and . . . this purpose could not be served as well by available nondiscriminatory
means.” Taylor, 477 U.S. at 138 (quoting Hughes, 441 U.S. at 336). The party challenging the
statute bears the burden of showing discrimination. Hughes, 441 U.S. at 336.
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17 600 F.3d at 1230 (emphasis in original). “The crucial inquiry . . . must be directed to determining
18 whether [the challenged statute] is basically a protectionist measure or whether it can fairly be viewed as
19 a law directed to legitimate local concerns, with effects upon interstate commerce that are only
20 incidental.” Philadelphia, 437 U.S. at 624.
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Briefly put, “[i]f a statute discriminates against out-of-state entities on its face, in its purpose, or
22 in its practical effect, it is unconstitutional unless it ‘serves a legitimate local purpose, and this purpose
23 could not be served as well by available nondiscriminatory means.’” RMFU, 730 F.3d at 1087 (quoting
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“Entities are similarly situated for constitutional purposes if their products compete against each other in a single market.”
25 RMFU, 730 F.3d at 1088 (citing Tracy, 519 U.S. at 298).
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Taylor, 477 U.S. at 138). If the party challenging the statute establishes that it impermissibly
discriminates, the burden then shifts to the state to prove that the state cannot achieve its objections
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through a different, nondiscriminatory regulation. See Black Star, 600 F.3d at 1233; New Energy Co. v.
Limbach, 486 U.S. 269, 278 (1988).
The Court need not determine whether the Amended LCFS’s crude oil provisions are facially
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discriminatory because Plaintiffs do not allege that they are. See FAC at ¶¶ 102-10; Doc. 330 at 18
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(Plaintiffs arguing they “have shown . . . the crude oil provisions of both the Original and Amended
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LCFS discriminate in their purpose and effect, while the ethanol provisions . . . discriminate facially as
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well as in purpose and effect”). Plaintiffs only assert that the Amended LCFS’s crude oil provisions
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discriminate in purpose and effect. See id.; see also Doc. 333 at 6 (“Nothing in the Ninth Circuit’s
decision purports to preclude the AFPM Plaintiffs from showing that the Amended LCFS discriminates
in its purpose and in its effect in favor of California crude oils and against crude oils from outside of
California.”); Doc. 336 at 13 (same).
ii. Purposeful Discrimination.
To determine whether state legislation purposefully discriminates against interstate commerce,
the Court first must examine the actual language in the statute because “[t]here is, of course, no more
persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give
expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose
of the legislation.” Perry v. Commerce Loan Co., 383 U.S. 392, 400 (1966). The Court then must
examine the relevant legislative materials, if necessary. See Bacchus Imports, Ltd. v. Dias, 468 U.S. 263,
270-71 (1984); Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941, 960 (1982). The Court must
assume the stated purposes of legislation are genuine “unless an examination of the circumstances
forces” a conclusion that they “could not have been a goal of the legislation.” Clover Leaf Creamery,
449 U.S. at 463 n.7. Plaintiffs bear the burden of demonstrating that the Amended LCFS is purposefully
discriminatory. See Hughes v. Oklahoma, 441 U.S. 322, 336 (1979).
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The stated purpose of the LCFS “is to implement a low carbon fuel standard, which will reduce
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greenhouse gas emissions by reducing the full fuel-cycle, carbon intensity of the transportation fuel pool
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used in California.” § 95480. No other provision in the LCFS sheds any light on its underlying purposes.
Plaintiffs do not and cannot dispute that, on its face, the stated purpose of the LCFS is nondiscriminatory. See RMFU, 730 F.3d at 1106-07.
The only pertinent legislative materials cited in the FAC to support their claim against the
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Amended LCFS’s crude oil provisions are CARB’s Regulatory Advisories 10-04, 10-04A, and 10-04B,
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FAC at ¶¶ 74-7532, and a single sentence from the 2012 FSOR which states that the Amended LCFS “is
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designed to reduce California’s dependence on petroleum, create a lasting market for clean
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transportation technology, and stimulate the production and use of low-carbon fuels in California.” Id.
at ¶ 77 (quoting 2012 FSOR at 1) (emphasis added).
Plaintiffs argue this single sentence from the 2012 FSOR supports their contention that the
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Amended LCFS was adopted for discriminatory reasons. Doc. 330 at 20. But these were the exact same
purposes of the Original LCFS’s crude oil provisions the Ninth Circuit held were non-discriminatory. As
CARB explained in the first paragraph of the Final Statement of Reasons for the Original LCFS: “the
LCFS is designed to reduce California’s dependence on petroleum, create a lasting market for clean
transportation technology, and stimulate the production and use of low-carbon fuels in California.”
