Ellis v. Salt River Project Agricultural Improvement and Power District

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          Alia M. Abdi, Pro Hac Vice; David M. Cialkowski, Pro Hac Vice; Zimmerman Reed LLP, Daniel E. Gustafson, Pro Hac Vice; Daniel C. Hedlund, Pro Hac Vice; Daniel J. Nordin, Pro Hac Vice; Gustafson Gluek PLLC, Minneapolis, MN, Hart Lawrence Robinovitch, Zimmerman Reed PLLP, Scottsdale, AZ, for Plaintiffs.

          Christopher E. Babbitt, Pro Hac Vice; Daniel S. Volchok, Pro Hac Vice; David Gringer, Pro Hac Vice; Wilmer Cutler Pickering Hale & Dorr LLP, Washington, DC, Eric Dell Gere, Jennings Strouss & Salmon PLC, Phoenix, AZ, for Defendant.

         ORDER

         Honorable Susan M. Brnovich, United States District Judge.

         Before the Court are Defendant Salt River Project Agricultural Improvement and Power District's ("District") Motion to Dismiss and Request for Judicial Notice.^[1] (Doc. 14, "Mot."; Doc. 15, "Req."). Plaintiff customers William Ellis, Robert Dill, Edward Rupprecht, and Robert Gustavis responded to the Motion and the District replied. (Doc. 21, "Resp."; Doc. 22, "Repl."). Plaintiffs also responded to the

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Request. (Doc. 20, "R.Resp."). The Court heard oral argument November 18, 2019. (Doc. 28.) Accepting the allegations as true, the Motion and Request are each granted in part as explained below.

         I. BACKGROUND

         This case arises out of the District's adoption of a new rate structure for its sale of electricity, which includes additional fees and different rates for residential customers, like Plaintiffs, who self-generate some of their electricity through solar energy systems. (Doc. 12, "FAC" ¶¶ 6, 28, 75-76.) In 2014, the District proposed the new rate structure ("Standard Electric Price Plans" or "SEPPs"), which includes a new E-27 price plan required for self-generating solar customers, that its Board of Directors ("Board") approved in 2015. (Id. ¶¶ 72-73.) The E-27 price plan applies to customers who began self-generating solar power after December 8, 2014. (Id. ¶ 81.) Plaintiffs' claims relate to their financial injuries caused by the SEPPs. (Id. ¶¶ 1, 5, 73.)

         A. Parties

         Plaintiffs are four District residential customers who live in Arizona and self-generate some of their electricity through personal solar energy systems. (Id. ¶¶ 20-27.) Three Plaintiffs installed their solar energy systems after the District adopted the SEPPs. (Id. ¶¶ 21, 23, 25.) Specifically, Ellis, Dill, and Rupprecht installed solar energy systems in May 2018, July 2018, and November 2016, respectively. (Id.) Rupprecht bought his home equipped with a solar energy system at an unknown date. (Id. ¶ 27.)

         The District and the "Association" are two distinct entities comprising the Salt River Project Agricultural Improvement and Power District ("SRP"), a power-and-water utility company in central Phoenix, Arizona.^[2] (Id. ¶ 28.) Although the District is a political subdivision of Arizona, it (1) "is not recognized by the State of Arizona or by any law as a regulator or regulatory authority in the retail [electricity] market;" (2) "cannot impose ad valorem property taxes or sales taxes or enact laws governing citizens' conduct;" (3) "cannot administer normal governmental functions such as the maintenance of streets, the operation of schools, or sanitation, health or welfare services;" (4) "is not exempt from a city's exercise of eminent domain, nor it is immune from tort liability;" and (5) can only levy taxes against its landowners. (Id. ¶¶ 35-36.) Unlike other utility providers, the District's rates, rules, and regulations are exempt from the control of Arizona's public utility regulator, the Arizona Corporation Commission ("ACC"). (Id. ¶ 37.)

