Brandon & Brooks v. Ar Western Gas

• Decision Date: 05 December 2001
• Docket Number: 00-1074
• Citation: 61 S.W.3d 193
• Parties: ROBERT D. BRANDON and CARL L. BROOKS, APPELLANTS V. ARKANSAS WESTERN GAS AFFIRMED COMPANY, APPELLEE CA00-1074 Arkansas Court Of Appeals, DIVISIONS I and II 5 December 2001 AN APPEAL FROM THE ARKANSAS PUBLIC SERVICE COMMISSION Andree Layton Roaf, Judge. This is the second appeal to this court of an order of the Public Service Commission in this proceeding,, which was filed by gas customers in Fayetteville seeking refunds. The controlling question in this appeal is whether the Commission erred in holding that a previous settlement agreement entered in a separate proceeding was res judicata and barred this claim for refunds. We affirm the Commission's decision. Procedural History In 1978, appellee Arkansas Western Gas Company (hereafter "AWG") entered into a long-term contract (Contract 59) to purchase gas from a sister corporation, SEECO, Inc. AWG and SEECO are subsidiaries of Southwestern Energy Company; the same individual served as the chief executive officer for all three companies. In 1990, AWG filed an application with the Commission for approval of a general change in its rates and tariffs. The Commission approved the overall revenue requirement and associated tariffs but expressed concern about AWG's gas-purchasing practices, its transactions with SEECO, its allocation of gas costs, and its transportation practices. The Commission then established a proceeding on
• Court: Arkansas Court of Appeals

ROBERT D. BRANDON and CARL L. BROOKS, APPELLANTS

V.

ARKANSAS WESTERN GAS AFFIRMED COMPANY, APPELLEE

CA00-1074

Arkansas Court Of Appeals, DIVISIONS I and II

5 December 2001

AN APPEAL FROM THE ARKANSAS PUBLIC SERVICE COMMISSION

Andree Layton Roaf, Judge.

This is the second appeal to this court of an order of the Public Service Commission in this proceeding, Docket No. 93-344-C, which was filed by gas customers in Fayetteville seeking refunds. The controlling question in this appeal is whether the Commission erred in holding that a previous settlement agreement entered in a separate proceeding was res judicata and barred this claim for refunds. We affirm the Commission's decision.

Procedural History

In 1978, appellee Arkansas Western Gas Company (hereafter "AWG") entered into a long-term contract (Contract 59) to purchase gas from a sister corporation, SEECO, Inc. AWG and SEECO are subsidiaries of Southwestern Energy Company; the same individual served as the chief executive officer for all three companies. In 1990, AWG filed an application with the Commission for approval of a general change in its rates and tariffs. The Commission approved the overall revenue requirement and associated tariffs but expressed concern about AWG's gas-purchasing practices, its transactions with SEECO, its allocation of gas costs, and its transportation practices. The Commission then established a proceeding on February 14, 1992, to address these issues, Docket No. 92-028-U, in Order No. 1, which initiated that docket. In Order No. 41 in Docket No. 92-028-U, the Commission found on November 29, 1993, that the relationship between SEECO and AWG was fraught with conflicts of interest and that the price paid by AWG under Contract 59 was in violation of Ark. Code Ann. 23-15-103 (1987), the least-cost-gas-purchasing statute. On October 31, 1994, the parties to Docket No. 92-028-U, AWG, SEECO, the Commission's Staff, the Arkansas Attorney General, through his Consumer Utilities Rate Advocacy Division, and Northwest Arkansas Gas Consumers (hereafter "NWAGC"), entered into a stipulation and agreement amending Contract 59 to reflect the Commission's findings in Order No. 41. The settlement agreement specifically provided that "[t]he parties to this Stipulation and Agreement agree not to seek refunds of costs incurred by AWG under Contract 59 prior to July 1, 1994." After a public hearing on the settlement, the Commission approved the settlement agreement in Order No. 52 on January 5, 1995, and closed that docket in Order No. 53.

While Docket No. 92-028-U was still pending, on December 3, 1993, five days after the entry of Order No. 41, appellants Robert Brandon and Carl Brooks, on behalf of themselves and "all ratepayers similarly situated," filed a complaint in Docket No. 93-344-C with the Commission. Appellants did not intervene in Docket No. 92-028-U. In their complaint, appellants requested that the Commission order AWG to refund to its Arkansas ratepayers the rates that it had collected under Contract 59 with its sister company, SEECO, in violation of the least-cost-gas-purchasing statute. Appellants noted that, in an ongoing proceeding, Docket No. 92-028-U, the Commission had held (in Order No. 41) that the gas price charged by AWG violated section 23-15-103's requirement that it purchase gas from the lowest and most advantageous market and that no request for a refund had yet been made in that proceeding. Appellants requested that the Commission order AWG to refund an amount equal to $14 million per year since 1978 and award them their costs and attorney's fees under the common-fund doctrine.