CARB, California’s Low Carbon Fuel Standard, Final Statement of Reasons (Dec. 2009) (“2009
FSOR”), at 61, available at http://www.arb.ca.gov/regact/2009/lcfs09/lcfsfsor.pdf. Moreover, Plaintiffs
pointed to this language from the 2009 FSOR in their brief on appeal, and the Ninth Circuit held that it
did not demonstrate a discriminatory purpose behind the Original LCFS. See Brief for PlaintiffsAppellees, Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (9th Cir. 2013) (Nos. 12-15131,
12-15135), 2012 WL 3342552, at *3. Thus, as a matter of law, that single sentence from the 2012 FSOR
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Plaintiffs, however, provide no argument or explanation as to how these Regulatory Advisories support their claim that the
25 Amended LCFS is purposefully discriminatory.
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cannot support Plaintiffs’ claim that the Amended LCFS is purposefully discriminatory.
In spite of being granted leave to amend, filing the 17-page FAC, and filing three briefs totaling
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approximately 40 pages, Plaintiffs have failed to point to a single piece of the Amended LCFS or its
legislative history that indicates the regulation was passed for discriminatory purposes. Further, the
Court has spent an inordinate amount of time scouring the pertinent record—namely, the 2011 ISOR and
the 2012 FSOR, the two primary CARB documents that explain CARB’s purposes and reasoning
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underlying the Amended LCFS—and cannot locate anything that suggests a discriminatory purpose
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behind the regulation.33 Accordingly, and in light of the previous opportunity to amend, the Court
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GRANTS WITHOUT LEAVE TO AMEND Defendants’ motion to dismiss Plaintiffs’ claim that the
Amended LCFS’s crude oil provisions are purposefully discriminatory.
iii. Discriminatory Effect.
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Nonetheless, the Court is not bound by a law’s stated purposes when determining if its effects
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are impermissibly discriminatory. RMFU, 730 F.3d at 1098 (citation omitted). “Supreme Court cases
considering whether laws have the effect of discriminating against interstate commerce have produced a
wide variety of results, and the language of these cases at times appears inconsistent.” Puppies ‘N Love
v. City of Phoenix, __ F. Supp. 3d __, 2015 WL 4532586, at *9 (D. Ariz. July 27, 2015). In assessing
whether a statute’s effects are impermissibly discriminatory, “the critical consideration is the overall
effect of the statute on both local and interstate activity.” Brown-Forman, 476 U.S. at 579. “The fact that
the burden of a state regulation falls on some interstate companies does not, by itself, establish a claim
of discrimination against interstate commerce,” Exxon Corp. v. Governor of Maryland, 437 U.S. 117,
126 (1978).
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Because this case is at the motion to dismiss stage, the Court has limited its review to only judicially noticeable materials.
See Fed. R. Evid. 201(b)(2), (d); Arce v. Douglas, __ F.3d __, 2015 WL 4080837, at *6 n.4 (9th Cir. July 7, 2015) (“We take
judicial notice of legislative history materials pursuant to Federal Rules of Evidence Rule 201(b).”). To the extent the parties
have relied on the Amended LCFS’s legislative history and related CARB documents without requesting that they be
judicially noticed, the Court will treat those “citations as requests for judicial notice and [will] grant the requests.” Aramark
Facility Servs. v. Serv. Employees Int’l Union, Local 1877, AFL CIO, 530 F.3d 817, 826 n.4.
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As noted, the basic principle underlying the dormant Commerce Clause is that states may not
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discriminate against interstate commerce, where “‘discrimination’ simply means differential treatment
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of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Oregon
Waste, 511 U.S. at 99. Thus, the dormant Commerce Clause prohibits “regulatory measures designed to
benefit in-state economic interests by burdening out-of-state competitors.” Davis, 553 U.S. at 338. A
plaintiff challenging a state statute on the ground it has a discriminatory effect on interstate commerce
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must provide substantial evidence that the law (1) “creates a burden that alters the proportional share of
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the [relevant] market in favor of instate” market participants; (2) has an “effect on the flow of interstate
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commerce”; or (3) “creates a system under which local goods constitute a larger share, and goods with
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an out-of-state source constitute a smaller share, of the total sales in the market.” Black Star, 600 F.3d at
1231.
