Privately-Owned Utility Company Liable In Action For Inverse Condemnation

A court of appeal recently held that a privately-owned utility company may be held liable for inverse condemnation as a public entity.  (Pacific Bell Telephone Company v. Southern California Edison Company (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., August 30, 2012).

Facts

Southern California Edison Company (“Edison”) installed bird guards to prevent animals from coming into contact with the energized components of its electrical facilities.  However, the guards did not prevent a large bird from coming into simultaneous contact with an energized power line and grounded equipment pole near an intersection in the city of Newhall on January 11, 2006.  The result of the event was a ground fault that sent electricity through the underground telephone cables of Pacific Bell Telephone Company (“Pacific Bell”).  Several cables were burned.  Although Pacific Bell’s underground system was not designed to withstand such faults, the cables were placed in the same trench as Edison’s electrical facilities.  The parties stipulated that the damage to the telephone cables was $74,767.39.

Pacific Bell filed a lawsuit against Edison for inverse condemnation.  The trial court concluded that Edison may be held liable as a public entity.  The court awarded Pacific Bell the stipulated damages amount as well as interest, fees, and costs.

Decision

Article I, section 19 of the California Constitution provides that private property may only be damaged or taken for public use if just compensation has been paid.  If private property is damaged by construction of a public improvement, the state or its agency must compensate the owner.  The Court of Appeal agreed with the trial court’s conclusion “that Edison may be liable under inverse condemnation for the damages to Pacific Bell’s property.” 

The Court declined to limit liability of a public utility in an inverse condemnation action to situations that involve the direct exercise of the utility’s eminent domain power.  Previous case law established that a privately-owned public utility that enjoys a state-protected monopoly or quasi-monopoly violates the California Constitution’s equal protection clause when it excludes a class of individuals from employment.  In the previous case, the Supreme Court concluded that a utility is more akin to a government entity than a private employer due to the government regulation of a public utility, a utility’s ties to the state, and its monopoly, which is safeguarded and guaranteed by the state. 

Here, the Court concluded, “Edison’s monopolistic or quasi-monopolistic authority,” which it derives from an exclusive franchise from the state, distinguishes Edison’s actions from the actions of a private party who does not have monopolistic authority.  The government chose to give a franchise to Edison and to delegate to it the right to furnish electricity instead of the state operating the utility itself.  The Court found that “individual property owners should not have to contribute disproportionately to the risks from public improvements made to benefit the community as a whole.”  If a property owner is damaged by a utility’s operation, the owner suffers a disproportionate share of the cost of the public improvement regardless of whether the utility is privately owned or owned by the government.  A property owner should not be limited to traditional tort remedies if his or her property is damaged by a privately-owned utility company.  Therefore, the court concluded that Edison may be liable for inverse condemnation.

The Court rejected Edison’s argument that a reasonableness test should be applied to determine its liability for inverse condemnation.  In flood control cases, strict liability is not imposed on a public entity that undertakes a flood control project.  Instead, a “reasonableness” rule is applied “to balance the competing concerns that a public entity undertaking flood control projects not be made the absolute insurer of those lands provided protection against the potentially enormous damage of a defective public flood control project.” 

The Court found that there is no indication that the reasonableness test should be applied instead of strict liability in inverse condemnation cases outside the area of flood control.  The cases involving flood control focus on a “common enemy” or natural disaster which threatens property even if there is no public improvement.  In Edison’s case, it is the public improvement instead of nature that created a risk.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

William T. Chisum or Jeffrey L. Massey | 916.321.4500

 

Published In: Administrative Agency Updates, Civil Remedies Updates, Constitutional Law Updates, Energy & Utilities Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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