Judge won’t drop SoCalGas parent company from gas leak litigation

The parent company of a gas utility sued over a well blowout in northwest San Fernando Valley five years ago must remain a defendant in the litigation for now, a Los Angeles County judge tentatively ruled Thursday.

Sempra Energy owns the subsidiary Southern California Gas Co., which is facing thousands of lawsuits filed by more than 200 law firms. The plaintiffs allege that continual chemical emissions following the October 2015 gas leak at its Aliso Canyon storage facility near the Porter Ranch neighborhood caused residents to fall ill and diminished their property values. The facility belongs to SoCalGas. Southern California Gas leak cases, JCCP 4861.

Sempra moved for summary judgment, attempting to remove itself from any of the three liabilities asserted by plaintiffs: alter ego, principal agency and direct liability. Sempra argued that SoCalGas has been operating as its own company since 1910, and that both maintain separate corporate identities. The parent company denied any direct liability for any of its subsidiaries' acts or omissions.

Los Angeles County Judge Daniel J. Buckley, who took over the case earlier this year from Judge Carolyn B. Kuhl, wrote in his tentative ruling Wednesday, "Both sides have presented ample evidence cutting for and against alter ego liability." Sempra created its own department to "ensure arms-length transactions between Sempra and SoCalGas," Buckley wrote. "On the other hand, plaintiffs have submitted substantial evidence that Sempra wholly owns SoCalGas."

Following oral arguments Thursday, Buckley indicated he would stick with his tentative ruling, with a few minor tweaks that will be added to a final order expected in a few weeks.

The plaintiffs presented records to show that Sempra, acting through its chief executive officer, controlled many decisions by SoCalGas, including overseeing its leak-response efforts, Buckley found.

"Moreover, if plaintiffs' evidence bears out, there is a possibility that a reasonable factfinder could determine that Sempra's knowledge, constructive or otherwise, of allegedly decades-long safety issues at Aliso Canyon, coupled with its failure to remedy those concerns while representing, implicitly or otherwise, to the CPUC or others that everything was fine, constitutes an inequitable result that justifies piercing the corporate veil," Buckley wrote.

Representatives for Sempra Energy could not be reached for comment Thursday.

The two companies merged in the late 1990s with approval from the California Public Utilities Commission. That approval was subject to conditions aimed at ensuring corporate separateness and financial stability of SoCalGas. SoCalGas conducts its own shareholder meetings, keeps its own financial records and maintains its own bank accounts, Sempra argued. Sempra isn't responsible for any daily operations and maintenance at any of its facilities, including Aliso Canyon, the utility said.

Attorneys with Kirkland & Ellis who serve as liaison counsel for developer plaintiffs contended in their opposition, joined by all other private plaintiffs in the case, that Sempra wholly owned SoCalGas. Prior to the blowout, Sempra was aware of the need for increased spending for storage integrity and instead devoted the cash to new turbines to expand storage capacity, the plaintiffs argued. Executives also told SoCalGas to issue public announcements and other communications about the incident, the opposition alleges. There is enough to pursue alter ego liability against Sempra, the plaintiffs said, as there are intermingled records, finances, overlapping employees and board members between the two.

"Sempra was instrumental in causing the blowout. For years, Sempra managed Southern California Gas Company's risk assessment, regulatory and environmental compliance, and capital expenditures," wrote Mark C. Holscher of Kirkland & Ellis. "It knew full well that SoCalGas' aging wells posed a grave threat to the Porter Ranch community and it knew how to fix them, yet Sempra took no steps and committed no funds to do so."

Because Sempra moved for summary judgment on the entire action and did not ask for any single issue or cause of action to be adjudicated separately, Buckley wrote he did not address the other two theories of liability since Sempra's motion must be denied at any event.

Sempra's motion cannot be a substitute for a trial, Buckley also wrote, but he did say he will consider resolving the alter ego issue prior to trial.

"That bench trial could take place while we deal with social distancing and Covid," the judge concluded.

Sempra is represented by attorneys with Morgan Lewis & Bockius LLP. Panish Shea & Boyle LLP is the lead trial counsel for plaintiffs. Parris Law firm attorneys are on the plaintiffs' steering committee, and Kiesel Law serves as liaison counsel for private plaintiffs.

Jesse Creed of Panish Shea & Boyle LLP said Thursday that Buckley's decision "clearly exposed the improper relationship between Sempra and SoCalGas." Creed said the company's auditor discovered before the blowout that the utility regulators ordered Sempra and SoCalGas to remain separate, which he said the companies did not heed.

"That level of indifference never changed," Creed said.