CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

SYLVIA COTTON et al.,

Plaintiffs and Appellants,

v.

STARCARE MEDICAL GROUP, INC.,

Defendant and Respondent.

G040920

(Super. Ct. No. 30-2008-00101022)

SYLVIA COTTON et al.,

Plaintiffs and Appellants,

v.

PACIFICARE OF CALIFORNIA, INC.,

Defendant and Respondent.

G041809

O P I N I O N

Appeals from judgments of the Superior Court of Orange County, David R. Chaffee, Judge. Affirmed in part and reversed in part.

Balisok & Associates, Russell S. Balisok and Steven C. Wilheim for Plaintiffs and Appellants.

Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg and Thomas R. Freeman for Defendant and Respondent StarCare Medical Group, Inc.

Sedgwick, Detert, Moran & Arnold, David M. Humiston, Gary S. Pancer, Douglas J. Collodel and Dina R. Richman, for Defendant and Respondent PacifiCare of California, Inc.

* * *

Plaintiffs Sylvia Cotton, Janice Mitchell, Patricia Miller and Terrie Essex appeal from judgments dismissing their claims against defendants StarCare Medical Group, Inc. (StarCare) and PacifiCare of California, Inc. (PacifiCare). In case number G040920, the court entered judgment for StarCare after sustaining its demurrer to plaintiffs’ original complaint without leave to amend and denying a motion to either set aside the ruling or grant reconsideration of it. In case number G041809, the court dismissed plaintiffs’ action against PacifiCare after sustaining its demurrer to the first amended complaint without leave to amend.

We granted a request to consolidate the appeals because they arose from the same underlying lawsuit and it appeared they presented the same primary issue, whether plaintiffs’ claims against these defendants are preempted by the federal Medicare Act (42 U.S.C. § 1395 et seq.; Medicare Act). Upon further review, we reverse the judgment dismissing plaintiffs’ action against StarCare because the trial court abused its discretion by ruling on StarCare’s demurrer to the original complaint after the parties stipulated to continue the hearing on objections to the original complaint and allow plaintiffs an opportunity to submit an amended complaint. As for the judgment dismissing the action against PacifiCare, we shall affirm the dismissal as to one cause of action but reverse as to the remaining claims.

DISCUSSION

1. Case No. G040920

a. Background

The original complaint identified plaintiffs as the children of T.J. Jackson, a man over 64 years of age. They alleged Jackson “assigned his Medicare benefit to and enrolled as a member of ‘Secure Horizons,’ a health plan for seniors operated by PacifiCare,” which “agreed to provide to [Jackson] all of the services to which he was entitled under Medicare . . . .” StarCare is described as a “business organization of unknown type” in some manner related to Gateway Medical Group, Inc., an entity, described “as a ‘medical group.’” Plaintiffs alleged StarCare and Gateway contracted with physicians to secure the latter’s services and, in turn, contracted with Secure Horizons to “provide all ‘physician services’” to enrollees plus “‘utilization review,’ a process by which requests for authorization for medical services of any kind, submitted on behalf of enrollees . . . are reviewed to determine medical appropriateness . . . .”

Plaintiffs alleged that, after Jackson underwent surgery to repair a broken leg, he went to a nursing facility named St. Edna’s Subacute and Rehabilitation Center (St. Edna’s) operated by another named defendant, Covenant Care California (Covenant). They pleaded St. Edna’s failed to provide adequate care to Jackson, causing him to “suffer from starvation, dehydration, and infection, as well as emotional distress,” ultimately resulting in his death.

The complaint alleged StarCare was obligated to oversee Jackson’s treatment while at St. Edna’s, but allowed its receipt of “a fixed or periodic fee” for services and its participation “in a risk sharing agreement” that gave it a portion of “any savings resulting from the denial of reasonably necessary medical care,” to affect its decisions concerning his health care. Thus, StarCare breached its duties to “review requests for . . . medical service” based solely on “whether the requested service was reasonably medically necessary” and to “conduct utilization review and quality assurance activities without regard for the cost,” and also failed to inform Jackson and his family of its financial conflicts of interest.

StarCare and other defendants filed demurrers and motions to strike the complaint. In part StarCare’s demurrer argued the causes of action alleged against it were preempted by the Medicare Act.

The court set a hearing on the demurrers and motions to strike for May 2, 2008. On April 24, the parties submitted an executed stipulation agreeing to continue the hearing to June 6. The trial court denied the request, apparently because it failed to explain the necessity for a continuance.

On April 29, the parties filed an amended stipulation. This stipulation explained that, “upon review of [d]efendants’ demurrers and motions to strike” to the original complaint, “[p]laintiffs’ counsel has determined that it would be in the interests of justice and economy for [p]laintiffs to amend the complaint to address and attempt to resolve the issues presented by [d]efendant[s,]” but that “[p]laintiffs’ lead counsel [was] on vacation . . . through May 6 . . . and w[ould] need until May 30 . . . to prepare and file an amended complaint . . . .” Based on these grounds, the parties stipulated “the hearing on all . . . demurrers and motions to strike . . . shall be continued to June 6 . . . .” (Bold omitted.) Citing the goal of “expeditiously . . . litigat[ing] these cases,” concluding the second stipulation’s extension request did not “actually [contain a] stipulation for an amendment” or “any specific date . . . by which the amendment [would] be done,” plus a disbelief that lead counsel’s vacation would in “some way impair the law

firm[’s] . . . ability to . . . amend” the complaint, the trial judge refused to accept the second stipulation.

The court then sustained StarCare’s demurrer to the original complaint without leave to amend on preemption grounds. Plaintiffs moved to set aside the ruling or to reconsider it, but the trial court denied this request as well and entered judgment dismissing the action against StarCare.

b. Denial of Continuance

Plaintiffs’ first contention is a procedural one; the trial court abused its discretion by rejecting the parties’ stipulation to continue the hearing on the demurrers and motions to strike. We agree.

“A stipulation in proper form is binding upon the parties if it is within the authority of the attorney. [Citations.] Unless contrary to law, court rule or public policy, a stipulation is also binding upon the court. [Citations.]” (Bechtel Corp. v. Superior Court (1973) 33 Cal.App.3d 405, 411-412; see also Glade v. Superior Court (1978) 76 Cal.App.3d 738, 744 [“a stipulation in proper form is binding upon a court unless it is contrary to law, court rule, or public policy” or “if it purports to bind the court upon a question of law”].) Since the parties sought a continuance of the hearing on the demurrers and motions to strike, they needed to show good cause for it. (Lerma v. County of Orange (2004) 120 Cal.App.4th 709, 716; Cal. Rules of Court, rule 3.1332(c).) Here, plaintiffs and all defendants who filed demurrers or motions to strike the original complaint agreed to continue the hearing on their objections and allow plaintiff’s counsel, who was temporarily absent from the firm’s office, the opportunity to consider filing an amended complaint that would eliminate or limit the objections. Thus, good cause existed for the stipulated one-month continuance sought by the parties. (Pham v. Nguyen (1997) 54 Cal.App.4th 11, 16-17; Code Civ. Proc., § 595.2; Cal. Rules of Court, rule 3.1332(c)(3), (d)(3) & (9).)

The trial court’s concern for avoiding undue delay in the proceedings is contradicted by the contents of the stipulation. The second stipulation provided a date, May 30, by which plaintiffs were to file an amended complaint. At the hearing, plaintiffs’ counsel also explained that since filing the original complaint they had been “going through additional medical records” and other information defendants had provided that would allow them to amend the complaint and “address some of the issues with regard to the demurrers” and “sufficiency of the pleadings . . . .” Thus, this is not a case where the parties were dilatory in litigating the issues. If it had allowed a continuance, the court could have notified the parties of its intent to limit future delays. While the trial judge noted the second stipulation did not include an express agreement to file an amended complaint, the contrary is clear from the terms of that stipulation. Defendants were willing to afford plaintiffs the opportunity to file an amended complaint before seeking a ruling on their objections to the original complaint.

The order denying the stipulated continuance request is governed by the abuse of discretion standard. “An abuse of discretion occurs when, in light of applicable law and considering all relevant circumstances, the court’s ruling exceeds the bounds of reason. [Citations.]” (North American Capacity Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 285; see also Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.) “[T]rial court discretion is not unlimited. ‘The discretion of a trial judge is not a whimsical, uncontrolled power, but a legal discretion, which is subject to the limitations of legal principles governing the subject of its action, and to reversal on appeal where no reasonable basis for the action is shown. [Citation.]’ [Citations.]” (Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348, 355.)

