Source: http://www.lawlink.com/research/CaseLevel3/84164
Timestamp: 2019-04-26 15:57:45+00:00

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Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, Leonard B. Simon, Pamela M. Parker and Frank J. Janecek Jr. for Plaintiffs and Appellants Ruth Hendricks, People of the City and County of San Francisco, City of Oakland and County of Santa Clara.
Best, Best & Krieger, C. Michael Cowett, Robert J. Hanna, Mary E. Coburn, James P. Gilpin and William C. Pate for Plaintiffs and Appellants Borrego Water District, Fallbrook Public Utility District, Helix Water District, Padre Dam Municipal Water District, Ramona Municipal Water District, Sweetwater Authority, Valley Center Municipal Water District, Vista Irrigation District, Yuma Municipal Water District, Metropolitan Transit Development Board, San Diego Trolley, Inc. and San Diego Transit Corporation.
Levine, Steinberg, Miller & Huver, Harvey R. Levine, Richard A. Huver; Patricia A. Meyer & Associates, Patricia A. Meyer, Marisa Janine-Page, and Matthew T. Poelstra for Plaintiffs and Appellants Cruz Bustamante, Ruth Hendricks and Barbara Matthews.
Kiesel, Boucher & Larson and Raymond P. Boucher for Plaintiffs and Appellants Cruz Bustamante and Barbara Matthews.
Krause, Kalfayan, Benink & Slavens, James C. Krause, Ralph B. Kalfayan, David B. Zlotnick; Keegan, Macaluso & Baker, Patrick N. Keegan; and Hoyt E. Hart II for Plaintiff and Appellant Pamela Gordon.
Lieff, Cabraser, Heimann & Bernstein, William Bernstein, Joseph R. Saveri and Barry Himmelstein for Plaintiffs and Appellants Bill Lockyer, Oscars Photo Lab, Pier 23 Restaurant and Mary L. Davis.
Office of City Attorney, Dennis J. Herrera and Theresa L. Mueller for Plaintiff and Appellant City and County of San Francisco.
Office of Oakland City Attorney, John A. Russo, Barbara Parker and Izetta C.R. Jackson for Plaintiff and Appellant City of Oakland.
Office of Santa Clara County Counsel, Ann Miller Ravel and Cheryl A. Stevens for Plaintiff and Appellant County of Santa Clara.
Pillsbury, Winthrop, Shaw & Pittman, Douglas R. Tribble, Connie J. Wolfe, John M. Grenfell and Michael J. Kass for Defendants and Respondents Cabrillo Power I, LLC, Cabrillo Power II, LLC, Louis J. Dorey, Dynegy, Inc., Dynegy Marketing & Trading, Dynegy Power Marketing, Inc., El Segundo Power, LLC, Long Beach Generation, LLC, Matt K. Schatzman and Charles Watson.
Latham & Watkins, Daniel Murray Wall, Michael J. Weaver and Kimberly A. Hicks for Defendants and Respondents Sempra Energy, Inc., Sempra Generation and Sempra Energy Trading Corporation.
Coughlan, Semmer & Lipman, R. J. Coughlan, Jr.; Williams & Connolly, Stephen D. Raber, for Defendant and Respondent AES Corporation.
Plaintiffs and appellants Borrego Water District, et al. (Borrego), a group of public entities and retail purchasers of electricity, filed this action for damages and other relief against defendants and respondents AES Corporation, et al. (AES), a number of companies and their subsidiaries who are generators, sellers, or traders of electricity at wholesale (defendants). In their master complaint filed in 2002 in these coordinated actions, plaintiffs allege violations of California's antitrust laws (Bus. & Prof. Code, fn. 1 ? 16720, hereafter the Cartwright Act), as well as violations of California's unfair competition law (? 17200 et seq., hereafter the UCL). fn. 2 These allegations all arise out of market conditions and events during the California energy crisis of 2000 and onward, relating to claims for damages and injunctive relief for anticompetitive activity and/or unfair competition in the wholesale electricity market.