The Court notes at the outset that step two of the Amended LCFS’s crude oil provisions currently
cannot form the basis for a discriminatory effects claim for the simple reason that incremental deficits
have not been assessed. As discussed above, the 2014 CI Calculation Table (issued on June 16, 2015)
indicates that the Annual Crude Average has remained below the Baseline Crude Average (11.39
gCO2e/MJ) in 2012, 2013, and 2014—the Annual Crude Average for those years were 11.35
gCO2e/MJ, 11.37 gCO2e/MJ, and 11.19 gCO2e/MJ, respectively. Because incremental deficits have not
been assessed, the Court necessarily could not assess whether step two has the practical effect of
discriminating against interstate commerce. And because the determination of whether incremental
deficits are assessed is highly data-specific and varies each year, the Court cannot now speculate about
the potential discriminatory effects caused by step two because doing so would be entirely speculative,
if not impossible. “Courts examining a ‘practical effect’ challenge must be reluctant to invalidate a state
statutory scheme . . . simply because it might turn out down the road to be at odds with our constitutional
prohibition against state laws that discriminate against Interstate Commerce.” Black Star, 600 F.3d at
1232 (emphasis in original). “‘[C]onjecture . . . cannot take the place of proof.’” Id. (quoting Cherry Hill
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Vineyard, LLC v. Baldacci, 505 F.3d 28, 26 (1st Cir. 2007)). The Supreme Court has “never deemed a
hypothetical possibility of favoritism to constitute discrimination that transgresses constitutional
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commands.” Associated Indus. of Missouri v. Lohman, 511 U.S. 641, 654 (1994).
As explained above, section 95486 provides that base deficits are calculated, in part, by
subtracting the applicable Baseline Average from the applicable compliance target. The Baseline
Average is either CARBOB’s carbon intensity value, as contained in Table 6 (99.18 gCO2e/MJ), or
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ULSD’s carbon intensity value, as contained in Table 7 (98.03 gCO2e/MJ). Those figures remain
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constant and were determined, in part, by the Baseline Crude Average contained in Table 8 (11.39
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gCO2e/MJ). In addition, those figures are averages “based on the average crude oil supplied to
California refineries and average California refinery efficiencies.” § 95486, Table 6 & 7.
The Baseline Crude Average is the average carbon intensity value associated with the production
and transport of all crude oils supplied to California refineries in 2010. As indicated in Table 8, the
average carbon intensity value associated with the production and transport of California crudes in 2010
was 12.90 gCO2e/MJ—higher than the Baseline Crude Average. This suggests that, had California’s
actual production and transportation average been used to determine pathways for CARBOB and
ULSD, their respective pathway values would have been higher.
Although some California crudes necessarily would have had production and transportation
carbon intensity values lower than 12.90 gCO2e/MJ, some necessarily would have been higher, thereby
benefitting from the lower average assigned to them. Likewise, given that the California production and
transportation average (12.90 gCO2e/MJ) is higher than the Baseline Crude Average (11.39 gCO2e/MJ),
it appears that, on average, CARBOB and ULSD derived from California crudes appear to have
benefitted from being assigned the Baseline Crude Average to determine their respective pathways. This
is because CARBOB and ULSD derived from California crudes were assessed pathway values that
seemingly would have been higher if the actual average carbon intensity values associated with their
production and transport (12.90 gCO2e/MJ) were used instead of the lower Baseline Crude Average
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(13.39 gCO2e/MJ). Although some California crudes seemingly were burdened by the use of the
Baseline Crude Average to calculate the pathways for CARBOB and ULSD, when viewed as a whole,
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the average California crude apparently benefitted from its use.
With regard to foreign oils, the results are analogous. As Table 8 indicates, 27 foreign crudes had
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production and transport carbon intensity values below the 11.39 gCO2e/MJ Baseline Crude Average.
CARBOB and ULSD derived from those crudes seemingly were burdened by the use of the Baseline
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Crude Average. But 15 foreign crude oils had production and transport carbon intensity values above
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11.39 gCO2e/MJ. CARBOB and ULSD derived from those crudes seemingly benefitted from the use of
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the Baseline Crude Average. Thus, it appears that step one benefits and burdens some, but not all
California and foreign crude oils via the use of the CARBOB and ULSD pathways, which were
determined, in part, by the Baseline Crude Average.