“Action that transgresses the confines of the applicable principles of law” constitutes “an ‘abuse’ of discretion. [Citation.]” (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297.) “The trial judge must exercise his discretion with due regard to all interests involved. The denial of a continuance which has the practical effect of denying the applicant a fair hearing is often held reversible error. [Citations.]” (Cohen v. Herbert (1960) 186 Cal.App.2d 488, 494.) These principles apply in this case.

We conclude the trial court abused its discretion by denying a continuance that effectively barred plaintiffs from responding to the demurrers and motions to strike by either filing an amended complaint or written opposition. Therefore, the judgment in case number G040920 is reversed.

2. Case Number G041809

a. Introduction

The primary issue here is whether plaintiffs’ causes of action

are preempted by title 42 United States Code section 1395w-26(b)(3) (section 1395w-26(b)(3)) of the Medicare Act. It declares that, except for laws governing licensing and solvency, “[t]he standards established under this part shall supersede any State law or regulation . . . with respect to M[edicare ]A[dvantage] plans which are offered by M[edicare ]A[advantage] organizations . . . .” (§ 1395w-26(b)(3).)

PacifiCare argues plaintiffs’ claims against it are either expressly or at least impliedly preempted by section 1395w-26(b)(3). It further contends the statute’s licensing law exception is inapplicable because that provision only applies to the acquisition of a license, not its maintenance. Plaintiffs dispute the preemption claim and alternately contend leave to amend should have been granted because some of the causes of action could be based on state licensing laws.

b. Background

In an appeal from a judgment entered after the sustaining of demurrer without leave to amend “we assume the truth of all properly pleaded material allegations of the complaint [citations] and give it a reasonable interpretation by reading it as a whole and its parts in context [citation].” (Phillips v. Desert Hospital Dist. (1989) 49 Cal.3d 699, 702.) Thus, our summary of the facts is taken from that pleading.

The first amended complaint names nine defendants and alleges ten causes of action. Paragraph 1 declares “[t]he gravamen of this action is elder abuse, for the remedies provided in the Elder Abuse Act (Welf. & Inst. Code, § 15657) . . . . This action also seeks damages for wrongful death under [Code of Civil Procedure section] 377.60 et seq. As set forth hereinafter, . . . defendants . . . at various times . . . breached their duty of care, and have committed ‘neglect’ and ‘physical abuse’ as those terms are used in [Welfare and Institutions Code section] 15657.”

The amended complaint describes PacifiCare as a health maintenance organization offering a “variety of health plans.” Secure Horizons, one of its plans, is “financed by the federal Medicare program,” which “pays Secure Horizons a prepaid or periodic fee for each . . . enrollee . . . .” In turn, PacifiCare contracts with hospitals and entities such as StarCare “to provide specified ranges or categories of care . . . in return for a prepaid or periodic fee.”

Plaintiffs repeat the allegations of their relationship to Jackson, his enrollment in Secure Horizons, StarCare’s status as an entity obligated to provide physician services and utilization review of service requests for Secure Horizons’s Orange County enrollees, Jackson’s postsurgical rehabilitation placement at St. Edna’s, and that entity’s failure to provide him with adequate nursing care. But the amended complaint’s focus is on defendants’ alleged dispute concerning financial responsibility for Jackson’s care and the failure to promptly provide it to him after his removal from St. Edna’s and admission to a hospital.

According to the amended complaint, until April 2006 Jackson lived in Los Angeles County where PacifiCare had assigned him to an entity named La Vida Prairie Medical Group, Inc. (La Vida) for physician services and Tenet HealthSystem Medical, Inc. (Tenet) for hospital services. That month Jackson moved to Anaheim Hills. He promptly notified PacifiCare of his new residence and it informed Jackson his new plan providers would be based in Orange County. But PacifiCare failed to authorize a change in providers until mid-January 2007. At that time PacifiCare assigned StarCare and Fountain Valley Regional Medical Center (Fountain Valley) to be Jackson’s local health care service providers effective as of February 1.

On December 31, 2006 Jackson fell, breaking his leg. He was taken to a nearby hospital that belonged to another health care plan where medical personnel performed surgery to repair the injury. Later, Jackson was moved to St. Edna’s for rehabilitation. Jackson was taken to Fountain Valley on January 31 after being found dehydrated, malnourished, suffering from an infection at the site of his surgery, and, as a result, “in need of urgent care including surgery . . . .” But a dispute between PacifiCare and its network providers over financial responsibility for Jackson’s medical care delayed the needed treatment until February 7 or 8. At that time he experienced a sudden and uncontrolled increase in his blood pressure that caused inter-cranial hemorrhaging resulting in irreversible brain injury. Jackson died on February 8.

PacifiCare is named in the amended complaint’s fifth through tenth causes of action. The fifth, sixth, and seventh counts were for negligence-willful misconduct, breach of fiduciary duty, and constructive fraud. Plaintiffs alleged PacifiCare “knew that because [Jackson] was out of La Vida’s and Tenet’s network, . . . it was financially responsible for [his] care,” but “even though [Jackson] was . . . admitted as an emergent patient . . . and manifestly in need of urgent care including surgery” it failed to promptly arrange for the needed care because of the financial responsibility dispute. This failure also resulted in a breach of PacifiCare’s fiduciary duties “as a health care provider . . . to cover the cost of ‘out of network’ care for [Jackson] . . . on and after January 31,” and “not to let . . . financial considerations adversely affect [its] health care decision making.”

The eighth count sought recovery for bad faith, alleging PacifiCare “acted as an insurer” by “enter[ing] into the . . . agreement with the federal Medicare plan . . . to assume the risk of providing care to enrollees, . . . ” which it breached “by unreasonably denying coverage for [Jackson’s] medical care . . . .” The ninth count alleged fraudulent concealment because PacifiCare “failed to disclose to [Jackson] and his family that [he] was not [receiving] and would not receive necessary . . . care because [PacifiCare did not] want[] to do anything which might subject [it] to liability or financial risk for the cost of his care,” and they reasonably relied on PacifiCare’s “statements . . . that the care [Jackson] was receiving . . . was adequate and suitable . . . .” Finally, the tenth cause of action sought recovery for wrongful death.

c. Federal Preemption

(1) Background

Before 1997 the Medicare Act did not contain a preemption provision. (McCall v. PacifiCare of California, Inc. (2001) 25 Cal.4th 412, 423.) However, the Medicare Act did provide an administrative procedure allowing the Department of Health and Human Services (HHS) to review benefit claim denials that limited judicial review to an action in federal court only if an unsuccessful claim exceeded a specified amount. (42 U.S.C. § 405(g) & (h); Heckler v. Ringer (1984) 466 U.S. 602, 606-607 [104 S.Ct. 2013, 80 L.Ed.2d 622].) Ringer held the failure to comply with this administrative procedure barred a legal action if a beneficiary sued for a remedy “‘inextricably intertwined’ with [a] claim[] for benefits,” or if “‘both the standing and the substantive basis for the presentation’ of the claim[] is the [Medicare] Act.” (Heckler v. Ringer, supra, 466 U.S. at pp. 614, 615.)

In McCall v. PacifiCare of California, Inc., supra, 25 Cal.4th 412, a Medicare beneficiary enrolled with PacifiCare suffering from progressive lung disease, along with his wife, sued PacifiCare alleging causes of action for negligence, willful misconduct, fraud, and infliction of emotional distress. The plaintiffs claimed the beneficiary was forced to disenroll from the defendant’s plan because it refused to authorize him to see a specialist concerning a lung transplant. The trial court sustained the defendant’s demurrer without leave to amend, finding the plaintiffs were limited to the Medicare Act’s administrative review procedure. The Court of Appeal reversed the judgment and the Supreme Court agreed with the appellate court’s result.

First, McCall held Ringer’s standing and substantive basis tests did not apply in the context of a “complaint seek[ing], on state tort law grounds, not reimbursement for an assertedly covered procedure, but, rather, damages assertedly flowing from conduct only incidentally related to the wrongful denial of a benefits claim.” (McCall v. PacifiCare of California, Inc., supra, 25 Cal.4th at p. 419.) Second, finding a “clear implication . . . Congress left open a wide field for the operation of state law pertaining to standards for the practice of medicine and the manner in which medical services are delivered to Medicare beneficiaries” (id. at p. 423), the court held “[t]he ‘inextricably intertwined’ language in Ringer is more correctly read as sweeping within the administrative review process only those claims that, ‘at bottom,’ seek reimbursement or payment for medical services, but not a claim . . . which . . . as pleaded incidentally refers to a denial of benefits under the Medicare Act [citation]” (id. at p. 425). After individually reviewing the causes of action pleaded by the plaintiffs, McCall concluded “[b]ecause the McCalls may be able to prove the elements of some or all of their causes of action without regard, or only incidentally, to Medicare coverage determinations, because . . . none of their causes of action seeks, at bottom, payment or reimbursement of a Medicare claim or falls within the Medicare administrative review process, and because the harm they allegedly suffered thus is not remediable within that process, it follows that the Court of Appeal correctly reversed the trial court[] . . . .” (Id. at p. 426, fn. omitted.)

