Waters v. Pacific Telephone Co.

523 P.2d 1161, 12 Cal. 3d 1, 114 Cal. Rptr. 753, 1974 Cal. LEXIS 205

• Court: California Supreme Court
• Decided: July 9, 1974
• Docket: S.F. 23071
• Status: Published

Opinions

Opinion

BURKE, J.

In this case we must reconcile provisions of the Public Utilities Code which (1) deprive the superior courts of jurisdiction to “review, reverse, correct, or annul” any order or decision of the Public Utilities Commission or to interfere with the commission’s performance of its official duties (Pub. Util. Code, § 1759)¹ and which (2) vest the superior courts with jurisdiction to award damages against any public utility which acts unlawfully, or fails to act as required by law (§ 2106).²

In the instant case, defendant Pacific Telephone Company (Pacific) allegedly failed to furnish plaintiff adequate telephone service, as required by section 451;³ accordingly, plaintiff instituted a damage action in superior court pursuant to the provisions of section 2106. As will appear, however, the commission has adopted a policy of limiting the liability of telephone utilities such as Pacific for acts of ordinary negligence to a specified credit allowance, as set forth in approved tariff schedules which form a contract with telephone service customers. Since an award of substantial damages to plaintiff would be contrary to the policy adopted by the commission and would interfere with the commission’s regulation of telephone utilities, we have concluded that section 1759 bars the instant action. We further conclude that, in order to resolve the potential conflict between sections 1759 and 2106, the latter section must be construed as limited to those situations in which an award of damages would not hinder or frustrate the commission’s declared supervisory and regulatory policies. Our disposition of this case will not insulate the commission’s policies regarding limitation of liability from review by this court; under sections 1756-1758, this court retains jurisdiction to review, on petitions for writ of review or certiorari, the lawfulness of any order or decision of the commission in accordance with the procedures set forth in those sections. As the instant action, however, is not before us on a petition for writ of review, we must focus our attention solely upon the question whether plaintiff’s damage suit in superior court was properly dismissed.

Plaintiff, a real estate broker, alleged she suffered substantial damages by reason of Pacific’s failure to provide adequate telephone service. According to plaintiff, on September 15, 1964, she contracted with Pacific to provide such service, but “continuously and up to and including the. present time [April 1966] said defendants [Pacific and fictitious defendants] have breached said agreement in that they have continuously failed to perform the agreement.” Plaintiff’s alleged difficulties with her telephone included lack of proper maintenance service, incompleted calls, unauthorized removal of phones, improper installation of phones, and a variety of other frustrating experiences specified in her complaint. She sought from Pacific a total of $750,000 in damages as a result of Pacific’s alleged negligence and breach of warranty.

In its answer, Pacific contended that under paragraph 14(a) of its tariff schedule 36-T, .the customer is entitled to receive only a “credit allowance” in an amount limited to “the total fixed charges for exchange service” for the period during which the customer’s phone is out of service.⁴ Subsequently, Pacific sought a partial summary judgment limiting the amount of damages awarded to plaintiff to the fixed service charges for the period, as provided in the tariff schedule.

The trial court granted Pacific’s motion, on the basis that the commission has exclusive authority to regulate all operations of public utilities, that the provisions of tariff schedule 36-T were approved by the commission and intended by it to limit the liability of telephone utilities to the amounts specified in the tariff, that such limitation is operative and binding upon plaintiff, and that the trial courts are without authority to interfere with or annul the commissions’ orders and decisions. Plaintiff voluntarily waived her right to recover any credit allowance under Pacific’s tariff, and a judgment of nonsuit was entered in Pacific’s favor. Plaintiff appeals.

Initially, we note that the commission has been vested by the Legislature with broad supervisory and regulatory powers. “The commission may supervise and regulate every public utility in the State and may do all things, whether specifically designated in this part or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction.” (§ 701.) Every public utility must obey the orders, decisions, directions or rules prescribed by the commission “in any way relating to or affecting its business as a public utility . . . .” (§ 702.)

