Southern California Gas v. City of Santa Ana

• Decision Date: 08 May 2002
• Docket Number: No. 02CV00658.,02CV00658.
• Parties: SOUTHERN CALIFORNIA GAS Company, Plaintiff, v. CITY OF SANTA ANA, Defendant.
• Court: U.S. District Court — Central District of California

202 F.Supp.2d 1129

SOUTHERN CALIFORNIA GAS Company, Plaintiff, v. CITY OF SANTA ANA, Defendant.

No. 02CV00658.

United States District Court, C.D. California.

May 8, 2002.

Robert E. Cooper, David A. Battaglia, Gibson Dunn & Crutcher, Los Angeles, CA, for Plaintiff.

Benjamin S. Kaufman, Joseph W. Fletcher, Santa Ana City Attorney Office, Santa Ana, CA, for Defendant.

MEMORANDUM AND ORDER RE: MOTION TO DISMISS & MOTION FOR PARTIAL SUMMARY JUDGMENT

KING, District Judge.

This matter is before the court on the above-titled motions. After fully considering the parties' papers and oral argument on April 22, 2002, we rule as follows:

I. Background

In 1938, the City of Santa Ana ("Santa Ana") adopted an ordinance granting the Southern California Gas Company¹ ("Gas Company") the right to construct and maintain "pipes and appurtenances" under city streets. See Santa Ana, Cal., Ordinance No. 1061 (March 21, 1938) ("1938 Franchise") § 1(f) (defining "pipes and appurtenances" to include anything "located or to be located ... under ... the streets of the City") & § 2 ("to lay and use pipes and appurtenances ... under ... the streets").² In exchange, the Gas Company pays Santa Ana a percentage of its gross annual receipts. Id. § 3.

The Gas Company, "where practicable and economically reasonable shall" lay pipe "by a tunnel or bore, so as not to disturb the foundation" of city streets. Id. § 9, at ¶ 2. If, on the other hand, the Gas Company performs trench work or excavations, it must do so "under a permit to be granted by the Engineer upon application therefor." Id. If "any portion of any street" is damaged, the Gas Company "shall, at its own cost and expense, immediately repair any such damage and restore such street, or portion of street, to as good a condition as existed before such defect or other cause of damage occurred, such work to be done under the direction of the Engineer, and to his reasonable satisfaction." Id. § 10. Santa Ana can demand the Gas Company adequately and timely repair streets or forfeit the franchise. Id. § 11.

In general, the Gas Company's rights under the 1938 Franchise are subject to "all of the ordinances, rules and regulations heretofore or hereafter adopted by the legislative body of the City in the exercise of its police powers...." Id. § 8(a). Santa Ana may also "demand[] the cost of all repairs to public property made necessary by any operations of" the Gas Company. Id. § 8(b).

In October 2001, Santa Ana adopted a resolution and ordinance, which are the subject of this action. Santa Ana, Cal., Resolution No.2001-063 (October 1, 2001) & Ordinance No. NS-2480 (October 15, 2001) (hereinafter collectively the "trench cut ordinance"). With certain exceptions, the trench cut ordinance requires advance payment by anyone wishing to perform excavations or trench cuts. The Gas Company contends the trench cut ordinance: (1) substantially impairs its rights under the 1938 Franchise in violation of the Contract Clause, (2) constitutes an uncompensated taking in violation of the Fifth and Fourteenth Amendments, and (3) is arbitrary and capricious in contravention of the Fourteenth Amendment's substantive due process clause.³

II. Procedural Posture

Santa Ana moves to dismiss the Gas Company's federal claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Gas Company seeks partial summary judgment on the Contract Clause claim pursuant to Rule 56. While we normally consider motions to dismiss first, the parties rely largely on the same evidence for both motions. In addition, the motion for partial summary judgment is potentially dispositive of this action. Pl.'s Mot. for Partial Sum.J. ("Pl.'s Mot."), p. 1 n. 1 (stipulating and moving to dismiss remaining claims without prejudice should its motion be granted). Therefore, we consider Plaintiff's motion first.

III. Summary Judgment Standard

Viewing the evidence in the light most favorable to Santa Ana, we must determine whether a dispute exists as to any material fact, and whether the Gas Company is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; see, e.g., Toscano v. Prof'l Golfers' Ass'n, 258 F.3d 978, 982 (9th Cir.2001). As the party with the burden of persuasion at trial, the Gas Company must establish "beyond controversy every essential element of its" Contract Clause claim. See, e.g., William W Schwarzer, et al., California Practice Guide: Federal Civil Procedure Before Trial § 14:124-127 (2001). Santa Ana can defeat summary judgment by demonstrating the evidence, taken as a whole, could lead a rational trier of fact to find in its favor. See, e.g., Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir.1998).