The scenario presented by the Amended LCFS—where a state regulation apparently harms some
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in-state producers of a commodity but nonetheless provides an overall benefit to in-state producers of
that commodity as a whole (i.e., on average) while benefitting some out-of-state producers and harming
others—does not fit neatly, if at all, into dormant Commerce Clause precedent. None of the cases on
which Plaintiffs rely suggests that Plaintiffs can state a discriminatory effects claim against the
Amended LCFS given the unique factual circumstances it presents. The Court is unable to locate any
case in which a court addressed a discriminatory effects challenge to a state law that simultaneously
burdened and benefitted both in-state and out-of-state interests. A review of cases where a state law was
held impermissibly discriminatory in violation of the dormant Commerce Clause reveals a common
thread: in every case, the challenged state law burdened only out-of-state interests.34 See Town of
Southold v. Town of East Hampton, 477 F.3d 38, 49 (2d Cir. 2007) (“an important feature common to
those regulations that previously have been found to violate the dormant Commerce Clause . . . [they]
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34
Further, in all but Family Winemakers of Calif. v. Jenkins, 592 F.3d 1 (1st Cir. 2010), the challenged state law provided
25 benefits to in-state interests only.
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confer a competitive advantage upon local business vis-a-vis out-of-state competitors”).
In RMFU, the Ninth Circuit found a number of cases on which Plaintiffs relied were inapplicable
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to their challenge to the Original LCFS because they involved the Supreme Court striking “down localprocessing requirements that privileged local entities over both state-wide and out-of-state interests.”
730 F.3d at 1100 (discussing C&A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 391 (1994); Fort
Gratiot Sanitary Landfill, Inc. v. Michigan Dep’t of Nat. Res., 504 U.S. 353 (1992); Dean Milk Co. v.
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City of Madison, 340 U.S. 349 (1951)). Those cases are not applicable to Plaintiffs’ challenge here
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because the Amended LCFS applies state-wide. Id.
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Oregon Waste, 511 U.S. 93, is not applicable here because it concerned a facially discriminatory
Oregon statute that the Supreme Court struck down without assessing the practical effect, if any, it had
on interstate commerce. Chemical Waste, 504 U.S. 334, also is inapplicable because it concerned a
facially discriminatory Alabama statute that “plainly discouraged” and overly burdened interstate
commerce by imposing a higher fee on out-of-state waste than the fee imposed on waste produced instate. Id. at 342.
Similarly, Bacchus Imports, another case the Ninth Circuit held was inapplicable to Plaintiffs’
challenge to the Original LCFS, id., is not applicable to Plaintiffs’ challenge to the Amended LCFS. In
that case, the Supreme Court struck down a Hawaiian statute that provided a tax exemption exclusively
for Hawaiian-made liquor for the undisputed and explicit purpose of “encourag[ing] development of the
Hawaiian liquor industry.” Bacchus Imports, 468 U.S. at 265. The Supreme Court further held that even
if the Hawaiian legislature’s discriminatory intent was not apparent, the challenged law had an
impermissible discriminatory effect on interstate commerce because “Hawaii chose to support a
uniquely local industry at the expense of one in which it held no particular advantage.” Id.
Healy and Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 519 (1935), three seminal Supreme Court
discriminatory effects cases that Plaintiffs cite in their briefs, concerned states’ “price-affirmation
statutes that had the effect of preventing producers from pricing products independently in neighboring
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states.” Chinatown v. Neighborhood Ass’n v. Harris, __ F.3d __, 2015 WL 4509284, at *6 (9th Cir. July
27, 2015). The Supreme “Court has held that Healy and Baldwin are not applicable to a statute that does
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not dictate the price or a product and does not ‘t[ie] the price of its in-state products to out-of-state
prices.’” See Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris, 729 F.3d 937, 951 (9th Cir.
2013) (quoting Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 669 (2003)).35 Those cases are
not applicable here. Likewise, Brown-Forman is inapplicable here because it also concerned New York
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price affirmation statute. See 476 U.S. at 572. Simply put, Plaintiffs have not provided any authority that
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suggests they can state a discriminatory effects claim against step one of the Amended LCFS.36
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The Court’s review of additional precedent likewise does not support Plaintiffs’ position. In
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Granholm v. Heald, 544 U.S. 460, 465 (2005), the Supreme Court struck down state laws in Michigan
and New York because the “effect of the laws are the same: to allow in-state wineries to sell wine
directly to consumers in that State but to prohibit out-of-state wineries from doing so, or, at the least, to
make direct sales impractical from an economic standpoint.” The Michigan statute imposed “a complete
ban on direct shipment” into the state, id. at 474, while the New York statute required out-of-state
producers to “open a branch office and warehouse in New York,” id. at 475, both of which violated the
dormant Commerce Clause. Id. at 466.
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35
The final dormant Commerce Clause case Plaintiffs cite is Nat’l Ass’n of Optometrists & Opticians Lenscrafters, Inc. v.
Brown, 567 F.3d 521 (9th Cir. 2009). Plaintiffs only cite it for general Commerce Clause principles and, in any event, it is
difficult to see how it could support their claim given that the case involved a factually distinguishable California statute the
Ninth Circuit upheld as non-discriminatory. See id. at 529.
