DiFranco v. First Energy

• Court: Ohio Court of Appeals
• Writing for the Court: TIMOTHY P. CANNON
• Citation: DiFranco v. First Energy, 969 N.E.2d 1241, 2011 -Ohio- 5434 (Ohio App. 2011)
• Decision Date: 21 October 2011
• Docket Number: No. 2010–G–2990.,2010–G–2990.
• Parties: DiFRANCO et al., Appellants, v. FIRST ENERGY et al., Appellees.

969 N.E.2d 1241

2011 -Ohio- 5434

DiFRANCO et al., Appellants,

v.FIRST ENERGY et al., Appellees.

No. 2010–G–2990.

Court of Appeals of Ohio, Eleventh District, Geauga County.

Decided Oct. 21, 2011.

Grendell & Simon Co., L.P.A., and Timothy J. Grendell, Chardon; and Michael E. Gilb, for appellants.

Jones Day, David A. Kutik, Jeffrey W. Saks, Cleveland, Douglas R. Cole, and Grant W. Garber, Columbus, for appellees.

TIMOTHY P. CANNON, Presiding Judge.

{¶ 1} Appellants, Carl DiFranco and other named residents of northeast Ohio, appeal the judgment of the Geauga County Court of Common Pleas dismissing their complaint for declaratory and other relief against appellees, First Energy, Cleveland Electric Illuminating Company, and Ohio Edison Company (“the companies”), for lack of subject matter jurisdiction. At issue is whether appellants' complaint represents a challenge to the rate they were charged by the companies for electrical service and is therefore within the exclusive jurisdiction of the Public Utilities Commission of Ohio (“PUCO”). For the reasons that follow, we affirm in part, reverse in part, and remand.

{¶ 2} Appellants filed this action against the companies, which are public utilities providing electricity in Ohio. Appellants alleged that they represent a class of similarly situated individuals and requested class action status for their lawsuit.

{¶ 3} In their complaint, appellants, who are residential customers of the companies, alleged that during the last 40 years, the companies established the “all-electric program” with the approval of the PUCO. Pursuant to this program, the companies offered to charge them a discounted rate for electricity if they purchased all-electric homes or equipped their homes with all-electric heating systems and appliances. Appellants alleged that the companies promised to provide this discounted rate to them permanently as long as they continued to maintain all-electric appliances in their homes, even if the PUCO eliminated the discounted rate. Appellants alleged that in exchange for this promise, they purchased all-electric homes or electric heating systems and other appliances, instead of natural gas or oil-operated appliances. Appellants alleged that the companiesprovided this discounted rate to them until May 2009, when the discount was terminated. Appellants alleged that due to the discontinuation of the reduced rate, they have been damaged in that they are now required to pay a higher rate for electricity charged to other customers.

{¶ 4} In their four-count complaint, appellants asserted claims for (1) declaratory judgment, based on the parties' alleged contract, to require the companies to continue to charge appellants the discounted rate for electrical service they paid prior to May 2009 and to require the companies to refund all excess charges appellants paid; (2) breach of contract, as a result of the companies' termination of the discount program; (3) fraud, for inducing appellants to purchase electrical heating systems by misrepresenting they would permanently be provided with discounted rates; and (4) an injunction, based on appellees' alleged breach of contract and fraud, to prevent the companies from charging appellants more than the discounted rate.

{¶ 5} In response, the companies filed a motion to dismiss the complaint for lack of subject matter jurisdiction, pursuant to Civ.R. 12(B)(1). They argued that this case is within the exclusive jurisdiction of the PUCO because, in effect, it represents a challenge to the rate charged by utilities, which the PUCO has exclusive jurisdiction to address.

{¶ 6} In their brief in opposition, appellants argued that the PUCO does not have jurisdiction of their claims. They argued that this case does not represent a challenge to the rate charged by the companies, but rather presents a “pure contract” claim and a “pure tort” claim, which are not within the PUCO's jurisdiction. In support of their contract claim, appellants argued that the companies breached their promise to charge appellants the discounted rate. In support of their tort claim, they maintained that the companies fraudulently induced them to enter the all-electric program by misrepresenting the rate appellants would be charged.

{¶ 7} The factual history that follows is derived from the evidentiary materials submitted by the parties in their filings concerning the companies' motion to dismiss, including various rate schedules approved by the PUCO and orders entered by that agency. Beginning in the early 1970s, the PUCO approved discounted rates for electricity for residential customers using electricity as their sole source of energy. These rates remained in effect until the end of 2008.

