Ninth Circuit Affirms Dismissal of Class Action Suit Associated with NERC Reliability Violations

On March 2, 2016, in an unpublished opinion, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) affirmed the judgement of the district court dismissing a class action suit brought by individuals and business entities located within the State of California (the “Plaintiffs”) against the Arizona Public Service Company (“APS”). Waldon v. Ariz. Pub. Serv. Co., No. 14-55076 (9th Cir. Mar. 2, 2016). The Plaintiffs alleged that APS violated North American Electric Reliability Corporation (“NERC”) reliability standards adopted by the Federal Energy Regulatory Commission (“FERC”). They claimed that these violations caused an ensuing cascading blackout in 2011 that started in Arizona and spread to parts of California and Mexico, which resulted in the Plaintiffs incurring economic damages. The Plaintiffs argued that APS was negligent per se under Arizona law. The district court found that California law, not Arizona law, applied and dismissed the case under Fed. R. Civ. P. 12(b)(6) for failure to state a claim under California law.

In affirming the district court, the Ninth Circuit found that, while a violation of a statute creates a presumption of negligence, it does not give the plaintiff a negligence cause of action if the law does not otherwise impose a duty on the defendant. “‘In the absence of a contract between the utility and the consumer expressly providing for the furnishing of a service for a specific purpose, a public utility owes no duty to a person injured as a result of an interruption of service or a failure to provide service.’” Id. at 2-3 (quoting White v. S. Cal. Edison Co., 30 Cal. Rptr. 2d 431, 435–36 (Ct. App. 1994)). The Ninth Circuit concluded, because the Plaintiffs were not customers of APS and had no contractual claim to damages, the Plaintiffs failed to state a claim under California law. Further, the Ninth Circuit found that the Plaintiffs failed to state a claim under Arizona law because “[f]ederal electric-reliability standards . . . create a duty only between electric utilities and the government, and a violation of the reliability standards does not support a claim of negligence per se under Arizona law.” Id. at 4 (citations omitted).

Significantly, the Ninth Circuit also found that NERC reliability standards do not “proscribe certain or specific acts,” but create “a general standard,” which does not support negligence per se. Id. The Ninth Circuit added that “[a]ccepting the plaintiffs’ theory would create broad state-law liability for public utilities under a federal statutory and regulatory scheme that would conflict with Arizona public policy.” Id. at 5 (citing U.S. Airways, Inc. v. Qwest Corp., 361 P.3d 942, 949 (Ariz. Ct. App. 2015); Lips v. Scottsdale Healthcare Corp., 229 P.3d 1008, 1010 (Ariz. 2010) (en blanc) ("Courts have not recognized a general duty to exercise reasonable care for the purely economic well-being of others, as distinguished from their physical safety of their property. This reticence reflects concerns to avoid imposing onerous and possibly indeterminate liability on defendants and undesirably burdening courts with litigation.” (internal citation omitted)).