In response to the filing of this action, and after a delay of several years due to removal to federal court and remand to state court, all defendants brought and renewed a joint demurrer to the master complaint, on the grounds of lack of jurisdiction. Defendants argued the subject matter of the master complaint was preempted by federal law that had occupied the field of wholesale electricity market control and regulation, because plaintiffs' theories of recovery would inevitably require the superior court to determine reasonable rates for wholesale power sales. Defendants further argued that a regulatory doctrine, the filed rate doctrine, barred the filing of this action for damages. (See Public Utility Dist. No. 1 of Snohomish County v. Dynegy Power Marketing, Inc. (9th Cir. 2004) 384 F.3d 756 (Snohomish); Public Utility Dist. No.1 of Grays Harbor County Washington v. Idacorp Inc. (9th Cir. 2004) 379 F.3d 641, 647 (Grays Harbor).) The trial court agreed and sustained the demurrer without leave to amend.
Plaintiffs appeal, contending the ruling was erroneous because California case law, Younger v. Jensen (1980) 26 Cal.3d 397 (Younger) and Spielholz v. Superior Court (2001) 86 Cal.App.4th 1366 (Spielholz), should support a finding that state law can provide an independent ground for regulation of the anticompetitive or unfair [147 Cal.App.4th 1299] conduct of defendants, through an award of antitrust damages, such that there should be no finding of federal preemption. Plaintiffs found further support for their theory of general applicability of state antitrust laws in the context of electricity market disputes in the United States Supreme Court case of Otter Tail Power Co. v. United States (1973) 410 U.S. 366 (Otter Tail Power).
Our analysis of the master complaint and pertinent case law convinces us that the trial court correctly applied the doctrines of field and conflict preemption in sustaining the demurrer without leave to amend. We find additional support for that conclusion in the filed rate doctrine, relied on by the trial court as an alternate ground for its ruling on demurrer. (California ex rel. Lockyer v. Dynegy, Inc. (9th Cir. 2004) 375 F.3d 831, 852-853 (Dynegy).) We affirm the judgment of dismissal.
In the introductory allegations of the master complaint, plaintiffs allege that they are entitled to recover damages and other equitable and injunctive relief, based on injuries incurred during this period and "arising from defendants' manipulation, distortion, and corruption of California's deregulated wholesale electricity market. Defendants' unfair and unlawful business practices and illegal restraints of trade included combining to withhold supply from electricity markets and colluding to fix electricity prices. This conduct forced electricity users to pay electricity prices based not on competitive market forces, but prices which were grossly inflated due to defendants' conduct. [?] This action seeks to remedy that conduct, which caused widespread electricity shortages and astronomical prices. Defendants' manipulation of what was supposed to be a competitive market for wholesale electricity harmed all Californians and destabilized the California economy, which depends on a reliable supply of competitively priced energy. The total harm caused by defendants' conduct is, at this point, unknown. . . ."
The master complaint describes how the ISO was charged with balancing the supply of energy offered for sale into the market with demand at certain points in time, and was required to purchase energy on the spot market to meet any shortfalls. This spot market was susceptible to manipulation regarding the price of wholesale energy, which was set by the "market clearing price," or the highest price offered for sale of energy necessary to meet the load. This scheme was supposed to promote competition to attract new sources of power and lower the price of electricity, but according to plaintiffs, it was subject to abuse.
Additionally, defendants' communications and information sharing were alleged to be made for the purpose of and having the effect of manipulating supply and fixing prices. Defendants "manipulated supply such that the ISO was forced to issue shortage warnings during the Summer of 2000 even though the State had sufficient generating capacity. Defendants accomplished this by withholding supply from the PX and ISO markets, thus creating artificial shortages of electricity which, in turn, raised the market clearing prices on the wholesale energy markets. Much of this withholding was executed by simply shutting down or restricting the output of operational electricity generators. . . . [?] This sort of activity provided the pretext -- electricity shortages -- for defendants' collusive and outrageous sales prices offered into the wholesale energy markets operated by the PX and ISO. From their respective trading floors, defendants coordinated the prices for electricity they offered for sale, otherwise known as 'bid rigging.' "
Plaintiffs therefore alleged that defendants' conduct departed from a competitive model, and they could "wield 'market power,' i.e., the ability to control the market price." This conduct "materially raised electricity prices in the PX and ISO markets, which in turn, resulted in higher retail prices to consumers." The relief sought included actual and treble damages, restitution, civil penalties, and injunctive relief.