36
See Black Star Farms, LLC v. Oliver, 544 F. Supp. 2d 913, 922-23 (D. Ariz. 2008), aff’d, Black Star, 600 F.3d at 1225
(“Like Granholm, most of the other cases that Plaintiffs refer to involved State regulations that—unlike the Arizona scheme
at issue here—manifestly discriminated against all out-of-state goods or products. New Jersey, 437 U.S. 617 (1978)
(prohibition on the importation of waste generated outside the state); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
(excise tax applied to imported liquor, but not to local pineapple wine); Chemical Waste Management, Inc. v. Hunt, 504 U.S.
334 (1992) (surcharge placed on in-state disposal of all hazardous waste generated outside the state); West Lynn Creamery,
512 U.S. 186 (nondiscriminatory tax coupled with subsidy only to in-state businesses that were affected by the tax); Or.
Waste Sys., 511 U.S. 93 (surcharge placed on in-state disposal of waste generated outside the state); C & A Carbone, 511
U.S. 383 (ordinance requiring all of town's waste to be processed at town’s transfer station); and Associated Indus. of Mo. v.
Lohman, 511 U.S. 641 (1994) (use tax applied only to out-of-state goods sold in the state)”) (emphasis added); see also id. at
923 (explaining that the North Carolina statute at issue in Hunt was unconstitutional because it “not only burdened interstate
sales of Washington apples, but also discriminated against Washington apple growers because the statute raised the cost of
doing business in North Carolina for all Washington apple growers while leaving their in-state counterparts unaffected”).
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Similarly, in Family Winemakers of Calif. v. Jenkins, 592 F.3d 1 (1st Cir. 2010), the First Circuit
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held that a Massachusetts law regulating wineries in the state had an impermissible discriminatory
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effect. The Massachusetts law conferred an undisputed benefit on “small” wineries and an undisputed
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burden on “medium” or “large” wineries. See id. at 11-12. All thirty-one of Massachusetts’s wineries
qualified as “small” wineries, id. at 16, but less than 1% of out-of-state wineries obtained “small” status
while the rest were deemed the less-favored “medium” or “large.” See id. at 11, 11 n.12. The
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Massachusetts law therefore provided “a clear competitive advantage to ‘small’ wineries, which
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includes all Massachusetts’s wineries, and creates a comparative disadvantage for ‘large’ wineries, none
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of which are in Massachusetts.” Id. at 11 (citation omitted). Accordingly, the First Circuit held that the
Massachusetts law had an impermissible discriminatory effect on interstate commerce in violation of the
dormant Commerce Clause. Id. at 13.37
The Sixth Circuit struck down a similar Kentucky statutory scheme regulating “small farm
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wineries” in Cherry Hill Vineyards, LLC v. Lilly. 553 F.3d 423, 426 (6th Cir. 2008). Under that scheme,
“small” wineries could obtain a license to ship their wine directly into Kentucky only if it was purchased
by the customer in person at the winery. Id. at 428. The plaintiffs, out-of-state wine producers, argued
that this “in-person” requirement had the practical effect of impermissibly discriminating against
interstate commerce. Id. at 426. The Sixth Circuit held that “out-of-state wineries [were] clearly
burdened by Kentucky’s regulatory scheme,” finding that the “in-person requirement makes it
economically and logistically infeasible for most consumers to purchase wine from out-of-state small
farm wineries” because “[i]t is impractical for customers to travel hundreds or thousands of miles to
purchase wine in-person.” Id. at 433. The Sixth Circuit held that the plaintiffs had met their burden
under Sixth Circuit precedent of “showing ‘both how local economic actors are favored by the
legislation, and how out-of-state actors are burdened by the legislation.” Id. (quoting E. Ky. Res. v.
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The First Circuit rejected Massachusetts’s argument that the challenged law was non-discriminatory because it benefited
some out-of-state wineries because it was undisputed that the law burdened exclusively out-of-state wineries. See 592 F.3d at
13.
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Fiscal Court of Magoffin Cnty., Ky., 127 F.3d 532, 543 (6th Cir. 1997)).
In Cloverland-Green Spring Dairies, Inc. v. Penn. Milk Marketing Bd., 298 F.3d 201 (3d Cir.