In 1997, Congress enacted Part C of the Medicare Act authorizing the Centers for Medicare & Medicaid Services (CMS), an agency within HHS, to contract with private managed health care organizations to provide individuals with the Medicare benefits they would be entitled to receive under Part A (hospital services) and Part B to (outpatient services) of the Act. (42 U.S.C. § 1395w-21 et seq.) Initially called the Medicare+Choice program, Part C was later renamed Medicare Advantage. (70 Fed.Reg. 4588-01 (Jan. 8, 2005).) Part C also directed HHS to issue regulations establishing standards “for Medicare+Choice organizations and plans consistent with, and to carry out, this part.” (42 U.S.C. § 1395w-26(b)(1).) The 1997 law contained a preemption clause barring state laws and regulations “inconsistent” with the standards issued by CMS and all state standards relating to four specific areas. (69 Fed.Reg. 46913 (Aug. 3, 2004).)

In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). (Pub.L. No. 108-173 (Dec. 8, 2003) 117 Stat. 2066.) MMA amended section 1395w-26(b)(3) by replacing the prior limited preemption provision with the current language declaring “[t]he standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.” (§ 1395w-26(b)(3).)

(2) General Principles

“Article VI, cl. 2 of the [United States] Constitution provides that the laws of the United States ‘shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.’ Consistent with that command, we have long recognized that state laws that conflict with federal law are ‘without effect.’ [Citation.] [] . . . Congress may indicate pre-emptive intent through a statute’s express language or through its structure and purpose. [Citation.] If a federal law contains an express pre-emption clause, it does not immediately end the inquiry because the question of the substance and scope of Congress’ displacement of state law still remains. Pre-emptive intent may also be inferred if the scope of the statute indicates that Congress intended federal law to occupy the legislative field, or if there is an actual conflict between state and federal law. [Citation.]” (Altria Group, Inc. v. Good (2008) ___ U.S. ___, ___ [129 S.Ct. 538, 543, 172 L.Ed.2d 398]; see also Dowhal v. SmithKline Beecham Consumer Healthcare (2004) 32 Cal.4th 910, 923.)

“[I]nquiry into the scope of a statute’s pre-emptive effect is guided by the rule that ‘“[t]he purpose of Congress is the ultimate touchstone” in every pre-emption case.’ [Citations.]” (Altria Group, Inc. v. Good, supra, ___ U.S. at p. ___ [129 S.Ct. at p. 543]; accord Medtronic, Inc. v. Lohr (1996) 518 U.S. 470, 485 [116 S.Ct. 2240, 135 L.Ed.2d 700].) But the Supreme Court has counseled that “[w]hen addressing questions of express or implied pre-emption, we begin our analysis ‘with the assumption that the historic police powers of the States [are] not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’ [Citation.] That assumption applies with particular force when Congress has legislated in a field traditionally occupied by the States. [Citations.]” (Altria Group, Inc. v. Good, supra, ___ U.S. at p. ___ [129 S.Ct. at p. 543]; Dowhal v. SmithKline Beecham Consumer Healthcare, supra, 32 Cal.4th at p. 923.)

(3) Express Preemption

PacifiCare contends section 1395w-26(b)(3) expressly preempts plaintiffs’ claims against it, citing both the statute’s reference to “any State law or regulation” other than licensing and solvency laws and its legislative history. We disagree.

The statute’s use of the term “standards” and the phrases “law or regulation” and “with respect to MA plans” reflects Congress intended “to preempt only ‘positive state enactments,’ that is, laws and administrative regulations, but not the common law. [Citation.]” (Yarick v. PacifiCare of California (2009) 179 Cal.App.4th 1158, 1166-1167.) For example, in Sprietsma v. Mercury Marine (2002) 537 U.S. 51 [123 S.Ct. 518, 154 L.Ed.2d 466], the Supreme Court held a provision of the Federal Boat Safety Act (46 U.S.C. § 4301 et seq.) precluding states from enacting or implementing “a law or regulation . . . not identical to a regulation prescribed

under . . . this title,” (46 U.S.C. § 4306) did not expressly preempt a state common law

action seeking damages arising from a boat accident. “We think that this language is most naturally read as not encompassing common-law claims.” (Sprietsma v. Mercury Marine , supra, 537 U.S. at p. 63.) “If ‘law’ were read broadly so as to include the common law, it might also be interpreted to include regulations, which would render the express reference to ‘regulation’ in the pre-emption clause superfluous.” (Ibid.)

CMS’s proposed rule implementing the MMA’s Medicare Advantage plan reached the same result. It noted “tort law, and often contract law, generally are developed based on case law precedents established by courts, rather than statutes enacted by legislators or regulations promulgated by State officials,” and concluded “Congress intended to preempt only the latter type of State standards.” (69 Fed.Reg. 46914 (Aug. 3, 2004).)

In addition, section 1395w-26(b)(3) extends only to positive state laws or regulations “with respect to MA plans.” The phrase “with respect to” has been construed to mean “with reference to, relating to, or pertaining to. [Citations.]” (Phoenix Leasing, Inc. v. Sure Broadcasting, Inc. (D.Nev. 1994) 843 F.Supp. 1379, 1388; see also Hartford Cas. Ins. Co. v. Travelers Indem. Co. (2003) 110 Cal.App.4th 710, 719 [phrase “indicates some relationship”].)

In Yarick v. PacifiCare of California, supra, 179 Cal.App.4th 1158, the plaintiff alleged causes of action for negligence, willful misconduct, elder abuse, and wrongful death against a managed health care plan based on its purported violation of duties created by provisions of the Knox-Keene Health Care Service Plan Act of 1975 (Health & Saf. Code, § 1340 et seq.). Noting “[a]s to all four causes of action, [the plaintiff] has alleged [the defendant’s] duty arose from provisions of the Health and Safety Code . . .” (id. at p. 1166) and that “regulations under the MA program address these same duties” (id. at p. 1167), Yarick held “by the express terms of the federal preemption statute, the standards established under the Health and Safety Code are superseded” (ibid.).

The first amended complaint at issue here states plaintiffs are seeking “remedies provided in the Elder Abuse Act . . . .” (Welf. & Inst. Code, § 15600 et seq.) But unlike the act considered in Yarick, the elder abuse law’s purpose “‘is essentially to protect a particularly vulnerable portion of the population from gross mistreatment in the form of abuse and custodial neglect.’ [Citation.]” (Benun v. Superior Court (2004) 123 Cal.App.4th 113, 123, quoting Delaney v. Baker (1999) 20 Cal.4th 23, 33.) It addresses “[p]hysical” or “financial abuse,” “neglect, . . . abandonment, isolation, abduction, or other treatment with resulting physical harm or pain or mental suffering,” “[t]he deprivation by a care custodian of goods or services that are necessary to avoid physical harm or mental suffering” (Welf. & Inst. Code, § 15610.07), or the “negligent failure of any person having the care or custody of an elder or a dependent adult to exercise that degree of care that a reasonable person in a like position would exercise” (Welf. & Inst. Code, § 15610.57, subd. (a)(1)). Thus, plaintiffs’ reliance on the Elder Abuse Act does not support preemption of their causes of action.

Nor does the Medicare Act’s legislative history support PacifiCare’s express preemption claim. From the Medicare Act’s very inception, section 1395 has declared: “Nothing in this subchapter shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.” (42 U.S.C. § 1395.) Citing this section, McCall held “[b]y clear implication . . . Congress left open a wide field for the operation of state law pertaining to standards for the practice of medicine and the manner in which medical services are delivered to Medicare beneficiaries.” (McCall v. PacifiCare of California, Inc., supra, 25 Cal.4th at p. 423.)

Finally, PacifiCare relies on the broad construction given to the Employee Retirement Income Security Act’s (ERISA) preemption statute (29 U.S.C. § 1144(a) and argues section 1395w-26(b)(3) “tracks th[e] language” of the ERISA provision. Not so. Section 1144(a) of title 29 declares ERISA’s “provisions . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . .” A reference to “any and all State laws” is a far cry from “any State law or regulation . . .

with respect to MA plans . . . .” (§ 1395w-26(b)(3).) We conclude the first amended complaint’s causes of action are not expressly preempted by the Medicare Act.

(4) Implied Preemption

The foregoing analysis does not end our inquiry. The next question is whether plaintiffs’ action is impliedly preempted by the Medicare Act.

