Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Appeal from judgment in JCCP Nos. 4204-00005 and 4204-00006 dismissed; judgment in JCCP No. 4204-00009 affirmed.
IRION, J.
The Attorney General of the State of Montana (the Montana AG) appeals from the trial court's approval of the settlement of claims against Reliant Energy, Inc. and its affiliates and subsidiaries in two separate class action complaints arising out of California's energy crisis.
The specific entities related to Reliant Energy, Inc. that were sued as defendants in the actions giving rise to this appeal and that are respondents in this appeal are Reliant Energy Services, Inc., Reliant Energy Power Generation, Inc., Reliant Energy California Holdings, Inc., Reliant Energy Coolwater, Inc., Reliant Energy Ellwood, Inc., Reliant Energy Etiwanda, Inc., Reliant Energy Mandalay, Inc., and Reliant Energy Ormond Beach, Inc. (collectively Reliant).
The two class action complaints assert claims on behalf of different classes, but both were assigned to the same California Judicial Council coordination proceeding (Wholesale Electricity Antitrust Cases I & II, Judicial Council Coordination Proceeding Nos. 4204 and 4205), and were both settled pursuant to the same global settlement agreement. One of the class action complaints concerns the claims of class members who were retail purchasers of electricity in California (JCCP Nos. 4204-00005 and 4204-00006). The other class action complaint concerns the claims of class members who were retail purchasers of electricity in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Montana or Arizona (JCCP No. 4204-00009). The trial court approved the settlement of the two class action complaints in separate orders and separately entered judgments.
Although the Montana AG purports to appeal from both of the judgments, we conclude that appeal from the judgment concerning the claims of California consumers (JCCP Nos. 4204-00005 and 4204-00006) must be dismissed because the Montana AG lacks standing to object to the settlement of those claims. With respect to the judgment concerning the settlement of the claims of the consumers in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Montana and Arizona (JCCP No. 4204-00009), we conclude that the Montana AG has standing to pursue its appeal, but we conclude that the Montana AG's contentions lack merit. Accordingly, we dismiss the appeal of the judgment in JCCP Nos. 4204-00005 and 4204-00006, and we affirm the judgment entered in JCCP No. 4204-00009.
I
FACTUAL AND PROCEDURAL BACKGROUND
In 2000 and 2001, California experienced an energy crisis following deregulation of its energy markets. The California energy crisis is explained at length in Public Utilities Com'n, supra, 462 F.3d 1027, 1036-1044.
A basic review of the functioning of the markets for wholesale electricity in California during the relevant timeframe will be useful for understanding the issues presented in this appeal. The Ninth Circuit Court of Appeals in California ex rel. Lockyer v. Dynegy, Inc. (9th Cir. 2004) 375 F.3d 831 provided a useful overview. In 1996, "the California Legislature decided that reshaping the market for California energy could help provide competitive, lower cost and reliable electricity service, while preserving the state's commitment to developing diverse, environmentally sensitive electricity resources. [Citation.] Assembly Bill 1890 . . . [¶] . . . formed two non-governmental entities to orchestrate the transmission and sale of electricity: the Independent System Operator ('ISO') and the Independent Power Exchange ('PX'), both of which are California non-profit, public benefit corporations. [Citation.] At the same time, the [California Public Utilities Commission (CPUC)] authorized the investor-owned utilities to sell electricity generation plants to other entities . . . . Until it ceased operations in 2001, the PX was a crucial hub of the electricity generation market, overseeing an auction system for the sale and purchase of electricity on a nondiscriminatory basis to meet the electricity loads of exchange customers. . . . . [T]he PX was subject to the jurisdiction of the Federal Energy Regulatory Commission [(FERC)], and it operated pursuant to FERC-approved tariffs and FERC-approved wholesale rate schedules. [¶] Responsibility in turn for the efficient functioning of the high-voltage transmission grid fell to the ISO . . . . The ISO manages the flow of electricity across the grid and balances supply and demand in real time." (Id. at p. 835.) A more extensive discussion of the California energy markets and the energy crisis is contained in Public Utilities Com'n of State, Cal. v. F.E.R.C. (9th Cir. 2006) 462 F.3d 1027, 1036-1039 (Public Utilities Com'n). In this opinion we will sometimes refer to the ISO and the PX collectively as the California wholesale energy markets.
A. The California Class Actions
Beginning in 2000, six class action lawsuits were filed in various California superior courts against several energy companies and related persons, including Reliant, alleging that the energy crisis was a product of defendants' manipulation of the deregulated wholesale energy markets, in violation of California antitrust and unfair business practices law (the California Class Actions). Reliant is alleged to be a generator and trader of wholesale electricity, operating electricity generating plants in California.
The six actions were: Pamela Gordon, on Behalf of Herself and All Others Similarly Situated and on Behalf of the General Public v. Reliant Energy, Inc., San Diego Superior Court, No. GIC758487; Ruth Hendricks, on Behalf of Herself and All Others Similarly Situated and on Behalf of the General Public v. Dynegy Power Marketing, Inc., San Diego Superior Court, No. GIC758565; Sweetwater Authority, on Behalf of Itself and All Others Similarly Situated and on Behalf of the General Public v. Dynegy Power Marketing, Inc., San Diego Superior Court, No. GIC760743; The People of the State of California, by and Through the City Attorney for the City and County of San Francisco, Dennis J. Herrera v. Dynegy Power Marketing, Inc., San Francisco Superior Court, No. SCV318189; Pier 23 Restaurant, Oscar's Photo Lab, on Behalf of Themselves and All Others Similarly Situated and on Behalf of the General Public v. PG&E Energy Trading, Inc., San Francisco Superior Court, No. SCV318343; Cruz M. Bustamante, Individually, and Barbara Matthews, Individually, and on Behalf of the General Public and as a Representative Taxpayer Suit v. Dynegy, Inc., Los Angeles Superior Court, No. BC249705.
After being removed to federal court and remanded (see Hendricks v. Dynegy Power Marketing, Inc. (S.D. Cal. 2001) 160 F.Supp.2d 1155, 1156), the California Class Actions were coordinated by the California Judicial Council in San Diego County Superior Court before a single judge under the caption Wholesale Electricity Antitrust Cases I & II, Judicial Council Coordination Proceeding Nos. 4204 and 4205 (Wholesale Electricity Antitrust Cases). On March 8, 2002, a master complaint (Master Complaint) was filed in the California Class Actions on behalf of a class comprised of persons in California who had purchased electricity, other than for the purposes of resale or distribution, from the three large California utilities, since January 1, 1999 (the California class). The Master Complaint alleges that various energy company defendants, including Reliant, violated California's antitrust law (the Cartwright Act, Bus. & Prof. Code, § 16720 et seq.) and committed unfair and unlawful business practices (id., § 17200 et seq.) through "manipulation, distortion, and corruption of California's deregulated wholesale electricity market."
The Master Complaint was specifically filed under JCCP Nos. 4204-00005 and 4204-00006.
The California Class Actions were removed to federal court a second time and were then remanded once again. (See California v. NRG Energy Inc. (9th Cir. 2004) 391 F.3d 1011, 1021, vacated in part by Powerex Corp. v. Reliant Energy Services, Inc. (2007) ___ U.S. ___ [127 S.Ct. 2411, 168 L.Ed.2d 112].)
B. The FERC Refund Proceedings
In response to the California energy crisis, refund proceedings were conducted by FERC concerning the allegedly excessive rates charged for wholesale electricity during the California energy crisis. The nature and complexity of the FERC refund proceedings are explained by the Ninth Circuit in Public Utilities Com'n, supra, 462 F.3d 1027, 1041-1045. For our purposes, the important point is that numerous parties sought, through the FERC refund proceedings, to recover against Reliant based on wholesale electricity rates during the California energy crisis.