         B. The Retail Electricity Market

         The District provides electricity to around two million residential and commercial customers including Plaintiffs in central Phoenix ("Market"). (Id. ¶¶ 2, 28, 32, 42.) As Plaintiffs allege, the District provides over 95% of retail customers' electricity in the Market through a variety of plans and sources. (Id. ¶¶ 48-49.) Individuals in the Market can either purchase electricity from the District or self-generate electricity through purchased or leased solar energy systems. (Id. ¶ 43.) By investing in solar energy systems, customers "significantly reduce the amount of electricity that they need to purchase from [the District]." (Id. ¶ 44.) However, "[s]ince technologies that would allow consumers to completely remain off the grid are not yet economically viable," "all customers within

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[the Market] generally must purchase some retail electricity from [the District]." (Id. ¶ 52.) The District competes with solar energy system installers in the Market to provide electricity and one of its executives allegedly referred to solar energy systems, installers, and advocates as `the enemy.'" (Id. ¶¶ 44-45.)

         The District's monopolization is allegedly not caused by any state policy to prevent competition, especially since Arizona's legislature encouraged competition in the retail electricity market through the Electric Power Competition Act of 1998 ("the Act"). (Id. ¶¶ 53-54.) The District acknowledges the legislature's transition to promote competition in the Market in its 2010 rules and regulations, which state "[the District's] service territory is open to competition... in accordance with the ... Act." (Id. ¶ 55.) The Act also allegedly subjects public power entities to antitrust liability. (Id. ¶ 59 (citing A.R.S. § 30-813)).

         C. Dispute

         The SEPPs are "aimed at maintaining [the District's] monopoly power; impeding solar development despite its recognized benefits; quashing competition for electricity from self-generating customers with solar energy systems; and generating additional revenues for [the District] through exploitation of its monopoly power." (Id.) More explicitly, the SEPPs make self-generating solar energy uneconomical and force Market consumers to exclusively purchase the District's electricity. (Id. ¶ 87.) Because the District previously encouraged and even incentivized consumer investment in solar energy systems until 2014, (id. ¶¶ 63, 71-72), Plaintiffs claim the District adopted and advertised the SEPPs to deter individuals from investing in solar energy systems and fortify its monopoly. (Id. ¶¶ 5-10, 46, 71-72, 84.)

         The SEPPs differentiate between three types of customers. (Id. ¶ 81.) The first category is non-solar customers, who purchase all of their electricity from the District, follow the traditional rate structure, and pay per kilowatt-hour of electric usage, a $20.00 monthly service charge, and a $4.20 distribution charge. (Id. ¶¶ 74-75.) The second category is solar-customers, like Plaintiffs, who began self-generating solar energy after 2014 ("post-2014 solar customers"). (Id. ¶ 80.) Post-2014 solar-customers are subject to the E-27 plan, which is a "demand based rate plan" that includes a $32.44 or $45.44 monthly service charge, $16.64 or $29.64 distribution charge, and additional "demand charge" that is not applied to non-solar customers. (Id. ¶¶ 75-76.) The District charges post-2014 solar customers roughly $600 more per year than other customers. (Id. ¶ 89.) The third category is solar-customers who self-generated solar energy before December 8, 2014 ("pre-2014 solar customers"). (Id. ¶ 81.) Pre-2014 solar customers are exempt from the E-27 plan and treated like non-solar customers. (Id.)

         Plaintiffs allege the SEPPs "made it economically unfeasible for customers to install solar energy systems." (Id. ¶ 92.) Plaintiffs further allege "[t]here is no rational basis" for adopting the SEPPs and the District's reason of recouping fixed expenses required to service post-2014 solar customers is pretextual. (Id. ¶¶ 96, 100.) Beyond "public policy and logic" warranting relief, Plaintiffs claim the District's "anticompetitive, discriminatory, and unconstitutional conduct" warrants "monetary, injunctive, and declaratory relief" under a variety of federal, state, and constitutional remedies. (Id. ¶ 1.) Plaintiffs allege the SEPPs violate (1) federal and state antitrust law; (2) state-law price discrimination; (3) federal and state equal protection; and (4) Arizona's Consumer Fraud Act. (Id. ¶¶ 120-195.) The District requests judicial notice and moves to dismiss under Federal Rule of Civil Procedure

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12(b)(6). The Court begins with the District's Request.

         II. REQUEST FOR JUDICIAL NOTICE

         When a complaint is challenged under Rule 12(b)(6), "[r]eview is limited to the complaint." Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993). However, courts may "consider certain [other] materials—documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice— without converting the motion to dismiss into a motion for summary judgment." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (emphasis added).