The commission is specifically empowered to require utilities to file tariff schedules containing rates, charges and classifications, “together with all rules, contracts, privileges, and facilities which in any manner affect or relate to rates, tolls, rentals, classifications, or service.” (§ 489.) The commission may from time to time prescribe changes in the tariff schedules “as it finds expedient . . .” (§ 490) and may, following a hearing, establish new rates, classifications, rules, contracts, practices or schedules in lieu of prevailing ones. (§ 729; see § 761.) The subject of limitations upon liability of telephone utilities has long been considered to be a proper subject for commission regulation and supervision,⁵ and appropriate provisions have been included in Pacific’s tariff schedules for several years prior to the events which led to the filing of plaintiff’s complaint.

For example, at least as early as 1950 Pacific had filed with the commission for its approval tariff schedules which employed the credit allowance device as a limit of Pacific’s liability to its customers. (See Cole V. Pacific Tel. & Tel. Co., 112 Cal.App.2d 416, 417 [246 P.2d 686].) Cole involved a suit for $25,000 in damages for failure to include a customer’s name and advertisement in Pacific’s classified directory. Pacific’s tariff schedule and contract with its customers provided that “In case of error or omission of the advertisement by the company, the extent of the company’s liability shall be limited to a pro rata abatement of the charge paid to the company as the error or omission may affect the entire advertisement.” The court upheld and enforced the foregoing provision.

The court first noted that “When such rule is of record with the Public Utilities Commission, its provisions, if reasonable, are binding upon the parties to the contract and will operate to limit the telephone company’s liability as therein set forth. . . . ‘The rates charged for such service are governed and fixed by the Public Utilities Act. They cannot be varied or departed from and are in part dependent upon [Pacific’s] rule of limitation of liability. . . .’ ” (Cole v. Pacific Tel. & Tel. Co., supra, 112 Cal.App. 2d 416, 417-418.) The court discussed applicable cases from other jurisdictions which uphold the right of regulated utilities to limit their liability, and explained that “The theory underlying these decisions is that a public utility, being strictly regulated' in all operations with considerable curtailment of its rights and privileges, shall likewise be regulated and limited as to its liabilities. In consideration of its being peculiarly the subject of state control, ‘its liability is and should be defined and limited.’ [Citation.] There is nothing harsh or inequitable in upholding such a limitation of liability when it is thus considered that the rates as fixed by the commission are established with the rule of limitation in mind. Reasonable rates are in part dependent upon such a rule.” (Id., p. 419.) The court concluded that, although a particular limitation provision may be challenged as unreasonable, the question of reasonableness should first be directed to the commission, not the trial courts. (See also Riaboff v. Pacific T. & T. Co., 39 Cal.App.2d Supp. 775 [102 P.2d 465], upholding a similar limitation provision.)

More recently, in Davidian v. Pacific Tel. & Tel. Co., 16 Cal.App.3d 750 [94 Cal.Rptr. 337], Pacific faced a $63,200 damage claim based upon its alleged negligence in omitting plaintiff’s name and other information from the classified directory. Pacific successfully contended that it had limited its liability for such negligence by means of a credit allowance provision similar to the provision involved in the instant case (fn. 4, ante). The provision in Davidian required Pacific to “allow credit for errors or omissions in listings of its subscribers” in various specified amounts “not in excess of” the monthly service charge or advertisement charge. Although the provision did not expressly state that Pacific’s liability was limited to the credit allowance provided, the court explained that it was the commission’s policy to treat the clause as a limitation provision.

The court in Davidian stated that the commission had taken into consideration Pacific’s limitation of liability in fixing its rates for telephone service,⁶ and reiterated the admonition in Cole, supra, that “Reasonable rates are in part dependent upon such a rule.” The court also noted that Pacific formerly had included in its schedules a provision that “The Company assumes no liability for damages arising from errors and omissions in the making up or printing of its directories,” but that the commission in 1965 (Dec. No. 69942, 65 Cal.P.U.C. 103) ordered this provision modified to reflect the actual practice of Pacific in granting a credit allowance. The commission’s order, however, was not intended to change the measure of Pacific’s liability to customers for negligence; it merely required Pacific to substitute a provision which indicated more specifically to the subscriber that he would be eligible for a credit allowance in the event of such negligence.