C. The Egger Class Action
In April 2003, five individual plaintiffs — Jerry Egger, Monica Sivulich, Karl H. Tschinderle, Sean Crotty and Lucy Crotty (the Egger plaintiffs) — filed a class action lawsuit in San Diego County Superior Court, No. GIC809822 (the Egger I lawsuit) against several energy companies, including Reliant Energy Services, Inc. and Reliant Energy, Inc. The lawsuit was brought on behalf of "a proposed class of persons and entities in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Montana or Arizona who purchased electricity for purposes other than resale or distribution from January 1, 1999 to the present" (the Egger class). The Egger plaintiffs alleged that "[d]ue to the efficient transmission system of the West Coast Power Grid, there is a well-integrated market for electricity in the states of California, Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Arizona and Montana (the 'West Coast Energy Market')." They further alleged that "wholesale and retail pricing throughout the West Coast Energy Market is dominated by trading and pricing activity in California," and that "[a]s a result of Defendants' illegal manipulation of the California and West Coast wholesale energy markets, Plaintiffs and millions of other energy consumers in the West Coast Energy Market suffered skyrocketing electricity prices beginning in the year 1999 and continuing to the present." The lawsuit alleged (1) violation of California's antitrust law, the Cartright Act (Bus. & Prof. Code, § 16720 et seq.); (2) commission of unlawful, unfair and fraudulent business practices in violation of Business and Professions Code section 17200 et seq.; and (3) entitlement to an accounting.
Defendants removed the Egger I lawsuit to federal district court, and plaintiffs filed a motion to remand. Instead of ruling on the motion to remand, the federal district court stayed the Egger I lawsuit pending the outcome of certain appeals in the Ninth Circuit Court of Appeals that implicated similar issues. The Egger I lawsuit remained stayed in the federal court until at least 2006.
D. The Settlement
Settlement negotiations took place between Reliant and the numerous parties who had asserted claims against Reliant arising out of the energy crisis, including in the FERC refund proceedings. The various parties reached a global settlement, which was set forth in a comprehensive settlement agreement dated October 12, 2005 (the Settlement Agreement). The parties to the settlement were Reliant, FERC's Office of Market Oversight and Investigations, California's three large investor-owned utility companies (Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company), the California Attorney General, various California state agencies (the California Department of Water Resources, the California Electricity Oversight Board, the CPUC), the Oregon State Attorney General and the Washington State Attorney General (both together, Oregon and Washington attorneys general), numerous local governmental entities in California (the local governmental entities), the representatives of the Egger class and the representatives of the California class.
The Settlement Agreement identified both monetary and nonmonetary consideration.
1. Monetary Consideration
The monetary consideration in the Settlement Agreement consisted of several elements:
(1) Reliant's payment of $3.5 million to the Oregon Attorney General and $3.5 million to the Washington Attorney General.
(2) Reliant's payment of $64,653,274 to various entities (not specifically listed in the Settlement Agreement), which it had already agreed to in connection with the settlement of certain FERC proceedings.
(3) Reliant's agreement to assign as consideration for the settlement the amount of approximately $299,546,045 in unpaid receivables, plus interest, owing to it from PX and ISO for energy sales during 2000 and 2001.
(4) The payment of $131,503,955 in cash by Reliant.
These last two items were to be deposited in an escrow account, referred to in the Settlement Agreement as the Reliant Refund Escrow. The amounts in the Reliant Refund Escrow were to be paid to a wide group of parties. According to the Settlement Agreement, the parties entitled to share in the payments from the Reliant Refund Escrow were (1) the parties referred to in the Settlement Agreement as "the California Parties," consisting of California's three large utility companies, the California Attorney General, the California Department of Water Resources, the California Electricity Oversight Board and the CPUC; (2) the local governmental entities; and (3) other entities who "directly sold energy to or purchased energy from the ISO and/or PX during part or all of [2000 and 2001]," and referred to in the Settlement Agreement as "the Market Participants."
Approximately $259 million of the settlement monies were to be allocated to the California Parties. An additional amount of approximately $251 million was to be distributed to the Market Participants according to a schedule referred to in the Settlement Agreement as the FERC Refund Allocation Matrix (the Matrix). The Market Participants, as reflected on the Matrix, were comprised mainly of energy companies throughout the western states and several local governmental entities in California. The Market Participants all had participated in the ISO or PX markets during the relevant timeframe and had suffered an overcharge as determined by a formula developed by FERC. The Market Participants were required to affirmatively opt into the settlement by notifying FERC if they wished to participate in the recovery afforded by the Matrix (or settle the amount of their liability under the Matrix).
Some of the parties on the Matrix were not identified as entitled to receive a refund, but instead were identified as owing money due to an applicable fuel cost offset. However, those entities could choose to opt into the settlement as a means to fix the amount of their liability.
The payments from the Reliant Refund Escrow were to be made no later than 20 business days after the "Settlement Effective Date," which was defined as the date on which FERC approved the settlement, notwithstanding that the settlement of the claims by the Egger class and the California class may not yet have received court approval. FERC approved the settlement on December 22, 2005, with the effect that various refund proceedings and other challenges pending before FERC were conclusively settled, and the settlement funds were authorized to be distributed. The Settlement Agreement also provided that Reliant would pay attorney fees not exceeding $557,142 to counsel for the Egger plaintiffs and not exceeding $3,342,857 to counsel for the California class, but those payments would not be made until court approval of the respective class settlements and attorney fee awards.
Following FERC approval of the settlement, many of the settlement funds were distributed even before the parties applied for final approval of the settlement of the claims of the Egger class.
2. The Nonmonetary Consideration
The nonmonetary consideration in the Settlement Agreement consisted of the following:
(1) Reliant agreed to abide by a "must-offer" obligation for two additional years, under which it was required to submit supplemental energy bids for its uncommitted operating capacity.
At the hearing on final approval of the settlement of the Egger class's claims, counsel for Reliant explained this provision of the Settlement Agreement as follows: "What that means is, we have five power plants here in California, and subject to the exceptions that are referenced in the settlement agreement about power that's already committed from those facilities, we have to sell into the California markets when they require it, and at prices that are favorable to California."
(2) Reliant agreed to comply with certain of FERC's market behavior rules.
(3) Reliant agreed to comply with applicable ISO tariff provisions.
(4) Reliant agreed to cooperate with the settling parties with respect to claims being made against other energy suppliers, including claims being pursued by members of the Egger class.
(5) Reliant agreed to comply with certain power sales conditions that it had consented to in a settlement with FERC's Office of Market Oversight and Investigations, including the provision of monthly reports and data on electricity trades.
(6) Reliant agreed to undergo semi-annual audits during the course of one year concerning the outages at its California generating plants.
(7) Reliant agreed that it would (a) provide the CPUC with certain data regarding generation availability compiled by the North American Electric Reliability Council (NERC), (b) provide the CPUC with other nonprivileged documents at its request, and (c) comply with CPUC General Order 167.
(8) Reliant agreed to institute an antitrust compliance program.
(9) Reliant agreed to authorize the PX and ISO to provide information concerning Reliant to the California Parties.
3. The Releases
The Settlement Agreement contained the same release with respect to the Egger class, the California class and the local governmental entities. The agreement as to those parties released Reliant from "all past, existing and future claims for civil damages and/or penalties and/or equitable relief, including disgorgement and restitution, concerning, pertaining to, or arising from or relating to Reliant's actions in connection with the provision of electricity at any time prior to . . . August 12, 2005."
The release given by the other parties to the Settlement Agreement was broader, extending to a release of claims concerning the rates charged for electricity and natural gas, as well as the manipulation of the markets for both types of energy. This broader release applied to the California Parties, the Oregon and Washington attorneys general and any Market Participant who affirmatively opted into the settlement by notifying FERC.
E. Applications for Approval of the Settlement of the Egger Class's Claims and the California Class's Claims
In the Settlement Agreement, the representatives of the Egger class and the representatives of the California class agreed to apply for court approval of the settlement and a dismissal with prejudice of their claims. The settlement agreement provided that court approval of the settlement of the Egger class's claims would be not be dependent on court approval of the settlement of the California class's claims. For instance, the settlement was to be effective as to the Egger class when a court's approval of the settlement between Reliant and the Egger class became final, and the settlement was effective as to the California class when a court's approval of the settlement between Reliant and the California class became final.
