New Cert Petition: Fifth Amendment Requires California To Spread The Cost Of Wildfire Inverse Condemnations To Ratepayers

Remember that Christopher Nolan movie from a few years ago, "Inception," with its dream-within-a-dream storyline?

Well, that's what a recently-filed cert petition which asks the U.S. Supreme Court to jump into California's inverse-condemnation-liability-for-wildfires issue reminds us of with its taking-within-a-taking argument, as detailed in the Question Presented:

Whether it is an uncompensated taking for public use in violation of the Fifth and Fourteenth Amendments for a State to impose strict liability for inverse condemnation on a privately owned utility without ensuring that the cost of that liability is spread to the benefitted ratepayers.

Let's see if we are keeping the argument straight: it's a taking to hold a private entity which possesses the delegated power of eminent domain liable for a taking for burning down private property unless the utility is also entitled to pass the cost of any taking judgment on to those who benefit from the utility's services. Like Inception, there's a lot to unpack there.

Under California law, a utility company with the power of eminent domain (such as San Diego Gas & Electric) can be liable under an inverse condemnation theory if it can be shown that "any actual physical injury to real property" was "proximately caused by [a public] improvement as deliberately designed and constructed" by the utility, whether or not foreseeable. Two California intermediate appellate courts have applied that general rule to wildfires, even though California's Supreme Court has not.

The petition is premised on what we call the "Armstrong" principle because the case everyone cites for it is Armstrong v. United States, 364 U.S. 40, 49 (1960), where the Court held, "[t]he Fifth Amendment's guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."

Applying that principle in cases where the inverse condemnor is the government itself (which has the taxation power) or a publicly-owned utility (which can raise rates without getting PUC permission), does not raise big questions because the "public" which pays for the taking, and the "public" which benefits from the taking are one and the same. But where the inverse condemnor is a "investor-owned utility," that dynamic seems different for a couple of reasons.

First, when government inversely takes property and the taxpayers have to pick up the tab, the net result is a wash: the same people who benefit are also the ones paying the judgment. But when it comes to a private utility, who is the "public as a whole," the utility's shareholders or its ratepayers? And to whom does the benefit from the taking flow? The Question Presented assumes that ratepayers alone are the ones benefited, but don't the utility's investor-shareholders also benefit from the taking?  

And that brings us to the second point: we've always viewed Armstrong as more about the the fairness to the owner whose property was taken (by not forcing them to shoulder the entirety of the economic impact of a public benefit), than it is about how and to whom the condemnor distributes the costs. Holding utilities which have the power of eminent domain under a takings theory liable when they invade and damage private property seems like one of the consequences of them wielding a sovereign government power. After all, when SDG&E affirmatively takes property by eminent domain, can it distribute the cost to its ratepayers without getting approval for a rate increase from the PUC? And if the PUC says no and the utility's shareholders have to eat it, does that mean the taking lacks a public use or benefit? It doesn't seem so (or at least we're not aware of any private utility backing off an exercise of delegated eminent domain power simply because shareholders pay for the taking). 

Follow the case on the Court's docket here. 

Petition for a Writ of Certiorari, San Diego Gas & Electric Co. v. Cal. Public Utilities Comm'n, No. 18-136...