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2002), the Third Circuit held Pennsylvania’s “milk law” violated the dormant Commerce Clause. The
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milk law mandated minimum prices (a.k.a. “price floors”) that were above those set by the federal
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government. Id. at 205. “The wholesale and retail price floors, which [were] designed to ‘best protect the
milk industry of the Commonwealth,’ [were] fixed according to in-state milk dealers’ and retailers’ costs
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to guarantee them desirable profits.” Id. The Third Circuit held there were genuine questions of material
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fact as to whether out-of-state competitors had a competitive advantage over Pennsylvania milk
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producers (i.e., whether they could profitably sell milk in Pennsylvania below the price floors set by the
milk law) and whether the milk law’s price floors eliminated that advantage. Id. at 213-14. Thus, the
Third Circuit concluded that a reasonable jury could find that the milk law benefitted only Pennsylvania
milk producers while burdening only out-of-state milk producers. See id. at 214.
The Fourth Circuit struck down a number of North Carolina laws as violative of the dormant
Commerce Clause in Beskind v. Easley, 325 F.3d 506, 515 (4th Cir. 2003). A series of North Carolina’s
alcohol-regulating laws had “the undoubted effect of benefiting the in-state manufacturers [of wine] and
burdening the out-of-state manufacturers.” This was so because the latter were required to “sell their
products to a licensed wholesaler in [North Carolina] and have that wine distributed only through North
Carolina’s three-tiered structure” while North Carolina wineries were able to sell their wine directly to
consumers without distributing it through the state’s three-tiered structure. Id. “[T]his differential
treatment ha[d] the economic effect of favoring in-state wine manufacturers and burdening out-of-state
wine manufacturers and shippers.” Id.
In Alliance for Clean Coal v. Miller, 44 F.3d 591 (7th Cir. 1995), the Seventh Circuit invalidated
an Illinois statute that was facially neutral and, according to Illinois, only “encouraged” the use of
Illinois coal. The Seventh Circuit held that “[b]y ‘encouraging’ the use of Illinois coal, the [statute]
discriminate[d] against western coal [i.e., coal mined west of the Rocky Mountains] by making it a less
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viable compliance option for Illinois [electric] generating plants.” Id. at 596. Thus, the Illinois statute
violated the dormant Commerce Clause because it had a discriminatory impact on western coal
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producers. Id.
These cases all stand for the straightforward proposition articulated by the Supreme Court in
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Oregon Waste: in the context of the Commerce Clause, impermissible “‘discrimination simply means
differential treatment of in-state and out-of-state economic interests that benefits the former and burdens
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the latter.” 511 U.S. at 99 (emphasis added). Contrary to Plaintiffs’ assertion, the crude oil provisions of
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the Amended LCFS are not discriminatory under the Commerce Clause because on their face they
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burden and benefit California interests and out-of-state interests alike through the use of the Baseline
Crude Average and the CARBOB and ULSD pathways, all of which represent an average of all crude
oils supplied to California refineries in 2010. The provisions do not confer an across-the-board benefit to
California crude oils at the expense of foreign crude oils. Nor do they burden only foreign crude oils;
they also burden California crude oils. Although no case explicitly prohibits the type of dormant
Commerce Clause proposed by Plaintiff’s here, it is not the role of this district court to extend existing
precedent to permit such a claim. Accordingly, the Court concludes Plaintiffs cannot state a
discriminatory effects claim against the Amended LCFS’s crude oil provisions. The Court therefore
GRANTS WITHOUT LEAVE TO AMEND Defendants’ motion to dismiss Plaintiffs’ claim that the
Amended LCFS’s crude oil provisions discriminate in purpose and effect.
D.
Whether Governor Brown Should Be Dismissed.
Defendants maintain that any claims against Governor Brown are barred by the Eleventh
Amendment, which renders him immune from Plaintiffs’ suit. Doc. 327 at 18. Defendants contend that,
because Governor Brown is entitled to Eleventh Amendment immunity, Plaintiffs’ claims against him
should be dismissed with prejudice. Id. at 19.
Defendants assert that the Ex Parte Young exception to Eleventh Amendment immunity does not
apply to Governor Brown with regard to the LCFS. Doc. 327 at 18-19. Specifically, Defendants assert
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that Governor Brown’s “only relationship to enforcement of the LCFS is his generalized duty to enforce
all California law” and that “[s]uch a generalized duty is insufficient to subject [him] to suit.” Id. at 19
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(citing Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris, 729 F.3d 937, 943 (9th Cir. 2013);
Nat'l Audubon Soc'y, Inc. v. Davis, 307 F.3d 835, 846-47 (9th Cir. 2002)).