Other provisions in the Settlement Agreement confirm that approval of the settlement of the claims of the California class and the Egger class were not dependent upon each other. (See, e.g., Settlement Agreement ¶ 12.1 [stating that counsel for the California class and counsel for the Egger class "shall each submit this Agreement to a pertinent court and shall each separately apply for entry of any order . . . in their respective cases"], ¶ 12.3 [stating that counsel for the California class and counsel for the Egger class shall each request that the court "hold hearing(s) . . . in which the settlement with the applicable of [sic] Classes as set forth herein shall be approved as fair, adequate and reasonable"], and ¶ 12.4 [stating that "[i]f prior to the Settlement Hearing in either or both of the California or Egger Class Actions, persons who otherwise would be members of either Class have timely requested exclusion . . . from their respective Class . . . in an amount greater than that acceptable to Reliant, then Reliant shall have . . . the option to terminate this Agreement as to that Class"].)
Because a class action lawsuit may not be compromised without court approval and class notice (Code Civ. Proc., § 581, subd. (k); Cal. Rules of Court, rule 3.769), and the Egger I lawsuit was stayed in federal court at the time the global settlement was reached, the Settlement Agreement provided that the plaintiffs in the Egger I lawsuit would file a second lawsuit in San Diego County Superior Court for the sole purpose of obtaining court approval of the settlement of their claims against Reliant and a dismissal with prejudice.
Accordingly, in November 2005 the Egger plaintiffs filed another case in San Diego Superior Court containing substantially the same allegations as the Egger I lawsuit but asserted only against Reliant, Egger v. Reliant Energy, Inc., San Diego Superior Court, No. GIC857608 (the Egger II lawsuit). The Egger II lawsuit was assigned to Wholesale Electricity Antitrust Cases, i.e., the same coordination proceeding in which the California Class Actions were pending.
Upon application by the Egger plaintiffs, the trial court in Egger II granted the motion for preliminary approval of the settlement of the Egger class's claims and provisionally certified a settlement class consisting of "[a]ll persons and entities in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Montana and Arizona who purchased electric power for purposes other than resale or distribution between July 1, 1998 until October 12, 2005." The trial court scheduled a final approval hearing to be held on April 28, 2006. Notice was published to class members, who were given until March 15, 2006, to request to be excluded from the class or to file an objection to the settlement.
In a separate order, the trial court also granted a motion for preliminary approval of the settlement of the California class's claims, setting the final approval hearing regarding the settlement of those claims for the same date as the final approval hearing regarding the Egger class's claims.
The settlement class in the California Class Actions was defined as "[a]ll persons and entities in the State of California who indirectly purchased electric power for purposes other than resale or distribution at any time between July 1, 1998 and October 12, 2005."
Two objections were filed to the settlement of the Egger class's claims. An individual class member from New Mexico challenged the adequacy of notice to the class, the nature of the attorney fee award and the absence of a provision in the settlement for a payment to charity. The Montana AG also filed an objection.
In addition, the Idaho Attorney General objected to the settlement, asserting arguments similar to the Montana AG's, but then withdrew the objection.
There were also two requests for exclusion from the Egger class. One of those requests was from the Nevada Attorney General, who purported to request exclusion on behalf of all of the citizens of Nevada. The trial court granted the Egger class's motion to strike the Nevada Attorney General's request for exclusion on the ground that a state does not have the power to opt its citizens out of a class action settlement.
The Montana AG purported to "represent[] the citizens of Montana who bought electricity in Montana or elsewhere on the Western Electricity Grid . . . from July 1, 1998, through October 12, 2005." The Montana AG objected that "even though [Montana's] citizens suffered significant economic hardships as a result of the manipulation and gaming of the interconnected, western electricity market," "Montana does not receive any of the monetary proceeds" from the settlement. The Montana AG argued that "Montana should . . . receive a proportionate and equitable amount of [the settlement] proceeds based upon the economic damages and hardships suffered by its citizens." The Montana AG also contended that the interests of the citizens of Montana were not adequately represented during settlement negotiations because the Montana AG was not included in the negotiations.
In response to the Montana AG's objections, the Egger plaintiffs made several points. First, any Montana entity that bought wholesale electricity from the PX or the ISO, in the relevant timeframe at an inflated price, would be entitled to recover under the Matrix according to the same formula applicable to entities in California and in all of the states covered by the Egger class. Second, although $3.5 million each was allocated to the Oregon and Washington attorneys general, and not to the attorneys general of other western states, those two attorney generals spent years investigating and prosecuting claims against Reliant. Third, the nonmonetary consideration in the settlement encourages the proper functioning of the California wholesale markets, benefitting the citizens of Montana to the extent they are impacted on an ongoing basis by California's wholesale electricity markets. Fourth, the citizens of Montana were adequately represented in the settlement negotiations despite the absence of the Montana AG because they were represented by class counsel.
The Egger plaintiffs also stated that "the legality of the [Montana AG's] state-wide objections is dubious at best" because "[t]he [Egger class] is composed of millions of individuals, each of whom have an individual due process right to chose to participate in, object to, or request exclusion from the Settlement." In response, the Montana AG argued that it did have standing to make arguments on behalf of the people of Montana, and that it also had standing because it was objecting to the settlement on behalf of the State of Montana as a consumer of electricity and class member. The trial court ruled, "[B]ecause the Court is charged with determining whether the settlement is fair it does believe a State has the right to raise objections to the settlement pending before the Court."
After hearing argument at the combined final approval hearing for the settlement of both classes' claims, the trial court indicated (1) that it would grant final approval to the settlement of the California class's claims, subject to the resolution of an issue concerning the sufficiency of notice to the class; and (2) that it would require further briefing before deciding whether to approve the settlement of the Egger class's claims. Specifically, the trial court asked the parties in the Egger II lawsuit and the Montana AG to provide information about how the Matrix was formulated; whether the State of Montana participated in the California wholesale electricity markets; whether the Montana AG was precluded from participating in the settlement negotiations; and whether notice to the Egger class was insufficient in that it did not mention that settlement funds would be distributed according to the Matrix.
After the parties involved in the California Class Actions resolved the outstanding issue concerning notice to the class, the trial court granted final approval of the settlement of the California class's claims in an order dated May 30, 2006. On May 16, 2006, after the hearing regarding final approval of the California class's claims but before the trial court's May 30, 2006 final approval order, the Montana AG filed an objection, arguing that the trial court should not grant final approval to the settlement of the California class's claims without first reviewing the supplemental information concerning the Matrix that it had requested in connection with the Egger settlement.
Responding to the trial court's request, the Egger plaintiffs filed a supplemental brief in support of final approval of the settlement, along with supporting declarations. Those materials established that (1) the Matrix was based on actual purchase and sale activity within the ISO and PX markets and was based on formulae set forth in previous FERC orders and rulings; (2) an entity need not have participated in the FERC proceedings to be included on the Matrix; (3) the Montana-based utilities who serve at least 90 percent of Montana retail customers did not purchase electricity from the PX or ISO during the relevant timeframe; (4) a portion of the remaining 10 percent of Montana retail electricity customers were served by companies that might have bought or sold from the PX or ISO during the relevant timeframe, namely, Avista Corp., PacificCorp and the Bonneville Power Administration, but of those three companies only PacificCorp is identified on the Matrix as having bought power at an inflated price on the PX or ISO, and the Matrix indicates that PacificCorp owes money rather than being entitled to a refund; (5) the Oregon and Washington attorneys general each received $3.5 million in the settlement based on their efforts, costs and litigation position, which included their participation, along with the California Attorney General, in investigations and proceedings beginning in 2000 and 2001; and (6) in 2004, the Montana AG was granted permission to intervene in the FERC refund proceedings.
