Lights Out In The Land Of No: The Practical Effects Of California's Wildfire Inverse Condemnation Doctrine

by Robert Thomas, Inverse Condemnation, October 23, 2019

These days, parts of California often looks more like a developing country than the world's fifth most powerful economy. Urban encampments -- complete with medieval diseases -- have become legendary. The streets of its glittering cities of tech are paved not with gold, but with human waste (but there's an app for that!).

No longer the Golden State, it is more the Land Of No -- no market rent, no plastic straws, no natural gas heating or cooking, no foie gras, no plastic bags, no fur, no teeny bottles of hotel shampoo, (no cheap gasoline, either) no early morning school, no state-funded travel to retrograde locales, no "lunch shaming," no smoking outside. No this, no that. You name it, California will probably eventually ban it. (Except weed; weed anywhere is just fine.)

Most recently, no lights. As you may have heard, the electricity regularly goes out for days (right now, a large number of Northern California customers have been put in the dark) -- not because of some failure of the infrastructure, but because the power company voluntarily turns the switch to off. 

Why, you ask? The stated reason is fire safety. This is the driest season in dry California. The electric company owns and maintains thousands of miles (25k!) of power lines. When the wind picks up, it may push dry vegetation into contact with those lines, sparking wildfires. Last year and the year before, these wildfires were particularly deadly. One burned a Sierra town to the ground and killed scores of residents, while another the year before in the wine country ravaged residential neighborhoods smack dab in the middle of a major California city. 

Not willing to risk that again, the shareholder-owned utility, Pacific Gas & Electric, opted instead to preemptively shut down the grid in certain areas (mostly rural, but not entirely) as a preventative measure. No power in the lines, no danger of fire from that source when the dry winds pick up. PG&E didn't turn the power off last year and the year before, and got sued in California and federal courts. For billions. Because about the only place California says "yes" is liability.

As we've written here before, California's somewhat different application of inverse condemnation means that an entity with the power of eminent domain such as the utility may be liable to pay compensation when it takes property by wildfire. Even if there's no evidence the utility failed to act prudently in maintaining its lines. 

Wait, what? The Federal courts don't think that inadvertent fires result in takings liability, unless the owner whose property was damaged or taken could show the government intended to invade a property interest. A very high evidentiary burden. Nor do several state courts that have looked at similar questions. See, for example, this case from Texas, holding that there's no takings liability unless the alleged condemnor intended the resulting damage, or at least knew that the damage was substantially certain to occur. And that approach isn't just for wildfires. Other courts analyze flood situations the same way, for example. 

But in California, it all goes back to several opinions from the California Court of Appeals. In Barham v. S. Cal. Edison Co., 88 Cal. Rptr. 2d 424 (1999), for example, the court held that inverse condemnation principles could apply to a private utility under this logic: when private property is destroyed by fire, the property has been "taken" or damaged for public use (the delivery of power), and the property owner is therefore entitled to just compensation. We get that, and that "just compensation" in these cases is viewed by the public more like tort damages, and not the more limited ways that eminent domain regulars view it. 

And although inverse condemnation is not, technically speaking, "strict liability," in the public's mind is has morphed into a form of strict liability (because unlike tort negligence claims, proof of whether the utility acted in a reasonably prudent manner to prevent the damage is not relevant in inverse condemnation). What mostly matters in takings is that the utility's equipment was a "substantial cause" of the taking or damaging. And that does mean that acting prudently won't automatically avoid inverse liability if the lines cause the taking or damage. 

So if you are in the dark (again) this week, thank the lawyers. Oh, there's been a lot of grumbling and finger-pointing by the politicians (who were content to do nothing in the run-up to the first shut off, and then, predictably, pointed fingers after-the-fact at the utility with feigned surprise that turning off the power for days on short notice to around 2 million residents actually disrupted people's lives), but given the circumstances, isn't preemptively shutting off power the smart play by the utility here? (And make no mistake, we grumbled too when we were caught in the shutoff; but we did understand why it happened.) This is the product the inevitable -- yet prudent -- reaction to a litigious society. If we were the company lawyers and our equipment might subject our company to billions in liability? Guess what, we're recommending that if the circumstances look like it might happen again, that we minimize the risk by shutting things down. That would be the most prudent approach. Dealing with the public relations fallout is certainly better than the risk of another big fire, and the resulting massive liability, or the possibility of more people losing their lives. (And interestingly, there seems to be a lot less public anger directed at the utility than you might expect, and more leveled at the do-nothing-but-posture-and-criticize politicians.)

And just so you don't assume that we're totally on board with this approach, we do think that some part of the shutoff strategy was to demonstrate for California officials (and the public to some degree) the real-world consequences of inverse condemnation, California style. The utility had tried to get the state to revise the inverse condemnation doctrine (although as a constitutional doctrine, we're not even sure it is something that the legislature has the power to do. One theory is as a constitutional doctrine, only the courts may substantially modify it, and it is immune from legislative abrogation). And one utility asked the U.S. Supreme Court to intervene, arguing that California's inverse condemnation liability scheme was itself a taking under the Fifth Amendment. Both to no avail, even though, not content to leave the issue to puisne judges, the California Supreme Court did do something recently in another case. 

In a recent non-fire case, the court narrowed the inverse condemnation doctrine, as we read it, by requiring a higher degree of causation (a "robust nexus" as the court put it):

Public entities are not strictly or otherwise automatically liable for any conceivable damage bearing some kind of connection, however remote, to a public improvement. To succeed on an inverse condemnation action, a plaintiff must ordinarily show — assuming the public entity made reasonable assumptions about the public improvement in question –– that the damage to private property was substantially caused by inherent risks associated with the design, construction, or maintenance of the public improvement.

Thus, it isn't enough any more that the fire could be "but-for" traced to a utility company's equipment, but there must be a "robust nexus" between the inherent risks of the equipment and the resulting damage to property by fire.

But even that new rule didn't give PG&E's lawyers enough comfort that this couldn't happen again. And rightfully so, because would you want to be the lawyer who counseled the PG&E execs that they could comfortably avoid liability and danger and leave the power on? Especially if, heaven forbid, something actually did happen. The weather predictions and dry conditions would not give us the confidence to make that call. So off went the power last week, and earlier today. And more is likely on the way. Welcome to the "new California normal," which, as we noted above, seems to be part of the utility's shutdown strategy: a demonstration of what California inverse condemnation doctrine really means. 

We cheekily suggest that the real way to get action on this would be to somehow require that if the power is to be shut off to more than a handful of customers statewide, the power must also be shut off to the homes of both the responsible utility execs and the state legislature and executive office buildings. First ones off, last ones back on. We'd bet that would get the power left on or turned on to the customers and the legal issues cleared up, really quickly. But of course, this will never happen. We're just dreaming. 

So what's left to do other than to set up your law office in your automobile like Matthew McConaughey, and hope this gets better? We're not sure, and we certainly don't have any answers. It is certainly complex. But lawprof Shelly Saxer (Pepperdine) has recently published an article that attempts to address that question. In "Paying for Disasters," Professor Saxer goes through a very thorough analysis from the takings, insurance, and tort side of things, and concludes that in the end, the cost of armoring up against wildfires and other natural disasters -- and keeping the lights on -- is something that we're all going to have to contribute to paying. And that seems about right to us. 

In the meantime, we just wish California's desire to say "no" extended to the idea that turning off the power on a regular basis was an okay thing in the world's fifth largest economy. 

InverseCondemnation: All Of Our Past California Wildfires And Inverse Condemnation Posts