8. Discussion

The parties have submitted voluminous pleadings in support of their positions, providing for official notice dozens of decisions, rulings, transcripts and briefs from their earlier participation in arbitration and the State Action. ALJ Walker ruled that official notice would be accorded these documents. In addition, the parties have presented oral arguments to the ALJ and the assigned Commissioner. In essence, however, we are dealing with a dispute in which defendants have set buy/sell prices pursuant to contract higher than what complainant believes it should pay. This Commission rarely addresses contract disputes between parties, even when the parties are utilities, deferring instead to the civil courts on such matters.²¹

Nevertheless, while economics may drive this case, the complaint alleges a legitimate jurisdictional question, and we are obligated to consider whether we should assert jurisdiction over oil pipeline companies that transport oil through buy/sell agreements in which they acquire title to all of the oil products passing through the line.

Under the Public Utilities Code, a "pipeline corporation" includes every corporation "owning, controlling, operating, or managing any pipeline for compensation within this state." (Pub. Util. Code § 228.) "Common carrier" includes "every person and corporation providing transportation for compensation to or for the public or any portion thereof, except as otherwise provided in this part." (§ 211.) "Public utility" includes every common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, and heat corporation, where the service is performed for, or the commodity is delivered to, the public or any portion thereof." (§ 216.)

Section 216(b) of the Public Utilities Code provides:

Whenever any common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, or heat corporation performs a service for, or delivers a commodity to, the public or any portion thereof for which any compensation or payment whatsoever is received, the common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, or heat corporation, is a public utility subject to the jurisdiction, control, and regulation of the commission and the provisions of this part.

For an oil company to be a public utility and common carrier subject to Commission regulation, in addition to the statutory requirements that it transport oil for others for compensation, the company must have dedicated its property to public use. Dedication requires that the pipeline owner, either expressly or impliedly, unequivocally offer transportation service on equal terms to all members of the public who might be able to use it.²²

The fundamental claim raised in the complaint and during oral argument is that the 20" Pipeline is being operated as a public utility. In order to prove this claim, the complainant must demonstrate (1) that the buy/sell agreements are a subterfuge used merely to avoid Commission regulation, and (2) that Equilon and Shell Trading have, through the use of these agreements, either expressly or impliedly dedicated the 20" Pipeline to public use. Equilon and Shell Trading have not expressly dedicated the pipeline to public use. Whether the pipeline has impliedly been dedicated to public use thus turns on the issue of whether buy/sell agreements are a subterfuge to mask the transportation of oil products for compensation.

California Rule of Court 977 limits the use of unpublished opinions to instances where the unpublished opinion is relevant to subsequent litigation under the doctrines of law of the case, res judicata or collateral estoppel. Law of the case is inapplicable because the current litigation is a different case from the State Action. The question is whether either res judicata or collateral estoppel arises on these facts. If not, the Rule clearly bars any use of the Court of Appeal Decision in this decision.

In its narrowest aspect, res judicata precludes parties or their privies from relitigating a cause of action finally resolved in a prior proceeding. Collateral estoppel, which is sometimes referred to as a broader form of res judicata, "may preclude a party to prior litigation from redisputing issues therein decided against him or her, even when those issues bear on different claims raised in a later case." Vandenberg v. Superior Court (1999) 21 Cal 4^th 815 Both res judicata and collateral estoppel, whether considered as separate doctrines or two aspects of the same doctrine, require that the party seeking to relitigate a claim or an issue in a subsequent proceeding must have had the claim or issue decided against it or its privies in the earlier litigation. The public policy behind these doctrines is to encourage judicial efficiency by prohibiting a losing litigant from rearguing its case in another forum. That is not the situation here. The Court of Appeal Decision found in favor of Chevron on the issue of the validity of the buy/sell agreements between the pipeline operator and the oil seller/buyer. Because the essential requirement of an earlier loss is lacking, neither res judicata nor collateral estoppel bars Chevron from asserting the invalidity of the buy/sell agreements in this proceeding. None of the three exceptions to the Rule being available, the Rule prohibits us from relying on the Court of Appeal Decision as a basis for denying relief to Chevron.²³ Accordingly, the motion to dismiss this action on the basis that Chevron is estopped from asserting the invalidity of the buy/sell agreements is denied.

