Morrison & Foerster has been monitoring developments in two cases pending before the California Supreme Court which may have potentially far-reaching repercussions for entities seeking judicial relief against public utilities regulated by the California Public Utilities Commission ("CPUC").

Presently before the Supreme Court (with a decision expected in the next few months) is the case of Hartwell Corporation v. Ventura Superior Court, 74 Cal. App. 4th 837 (1999), cert granted at 1999 Cal. LEXIS 8645, which will determine whether Public Utilities Code Section 1759 bars personal injury actions against regulated and unregulated water utilities under investigation by the CPUC. (Section 1759 mandates that no court of this state, except the Supreme Court and the Court of Appeal may "interfere" with the CPUC in the performance of its official duties.) At issue in Hartwell is whether Section 1759 bars judicial actions against both regulated and unregulated utilities under investigation by the CPUC.

The Supreme Court also recently granted review to The People v . Pacific Bell et al., 89 Cal. App. 4th 844 (2001) ("Orloff"), cert. granted at 2001 Cal. LEXIS 6353), a lawsuit filed by three Bay Area Counties against Pacific Bell under California's Unfair Competition Law ("UCL" Cal. Bus. & Prof. Code §17200 et seq.). At issue in Orloff is whether Section 1759 bars UCL actions by law enforcement agencies against utilities that are subject to administrative proceedings at the CPUC. Together, these two cases will help define the scope of Section 1759, and will set precedent that may determine the future viability of civil actions against utilities subject to CPUC jurisdiction.

The Hartwell Case

In Hartwell, over three hundred plaintiffs filed personal injury actions against regulated and unregulated water providers, alleging that these companies delivered contaminated well water to plaintiffs. Shortly after plaintiffs filed their actions, the CPUC issued an Order Instituting Investigation (OII) to inquire into well water quality in California. Defendants responded to the OII by filing motions to dismiss for lack of subject matter jurisdiction based on Section 1759, alleging that the courts lacked jurisdiction to interfere with the ongoing CPUC investigation. The various Superior Courts reached inconsistent decisions on the issue, and all appeals and writs were consolidated into a single action before the Court of Appeal.

The Court of Appeal relied on San Diego Gas & Electric Co. v. Superior Court ("Covalt"), 13 Cal. 4th 893, 918 (1996) to find that: (1) the CPUC has the authority to regulate water standards for regulated utilities in California; (2) the CPUC exercised that authority in instituting its OII; and, (3) that plaintiffs' judicial actions would interfere with the CPUC in its regulatory functions. Thus, the Court of Appeal concluded that personal injury actions against the regulated utilities in the superior courts were preempted under Section 1759.

The Court of Appeal also found, however, that the unregulated water providers were not subject to Section 1759 preemption. The unregulated defendants, nevertheless, argued that Section 1759 extended to any "issues" before the CPUC, not just to actions against companies subject to CPUC regulation. The Court of Appeal declined to take such a broad reading of Section 1759, finding that preemption applies only to actions against regulated utilities.

The Orloff Case

The counties of Alameda, San Mateo and Monterey, through their District Attorneys Offices, sought injunctive relief under the UCL against Pacific Bell based on allegations that Pacific Bell was misleading its customers into ordering "custom calling" option packages (such as call blocking and inside telephone wire repair insurance) by failing to tell customers of alternate cheaper packages. Pacific Bell sought to dismiss the case, alleging that the identical issue was before the CPUC in ongoing administrative hearings¹ and that, therefore, the Superior Court lacked jurisdiction to hear the case under Section 1759. The Superior Court granted Pacific Bell's motion, finding that Section 1759 "trumps" the UCL where identical proceedings are ongoing before the CPUC and the Superior Court.

The Court of Appeal upheld the trial court's decision. It found that the proceedings at the Superior Court and at the CPUC were nearly a "carbon copy" of each other, and that a final decision on the issue had been rendered by the ALJ and was being reviewed by the CPUC. The Court of Appeal noted that the literal language of Section 1759 prohibited the Superior Court from "review[ing], revers[ing], correct[ing] or annul[ling] any order or decision of the commission. . . ." It was only because the plaintiffs were public entities that the Court of Appeal undertook to resolve the narrow issue of whether section 1759 preempted an action by a public agency under the UCL.

In upholding the Superior Court's decision, the Court of Appeal held that the broad general mandate by the Legislature to law enforcement agencies to enforce consumer protection laws under the UCL was insufficient to overcome the specific high court precedent mandating dismissal under these circumstances, as set forth in Covalt, 13 Cal. 4th at 918 (holding that where a state court action for damages interfered with or hindered an ongoing regulatory policy or proceeding of the CPUC, such action was barred). As for the argument that any remedy under the UCL is cumulative, and thus only supplements any remedy issued by the CPUC, the Court held that the UCL's scope is not unlimited, and that the UCL's cumulative damages provision does not confer a jurisdictional exception to 1759 for private or public entities.

The counties petitioned for review before the Supreme Court arguing that the Legislature has conferred upon their district attorneys' offices broad power to enforce statutory remedies on behalf of the People against consumer fraud and unfair business practices through the UCL. Additionally, the counties argued that the remedies under the UCL are "cumulative" and, thus, may be imposed in addition to any remedy imposed by the CPUC in its administrative proceedings. The issue now before the Supreme Court is the interplay between Sections 17200 and 1759 as they apply to law enforcement agencies. However, the case is almost certain to affect the rights of private litigants as the Supreme Court again reviews the scope of Section 1759, a provision often used by the utilities to attack damages actions brought against them in the courts.

Outlook On Review

The effect of Orloff on private litigants will depend on the emphasis the Supreme Court places on the fact that the case involves public law enforcement agencies bringing a judicial action to enforce consumer protection laws. In their petition for review, the counties have heavily emphasized the fact that, unlike private plaintiffs, their paramount concern is enforcing the state's consumer protection laws to protect the public, and that what truly is at stake is whether regulated public utilities are beyond the reach of the state's consumer protection laws.

If the counties succeed on their arguments, however, there should be no reason to prevent private litigants from seeking to enforce the same consumer protection laws the counties seek to enforce, since under the UCL private litigants may bring a UCL action even in the absence of a private right of action. Thus, the Orloff case may have significant repercussions for private plaintiffs seeking to sue regulated utilities in state court under the UCL.

Additionally, if either the counties in Orloff or the plaintiffs in Hartwell prevail, it should help to erode the impact of Covalt, which adopted an extremely broad reading of Section 1759. Covalt has allowed regulated utilities to avoid having to answer civil lawsuits and is now raised by the utilities as a matter of course to divest the courts of jurisdiction, even over run-of-the-mill breach of contract actions.

On the other hand, if the Supreme Court affirms the Court of Appeal in Orloff and fails to limit the scope of Section 1759 in Hartwell (or if it expands that scope by finding that Section 1759 preempts claims even against unregulated utilities under investigation by the CPUC), it would signal that Section 1759 constitutes a major threshold jurisdictional bar to any judicial action against a utility, and may deter some parties from entering into agreements with regulated utilities.

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1 The CPUC proceedings were argued before an administrative law judge ("ALJ"), who recommended various remedies against Pacific Bell, including possible fines. The ALJ's decision was appealed to the full Commission, and on September 20, 2001, the Commission issued its final decision on Pacific Bell's marketing practices and strategies (D. 01-09-058), finding that Pacific Bell violated the Public Utilities Code by providing misleading information to its customers. The CPUC ordered Pacific Bell to set aside $29 million for consumer education and to pay a fine of $10 million to the State of California, to be doubled if Pacific Bell refused to comply with the Decision.