At oral argument in the trial court, defendants responded to plaintiffs' theories with the observation that there were ongoing refund requests before FERC by one of the defendants' subsidiaries, SDG&E, and defendants contended FERC was the proper forum. Plaintiffs continued to argue that in light of the various changes in the FERC regulatory process, from filed rates to a market-based type of regulation, Congress could not have intended to preempt the field when it enacted the FPA. Plaintiffs relied on Younger, supra, 26 Cal.3d 397 to contend concurrent state antitrust regulation in the wholesale market was appropriate, also citing to a related case in which a federal district court judge had observed that it was possible to establish a violation of the Cartwright Act without reference to the FPA's "just and reasonable" rates standard. (Hendricks v. Dynegy Power Marketing, Inc. (S.D.Cal 2001) 160 F.Supp.2d, 1155, 1163 (Hendricks).) In plaintiffs' view, it was possible to establish damages for anticompetitive conduct by the defendants that was not measured by rate regulation standards. Plaintiffs contended that antitrust damages should be measured by what price the market would have set if anticompetitive forces were not operating, as distinguished from the [147 Cal.App.4th 1303] FERC standard of a just and reasonable rate, which was tied to how much money the defendants were entitled to be making. The matter was taken under submission.
After oral argument, the trial court issued its order, setting forth its reasoning as follows. First, the court granted the respective requests for judicial notice of rulings and orders issued by FERC. The demurrer was sustained on the basis that all claims were preempted and Younger, supra, 26 Cal.3d 397 was distinguishable. The court primarily relied on the authority of a Ninth Circuit Court of Appeals decision, Snohomish, supra, 384 F.3d 756, to conclude that plaintiffs' claims and prayer for relief would impermissibly require a "fair price" determination, already found to be barred by preemption principles in Grays Harbor, supra, 379 F.3d 641. The court concluded the field preemption and conflict preemption principles barred each of plaintiffs' claims.
Further, the trial court rejected plaintiffs' argument that Otter Tail Power, supra, 410 U.S. 366 would bar a finding of preemption, "because that case concerned federal antitrust laws and not state antitrust laws as Plaintiffs allege in their Master Complaint." The court further noted that in light of its finding that preemption bars plaintiffs' claims, it was not required to reach the issue of the applicability of the filed rate doctrine; nevertheless, those principles would bar these claims (relying on, e.g., Snohomish, supra, 384 F.3d 756; Grays Harbor, supra, 379 F.3d 641; Dynegy, supra, 375 F.3d 831). These rulings were dispositive and the master complaint was dismissed.
Plaintiffs, through liaison counsel, timely filed their notice of appeal.
The main thrust of the complaint is that the defendants' conduct, their alleged "manipulation, distortion and corruption" of the wholesale electricity market in California, "forced electricity users to pay electricity prices based not on competitive market forces, but prices which were grossly inflated due to defendants' conduct," thereby giving rise to an entitlement to antitrust damages and unfair competition remedies in favor of plaintiffs. To avoid the effect of federal preemption in this heavily regulated area, plaintiffs seek to distinguish between the regulatory authority granted to FERC to order compliance with its policies, such as by ordering refunds to electricity [147 Cal.App.4th 1304] consumers, and the types of damages and other relief recoverable under the Cartwright Act and/or the UCL.
We first set forth rules regarding federal preemption in this factual and legal context. We then address the filed rate doctrine.
In response, defendants cite to Southern California Edison, supra, 121 Cal.App.4th 1303, to say that the "presumption against preemption" is "characteristically applied where the field is one that the states have traditionally occupied and regulated. [Citation.] The presumption 'is not triggered when the state regulates in an area where there has been a history of significant federal presence. [Citation.]' Inasmuch as the field of interconnection [wholesale electricity distribution] agreements has a history of significant federal presence, the presumption against preemption is not applicable here." (Id. at pp. 1311-1312.) We agree with those observations and those of the court in Grays Harbor, supra, 379 F.3d 641, 648, footnote 7, that "[t]his presumption is almost certainly not applicable here because the federal government has long regulated wholesale electricity rates."
We therefore seek to examine, free from any such presumption against preemption, the respective merits of the arguments by both plaintiffs and defendants regarding the application of preemption principles here.