The Egger plaintiffs' supplemental briefing argued that the settlement was accordingly fair and adequate to the residents of Montana. The Egger plaintiffs pointed out (1) that the utilities serving Montana residents do not receive any of the settlement funds because they did not buy electricity from California's wholesale markets at inflated prices, and (2) to the extent Montana residents incurred indirect harm based on Reliant's alleged manipulation of the California wholesale markets, which in turn may have raised the price of energy in other markets that served the residents of Montana, the noncash consideration in the settlement was adequate consideration for settlement of those claims, especially given the litigation risks.
In October 2005, before deciding the application for final approval of the settlement of the Egger class's claims, the trial court sustained a demurrer against certain other defendants sued in the California Class Actions. The demurrer was sustained on the ground that claims in the California Class Actions were federally preempted and subject to the filed rate doctrine. We subsequently affirmed the trial court's ruling. (Wholesale Electricity Antitrust Cases I & II (2007) 147 Cal.App.4th 1293, 1316, 1317.) The litigation risk noted by counsel for the Egger class was the risk that the identical ground for demurrer would apply to the Egger class's claims against Reliant. In its appellate briefing, the Montana AG argues that the claims of the Egger class regarding the retail electricity purchases in states other than California may not have the same infirmities. It is beyond the scope of our opinion to decide the viability of the Egger class's claims, but we note that hard-fought litigation as to the viability of those claims was certainly a prospect in light of the trial court's ruling as to federal preemption and application of the filed rate doctrine regarding the California Class Actions. The prospect of complex and hard-fought litigation may properly be considered in evaluating whether it was reasonable for the Egger plaintiffs to enter into a settlement of their claims against Reliant. (See Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1801 (Dunk) [In exercising its discretion to approve a class action settlement, the trial court may "consider relevant factors, such as the strength of plaintiffs' case, the risk, expense, complexity and likely duration of further litigation"].)
The Montana AG also submitted supplemental briefing and supporting materials in response to the trial court's request for further information. The Montana AG argued that regardless of whether Montana utilities bought power directly from the California wholesale markets, Reliant's manipulative conduct during the California energy crisis drove up the prices for electricity throughout the entire West Coast Energy Market, not just in the California wholesale markets, and that Montana residents should have been compensated through the settlement for the increase in their energy prices. It argued, "Because the scope of the [Egger II] Complaint . . . purported to cover the entire West Coast Energy Market, and the impacts of Reliant's manipulative behavior on that market in its entirety, it is necessary for [the trial court] to consider the entire extent of Reliant's manipulative behavior on all of the western states before approving the [proposed] settlement. . . . [¶] In fairness Montana should be compensated for its harms." The Montana AG also argued that the Settlement Agreement's nonmonetary consideration was insufficient to support the settlement of the claims of Montana residents because it was purportedly "little more than a promise that Reliant will obey the law in the future."
Although not directly asserting that any Montana entity purchased electricity in the ISO or the PX at an inflated price during the relevant timeframe (and thus should have been included in the Matrix), the Montana AG's supplemental briefing in the trial court contained a vague footnote concerning the possible participation of Montana entities in the California wholesale markets. Referring to unauthenticated documents appended to its brief, the Montana AG stated, "Montana notes for this Court that its review of the limited number of [NERC] tags in its possession did reveal that a Montana entity did purchase power from Reliant, and that there were interactions with the California ISO during the 2000 and 2001 timeframe. The NERC tags represent a physical transaction of power purchased. . . . Unfortunately, however, Montana does not have all of the NERC tags from the pertinent timeframe." The NERC tags are not described or explained in any of the declarations submitted in support of the briefing, are largely illegible as copied in the appellate record, and on their face do not indicate what they represent. Nor does the footnote itself clarify what sort of "interactions" the unidentified Montana entity purportedly engaged in with the ISO.
In support of its claim that Montana residents were harmed by Reliant's manipulation of the California wholesale markets, the Montana AG provided an expert declaration from economist Robert McCullough. According to McCullough, "the West Coast of the U.S. and Canada is a single integrated market" for electricity. He explained that Reliant's practice of withholding power during its manipulation of California's wholesale energy markets caused the ISO and other buyers of electricity to "turn[] to the open market for supplies," and "[t]o a large extent, the emergency purchases outside California raised prices in the Pacific Northwest and the Desert Southwest."
Specifically with respect to Montana, McCullough explained that Montana produces a considerable surplus of energy, which it provides to states with deficits in energy production. He also explained that many industrial facilities in Montana buy their power on the open market, rather than through utility companies, or they arrange with the utility companies to pay spot market prices for electricity. McCullough stated that Montana industrial customers bought or priced their electricity in the trading hub at the California-Oregon border or the trading hub at the mid-Columbia River dams (i.e., not in the ISO or PX). According to McCullough, during the California energy crisis Montana energy generators were able to sell their energy into California's wholesale markets at high prices. When this occurred, the Montana industrial facilities that bought power on the open market or at spot market prices had to "make a straightforward decision — curtail operations or match the higher prices the California ISO [was] offering to pay" for available electricity. McCullough explained that the increase in electricity prices during the California electricity crisis caused Montana industrial customers to pay higher prices and to reduce their consumption of electricity.
Apparently referring to the same practice described by McCullough, the Montana AG's appellate briefing explains, without citation to authority, that "Montana's [1997] deregulation allowed Montana's retail customers over 1 MW in size to purchase power directly from the market starting in July 1, 1997, and many of these customers did so on that date."
McCullough explained that "[i]ndustrial customers and utilities in the Pacific Northwest purchased their supplies at the same hubs as the ISO."
The Montana AG submitted newspaper articles discussing the shutdown of industrial facilities in Montana due to high energy prices.
Although describing the impact of the California energy crisis on Montana's industrial customers who bought at open market prices, McCullough's declaration does not explain whether retail customers in Montana who purchased their power through utilities, rather than on the open market or at spot market prices, were financially impacted by the California energy crisis, such as through higher retail energy prices. The declaration also does not address whether the State of Montana, as a governmental entity that is also a retail electricity customer, paid higher electricity rates as a result of the California energy crisis.
In sum, the Montana AG's central point, as supported by the McCullough declaration, was that that the settlement was not fair and adequate because it did not provide monetary relief to compensate the Montana industrial facilities that purchased power in non-California markets when the prices in those markets were inflated as a side effect of Reliant's manipulation of California's wholesale energy markets.
F. Trial Court Approval of the Settlement of the Claims of the Egger Class
After holding a further hearing, the trial court approved the settlement of the Egger class's claims. The trial court found that the settlement was "fair, reasonable, and adequate, and in the best interest of the [Egger class] as a whole," and it specifically rejected the Montana AG's arguments, stating:
"The objection filed by the Montana Attorney General is overruled. The Montana Attorney General has objected to the settlement on the grounds that the settlement does not treat Montana citizens fairly because no monetary consideration is allocated to Montana utilities. The Court finds that there is a sound basis for Montana and certain other non-California Western States not receiving monetary consideration. Specifically, the FERC Refund Allocation Matrix, which is used to apportion almost half of the monetary proceeds of the settlement, is based on actual purchase and sale activity within the California wholesale electricity markets. As such, it apportions monetary proceeds on a proportionate basis. To the extent that Montana or any other non-California utilities do not receive monetary proceeds under the settlement, that fact merely represents the proportionate distribution of monetary proceeds pursuant to the Allocation Matrix. Additionally, the Settlement includes nonmonetary consideration to all class members, including those residing in Montana. Accordingly, all class members are treated proportionately, fairly and equitably. In making this determination, the Court also notes the lack of objection from other class members and the fact that legal challenges to similar claims have to date been successful."
Concurrently with approval of the settlement, the trial court approved the attorney fee award of $557,142 to counsel for the Egger plaintiffs.
The Montana AG filed a notice of appeal, which purported to challenge both the trial court's order approving settlement of the Egger class's claims and its order approving settlement of the California class's claims.
II
DISCUSSION
A. The Motion to Dismiss the Appeal from the Order Approving the Settlement of the California Class's Claims
The representatives of the California class filed a motion to dismiss the portion of the Montana AG's appeal that challenges the order approving the settlement of the claims of the California class. The motion argues that the Montana AG does not have standing to appeal from the approval of the settlement of the California class's claims because (1) neither it nor any resident of Montana is a member of the California class, and (2) it did not file a timely objection to the settlement in the trial court. As we will explain, the first point is dispositive of the issue.
