Friday, February 3, 2012

FYI: Cal App Ct Reverses Trial Court's Application of "Judicial Abstention" Doctrine, Under Which Trial Court Declined to Adjudicate Regulatory Issue

The California Court of Appeal, Second Appellate District, recently held that application of the judicial doctrine of abstention, under which courts may abstain from adjudicating lawsuits that seek equitable remedies where doing so would require a trial court to assume the functions of an administrative agency or require a court to determine complex economic policy, was improper where there was no alternative mechanism to resolve the issues raised by the plaintiffs. 
A copy of the opinion is available at:
Plaintiffs-consumers filed a class-action lawsuit against Chevron USA, Inc. ("Chevron") alleging various statutory and common-law violations in connection with Chevron's practice of purchasing wholesale fuel at a standardized temperature and then reselling it to California consumers at a higher average temperature.  The lawsuit alleged that because motor fuel expands as it is heating, Chevron's practice harmed consumers in the following ways: (1) consumers received less fuel than they would if Chevron adjusted for temperature increases; (2) consumers were led to believe, incorrectly, that a gallon of fuel contains a standardized amount of fuel;(3) consumers could not determine the actual price of fuel or compare prices between retailers; and (4) Chevron was able to collect more taxes from consumers than it was required to pay the government. 
As the lawsuit was ongoing, the California Energy Commission ("CEC") released a report, mandated by statute, evaluating the benefits of using "Automatic Temperature Compensation" ("ATC") technology at fuel pumps.  This technology would compensate for variances in temperature where motor fuel was sold.  The report concluded that consumers would not realize any economic benefit were retailers required to use ATC technology. 
Chevron filed a motion for judgment on the pleadings, arguing among other things that the trial court should dismiss the plaintiffs' claims under the judicial abstention doctrine.  The trial court agreed, holding that the CEC report indicated that the Legislature intended to address the issues in plaintiffs' complaint, and that adjudicating those issues would improperly involve the court in complex areas of economic policy.  The plaintiffs appealed. 
As you may recall, the judicial abstention doctrine provides that courts may abstain from adjudicating lawsuits that seek equitable remedies where doing so would "require a trial court to assume the functions of an administrative agency" or require a court to determine "complex economic policy."  Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal. App. 4th 471, 496.
The Appellate Court began with a detailed examination of the effect of temperature on motor fuel.  It noted that in California, motor fuel consumers pay "hundreds of millions of dollars" more in taxes than the retailers are required to pay to the government.  It further noted that the petroleum industry has supported the use of ATC technology in cold climates, while opposing its use in warm climates. 
Next, the Appellate Court noted that the remedies sought by the plaintiffs in connection with their numerous causes of action included, among others, requiring Chevron to install ATC technology at its fuel pumps; adjusting the price of fuel based on the temperature; and/or informing consumers of the effect of temperature on motor fuel. 
On appeal, Chevron again argued that in light of the CEC's report, the court should dismiss the plaintiffs' claims under the judicial abstention doctrine.  The plaintiffs contended that the court should not decline to adjudicate their claims based on a report that did not establish law or create a regulatory scheme.  In addition, the plaintiffs pointed out that requiring Chevron to implement ATC technology was one, but not the only, remedy they sought.  Therefore, the plaintiffs argued, a report on ATC technology should not foreclose the Court's consideration of those other remedies. 
The Appellate Court agreed with the plaintiffs.  It examined California case law concerning judicial abstention in detail, finding that two factors typically support invoking judicial abstention:  "[f]irst, the plaintiffs had asserted claims that would necessarily require the trial court to resolve complex policy issues.  Second, there was an alternative mechanism for resolving the issues plaintiffs had raised in their complaints." 
Based on that framework, the Appellate Court held that the lower court abused its discretion in employing the judicial abstention doctrine.  It noted that Chevron's arguments for judicial abstention were predicated on the assumption that an order mandating the use of ATC technology was the only possible relief plaintiffs sought.  However, the plaintiffs sought other relief as well, including an order requiring Chevron to make various disclosures to consumers. 
Further, the Appellate Court noted that the Legislature had not taken any action to remedy the issues raised in the plaintiffs' complaint, nor had it "provided any certainty that it would address those claims in the future."  Because "[judicial] abstention is generally appropriate only if there is an alternative means of resolving the issues raised in the plaintiff's complaint," the Appellate Court reversed the lower court's order granting Chevron's motion for judgment on the pleadings.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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Chicago, Illinois 60602
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