III. Discussion
A. The Holding Companies Are Barred From Collaterally Attacking The Commission's Prior Orders
1. Bar on Collateral Attack Under Public Utilities Code Sections 1709, 1731
Neither the utilities nor the holding companies challenged our authority to impose conditions on the holding companies in the underlying proceedings. They may not now collaterally attack the validity of those conditions. Read together, Sections 1731 and 1709 of the Public Utilities Code bar an untimely attempt to challenge the legality or reasonableness of a Commission decision. Pursuant to Public Utilities Code Section 1731, a party has 30 days after the date an order is issued to apply for rehearing. If no rehearing application is made, the party loses its right to file an action in any court.25 Section 1709 provides that, "[i]n all collateral actions or proceedings, the orders and decisions of the commission which have become final shall be conclusive."
Here, none of the utilities or holding companies applied for a rehearing to contest the Commission's determination of its authority. Now, at this late date, their attempts to challenge the Commission's decisions are untimely and thus barred.
2. Equitable Estoppel
Even absent Section 1709 and 1731's legal bars to the instant motions, the holding companies still would be equitably estopped from collaterally attacking our authority to impose the conditions. The California Supreme Court spoke to this precise issue in Henderson v. Oroville-Wyandotte Irrigation Dist., 213 Cal. 514 (1931). In that case, two water utilities under the express jurisdiction of the Railroad Commission sought the Commission's approval to transfer certain of their facilities to the defendant Irrigation District, over which the Commission had no express jurisdiction.26 The Commission approved the applications, subject to certain conditions it imposed on the Irrigation District. When the Irrigation District later refused to abide by those conditions, Henderson and other plaintiffs sued. The Irrigation District defended by arguing - just as the holding companies do here - that the Commission lacked express jurisdiction over it, and therefore lacked jurisdiction to impose conditions on it as prerequisites to approving the transfer.27 The Supreme Court held that having agreed to the conditions and having accepted the benefits of the Commission's approval of the transfer, the Irrigation District was estopped to challenge the Commission's authority to have imposed the conditions:
The defendant district accepted conveyances from the two public utility companies upon the conditions imposed by the Railroad Commission, and expressly agreed that it would enter into written contracts with the outside water users whereby it would obligate itself to perform said conditions. Its subsequent refusal to enter into such contracts with the outside water users did not entitle it to hold the property conveyed to it free from the conditions imposed by the Railroad Commission, and which it had consented to by its said resolutions . . . . As the district accepted such conveyances subject to such conditions it cannot now refuse to [comply].28
Other courts have reached identical conclusions on similar facts.29
This rule of equitable estoppel fully applies here. Pursuant to Sections 818 and 854 of the Public Utilities Code, the holding companies could not have been formed without our approval, and we gave that approval only in light of our determination that the conditions we imposed would protect the public interest. In other words, we would not have granted the applications to form the holding companies absent the conditions we imposed. To permit the holding companies now to collaterally attack our authority to impose those conditions would effectively allow the holding companies to circumvent the statutory requirement that they obtain our approval in the first place.30 As the United States Supreme Court explained in holding that a similar challenge was barred:
The appellant cannot blow hot and cold and take now a position contrary to that taken in the proceedings it invoked to obtain the Commission's approval. If the appellant then had taken the position it seeks now, the Commission might conceivably have refused its approval of the transfer. The appellant accepted the transfer with the limitations contained in the certificate. The appellant now will not be heard to say it is entitled to receive more. . .31
Put differently, the rule is designed to prevent what otherwise amounts to a sort of fraud. Here, for example, the holding companies and utilities, understanding that our approval depended on the imposition of the conditions at issue in these proceedings, accepted and agreed to the conditions, and have reaped the benefits flowing from our approvals. To permit them now to retain those benefits, but disavow the conditions we imposed would be to countenance, indeed to encourage, a fraud on the Commission and a fraud on the public we are obliged to protect.
3. Inapplicability of Subject Matter Jurisdiction Rubric to Action to Enforce Holding Company Conditions
The holding companies argue the doctrine of equitable estoppel does not apply in this case because, they allege, the Commission lacked "subject matter" jurisdiction to impose conditions on them in the underlying proceedings, citing the general proposition that subject matter jurisdiction cannot be waived or created by estoppel. The holding companies argue that no statute confers on the Commission authority to regulate them because they are not utilities. Ipso facto, they claim, the Commission lacked "subject matter" jurisdiction over them in the proceedings authorizing their formation. Citing cases that hold that subject matter jurisdiction can be challenged at any time, even collaterally, they conclude the conditions we imposed are unenforceable. For several reasons, the holding companies' arguments are incorrect.
