TODD AO CORPORATION v. UNITED PARCEL SERVICE INC

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Court of Appeal, First District, Division 5, California.

The TODD–AO CORPORATION, Plaintiff and Appellant, v. UNITED PARCEL SERVICE, INC., Defendant and Appellant.

No. A070126.

Decided: August 14, 1996

Michael N. Khourie, Lasky, Haas & Cohler, Charles B. Cohler, William A. Logan, Jr., San Francisco, for Plaintiff and Appellant. Morrison & Foerster, Robert D. Raven, Paul T. Friedman, Ruth N. Borenstein, Terri Garland, San Francisco, Shirley M. Hufstedler, Dan Marmalefsky, Los Angeles, Anderson, Donovan & Poole, Ellis Ross Anderson, San Francisco, for Defendant and Appellant.

The Todd–AO Corporation appeals the dismissal of its action for overcharges against United Parcel Service, Inc. (UPS), after UPS's demurrer was sustained without leave to amend on the ground of lack of subject matter jurisdiction.   In a related cross-appeal, UPS appeals the trial court's ruling that it lacked jurisdiction to decide UPS's motion to disqualify Todd–AO's counsel.

I. THE TODD–AO APPEAL

Background

 Since this appeal is taken from a judgment of dismissal after a demurrer to Todd–AO's first amended complaint was sustained without leave to amend, we must accept all material facts properly pleaded as true and accept those subject to judicial notice.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

Todd–AO's March 1995 first amended complaint (the complaint) for illegal overcharges between February 24, 1992, and February 3, 1993 (the overcharge period), and for treble damages under Penal Code section 496 alleges:  On January 7, 1992, UPS filed with the Public Utilities Commission (PUC) tariff pages which improperly increased its rates for the relevant services during the overcharge period by approximately 8.4 percent.   The action involves only charges made and collected by UPS for intrastate movement of packages in California as a common carrier.

During the overcharge period Todd–AO utilized UPS's shipping services and paid the increased rates.   On August 3, 1993, the PUC held in a related case (see discussion of Cal Pak Proceedings, infra ) that UPS's rate increase charged and collected during the overcharge period was unlawful and excessive due to UPS's failure to obtain PUC approval for its rate increase, as required by the Public Utilities Code 1 and PUC Rules of Practice and Procedure.   Todd–AO's first cause of action seeks recovery of the overcharges incurred during the overcharge period.   The second cause of action seeks exemplary damages based on UPS's deliberate and intentional failure to obtain PUC approval of its rate increases, and its attempts to mislead Todd–AO and the PUC into believing the rate increase was lawful.   The third cause of action seeks treble damages for theft.

The complaint contains class action allegations on behalf of more than 150,000 shippers who allegedly were similarly overcharged approximately $40 million.   However, the record before us indicates that no class had been certified at the time this appeal was taken.

UPS demurred on the ground that pursuant to section 1759, the action falls within the exclusive jurisdiction of the PUC, and therefore the court lacked subject matter jurisdiction.  (Code Civ.Proc., § 430.10, subd. (a).)  The trial court sustained the demurrer on that ground.

In making its ruling the trial court considered certain PUC decisions emanating from a related overcharge case against UPS involving another shipper and UPS competitor, Cal Pak Delivery, Inc. (Cal Pak), upon which both parties rely in this appeal.   However, the trial court did not have the latest PUC order in the Cal Pak case, since it was not issued by the PUC until after the trial court's ruling on the demurrer.

Cal Pak Proceedings

In February 1992 Cal Pak filed a complaint with the PUC challenging the same UPS tariff revisions (UPS tariffs) involved in the instant case.   In April 1992 UPS applied to the PUC requesting confirmation of the increased rates and clarification of the procedure to be used in implementing such changes.   The two proceedings were consolidated.

In February 1993 the PUC issued Decision No. 93–02–001 (United Parcel Service, Inc. (1993) 43 Cal. P.U.C.2d 1) concluding that the UPS tariffs were “[U]nlawful and ineffective, since they were not approved by the [PUC], as required by [law],” but that the UPS rates were “[R]easonable for the future.”