Plaintiffs assert that “under the Ex Parte Young doctrine, the Governor is not immune because
the suit seeks only ‘prospective, non-monetary relief.’” Doc. 330 at 24 (quoting North East Med. Servs.,
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Inc. v. Calif. Dep’t of Health Care Servs., 712 F.3d 461, 466 (9th Cir. 2013)). Plaintiffs argue that the
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actions of former Governor Arnold Schwarzenegger “show that the Governor has been directly and
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personally involve with the LCFS.” Doc. 330 at 25. Specifically, the Governor
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required the adoption of the LCFS in Executive Order S-01-07, which set a statewide goal to
“reduce the carbon intensity of California’s transportation fuels by at least 10 percent by 2020,”
and called on CARB to “determine if an LCFS can be adopted as a discrete early action measure
pursuant to AB 32.” Executive Order S-01-07 (Jan. 18, 2007); see 2009 [California’s Low
Carbon Fuel Standard, Final Statement of Reasons] at 457 (“Governor Schwarzenegger has
identified” the “outcomes” of “reduc[ing] California’s dependence on petroleum” and
“stimulat[ing] the production and use of alternative, low-carbon fuels in California” as
“important goals for California”). Governor Schwarzenegger also promulgated a White Paper on
the LCFS, which asserts that the LCFS is designed to “[g]row California’s clean energy
industry” and “[r]educe California’s dependence on imported oil and keep more money in the
state.” Office of the Governor, The Role of a Low Carbon Fuel Standard in Reducing
Greenhouse Gas Emissions and Protecting Our Economy at 6-7 (Jan. 8, 2007).
16 Id. Thus, according to Plaintiffs, “[t]hese direction actions by the Governor show that the Governor has
17 more than a ‘generalized’ connection with the law.” Id. (footnote omitted). Finally, Plaintiffs “note that
18 the inclusion or dismissal of the Governor as a defendant would have no practical impact upon this suit,
19 because there is no dispute that the remaining defendants are proper parties to the suit.” Id. at n.12.
20
The Eleventh Amendment generally “prohibit[s] federal courts from hearing suits brought by
21 private citizens against state governments without the state's consent.” Sofamor Danek Group, Inc. v.
22 Brown, 124 F.3d 1179, 1183 (9th Cir. 1997). “A state’s sovereign immunity from suit in federal court
23 normally extends to suits against its officers in their official capacities.” Cardenas v. Anzai, 311 F.3d
24 929, 934 (9th Cir. 2002).
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Under Ex Parte Young, however, “a plaintiff may maintain a suit for prospective relief against a
state official in his official capacity, when that suit seeks to correct an ongoing violation of the
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Constitution or federal law.” Id. at 934-35 (citing Ex Parte Young, 209 U.S. 123, 159-60 (1908)). The
Ninth Circuit summarized the Ex Parte Young exception to Eleventh Amendment immunity as follows:
An exception under Ex Parte Young, 209 U.S. 123 (1908), however, allows citizens to sue state
officers in their official capacities “for prospective declaratory or injunctive relief . . . for their
alleged violations of federal law.” Coal. to Defend Affirmative Action [v. Brown, 674 F.3d 1128,
1134 (9th Cir. 2012)]. The state official “‘must have some connection with the enforcement of
the act.’” Id. (quoting Ex parte Young, 209 U.S. at 157). That connection “must be fairly direct; a
generalized duty to enforce state law or general supervisory power over the persons responsible
for enforcing the challenged provision will not subject an official to suit.” Id. (quoting L.A. Cnty.
Bar Ass'n v. Eu, 979 F.2d 697, 704 (9th Cir. 1992)).
Ass’n des Eleveurs, 729 F.3d at 943.
In Ass’n des Eleveurs, for instance, the plaintiffs sought to enjoin the enforcement of a California
11 statute prohibiting the sale of products made as a “result of force feeding a bird,” naming Governor
12 Brown as a defendant. Id. at 942-43 (citing Cal. Health & Saf. Code § 25982). The Ninth Circuit held
13 that “Governor Brown [was] entitled to Eleventh Amendment immunity because his only connection to
14 [that statute was] his general duty to enforce California law.” Id. at 943 (citing Nat’l Audubon Soc’y,
15 Inc. v. Davis, 307 F.3d 835, 846-47 (9th Cir. 2002)).
16
Likewise, the Ninth Circuit held that the Governor of California was immune from suit under the
17 Eleventh Amendment in National Audubon Society. 307 F.3d at 847. In that case, the plaintiffs brought
18 suit against the Governor of California and various other California government officials in an attempt
19 to enjoin the enforcement of a California law, known as “Proposition 4,” which placed restrictions on
20 trapping animals and on the sale of their fur, among other things. Id. at 845. Noting that Ex Parte Young
21 and its progeny “address the question of whether a named state official has direct authority and practical
22 ability to enforce the challenged statute,” id. at 846, the Ninth Circuit held that the plaintiffs’ “suit [was]
23 barred against the Governor . . . as there is no showing that [he had] the requisite enforcement
24 connection to Proposition 4.” Id. at 847. Conversely, “the Eleventh Amendment d[id] not bar suit
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against the Director of the California Department of Fish & Game, who ha[d] direct authority over and
principal responsibility for enforcing Proposition 4.” Id.