First, lack of subject matter jurisdiction is different from action in excess of jurisdiction or otherwise in excess of an agency's statutory authority.32 Subject matter jurisdiction refers to the power to determine a particular type of proceeding.33 "The principle of `subject matter jurisdiction' relates to the inherent authority . . . to deal with the case or matter."34 Here, the Commission unquestionably had subject matter jurisdiction, in this fundamental sense, to decide whether the utilities should be permitted to form holding companies. That jurisdiction is expressly granted under Sections 818 and 854 of the public utilities code.
The holding companies' complaint, then, is nothing more than the allegation that the Commission exceeded its authority when it imposed certain conditions on them. It is well-established that an agency action allegedly in excess of its statutory authority may only be challenged on direct appeal, not collaterally, and that the right to challenge an action in excess of jurisdiction can be waived or lost by estoppel.35
Second, even if this were a question of our subject matter jurisdiction, in the fundamental sense, the modern view is that there is no absolute rule allowing parties to raise the question at any time. As one court explained:
The general proposition of the vulnerability to collateral attack of a judgment for lack of subject matter jurisdiction - like most general statements - is not so generally applicable as at first glance appears. In fact, in cases where, as here, the party who wants to attack the judgment had notice and the opportunity to be heard and either participated in the proceeding or consented to the judgment, the general rule is exactly opposite: such party normally is bound by the judgment, and estopped from attacking it collaterally, unless certain exceptional circumstances exist.36
Moreover, no collateral attack is permitted in cases such as this. Permitting the attack in this case would allow an entity to obtain by fraud what it could not have obtained had it objected in a timely manner - the Commission's unconditional approval of the party's application. That is, courts reject the notion that a party may mislead a regulatory body into granting it relief it seeks, and then later seek to avoid the burdens while accepting the benefits of that relief. To do so is akin to coming to a court with unclean hands, and the courts will not allow it.37 We are aware of no decisions addressing this issue that are to the contrary.
Third, and again regardless of any general rule concerning collateral attacks on agency jurisdiction in other contexts, any such rule would be inconsistent with Sections 1709 and 1731. That is, even if there were a general rule that allows parties the right to collaterally attack an agency's order long after the order has become final, such a rule may be limited by the legislature in specific cases, and the legislature has acted to limit collateral attacks on decisions of this Commission by enacting Sections 1709 and 1731.
Article XII, section 5 of the California Constitution gives the legislature "plenary power . . . to establish the manner and scope of review of Commission action." In Section 1731, the legislature has declared that the only way to obtain review of a Commission decision is by seeking rehearing within thirty days, followed by appeal to the Court of Appeal or to the Supreme Court. Failure to seek rehearing is bars any further review and renders the decision final, thus triggering Section 1709.38 Nothing in Sections 1709 or 1731 indicates a legislative intent to create or maintain an exception for challenges to the Commission's jurisdiction, subject matter or otherwise. Indeed, any such exception would render superfluous Section 1757, which specifies the limited grounds on which the Court of Appeal or the California Supreme Court can review a Commission decision, including absence of jurisdiction, only after the Commission has ruled on a rehearing application.
Accordingly, having failed to challenge our authority to impose conditions in the underlying proceedings, and having indeed agreed to those conditions and accepted the benefits of our approval of their applications to form, the holding companies may not challenge our jurisdiction to impose the conditions now.
B. The Commission Had Authority To Impose Enforceable Conditions On The Holding Companies
Even if the holding companies were not barred from collaterally attacking our jurisdiction, we still would deny their motions, for there is no question that we had the authority to impose conditions on them in the underlying proceedings.
The holding companies contend the Commission exceeded its authority in imposing conditions on them because they are not public utilities, and the Constitution and the Public Utilities Code grant the Commission regulatory authority only over public utilities. We disagree. It is axiomatic that in addition to authority expressly conferred on an administrative agency, an agency has implied authority to "adopt reasonable rules and regulations which are deemed necessary to the due and efficient exercise of powers expressly granted."39 Accordingly, "the commission's powers are not limited to those expressly conferred on it . . . . [Instead,] the commission [may] do all things, whether specifically designated in the Public Utilities Act or in addition thereto, which are necessary and convenient in the exercise of its jurisdiction over public utilities."40 We need not decide here how far those powers extend, since the conditions here are so closely related to actions the holding companies all concede we were authorized by Sections 818 and 854 to take - that is, the initial approvals of the holding company systems.