In April 1993 Cal Pak filed a class action complaint in San Francisco Superior Court against UPS for overcharges and exemplary damages (Cal Pak action).

Both Cal Pak and UPS sought a rehearing by the PUC of Decision 93–02–001, and in May 1993 the PUC granted a limited rehearing to determine whether a refund of overcharges to Cal Pak should be ordered.   The PUC refused to reconsider its decision that the UPS tariffs were unlawful and excessive.   In June 1993 the Cal Pak action was stayed pending conclusion of the PUC rehearing proceedings.

In April 1994 Cal Pak asked the PUC to dismiss its proceedings without prejudice to permit Cal Pak to pursue its superior court action for overcharges, and sought the same relief in a petition for writ of mandate to the California Supreme Court.   The Supreme Court denied the petition.

In November 1994 the PUC issued United Parcel Service, Inc. (1994) Cal. P.U.C. Dec. No. 94–11–066 in which it dismissed with prejudice Cal Pak's request for refunds against UPS on the ground that Cal Pak's complaint “[N]either sought reparations nor established damages.”   Acknowledging that refunds could be ordered if damages were demonstrated, the PUC denied Cal Pak's damage claim for lack of sufficient proof.

In March 1995 in United Parcel Service, Inc. (1995) Cal. P.U.C. Dec. No. 95–03–44, the PUC denied Cal Pak's request for rehearing of Decision 94–11–066, but “[R]ecognize[d] that certain ambiguities in [its previous decision] require [d] clarifying․”   The decision responded to UPS's request that the PUC “[R]eiterate that significant public policy issues require continued [PUC] jurisdiction over the subject matter of [Cal Pak's PUC] complaint” and states:  “We find this request compelling, and will reverse our dismissal of the remainder of this consolidated proceeding.   We have a strong regulatory interest in maintaining jurisdiction over any complaints seeking refunds for any overcharges.  ․ [W]e have in [Decision] 93–02–001 already found that overcharges may have occurred during the [overcharge period], as a result of UPS charging rates which were on file with the [PUC], but not yet in effect because UPS had not yet obtained the [PUC's] approval of the rate increase as required by section 454.   Our continuing jurisdiction over the consolidated proceeding is consistent with our statutorily and constitutionally mandated duties, will ensure the integrity of our regulatory programs, and will facilitate the orderly development of the law.   In short, such continuing jurisdiction is in the public interest.”   It modified its previous conclusion of law that “The refund claims should be dismissed with prejudice,” to read:  “Cal Pak's refund claim should be dismissed with prejudice,” and then stated:  “In order to facilitate the claim of any shipper consistent with the regulatory principles set forth in this decision, this proceeding will remain open until further order of the [PUC].”

In May 1995 the superior court dismissed the Cal Pak action, and Cal Pak's appeal from that dismissal is currently pending in another division of this court.

Following the trial court's sustaining of the demurrer without leave to amend in the instant case, Cal Pak sought rehearing of Decision 95–03–44 to clarify whether the PUC “[I]ntended to divest the [s]uperior [c]ourt of its concurrent jurisdiction to award damages to UPS shippers” resulting from UPS's overcharges.   In opposition, UPS argued that the PUC's continued jurisdiction was required.

In its August 1995 decision (United Parcel Service, Inc. (1995) Cal. P.U.C. Dec. No. 95–08–057) denying rehearing, the PUC discussed Cal Pak's claim that the previous decision (95–03–044) would be utilized by UPS in the class action as an argument that “[T]he [PUC] intended to preclude UPS customers from seeking overcharge damages in the courts, and mandated that each shipper must file its claim before the [PUC].”  The PUC characterized Cal Pak's “[J]urisdictional argument [a]s wide of the mark․  [¶] [The previous decision] does not purport to divest the courts of their concurrent jurisdiction over illegal overcharges.”   After noting that the trial court had sustained UPS's demurrers without leave to amend in both the Cal Pak and instant actions, the PUC further stated:  “Whether or not the [s]uperior [c]ourt might reasonably have reached a different jurisdictional conclusion, Cal Pak must now live with the results of its litigation strategy.  [¶]  In sum, in [Decision] 95–03–044 we appropriately asserted our own jurisdiction over the UPS overcharge cases, and in [Decision] 94–11–066 we appropriately discussed the fact that in certain circumstances the courts may have concurrent jurisdiction.   Any shippers, other than Cal Pak, wishing to make overcharge claims against UPS are free to file claims with the [PUC].” 2