A nonparty to a class action who is not a member of the class lacks standing to appeal from an order approving settlement of a class action settlement. (See Rebney v. Wells Fargo Bank (1990) 220 Cal.App.3d 1117, 1134, 1137-1138 [a party that was not a member of the applicable class because it opted out of a nonseverable portion of the settlement did not have standing to appeal]; In re Equity Funding Corp. of America Sec. Lit. (9th Cir. 1979) 603 F.2d 1353, 1360 [indenture trustee for settlement class of debenture holders was not a class member and thus lacked standing to object to or appeal from the challenged portion of the class settlement].) Standing is absent in such a circumstance because the appellant is neither a "party" nor "aggrieved" as required for standing under Code of Civil Procedure section 902. (Rebney, at pp. 1131, 1134.)
"Where California courts have not addressed an issue, they look to federal cases as persuasive authority on class action questions." (Collins v. Safeway Stores, Inc. (1986) 187 Cal.App.3d 62, 73, fn. 6.)
Here, the California class is composed of "[a]ll persons and entities in the State of California who indirectly purchased electric power for purposes other than resale or distribution at any time between July 1, 1998 and October 12, 2005." Based on this definition, it is clear that neither the Montana AG nor the residents of Montana it claims to represent are within the scope of the class. As neither the Montana AG nor the residents of Montana are within the scope of the California class, the Montana AG has no standing to appeal from the order approving the settlement of the California class's claims. Accordingly, we dismiss the Montana AG's appeal from the order approving the settlement of the California class's claims.
We need not, and do not, decide whether the Montana AG may represent the residents of Montana in objecting to the settlement of the California class's claims, or whether it is limited to asserting the position of the State of Montana as an entity.
B. The Montana AG's Challenge to the Order Approving the Settlement of the Egger Class's Claims
1. The Montana AG Has Standing to Object to the Approval of the Settlement of the Egger Class's Claims
Before turning to the merits of the Montana AG's challenge to the trial court's approval of the settlement of the Egger class's claims, we address the threshold issue of standing.
As they did in the trial court, the Egger plaintiffs argue that the Montana AG does not have standing to object on behalf of all of the citizens of Montana that fall within the scope of the Egger class. The Egger plaintiffs argue that "[s]ince no court has ever recognized the right of an Attorney General to file a class-wide objection of the type submitted by Montana, the Court should hold that the Montana Attorney General lacks standing to pursue the objections raised here." In response, the Montana AG (1) challenges the authority relied on by the Egger plaintiffs, and (2) argues that, in any event, it has standing to raise objections on behalf of the State of Montana as a consumer of electricity.
We find the Montana AG's second point to be dispositive. Because the State of Montana is a consumer of electricity in Montana and thus a member of the Egger class, and the Montana AG represents the State of Montana, the Montana AG is entitled to file an objection and to pursue an appeal regarding the settlement of the Egger class's claims.
We need not, and do not, decide the issue raised by the Egger plaintiffs, namely whether the Montana AG also has standing to object to the settlement on behalf of the citizens of Montana.
2. The Montana AG's Challenge to the Settlement of the Egger Class's Claims
We next consider the Montana AG's challenge to the trial court's approval of the settlement of the Egger class's claims.
a. Applicable legal standards
The trial court's role in approving a class action settlement is to determine whether "the settlement is fair, adequate, and reasonable," and it has "broad discretion" in so doing. (Dunk, supra, 48 Cal.App.4th at p. 1801.) "The purpose of the requirement is 'the protection of those class members, including the named plaintiffs, whose rights may not have been given due regard by the negotiating plaintiffs.' " (Ibid.) In exercising its discretion, the trial court may consider certain factors such as "the strength of plaintiffs' case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement," but "[t]he list of factors is not exhaustive and should be tailored to each case." (Ibid.)
Further, "a presumption of fairness exists where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small." (Dunk, supra, 48 Cal.App.4th at p. 1802.) Citing this principle, the trial court ruled that "[t]he Settlement is entitled to a presumption of reasonableness . . . ." Aside from that presumption, the trial court also closely considered the objections raised by the Montana AG, ordering the parties to provide additional information on the subject. After reviewing that information and hearing again from the parties, the trial court rejected the Montana AG's objections and concluded that "all class members are treated proportionately, fairly and equitably."
The record contains evidence supporting the applicability of the presumption. First, the settlement was negotiated through arm's-length bargaining. Second, counsel for the Egger plaintiffs conducted extensive investigation. Third, counsel for the Egger plaintiffs has substantial experience in class action litigation. Fourth, there were only two objectors to the settlement.
In undertaking a review of the trial court's decision, we apply a deferential standard of review. We review the trial court's approval of the settlement of the Egger class's claims to determine "whether the record shows 'a clear abuse of discretion.' " (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 235 (Wershba).) "To merit reversal, both an abuse of discretion by the trial court must be 'clear' and the demonstration of it on appeal 'strong.' " (7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1146 (7-Eleven Owners).)
As we will explain, we conclude that the trial court was well within its discretion to reject the Montana AG's objection to the settlement of the Egger class's claims and to conclude that the settlement was fair, adequate and reasonable to all class members, including electricity consumers in Montana.
b. The settlement fairly allocates the settlement funds
The Montana AG's first argument is that the trial court erred in ruling that the settlement allocates the funds on a "proportionate basis." It argues that because Montana gets no monetary consideration, the distribution of the settlement funds is not proportionate and is accordingly unfair. We disagree.
As the trial court explained, the Matrix controls the manner in which the funds identified in the Settlement Agreement are divided between all of the entities except for the California Parties (i.e., certain California governmental entities and California's three large utility companies) and the Oregon and Washington attorneys general. As to those parties, they reasonably received funds in addition to funds distributed under the Matrix because of their participation in investigating and prosecuting claims against Reliant in settings outside of civil class action litigation. Further, those parties gave releases to Reliant that were broader than the releases given by the Egger class, extending to a release of claims concerning manipulation of the market for natural gas in addition to electricity, reflecting the broader scope of the claims that were pursued by those parties.
As to the Matrix itself, we conclude that it is a fair and reasonable basis on which to distribute the remaining portion of the monetary consideration, and it does not exclude Montana entities on an arbitrary basis. "There is . . . no legal requirement that all members of the class must participate equally in any settlement. While intraclass disparities may be a signal of unfairness, the inference is rebuttable by a showing that differences in treatment 'are rationally based on legitimate considerations.' " (7-Eleven Owners, supra, 85 Cal.App.4th at p. 1162.) Here legitimate and nondiscriminatory considerations control the distribution of funds through the Matrix, as shown in the declarations submitted by the Egger plaintiffs in their supplemental briefing to the trial court. Specifically, the Egger plaintiffs submitted evidence that the Matrix includes all of the entities who had net purchases at inflated prices in the PX or ISO during the relevant timeframe. Further, the Matrix is "based on formulae set forth in FERC orders and rulings," and it "reflects extensive negotiations among numerous parties," including FERC's Office of Market Oversight and Investigations and the California Parties. All of the entities meeting the relevant criteria were included on the Matrix, regardless of whether they actually participated in the FERC refund proceedings. "To be included on [the Matrix], a party need only have: (a) participated in the [ISO] or [PX] markets; and (b) suffered an 'overcharge' as determined under FERC's [Mitigated Market Clearing Price] formula."
The "Mitigated Market Clearing Price" is "the price that FERC determined to be 'just and reasonable,' as ordered in the FERC Refund Proceeding."
Thus, the fact that no Montana entities are identified on the Matrix as receiving settlement funds does not mean that Montana was unfairly discriminated against. Instead, it means simply that Montana entities did not buy electricity at inflated prices in the ISO or PX during the relevant timeframe and thus were not directly impacted by Reliant's manipulation of those markets.