On the basis of these principles, the Supreme Court has affirmed our authority to impose conditions on non-utilities in carrying out our statutory duty to protect the public from adverse effects of certain transactions between utilities and non-utilities, such as the reorganizations at issue in the underlying decisions here.41 As detailed above, Henderson concerned a challenge to the Commission's authority to impose conditions on a non-utility as a prerequisite to the Commission's approval of a transfer of property from a utility to the non-utility. The Supreme Court held that although no statute expressly granted the Commission authority to regulate the non-utility, "In approving or authorizing such a sale, the Railroad Commission has jurisdiction to impose such conditions as will in the judgment of the Railroad Commission protect and safeguard the pre-existing rights of those entitled to service under [the selling] public utility."42
Exactly the same situation was present in each of our decisions authorizing the formation of respondent holding companies. In each case, we determined that imposing certain conditions on these reorganizations was necessary to "protect the public interest," or to maintain "ratepayer indifference." Just as we had authority to impose such conditions for those purposes in Henderson, we had authority to impose those conditions here.43
In fact, our authority to impose conditions on respondent holding companies is even greater than the jurisdiction the Supreme Court recognized in Henderson. Here, the transfer in ownership was not of utility property to a stranger, as it was in Henderson, but of ownership of the utility itself to a corporate parent. Regulatory agencies may disregard separate corporate forms "in the interest of public convenience, fairness and equity," and may do so even if the prerequisites for piercing the corporate veil that normally obtain in tort or contract law are absent.44 California courts have acknowledged this principle, approving the Commission's authority to disregard separate corporate forms when necessary to protect ratepayers, without first demonstrating that the normal prerequisites for piercing the corporate veil are met.45
C. The Commission Has Jurisdiction In This Proceeding To Enforce The Conditions Imposed In The Underlying Proceedings, And To Investigate Whether New Conditions Must Be Imposed
Because the conditions we imposed in the underlying decisions are valid - both because they are not now subject to collateral attack, and because we had jurisdiction to impose them in any event - we have authority in this proceeding to enforce them.46
Similarly, pursuant to our general authority to disregard separate corporate forms when necessary to fulfill our statutory mandates, and our authority to reopen proceedings to reexamine our earlier decisions under Section 1708 of the Public Utilities Code, our authority to impose these conditions extends to include authority to change those conditions prospectively if experience proves that the original conditions imposed did not protect the public interest and maintain ratepayer indifference, as they were intended to do.
The holding companies' contention that once we have approved their formation we no longer can revisit those proceedings approving the formation of the holding companies is without merit. The holding companies were on notice from the outset that we only would, and could, approve their formation provided that their formation would not adversely affect ratepayers. We determined that certain conditions must be imposed to ensure that protection. If we find in this investigation that the conditions we imposed were not adequate to protect ratepayers, the holding companies are not entitled to reap the windfall benefits of our initial miscalculation, at the expense of ratepayers. We note, moreover, that if we impose new conditions to better ensure ratepayer protection, the holding companies will be no worse off than they would have been had the initial conditions done their intended job. Accordingly, they can have no complaint. Indeed, the Commission has an ongoing duty to protect the public interest and investigate whether the rules serve that interest.
Comments on Draft Decision
The draft decision of the AlJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g)(1) and Rule 77.7 of the Rules of Practice and Procedure. Pursuant to Pub. Util. Code § 311(g)(2), and due to an unforeseen emergency situation, the 30-day period for comments on this draft decision shall be reduced to 5 days. Comments are due by hand delivery and e-mail to the ALJ and the service list by 12:00 p.m. Pacific Daylight Time on Tuesday, June 12, 2001. No reply comments will be accepted.
1. In 1985, SDG&E applied to the Commission to reorganize under a holding company structure. Although the Commission approved that application, subject to certain conditions imposed on both the utility and its new holding company, SDG&E decided not to form its holding company at that time, primarily because it disliked the conditions imposed on it and its holding company.
2. In 1988 the Commission approved, pursuant to section 854 of the Public Utilities Code, SCE's application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. SCE filed a written acceptance of the conditions with the Commission.
