S. Cal. Gas Co. v. Superior Court of L. A. Cnty.(In re S. Cal. Gas Leak Cases)

7 Cal.5th 391

441 P.3d 881

247 Cal.Rptr.3d 632

SOUTHERN CALIFORNIA GAS LEAK CASES.

Southern California Gas Company, Petitioner,

v.The Superior Court of Los Angeles County, Respondent;

First American Wholesale Lending Corporation et al., Real Parties in Interest.

S246669

Supreme Court of California.

May 30, 2019

Morgan, Lewis & Bockius, James J. Dragna, David L. Schrader, Yardena R. Zwang-Weissman, Los Angeles; Quinn Emmanuel Urquhart & Sullivan, Kathleen M. Sullivan and Daniel H. Bromberg for Petitioner.

Horvitz & Levy, Jeremy B. Rosen, Eric S. Boorstin, Burbank, and Yen-Shyang Tseng for Chamber of Commerce of the United States, California Chamber of Commerce, American Insurance Association and Property Casualty Insurers Association of America as Amici Curiae on behalf of Petitioner.

Hueston Hennigan, John C. Hueston, Moez M. Kaba and Douglas J. Dixon, Los Angeles, for Southern California Edison Company, Pacific Gas & Electric Company, Southwest Gas Corporation, Edison Electric Institute and American Gas Association as Amici Curiae on behalf of Petitioner.

Munger, Tolles & Olson, Henry Weissmann and Fred A. Rowley, Jr., Los Angeles, for Plains All American Pipeline, L.P., the Association of Oil Pipe Lines and the Western States Petroleum Association as Amici Curiae on behalf of Petitioner.

Mark P. Gergen; Reed Smith and Raymond A. Cardozo, San Francisco, for California Tort Law Scholars as Amicus Curiae on behalf of Petitioner.

Fred J. Hiestand, Sacramento, for The Civil Justice Association of California as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

Lieff Cabraser Heimann & Bernstein, Robert J. Nelson, Sarah R. London, Wilson M. Dunlavey, San Francisco; Public Justice, Leslie A. Brueckner ; Kiesel Law, Paul R. Kiesel, Helen Zukin, Mariana Aroditis, Beverly Hills; Keller Rohrback, Ben Gould, Derek W. Loeser, Amy Williams-Derry ; Boucher, Raymond P. Boucher, Woodland Hills, Shehnaz M. Bhujwala, Maria L. Weitz, Beverly Hills; The Kick Law Firm, Taras Kick ; Baron & Budd, Roland Tellis ; R. Rex Parris Law Firm, R. Rex Parris, Lancaster, and Patricia Oliver for Real Parties in Interest.

Sean B. Hecht, Los Angeles, Julia E. Stein and Nathaniel Logar for California Tort Professors Richard Abel, Alison Anderson, Blake Emerson, Jill Horwitz, Kathleen Kim, Albert Lin, John Nockleby, Alex Wang, Jonathan Zasloff and Adam Zimmerman as Amici Curiae on behalf of Real Parties in Interest.

Nelson & Fraenkel, Gretchen M. Nelson, Los Angeles, and Gabriel S. Barenfeld for Consumer Attorneys of Los Angeles as Amicus Curiae on behalf of Real Parties in Interest.

The Arkin Law Firm and Sharon J. Arkin for Consumer Attorneys of California as Amicus Curiae on behalf of Real Parties in Interest.

Boies Schiller Flexner, Christopher G. Caldwell, Michael R. Leslie, Andrew Esbenshade, Kelly L. Perigoe, Los Angeles, and David Boies for Toll Brothers, Inc., and Porter Ranch Development Company as Amici Curiae on behalf of Real Parties in Interest.

Opinion of the Court by Cuéllar, J.

This case concerns a massive, months-long leak from a natural gas storage facility located just outside Los Angeles. According to the allegations before us, the accident severely harmed the economy of a nearby suburb. We must decide if local businesses — none of which allege they suffered personal injury or property damage — may recover in negligence for income lost because of the leak. Our decision turns on whether the entity that allegedly caused the leak had a tort duty to guard against what we and other courts have termed "purely economic losses."

The businesses argue that they deserve compensation for such losses, that the entity responsible must bear the full costs of its alleged negligence so tort law can play its essential role of forcing people and organizations to take sufficient account of the risks they generate, and that courts can sensibly apportion liability under these circumstances within meaningful limits. Tort law indeed lies in the heartland of our common law system. It serves society’s interest in allocating risks and costs to those who can better prevent them, and it provides aggrieved parties with just compensation. But a proper assessment of competing considerations in light of our precedent suggests, and the extent of consensus across other jurisdictions confirms, that claims for purely economic losses suffered from mere proximity to an industrial accident create intractable line-drawing problems for courts. So the claims before us are best not treated as compensable in negligence.