Plaintiffs say they can prove an entitlement to antitrust damages in state court, on the basis that the injuries they sustained as consumers from the [147 Cal.App.4th 1310] anticompetitive acts of defendants are mainly unrelated to FERC's normal duties of regulating rates and tariffs for the delivery of electricity on a wholesale basis. Plaintiffs believe they can show all the elements of "antitrust injury," i.e., "(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent." (Knevelbaard, supra, 232 F.3d 979, 987-988.) Plaintiffs believe that the injury they allege is distinct from the high energy prices allegedly caused by the defendants' actions in creating collusive supply, demand, and price manipulation. They say their claims "are based on duties and obligations that arise entirely independently of any 'tariff' relevant to this case." However, they admit that if FERC were to award any refunds, these would have to be offset against any court award of antitrust or UCL damages, and vice versa.
 Defendants accordingly argue that the FPA preempts this field and requires that any such relief be requested from FERC, such as refunds to purchasers. They point to 16 United States Code section 824d(a) et seq., providing that FERC is charged with regulating and disclosing "just and reasonable rates" as follows: "All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful." (16 U.S.C. ? 824d(a).) Likewise, in 16 United States Code section 824d(c), FERC is authorized to [147 Cal.App.4th 1311] require public utilities to file and disclose "schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission, and the classifications, practices, and regulations affecting such rates and charges, together with all contracts which in any manner affect or relate to such rates, charges, classifications, and services."
Plaintiffs, however, offer several reasons why these applications of preemption theory were wrongly decided or distinguishable from their claims, as we next discuss.
Plaintiffs rely on California law (Younger, supra, 26 Cal.3d 397 and Spielholz, supra, 86 Cal.App.4th 1366) to argue no federal preemption principles apply here. They also cite to Otter Tail Power, as representing the concept that activities coming under the jurisdiction of a regulatory agency "nevertheless may be subject to scrutiny under the antitrust laws." (Otter Tail Power, supra, 410 U.S. 366, 372.) Plaintiffs seemingly argue for a "back to basics" approach to preemption, based on this older case law focusing on congressional intent. Further, they point to language in the Lockyer opinion (Lockyer, supra, 383 F.3d 1006) as showing that the federal courts here recognized that FERC is not doing a good enough job, such that alternative remedies should [147 Cal.App.4th 1312] now be allowed through this state antitrust action. We discuss these theories in turn.
In the UCL context, in Spielholz, supra, 86 Cal.App.4th 1366, those plaintiffs were allowed to proceed with false advertising allegations that a telecommunications carrier had falsely advertised a "seamless calling area" existed, where in reality, there were gaps where wireless telephone users were unable to connect calls. The Court of Appeal found no federal preemption of such claims, because the main allegations dealt with false advertising, such that any effect on rates was merely incidental. Here, however, as stated by the trial court, "This can be contrasted to the instant case, involving the FPA, where Plaintiffs' allegations concern conduct directly related to rates charged and ultimately paid." We agree with the trial court's analyses of the California case law claims, because plaintiffs have been unable to show why the alleged anticompetitive conduct by defendants inflicted any different kind of injury on them, that is separate from the rates charged and ultimately paid. This is not a case in which incidental damages are claimed to arise from conduct that is not covered by the federal legislation, such as false advertising.
In its ruling, the trial court also rejected the argument that Otter Tail Power would bar a finding of preemption, since that case concerned federal antitrust laws and not state antitrust laws. There, the Supreme Court relied on legislative history to find nothing in the FPA that would "insulate electric power companies from the operation of the antitrust laws." (Otter Tail Power, supra, 410 U.S. 366, 374-375.) Rather, to the extent that voluntary business relationships are utilized to control the interstate distribution of power (as opposed to governmental regulation), "courts must be hesitant to conclude that Congress intended to override the fundamental national policies embodied in the antitrust laws." (Ibid.) The court in Otter Tail Power held there is no basis to conclude that the limited power granted to the FPC/FERC to regulate certain aspects of electrical supply (e.g., ordering interconnections of power lines) "was intended to be a substitute for, or to immunize Otter Tail from, antitrust regulation for refusing to deal with municipal corporations." (Ibid.) This authority is distinguishable because these plaintiffs are attempting to claim injury by invoking the same subject matter covered by the government regulatory authority, but recharacterizing it as antitrust injury, all the while seeking to recover damages for overcharged payments and allegedly excessive rates. This is a distinction without a difference.