Finally, the court in Davidian pointed out that in 1970, following the events which led to the action filed in that case (and the instant case), the commission undertook an extensive investigation of the general question of limitation of liability by telephone utilities, and in its subsequent decision the commission made it clear that the credit allowance device has always been considered to be a rule limiting the utility’s liability. (See Dec. No. 77406, 71 Cal.P.U.C. 229.) In this decision, the commission determined that as a matter of policy⁷ telephone utilities should have at least partial liability for “gross negligence,” but that “Abrogation of respondents’ [telephone utilities] limitation of liability rules with respect to errors or omissions involving ordinary negligence would have little if any impact in improving the services of telephone corporations. Said rules, with respect to errors or omissions involving ordinary negligence', are reasonable and for the future will be reasonable.” (Italics added; 71 Cal. P.U.C., p. 249, ¶ 14.) The commission ordered all telephone utilities to adopt a standard form “Limitation of Liability” provision for their tariff schedules, which provision expressly limits the utility’s liability to specified credit allowances.

Thus, the court in Davidian concluded that the former credit allowance provision constituted a reasonable limitation of Pacific’s liability for ordinary negligence, and affirmed a lower court judgment dismissing the damage suit against Pacific. (Accord: Hall v. Pacific Tel. & Tel. Co., 20 Cal. App.3d 953 [98 Cal.Rptr. 128].) Plaintiff herein contends that Davidian erred in accepting the commission’s interpretation of the credit allowance provision as a limitation of liability. She relies upon a contrary holding in Product Research Associates v. Pacific Tel. & Tel. Co., 16 Cal.App.3d 651, 658 [94 Cal.Rptr. 216], to the effect that the clause now before us “falls short of expressing defendant’s intention to exculpate itself from negligence. Since defendant itself prepared and submitted the schedule it could have plainly stated that it intended to relieve itself from liability for interrupted or failure of service where such interruption or failure resulted from its own negligence. [Citations.] The subject schedule merely deals with a ‘credit allowance’ against service charges . . . .”

The court in Product Research conceded that the commission (Dec. No. 77406, supra) has treated the credit allowance provision as a rule limiting liability for negligence, but stated that “The foregoing decision ... is not binding on this court insofar as it purports to hold that the subject tariff schedule is one exculpating defendant from liability for negligence. The sufficiency and validity of a clause or provision which purports to exculpate one from his own negligence is ultimately one for judicial resolution. [Citations.]” (P. 660.)

We agree that ordinarily a provision which is intended to limit one’s liability for negligence must clearly and explicitly express that purpose, and that it is for the courts to determine whether or not the provision possesses the requisite precision and clarity. (See Vinnell Co. v. Pacific Elec. Ry. Co., 52 Cal.2d 411, 414-415 [340 P.2d 604].) Yet, as we have pointed out (fn. 5, ante), general principles which might govern disputes between private parties are not necessarily applicable to disputes with regulated utilities. Pacific’s’ use of a credit allowance provision as a means of limiting its liability for ordinary negligence has been considered and approved by the commission, and taken into account in setting its rates. Were the courts permitted to reappraise and reinterpret the language of commission-approved tariff schedules in the guise of “judicial construction,” the supervisory and regulatory functions of the commission set forth above could easily be undermined.⁸

It stands undisputed that the commission has approved a general policy of limiting the liability of telephone utilities for ordinary negligence to a specified credit allowance, and has relied upon the validity and effect of that policy in exercising its rate-making functions. (See fn. 7, ante.) It also appears clear that to entertain suits such as plaintiff’s action herein and authorize a substantial recovery from Pacific would thwart the foregoing policy. That being so, the express language of section 1759 (fn. 1, ante) bars plaintiff’s action.