Discussion

Article VI, section 1 of the California Constitution vests the judicial power of this state in the courts.   However, article XII establishes the PUC and gives it broad regulatory power over public utilities.  (See, e.g., Waters v. Pacific Telephone Co. (1974) 12 Cal.3d 1, 6, 114 Cal.Rptr. 753, 523 P.2d 1161 (Waters); Masonite Corp. v. Pacific Gas & Electric Co. (1976) 65 Cal.App.3d 1, 7, 135 Cal.Rptr. 170 (Masonite Corp.).)   The California Constitution provides that the PUC “[M]ay fix rates and establish rules for the transportation of passengers and property by transportation companies, ․ and award reparation for the exaction of unreasonable, excessive, or discriminatory charges.”  (Cal. Const., art. XII, § 4.)   The Constitution also gives the Legislature “[P]lenary power ․ to establish the manner and scope of review of [PUC] action in a court of record, ․” (Id. § 5.)

Pursuant to this constitutional scheme, the Legislature has enacted three statutes which overshadow this appeal.   Section 1759 provides:  “No court of this [s]tate, except the Supreme Court to the extent specified in this article, shall have jurisdiction to review, reverse, correct, or annul any order or decision of the [PUC] or to suspend or delay the execution or operation thereof, or to enjoin, restrain, or interfere with the [PUC] in the performance of its official duties, except that the writ of mandamus shall lie from the Supreme Court to the [PUC] in all proper cases.”

Section 734 states, in relevant part:  “When complaint has been made to the [PUC] concerning any rate for any product or commodity furnished or service performed by any public utility, and the [PUC] has found, after investigation, that the public utility has charged an unreasonable, excessive, or discriminatory amount therefor in violation of any of the provisions of this part, the [PUC] may order that the public utility make due reparation to the complainant therefor, with interest from the date of collection if no discrimination will result from such reparation.   No order for the payment of reparation upon the ground of unreasonableness shall be made by the [PUC] in any instance wherein the rate in question has, by formal finding, been declared by the [PUC] to be reasonable, ․”

Section 2106 provides:  “Any public utility which does, causes to be done, or permits any act, matter, or thing prohibited or declared unlawful, or which omits to do any act, matter, or thing required to be done, either by the Constitution, any law of this [s]tate, or any order or decision of the [PUC], shall be liable to the persons or corporations affected thereby for all loss, damages, or injury caused thereby or resulting therefrom.   If the court finds that the act or omission was willful, it may, in addition to the actual damages, award exemplary damages.   An action to recover for such loss, damage, or injury may be brought in any court of competent jurisdiction by any corporation or person.”

In Waters the Supreme Court harmonized sections 1759 and 2106 by holding that judicial authority to award damages under section 2106 applies only in “[T]hose situations in which an award of damages would not hinder or frustrate the [PUC's] declared supervisory and regulatory policies.”  12 Cal.3d at p. 4, 114 Cal.Rptr. 753, 523 P.2d 1161.  Waters was an action by a telephone customer for damages arising from the telephone company's failure to provide adequate service.   The trial court limited plaintiff's damages to a credit allowance established by a PUC tariff schedule and the Supreme Court affirmed, noting that in limiting any recovery available for lack of service, the PUC was securing lower rates for the consumer—a proper regulatory function.  Waters is consistent with the court's earlier decision in Atchison etc. Ry. Co. v. Railroad Com. (1931) 212 Cal. 370, 298 P. 991 (Atchison ) where the court concluded that “the remedies given [by the Public Utilities Act] are to supplement each other and that the [PUC] has jurisdiction in all reparation cases and the courts have concurrent jurisdiction with it as to all such cases as involve no exercise of administrative or regulatory power.”  Id. at p. 379, 298 P. 991.

