S. Cal. Elec. Firm, Corp. v. S. Cal. Edison Co.

668 F.Supp.3d 1000

SOUTHERN CALIFORNIA ELECTRICAL FIRM, a California corporation;Jason Farr, an individual; David Kanowsky, an individual;and Rob Morgan, an individual, Plaintiffs, v. SOUTHERN CALIFORNIA EDISON COMPANY, a California corporation;and Does 1 through 10, inclusive, Defendants.

Case No. 5:22-cv-00968-SPG-SHK

United States District Court, C.D. California

Signed April 7, 2023

Jason R. Fair, Daniel Lewis Allender, Nargess N. Hadjian, Robins Kaplan LLP, Los Angeles, CA, for Plaintiff.

Kyle W. Mach, Brad Dennis Brian, Erin Joan Cox, Miranda E. Rehaut, Munger Tolles and Olson, Los Angeles, CA, Jeffrey S. Renzi, Law Dept, Rosemead, CA, Lauren E. Ross, Pro Hac Vice, Munger Tolles and Olson LLP, Washington, DC, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS FIRST AMENDED COMPLAINT [ECF No. 38]

SHERILYN PEACE GARNETT, UNITED STATES DISTRICT JUDGE

Before the Court is Southern California Edison Company's ("Defendant") motion to dismiss plaintiff's First Amended Complaint ("FAC"), pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Motion"). (ECF No. 38 ("Mot.")). Having considered the parties' submissions, the relevant law, and the record in this case, the Court found pursuant to Federal Rule of Civil Procedure 78(b) and Central District of California Local Rule 7-15 that the matter was suitable for resolution without oral argument. For the following reasons, the Court GRANTS IN PART and DENIES IN PART the Motion.

I. BACKGROUND

A. Factual Background

The FAC alleges as follows:

Defendant is a utility company that generates, transmits, and distributes electric power, (ECF No. 35 ¶ 18 ("FAC")), and "is the only electrical utility service provider in more than one-hundred-eighty incorporated cities, fifteen counties, thirty-three unincorporated communities, thirty-four census designated places and thirteen federally recognized tribal lands, all within the 50,000 square miles of service areas" in Southern California (the "SCE Territory"). (Id. ¶ 2). As the only electric utility provider within the SCE Territory, Defendant has power over all electrical contractor services within the SCE Territory. (Id. ¶ 19). All electrical contractors who seek to provide services for the design and installation of new electrical utility lines, distribution lines, and service line extensions within the SCE Territory must comply with any restrictions imposed by Defendant. (Id. ¶¶ 20-22).

Defendant controls the SCE Territory through its implementation of Electrical Tariff Rules 15 and 16. (Id. ¶ 22). Under Tariff Rules 15 and 16, the applicant consumer (the property owner within the SCE Territory) may elect to design and install that portion of the new distribution line extension (Rule 15) and/or that portion of the new service extension (Rule 16) in accordance with Rule 15's outside applicant design and applicant installation options. (Id. ¶ 23). The only alternative is to hire Defendant directly for the design and/or installation services. (Id.).

Defendant implements a company-wide policy prohibiting certain terminated Defendant employees from working, in any manner, on construction projects requiring Defendant's approval, oversight, or involvement. (Id. ¶ 24). In July of 2018, Defendant integrated this policy into Electric Tariff Rules 15 and 16 by adding the following two conditions to its internal qualifications for Applicant Designer and/or Applicant Installer:

(1) Must not currently, or in the future as a qualified designer, work as a design contractor (or its employee) that does business directly with [Defendant], or as a subcontractor to a firm that does business directly with [Defendant]; and

(2) Must not have been terminated from [Defendant] under a classification that makes them ineligible for rehire or ineligible to work on SCE assets or systems.

(Id. ¶ 25 (citing Application Distribution Design Standards, § 2.7(A)). The Section 2.7(A) prequalification requirements are referred to as the "ADS Policy." (Id. ¶ 26).

Jason Farr, David Kanowsky, and Rob Morgan (the "Individual Plaintiffs") were terminated from Defendant's employment in or around April of 2017. (Id. ¶ 30). As part of their termination, Defendant issued a letter stating: "as part of the conditions of your employment termination, you may never come back onto company property." (Id.). The Individual Plaintiffs have been unable to obtain employment in the SCE Territory "due to [Defendant's] restrictive policies." (Id. ¶ 32). The Individual Plaintiffs started Southern California Electrical Firm ("SCEF," collectively with Individual Plaintiffs, "Plaintiffs") due, in part, to Defendant's ability to push them out of the SCE Territory. (Id. ¶ 33).