3. In 1995, the Commission approved, pursuant to Section 818 of the Public Utilities Code, SDG&E's second application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. Both SDG&E and its holding company's boards of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
4. In 1996 and 1999, the Commission approved, pursuant to Section 818 of the Public Utilities Code, PG&E's second application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. Both PG&E and its holding company's boards of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
5. In 1996, Enova Corporation was SDG&E's holding company. That year, Enova applied to the Commission to merge with Pacific Enterprises, to form a new holding company, which ultimately became Sempra Energy. The Commission that application in 1998. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the new holding company to those conditions. The new holding company's board of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
6. Each utility and each holding company agreed to the conditions the Commission imposed in its decisions authorizing the formation of the holding companies, either expressly in writing or implicitly by accepting our approval and proceeding to reorganize.
7. Neither respondent utilities nor respondent holding companies challenged the Commission's jurisdiction or authority to impose the conditions it did on the holding companies, either in the underlying proceedings authorizing the formation of the holding companies or in an application for rehearing of those decisions.
8. The holding companies have reaped large benefits as a result of our approvals of their formations, as set forth, in part, in the Order Instituting Investigation in this proceeding.
9. It is in the interest of public convenience, fairness, and equity that we look beyond respondent holding company systems' corporate form in the context of this proceeding. In this case, the separate relationship between respondent utilities and their holding companies must succumb to regulatory realism.
1. The holding companies motions to dismiss for lack of jurisdiction constitute collateral attacks on the Commission decisions approving their formation, and are barred by Sections 1709 and 1731 of the Public Utilities Code.
2. The holding companies, having agreed to the conditions the Commission imposed, and having accepted the benefits of the approvals for their formation, are estopped to challenge the validity and enforceability of those conditions on any ground, including the ground that the Commission lacked authority and/or jurisdiction to impose them.
3. Pursuant to Sections 818 and/or 854 of the Public Utilities Code, the Commission had subject matter jurisdiction in the underlying proceedings to determine whether the utilities' applications to reorganize under a holding company structure should be approved, and whether that approval should be contingent on the conditions we imposed.
4. The Commission had jurisdiction to impose conditions on the holding companies as a prerequisite to its approval of their applications to form. This jurisdiction derived from the statutes that require the Commission to protect the public interest in any instance where it approve such applications, and from its jurisdiction to disregard separate corporate forms when necessary and convenient to carry out its express statutory duties.
5. Because the conditions the Commission imposed were valid exercises of its authority, and/or because the holding companies are barred from challenging the validity of those conditions, the Commission have jurisdiction in this proceeding to enforce those conditions against both the utilities and holding companies, pursuant to, inter alia, Sections 2111 and 2113 of the Public Utilities Code.
6. Pursuant to Section 1708 of the Public Utilities Code, and the Commission's authority to disregard corporate forms in carrying out its statutory duties, the Commission has jurisdiction in this proceeding to investigate whether the conditions we imposed in the underlying proceedings are adequate to protect the public interest, and whether new conditions must be imposed to ensure that protection.
IT IS ORDERED that respondent holding companies' motions to dismiss are DENIED.
This order is effective today.
Dated , at San Francisco, California.
