Alex Cannara v. Karla Nemeth ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALEX CANNARA, an individual; GENE No. 20-16202
A. NELSON, an individual,
Plaintiffs-Appellants, D.C. No.
3:19-cv-04171-
v. JD
KARLA NEMETH, California
Department of Water Resources OPINION
Director; MARYBEL BATJER,
California Public Utilities
Commission President; LIANE
RANDOLPH, California Public Utilities
Commissioner; MARTHA GUZMAN
ACEVES, California Public Utilities
Commissioner; CLIFFORD
RECHTSCHAFFEN, California Public
Utilities Commissioner; GENEVIEVE
SHIROMA, California Public Utilities
Commissioner; KEELY BOSLER,
California Department of Finance
Director; BETTY YEE, California State
Controller; FIONA MA, California
State Treasurer; CALIFORNIA
DEPARTMENT OF WATER RESOURCES;
CALIFORNIA PUBLIC UTILITIES
COMMISSION; CALIFORNIA
DEPARTMENT OF FINANCE,
Defendants-Appellees.
2 CANNARA V. NEMETH
Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding
Argued and Submitted April 12, 2021
San Francisco, California
Filed December 30, 2021
Before: Mary H. Murguia, Chief Judge, and Ryan D.
Nelson and Danielle J. Forrest *, Circuit Judges.
Opinion by Judge Forrest
SUMMARY **
Johnson Act, 28 U.S.C. § 1342The panel affirmed the district court’s order dismissing
for lack of subject matter jurisdiction an action brought by
public utility ratepayers challenging California Assembly
Bill 1054, which addresses the financial burdens that
wildfires impose on electrical utilities.
Assembly Bill 1054 (“AB 1054”), among other things,
created a “Wildfire Fund” to cover utility liabilities resulting
from wildfires and instructed the California Public Utilities
Commission (“CPUC”) to consider imposing a surcharge on
*
Formerly known as Danielle J. Hunsaker.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
CANNARA V. NEMETH 3
ratepayers to help capitalize this Fund. The CPUC decided
to impose the surcharge contemplated by AB 1054, and
Plaintiffs challenged AB 1054 as it relates to the Wildfire
Fund and ratepayer surcharge under the Due Process Clause
of the Fourteenth Amendment and the Takings Clause of the
Fifth Amendment. Defendants moved to dismiss Plaintiffs’
claims on several grounds, including lack of subject matter
jurisdiction under the Johnson Act, 28 U.S.C. § 1342, which
deprives courts of jurisdiction over all suits affecting state-
approved utility rates.
The panel concluded that Plaintiffs’ challenge was
subject to the Johnson Act, and citing US West, Inc. v.
Nelson, 146 F.3d 718, 722 (9th Cir. 1998), rejected
Plaintiffs’ assertion that the Johnson Act did not apply
because their claims were non-rate related. The panel noted
that the First Amended Complaint described the wildfire
surcharge as the “heart of [their] due process claims.” And
their takings claim was premised on an alleged “unjust and
unreasonable rate.” Indeed, the second paragraph of the First
Amended Complaint alleged “a multi-billion-dollar scheme
for California’s utility customers to finance the [utilities’]
fire liabilities.” But most significant, the relief that Plaintiffs
sought conclusively demonstrated that they were
challenging a ratemaking: they asked the Court to find
unconstitutional and enjoin only sections 6 and 16 of AB
1054, which created the Wildfire Fund and the process by
which a utility company may seek assistance from the Fund.
This relief would necessarily “affect state-approved utility
rates,” despite Plaintiffs’ attempts to reframe their claims as
non-rate related.
The panel further held that the CPUC surcharge
proceedings satisfied the Johnson Act’s procedural
requirements, noting that the process that the CPUC
4 CANNARA V. NEMETH
provided in its surcharge proceedings surpassed what had
been accepted in prior cases. The CPUC allowed anyone
interested to become a party to the proceedings, circulated
notice of the hearing in the CPUC’s widely disseminated
monthly newsletter, assisted people unfamiliar with CPUC
procedures, allowed all parties to present their opinions at
multiple stages of the process, allowed oral argument,
accepted comments on the Proposed Decision, and
responded to those comments in the Final Decision.
Contrary to the Plaintiffs’ argument, the CPUC’s decision
not to hold an evidentiary hearing did not violate the Johnson
Act’s procedural requirements.
COUNSEL
Michael J. Aguirre (argued) and Maria C. Severson, Aguirre
& Severson LLP, San Diego, California, for Plaintiffs-
Appellants.
