S. Cal. Gas Co. v. Superior Court of L. A. Cnty. (In re S. Cal. Gas Leak Cases)

• Decision Date: 15 December 2017
• Docket Number: B283606
• Court: California Court of Appeals Court of Appeals
• Parties: SOUTHERN CALIFORNIA GAS LEAK CASES Southern California Gas Company, Petitioner, v. The Superior Court of Los Angeles County, Respondent; First American Wholesale Lending Corporation et al., Real Parties in Interest.

18 Cal.App.5th 581

227 Cal.Rptr.3d 117

SOUTHERN CALIFORNIA GAS LEAK CASES

Southern California Gas Company, Petitioner,

v.The Superior Court of Los Angeles County, Respondent;

First American Wholesale Lending Corporation et al., Real Parties in Interest.

B283606

Court of Appeal, Second District, Division 5, California.

Filed December 15, 2017

Morgan, Lewis & Bockius, James J. Dragna, David L. Schrader, Los Angeles, Yarden A. Zwang-Weissman, for Petitioner.

No appearance for Respondent.

Baron & Budd and Roland Tellis, Encino; Boucher and Raymond P. Boucher, Woodland Hills; Lieff Cabraser Heimann & Bernstein and Robert J. Nelson, San Francisco, for Real Parties in Interest.

DUNNING, J.^*

Seven businesses (business plaintiffs) filed suit to recover damages for purely economic loss resulting from a massive natural gas leak at a Southern California Gas Company (SoCalGas) facility; they did not claim any injury to person or property. Although our Supreme Court long ago recognized plaintiffs may sue in negligence for economic loss alone Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16 ( Biakanja ), such recovery has been limited to situations where a transaction between the defendant and another was intended to directly affect the plaintiff (a third party), whose economic loss was a foreseeable consequence of the defendant's negligence. As business plaintiffs' complaint lacked allegations of personal injury, property damage, or the requisite transaction, SoCalGas filed a demurrer to the causes of action based on negligence.¹

Concluding there is some uncertainty in the law, respondent court held SoCalGas should "bear all costs its accident caused" and there is no bar to recovery for purely economic loss under negligence theories when the precipitating event is a mass tort. The demurrer was overruled and SoCalGas petitioned for extraordinary relief. We conclude as a matter of law SoCalGas did not owe a duty to prevent business plaintiffs' economic loss based on negligent conduct. Accordingly, we grant the petition for a peremptory writ of mandate.

FACTUAL AND PROCEDURAL BACKGROUND²

On October 23, 2015, SoCalGas discovered a natural gas leak at its Aliso Canyon Storage Facility (facility), located above Porter Ranch in Los Angeles. The gas leak spread an oily mist over nearby neighborhoods, damaging real and personal property. Residents and individuals who worked in the vicinity of the facility complained about odors and acute respiratory and central nervous system symptoms.

On November 19, 2015, in response to the complaints, the Los Angeles County Department of Public Health (Department) directed SoCalGas to offer temporary relocation to anyone living within a five-mile radius of the facility. The following month, the Los Angeles County Board of Education relocated students and staff at two Porter Ranch schools for the duration of the 2015-2016 school year.

On February 18, 2016, state officials confirmed SoCalGas permanently sealed the leak. On May 13, 2016, the Department issued a directive to SoCalGas to implement immediately a comprehensive remediation protocol for residences within a five-mile radius of the facility. Since October 2015, homeowners and realtors have been obligated to disclose to potential homebuyersand lessees the events related to the gas leak.

The gas leak and the resulting relocation of approximately 15,000 Porter Ranch residents took an enormous toll on the local economy. On behalf of businesses located within a five-mile radius of the leak, seven named plaintiffs³ initiated a putative class action against SoCalGas for (1) strict liability for ultrahazardous activity, (2) negligence, (3) negligent interference with prospective economic advantage, and (4) violations of the UCL.⁴ Business plaintiffs claimed no injury to person or property. Instead, they alleged the gas leak and subsequent relocation of Porter Ranch residents caused crushing economic loss to their businesses.

SoCalGas filed a demurrer, asserting it owed no duty of care to business plaintiffs under any of the alleged negligence theories—strict liability, negligence, and negligent interference with prospective economic advantage. Relying on J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60 ( J'Aire ), SoCalGas's principal argument was the pleading fell short because it did not include allegations of a transaction, as required by Supreme Court authority, to establish a special relationship sufficient to impose a duty on SoCalGas. Business plaintiffs opposed the demurrer, asserting J'Aire did not apply or, to the extent that authority did apply, they sufficiently pleaded the existence of a J'Aire "special relationship."