25 Cal. Pub. Util. Code § 1731(b). 26 Id. at 517-18. 27 Id. at 530. 28 Id. at 527-28. 29 See, e.g., Federal Power Comm'n v. Colorado Interstate Gas Co., 348 U.S. 492, 502 (1955) (company that accepted benefits of Federal Power Commission's decision authorizing merger, subject to certain conditions, estopped to collaterally challenge Commission's authority to impose conditions); Callanan Road Improvement Co. v. United States, 345 U.S. 507, 513 (1953) ("the appellant, having invoked the power of the Commission to approve the transfer of the amended certificate to it, is now estopped to deny the Commission's power to issue the certificate"); Kaneb Services, Inc. v. FSLIC, 650 F.2d 78, 81-82 (5th Cir. 1981) (holding company that received FSLIC authorization to purchase bank, subject to certain conditions, estopped to collaterally attack those conditions by arguing that FSLIC lacked authority to impose them). 30 See Kaneb Services, 650 F.2d at 82 (citing this reason for barring collateral attack on FSLIC's authority to impose certain conditions as prerequisite to approval of purchase of bank by holding company). 31 Callanan, 345 U.S. at 806-07. 32 See generally Abelleira v. Court of Appeal, 17 Cal. 2d 280, 287-91 (1941) (explaining this distinction). 33 See id. at 288. 34 O'Connor v. Old Rep. Ins. Co., 48 Cal. App. 4th 1076, 1087 (1996). 35 See Abelleira, 17 Cal. 2d at 291-96; see also California Coastal Comm'n v. Superior Ct., 210 Cal. App. 3d 1488, 1500-01 (1989) (plaintiff barred from collaterally attacking agency's imposition of conditions in connection with issuing permit, because challenge was that agency acted in excess of its authority, not that agency lacked subject matter jurisdiction); Farley v. Farley, 227 Cal. App. 2d 1 (1964) (imposition of remedy in excess of statutory authority does not implicate subject matter jurisdiction, and cannot be collaterally attacked). 36 Peery v. Superior Ct., 174 Cal. App. 3d 1084, 1094 (1985) (citing 2 Witkin, Cal. Procedure (3d ed. 1985), Jurisdiction, § 280, at 686-87.) 37 Pursuant to the equitable doctrine of unclean hands, a plaintiff/claimant who has acted improperly in the particular transaction or with regard to the subject matter of the action is not entitled to relief and "the door of the court will be shut against him." Dickson, Carlson & Campillo v. Pole, 83 Cal. App. 4th 436(2000) (citing 2 Pomeroy, Equity Jurisprudence, section 397, at 91 (5th ed. 1941)); see also Blain v. Doctor's Co., 222 Cal. App. 3d 1048 (1990) (unclean hands doctrine barred claim for legal malpractice by physician who followed attorney's advice and lied during deposition, for "[e]ven the most naïve must know that lying under oath is illegal"). 38 See Consumers Lobby Against Monopolies v. Public Util. Comm'n, 25 Cal. 3d 891, 902-03 (1979) (failure to apply for rehearing in time allotted by section 1731 deprives courts of jurisdiction to review Commission decision). 39 Lusardi Constr. Co. v. Aubry, 1 Cal. 4th 976, 989 (1992) (quoting California Drive-In Restaurant Ass'n v. Clark, 22 Cal. 2d 287, 303 (1943)). 40 San Diego Gas & Elec. Co. v. Superior Ct., 13 Cal. 4th 893, 915 (1996) (internal quotations omitted). 41 See Henderson, 213 Cal. at 529-30. 42 213 Cal. at 530. 43 In cases in which the Supreme Court has ruled that the Commission exceeded its authority, the Court determined that there was an insufficiently close relationship between the order at issue and "the due and efficient exercise of powers expressly granted." Lusardi Constr., 1 Cal. 4th at 989. So, for example, the Supreme Court explained its holding in Pacific Tel. & Tel. Co. v. Public Util. Comm'n, 34 Cal. 2d 822 (1950), by noting that in that case, "there was not the slightest suggestion that by following the commission's orders disapproved [in that case], Pacific's subscribers would have been furnished better service." General Tel. Co. v. Public Util. Comm'n, 34 Cal. 3d 817, 827 (1983). Here, in contrast, the conditions we imposed on the holding companies - the requirement, for example, that the holding companies give their utility subsidiaries first priority - were designed precisely with ratepayer protection in mind. 44 Capital Telephone Co., Inc. v. FCC, 498 F.2d 734, 738 (D.C. Cir. 1974); see also H.P. Lambert Co. v. Secretary, 354 F.2d 819, 822 (1st Cir. 1965) ("the fiction of the corporate entity cannot stand athwart sound regulatory procedure"); General Tel. Co. v. United States, 449 F.2d 846, 855 (5th Cir. 1971) ("Where the statutory purpose could . . . be easily frustrated through the use of separate corporate entities, the Commission is entitled to look through corporate form and treat the separate entities as one and the same for the purposes of regulation"). 45 See City of Los Angeles v. Public Util. Comm'n, 7 Cal. 3d 331, 344 (1972); see also General Tel. Co., 34 Cal. 3d 817, 826 (1983) (noting the "commission's powers to control the relationship between utilities and their parents or affiliates"). 46 See, e.g., Cal. Pub. Util. Code §§ 2111 (providing for penalties against corporations or persons other than public utilities who violate rules and orders regulating public utilities) & 2113 (providing for contempt proceedings against public utilities, corporations or persons for violation of rules and orders regulating public utilities). These citations are not meant to be an exclusive list of all legal bases we have to enforce our orders against non-utilities, and are given as an example only.