Gabrielle D. Boutin (argued), Deputy Attorney General;
Benjamin M. Glickman, Supervising Deputy Attorney
General; Thomas S. Patterson, Senior Assistant Attorney
General; Rob Bonta, Attorney General of California; Office
of the Attorney General of California, Sacramento,
California; for Defendants-Appellees Karla Nemeth,
California Department of Water Resources Director, Keely
Bosler, California Department of Finance Director; Betty
Yee, California State Controller; Fiona Ma, California State
Treasurer; California Department of Finance, and the
California Department of Water Resources.
Christofer C. Nolan (argued), Arocles Aguilar, Christine J.
Hammond, and Inna Vinogradov, California Public Utilities
Commission, San Francisco, for Defendants-Appellees
CANNARA V. NEMETH 5
California Public Utilities Commission, Marybel Batjer,
California Public Utilities Commission President, and
California Public Utilities Commissioners Liane Randolph,
Martha Guzman Aceves, Clifford Rechtschaffen, and
Genevieve Shiroma.
OPINION
FORREST, Circuit Judge:
The question presented is whether the Johnson Act,
28 U.S.C. § 1342, which bars federal courts from exercising
jurisdiction over disputes concerning state public utility rate-
making orders, deprives the court of subject matter
jurisdiction over the Plaintiff ratepayers’ challenge to
California Assembly Bill 1054 (AB 1054). AB 1054
addresses the financial burdens that wildfires impose on
electrical utilities. Among other things, it created a “Wildfire
Fund” to cover utility liabilities resulting from wildfires and
instructed the California Public Utilities Commission
(CPUC) to consider imposing a surcharge on ratepayers to
help capitalize this Fund. The CPUC decided to impose the
surcharge contemplated by AB 1054, and Plaintiffs
challenge AB 1054 as it relates to the Wildfire Fund and
ratepayer surcharge under the Due Process Clause of the
Fourteenth Amendment and the Takings Clause of the Fifth
Amendment. Because we conclude that the Johnson Act
applies to this case, we lack subject matter jurisdiction.
I. BACKGROUND
A. AB 1054 & CPUC Ratemaking Proceedings
California passed AB 1054 in 2019 to address the
“increased risk of catastrophic wildfires.” 2019 Cal. Legis.
6 CANNARA V. NEMETH
Serv. Ch. 79 (West) (AB 1054). AB 1054 included numerous
wildfire prevention and mitigation measures; relevant here
is the Wildfire Fund. Cal. Pub. Util. Code §§ 3281–89 (West
2019). The statute identified multiple funding sources for
capitalizing the Wildfire Fund, including utility shareholder
contributions, bond proceeds, loans from California’s
surplus fund, and—the focus here—revenue from a potential
ratepayer surcharge. Id. § 3285.
AB 1054 directed the CPUC to “initiate a rulemaking
proceeding to consider” imposing a “nonbypassable charge
from ratepayers . . . to support the [Wildfire Fund].” Id.
§ 3289(a)(1). AB 1054 imposed an expedited timeline for
this process. For example, the CPUC was required to initiate
the rulemaking proceeding within 14 days of AB 1054’s
enactment. Id. If the CPUC found that a ratepayer surcharge
was “just and reasonable,” it was required to “direct each
[utility] to impose and collect that charge.” Id. § 3289(a)(2).
The CPUC initiated a rulemaking proceeding as required
by Section 3289. The Order Instituting Rulemaking (OIR)
described the procedures that the CPUC would use to
evaluate the potential surcharge and the process for
interested parties to participate in the rulemaking
proceedings. It provided multiple avenues for interested
parties to participate. Anyone who appeared at the pre-
hearing conference requesting party status would be made a
party to the proceeding, and anyone could request to be
added to an “information only” service list or could receive
copies of the relevant documents without being added to the
service list. The OIR also provided the contact information
for the CPUC’s Public Advisor so that a person interested in
participating in the proceeding could get assistance. Finally,
as required by CPUC rules, the OIR preliminarily
CANNARA V. NEMETH 7
categorized the proceeding as a “ratesetting” and
preliminarily determined that hearings were unnecessary.
Before the pre-hearing conference, multiple groups and
individuals filed statements as outlined in the OIR. At the
pre-hearing conference, interested parties were allowed to
present their opinions on the proposed surcharge, and
twenty-five groups and individuals received party status.
Although Plaintiffs themselves did not participate in these
proceedings, their counsel in this case participated on behalf
of ratepayer Ruth Hendricks, who was granted party status.
After the pre-hearing conference, the CPUC’s assigned
commissioner circulated a Scoping Memo and ruling.
