Metropolitan News-Enterprise

 

Friday, November 20, 2020

 

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Court of Appeal:

There Is No ‘Blanket Immunity’ for Public Utilities

Negligence Action Revived Against Pipeline Firm Responsible for Massive 2015 Oil Spill

 

By SANDRA HONG, Staff Writer

 

The pipeline company responsible for causing California’s worst coastal oil spill in recent history cannot claim immunity as a public utility, Div. Six of this district’s Court of Appeal held yesterday.

Presiding Justice Arthur Gilbert authored the majority opinion, in which Justice Kenneth R. Yegan joined; Justice Martin J. Tangeman dissented.

Gilbert’s opinion reverses a judgment of dismissal which followed Santa Barbara Superior Court Judge Colleen K. Sterne’s sustaining of a demurrer, without leave to amend, to a complaint filed by the California State Lands Commission and its insurer, Aspen American Insurance Company, against the Houston-based Plains All American Pipeline.

The commission and the insurer alleged negligence and willful misconduct on the part of Plains, which operated a corroded pipeline that ruptured on May 19, 2015, releasing 140,000 gallons of crude oil onto Refugio State Beach near Santa Barbara. The massive spill killed surrounding wildlife and blanketed the beach with black crude oil for months, harming the local tourism and fishing industries.

Sterne determined that Plains was exempt from liability as a designated public utility. Plains operated the faulty pipeline under a tariff and rates set by the Federal Energy Regulatory Commission (“FERC”), which, it argued, exempted the company from liability.

However, Gilbert said there was no such thing as blanket immunity for all public utilities.

“No statute grants immunity to public utilities,” he wrote. “Whether immunity applies is a question of judicial policy.”

Gilbert said the fact, standing alone, that FERC sets rates for Plains does not create an exemption from liability.

“Although it is called a public utility, it is a private business, entitled to no more immunity from liability that any ordinary private business,” he said.

 ‘Essential Service’

Rather, only public utilities providing an “essential service to the general public” are qualified for immunity, Gilbert said, adding this is consistent with previous California Supreme Court decisions that considered whether granting immunity serves the public good.

Gilbert’s opinion departs from a recent Ninth U.S. Circuit Court of Appeals memorandum opinion involving Plains as a defendant in the same incident. Filed in July, a three-judge panel in Venoco, LLC v. Plains Pipeline concluded that California law provides blanket immunity for all public utilities.

“We decline to follow Venoco,” Gilbert said. He explained:

“The court reached that conclusion without analyzing the facts or reasoning of the cases that provide for immunity. Our analysis of the facts and reasoning of those cases lead to a different conclusion.”

Previous Holding

Gilbert also distinguished the present case from Div. Six’s own 1994 opinion in Unocal California Pipeline Co. v. Conway, involving another pipeline company. In that opinion, also authored by Gilbert and joined by Yegan, the court held that Unocal, even with only one customer, was a public utility and could exercise eminent domain.

Unocal does not involve a public utility’s claim of immunity,” Gilbert wrote, adding:

“The dissent’s grant of blanket immunity to all public utilities fails to take into account the policy considerations our Supreme Court considered in granting immunity to public utilities that provide essential services. In the absence of such policy considerations, the grant of immunity does not serve the public good.”

In his dissent, Tangeman said the court’s Unocal decision should have been applied, leading to the same result for Plains. Instead, he said:

“This opinion gives rise to more questions than it answers. The majority’s new requirement that the public utility must ‘deliver essential municipal services to members of the general public’ has never existed before today. Which services are ‘essential’ and which are merely convenient? Which services come within the umbrella of ‘municipal’ services? And what segment of the population constitutes the ‘general public’?”

The commission and Aspen claimed Plains’ negligence in maintaining the pipeline led to the loss of royalty payments by Venoco to the commission and caused damage to commission-owned land.

Venoco, which operates oil platforms, leased land from the commission until the oil spill forced it to shut down offshore operations. Venoco also had an agreement with Plains for connection access to the faulty pipeline.

Aspen paid the commission $22 million to cover a portion of Venoco’s bonded obligations.

Gilbert commented:

“The immense environmental damage caused by an oil spill of the quantity involved here is well known. The damage could have easily been avoided if Plains had bothered to conduct an adequate inspection of its pipeline. Damages awarded to the Commission will encourage Plains and other pipeline operators to avoid such future harm.”

A jury found Plains guilty of criminal charges in 2018 for polluting state waters and harming wildlife. Plains was ordered to pay more than $3.3 million, estimated to be a small fraction of the total costs associated with cleanup from the disaster.

In a 2018 report to investors, Plains said it did not expect any fines or penalties imposed as a result of the jury’s decision to adversely affect the company’s “financial position or operations.”

A publicly-traded company, Plains reported earlier this month third-quarter net income of $143 million.

Last March, Plains agreed to pay $60 million to settle allegations of violating federal pipeline safety laws. The settlement covers $24 million in penalties and more than $22 million for damage to the environment. The commission estimated hundreds of birds, sea lions, and dolphins were killed as a result of the spill, which affected nearly 1,500 acres of coastline and 2,100 acres of ocean floor.

The case is State Lands Commission v. Plains Pipeline, 2020 S.O.S. 5485.

 

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