Having determined that defendants' motion to dismiss must be denied, we now consider the parties' cross-motions for summary adjudication. Each moving party has the burden of establishing that there are no triable issues of material fact.²⁴ It appears from the record that both sides have met that burden. The parties agree that there has been no express dedication. They agree that the buy/sell agreements, on their face, transfer title to oil obtained from third parties to Equilon and Shell Trading before the oil enters the pipeline and impose on Equilon and Shell Trading the risk of loss for the oil in the pipeline at any time. They agree that the buy/sell agreements transfer title and risk of loss to a third-party purchaser only after the oil leaves the pipeline. They agree that the pipeline is used to transport only the pipeline owners' own oil products and oil products that the pipeline owners have purchased from third parties through buy/sell agreements; that Equilon and Shell Trading have refused to enter into buy/sell agreements with some producers;²⁵ and that Equilon and Shell Trading do not make service available to all potential customers on equal terms.²⁶

Given these undisputed facts, the remaining question is whether either party is entitled to judgment as a matter of law. We conclude that Chevron is so entitled. This case really boils down to a single issue: are Equilon and Shell Trading providing oil transportation services to the public for a fee? If they are, then the use of buy/sell agreements in place of straightforward transportation contracts will not avoid the conclusion that defendants have dedicated the pipeline to public use. Evidence developed during the proceeding established unequivocally that Equilon and Shell Trading routinely hold themselves out as oil shippers. The paper transfers of title and risk of loss and the refusal to do business on the same terms with all customers should be seen for what they are: attempts to mask the fact that they are engaged in the business of transporting oil for a fee.

At the oral argument, Chevron introduced statements made by Shell executives during a failed 2005 arbitration between the parties before an arbitrator from the Judicial Arbitration and Mediation Service (JAMS). Shell executives testifying at the JAMS arbitration repeatedly referred to Equilon as being in the business of transporting crude oil for third parties. For example, Dan Martinez of Shell Trading described his organization as charged with "trying to enhance the utilization of all the assets; otherwise keeping it as full as possible."²⁷ Martinez was even more explicit about how Shell Trading deals with third parties in this exchange:

Q: In transacting business with third parties on behalf of the pipeline, what's your objective with respect to price there?

A: Enhance revenues, get the highest price possible on the tariff or the rates that we charge, and get the most volume we can move through the system.²⁸

To achieve these goals, Shell and Equilon typically make about 50% of the pipeline's capacity available to third parties.²⁹ The amount of pipeline capacity made available to third parties is the amount left after Shell has made provision for transporting its own oil.

A crucial fact is that Shell is regularly transporting large quantities of third-party oil. At many times during the year, the amount of third-party oil in the pipeline exceeds the amount of Shell-produced oil in the pipeline, sometimes accounting for as much as 83% of the oil shipped in a given month.³⁰ Undisputed testimony establishes that Shell's revenues from selling excess pipeline capacity are in the range of $50 million per year.³¹ In short, Shell is operating a large business providing transportation service to a number of oil producers and documenting the transactions in a way that attempts to disguise the actual nature of the business.