Like the OIR, the Scoping Memo provided the process
and timeline for the surcharge proceeding. The Scoping
Memo provided: “This proceeding is limited in scope to . . .
whether the Commission should authorize and order the
collection of a non-bypassable charge from ratepayers . . . to
provide the legislatively-determined revenue requirement
for the ratepayer contributions to California’s new Wildfire
Fund.” It also addressed comments raised at the pre-hearing
conference, solicited comments on additional issues, and
determined that an evidentiary hearing was not required.
Finally, responding to concerns about the expedited process,
the Scoping Memo noted that AB 1054 mandated an
accelerated timeline and that the proceedings met “minimum
due process requirements.” See id. § 3289(b) (“[N]o later
than 90 days after the initiation of the rulemaking
proceeding, [the CPUC] shall adopt a decision regarding the
imposition of the charge.”).
After the Scoping Memo, but before opening comments
were due, Plaintiffs’ counsel, representing Ms. Hendricks,
moved to disqualify the assigned CPUC commissioner,
arguing that his refusal to hold an evidentiary hearing
8 CANNARA V. NEMETH
indicated that his decision was a foregone conclusion.
Counsel also requested oral argument. Shortly thereafter, the
Administrative Law Judge (ALJ) issued his proposed
decision concluding that the Wildfire Fund-related charges
were just and reasonable and responding to concerns about
the expedited process and lack of an evidentiary hearing.
During the comment period for the Proposed Decision,
the ALJ held oral argument where interested parties could
comment on the proceedings. Plaintiffs’ counsel repeated
their procedural concerns and their concerns with a Wildfire
Fund surcharge. Not long after, the CPUC issued its Final
Decision approving the ratepayer surcharge. The Final
Decision directly responded to the due process concerns
raised at oral argument; it noted that “few restrictions were
placed on the parties’ ability to provide comments in a form
of their choosing” and found that “due process was
provided.” Plaintiffs’ counsel moved for rehearing, which
the CPUC denied.
B. District Court Proceedings
Before the CPUC began its surcharge proceeding,
Plaintiffs filed this action in federal district court against the
CPUC and numerous state officials tasked with
implementing the Wildfire Fund. Plaintiffs alleged that AB
1054 and the surcharge proceeding violated their right to
procedural due process under the Fourteenth Amendment
and qualified as an unlawful taking under the Fifth
Amendment. After the surcharge proceeding, Plaintiffs
amended their complaint to include challenges to the
outcome of that proceeding. The First Amended Complaint
(FAC) summarized “the heart of Plaintiffs’ due process
claims” as follows:
CANNARA V. NEMETH 9
Defendants hatched a scheme with high-
ranking PG&E officers to transfer future
wildfire liabilities onto utility customers,
which AB 1054 codifies into law by: (1)
eradicating the previous legal standard for
wildfire cost recovery so IOUs have a
presumption of reasonableness; (2)
burdening utility customers with a multi-
billion-dollar charge that will be imposed on
them until 2036, and (3) establishing a
wildfire fund for utility customers to
continuously subsidize IOU fire liabilities.
All of these actions were taken without
providing Plaintiffs or other utility customers
any meaningful opportunity to be heard.
For their takings claim, Plaintiffs alleged that AB 1054
“imposes an unjust and unreasonable electric rate, thus
effectuating a taking of utility customer property without just
compensation.” Plaintiffs sought: (1) declaratory relief that
AB 1054 was unconstitutional; (2) injunctive relief
preventing Defendants from enforcing section 6 of AB 1054
(creating the Wildfire Fund claims process) and section 16
(creating the Wildfire Fund and directing the CPUC to
initiate ratemaking proceedings); and (3) attorney fees.
Defendants moved to dismiss Plaintiffs’ claims on
several grounds, including lack of subject matter jurisdiction
under the Johnson Act. The district court questioned the
parties about the Johnson Act’s applicability at a motions
hearing and directed them to file briefs regarding the
“reasonable notice and hearing” requirement in that statute.
After reviewing the parties’ additional briefing, the district
court dismissed Plaintiffs’ claims with prejudice for lack of
jurisdiction. The district court concluded that “a plainer
10 CANNARA V. NEMETH
challenge to a state ratesetting order is hard to imagine” and
“the CPUC proceeding satisfied the reasonable notice and
hearing element of the Johnson Act.” Plaintiffs timely
appealed.
II. DISCUSSION
Under the Johnson Act, federal courts lack jurisdiction
over “all suits affecting state-approved utility rates.”
Abcarian v. Levine, 972 F.3d 1019, 1029–30 (9th Cir. 2020).