Citing the CMS’s own interpretation of the 2003 amendment to section 1395w-26(b)(3), plaintiffs argue “it appears that state tort laws of general applicability are not to be preempted” by the Medicare Act and the “allegations [of the first amended complaint] are actionable under [such] state tort laws . . . .” PacifiCare disagrees. It contends Congress’s amendments to section 1395w-26(b) “expanded the scope of preemption until specifically enumerated categories were replaced with a broad preemption provision excepting . . . licensing and solvency,” and thus the current provision “‘reach[es] beyond positive enactments . . . to embrace common-law duties.’”

Under implied conflict principles, “‘“state law is pre-empted to the extent that it actually conflicts with federal law,”’ either because ‘“it is impossible for a private party to comply with both state and federal requirements, [citation] or where state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’” [Citations.]’ [Citation.]” (Williamson v. Mazda Motor of

America, Inc. (2008) 167 Cal.App.4th 905, 910.) In this context, a court again “‘“start[s] with the assumption that the historic police powers of the States [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress.”’ [Citation.]” (Dowhal v. SmithKline Beecham Consumer Healthcare, supra, 32 Cal.4th at p. 923; see also Bronco Wine Co. v. Jolly (2004) 33 Cal.4th 943, 958, fn. 12 [rejecting claim “the presumption against preemption is categorically inapplicable in implied preemption cases” where “the question is whether state law would stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress”].)

As noted, CMS’s proposed rule for the Medicare Advantage plan concluded the 2003 amendment to section 1395w-26(b)(3) did not preempt

“tort . . . and . . . contract law[] generally developed based on case law precedents established by courts . . . .” (69 Fed.Reg. 46914 (Aug. 3, 2004).) In subsequently approving the final rules implementing MMA’s amendments, CMS clarified its position in response to a comment about the rule’s application to state case law specifically applicable “to health plans”: “[A]ll State standards, including those established through case law, are preempted to the extent that they specifically would regulate MA plans, with exceptions of State licensing and solvency laws. Other State health and safety standards, or generally applicable standards, that do not involve regulation of an MA plan are not pree[mp]ted.” (70 Fed.Reg. 4588, 4665 (Jan. 28, 2005); see also Medical Card System v. Equipo Pro Convalecencia (D.Puerto Rico 2008) 587 F.Supp.2d 384, 387 [rejecting preemption claim in contract action between Medicare Advantage organizations and health care providers, because “federal law controls to the extent that federal standards exist; state common law prevails where neither Congress nor CMS has established standards”].)

Common law causes of action for negligence, willful misconduct, breach of fiduciary duty, and fraud apply in a broad spectrum of factual contexts. They are not limited to actions involving Medicare Advantage plans. Before the 2003 amendment to section 1395w-26(b)(3), case law had recognized generally applicable state common law actions were viable. While acknowledging the MMA broadened the scope of the Medicare Act’s preemption, CMS concluded the exception for generally applicable state contract and tort law actions still exists. The only authority PacifiCare cites to support application of conflict preemption in this context is the opinion in Uhm v. Humana, Inc. (9th Cir. 2008) 540 F.3d 980. But the Ninth Circuit subsequently withdrew its prior opinion and directed it “shall not be cited as precedent.” (Uhm v. Humana, Inc. (9th Cir. 2009) 573 F.3d 865.)

In determining what judicial deference should be accorded to a federal agency’s construction of a statute, the Supreme Court has held “ask first whether ‘the intent of Congress is clear’ as to ‘the precise question at issue.’ [Citation]. If, by ‘employing traditional tools of statutory construction,’ [citation], we determine that Congress’ intent is clear, ‘that is the end of the matter,’ [citation]. But ‘if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.’ [Citation.] If the agency’s reading fills a gap or defines a term in a reasonable way in light of the Legislature’s design, we give that reading controlling weight, even if it is not the answer ‘the court would have reached if the question initially had arisen in a judicial proceeding.’ [Citation.]” (Regions Hosp. v. Shalala (1998) 522 U.S. 448, 457 [118 S.Ct. 909, 139 L.Ed.2d 895].) These principles apply here. Given the language of section 1395w-26(b)(3), CMS’s construction of its application to state common law causes of action based on generally applicable standards is reasonable.

(5) Application

PacifiCare further contends that, in any event, the causes of action alleged in the first amended complaint must fail because plaintiffs’ “state law claims . . . are requests for coverage determinations and grievances concerning . . . Jackson’s plan” and thus “subsumed by the Medicare Act’s standards and regulations governing Plan determinations and procedures for resolving disputes . . . .” Plaintiffs respond that “PacifiCare’s failure to authorize or provide care to [Jackson] did not stem from any activity or conduct for which standards exist under the Medicare Act . . . .” They explain “once in the care and custody of Starcare and Fountain Valley . . ., [Jackson] was entitled to all reasonably necessary medical care,” Jackson’s “plan with PacifiCare included these same services,” but defendants declined to provide them “because of a contract dispute between StarCare[,] . . . Fountain Valley . . .[,] . . . and PacifiCare over the question who would pay for (or be ‘at risk’ for) his care.” Thus, “[t]here is no grievance or coverage determination sought in this action.”

We agree with PacifiCare only as to the seventh cause of action. As noted, in Yarick v. PacifiCare of California, supra, 179 Cal.App.4th 1158, the plaintiff sued PacifiCare for negligence, willful misconduct, elder abuse, and wrongful death, primarily based on the theory “the contractual structure through which [the defendant] arranges to provide medical services gives the medical care providers an undue financial incentive to deny medically reasonable services.” (Id. at p. 1162.) After concluding section 1395w-26(b)(3) expressly preempted these claims because each one was based on the defendant’s alleged breach of statutory duties imposed by the Knox-Keene Health Care Service Plan Act, the court rejected the plaintiff’s alternative argument that “an independent common law duty provides a basis for viable state law claims against [the defendant].” (Id. at p. 1167.)

Yarick noted CMS regulations “assure reasonable and timely access to medical services” and “provide a quality assurance program to prevent . . . inappropriate medical decisions” (Yarick v. PacifiCare of California, supra, 179 Cal.App.4th at p. 1167), and concluded “[i]f state common law judgments were permitted to impose damages on the basis of these federally approved contracts and quality assurance programs, the federal authorities would lose control of the regulatory authority that is at the very core of Medicare generally and the MA program specifically [citation]” (id. at pp. 1167-1168). Further, acknowledging “generally applicable common law actions” are not preempted by section 1395w-26(b)(3), Yarick concluded “in the present case, [the plaintiff] does not base her claims against [the defendant] on such common law duties. She asserts duties applicable specifically to health plans.” (Yarick v. PacifiCare of California, supra, 179 Cal.App.4th at p. 1168.)

Here, the seventh count pleads constructive fraud. As to PacifiCare, plaintiffs allege its contractual agreements with StarCare and Fountain Valley “required them to enter into an agreement . . . shar[ing] in any savings by Fountain Valley in the cost of utilization of hospital services,” and that “PacifiCare, by denying authorization for, or assuming the expense for [Jackson’s] care and treatment at Fountain Valley” “save[d] substantial sums.” In short, the gravamen of this cause of action is a physician incentive plan. CMS has issued a regulation governing the contents of such plans. (42 C.F.R. § 422.208 (2005).) Thus, we agree this cause of action is preempted by section 1395w-26(b)(3).

But otherwise this case is distinguishable from Yarick. The fifth cause of action for negligence-willful misconduct alleges PacifiCare knew that “[o]nce [Jackson] was accepted at a patient at Fountain Valley,” “it was financially responsible for” Jackson’s “out of . . . network . . . care[] unless . . . [StarCare] and Fountain Valley were

responsible.” But, “[n]otwithstanding the knowledge of the peril . . . and . . . the high probability of injury,” because of the defendants’ “disagreement regarding financial responsibility,” each “failed to avoid the peril[] for the sake of profit and minimizing . . . financial risk.” Given the life threatening situation presented, the defendants’ conflict over who was financially responsible for Jackson’s care could not have been remedied by CMS’s administrative review process.

The sixth cause of action for breach of fiduciary duty alleged PacifiCare “acted as [a] health care provider[]” for Jackson and thus owed him a fiduciary obligation concerning “the decision to cover the cost of ‘out of network’ care” for him. But because it was “influenced by adverse financial interests,” PacifiCare “refused to authorize payment for services on and after January 31, 2007.” Since PacifiCare allegedly made this determination with full knowledge Jackson would not be treated, this claim may also be proven without consideration of coverage determinations under CMS’s standards.