As we pointed out in Pacific Tel. & Tel. Co. v. Superior Court (Sokol), 60 Cal.2d 426, 430 [34 Cal.Rptr. 673, 386 P.2d 233], involving a damage suit against Pacific based on its refusal to provide telephone service, “The mandate of the Legislature, violated by the superior court in the case at bar [for refusing to grant Pacific’s motion for summary judgment], is to place the commission, insofar as the state courts are concerned, in a position where it may not be hampered in the performance of any official act by any court, except to the extent and in the manner specified in the code itself. [Citations.] [¶] Hence, respondent [court], when it assumed jurisdiction to review and annul the decisions of the commission here im volved, altered the scheme of review established by the Legislature. Respondent was therefore without jurisdiction to pass upon the question here presented. [Citation.]” (See also Miller v. Railroad Commission, 9 Cal.2d 190, 195 [70 P.2d 164, 112 A.L.R. 221]; People ex rel. Public Util. Com. v. Ryerson, 241 Cal.App.2d 115, 122 [50 Cal.Rptr. 246]; Pratt v. Coast Trucking, Inc., 228 Cal.App.2d 139, 149-150 [39 Cal.Rptr. 332] [“. . . no sensible person ... should for a moment contend that there is an area within which the commission and the courts can legitimately reach exactly opposite and conflicting conclusions on a given set of facts”]; Harmon v. Pacific Tel. & Tel. Co., 183 Cal.App.2d 1, 2-3 [6 Cal.Rptr. 542].)

Plaintiff maintains that section 2106, in permitting damage actions against utilities for their unlawful acts, authorizes the instant action in spite of the language and policy underlying section 1759. Yet the two sections must be construed in a manner which harmonizes their language and avoids unnecessary conflict. Section 2106 reasonably may be interpreted as authorizing only those actions which would not interfere with or obstruct the commission in carrying out its own policies. Indeed, the cases upon which plaintiff relies recognize this implicit limitation under section 2106. As stated in Vila v. Tahoe Southside Water Utility, 233 Cal. App.2d 469, 479 [43 Cal.Rptr. 654], following a review of the applicable cases, “The utility’s obligation [to provide a “single service connection”] ... was clear under an unambiguous provision in its own rules (rules which it had been required to adopt by order of the commission). [¶] Under these circumstances and under the authorities discussed above, we hold that the superior court had jurisdiction to hear and decide all issues framed by the complaint. Existence and exercise of this jurisdiction is in aid and not in derogation of the jurisdiction of the commission.” (Italics added; see also People v. Superior Court (Dyke Water Company), 62 Cal.2d 515, 517-518 [42 Cal.Rptr. 849, 399 P.2d 385], and cases cited.)

We conclude, therefore, that since the instant action asserted a claim for damages in excess of the credit allowance contained in a tariff schedule filed with and approved by the commission, and since the commission formerly⁹ had adopted a policy of allowing telephone utilities to limit their liability for ordinary negligence by means of the credit allowance provision involved in this case, the trial court properly ruled in Pacific’s favor.¹⁰

The judgment is affirmed.

Wright, C. J., McComb, J., Clark, J., Taylor, J.,* and Caldecott, J.,* concurred.

1 Unless otherwise specified, all further statutory references in this opinion are to provisions of the Public Utilities Code.

Section 1759 provides that: “No court of this State, 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 commission or to suspend or delay the execution or operation thereof, or to enjoin, restrain, or interfere with the commission in the performance of its official duties, except that the writ of mandamus shall lie from the Supreme Court to the commission in all proper cases.”

2 Section 2106 provides in pertinent part that “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 State, or any order or decision of the commission, 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 wilful, 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. . . .”

3 Section 451 provides in pertinent part that . . Every public utility shall furnish and maintain such adequate, efficient, just, and reasonable service, instrumentalities, equipment, and facilities as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.

“All rules made by a public utility affecting or pertaining to its charges or service to the public shall be just and reasonable.”

4 Paragraph 14(a) of Pacific’s tariff schedule, filed with and approved by the commission, and incorporated into Pacific’s contract with plaintiff, provided as follows:

“14. Interruptions and Failures of Service

“ (a) Credit Allowance for Interruption to Service

“Upon request of the subscriber the Company will allow subscribers credit in all cases where telephones are ‘out of service,’ except when the ‘out of service’ is due to the fault of the subscriber, for periods of one day or more from the time the fact is reported by the subscriber or detected by the Company, of an amount equal to the total fixed monthly charges for exchange service multiplied by the ratio of the number of days ‘out of service’ to the number of calendar days in the billing month.