In its answer, AWG stated that the Commission had previously determined that it would be inappropriate to make refunds regarding Contract 59 and raised the affirmative defense of res judicata. On December 23, 1993, AWG responded to a complaint by Georgia Brooks, Mark Pryor, and Claudia Williams to intervene in appellants' action. In its response, AWG asserted that "[t]he Commission has previously determined that it would be inappropriate to make refunds based on the Commission's findings regarding Contract 59" and again raised the affirmative defense of res judicata. In a July 18, 1997, response to a petition for intervention by Mid-Con Manufacturing, Inc., AWG stated that it would, in the near future, file a motion to dismiss the proceeding based on the stipulation and agreement entered in Docket No. 92-028-U nearly three years earlier in which the parties representing appellants' and the intervenors' interests had irrevocably waived the right to seek refunds. The Commission ordered Mid-Con's petition to be held in abeyance "pending further consideration...."

In Order No. 4, entered July 30, 1997, the Commission denied appellants permission to act on behalf of other unnamed ratepayers and held that it did not have the power to award appellants attorney's fees from a common fund created by Commission-ordered refunds. Appellants appealed from that order to this court. In Brandon v. Arkansas Public Service Commission, 67 Ark. App. 140, 992 S.W.2d 834 (1999), we reversed the Commission's decision on the class-action issue and affirmed its refusal to award attorney's fees to appellants. We held that the legislature's grant of authority to the Commission is clearly broad enough to allow it to hear a complaint brought as a class action. We reversed and remanded on that issue with directions to the Commission to determine whether appellants' action meets all of the prerequisites and necessary criteria as may be established by the Commission to qualify as a maintainable class action. We emphasized that we were not holding that the Commission must allow appellants' complaint to proceed as a class action and stressed that whether this action qualified for class certification was left to the broad discretion of the Commission. We found ourselves constrained by the statutory scheme and the holdings of the supreme court to hold that the Commission was without authority to award attorney's fees under the common-fund doctrine.

After this action was remanded in part to the Commission, AWG filed a motion for summary judgment, asserting that the October 31, 1994, stipulation and agreement approved by the Commission in Docket No. 92-028-U was res judicata and barred this proceeding for refunds. In support of its motion, AWG attached to its brief copies of the settlement agreement and Order Nos. 52 and 53 in Docket No. 92-028-U. According to AWG, the Attorney General represented appellants in Docket No. 92-028-U and appellants were bound by the settlement, to which he had agreed, that had been entered in that docket. See Ark. Code Ann. 23-4-305 (1987), which provides that the Attorney General represents "the state, its subdivisions and all classes of Arkansas utility rate payers." AWG asserted that, in Docket No. 92-028-U, the Commission had investigated facts back to 1978, received evidence from witnesses under trial-like procedures, found AWG to be in violation of the least-cost-gas-purchasing statute, and approved a settlement that compromised an alleged liability dating back to 1978. AWG pointed out that the Attorney General could have requested a refund on behalf of the ratepayers but did not; instead, he agreed to the settlement, which expressly provided that no refunds would be made.

In response, appellants argued that AWG had waived its defense of res judicata by failing to object to the fact that two proceedings had been concurrently pending on this cause of action and by failing to move for their consolidation. Appellants argued that, by failing to timely move for consolidation of the two pending actions, AWG waived any possible objection it might have had to the splitting of the cause of action.

In Order No. 5, the Commission held that appellants' complaint was barred by the principle of res judicata. The Commission found that Docket No. 92-028-U had been contested vigorously in good faith by all parties, including the Attorney General, who represented all ratepayers:

The parties, including the AG, agreed that there would be no refunds paid as a result of gas purchased from SEECO, Inc. under Contract 59. The AG made an informed and calculated decision to enter into the Settlement on behalf of AWG's ratepayers after exhaustive discovery and a thorough evaluation of the facts of the case. The class of plaintiffs which Complainants now purport to represent (and Complainants themselves) are bound by the terms of the Settlement and they cannot seek a refund indirect violation of the terms of the Settlement agreement which was negotiated by and entered into on their behalf by the AG. The ratepayers have already received a fair hearing before the Commission on the issue of AWG's gas purchases under Contract 59. Res judicata bars them from drawing the same controversy into issue a second time in an effort to undo the very settlement agreement the AG entered into on their behalf with AWG and which the AG considered to be "just and reasonable for all of AWG's ratepayers."

The Commission also found that, because appellants were barred from proceeding individually, they were not entitled to class certification.

In their petition for rehearing, appellants argued that the Commission had erred in failing to apply an exception to the principle of res judicata. They contended that AWG had waived its res judicata defense by failing to timely object to the splitting of the cause of action based on AWG's gas-purchasing policies. In Order No. 6, the Commission found appellants' application for rehearing to be without merit.

On appeal to this court, appellants admit that the Commission correctly expressed the principle of res judicata. They argue, however, that (1) AWG waived its objection to the splitting of the cause of action in two contemporaneous proceedings; (2) the Commission made the splitting of the cause of action necessary because it...