The eighth cause of action for bad faith alleges PacifiCare “acted as an insurer” for Jackson and it breached its “duty of good faith[] by unreasonably denying coverage for [his] medical care” “solely . . . to save the cost of providing such care.” Since the duty to act in good faith and to deal fairly with another contracting party is a generally applicable common law duty, it is not specifically targeted by the Medicare Act’s regulations for MA organizations.

In the ninth count, plaintiffs allege PacifiCare committed fraud by “fail[ing] to disclose to [Jackson] and his family that [Jackson] was not [receiving] and would not receive necessary . . . care because” it did not want to “subject [itself] to liability or financial risk for the cost of his care,” while Jackson and plaintiffs reasonably relied “on statements and silence” to “believe[] that the care [Jackson] was receiving . . . was adequate and suitable to meet his reasonable health care . . . .” This cause of action, too,

is premised on general common law tort principles and not directly aimed at medical care plans governed by the Medicare Act. As for the tenth cause of action alleging a claim for wrongful death, the same analysis applies.

d. Exhaustion of Administrative Remedies

The trial court sustained PacifiCare’s demurrer solely on the basis of federal preemption. As an alternative basis for affirming the judgments, PacifiCare argues plaintiffs’ failure to exhaust the administrative remedies provided under the Medicare Act bars the current action.

As discussed above, and contrary to PacifiCare’s characterization of the case, plaintiffs are not disputing an adverse determination concerning Medicare benefits. Thus, this case is governed by McCall v. PacifiCare of California, Inc., supra, 25 Cal.4th 412 which, as discussed, rejected a failure to exhaust administrative remedies claim made under the Medicare Act “[b]ecause the [plaintiffs] may be able to prove the elements of some or all of their causes of action without regard, or only incidentally, to Medicare coverage determinations” where “none of their causes of action seeks, at bottom, payment or reimbursement of a Medicare claim or falls within the Medicare administrative review process, and because the harm they allegedly suffered thus is not remediable within that process . . . .” (Id. at p. 426, fn. omitted.) This case presents an even stronger basis for rejecting the failure to exhaust administrative remedies defense.

DISPOSITION

In case number G040920, the judgment is reversed with directions to permit appellants to file an amended complaint against respondent StarCare. In case number G041809, the judgment is affirmed as to the first amended complaint’s seventh

cause of action, but reversed as to the fifth, sixth, eighth, ninth, and tenth causes of action. Appellants shall recover their costs on appeal.

CERTIFIED FOR PUBLICATION

RYLAARSDAM, ACTING P. J.

WE CONCUR:

FYBEL, J.

IKOLA, J.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

KARUK TRIBE OF NORTHERN CALIFORNIA et al.,

Plaintiffs and Appellants,

v.

CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD, NORTH COAST REGION et al.,

Defendants and Appellants.

A124351, A124369, A124370

(Sonoma County

Super. Ct. No. SCV-241368)

These three appeals are the result of a rather unusual combination of administrative and judicial proceedings to determine whether state law regulating water quality can be applied to dams licensed by an agency of the federal government. A number of private parties asked the California Regional Water Quality Control Board, North Coast Region (Board) to enforce California’s law governing waste discharge to several hydroelectric dam-reservoirs on the Klamath River. The Board—having twice attempted to assert state law on this very subject and having twice been decisively and unanimously rejected by the United States Supreme Court and the Ninth Circuit Court of Appeals—declined, on the ground that all power on the subject belonged to the federal government by virtue of the Federal Power Act (FPA). The trial court ultimately agreed with this view, refusing to issue a writ of mandate compelling the Board to enforce the state’s law.

But before reaching that determination, and on its own initiative, the trial court sent the matter back to the Board so that it could reconsider its initial refusal in light of two decisions by the United States Supreme Court, which the court believed deserved “ a more complete response” by the Board than appeared in its original resolution rejecting the private parties’ request. The Board again concluded that it was powerless to act. This time the court agreed with the Board that federal law did indeed preempt state power. Nevertheless, after entering a final judgment denying the plaintiffs any relief, the trial court awarded them $138,000 in attorney fees, half of which was to be paid by the Board and half by the dams’ owner. The court determined that this award was proper under Code of Civil Procedure section 1021.5 (section 1021.5) because the litigation had resulted in the “important public benefit” of the Board making “a thoughtful and well reasoned determination” concerning its lack of authority to enforce state law.

We affirm the judgment because the Board and the trial court correctly recognized that for at least half a century federal law has been supreme when it comes to the subject of regulating hydroelectric dams operating under a federal license.

We reverse the attorney fee order because three of the statutory prerequisites to an award under section 1021.5 are absent. First, the initiators of this litigation cannot qualify as the “successful” parties in that in no sense did they achieve their strategic objective. Second, this was not an action that “resulted in the enforcement of an important right affecting the public interest.” And third, this is not a case where “a significant benefit . . . has been conferred on the general public or a large class of persons.” (Section 1021.5.) The best that can be said for the unorthodox proceedings that occurred here is that the Board, following what was in effect was a remand from the trial court, augmented the reasoning behind its decision that it was without authority to grant the private parties’ request that it enforce state law. Federal law was accepted as preeminent by the Board when this controversy began—and by the trial court when it ended. We conclude, as a matter of law, that it is not worth $138,000 to have a state agency polish up and augment the recitals and reasoning supporting a decision that was already more than legally sufficient.

BACKGROUND

The Klamath River is one of the most significant waterways in the far western continental Unites States. More than 260 miles long, it originates in Oregon but ends in California, when it joins the Pacific Ocean at Requa in Del Norte County. The river is also an important source of hydroelectric power. The Klamath Hydroelectric Project generates 161 megawatts of electricity. The project is comprised of five dams in both Oregon and California. The project is owned and operated by PacifiCorp, an Oregon corporation. On the California side, the Copco and Iron Gate reservoirs sit behind eponymous dams, both of which are located in Siskiyou County. At all relevant times, PacifiCorp’s application for the project’s relicensing was pending before the Federal Energy Regulatory Commission (FERC).

In February 2007, a petition was filed with the Board by four plaintiffs: the Karuk Tribe of Northern California, Klamath Riverkeeper, Pacific Coast Federation of Fishermen’s Associations, and Institute for Fisheries Research (hereinafter collectively, plaintiffs). The purpose of the petition was to get the Board to “order PacifiCorp to submit a Report of Waste Discharge (ROWD) for its discharges . . . [of] pollutants from the Copco and Iron Gate Reservoirs, and issue waste discharge requirements (WDR) establishing appropriate restrictions and prohibitions safeguarding the beneficial uses of the waters of the Klamath River.”

The Board conducted a public hearing on the petition, and denied it with Resolution No. R1-2007-0028 in April 2007. The reason for the denial was that federal law preempted application of California law, specifically the Porter-Cologne Water Quality Control Act (Water Code, § 13000 et seq.), which requires ROWDs and WDRs. (Id., §§ 13260-13273.1.) Plaintiffs’ request for review was denied by the California State Water Resources Control Board in July 2007.

In August 2007, plaintiffs filed a petition in superior court for either administrative or traditional mandate directing the Board to set aside the resolution and reconsider the issue in light of the trial court determining that there was no federal preemption. Plaintiffs alleged that the resolution was “invalid” because it was “based . . . on the erroneous legal ground that [the Board’s] authority to require reports of waste discharge or issue waste discharge requirements pursuant to the Porter-Cologne Act is preempted by the Federal Power Act.” Plaintiffs also prayed for an award of attorney fees under section 1021.5.

The position of the Board and PacifiCorp was that federal preemption under the FPA was conclusively established by two decisions of the United States Supreme Court, First Iowa Coop. v. Power Comm’n. (1946) 328 U.S. 152 (First Iowa), and California v. FERC (1990) 495 U.S. 490, and a subsequent decision by the Ninth Circuit, Sayles Hydro Associates v. Maughan (9th Cir. 1993) 985 F.2d 451 (Sayles Hydro).

Plaintiffs contended that these decisions were not dispositive because they did not address the authorization of enforcing state power laws such as Porter-Cologne enacted by Congress in the Water Pollution Control Act, commonly known as the Clean Water Act. (33 U.S.C. § 1251 et seq.; see fn. 17 and accompanying text, post; see also Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc. (2000) 528 U.S. 167, 174.)

Rather than issuing a flat order to the Board to enforce Porter-Cologne, as plaintiffs wanted, or denying the petition, as sought by the Board and PacifiCorp, the trial court apparently decided on a third option not suggested by any of the parties. Noting that that all sides had cited a pair of Supreme Court decisions subsequent to California v. FERC that gave an expansive reading to state power under the Clean Water Act (S.D. Warren Co. v. Maine Bd. of Environmental Protection (2006) 547 U.S. 370, 386 (S.D. Warren); PUD No. 1 of Jefferson Cty. v. Washington Dept. of Ecology (1994) 511 U.S. 700 (PUD No. 1)), the court decided to return the matter to the Board in order that it could “give a more complete response to [plaintiffs] as to the reasoning involved” in the Board’s decision. Specifically, the court apparently thought the Board had not sufficiently considered the relationship of the Clean Water Act enunciated in these two decisions to federal authority under the FPA.