SCEF contracts with consumers in the SCE Territory to provide them with electrical consulting services, design services, and installation services. (Id. ¶ 34). In particular, SCEF provides its customers with electrical consulting services relating to the design and relocation of electrical poles and wires, design and installation of new distribution and service line extensions, and design and installation of underground conduit installation. (Id.). While all of SCEF's work begins as consultant work, some of its relationships transition into providing services that are governed by Defendant's ADS Policy-the design and installation for new utility lines and distribution and services lines. (Id.). SCEF has completed performance of five different contracts for applicant design and install work, totaling $732,449.92 in value. (Id. ¶ 35). SCEF also entered into and is still working on three different applicant installation contracts, totaling $267,925 in value (collectively with the application design and install contracts, the "SCEF Tariff Contracts"). (Id. ¶ 36).

SCEF has also completed performance on 207 different contracts for purely consulting services. (Id. ¶ 39). Additionally, SCEF has entered into and is currently working on 86 different consulting projects, totaling $2,282,300 in value (collectively with the completed consulting contracts, the "SCEF Consulting Contracts"). (Id. ¶¶ 40-41). SCEF's prospective contracts include partnering with contractors Mike Davis Home Builders ("MD Home Builders") and Cypress Equity Investments, Inc. ("CEI"). See (id. ¶ 62).

As to the SCEF Tariff Contracts, the FAC alleges that SCEF has been "continuously met with obstacles, additional costs, hardships, and burdens imposed" due to Defendant's enforcement of the ADS Policy. See (id. ¶ 38). To mitigate this harm, SCEF subcontracts all of its work in the SCE Territory to contractors that qualify under the ADS Policy. (Id.). Plaintiffs estimate that SCEF "suffers losses at a minimum of 85 percent of the contract value due to outsourcing this work." (Id.). The FAC also alleges that Defendant "interferes with each and every one of SCEF's Consulting Contracts through the following acts, including but not limited to:

a. Instructing [Defendant's] employees in the South Bay District that they could not communicate with Plaintiffs nor Plaintiffs['] employees;

b. Informing owners and contractors that it will not acknowledge SCEF's work; c. Informing owners and contractors that it will not recognize the validity of any contracts with SCEF;

d. Instructing owners and contractors not to use SCEF, even though SCEF was under contract with these owners and contractors to provide them meaningful consultation services;

e. Intentionally damaging SCEF's reputation by discussing [Defendant's] past dealings and issues with SCEF during site inspections with SCEF's customers; and

f. Interfering with the progression of work on projects that SCEF is working on.

(Id. ¶ 42).

For example, on or about February of 2018, Defendant contacted MD Home Builders to let them know that Defendant would not honor SCEF's work and would not communicate with anyone that works for SCEF. (Id. ¶ 63). At that time, SCEF and MD Home Builders had a contract for a project located within the SCE Territory (the "MD Home Builders Project"). (Id.). MD Home Builders was told that it would have to communicate with Defendant directly to process Rule 15 and 16 designs for the MD Home Builders Project. (Id.). As a result, SCEF could not finish the MD Home Builders Project as contemplated by its contract. (Id.). Prior to the MD Home Builders Project, SCEF had completed at least four separate contracts for MD Home Builders and was expected to receive additional contracts for consulting and design work. (Id. ¶ 64). After Defendant's interference, SCEF did not receive any additional work from MD Home Builders. (Id.).

On February 18, 2018, SCEF sent Defendant a cease and desist letter, identifying Defendant's conduct as restrictive. (Id. ¶ 43). On March 29, 2018, Defendant confirmed in writing its position that it "is not required to conduct business with" SCEF. (Id. ¶ 44). On April 6, 2018, SCEF informed Defendant:

SCEF is working its active projects to mitigate exposure for both parties. In the spirit of truly resolving this situation amicably, SCEF is restricting its dealings with [Defendant] by funneling all communications and contact with [Defendant] through persons that are not subject to the imposed restrictions. Until the reasonable restrictions are deemed acceptable, SCEF will perform under this arrangement.

(Id. ¶ 45). On August 12, 2020, Defendant informed SCEF that it was aware of SCEF's projects being carried out by SCEF's third parties and that Defendant would no longer permit SCEF to utilize third parties in furtherance of its projects within the SCE Territory. (Id. ¶ 46). In a meeting with Plaintiffs, Defendant's personnel informed them that:

a. [Defendant] will not accept any new submittals for new service design and construction from SCEF, including local planning submittals, applicant design or applicant install;

b. [Defendant] will not accept work that was submitted on behalf of SCEF through a third-party company (a subcontractor) for applicant design and

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