Eminent Domain Report

On August 30, 2012, the Second Appellate District of the California Court of Appeal held that a privately owned utility could be subject to strict liability for inverse condemnation, thereby concurring with a similar holding previously reached out of the Fourth Appellate District.

A typical inverse condemnation action is initiated when a property owner files a complaint essentially asserting that a government agency is trying to take its property without filing a formal eminent domain action.  Typical inverse condemnation claims involve situations where a government agency places overly restrictive conditions on the property, or impairs access to the property, or interferes with the stability of the property.  In these cases, if the property owner can demonstrate a taking, the government agency is generally strictly liable for the damage.  Strict liability roughly means that the government agency will be held accountable for the resulting damages regardless of its intentions or level of fault.  In the Second Appellate District's recent decision, however, the Court of Appeal was presented with a bit of a twist on the typical scenario, as the property owner alleged an inverse claim against a private company, not a traditional governmental agency.  As a result, the Court of Appeal was forced to grapple with whether the typical rules still applied.  

In Pacific Bell Telephone Company v. Southern California Edison Company, despite installing bird guards intended to prevent contact with live wires and components, a bird simultaneously contacted a live wire and ground equipment, thereby killing the bird and sending an electrical charge through all trenched equipment and cable located in the immediate vicinity.  The trenched equipment included Pacific Bell's telephone cable, which was not designed to withstand such ground faults despite full knowledge of this risk.  As such, the telephone cable was fried.  Pacific Bell filed an action for negligence and inverse condemnation seeking to recover for the damage to the telephone cable.  The trial court, relying heavily on the Fourth Appellate District's opinion in Barnham v. Southern California Edison Co. (1999) 74 Cal.App.4th 744, held that Edison was strictly liable in inverse condemnation for the damage to the telephone cable. 

On Appeal, Edison essentially reargued its position from the lower court.  Specifically, (1) Barnham is contrary to California Supreme Court precedent and a private utility cannot be liable for inverse condemnation in two very limited circumstances (neither of which would apply to the facts in this case), and (2) even if a private utility can be held liable, courts must apply a reasonableness standard.  The Court of Appeal rejected the first contention, finding "Edison's monopolistic or quasi-monopolistic authority," which it "deriv[ed] directly from its exclusive franchise provided by the state" to be the determinative factor.  As for the second contention, the Court of Appeal found that there was no justification for extending the reasonableness standard beyond the flood control context, and therefore Edison was subject to a strict liability standard.  Accordingly, the Court of Appeal affirmed the decision of the lower court.

Although the Court of Appeal's decision appears to be generally bad news for private utilities, the Court made a point of noting in its decision that Edison did not challenge on appeal the trial court's determination that the damage to Pacific Bell's property was "caused by a public improvement as deliberately designed and constructed, and that the property was damaged for a public use."  As such, there does appear to be some room for further argument on the issue.