The Montana AG has identified no competent evidence suggesting that a Montana entity did buy power in the California wholesale markets, and thus was unfairly excluded from the Matrix. As we have explained, the Montana AG referred in the trial court to certain illegible and unauthenticated NERC tags that it attached to its supplemental briefing. On appeal, continuing to refer to the NERC tags, the Montana AG argues that "the Court omitted to mention that Montana did provide evidence of Reliant's contact with Montana in the form of what are called 'NERC' tags."
To the extent the Montana AG referred to the NERC tags in an attempt to suggest that a Montana entity was wrongly excluded from the Matrix, the trial court was well within its discretion to reject that argument. The NERC tags are not authenticated, and their significance is not evident from the record. In contrast, the Egger plaintiffs submitted evidence that the Matrix included all entities that purchased on the ISO or PX at inflated prices during the relevant timeframe. The trial court was entitled to conclude that the Montana AG failed to submit any competent evidence that a Montana entity should have been included in the Matrix but was not. The trial court was within its discretion to rely instead on the evidence submitted by the Egger plaintiffs regarding the fairness and accuracy of the Matrix.
We reject the Montana AG's argument that "there is no shred of evidence . . . to show that the NERC tags submitted by Montana are not authentic." The crucial point is that the NERC tags were not submitted along with a declaration explaining what they are or what they mean. Further, even in its briefing in the trial court and on appeal, the Montana AG has not clearly explained what the NERC tags are supposed to establish. On appeal, the Montana AG vaguely describes the NERC tags as showing "evidence of transactions by Reliant involving Montana." In the trial court the Montana AG claimed that the NERC tags "reveal that a Montana entity did purchase power from Reliant, and that there were interactions with the California ISO during the 2000 and 2001 timeframe." The Montana AG does not specify what sort of "interactions" took place or the type of transaction through which a Montana entity purchased power from Reliant. In addition, if indeed a Montana entity did purchase power on the ISO or PX during the relevant timeframe, that transaction would not have appeared on the Matrix unless that entity suffered an overcharge, and thus the mere existence of such a transaction would not call into question the accuracy of the Matrix.
The Montana AG also argues that using the Matrix to distribute the settlement funds is unfair because the Matrix is purportedly "highly inaccurate." In support of this argument, it points to McCullough's declaration, arguing that there is evidence that "Enron sold power to California at inflated prices . . . using power from Montana sources," but that fact is not reflected in the Matrix. However, evidence of such transactions does not call into question the accuracy of the Matrix. As we have explained, the Matrix represents purchases in the California wholesale markets at inflated prices. The McCullough declaration refers only to sales into the California markets of Montana's generated electricity. Indeed, as McCullough explained, Montana generally produces much more electricity than it consumes.
c. The impact of Reliant's conduct on retail transactions by Montana consumers are adequately compensated by the settlement
The Montana AG next argues that the settlement was not fair, adequate and reasonable because the Matrix "does not and could not track retail transactions." It argues, "[T]he Matrix is not a remedy guideline for injuries suffered in the western electricity retail markets." (Emphasis in original.)
When the Montana AG refers to injuries that Montana citizens suffered in the "retail market" or through "retail transactions," we understand the Montana AG to be referring to the practice described in McCullough's declaration, in which Montana industrial entities buy power directly on the wholesale market (but not in California's wholesale markets) or at the prices prevailing in the spot market. As we have explained, McCullough stated that certain Montana industrial entities endured high prices for electricity during the California energy crisis because the markets from which they bought or priced their electricity were impacted by Reliant's manipulation of the California wholesale markets. As we understand the Montana AG's position, the settlement is not fair, adequate or reasonable because no monetary consideration is provided to these Montana industrial entities, and thus the trial court abused its discretion in approving the settlement.
In its reply brief, the Montana AG claims that there is "more than $261 million allocated by the Settlement Agreement for retail sales, of which Montana received zero and California received almost the entire amount." The Montana AG arrives at this conclusion through the mathematical exercise of subtracting the approximate $251 million of settlement funds to be distributed according to the Matrix from the approximate $512 million of total monetary consideration identified in the Settlement Agreement. The Montana AG assumes that the settlement funds not accounted for in the Matrix are allocated to the settlement of claims made by retail consumers of energy. We find no support in the record for the Montana AG's assumption that the remaining $261 million of settlement funds is allocated to compensate retail consumers. The Settlement Agreement indicates that the California Parties (i.e., California's three large utility companies, the California Attorney General, the California Department of Water Resources, the California Electricity Oversight Board and the CPUC) are to receive $259 million that is not distributed according to the Matrix, but there is no indication in the Settlement Agreement or anywhere else in the record that this amount is allocated to compensate retail customers.
We reject the Montana AG's argument. The trial court was within its discretion to conclude that the settlement provides reasonable consideration to those entities, such as the Montana industrial customers, who may have bought electricity on markets (other than the California wholesale markets) at prices that were inflated due to Reliant's alleged manipulation of the California wholesale markets. Specifically, the trial court pointed out that in addition to providing monetary consideration, "the Settlement includes nonmonetary consideration to all class members, including those residing in Montana."
We note that any Montana entity that had a viable claim against Reliant and was planning to pursue that claim could have opted out of the Egger class and thus preserved its claim. We note also that the Montana AG made a tactical decision to object to the settlement rather than opt out of the Egger class. It could have opted out, as could have any other Montana entity, had it wished to preserve any of its claims that it complains have been barred by the trial court's approval of the settlement of the Egger class's claims.
The Montana AG argues that the nonmonetary consideration in the settlement does not benefit residents of Montana. We disagree. According to the McCullough declaration, Montana electricity consumers were injured by Reliant's manipulation of the California wholesale markets because that conduct drove up prices throughout the western United States, including in the markets where certain Montana industrial entities bought or priced their electricity. With this theory of injury in mind, it is logical that if Reliant agrees to settlement provisions that will prevent it from manipulating the California wholesale energy markets in the future and help insure adequate supplies of energy in California's wholesale markets, the stabilizing effect of Reliant's agreed-upon conduct will have a positive spill-over effect on prices in the markets in which the Montana industrial entities purchase electricity and will prevent another run-up in prices in those markets as occurred during the California energy crisis.
As explained by the Egger plaintiffs, several items of nonmonetary relief in the settlement will potentially prevent future manipulation of the California wholesale markets and will help to insure adequate supplies of energy in those markets. First, the Egger plaintiffs explain, "[P]ursuant to Reliant's agreement to extend its 'must run' obligation, Reliant is obligated to submit bids for uncommitted, available capacity from its generation assets located in California for two additional years after the termination of Reliant's must-offer obligation under FERC's pending orders. . . . [¶] Presumably, to the extent that Reliant's alleged withholding of otherwise available capacity had a negative impact on wholesale prices throughout the West Coast Energy Grid, as [the Montana AG] repeatedly suggests, this provision should have a positive impact on future prices throughout the Grid and thus benefit class members in all states on the Grid, including Montana . . . ." Second, the Egger plaintiffs explain that Reliant's agreement to power sales conditions "designed to monitor future activity that may have an impact on wholesale prices throughout the West Coast Energy Grid" would "likewise benefit all class members on the Grid, . . . including those in Montana." Third, the Egger plaintiffs point to Reliant's agreement to perform audits of its outages and to institute an antitrust compliance program as potentially having a positive impact on consumers in the western states impacted by manipulation of California's energy markets. We agree with all of these points. To the extent that, as the Montana AG claims, electricity consumers in Montana are adversely impacted by Reliant's withholding of supply and other manipulation of California's markets, they will benefit from all of the items cited by the Egger plaintiffs.
We note as well that the nonmonetary consideration in the Settlement Agreement includes an agreement to cooperate with the claims asserted by the Egger class against other entities. This consideration clearly runs directly to residents of Montana because they are within the scope of the Egger class, and they stand to benefit from Reliant's cooperation in the Egger class's claims against other defendants.