After reviewing the parties’ trial briefs and hearing argument, the trial court issued what appears to have been an alternative writ of mandate directing the Board to revisit the issue. In its judgment of June 2008 directing issuance of the writ, the trial court stated that it was reserving “jurisdiction over [plaintiffs’] recovery of reasonable attorney fees and costs to be determined on noticed motion.” In August, plaintiffs filed a motion requesting attorney fees of $218,206.98 under section 1021.5 from the Board and PacifiCorp, “jointly and severally.”

The following month the Board responded to the writ with a 12-page “Supplemental Analysis To Accompany Resolution No. R1-2007-0028” that the court treated as a return that “complies with this court’s Writ of Mandate.” The gist of the analysis was that, under the FPA and the Clean Water Act as construed in S.D. Warren and PUD No. 1, the opportunity of a state to implement its water quality law was substantial but only in the context of federal licensing procedures.

Plaintiffs attacked the Board’s supplemental analysis as mere “wordsmithing” of a single part of Resolution No. R1-2007-0028, not the complete de novo reconsideration ordered by the court, and submitted that the Board was simply reiterating its position that it was powerless to act. Plaintiffs requested the court to amend its judgment and vacate the Board’s supplemental analysis in addition to the original resolution because both were “based on the . . . Board’s incorrect conclusion that the FPA preempts the field of water quality regulation.” At a brief hearing conducted on November 12, 2008, plaintiffs argued that the Board’s latest action “teed up [the] challenge” to the trial court “ so . . . we can get Your Honor to reopen the decision . . . via the return to decide the merits” of the preemption issue.

On December 8, 2008, the court entered a “Judgment Discharging Petition For Writ Of Mandate” in which it concluded: “In light of all the relevant law, including the Clean Water Act, the two recent United States Supreme Court cases upholding state water quality certification requirements for hydroelectric projects under Clean Water Act § 401 [i.e., PUD No. 1 and S.D. Warren], and the cases stating that the Federal Power Act preempts state water quality permitting requirements, Respondent [Board] was correct to determine that PacifiCorp is not required to submit a Report of Waste Discharge and/or issue Waste Discharge Requirements for the Copco and Iron Gate facilities.” Plaintiffs appealed from the judgment (A124351).

Thereafter the court granted plaintiffs $138,250 in attorney fees under section 1021.5, with the Board and PacifiCorp each liable for half of this sum. The court concluded that the litigation had resulted in an important public benefit, in the form of “a well-reasoned determination” by the Board “as to whether California or federal law should apply to FERC projects with regard to Reports of Waste Discharge and Water Discharge Requirements.” The Board and PacifiCorp commenced separate appeals from the fee order (A124369, A124370). We ordered the three appeals consolidated.

DISCUSSION

The Board Correctly Determined That It Had No Authority

To Grant The Relief Sought By Plaintiffs

In Calif. Oregon Power Co v. Superior Court (1955) 45 Cal.2d 858 (Calif. Oregon Power), the State of California instituted a nuisance action against the existing Copco facilities and the planned Iron Gate facility, then owned by PacifiCorp’s predecessor in interest. (See fn. 1, ante.) The Supreme Court agreed with the trial court that the action did not have to be dismissed because, among other reasons, exclusive jurisdiction over the dams and their operation was vested in federal hands, specifically the Federal Power Commission (FPC) administering the FPA. After quoting extensively from First Iowa, supra, 328 U.S. 152 and other federal decisions, our Supreme Court held:

“Implicit in the foregoing opinions is the concept that the field is not exclusively occupied for all purposes by the Federal Power Act or the federal commission [i.e., the FPC]. There is a duality of control the extent of which is not specified. While it is clear the state laws may not ‘veto’ projects licensed by the federal commission nor may the giving of a license be made contingent on the state’s consent, that is, the state may not block the project completely, there is nothing therein indicating that regulatory state laws which do not achieve that end are not proper. There is nothing said about nuisances or danger to the public in the Federal Power Act . . . . Here we are concerned with the abatement of a nuisance, in a sense a local police measure. The federal commission has not purported to adjudicate that question or do anything about it except to have [the power company] apply for a license for its dams, Copco 1 and 2, which for many years it has maintained without any effort to obtain a license and the [FPC] has done nothing in regard to the problem . . . . The state has not even asked in the action that defendant cease operating its dams; it asks that they be so operated as to not create the danger to the public and the destruction of the fish.” (Calif. Oregon Power, supra, 45 Cal.2d 858, 868 869.)

Plaintiffs stake everything on Calif. Oregon Power, which they deem “binding.” To them, the Board’s refusal to follow this decision amounts to an “abdication of its authority under State law,” specifically, the Porter-Cologne Act, which “provide[s] a mechanism for the State of California to abate nuisances resulting from water pollution” and thereby “regulate water quality problems.” As plaintiffs see it, according to established preemption principles and Calif. Oregon Power, the Board, and the trial court, failed to recognize that “Congress did not evince an intention, either expressly or implicitly, to occupy the field of water quality regulation pursuant to the FPA. . . . Congress did intend to comprehensively address water quality regulation in enacting the Clean Water Act. Although the FPA preempts some of the State’s authority to regulate water flow through a federally-licensed hydropower facility, such preemption does not extend to the State’s authority to regulate pollution releases to California’s rivers.” For plaintiffs, “There is no principled distinction between the California Supreme Court’s [Calif. Oregon Power] ruling allowing a public nuisance action to proceed in the face of the FPA and the question before this Court as to whether the Regional Board should be allowed to proceed pursuant to its authority and duty to implement Porter Cologne.”

Plaintiffs’ emphasis upon “water flow” and “pollution releases” is an attempt to differentiate their suit from, and break free from the gravitational pull of, two federal decisions, the one by the United States Supreme Court in California v. FERC, supra, 495 U.S. 490, and the one by the Ninth Circuit Court of Appeals in Sayles Hydro, supra, 985 F.2d 451. This approach does credit to their counsel’s ingenuity, but it is ultimately unavailing. Understanding why requires some history.

“It is no longer open to question that the Federal Government under the Commerce Clause . . . has dominion, to the exclusion of the States, over navigable waters of the United States. [Citing, inter alia, First Iowa, supra, 328 U.S. 152.] Congress has elected to exercise this power under the detailed and comprehensive plan for the development of the Nation’s water resources, which it prescribed in the Federal Power Act, to be administered by the Federal Power Commission. (First Iowa Hydro-Electric Cooperative v. Federal Power Comm’n . . . .)” (City of Tacoma v. Taxpayers (1958) 357 U.S. 320, 334, fn. omitted.) First Iowa is central to understanding the scope of federal preemption.

There, the FPC was willing to approve a pending application for development of a hydroelectric project on the Cedar River, but the State of Iowa intervened to demand that the applicant first secure a state permit. The United States Supreme Court held that the state demand was preempted by the FPA: “To require the [cooperative] to secure the actual grant to it of a state permit . . . as a condition precedent to securing a federal license for the same project would vest in . . . Iowa a veto power over the federal project. Such a veto power easily could destroy the effectiveness of the Federal Act. It would subordinate to the control of the State the ‘comprehensive’ planning which the Act provides shall depend upon the judgment of the Federal Power Commission.” (First Iowa, supra, 328 U.S. 152, 164.) “A dual final authority, with a duplicate system of state permits and federal licenses required for each project, would be unworkable. ‘Compliance with the requirements’ of such a duplicated system of licensing would be nearly as bad. Conformity to both standards would be impossible in some cases and probably difficult in most of them.” (Id. at p. 168.)

The court then considered the scope of section 27 of the FPC, which then and now provides: “Nothing contained in the chapter shall be construed as affecting or intending to affect or in any way to interfere with the laws of the respective States relating to the control, appropriation, use, or distribution of water used in irrigation or for municipal or other uses, or any vested right acquired therein.” (16 U.S.C. § 821.) The court gave this provision a narrow construction: “The effect of § 27, in protecting state laws from supersedure, is limited to laws as to the control, appropriation, use or distribution of water in irrigation or for municipal or other uses of the same nature. It therefore has primary, if not exclusive reference to such proprietary rights. The phrase ‘any vested right acquired therein’ further emphasizes the application of the section to property rights. There is nothing in the paragraph to suggest a broader scope . . . .” (First Iowa, supra, 328 U.S. 152, 175-176.)