 In reliance on Miller v. Railroad Commission (1937) 9 Cal.2d 190, 70 P.2d 164 (Miller ), People v. Superior Court (Dyke Water Co.) (1965) 62 Cal.2d 515, 42 Cal.Rptr. 849, 399 P.2d 385 (Dyke Water Co.), and Dollar–A–Day Rent–A–Car Systems, Inc. v. Pacific Tel. & Tel. Co. (1972) 26 Cal.App.3d 454, 102 Cal.Rptr. 651 (Dollar–A–Day ), UPS contends the PUC has exclusive jurisdiction over Todd–AO's claim, and that the PUC has expressed its intent to assume exclusive jurisdiction.   We think UPS misreads the PUC's position, and also incorrectly mingles principles of concurrent and exclusive jurisdiction.

 The trial courts have concurrent jurisdiction to award damages in those cases which do not impede the PUC's supervisory and regulatory functions.  (§ 2106;  Waters, supra, 12 Cal.3d at p. 4, 114 Cal.Rptr. 753, 523 P.2d 1161;  Atchison, supra, 212 Cal. at p. 379, 298 P. 991;  see also § 736 [statute of limitations recognizing concurrent jurisdiction of PUC and trial courts].)  The primary issue in Miller involved the rates charged by a public utility for delivering water, and the establishment of utility rates is clearly a matter within the PUC's exclusive jurisdiction.

In Dyke Water Co. the PUC had ordered the termination of an interim rate increase previously granted to a water company, and ordered the utility to establish a reserve account with a trustee and deposit the amounts collected into that trust account.   When the water company initiated a declaratory relief action in the superior court to determine the rights and duties of itself and its customers, the PUC petitioned the Supreme Court to restrain the superior court from proceeding, pending the PUC's determination of a refund of those rates.   The Supreme Court granted the PUC's petition, but in so ruling stated that “Had [the water company] complied with the [PUC's] order to formulate a plan for making refunds to its customers and secured the [PUC's] approval thereof, the appropriate trial courts would have jurisdiction to adjudicate any disputes between [the water company] and third parties arising under the plan.  [Citations.]   By giving proper effect to an approved refund plan, the courts in such actions would be acting not in derogation but in aid of the [PUC's] jurisdiction.”  (62 Cal.2d at pp. 517–518, 42 Cal.Rptr. 849, 399 P.2d 385).

 Dollar–A–Day concerned a complaint regarding the telephone company's regulation of yellow pages advertising.   A tariff schedule governing the yellow pages advertising had been approved by the PUC, and as the court noted:  “A public utility's tariffs filed with the PUC have the force and effect of law.”  26 Cal.App.3d at p. 457, 102 Cal.Rptr. 651.   Consequently, any attack on the tariff had to be made to the PUC, since it involved a regulatory function of that agency.

In short, all the foregoing cases, as well as others cited by UPS, involve regulatory matters which historically lie within the exclusive province of the PUC.   Where no regulatory or supervisory function of the PUC will be impaired, the courts have exercised their jurisdiction.  (See, e.g., Empire West v. Southern California Gas Co. (1974) 12 Cal.3d 805, 117 Cal.Rptr. 423, 528 P.2d 31;  Schultz v. Town of Lakeport (1936) 5 Cal.2d 377, 54 P.2d 1110;  Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 18 Cal.Rptr.2d 308;  Stepak v. American Tel. & Tel. Co. (1986) 186 Cal.App.3d 633, 231 Cal.Rptr. 37;  Masonite Corp., supra, 65 Cal.App.3d 1, 135 Cal.Rptr. 170;  Vila v. Tahoe Southside Water Utility (1965) 233 Cal.App.2d 469, 43 Cal.Rptr. 654.

