N. Star Gas Co. v. Gas

NORTH STAR GAS COMPANY, Plaintiff, v. PACIFIC GAS AND ELECTRIC COMPANY, et al., Defendants.

Case No. 15-cv-02575-HSG

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

September 26, 2016

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO STAY AND/OR DISMISS; DENYING DEFENDANTS' MOTION FOR SANCTIONS; SETTING CASE MANAGEMENT CONFERENCE

Re: Dkt. Nos. 22, 32

Before the Court is Defendants Pacific Gas & Electric Company, Albert Torres, Bill Chen, and Tanisha Robinson's (together, "Defendants") motion to stay and/or dismiss the complaint filed by Plaintiff North Star Gas Company ("Plaintiff"). Dkt. No. 22 ("MTD"). Defendants seek to stay Plaintiff's federal law claims under the doctrine of primary jurisdiction and dismiss its state law claims under the doctrine of exclusive jurisdiction in favor of state agency proceedings before the California Public Utility Commission ("CPUC"). Alternatively, Defendants move to dismiss for failure to plead with particularity under Federal Rule of Civil Procedure 9(b) and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Plaintiff has filed an opposition, Dkt. No. 33 ("MTD Opp."), and Defendants have replied, Dkt. No. 36 ("MTD Reply"). At the Court's direction, the parties also filed supplemental briefing on Plaintiff's Sherman Act claim. Dkt. Nos. 49 ("Defs.' Supp.") and 50 ("Pl.'s Supp.").

Defendants have also filed a motion for sanctions against Plaintiff under Federal Rule of Civil Procedure 11 for asserting a purportedly frivolous claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1691, et seq. against Defendants Torres, Chen, and Robinson (together, "Individual Defendants"). Dkt. No. 32 ("SM"). Plaintiff has filed an opposition, Dkt. No. 38 ("SM Opp."), and Defendants have replied, Dkt. No. 39 ("SM Reply").

For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendants' motion to stay and/or dismiss, DENIES Defendants' motion for sanctions, and SETS an initial case management conference for October 11, 2016, at 2:00pm to discuss scheduling.

I. BACKGROUND

A. Factual Allegations

1. CPUC's Natural-Gas Utility Deregulation Program

Since 1905, PG&E has been a public utility monopolist in Northern California, providing natural gas and electricity service to retail customers. Compl. ¶¶ 2, 15, 22. In 1991, California partially deregulated the natural-gas utility market. Id. ¶ 24. As part of deregulation, CPUC, the California agency that regulates PG&E and the public utility markets, started a pilot program that gives residential and small commercial natural-gas utility customers, known as "core" customers, the option to aggregate their natural-gas utility purchasing and participate in a competitive natural gas market. Id. ¶¶ 16, 22, 25. The purpose of this pilot program is to allow these core customers to obtain lower gas prices and weaken PG&E's monopoly to promote competition. Id. ¶ 26.

To implement its deregulation program, CPUC first certifies privately-owned natural gas providers as "core transport agents," or CTAs. Id. ¶ 25. These CTAs are then allowed to compete with PG&E (and other utility monopolists) by selling natural gas directly to core customers who have elected to participate. Id. ¶¶ 25, 28-29. But CTAs still rely on PG&E's physical distribution system to deliver the natural gas to core customers. Id. ¶¶ 27, 29. For that reason, PG&E charges a "transportation" fee to the core customers who purchase their natural gas from CTAs. Id. ¶ 29.

Another aspect of the deregulation program is that CTAs have the right to choose to have their billing consolidated with PG&E's billing. Id. ¶ 30. In other words, CTAs can have their bill to participating natural-gas utility customers appear as a part of the same bill that PG&E sends to collect other charges to those customers, i.e. electricity charges. Id. ¶ 31.¹ The customer pays both sets of charges with a single payment to PG&E, which is then supposed to remit the funds tothe CTA, deducting the transportation charge and PG&E's electricity charge, if any. Id. ¶¶ 30-32, 42. Payment to the CTA is due 17 days after the bill was sent to the customer or the next business day after the payment is received from the customer. Id. ¶¶ 30-32. As a result, PG&E also serves as the collections agent for the CTAs. Id. ¶¶ 32, 35. If any payments from customers to PG&E fail, e.g. a customer's check bounces, PG&E may debit those amounts to the CTA on the customer's billing statement for the following month. Id. ¶ 34. No other debts or set-offs are permitted. Id. PG&E conducts its consolidated billing program as a separate unit from its primary business. Id. ¶ 33. The Individual Defendants manage consolidated billing operations for PG&E. Id. ¶¶ 17, 33.