{¶ 8} In 2008, the General Assembly enacted Senate Bill 221, which established a statewide policy encouraging energy efficiency and conservation. Because the discount to all-electric users in effect for some 40 years encouraged increased usage by charging a lower rate for electricity, the companies determined that the discount conflicted with this change in state policy. As a result, in January 2009, the companies filed, and the PUCO approved, a tariff that consolidated the different residential rates then in effect, including the all-electric rate, into one residential rate, beginning in May 2009. The effect of that request was to terminate the discounted rate for all-electric users and to require those users to pay the same rate charged to the companies' other customers. At the same time, the companies requested, and the PUCO approved, credits to the all-electric customers in order to mitigate the impact on these customers of this consolidation. Thus, while the PUCO approved the rate structure that eliminated the all-electric discount, these customers continued to receive discounts.

{¶ 9} However, despite the continued discounts provided to the all-electric users, during the winter of 2009–2010, several of these customers complained about increases in their bills. In response to these complaints, on February 12, 2010, the companies filed an application for approval of new tariffs with the PUCO, case No. 10–176–EL–ATA (“the PUCO case”), aimed at limiting the amount of bill increases for their all-electric customers. Four days later, on February 16, 2010, appellants filed their complaint in the trial court.

{¶ 10} On March 3, 2010, the PUCO entered a finding and order in the PUCO case, in which it found that “until such time as the [PUCO] determines the best long-term solution to this issue, rate relief should be given to the all-electric residential customers.” To that end, the PUCO ordered the companies to file tariffs for these customers that would provide bill impacts commensurate with the companies' December 31, 2008 charges for them prior to the elimination of the discount. The companies responded to the PUCO's order on March 17, 2010, by filing new tariffs designed to restore the discounts. It is undisputed that the all-electric customers are now receiving a discount that is the same as or greater than the discount that existed in December 2008, before the discount was terminated.

{¶ 11} On September 7, 2010, the trial court in a detailed, seven-page judgment entry granted the companies' motion to dismiss. The court noted that pursuant to R.C. 4905.26, the PUCO has exclusive jurisdiction to determine cases against public utilities, such as the companies, claiming that any rate or charge “is in any respect, unjust, unreasonable, * * * or in violation of law.” The court further noted that while the PUCO's jurisdiction is broad and extensive, claims characterized as pure contract or pure tort, which have nothing to do with rates or service, are excluded from the PUCO's jurisdiction. After describing the tests adopted by the Supreme Court of Ohio to determine whether a claim is a pure contract or a pure tort claim, the trial court found:

{¶ 12} “The dispute between the Companies and the plaintiffs is over the rate increases. There is no separate rate ‘contract’ between the utility and the plaintiffs. The contract is set by the tariff, not by agreement. The rate of a public utility is determined by PUCO, not by bargaining between the utility and customers.”

{¶ 13} Finally, the court noted that by its ruling, appellants were not left without a remedy because their claims can be determined by the PUCO and the Supreme Court of Ohio, which has jurisdiction to review decisions of the PUCO.

{¶ 14} Subsequent to the trial court's ruling, the PUCO, in its November 10, 2010 fifth order on rehearing entered in the PUCO case, stated that it agreed with the trial court's finding that the PUCO has jurisdiction over appellants' claims that they were promised rates that are in violation of PUCO-approved tariffs or that were not authorized by the PUCO. The PUCO stated it will exercise jurisdiction over the companies' rates and marketing practices and that the parties may conduct discovery regarding these issues and present evidence at upcoming hearings. In October and November 2010, the PUCO held six public hearings regarding the all-electric rates.

{¶ 15} Appellants appeal the trial court's judgment, asserting four assignments of error. Because appellants' first and fourth assigned errors are related, we shall consider them together. They allege:

{¶ 16} “[1.] The common pleas court erred when it ruled that it lacked jurisdiction to adjudicate homeowners' breach of contract and tort claims against First Energy based on First Energy's unilateral breach of First Energy's promises, covenants and representations that in consideration of homeowners' agreement to purchase or maintain all-electric homes, homeowners would be included in First Energy's all-electric home discount program.

{¶ 17} “[4.] The lower court erred by ruling that homeowners' claims based on First Energy's breach of its pre-delivery promises and reliance or promissory estoppel are not pure contract...