We may grant summary judgment motions touching upon contract interpretation when the agreement is unambiguous. See San Diego Gas & Elec. Co. v. Canadian Hunter Mktg. Ltd., 132 F.3d 1303, 1307 (9th Cir.1997). Ambiguity is a question of law for the court. Maffei v. N. Ins. Co. of N.Y., 12 F.3d 892, 898 (9th Cir.1993). While we ordinarily hesitate to grant summary judgment when a contract is ambiguous, there is no "rigid rule prohibiting reference to extrinsic evidence in resolving a contractual ambiguity on a summary judgment motion." San Diego Gas & Elec. Co., 132 F.3d at 1307. We may still consider whether, construing the evidence in the nonmovant's favor, the ambiguity can be resolved consistent with the nonmovant's position. Id.

A party opposing summary judgment must direct our attention to specific, triable facts. See Cal. Practice Guide: Federal Civil Procedure Before Trial § 14:101.1, at 14-24.2. General references without page or line numbers are not sufficiently specific. Id. (citing Nissho-Iwai Am. Corp. v. Kline, 845 F.2d 1300, 1307 (5th Cir.1988)); see also Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir.2001) (citing similar holdings in the Fifth, Sixth, Seventh, and Tenth Circuits); Forsberg v. Pac. Northwest Bell Tel. Co., 840 F.2d 1409, 1418 (9th Cir.1988) ("The district judge is not required to comb the record to find some reason to deny a motion for summary judgment.").

IV. Contract Clause Analysis

"No State shall ... pass any ... law impairing the Obligation of Contracts." U.S. Const. art. I, § 10. Though written in absolute terms, the Supreme Court narrowly construes the Contract Clause to ensure that local governments can effectively exercise their police powers. Seltzer v. Cochrane, 104 F.3d 234, 235 (9th Cir. 1996). State governmental entities "must possess broad power to adopt general regulatory measures without being concerned that private contracts will be impaired, or even destroyed, as a result." United States Trust Co. v. New Jersey, 431 U.S. 1, 22, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977) (hereafter "U.S. Trust"). However, a "higher level of scrutiny is required" when the legislative interference involves a public rather than a private obligation. Univ. of Haw. Prof'l Assembly v. Cayetano, 183 F.3d 1096, 1107 (9th Cir.1999).

A. Applicability

Federal law controls whether an agreement constitutes a contract for purposes of Contract Clause analysis. General Motors Corp. v. Romein, 503 U.S. 181, 187, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992); see also State of Nev. Employees Ass'n. Inc. v. Keating, 903 F.2d 1223, 1227 (9th Cir.1990). Here, the parties agree the 1938 Franchise is a "contract" for purposes of Contract Clause analysis. We concur because it embodies a bargain between Santa Ana and the Gas Company. See U.S. Trust, 431 U.S. at 17-18, 97 S.Ct. 1505. Furthermore, the parties agree, and we also conclude, that the Gas Company's claim is properly analyzed under the Contract Clause, rather than as a common breach of contract. See Cayetano, 183 F.3d at 1102-04. Rather than merely resolving a dispute about whether Santa Ana has fulfilled its obligations under the 1938 Franchise, we must determine whether the trench cut ordinance prevents or materially limits the Gas Company's ability to exercise contractual rights. Id.

B. General Standard

To violate the Contract Clause, the trench cut ordinance must substantially impair the 1938 Franchise. Id. at 1101. In that event, the ordinance can nevertheless survive scrutiny if the impairment "was `both reasonable and necessary to fulfill an important public purpose,' such that the impairment is justifiable." Id. at 1106 (quoting Seltzer, 104 F.3d at 236).

1. Substantial Impairment

The Gas Company first argues that the trench cut ordinance substantially impairs the 1938 Franchise because it "doublecharges" the Gas Company for rights already granted by the franchise. Pl.'s Mot., p. 12. Second, the trench cut ordinance circumvents the "specific method" in the 1938 Franchise for demanding repairs; it imposes a fee before excavation, before proving actual damage, and without considering the quality of the repairs. Id. In opposition, Santa Ana argues the trench cut ordinance does not impair the 1938 Franchise because the parties anticipated future regulation and provided for such fees in the 1938 Franchise. See, e.g., Def.'s Opp'n to Pl.'s Mot. for Partial Sum. J., ("Def.'s Opp'n"), pp. 9, 12-14.⁴ Additionally, even if the ordinance impairs the 1938 Franchise, such impairment is not substantial.

To rise to the level of substantial impairment, the trench cut ordinance need not totally destroy the Gas Company's franchise rights. See U.S. Trust, 431 U.S. at 27, 97 S.Ct. 1505. An impairment of a public contract is substantial if it deprives a private party of an important right, see id., thwarts performance of an essential term, Cont'l Ill. Nat'l Bank & Trust Co. v. Washington, 696 F.2d 692, 700 (9th Cir. 1983), defeats the expectations of the parties, id., or alters a financial term, see Cayetano, 183 F.3d at 1104; U.S. Trust, 431 U.S. at 25 n. 23, 97 S.Ct. 1505.

When assessing substantial impairment, we need not resolve the "question of valuation" in terms of dollars if an important financial provision is impaired. See U.S....