We therefore affirm the judgment of the Court of Appeal.

I.

Because this case comes to us at the demurrer stage, we take as true all properly pleaded material facts — but not conclusions of fact or law. ( Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ( Centinela ).)

A.

Near the northwestern corner of Los Angeles lies Porter Ranch, a residential neighborhood home to some 30,000 people. Southern California Gas Company (SoCalGas) stores vast amounts of natural gas in an underground facility in the hills surrounding the community. Known today as the "Aliso Facility," that subterranean storage site was once an oil reservoir. It was repurposed about 40 years ago for its present use. SoCalGas supplies over 21 million people with natural gas from its four storage facilities, but the Aliso Facility is the company’s largest. It holds up to 80 billion cubic feet of natural gas, which SoCalGas pumps underground at high pressure into more than 100 "injection wells." Because natural gas is odorless, SoCalGas adds a nausea-causing chemical to the gas so that people notice when a leak happens.

In October 2015, a leak happened — and people noticed. An uncontrolled flow of natural gas from the Aliso Facility coated nearby neighborhoods in an oily mist. At its peak, the leak released some 55 tons of natural gas every hour. Porter Ranch residents reported unpleasant odors, headaches, dizziness, and respiratory problems. In addition to those symptoms, students at local schools complained of nosebleeds and vomiting.

That November, the Los Angeles County health department directed SoCalGas to establish a relocation program available to Porter Ranch residents who lived within a five-mile radius of the leak site. The Department of Conservation’s Division of Oil, Gas, and Geothermal Resources required SoCalGas to provide real-time data about the leak, as well as a timeline for stopping it. A month later, with the flow of gas slowing but still significant, the Los Angeles County Board of Education decided to relocate students and staff from two Porter Ranch schools for the duration of the academic year. And a month after that, SoCalGas expanded its relocation program, citing complaints of poor air quality from people living outside the initial five-mile boundary. About 15,000 people were relocated in total, scattering to locations dozens — and in some cases hundreds — of miles away.

SoCalGas finally got the leak under control in February 2016 — four months after detecting it. All told, about 100,000 tons of natural gas escaped the Aliso Facility, releasing enough greenhouse gases into the atmosphere to erase several years’ worth of efforts to combat climate change in California.

B.

Plaintiffs are Porter Ranch area businesses seeking to represent a class of "[a]ll persons and entities conducting business within five miles of the [Aliso] Facility from October 23, 2015 to [the] present."¹ They allege that SoCalGas’s negligence caused the leak. The resulting relocation of many Porter Ranch residents devastated the local economy: by depriving local businesses of customers, the environmental disaster cost local businesses considerable earnings.

That harm, Plaintiffs maintain, is ongoing. Sales at businesses of all stripes declined sharply, and in many cases, stayed down. Enrollment at a local martial arts center, Plaintiff King Taekwondo, nosedived during the leak and has not recovered. The same was true of a neighborhood day care, Plaintiff Polonsky Family Day Care. Restaurants, gas stations, and pharmacies were affected, too. So were beauty salons, doctor’s offices, party suppliers, and a photography store.

With the en masse relocation of Porter Ranch residents and the diminution in property values caused by the leak, home mortgage lenders and home improvement businesses suffered economically as well. Plaintiff First American Realty saw clients get cold feet, loans fall out of escrow, and sales tumble. A local contractor’s business dropped by 25 percent, as customers moved away or decided against home improvements for the time being. "Since the onset of the gas leak," in other words, business operations throughout Porter Ranch "have either halted or slowed substantially" — and Plaintiffs "have not yet recovered from the blow to their bottom lines."

Yet no named plaintiff in this action alleges personal injury or property damage. Accordingly, Plaintiffs acknowledge they are suing SoCalGas to recover solely for the income they lost because of the leak.

C.

SoCalGas demurred, arguing that Plaintiffs’ negligence claims failed as a matter of law because Plaintiffs were seeking to recover for purely economic losses. Overruling the demurrer, the trial court explained that companies "must face the full cost of accidents" they create, or else "they will underinvest in precautions." The trial court acknowledged that economic losses not flowing from conventional injury to person or property, such as physical damage, are ordinarily not recoverable in tort — and that the Court of Appeal had so held in Adams v. Southern Pacific Transportation Co. (1975) 50 Cal.App.3d 37, 123 Cal.Rptr. 216 ( Adams ) on facts with some similarities to those here.² But the trial court questioned the wisdom of that rule and reasoned that Adams was no longer good law after our later decision in J’Aire Corp. v. Gregory (1979) 24 Cal.3d...