The Johnson Act states:
The district courts shall not enjoin, suspend
or restrain the operation of, or compliance
with, any order affecting rates chargeable by
a public utility and made by a State
administrative agency or a rate-making body
of a State political subdivision, where:
(1) Jurisdiction is based solely on diversity of
citizenship or repugnance of the order to the
Federal Constitution; and,
(2) The order does not interfere with
interstate commerce; and,
(3) The order has been made after reasonable
notice and hearing; and,
(4) A plain, speedy and efficient remedy may
be had in the courts of such State.
28 U.S.C. § 1342. The party invoking the Johnson Act must
show that all the statutory requirements are met. Id.; see also
US West, Inc. v. Nelson, 146 F.3d 718, 722 (9th Cir. 1998).
We review de novo a district court’s dismissal for lack of
CANNARA V. NEMETH 11
subject matter jurisdiction under the Johnson Act. Abcarian,
972 F.3d at 1029 n.6.
Here, the parties dispute two of the statutory
requirements: (1) whether Plaintiffs’ suit challenges an
“order affecting rates” and, if yes, (2) whether that order was
made after reasonable notice and hearing.
A. Order Affecting Rates
Although the text of the Johnson Act focuses on
ratemaking “orders,” we have construed it to apply to “all
suits affecting state-approved utility rates.” Id. at 1029–30.
Indeed, when “a party challenges the rate-making system,
including any particular procedure th[e] . . . system employs,
the Johnson Act bars federal jurisdiction.” US West, 146
F.3d at 722. We broadly interpret the Johnson Act as
prohibiting both direct challenges to a specific rate-setting
order, as well as indirect challenges that “might have an
impact on future rate orders” or that could be used to enjoin
enforcement of a past order. Id. at 722–23; Brooks v. Sulphur
Springs Valley Elec. Coop., 951 F.2d 1050, 1054 (9th Cir.
1991) (“Congress did not intend to withdraw from federal
courts the power to enjoin state rate orders directly but leave
undisturbed the power to do so indirectly.”).
A plaintiff’s description or characterization of the
challenge is not determinative. US West, 146 F.3d at 722.
Nor does a plaintiff avoid the Johnson Act by alleging
constitutional claims that are unrelated to state ratemaking
orders. Id.; Abcarian, 972 F.3d at 1030. The plaintiffs in US
West, for example, claimed to challenge a policy rather than
a specific rate order. 146 F.3d at 722. We were not convinced
and instructed that “the way that [plaintiffs] have chosen to
describe their grievance does not control whether the
Johnson Act bars this action.” Id. And in Abcarian, we
12 CANNARA V. NEMETH
explained that the Johnson Act would “be a nullity if it could
be evaded through the simple artifice of adding some other
federal claim to the complaint.” 972 F.3d at 1030. We
emphasized the jurisdictional nature of the Johnson Act:
In barring federal courts from exercising
jurisdiction to interfere with state rate
orders in specified circumstances, the text of
the Johnson Act necessarily focuses on the
jurisdictional basis on which the court is
asked to grant such relief. The happenstance
that there may or may not be other claims in
the case is irrelevant—especially given the
fact that . . . the additional claims asserted in
the action may have nothing to do with state
rate orders at all.
Id. (internal quotation marks and alterations omitted). In
sum, we “broadly construe[] the Act’s jurisdictional bar to
oust federal courts of jurisdiction over all challenges
affecting rates.” Brooks, 951 F.2d at 1054 (internal quotation
marks and citation omitted); US West, Inc. v. Tristani, 182
F.3d 1202, 1207 (10th Cir. 1999) (explaining the Johnson
Act is designed to keep rate challenges out of federal courts
“lock, stock, and barrel”) (relying on US West v. Nelson and
other Ninth Circuit cases interpreting the Act).
Here, we conclude that Plaintiffs’ challenge is subject to
the Johnson Act. The First Amended Complaint describes
the wildfire surcharge as the “heart of [their] due process
claims.” And their takings claim is premised on an alleged
“unjust and unreasonable rate.” Indeed, the second
paragraph of the First Amended Complaint alleges “a multi-
billion-dollar scheme for California’s utility customers to
finance the [utilities’] fire liabilities.” But most significant,
CANNARA V. NEMETH 13
the relief that Plaintiffs seek conclusively demonstrates that
they are challenging a ratemaking: they ask the Court to find
unconstitutional and enjoin only sections 6 and 16 of AB
1054, which create the Wildfire Fund and the process by
which a utility company may seek assistance from the Fund.