Respondent court advised the parties its tentative decision was to overrule the demurrer. In a comprehensive discussion, the court concluded SoCalGas owed a duty to business plaintiffs and they could proceed with their action: "The economic loss rule thus does not apply in a context like this one: a classic mass tort action where high transactions costs precluded transactions, where the risk of harm was foreseeable and was closely connected with [SoCalGas's] conduct, where damages were not wholly speculative, and where the injury was not part of the plaintiff's ordinary business risk. ( J'Aire, supra , 24 Cal.3d [at p.] 808 [157 Cal.Rptr. 407, 598 P.2d 60].)" After the hearing, respondent court adopted the tentative ruling as its decision.

Respondent court certified the ruling for appellate review. ( Code Civ. Proc., § 166.1.) SoCalGas petitioned for a writ of mandate in this court and business plaintiffs filed a preliminary opposition. We issued an alternative writ directing respondent court to vacate its order overruling the demurrer or to show cause before this court why the relief sought in the petition should not be granted. The respondent court elected not to comply with the alternative writ. Business plaintiffs subsequently filed a return and SoCalGas filed a reply.

DISCUSSION

I. Review by Extraordinary Writ

Despite respondent court's certification of its ruling for immediate appellate review and business plaintiffs' decision not to seek leave to further amend their pleading, the dissent urges this court to follow the general rule and deny writ relief on the basis SoCalGas has an adequate remedy by way of appeal should it fail to succeed on the merits. (See, e.g., San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893, 913, 55 Cal.Rptr.2d 724, 920 P.2d 669 ( San Diego Gas .) However, San Diego Gas articulated three exceptions to the general rule: (1) "when the demurrer raises an important question of subject-matter jurisdiction"; (2) when granting writ relief "will prevent ‘needless and expensive trial and reversal’ "; and (3) "when the issue presented is ‘of widespread interest.’ " ( Ibid . ; id at p. 913, fn. 17, 55 Cal.Rptr.2d 724, 920 P.2d 669 ; see also City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747, 68 Cal.Rptr.3d 295, 171 P.3d 20 ( City of Stockton ) [extraordinary writ relief where "[a] significant legal issue is presented, and the benefits of [a] defense would be effectively lost if defendants were forced to go to trial"].)

This case falls within the latter two recognized San Diego Gas exceptions. The legal issue here—the existence of a duty of care—is significant and of widespread interest. Resolution of the duty issue as to business plaintiffs at this stage also will prevent expensive and time-consuming litigation. Although the demurrer did not attack the UCL cause of action, it was directed to all causes of action where business plaintiffs would have the right to a jury trial and damages would be the primary remedy. In this regard, the conclusion by business plaintiffs that there is "a question of pleading that requires further factual development before it can be properly reviewed" rings hollow. Business plaintiffs failed to suggest any facts that need to—or even could—be further developed.

II. Standard of Review

Extraordinary writ review of an order overruling a demurrer is governed by "the ordinary standards of demurrer review...." ( City of Stockton, supra, 42 Cal.4th at p. 747, 68 Cal.Rptr.3d 295, 171 P.3d 20.) We independently review the complaint and all matters we are entitled to judicially notice to determine "whether, as a matter of law, the complaint states facts sufficient to state a cause of action. [Citations.] We view a demurrer as admitting all material facts properly pleaded but not contentions, deductions, or conclusions of fact or law." ( Lin, supra, 232 Cal.App.4th at pp. 700-701, 181 Cal.Rptr.3d 674.) If the complaint is insufficient, but there "is a reasonable possibility that the defect can be cured by amendment," plaintiff is entitled to have the opportunity to amend. ( Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ( Centinela ), internal quotation marks omitted.)

III. Duty to Protect Third Parties From Purely Economic Loss in a Negligence Action

A. Applicable Law

The existence of a duty to use due care is "[t]he threshold element of a cause of action for negligence." ( Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397, 11 Cal.Rptr.2d 51, 834 P.2d 745 ( Bily ); see also Centinela, supra, 1 Cal.5th at p. 1012, 209 Cal.Rptr.3d 280, 382 P.3d 1116.) Generally, a defendant owes no duty to prevent purely economic loss to third parties under any negligence theory. ( Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58, 77 Cal.Rptr.2d 709, 960 P.2d 513 ( Quelimane ) ["Recognition of a duty to manage business affairs so as to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law. Privity of contract is no longer necessary ... [but] public policy may dictate the existence of a duty to third parties"].) As the Supreme Court reaffirmed in Centinela,...