After describing the FPA as “a major undertaking” intended “to secure a comprehensive development of natural resources,” the court concluded: “The detailed provisions of the Act providing for the federal plan of regulation leave no room or need for conflicting state controls.” (First Iowa, supra, 328 U.S. 152, 180-181, italics added.)

Notwithstanding this clear language, some California commentators were reluctant to accept it at face value, while others were openly hostile to the decision. (See Attwater & Markle, Overview of Cal. Water Rights and Water Quality Law (1997-1988) 19 Pac. L.J. 957, 990-991 [First Iowa “has been perceived as holding that the licensing of a hydroelectric project by the FERC operates to preempt state water rights laws, and that a FERC licensee may divert and use water for hydroelectric purposes without meeting state requirements”]; Walston, State Regulation of Federally-Licensed Hydropower Projects: The Conflict between California[ v. FERC] and First Iowa (1990) 43 Okla. L.Rev. 87, 88, 95 [“First Iowa’s view that the FPA preempts state water laws is no longer persuasive” and “is of doubtful validity”] ; Comment, Small Hydroelectric Projects and State Water Rights (1987) 18 Pac. L.J. 1225, 1236-1237 [“the interpretation of section 27 of the FPA in First Iowa is merely dicta”; “the decision did not resolve whether state water laws are preempted by the FPA”]; see also Plouffe, Forty Years After First Iowa: A Call For Greater State Control of River Resources (1985) 71 Cornell L.Rev. 833, 848 [“As long as First Iowa remains the law of the land, . . . the states will never have their deserved role in river resource management.”].) Four decades later, armed with a different statute’s broad reading of state power over interior water resources, California got the opportunity to determine whether First Iowa meant what it said.

In 1987, in connection with a federally-licensed hydroelectric facility in El Dorado County, the FERC issued a declaratory order to the effect that the Board had no authority to impose more stringent flow requirements for the protection of fish than the FERC’s permit allowed. Citing First Iowa’s veto language, the FERC concluded that “the establishment of minimum flows is a matter beyond the reach of state regulation.” (Rock Creek Limited Partnership (1987) 38 FERC 61,240.) The Board took the position that it had concurrent jurisdiction with the FERC because “First Iowa did not support federal preemption of this issue.” (See State of Cal. ex rel. Water Res. Bd. v. F.E.R.C. (9th Cir. 1989) 877 F.2d 743, 745.) The Ninth Circuit rebuffed California’s petition to overturn the FERC decision. And the Supreme Court unanimously affirmed, rejecting California’s attempt to limit First Iowa by broadening the scope of state power under section 27 of the FPA.

As soon as the Supreme Court began its analysis it was apparent that California would not carry the day:

“The parties’ dispute . . . turns principally on the meaning of § 27 of the FPA, which provides the clearest indication of how Congress intended to allocate the regulatory authority of the States and the Federal Government . . . . [] Were this a case of first impression, petitioner’s argument based on the statute’s language could be said to present a close question . . . . [] But the meaning of § 27 and the pre-emptive effect of the FPA are not matters of first impression. Forty-four years ago, this Court in First Iowa construed the section and provided the understanding of the FPA that has since guided the allocation of state and federal authority over hydroelectric projects.” (California v. FERC, supra, 495 U.S. 490, 497-498.)

After quoting the passage from First Iowa confining state power under section 27 to “proprietary rights,” the court rejected California’s invitation to reexamine First Iowa: “We decline at this late date to revisit and disturb the understanding of § 27 set forth in First Iowa. . . . [P]etitioner requests that we repudiate First Iowa’s interpretation of § 27 and the FPA. This argument misconceives the deference this Court must accord to longstanding and well-entrenched decisions, especially those interpreting statutes that underlie complex regulatory regimes. Adherence to precedent is, in the usual case, a cardinal and guiding principle of adjudication, and ‘[c]onsiderations of stare decisis have special force in the area of statutory interpretation, for here, unlike in the context of constitutional interpretation, the legislative power is implicated, and Congress remains free to alter what we have done.’ [Citation.] There has been no sufficient intervening change in the law, or indication that First Iowa has proved unworkable or has fostered confusion and inconsistency in the law, that warrants our departure from established precedent. [Citation.] This Court has endorsed and applied First Iowa’s limited reading of § 27 [citations], and has employed the decision with approval in a range of decisions, both addressing the FPA and in other contexts. [Citations.] By directing FERC to consider the recommendations of state wildlife and other regulatory agencies while providing FERC with final authority to establish license conditions (including those with terms inconsistent with the States’ recommendations), Congress has amended the FPA to elaborate and reaffirm First Iowa’s understanding that the FPA establishes a broad and paramount federal regulatory role. [Citing 16 U.S.C. §§ 803(a)(1)-(3) & 803(j)(1)-(2).]” (California v. FERC, supra, 495 U.S. 490, 498-500.)

“Petitioner asks this Court fundamentally to restructure a highly complex and long-enduring regulatory regime, implicating considerable reliance interests of licensees and other participants in the regulatory process. That departure would be inconsistent with the measured and considered change that marks appropriate adjudication of such statutory issues. [Citations.]” (California v. FERC, supra, 495 U.S. 490, 500.)

The court then shot down another attempt by California to differentiate its regulatory authority from First Iowa: “Petitioner also argues that we should disregard First Iowa’s discussion of § 27 because it was merely dictum. It is true that our immediate concern in First Iowa was the interpretation of § 9(b) of the FPA, which governs submission to the federal licensing agency of evidence of compliance with state law. The Court determined that § 9(b) did not require licensees to obtain a state permit or to demonstrate compliance with the state law prerequisites to obtaining such a permit. [Citation.] Instead, the Court construed the section merely as authorizing the federal agency to require evidence of actions consistent with the federal permit. [Citation.] First Iowa’s limited reading of § 27 was, however, necessary for, and integral to, that conclusion. . . . The Court reasoned that, absent an express congressional command, § 9(b) could not be read to require compliance with, and thus to preserve, state laws that conflicted with and were otherwise pre-empted by the federal requirements. Only the Court’s narrow reading of § 27 allowed it to sustain this interpretation of § 9(b). Had § 27 been given the broader meaning that Iowa sought, it would have ‘saved’ the state requirements at issue, made the state permit one that could be issued, and supported the interpretation of § 9(b) as requiring evidence of compliance with those state requirements, rather than compliance only with those requirements consistent with the federal permit.” (California v. FERC, supra, 495 U.S. 490, 500-502, fn. omitted.) By “saved,” the court made explicit that it was referring to “an interpretation that would have . . . accommodated the state permit system and its underlying requirements.” (Id. at p. 502.) First Iowa had therefore “rejected the possibility of concurrent jurisdiction.” (Ibid.)

The court then administered the coup de grace: “Adhering to First Iowa’s interpretation of § 27, we conclude that the California requirements for minimum in-stream flows cannot be given effect and allowed to supplement the federal flow requirements. . . . As Congress directed in FPA § 10(a), FERC set the conditions of the license, including the minimum stream flow, after considering which requirements would best protect wildlife and ensure that the project would be economically feasible, and thus further power development. [Citations.] Allowing California to impose significantly higher minimum stream flow requirements would disturb and conflict with the balance embodied in that considered federal agency determination. FERC has indicated that the California requirements interfere with its comprehensive planning authority, and we agree that allowing California to impose the challenged requirements would be contrary to congressional intent regarding the Commission’s licensing authority and would ‘constitute a veto of the project that was approved and licensed by the FERC.’ [(State of Cal. ex. Rel. Water Res. Bd. v. F.E.R.C., supra,] 877 F.2d at 749; cf. First Iowa, supra, at 164-165.” (California v. FERC, supra, 495 U.S. 490, 506-507.)

Undaunted, California tried another tack in Sayles Hydro. The subject there was the proposed construction and operation of a hydroelectric facility on the American River in El Dorado County. After almost a decade of controversy attending the project (see LaFlamme v. F.E.R.C. (9th Cir. 1991) 945 F.2d 1124), the FERC granted it a license. When the project proponents filed an application for a state water permit, the Board insisted that an environmental impact report had to be prepared before the Board would consider the application. The proponents filed suit in federal district court, and obtained a declaratory judgment and an injunction against the Board, on the ground that federal

authority occupied the field of licensing and regulating hydroelectric power facilities, leaving to the state only the power to determine proprietary water rights. The Board’s appeal failed before the Ninth Circuit. (Sayles Hydro, supra, 985 F.2d 451.)