This relief would necessarily “affect state-approved utility
rates,” despite Plaintiffs’ attempts to reframe their claims as
non-rate related. See Abcarian, 972 F.3d at 1029–30.
Plaintiffs argue that the Johnson Act does not apply
because their constitutional challenge to AB 1054 affects
rates only “incidentally.” If we were interpreting the Johnson
Act on a blank slate, we might find Plaintiffs’ argument
more persuasive as the plain text of the Act references only
direct challenges to rate orders. See 28 U.S.C. § 1342. But
our precedent establishes that the substance and effect of a
plaintiff’s challenge drives our jurisdictional analysis, not
the form. US West, 146 F.3d at 722. Thus, “[p]laintiffs’
concession that the injunctive and declaratory relief that they
seek ‘might have an impact on future rate orders’ is as lethal
to their claim as a straightforward challenge to the 1996 rate
order would be.” Id. at 723; see also Abcarian, 972 F.3d at
1030.
If we allowed Plaintiffs to avoid the Johnson Act based
on their characterization of their challenge, we would render
the Act a nullity just as surely as if we allowed plaintiffs
asserting non-rate-based claims to avoid the Johnson Act.
See Abcarian, 972 F.3d at 1030. We decline to do so and
hold that Plaintiffs’ claims challenge ratemaking within the
meaning of the Johnson Act, as this Circuit’s precedent has
interpreted it.
14 CANNARA V. NEMETH
B. Reasonable Notice and Hearing
The parties also dispute whether the surcharge
proceedings provided “reasonable notice and hearing.” 28
U.S.C. § 1342. We have not addressed the Johnson Act’s
procedural requirement in depth. In Brooks, we concluded
that “hold[ing] a hearing before approving any rate change”
and “provid[ing] thirty days notice” was sufficient. 951 F.2d
at 1054. In Abcarian, we addressed this requirement in a
single conclusory sentence: “The official records of the City
Council confirm that the three rate-setting ordinances at
issue were indisputably ‘made after reasonable notice and
hearing.’” 972 F.3d at 1032 (noting plaintiffs did not dispute
this issue below).
Here, the district court made two alternative holdings.
First, the district court held that the surcharge proceedings
satisfied the Johnson Act’s procedural requirement as a
factual matter. And second, it held that the CPUC’s
determination that the state-law procedural requirements
were satisfied is “preclusive” of whether the Johnson Act is
satisfied. That is, the district court held that sufficient
procedural protection is provided so long as the ratemaking
body complied with its own procedures. We reject the
district court’s second categorical holding. Nothing in our
prior precedent or the text of the Johnson Act dictates this
conclusion. Compliance with state-law procedures is
certainly relevant in assessing whether a ratemaking order
was entered following “reasonable notice and hearing,” but
it is not itself determinative because state law could provide
CANNARA V. NEMETH 15
fewer procedural protections than the Johnson Act’s basic
standard requires. 1
We do not need to wrestle with what minimum
procedural protections satisfy the Johnson Act in this case
because the process that the CPUC provided in its surcharge
proceedings surpassed what we have accepted in prior cases.
See, e.g., Brooks, 951 F.2d at 1054 (holding that Arizona’s
hearing and 30-days’ notice requirement “satisfy the
Johnson Act’s requirement of reasonable notice and
hearing”). The CPUC allowed anyone interested to become
party to the proceedings, circulated notice of the hearing in
the CPUC’s widely disseminated monthly newsletter,
assisted people unfamiliar with CPUC procedures, allowed
all parties to present their opinions at multiple stages of the
process, allowed oral argument, accepted comments on the
Proposed Decision, and responded to those comments in the
Final Decision. Contrary to the Plaintiffs’ argument, the
CPUC’s decision not to hold an evidentiary hearing does not
violate the Johnson Act. Cf. Mathews v. Eldridge, 424 U.S.
319, 348 (1976) (“The judicial model of an evidentiary
hearing is neither a required, nor even the most effective,
method of decisionmaking in all circumstances”). Based on
1
The district court cited Brooks in holding that a state determination
that state procedural requirements were satisfied is preclusive, but
Brooks did not hold that compliance with state-law procedures is
determinative of whether the Johnson Act’s “reasonable notice and
hearing” requirement is satisfied. Brooks held only that the state
administrative decision concluding that the state procedures were
satisfied prevented the plaintiff from arguing to the contrary in federal
court. 951 F.2d at 1054.
16 CANNARA V. NEMETH
the record presented here, we conclude that the CPUC
satisfied the Johnson Act’s procedural requirements.
AFFIRMED.