United States: Class Action Disgorgement Case Dismissed Against PG&E As Remedy Sought Would Interfere With Filed Rates

Companies in regulated markets, such as insurance and energy, are increasing litigating issues surrounding the "filed rate doctrine," or in other words, whether they can be sued in a class action where the remedy sought necessarily challenges the rates that are required or approved by the relevant regulators. Pacific Gas & Electric is a great example of a well-reasoned dismissal where the court understood the real risks that regulated industries face from inconsistent and duplicate liability from both regulators and the courts.

A California appellate court in the First District recently upheld a trial court's demurrer of a class action complaint filed by class representative Filomena Guerrero against the Pacific Gas & Electric Company ("PG&E"). The complaint alleged that PG&E deceptively represented to both California's Public Utilities Commission ("PUC") and the public regarding how much revenue it required to provide safe natural gas service. The complaint sought restitution and disgorgement of profits for PG&E's alleged "wrongful diversion of more than $100 million in rates it collected over a thirteen year period that should have been expended on natural gas pipeline safety projects." Guerrero v. Pac. Gas & Elec. Co., 2014 WL 5073493, at *1 (Cal. Ct. App. Oct. 10, 2014).

The Guerrero complaint arose in connection with a natural gas pipeline explosion that occurred on September 9, 2010, in San Bruno, California. The explosion resulted in several fatalities, numerous physical injuries, and substantial property damage. In the aftermath of the explosion, PUC began an investigation of PG&E's safety programs, an investigation that included an audit of the money PUC had previously authorized for safety initiatives as compared to the money PG&E actually spent on such initiatives. At issue in PG&E's demurrer was whether the PUC had sufficiently exercised jurisdiction over the subject matter of Guerrero's complaint and, if so, whether the complaint would therefore interfere with PUC's jurisdiction.

California's Public Utilities Code, Section 1759, prohibits California courts from exercising jurisdiction to "review, reverse, correct, or annul any order or decision of the commission." Cal. Pub. Util. Code § 1759(a). The code further prohibits direct challenges to any PUC decision or order except as specified in the Public Utilities Act. Nevertheless, trial courts are permitted to entertain claims for damages arising out of unlawful acts committed by a regulated utility. The key inquiry which will determine whether or not a court has jurisdiction revolves around whether the commission has the authority to adopt the relevant regulatory policy, whether the commission has exercised that authority, and whether court action would hinder or interfere with the commission's exercise of regulatory authority.

The appellate court found that each of these factors favored upholding the trial court's demurrer. Since there was no dispute that PUC had regulatory authority to set PG&E's rates, the court's discussion focused on whether PUC exercised its regulatory authority, and whether Guerrero's complaint impermissibly interfered with PUC's exercise of its regulatory authority. Regarding the first question, the court concluded that PUC, consistent with one of its central functions, had determined that the safety charges demanded by PG&E were just and reasonable. Furthermore, in the aftermath of the San Bruno explosion, PUC conducted (and continues to conduct) multiple investigatory proceedings to evaluate, among other things, PG&E's safety related activities and its financial expenditures regarding such activities.

Regarding the second question, the appellate court found that the "impact of the expenses to be incurred by PG&E for gas transmission improvements as a result of the San Bruno explosion, and the relationship those expenses may bear to past natural gas rates and PG&E's past practices, remain a focus of the ongoing administrative proceedings initiated by the PUC in the explosion's aftermath." Guerrero, 2014 WL 5073493, at *6. Though the plaintiffs attempted to argue that the regulatory scope of PUC's review was narrowly focused on future safety rules, the court agreed with PG&E's argument that, in fact, the past rates that were charged and approved comprised a critical component of PUC's inquiry. As a necessary result, any judgment issued by the trial court in Guerrero would interfere both with PUC's prior approval of PG&E's filed rate, as well as with PUC's ongoing determination regarding the expenses to be incurred by PG&E as a result of the San Bruno explosion (including but not limited to the relationship between such expenses and PG&E's past rates). In short, PUC had been and continued to be actively engaged in reviewing and approving PG&E's rates, and therefore the appellate court concluded that any judicial decision regarding the propriety of such rates would interfere with PUC's regulatory function.

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