         Under the incorporation-by-reference doctrine, a court may consider "certain documents as though they are part of the complaint itself," Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018), "if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim[s]." Ritchie, 342 F.3d at 907. "The doctrine prevents plaintiffs from selecting only portions of documents that support their claims, while omitting portions of those very documents that weaken—or doom— their claims." Khoja, 899 F.3d at 1002 (citing Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998), superseded by statute on other grounds as recognized in Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 681-82 (9th Cir. 2006)). But "if the document merely creates a defense to the well-pled allegations in the complaint, then that document did not necessarily form the basis of the complaint." Khoja, 899 F.3d at 1002.

         Additionally, a court may also consider certain documents satisfying Federal Rule of Evidence 201. Under Rule 201, a court may judicially notice a fact "not subject to reasonable dispute because it (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Ev. 201(b). "A court may take judicial notice of matters of public record." Khoja, 899 F.3d at 999. But "[j]ust because the document itself is susceptible to judicial notice does not mean that every assertion of fact within that document is judicially noticeable for its truth." Id. In cautioning against taking judicial notice, Rule 201's advisory committee notes emphasize that "taking evidence, subject to cross-examination and rebuttal, is the best way to resolve controversies involving disputes of adjudicative facts, that is, facts pertaining to the parties." Fed. R. Ev. 201. Dispensing with these traditional methods should only be done so in clear cases of "[a] high degree of indisputability." Rivera v. Philip Morris, Inc., 395 F.3d 1142, 1151 (9th Cir. 2005) (citing Fed. R. Ev. 201). Here, the District requests consideration of ten exhibits under the incorporation-by-reference doctrine and Rule 201. (Req. at 4.)

         A. Notice of Claims (Exhibit 1)

         Exhibit 1 is Plaintiffs' notice of claims pursuant to A.R.S. § 12-821.01. (Doc. 15-2 at 2-45, "Notice.") The District requests the Court judicially notice it because its deficiencies compel dismissal of Plaintiffs' state law claims. (Req. at 5.) Plaintiffs claim the request should be denied because "Arizona's notice of claim requirement is procedural [and] does not apply in federal court." (R.Resp. at 3.) Alternatively, Plaintiffs do not object if the notice of claim requirement applies. (Id.) Plaintiffs' Notice applies in federal court. See Mothershed v. Thomson, No. CV-04-2266-PHX-JAT, 2006 WL 381679, *7 (D. Ariz. Feb. 16, 2006) ("federal courts entertaining state-law claims against state entities are obligated to apply the state law

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notice-of-claim provision"); see also Payne v. Arpaio, No. CV-09-1195-PHX-NVW, 2009 WL 3756679, *11 (D. Ariz. Nov. 4, 2009) ("§ 12-821.01 applies to all state law claims."). Accordingly, the Court judicially notices Exhibit 1.

         B. Arizona Corporation Commission Staff Report; 2013 Docket Request; 2018 Docket Request (Exhibits 2-4)

         Exhibit 2 is a 2010 ACC internal memorandum containing an attachment titled "staff report for generic proceedings concerning electric restructuring issues." (Doc. 15-2 at 47-77, "Staff Report.") Exhibit 3 is a 2013 ACC internal memorandum docket opening request related to the ACC's "inquiry into retail electric commission." (Id. at 79, "2013 Docket Request.") Exhibit 4 is a 2018 ACC internal memorandum docket opening request for "possible modifications to the [ACC's] energy rules" related to at least fourteen different energy and energy-related topics. (Id. at 81-85, "2018 Docket Request.") The District argues judicial notice is appropriate because Exhibits 2-4 are "public records that directly implicate Plaintiffs' federal and state antitrust [claims] [sic] regarding the Arizona Legislature's intent regarding competition" and relate to the District's state-action immunity defense. (Req. at 5.) The District also cites a case that previously took notice of ACC documents. (Id. (citing Robinson v. Heritage Elementary Sch., No. CV-09-0541-PHX-LOA, 2009 WL 1578313, at *1 n. 3 (D. Ariz. June 3, 2009)). Plaintiffs argue judicial notice is inappropriate for each Exhibit. They argue the Staff Report was "created as part of proceedings that do not apply to the parties in this case, and contains hearsay and non-expert opinions." (R.Resp. at 6.) Second, they argue the 2013 and 2018 Docket Requests "lack any substance and only reflect the opening of a regulatory docket."^[3] (Id.) Plaintiffs also cite a court order from this District not judicially noticing an ACC staff report and administrative memoranda. (Id. at 5) (citing SolarCity ...