2. The Parties' Dispute Regarding the Deregulation Program

Plaintiff, a privately-owned natural gas supplier, is a CTA (as certified by CPUC). Id. ¶¶ 2, 36. Plaintiff signed an operations and service agreement with PG&E on November 9, 2011, and began serving core customers in Northern California shortly thereafter. Id. ¶ 36. The agreement between Plaintiff and PG&E is governed by a regulation known as Gas Rule 23. Id. ¶¶ 31-33, 35. Plaintiff supplies its gas by transporting it across interstate pipelines for delivery to PG&E. Id. ¶ 37. Once the gas arrives, PG&E charges Plaintiff for storage and transportation to the customer based on Plaintiff's overall delivery volume as calculated on a monthly and yearly basis. Id. ¶ 37.

Plaintiff also elects to use the consolidated PG&E billing program. Id. ¶ 40. To track the billing process, PG&E provides Plaintiff with "electronic data interchanges," or EDIs. Id. ¶ 44. These files provide a variety of information about Plaintiff's customer accounts, including: (1) those to whom PG&E has sent a bill; (2) those who have paid Plaintiff's previous charges and the amount PG&E apportioned to Plaintiff; (3) the unpaid balance of any accounts; (4) the identity of those customers who have not fully paid for Plaintiff's gas service; and (5) the number and identity of those customers who have had charges written off, or "reversed," by PG&E. Id. ¶ 45.

Plaintiff alleges PG&E has engaged in five forms of misconduct against it with respect to the operation of the consolidated billing program.² First, Plaintiff alleges that PG&E, as a patternand practice, fails to remit funds that are owed to Plaintiff. Id. ¶ 43. Plaintiff claims that PG&E has simply withheld several hundred thousand dollars of payments it has received from customers. Id.

Second, Plaintiff alleges that PG&E, as a pattern and practice, intentionally sends EDIs containing false information to damage relations between Plaintiff and its customers. Id. ¶ 50. Specifically, PG&E allegedly transmits EDI files that show Plaintiff's customers are delinquent on their bills, which causes Plaintiff to contact them and/or terminate their accounts. Id. ¶¶ 48, 51. But it is often the case that a customer marked as delinquent has fully paid their bill. Id. ¶ 49. Plaintiff alleges that it has cancelled over 10,000 customer accounts, based on potentially false information about their payment status. Id. ¶¶ 53-54. This scheme also often causes Plaintiff's customers to choose to cancel their service with Plaintiff and revert back to PG&E's service. E.g., id. ¶ 51(b). PG&E then prevents Plaintiff from contacting the customers by withholding information regarding their accounts, citing privacy concerns. Id. ¶¶ 58-59. In combination with the payment withholding scheme, the end result of PG&E's alleged scheme to falsely induce Plaintiff to terminate the service of its customers is that PG&E takes natural gas from Plaintiff, charges Plaintiff for its storage and transportation, delivers it to Plaintiff's customers, charges and collects from them, and then keeps those funds, too. Id. ¶¶ 55-56.

Third, Plaintiff alleges that PG&E, as a pattern and practice, impermissibly offsets the amounts owed to Plaintiff for natural gas service with credits earned against its electricity charges. Id. ¶¶ 60-61. For example, PG&E offers its electricity customers certain subsidies and credits for obtaining their electricity through solar panels. Id. ¶ 62. Plaintiff alleges that PG&E takes these credits and subsidies, which should be applied against a customer's electricity bill from PG&E, and applies them against Plaintiff's gas bill instead. Id. ¶ 63; see also id. ¶ 64 (specific examples). In addition to avoiding the cost of these credits against its revenue, PG&E falsely informs Plaintiff that it has not applied this credit against the natural gas bill, but tells the customer that it has. Id. ¶ 65. In short, according to Plaintiff, PG&E uses its EDI system to underwrite its business for freeat Plaintiff's expense. Id. ¶¶ 66-69. This scheme also has the practical effect of inducing Plaintiff to terminate many of its customer accounts for nonpayment. Id. ¶ 65. Many customers also cancel their accounts and revert to PG&E because of the resulting confusion. Id. ¶ 70. And PG&E again cites customer privacy concerns as a basis to withhold information about these accounts from Plaintiff. Id. ¶ 71.

Fourth, Plaintiff alleges that PG&E, as a pattern and practice, withholds money owed to Plaintiff by claiming that the charges were "reversed," i.e. cancelled as wrongly billed. Id. ¶ 73. Specifically, PG&E will send an EDI file to Plaintiff stating that a customer owes an amount and then will send another EDI file showing that the charge was reversed. Id. ¶ 75(a). Since April 2013, PG&E has reversed a total of $320,369 in collectible funds. Id. ¶ 76. In December 2014 alone, PG&E reversed 1,535 customer account charges, costing Plaintiff $177,347. Id. PG&E backdates many of these reversals to make it appear as though the reversals were much closer to the billing date. Id. ¶ 77. At a minimum, this alleged scheme harms Plaintiff's cash cycle. Id. ¶ 82.

Fifth, and...