Plaintiffs' attempts to rely on fundamental case law from the 1970s and 1980s are unsuccessful because they cannot bring themselves within those general exceptions to well established preemption principles. Rather, the logic of the recent Ninth Circuit authority in this area is persuasive and should be followed here. (Snohomish, supra, 384 F.3d 756.) The trial court properly sustained the demurrers on preemption grounds.
Also in Grays Harbor, the court addressed contemporary concerns that application of "the filed rate doctrine to market-based rates that have not been filed with FERC would be an unwise and unprecedented expansion of the doctrine." (Grays Harbor, supra, 379 F.3d 641, 651.) The court found no such barrier to the use of this doctrine, for the following reasons: "[T]he market-based rate regime established by FERC continues FERC's oversight of the rates charged. FERC only permits power sales at market-based rates after scrutinizing whether 'the seller and its affiliates do not have, or have adequately mitigated, market power in generation and transmission and cannot erect other barriers to entry.' [Citation.] According to FERC, these conditions assure that the market-based rates charged comply with the FPA's requirement that rates be just and reasonable. [Citation.] This oversight is ongoing . . . . [?] Further, FERC contends that such procedures effectively constitute review of rates prior to their implementation. [Citation.]" (Ibid.) FERC also has a remedies provision regarding refunds in 16 United States Code section 824e(a) and (b).
Based on those factors, the court of appeals stated that "while market-based rates may not have historically been the type of rate envisioned by the filed rate doctrine, we conclude that they do not fall outside of the purview of the doctrine." (Grays Harbor, supra, 379 F.3d 641, 651-652.) Although this analysis of the evolution of this regulatory method is very general in nature, it is nevertheless persuasive and we have been given no reason to depart from it here. Instead, the allegations of the master complaint amount to requests for penalties for alleged anticompetitive conduct by defendants, and these potentially would interfere with FERC supervision of market-based rates and any enforcement activities allowed under FERC procedures. We are reluctant to engage in policy analysis to the extent that plaintiff requests in this fast-changing and highly regulated area.
The judgment of dismissal is affirmed. Plaintiffs are to pay the ordinary costs on appeal.
McConnell, P. J., and Irion, J., concurred.
?FN 1. All statutory references are to this code unless otherwise stated.
?FN 3. Certain of the plaintiffs, public officials whom we denote the Bustamante group, do not join in the antitrust claims but make additional UCL claims based on Penal Code violations. (Pen. Code, ?? 395, 396.) The same basic theories pertain to all the causes of action and we need not discuss these additional distinctions separately.
?FN 4. Apparently, those settlements with those other defendants also included other related claims, and are not informative with regard to the issues on this appeal.
?FN 5. In addition to suing these four major employers in the business of wholesale electric trading and marketing, plaintiffs named three individual defendants, who were management employees of the Dynegy group. No separate allegations are made about the individual defendants and we refer to all defendants collectively.
?FN 6. The ISO continues to manage the wholesale electricity market, but the PX is no longer in operation. Plaintiffs' allegations relate to the period during which the PX was still participating in the market.
?FN 7. Plaintiffs appropriately request judicial notice on appeal of various FERC proceedings and decisions in the record, outlining the scope of its jurisdiction as granted by the FPA (16 U.S.C. ? 791a et seq.). These orders and decisions deal with rate schedules and proposed market-based rates and tariffs, and are submitted by plaintiff to provide examples of FERC's duties to review whether rates and rate-related practices are just and reasonable, and to provide remedies for violations. (16 U.S.C. ?? 824d, 824e.) We need not discuss several of plaintiffs' arguments made below, which are not pursued on appeal, such as the purported distinction between the roles of sellers and other participants in the market, such that "at a minimum the case should proceed against traders and generators."
?FN 9. See also, T & E Pastorino Nursery v. Duke Energy Trading and Marketing (9th Cir. 2005) 123 Fed.Appx. 813, holding UCL allegations regarding transactions in the wholesale energy market fell within the exclusive jurisdiction of FPA, where tariffs approved by FERC would provide the context for determination of any violations of the UCL.

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