FirstEnergy customers must bring suit before Public Utilities Commission.

FirstEnergy customers must bring suit before Public Utilities Commission.

The Supreme Court of Ohio ruled today that a group of residential electric customers in northeast Ohio who claim that FirstEnergy Corp. defrauded them by terminating alleged “lifetime” rate discounts the company had previously offered for all-electric homes must pursue their claims through a complaint to the Public Utilities Commission of Ohio (PUCO). 

The court’s 6-1 decision, authored  by Justice Yvette McGee Brown, reversed a ruling by the Eleventh District Court of Appeals.

The case involved a civil lawsuit filed in the Geauga County Court of Common Pleas against FirstEnergy and two of its subsidiaries, the Cleveland Electric Illuminating Company (CEI) and Ohio Edison, which supply electricity throughout the northeast part of the state. The suit was filed by a group of residential customers of CEI and Ohio Edison who alleged that the companies had promised to charge them a discounted rate for electricity if they purchased all-electric homes or equipped their homes with electrical heating systems and appliances. The customers further alleged that the companies guaranteed the discounted rate for as long as the customers maintained their all-electric status, but unilaterally terminated the discount rates in May 2009 and have billed the customers at a higher rate since then.

The customers sought a declaratory judgment that the companies were contractually obliged to provide them with electricity at a discounted rate, an injunction barring the companies from charging them more than the discounted rate, and civil damages based on claims of breach of contract and fraud. 

On behalf of itself and its two subsidiaries, FirstEnergy entered a motion seeking dismissal of the customers’ court action on the basis that the trial court lacked jurisdiction because the PUCO had exclusive jurisdiction over rate and service disputes between an electric utility and its customers. The trial court agreed, and issued an order dismissing all four of the customers’ causes of action.

On review, the Eleventh District Court of Appeals agreed that the customers’ declaratory judgment, injunctive relief and breach of contract claims must be pursued through a complaint filed with the PUCO. However, the court of appeals reversed the trial court’s dismissal of the customers’ fraud claim, holding that fraud was a civil action that existed at common law before the legislation creating the PUCO was enacted, and also finding that the PUCO’s special expertise was not required in order to determine whether the utilities’ actions met the legal criteria for civil fraud.

FirstEnergy sought and was granted Supreme Court review of the Eleventh District’s ruling that the trial court had jurisdiction to hear and decide the customers’ fraud claim.

Writing for the court in today’s decision, Justice McGee Brown said the court of appeals erred by reading the Supreme Court of Ohio’s 1978 decision in Milligan v. Ohio Bell Telephone Co. to broadly hold that trial courts have jurisdiction over civil complaints by a customer against a utility if the customer’s complaint asserts a “pure” common-law tort claim.

Noting that the complaint in Milligan alleged that a phone company had invaded the privacy of a customer, Justice McGee Brown wrote that the jurisdictional dispute in that case did not turn on the status of the customer’s claim as a common-law tort, but rather was based on the Supreme Court’s finding that there was no evidence in the record to support the trial court’s conclusion that it lacked jurisdiction to consider a privacy claim solely because that dispute was between a utility company and its customer.

Justice McGee Brown wrote: “(T)he court of appeals’ interpretation of Milligan finds no support in our more recent decisions.  We have held in cases involving public utilities that merely casting the allegations in the complaint to sound in tort ‘is insufficient to confer jurisdiction upon the common pleas court.’  ... (I)n Allstate Ins. Co. v. Cleveland Elec. Illum. Co. (2008) we rejected the notion that alleging a common-law tort is sufficient, by itself, to confer jurisdiction upon the common pleas court. ... Instead, courts must look to the substance of the allegations in the complaint to determine the proper jurisdiction.”

“In Allstate, we adopted a two-part test to determine whether the common pleas court or the PUCO has jurisdiction over a tort action against a public utility. Under this test, we ask (1) whether the PUCO’s administrative expertise is required to resolve the issue in dispute and (2) whether the act complained of constitutes a practice normally authorized by the utility. If the answer to either question is ‘No,’ the claim is not within the PUCO’s exclusive jurisdiction.”

Applying the first Allstate criterion to this case, Justice McGee Brown concluded that adjudicating the customers’ fraud claims would require the special expertise of the PUCO because determining whether and to what extent a customer had been overcharged and determining the financial impact of any prior inducement by the utilities would require analysis of multiple PUCO rate tariffs that had been in force since a customer first occupied an all-electric home, and analysis of rate changes, credits or adjustments approved by the PUCO since the 2009 discontinuation of the all-electric discount.

With regard to the second prong of the Allstate test, Justice McGee Brown wrote: “(T)he act complained of here was the companies’ offer to charge a discount rate to customers who used electricity as their main source of energy. Offering special or discounted tariff rates to certain customers is a practice normally engaged in by the utility. In fact, the practice is specifically authorized by statute.  R.C. 4905.31, which allows for ‘reasonable arrangement[s]’ between utilities and customers, permits a public utility to classify its customers for rate-making purposes. ... (B)ecause the offering of special or discount rates is a practice normally engaged in by public utilities and authorized by the commission, it follows that the commission is best suited to adjudicate any claims regarding the reasonableness and lawfulness of the companies’ offer.”

Justice McGee Brown’s opinion was joined by Chief Justice Maureen O’Connor and Justices Evelyn Lundberg Stratton, Terrence O’Donnell, Judith Ann Lanzinger, and Robert R. Cupp. Justice Paul E. Pfeifer  dissented, stating that he would affirm the decision of the Eleventh District.

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2011-2025. DiFranco v. FirstEnergy Corp., Slip Opinion No. 2012-Ohio-5445.
Geauga App. No. 2010-G-2990, 2011-Ohio-5434.  Judgment reversed.
O’Connor, C.J., and Lundberg Stratton, O’Donnell, Lanzinger, Cupp, and McGee Brown, JJ., concur.
Pfeifer, J., dissents and would affirm the judgment of the court of appeals.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2012/2012-Ohio-5445.pdf

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