Simple Avo Paradise Ranch, LLC v. Southern Cal. Edison Co. (2024) 102 Cal.App.5th 281.
In Simple Avo Paradise Ranch, LLC v. Southern Cal. Edison Co. (2024) 102 Cal.App.5th 281, the Second District Court of Appeal affirmed the applicability of inverse condemnation claims to privately-owned utility companies.
Simple Avo Paradise Ranch, LLC (“Simple Avo”), a private-owned avocado farm, and other plaintiff filed an action against Southern California Edison Company (“SCE”), a private utility company, alleging SCE was responsible for damages caused by the 2017 Thomas Fire in Southern California. A master complaint in a coordinated proceeding involving hundreds of similar lawsuits alleged an inverse condemnation cause of action, claiming that the fire was caused by downed power lines owned and operated by SCE, which allegedly failed to mitigate the risks associated with its problematic electrical distribution system.
SCE demurred to the master complaint on the ground that inverse condemnation should only apply to public entities and not to investor-owned utility companies, like SCE. But in light of established precedent in Barham v. Southern Cal. Edison Co. (1999) 74 Cal.App.4th 744 (“Barham”)and Pacific Bell Telephone Co. v. Southern California Edison Co. (2012) 208 Cal.App.4th 1400 (“Pacific Bell”), the trial court overruled the demurrer. Simple Avo joined the lawsuit five months after the trial court overruled SCE’s demurrer, submitting a form complaint adopting and incorporating the master complaint.
In January 2022, Simple Avo settled with SCE and Edison International in the amount of $1.75 million, subject to SEC’s appeal of the demurrer ruling. The trial court entered the stipulated judgment and SCE appealed.
On appeal, SCE continued to question the viability of Barham and Pacific Bell, and also contended that Simple Avo has not alleged other elements of the inverse condemnation cause of action. The Court of Appeal affirmed the trial court’s decision overruling the demurrer. The court addressed the issue of whether a privately-owned utility can be liable in an inverse condemnation action. As in Barham, SCE argued it was a privately-owned utility company, not a public entity subject to inverse condemnation claims because it could not spread its losses from the cost of wildfires as a matter of right by raising its rates, like a public entity can do. As a privately-owned utility, SCE needed approval from the Public Utilities Commission (“CPUC”) to raise its rates. Barham rejected that argument because there was no rational basis for distinguishing publicly owned utilities from privately owned utilities. Thus, Barham expressly held that “SCE may be liable in inverse condemnation as a public entity.” Pacific Bell reviewed the California Supreme Court decision in Pettis v. General Tel. Co. (1967) 66 Cal.2d 503, that held that a privately owned utility could be liable for inverse condemnation.
Here, the Court of Appeal recognized that SCE lacked the authority to raise rates without the CPUC’s approval. But that did not preclude liability for inverse condemnation because there was no evidence the CPUC would not allow SCE to raise its rates to pass on damages. Also, the court reasoned that “although the Legislature has chosen not to do so, nothing in the Constitution prevents the Legislature from placing municipally owned utilities under the regulations of the Public Utilities Commission, including regulation of rates… We do not believe such regulation would immunize municipal utilities from inverse condemnation liability under the theory that they were no longer able to spread the cost of public improvements.” Therefore, the court concluded that SCE did not provide any persuasive reason to depart from Barham and Pacific Bell.
SCE also argued that the master complaint failed to allege the necessary elements for an inverse condemnation claim under City of Oroville v. Superior Court (2019) 7 Cal.5th 1091, which requires a plaintiff to show that the property damage was “substantially caused by an inherent risk in the deliberate design, construction, or maintenance of the public improvement.” But the court found the master complaint sufficiently alleged these facts because SCE knew its infrastructure was outdated but took no action to prevent potential disasters caused by the aging equipment, thus SCE deliberately ignored necessary inspections and maintenance finally leading to the Thomas Fire.
Glen Hansen is Senior Counsel and Simyllina Chen is a Law Clerk at Abbott & Kindermann, Inc. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, Inc. at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.