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Plaintiffs have not alleged any specific facts concerning Governor Brown’s involvement with the
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enforcement of the LCFS. Plaintiffs only allege that, as Governor of California, he “is responsible for
the enforcement of the LCFS” and therefore is “sued in his official capacity.” FAC at ¶ 15. The FAC
contains no other allegations concerning Governor Brown’s role, if any, in enforcing the LCFS.
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Although Plaintiffs cite to various legislative materials in their opposition, see Doc. 330 at 25, those
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materials do not concern the Governor’s enforcement of the LCFS.38 As such, Plaintiffs have
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demonstrated Governor Brown’s involvement with the LCFS is only “a generalized duty to enforce state
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law,” which is insufficient to invoke the Ex Parte Young exception. L.A. Cnty. Bar Ass’n, 979 F.2d at
704. Accordingly, the Court GRANTS WITH LEAVE TO AMEND Defendants’ motion to dismiss
Governor Brown.
V.
13
CONCLUSION AND ORDER
For the foregoing reasons, the Court:
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1. GRANTS Defendants’ motion for summary judgment on Plaintiffs’ claim that the Original
LCFS is an impermissible extraterritorial regulation in Defendants’ favor and against Plaintiffs;
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2. GRANTS WITHOUT LEAVE TO AMEND Defendants’ motion to dismiss Plaintiffs’ Second
Claim;
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3. GRANTS Defendants’ motion for summary judgment on Plaintiffs’ claim that the Original
LCFS’s ethanol provisions are facially discriminatory in Defendants’ favor and against
Plaintiffs;
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4. GRANTS Defendants’ motion for summary judgment on Plaintiffs’ claim that the Original
LCFS’s crude oil provisions are discriminatory on their face, in their purpose, or in their effect in
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38
Defendants do not state explicitly the authority under which they move to dismiss Plaintiffs’ claims against Governor
22 Brown, see Doc. 327 at 18-19; however, “a party may move to dismiss on Eleventh Amendment sovereign immunity grounds
pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction.” Boston v. Harris, Nos. 11-cv-1872-PSG, 11-cv-
23 1873-PSG, 2012 WL 1029395, at *1 (citing Proctor v. United States, 781 F.2d 752,753 (9th Cir. 1986)). Because Defendants
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assert that Governor Brown is entitled to Eleventh Amendment immunity and should be dismissed with prejudice, the Court
construes Defendants’ motion to dismiss Governor Brown to have been brought under Fed. R. Civ. P. 12(b)(1). Accordingly,
the Court finds it appropriate to consider Plaintiffs’ proffered evidence contained outside of the FAC in ruling on Defendants’
motion to dismiss Governor Brown. See Green v. United States, 630 F.3d 1245, 1248 n.3 (9th Cir. 2011) (citing Corrie v.
Caterpillar, Inc., 503 F.3d 974, 980 (9th Cir. 2007)).
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Defendants’ favor and against Plaintiffs;
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5. DENIES Defendants’ motion to dismiss Plaintiffs’ claim that the Original LCFS’s ethanol
provisions discriminate in purpose and effect;
7. GRANTSWITHOUT LEAVE TO AMEND Defendants’ motion to dismiss Plaintiffs’ claims
that the Amended LCFS’s crude oil provisions discriminate in purpose and effect; and
8. GRANTS WITH LEAVE TO AMEND Defendants’ motion to dismiss the Governor.
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Any further amended complaint shall be filed on or before September 18, 2015.
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A tremendous amount of judicial resource has been provided in this Order. The Court expects
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that counsel for both sides will invest at least as much resource into reading the Order, following its
directives, and making wise and prudent decisions when providing an amended pleading, and thereafter
in determining whether it is necessary to attack that next pleading. The Court has provided sufficient law
for counsel to arrive at a satisfactory pleading that all counsel can understand and not attack. Should the
unfortunate circumstance occur that the Court is again called upon to rewrite pleadings, the subsequent
Order will be substantially shorter and lighter on research and detail.
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IT IS SO ORDERED.
Dated:
/s/ Lawrence J. O’Neill
August 13, 2015
UNITED STATES DISTRICT JUDGE
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