The Montana AG argues that the agreement to cooperate is not meaningful consideration because "[n]o mention of an obligation to cooperate with anyone other than the California parties is even attempted." The argument is baseless. The Settlement Agreement plainly states that Reliant will provide to the Egger class documents and persons relevant to their claims concerning the operation of the California and western electricity markets.
Based on the benefits to Montana electricity consumers that we have discussed above, we conclude that the trial court was within its discretion to decide that the nonmonetary portions of the settlement provided fair, adequate and reasonable consideration for the release of claims by those members of the Egger class who bought electricity (other than in the California wholesale markets) at prices inflated due to Reliant's alleged manipulation of the California wholesale markets.
The Montana AG complains that the claims of Montana residents will be released by the settlement despite the fact that they might have meritorious claims against Reliant. We note that despite the fact that the California energy crisis occurred in 2000 and 2001, the record contains no evidence that the Montana AG nor any entity in Montana has pursued litigation against Reliant arising out of the California energy crisis.
d. Adequate representation by counsel for the Egger Plaintiffs
As part of its order granting final approval to the settlement of the Egger class's claims, the trial court granted final certification of the Egger class for purposes of settlement, and as part of that discussion, it addressed the quality of the representation provided by the Egger plaintiffs and counsel for the Egger plaintiffs. The trial court stated, "[The Egger plaintiffs] and [counsel for the Egger plaintiffs] have and will fairly and adequately represent the interests of the absent members of the Settlement Class. . . . Specifically, despite the objection from the Montana Attorney General, the Court finds that all class members were adequately represented by [the Egger plaintiffs] and [counsel for the Egger plaintiffs]."
Although not challenging the trial court's decision to certify the Egger class for purposes of settlement, the Montana AG spends a significant portion of its appellate briefing arguing that counsel for the Egger plaintiffs did not adequately represent the class because counsel did not obtain any monetary relief for Montana. As it is not challenging the decision to certify the Egger class, we understand the Montana AG to be raising this point in support of its argument that the trial court abused its discretion in approving the settlement of the Egger class's claims. In support of its contention that adequacy of representation is relevant to a court's decision to approve a class action settlement, the Montana AG relies on Janik v. Rudy, Exelrod & Zieff (2004) 119 Cal.App.4th 930 (Janik), which stated that "[w]hen the trial court is requested to certify a class for the purpose of settlement and/or to determine the fairness and adequacy of a proposed settlement, the court must consider whether class counsel have in fact adequately protected the interests of the class in the conduct of the litigation and in entering the proposed settlement agreement." (Id. at p. 944, italics added.)
We note that Janik, supra, 119 Cal.App.4th 930, 944, did not deal with the approval of a class action settlement. Instead, it concerned a legal malpractice lawsuit, and the language relied on by the Montana AG concerning adequacy of counsel as applied to approval of a settlement in that case is dictum. The Montana AG also relies on In re General Motors Corp. Pick-Up Truck Fuel Tank (3d Cir. 1995) 55 F.3d 768, 803 (In re General Motors) to argue that the settlement should not have been approved because representation by counsel for the Egger plaintiffs was inadequate. However, the discussion of the adequacy of counsel in that case was in the context of deciding whether the settlement class should have been certified, not in the context of discussing whether the settlement was fair, adequate and reasonable. (Id. at pp. 803-804.) In sum, the Montana AG has provided no authority to establish that the adequacy of representation of counsel is a factor in deciding whether a settlement should have been approved as fair, adequate and reasonable.
The Montana AG's argument that counsel for the Egger plaintiffs provided inadequate representation is, in substance, merely a reiteration of the points we have already discussed. The Montana AG argues that because Montana entities did not obtain any monetary consideration, while other parties did, the settlement was unfair, inadequate and unreasonable, and therefore counsel for the Egger plaintiffs provided inadequate representation to the Egger class by agreeing to the settlement. In a variation on this argument, the Montana AG points to the fact that counsel for the Egger plaintiffs was awarded attorney fees of $557,142, while Montana entities received no monetary consideration.
The Montana AG did not file a challenge to the award of attorney fees in the trial court. On appeal, it states that it "does not have a problem necessarily with the amount of the attorney's fees earned by class counsel," but it does "ha[ve] a problem with the fact it gets zero (or at least, very little) compensation while its ostensible attorney gets more than $500,000." Thus, we do not understand the Montana AG to be challenging the amount of the fees awarded to counsel for the Egger plaintiffs. Instead, we understand the Montana AG to be raising the issue of the attorney fees as part of its argument that the lack of any monetary compensation for Montana entities makes the settlement unfair and inadequate. We note as well that relying on In re General Motors, supra, 55 F.3d 768, 803, the Montana AG suggests that the representation provided by counsel for the Egger plaintiffs should be questioned because counsel purportedly negotiated its attorney fee award while it was negotiating the other terms of the settlement. However, as the Egger plaintiffs point out, the record does not support that assertion. On the contrary, the only evidence in the record is that the attorney fee amount was negotiated after the other terms of the settlement.
As we have discussed above, the trial court was well within its discretion to conclude that the settlement was indeed fair, adequate and reasonable: (1) The Matrix reasonably allocates the settlement funds according to which entities made purchases at inflated prices in the California wholesale markets; (2) the remainder of the monetary proceeds are distributed to parties who participated in investigating and prosecuting claims against Reliant; and (3) the nonmonetary consideration in the settlement will benefit electricity consumers in the western states to the extent the rates they pay for electricity is impacted by manipulations of the California wholesale markets. For the same reasons, we conclude that counsel for the Egger plaintiffs did not provide inadequate representation merely by agreeing to a settlement that did not provide any monetary consideration for Montana entities.
The Montana AG also argues that counsel for the Egger plaintiffs breached its duty to represent the interests of all class members because it entered into a settlement that gave a large portion of the monetary consideration to entities associated with California. We reject this argument because counsel for the Egger plaintiffs did not represent any entities associated with California, but rather represented electricity consumers in other western states. All of the Egger class members are compensated on a nondiscriminatory basis in the settlement, based on reasonable criteria. Entities in each of the western states will receive funds according to the Matrix to the extent they purchased electricity on the California wholesale markets at inflated prices. Further, all class members will share equally in the benefits from the settlement's nonmonetary consideration. Although the Oregon and Washington attorneys general receive additional monetary consideration under the Settlement Agreement, the record makes clear that the consideration is based on independent investigation and prosecution of claims against Reliant by those officials.
Under the heading of its argument concerning the inadequacy of counsel, the Montana AG cites a federal statute, the Class Action Fairness Act of 2005 (28 U.S.C. § 1711 et seq.), which requires that a specific type of notice of a proposed class action settlement be provided to specific government officials. (28 U.S.C. § 1715.) The Montana AG argues that the provisions of the federal law were not complied with here. The Class Action Fairness Act of 2005 does not apply here because it applies only to class action settlements in federal court. (See 28 U.S.C. § 1711(2) [defining the term "class action" for purposes of the statute as meaning "any civil action filed in a district court of the United States under rule 23 of the Federal Rules of Civil Procedure or any civil action that is removed to a district court of the United States that was originally filed under a State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representatives as a class action"].)
e. Constitutional challenges to approval of the settlement
The Montana AG argues that the trial court abused its discretion in approving the settlement because doing so would violate the constitutional rights of residents of Montana. Specifically, it argues that approval of the settlement violated (1) the right to due process; (2) the right to equal protection; and (3) the privileges and immunities clause.
The Montana AG did not raise any constitutional argument in the objections it filed in the trial court. Thus, we have the discretion to treat the objections as waived. (Hepner v. Franchise Tax Bd. (1997) 52 Cal.App.4th 1475, 1486 ["Points not raised in the trial court will not be considered on appeal"; "In civil cases, constitutional questions not raised in the trial court are considered waived"].) We will nevertheless exercise our discretion to address the constitutional issues on the merits.
i. Due Process
The Montana AG argues that class members were denied their constitutional right to due process because the Montana AG was not given notice of the settlement negotiations so that it could participate and possibly obtain a better deal for the residents of Montana.