The facts in this case strongly resemble those in PG&E v. Dow Chemical Corp. (1994) 55 CPUC 2d 430. In that case, Dow Chemical and a subsidiary used a gas pipeline to deliver gas to industrial customers through a combination of leases and exchange agreements. Under the leases, the "lessees" purportedly took a possessory interest in a portion of the pipeline, purportedly transporting their own natural gas for themselves. Under the "exchange" agreements, customers delivered gas to the gas field end of the pipeline and in exchange received gas delivered at the other end of the pipeline adjacent to their own facilities. The agreements specifically disclaimed dedication of the pipeline. Based on these facts, the Commission found irrelevant Dow Chemical's contractual provision disclaiming dedication, instead looking to Dow's conduct as determinative. The Commission concluded that Dow Chemical's conduct "unequivocally shows a dedication of excess capacity for the life of the pipeline."³²

While PG&E v. Dow Chemical may be distinguishable from the case before us by virtue of being a natural gas case, we do not think that fact is determinative of the outcome. The similarities between the business arrangements in PG&E v. Dow Chemical and those in this case are much greater than the differences. In both instances, a pipeline owner is selling excess capacity to unrelated third parties in order to make a profit. The articles of incorporation of Dow Chemical and the LLC Certificate of Equilon state that the respective companies are in the business of transporting petroleum products, in the one case natural gas and in the other crude oil, both "without restriction." Furthermore, there is a compelling policy reason to impose common carrier status on Equilon and Shell Trading. Shell Oil is both a provider of services to other Bay Area refiners and a competitor. Through its monopoly control of the only heated pipeline between San Joaquin and the Bay Area, Shell Oil is in a position to damage its competitors by denying them access to the pipeline or charging them an exorbitant price to use it.³³

In holding that PG&E v. Dow Chemical controls this case, we necessarily decline to rely on Associated Pipeline. As is true in this case, Associated Pipeline both produced and purchased oil in the central valley. It transported that oil to itself at the other end of the pipeline where it sold some and refined the rest. In declining to look beyond the terms of the sale documents, the California Supreme Court deliberately elevated form over substance, ignoring the actual business Associated Pipeline Company was conducting in favor a legal fiction. But we need not follow that example. Rather, as we did in PG&E v. Dow Chemical, we may look to the substance of the transaction rather than its form. Even if the initial sale of oil from a producer to a third party is a genuine transfer of title and risk of loss, that is not the end of the inquiry. We need to look at the business context in which the purported "sale" takes place and when we do, we recognize that it is merely a subterfuge to conceal the actual business of transporting oil for third parties.

Accordingly, we find that Chevron's motion for summary adjudication should be granted.

²¹ The Commission has stated, "Since the Commission has no jurisdiction to award damages, complaints alleging breach of contract are better served through the civil courts." Crystal River Oil and Gas v. Pacific Gas Electric Co., D.00-10-005, citing Penaloza v. P.T. & T., 64 CPUC 496, 497.

²² Richfield Oil Corp. v. Public Util. Com. (1960) 54 Cal.2d 419, 426-433; Associated etc. Co. v. Railroad Commission (1917) 176 Cal. 518, 520-530.

²³ Because the Rule does not carve out an exception for judicial estoppel, we need not consider whether it applies to these facts or, more precisely, whether it would apply if the 1994 decision had been certified for publication. However, we note that there is no public policy that bars a litigant from changing its legal theory when its factual situation has changed, as the factual situation of Chevron has changed in this case.

²⁴ See Code of Civil Procedure § 437(c), sub-section c; Williams v. California Physicians' Service (1999, 3d Dist) 72 Cal. App. 4^th 722.

²⁵ Chevron's Response to First Data Request, at 9, Request for Admission No. 18; Tesoro Response, at 5.

²⁶ Chevron Complaint, at 12; Tesoro Response, at 6.

²⁷ Chevron-Equilon oral argument March 13, 2007, Transcript (Oral Argument Transcript), p. 7.

²⁸ 2005 JAMS Arbitration Report Transcript at 24:25-25:2.

²⁹ Oral Argument Transcript, pp. 7-8.

³⁰ Oral Argument Transcript, p. 8.

³¹ Id.

³² Dow Chemical, 55 CPUC 2d at 444.

³³ Transcript, pp. 22-24.