“A day of ‘out of service’ will be considered to exist when service is not available for a period of twenty-four consecutive hours. When any ‘out of service’ period continues for a period- in excess of an even multiple of twenty-four hours, then the total period upon which to determine the credit allowance will be. taken to the next higher even twenty-four hour multiple.

“In no case will the credit allowance for any period exceed the total fixed charges for exchange service for that period.” (Italics added.)

5 Both this court and the United States Supreme Court have acknowledged that considerations of public policy which might be applicable to disputes between private parties (see, e.g., Civ. Code, § 1668) “are not ‘necessarily applicable to provisions of a tariff filed with, and subject to the pervasive regulatory authority of, an expert administrative body.’ ” (E. B. Ackerman Importing Co. v. City of Los Angeles, 61 Cal.2d 595, 599 [39 Cal.Rptr. 726, 394 P.2d 566], quoting from S. W. Sugar Co. v. River Terminals, 360 U.S. 411, 417 [3 L.Ed.2d 1334, 1340-1341, 79 S.Ct. 1270].) As stated in the Southwestern case, “For all we know, it may be that the rate specified in the relevant tariff is computed on the understanding that the exculpatory clause shall apply to relieve the [utility] of the expense of insuring itself against liability for damage . . . and is a reasonable rate so computed.”

In the instant case, as we point out below, the commission has taken into account for ratemaking purposes Pacific’s limited liability for acts of ordinary negligence. Moreover, in a 1970 decision, the commission’s' hearing examiner pointed out that “at the present time, no liability insurance is available to insure against service or directory errors. If a change in the [limitation of liability] rule results in payouts greater than at present the money must come from the revenues of the companies affected.” (Dec. No. 77406, 71 Cal.P.U.C. 229, 245.)

6 For example, a 1963 decision of the commission (No. 66406, 61 Cal.P.U.C. 760, 767), declares that “Charges for service are in part dependent upon defendant’s [Pacific’s] rules and regulations . . . limiting liability for errors and omissions in its directories. The rule has enabled defendant to provide its service to the public at a lesser cost than would be the case if the rule permitted greater liability for errors and omissions.”

7 In reaching its decision, the commission explained that “Among the factors to be considered with respect to limitation of liability rules are: (1) their impact on persons damaged, (2) their impact on ratepayers generally and (3) their impact on telephone .corporations.” (71 Cal.P.U.C., p. 234.) The commission adopted the findings and recommendations of its hearing examiner, who had noted that errors and service interruptions were inevitable in the operation of a telephone utility, that it may be impossible to determine the cause of a service interruption or failure, that the limitation of liability rule has “worked reasonably well” and has enabled the telephone companies “to provide service to the public at a lesser cost than would be the case if the rules permitted greater liability for errors and omissions,” and that no liability insurance is presently available -to insure against service errors. Although the examiner recommended a partial liability for “gross negligence,” he also recommended that “any changes in the limitation of liability rules should not be permitted to ~ have such a profound impact that smaller telephone companies might be faced with financial disaster and larger ones suffer dramatic changes in earnings which might prompt substantial rate increases.” (Id., p. 245.)

8 Moreover, it seems apparent that the general rule set forth in the Vinnell case, supra, requiring precision of expression in drafting exculpatory clauses is based essentially on considerations of fairness to the injured party who might otherwise have refused to enter into the transaction. On the other hand, such considerations seem inapplicable to the customers of a telephone utility. Telephone service is a business and personal necessity, and the subscriber thereto ordinarily would not be motivated by the availability of damages in the event of negligent service.

9 As we explain above, in 1970 the commission. ordered the former provision changed so that telephone utilities are now liable, up to specified amounts, for gross negligence. The new provision expressly limits the utilities’ liability for ordinary negligence to the specified credit allowances. (See 71 Cal.P.U.C. 229, 251-256.)

10 To the extent Product Research Associates v. Pacific Tel. & Tel. Co., supra, 16 Cal.App.3d 651, is inconsistent with the views expressed herein, that case is hereby disapproved.