In support of its argument, the Montana AG cites Phillips Petroleum Co. v. Shutts (1985) 472 U.S. 797, 811-812 (Phillips). Phillips sets forth the minimum due process protections that are required to bind an absent class member to a class action settlement. (Ibid.) Among other things, "[t]he plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel," and "notice must be the best practicable, 'reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.' " (Id. at p. 812.) California case law reflects this federal constitutional requirement that class notice be sufficient to reach a substantial percentage of class members. (Wershba, supra, 91 Cal.App.4th at p. 251.) Here, the Montana AG does not contest the manner in which notice was given to class members regarding the terms of the settlement and their right to opt out and/or object to the settlement. Instead, the Montana AG complains that although counsel for the Egger plaintiffs was "well aware of the existence of Montana counsel" (referring to the Montana AG), it did not contact the Montana AG to invite the Montana AG to participate in the settlement negotiations. As we will explain, the Montana AG has not identified a violation of the due process clause.
According to Phillips, the due process clause also "requires that the named plaintiff at all times adequately represent the interests of the absent class members." (Phillips, supra, 472 U.S. at p. 812.) The Montana AG argues that the due process rights of the class members were not adequately protected because counsel for the Egger plaintiffs did not provide adequate representation. We reject this argument because, as we have discussed above, we conclude that there is no merit to the Montana AG's assertion of inadequate representation.
Notice to the class was accomplished through press releases and publication in newspapers and magazines throughout the relevant geographical areas. The Montana AG admitted to receiving notice of the settlement through publication.
First, we note that there is no support in the record for the Montana AG's assertion that counsel for the Egger plaintiffs had been made aware that the Montana AG purported to represent the interests of the people of Montana regarding the claims asserted in the Egger I lawsuit. On the contrary, the record shows that in July and August 2003 an attorney working for the Montana AG twice contacted counsel for the Egger plaintiffs, and at the time declined to work cooperatively with counsel for the Egger plaintiffs in pursuing the claims made in the Egger I lawsuit, indicating that the Montana AG would pursue its own action related to the California energy crisis. Counsel for the Egger plaintiffs had no further contact with the Montana AG until after the Settlement Agreement was finalized. Under those circumstances, there is no basis for the Montana AG to claim that counsel for the Egger plaintiffs was aware that it purported to represent the people of Montana in any settlement of the Egger I lawsuit that might arise.
Second, the Montana AG has cited no authority that would require counsel for a class of plaintiffs to invite the attorney general of a state in which those plaintiffs reside to participate in a settlement negotiation. It is the responsibility of class counsel to represent the entire class in settlement discussions. (Cf. Parker v. Anderson (1982) 667 F.2d 1204, 1211.) The proper method for participation of any class member, including an attorney general, to participate in the settlement process is file an objection to the settlement, as the Montana AG was permitted to do here, consistent with the requirements of due process.
If the Montana AG's complaint is that it was not invited to the negotiating table along with the Oregon and Washington attorneys general and the parties involved in the FERC proceedings, we see no merit to that argument as a ground for complaining that settlement of the Egger class claims did not comply with the requirement of due process. As the record shows, the Montana AG was granted the right to intervene in certain FERC proceedings prior to the Settlement Agreement, and thus had the ability to protect its rights there. Further, the Montana AG was free to conduct its own investigation regarding Reliant or prosecute its own claims, as did the Oregon and Washington attorneys general.
ii. Equal Protection
The Montana AG argues that class members' rights to equal protection have been violated in that certain class members have been unfairly deprived of their (1) right to due process and (2) right to participate in interstate commerce, due to the class to which they belong, namely non-California residents.
With respect to the first point, the Montana AG contends that "all rights protected under due process are likewise protected under equal protection." It argues that, accordingly, to the extent approval of the settlement violates class members' rights to due process, it also violates class members' rights to equal protection. However, as we have explained, there is no merit to the Montana AG's argument that class members' due process rights were infringed. Accordingly, we conclude that there is also no merit to the related argument concerning violation of the equal protection clause.
For this proposition, the Montana AG cites Plyer v. Doe (1982) 457 U.S. 202, 211-212. Plyer does not support the Montana AG's broad statement that "all rights protected under due process are likewise protected under equal protection." Instead, the portion of Plyer cited by the Montana AG establishes that the equal protection clause applies jurisdictionally to the same groups of persons covered by the due process clause, so that undocumented aliens within the jurisdiction of the due process clause are also within the jurisdiction of the equal protection clause. (Ibid.) Plyer does not establish that the substantive rights under the two constitutional provisions are coextensive.
With respect to the second point, the Montana AG argues that the trial court's "approval of that settlement with its differential treatment of classes based on whether or not the members are California residence [sic] or non-California residence [sic] violates the commerce clause and the parties [sic] right to participate in interstate commerce." We reject the factual premise of this argument. The Montana AG has not convinced us that the settlement burdens the right of non-California residents to participate in interstate commerce.
The effect of the settlement of the Egger class's claims on interstate commerce, if any, is not at all analogous to the situation described in the only authority relied on by the Montana AG, Granholm v. Heald (2005) 544 U.S. 460, 472. Granholm held that state statutes prohibiting out-of-state wineries from shipping wine directly to in-state consumers discriminated against interstate commerce. (Ibid.)
iii. Privileges and Immunities Clause
The Montana AG argues that approval of the settlement violates the privileges and immunities clause of the United States Constitution. It argues that the approval of the settlement "treats non-California residents less favorably than California residents."
The privileges and immunities clause states that "[t]he citizens of each state shall be entitled to all privileges and immunities of citizens in the several states." (U.S. Const., art. IV, § 2, cl. 1.)
The Montana AG has cited no authority suggesting that a court's approval of a privately-negotiated class action settlement can implicate the privileges and immunities clause. "When the Privileges and Immunities Clause has been applied to specific cases, it has been interpreted to prevent a State from imposing unreasonable burdens on citizens of other States in their pursuit of common callings within the State . . .; in the ownership and disposition of privately held property within the State . . .; and in access to the courts of the State . . . ." (Baldwin v. Montana Fish and Game Comm'n of Montana (1978) 436 U.S. 371, 383, citations omitted.) Importantly, "[o]nly with respect to those 'privileges' and 'immunities' bearing upon the vitality of the Nation as a single entity must the State treat all citizens, resident and nonresident, equally." (Ibid.) We do not perceive the approval of a private class action settlement as rising to the level of significance that it "bear[s] upon the vitality of the Nation as a single entity." (Ibid.) Accordingly, we reject the Montana AG's argument that the privileges and immunities clause is applicable here.
The Montana AG relies solely on a summary of the privileges and immunities clause in a treatise, which states that "[l]ess favorable treatment by a state towards nonresidents runs afoul of the Privileges and Immunities Clause if the activity in question is sufficiently basic to the livelihood of the nation as to fall within the purview of the clauses, and if it is not closely related to the advancement of a substantial state interest." (16B Am.Jur.2d Constitutional Law, § 758, fn. omitted.)
DISPOSITION
We dismiss the portion of the appeal that challenges the trial court's approval of the settlement of the claims of the California class and the judgment entered regarding the Master Complaint in the California Class Actions (JCCP Nos. 4204-00005 and 4204-00006.) We affirm the trial court's approval of the settlement of the claims of the Egger class and the judgment entered regarding the Egger II lawsuit (JCCP No. 4204-00009).
WE CONCUR: McCONNELL, P. J., HUFFMAN, J.
The plaintiffs identified in the Master Complaint are: Pamela R. Gordon; Ruth Hendricks; Oscar's Photo Lab; Mary L. Davis; Sweetwater Authority; Cruz Bustamante; Barbara Mathews; the County of Santa Clara; the City and County of San Francisco; the City of Oakland; Valley Center Municipal Water District; Padre Dam Municipal Water District; Ramona Municipal Water District; Helix Water District; Vista Irrigation District; Yuima Municipal Water District; Fallbrook Public Utility District; Borrego Water District; the Metropolitan Transit Development Board; San Diego Trolley, Inc.; and San Diego Transit Corporation.