The complaint in the instant case is for damages resulting from an overcharge which the PUC has found to be unlawful and excessive.   UPS's request for approval of the excessive rates for the overcharge period has been denied, and that decision is final.   Todd–AO is not challenging the PUC's rate setting policies;  it is attempting to enforce them.  (See Dyke Water Co., supra, 62 Cal.2d at p. 518, 42 Cal.Rptr. 849, 399 P.2d 385.)   Unlike cases such as Waters, supra, 12 Cal.3d 1, 114 Cal.Rptr. 753, 523 P.2d 1161 and Colich & Sons v. Pacific Bell (1988) 198 Cal.App.3d 1225, 244 Cal.Rptr. 714, where the PUC had established regulations governing rebates or damages in conjunction with its rate tariffs, no such regulations have been established here.

Finally, we interpret the PUC decisions in the Cal Pak case as recognizing the concurrent jurisdiction of the superior court in Todd–AO's case.   The PUC in Decision 94–11–066 cited its previous ruling in Carnation Company v. Southern Pacific Company (1950) 50 Cal.P.U.C. 345, in which it quoted Atchison, supra, 212 Cal. 370, 298 P. 991 for the principle that “[T]he courts have concurrent jurisdiction in those cases where no regulatory action is required,” and observed “There has been no claim by any party save Cal Pak for refunds.”   In other words, although the PUC foreclosed Cal Pak from relitigating its claim for damages after Cal Pak failed to provide proof thereof, the PUC did not purport to foreclose any other claimant from proceeding before the PUC or the courts.   The trial court did not have the PUC's latest clarifying decision before it when it sustained UPS's demurrer.

II. THE UPS APPEAL

Background

In April 1995 UPS moved to disqualify Todd–AO's counsel, Michael Khourie, on the grounds that he breached his fiduciary obligations to absent class members, committed ethical violations and created an ethical conflict with the proposed class.

It is undisputed that during the pendency of the Cal Pak action, Khourie contacted and met with the vice-president of UPS and offered to dismiss the action in return for a payment to Khourie, personally, of approximately $8 to $10 million.   Khourie advised UPS that if payment were not forthcoming by a certain date, he would file an additional class action seeking $40 million in damages.   The trial court ruled that because of its determination that it lacked subject matter jurisdiction, it also lacked jurisdiction over the disqualification motion.

Discussion

 It is long established and without question that “The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity․”  (Cox v. Delmas (1893) 99 Cal. 104, 123, 33 P. 836.)   Surreptitiously contacting the opposing party and offering to dismiss a client's action or forego filing a valid cause of action in return for payment of fees directly to the attorney, creates a conflict of interest (see, e.g., Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 26 Cal.Rptr.2d 554) and constitutes an obvious breach of the attorney's fiduciary obligation to the client.   Although Khourie contends it is in the best interests of the potential class to permit his representation to continue, there may be some serious differences of opinion among the 150,000 alleged class members.   As a noted trial attorney has observed:  “Not all lawyers are that clear on where the [ethical] line is.”  (Cotchett, The Ethics Gap (Parker & Son Publication, Inc.1991) p. 87.)

UPS asks this court to disqualify Khourie, but we conclude the trial court is the appropriate forum for that decision.   We note the trial court disqualified Khourie in the Cal Pak action, and assume that upon remand it will exercise its discretion appropriately.

III. DISPOSITION

The judgment of dismissal is reversed.   The order determining the court was without jurisdiction to decide the motion for disqualification is reversed and remanded for determination.   Each party is to bear its own costs.

FOOTNOTES

1.   Unless otherwise indicated, all further statutory references are to the Public Utilities Code.

2.   Contrary to UPS's position, United Parcel Service v. California Pub. Utilities (United Parcel Service) (9th Cir.1996) 77 F.3d 1178 is not authoritative in this appeal, because it does not address or apply the PUC's August 1995 Decision 95–08–057.

HANING, Associate Justice.

PETERSON, P.J., and ELY, J.*, concur.

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