Judge wants quick 9th Circuit review on inverse condemnation ruling

With no controlling authority on a stringent wildfire liability doctrine a San Francisco bankruptcy judge said applies to Pacific Gas & Electric Co., the judge urged a quick review of his decision by the 9th U.S. Circuit Court of Appeals.

Judge Dennis J. Montali, who is overseeing PG&E's Chapter 11 proceedings, ruled last week that strict liability under the inverse condemnation doctrine does apply to privately-owned utilities like the company. The doctrine is based on a no-fault theory of liability, meaning plaintiffs don't have to prove negligence to recover damages. PG&E has repeatedly argued the doctrine is unconstitutional.

PG&E filed for bankruptcy in January as potential liabilities mounted from a series of wildfires in Northern California in 2015, 2017 and 2018. PG&E Corp. 3:2019-BK-30088 (N.D. Cal., filed Jan. 29, 2019).

On Tuesday Montali certified his decision to be directly appealed, urging the circuit court to get involved with the issue of strict liability during the case's early stages, "as this question has not been addressed by any reported Ninth Circuit decision or by the United States Supreme Court," he wrote in his memorandum.

Prompt consideration of the issue on inverse liability is important, given the looming deadline for PG&E to exit bankruptcy set for June 30, 2020, Montali wrote.

"At issue are potentially billions of dollars of claims that may or may not be included in this case, depending on whether this doctrine applies to debtors," Montali's memo said, adding PG&E could potentially reduce its liability drastically and only proceed to trial on issues of negligence or other theories.

A ruling on inverse liability is of great public importance and interest, given wildfires occur frequently and utilities need to know whether they are strictly liable for their roles in the fires, Montali added.

"An answer to this question will also guide the California state Legislature in its ongoing discussions regarding state takeover of a privately-owned utility or a change in inverse condemnation law," Montali wrote. While a decision on the law won't resolve the public's concerns, it could inform the community and narrow its anxieties, he added. The answers could also change for PG&E and its creditors the nature of how much is owed and to whom, he said.

The 9th Circuit could potentially certify the question to be answered by the state Supreme Court.

"A resolution of this issue will change the financial landscape of this case and could eliminate or establish an entire, huge, category of debt," Montali wrote.

Montali was tasked with deciding not what he believed the law of inverse condemnation was, but rather, how he believed the state high court would rule on inverse condemnation.

In his decision issued Nov. 27, Montali noted he didn't see any circumstances that would indicate the high court would rule differently than other courts have in the past.

Absent any decisions from other tribunals apart from two state appellate court decisions, Montali's Nov. 27 ruling was based on two cases that involved Southern California Edison Co. Barham v. SoCal Edison, 1999 DJDAR 9119;Pacific Bell Telephone Co. v. SoCal Edison Co., 2012 DJDAR 12351.

Both cases emphasized the inverse condemnation doctrine did apply to private utilities, and the doctrine's purpose was to ensure compensation is paid to owners whose properties were taken or damaged for public use.

There is no telling when the 9th Circuit will issue a ruling on Montali's decision. While the federal appeals court isn't binding on state courts, the eventual panel ruling could help enlighten Montali's prediction on how the state Supreme Court would resolve this question.

PG&E has acknowledged its equipment caused the fires in Northern California, except for the Tubbs fire, and has not admitted liability for any of them.

The utility previously estimated its exposure to liabilities at $30 billion. PG&E reached two settlements with public entities and insurers this year for the 2017 and 2018 fires.

PG&E has until June 30 to get out of bankruptcy in order to dip into the $21.5 billion wildfire insurance fund established by Assembly Bill 1054, enacted in July to help utilities offset some wildfire liabilities.

Utilities have agreed to pay $10.5 billion into the fund. PG&E previously said it would contribute $4.8 billion, and $193 million annually thereafter.

A portion of PG&E's estimation proceedings will be handled in San Francisco Superior Court in connection with the Tubbs Fire litigation, and another portion of the estimation is being handled by U.S. District Judge James Donato. In re PG&E Corp., 3:19-CV-05257 (N.D. Cal., filed Aug. 22, 2019).

Donato's case primarily deals with claims of personal injury, wrongful death and property damage apart from those arising solely under inverse condemnation.

The Tubbs Fire trial is set to commence January. Estimation for wildfire claims is scheduled to begin February.