California Supreme Court to Decide Issues of Preemption and Primary Jurisdiction in Mass Tort Groundwater Contamination Cases
 
May 14, 2001
 

The California Supreme Court is set to decide whether various state courts in Los Angeles County, California, can continue to exercise jurisdiction over water utilities regulated by the California Public Utilities Commission (PUC) as well as non-regulated municipal wholesale water purveyors and industrial businesses not regulated by the PUC in eight underlying mass tort actions. In Hartwell Corporation v. The Superior Court, 74 Cal.App.4th 837, mod. 75 Cal.App.4th 706a) (1999), approximately 800 plaintiffs, represented by two different plaintiffs’ firms, filed actions in various state courts located in Los Angeles County, seeking personal injury and property damages based on allegations that regulated public utilities and non-regulated water and industrial businesses caused contamination of their drinking water. Thereafter, the PUC instituted an investigation into the quality of the water served by these regulated utilities.

In their complaints, plaintiffs, who are long-time residents of various cities throughout Los Angeles County, California, identified tricholoroethylene (TCE), perchloroethene (PCE), perchlorate (rocket fuel), carbon tetrachloride (CTC) and other organic solvents as the contaminants fouling their water, soil and the air. Plaintiffs blame both the regulated and non-regulated water companies for delivering contaminated drinking water alleging personal injury, wrongful death, fear of cancer, risk of cancer and medical monitoring. Plaintiffs blame the nonregulated industrial businesses for contaminating the groundwater through improper disposal of toxic substances, which then traveled into the drinking water distribution system, causing the same harm alleged against the water companies.

In March 1998, the PUC filed an order instituting investigation (OII #1) to inquire into the quality of the water served by the regulated water companies in the relevant areas of Los Angeles County, California. The OII specifically described its task as "investigating the operations and practices of the named defendant public utilities, their compliance with the PUC’s standards and policies regarding water quality, and whether those standards and policies regarding water quality continue to be adequate to protect the public health and safety with respect to substances such as TCE, PCE, CTC and other volatile organic compounds (VOCs)."

The defendants regulated by the PUC responded to the PUC’s intervention by seeking outright dismissals. The non-regulated defendants filed demurrers and requested a stay of all court proceedings pending the PUC’s investigation. It was the defendants’ position that the PUC’s exertion of its jurisdiction over the water quality issues and its pending investigation was primary thereby preempting the state court’s jurisdiction at least until the PUC completed its investigation. Plaintiffs, on the other hand, challenged the jurisdiction of the PUC to conduct its proposed investigation; however, in its first opinion, the PUC decided it had such jurisdiction. Plaintiffs did not appeal the portion of the PUC’s decision concerning its assertion of jurisdiction to the California Supreme Court, rendering this question final.

The various trial courts responded with conflicting orders in response to the PUC’s intervention and the defendants’ demurrers, summary motions and requests for stays. One trial court granted the stay requests and deferred ruling on the demurrers pending completion of the PUC’s investigation. Another trial court sustained the demurrers by the regulated utilities, but overruled the demurrers and denied the stay requests by both the nonregulated water providers and the industrial businesses. As a result of these conflicting rulings, writs to the Court of Appeal were taken and granted. Because two court clerks working for the Second Appellate District were plaintiffs in these cases, the consolidated writs and appeal were transferred north to San Francisco, California, from Los Angeles to the First Appellate District, Division Five of the California Court of Appeal.

The Court of Appeal rendered its decision on September 29, 1999. It held that the trial court actions are preempted insofar as they seek remedies against the regulated utilities, but not preempted insofar as they state causes of action against nonregulated water providers and industrial businesses. Regarding its holding with respect to the regulated utilities, the court reasoned that the legislature invested the PUC with jurisdiction over the quality of water provided by regulated utilities. Citing San Diego Gas & Electric Co. v. Superior Court (Covalt), 13 Cal. 4th 893 (1996), both the regulated and non-regulated defendants argued that the PUC’s investigation preempted the state court’s jurisdiction pursuant to section 1759 of the Public Utilities Code. Section 1759 provides in relevant part that "no court . . . except the Supreme Court and the court of appeal, . . . shall have jurisdiction to review, reverse, correct, or annul any order or decision of the commission . . . or to enjoin, restrain, or interfere with the commission in the performance of its official duties . . ." While section 2106 of the Public Utilities Code provides for state court damage actions against the PUC regulated utilities, section 1759 bars any such state court action if the affect of those lawsuits would be to undermine a broad existing PUC policy. However, the appellate court reasoned that section 1759 preempts state court damage actions against only the regulated utilities, in effect immunizing them from these civil lawsuits; it held that the defendants not regulated by the PUC may not benefit from PUC preemption since they are not regulated by the PUC.

On December 15, 1999, the California Supreme Court granted defendants’ petition for review. Briefing was completed in June 2000, the parties await oral argument. The nonregulated defendants argued that the PUC investigation into water quality preempts the field so as to deprive the trial courts of jurisdiction. The nonregulated defendants also argued that section 1759 applies to subject matter jurisdiction encompassing all defendants. Plaintiffs, on the other hand, argue that section 1759 only applies to parties regulated by the PUC.

There are essentially three circumstances in which the defense of preemption is asserted:

• Express preemption is said to exist when the applicable law or regulation contains an explicit preemption provision.

• Implied preemption is said to exist when the applicable law or regulation may be sufficiently comprehensive to create the inference that its drafters intended to occupy an entire field of regulation.

• Conflict preemption is said to exist when the applicable law or regulation does not entirely displace a given field, however the other law or regulation actually conflicts with it.

See Mich. Canners and Freezers v. Agr. Marketing and Bargaining Board, 467 U.S. 461, 469, 104 S. Ct. 2518, 2523, 81 L. Ed. 2d 399 (1984).

The nonregulated defendants’ main argument is preemption, which would get them totally out of the cases. Their secondary argument is primary jurisdiction. The doctrine of primary jurisdiction is applicable where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views. See (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal. 4th 377, 390 [6 Cal. Rptr. 2d 487, 826 P.2d 730] (Farmers Ins. Exchange), quoting United States v. Western Pac. R. Co. (1956) 352 U.S. 59, 63-64 [77 S. Ct. 161, 164-165, 1 L. Ed. 2d 126].) The important caveat concerning this doctrine is that it does not permanently foreclose judicial action; it provides the appropriate administrative agency with an opportunity to initially act in the matter if it chooses to do so.

The doctrine of primary jurisdiction doctrine advances two related policies:

• judicial efficiency by permitting courts to take advantage of administrative expertise

• uniform application of regulatory laws

Farmers Ins. Exchange, supra, 2 Cal. 4th at 391. In determining whether to apply the doctrine, courts generally look to four factors:

• whether the question at issue is within the conventional experience of judges or whether it involves technical or policy considerations within the agency’s particular field of expertise

• whether the question at issue is particularly within the agency’s discretion

• whether there exists a substantial danger of inconsistent rulings

• whether a prior application to the agency has been made

National Communications Assoc., v. American Telephone and Telegraph Co., 46 F.3d 220, 222-23 (2d Cir. 1995).

In November 2000, the PUC completed its initial investigation (OII #1), finding the water served by all regulated utilities for the past 25 years was not only safe, but in compliance with all of the requirements established by the Department of Health Services (DHS). The PUC recommended a second investigation to look into the quality of water served in the relevant basin prior to the enactment of the MCLs and ALs for the 25 years prior to 1979 (OII #2) The nonregulated defendants have asked the California Supreme Court to take judicial notice of the PUC’s final decision. A decision from the California Supreme Court is expected sometime this year.