The court’s analysis was brief, almost abrupt. It opened by dismissing the Board’s reliance on section 27 of the FPA: “We cannot . . . construe this statute on a blank slate. The Supreme Court has read the broadest possible negative pregnant into this ‘savings clause.’ [Citing First Iowa, supra, 328 U.S. 152, 176.] The rights reserved to the states in this provision are all the states get. The State Board before us in this case has litigated this very matter before the United States Supreme Court and lost. [Citing California v. FERC, supra, 495 U.S. 490.] [] First Iowa involved circumstances similar to the instant case. The Federal Power Commission wanted the project to proceed, but the State of Iowa did not, unless the power cooperative first demonstrated compliance with Iowa law regarding pollution, fish protection, construction diversion of streams, and other requirements. The diversion of a river, prohibited by state law, was the exact means selected by the Federal Power Commission to generate a maximum amount of electricity. The Supreme Court held that the state and federal authorities do not ‘share in the final decision of the same issue.’ [Quoting First Iowa, supra, at p. 168.]” (Sayles Hydro, supra, 985 F.2d 451, 454.)

“The language of First Iowa was broad, but its facts arguably left room to treat its construction of [section 27] as dictum, because that case involved a conflict between state and federal requirements. The State Board proposed this reading to the Supreme Court in California v. FERC . . . . The Court rejected it. [Citation.] The Court read the ratio decidendi of First Iowa as necessarily construing the savings provision ‘to encompass only laws relating to proprietary rights.’ [Citation.] The Court held that the California minimum stream flow requirement did not reflect proprietary rights, so, under First Iowa, federal preemption barred the state regulation.” (Sayles Hydro, supra, 985 F.2d 451, 455.) “California v. FERC reaffirms First Iowa’s narrow interpretation of the savings provision, so that the only authority states get over federal power projects relates to allocating proprietary rights in water. First Iowa said that the separation of authority states get over federal governments ‘does not require two agencies to share in the final decision of the same issue.’ [Quoting First Iowa, supra, 328 U.S. 152, 167-168.] California v. FERC reaffirms First Iowa, uses the ‘occupy the field’ characterization ‘broad and paramount federal regulatory role,’ [quoting California v. FERC, supra, 495 U.S. 490, 499], and plainly states that ‘constricting § 27 to encompass only laws relating to proprietary rights’ accomplishes this ‘no sharing’ purpose. [Quoting id. at pp. 502-503.]” (Sayles Hydro, supra, 985 F.2d 451, 455-456, fn. omitted.)

And so there be no possible doubt about its reasoning, the court then reiterated: “In the case at bar, it is clear that the federal laws have occupied the field, preventing state regulation. This conclusion is strengthened by the fact that most or all of the State Board’s concerns were considered by the Federal Energy Regulatory Commission in granting the license, and conditions were imposed in the license to protect these multiple values. . . . There would be no point in Congress requiring the federal agency to consider the state agency recommendations on environmental matters and make its own decisions about which to accept, if the state agencies had the power to impose the requirements themselves.” (Sayles Hydro, supra, 985 F.2d 451, 456.)

The court closed its opinion with a chilling warning: “Sayles has suggested that the appeal is frivolous and deserves sanctions. We have not gone so far as this, though the Board’s unwillingness to accept the meaning of the result it obtained in California v. FERC gives us pause. Further litigation which appears to the District Court to be frivolous or for purposes of delay may expose the litigants or their attorneys to sanctions.” (Sayles Hydro, supra, 985 F.2d 451, 456.)

Thus, twice has the United States Supreme Court, followed by the Ninth Circuit, in the most expansive terms, validated expansive federal authority over the conditions governing operation of hydroelectric projects. These are the commanding heights that plaintiffs have decided to charge.

Plaintiffs do not really discuss First Iowa, California v. FERC, or Sayles Hydro except to dismiss them. Their approach is to note these decisions but claim they are not at all controlling. Plaintiffs purport to distinguish them on the ground that none of them unambiguously holds that “the FPA preempts states’ water quality laws.” Plaintiffs reason that not one of the federal decisions addressed the states’ role under the Clean Water Act, enacted in 1972, long after First Iowa was decided (33 U.S.C. § 1251 et seq.; Pub.L. 92-500, 82 Stat. 816), which has a number of provisions permitting—that is, not preempting—state laws devoted to preserving water quality. Nor do plaintiffs follow the lead of the trial court in focusing upon PUD No. 1 and S.D. Warren, which are mentioned at only three points in their opening brief.

It is true, as plaintiffs point out, that Porter-Cologne gives the Board the authority and responsibility to abate nuisances affecting the state’s water resources. (See Water Code,§§ 13050, subds. (h) & (m), 13225, 13241, 13263, subd. (a), 13340, 13377.) But these statutes, individually or when considered with Calif. Oregon Power, supra, 45 Cal.2d 858, cannot overcome First Iowa, California v. FERC, and Sayles Hydro.

It is also true that none of these federal court decisions expressly considered the federal Clean Water Act, the provisions of Porter-Cologne, or Calif. Oregon Power. Therefore, according to a strict application of stare decisis, they do not amount to an express refutation of plaintiffs’ thesis. (E.g., Goldstein v. Superior Court (2008) 45 Cal.4th 218, 228 [“ ‘it is axiomatic that cases are not authority for propositions not considered’ ”].) Nevertheless, the spirit of those decisions cannot be dismissed out of hand on that basis. Nor are they without impact upon our analysis.

Sayles Hydro interpreted First Iowa and California v. FERC as “field preemption” decisions, that is, with the exception of their proprietary water rights, states are excluded from interposing their law into the field of hydropower regulation. (Sayles Hydro, supra, 985 F.2d 451, 455-456.) This is not literally true, because, as the Supreme Court observed in California v. FERC, the FPA does allow states to have input in the form of “recommendations” to FERC during the licensing process. (California v. FERC, supra, 495 U.S. 490, 498-499, citing 16 U.S.C. § 803, subds. (a)(1)-(3), (j)(1)-(2).) But that is the extent of the collaboration allowed by the language of the FPA.

Although, as a state court, we are not bound by the Ninth Circuit’s construction of the FPA in Sayles Hydro, that construction may be considered. (E.g., People v. Zapien (1993) 4 Cal.4th 929, 989 [“ ‘Decisions of the lower federal courts interpreting federal law, although persuasive, are not binding on state courts”].) In this instance, we agree with Sayles Hydro and its reading of First Iowa and California v. FERC. And we are bound by decisions of the United States Supreme Court in the construction and application of federal law. (E.g., Chesapeake & Ohio Ry. v. Martin (1931) 283 U.S. 209, 220-221; Stock v. Plunkett (1919) 181 Cal. 193, 194-195; 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 505, p. 568.)

One of the most subtle and original legal thinkers once analogized the strength of a precedent to cosmology: “We are not now, and probably never will be, able to predict the path of a precedent with absolute certainty. No more can we always, with complete assurance, predict the path of a merely physical object. But at least we know that information about the weight of the object and its direction and velocity at a given point would be relevant to our prediction. So, too, we know something about the relevant factors in plotting the path of a precedent. We know that the line of motion of any precedent is subjected to a special pull that skews it whenever it passes near a point of high value tension.” (Cohen, Field Theory and Judicial Logic (1950) 59 Yale L.J. 238, 249.) Here, we know what that tension point is—and we have proof from a most unusual source.

The brief of the Attorney General on behalf of the Board contains the following extraordinary admission: “In the interests of candor, the Regional Board will admit at the outset to a certain sense of déjà vu when reviewing the arguments being offered here by the appellants. That is because very similar arguments, seeking a very similar result, were attempted by the State of California on behalf of the State Water Resources Control Board . . . in two federal cases . . . . Unfortunately, the first of those cases resulted in a ruling by a unanimous United States Supreme Court rejecting California’s arguments, the very contentions being attempted again by the [plaintiffs] here. The second of those cases was a later opinion by the Ninth Circuit Court of Appeals, which not only again rejected the arguments being offered by the State in support of its arguments for concurrent enforcement of state permit laws against a federally licensed dam, but also ended with the suggestion that sanctions might be considered if any similar arguments were attempted in the future. This clear and unequivocal Supreme Court and Ninth Circuit case authority notwithstanding, the plaintiffs have now returned [sic] to this Court offering the same arguments but hoping for an opposite result.” These are unmistakable references to California v. FERC and Sayles Hydro.

This is no ordinary concession by a party to litigation, but a considered view by an administrative agency of the statutes under which it operates. The Board’s view of its lack of authority to enforce California’s water laws as to hydroelectric facilities operating pursuant to federal license would in any case be entitled to at least respectful attention. (E.g., Colmenares v. Braemar Country Club, Inc. (2003) 29 Cal.4th 1019, 1029 [administrative agency’s construction given “substantial weight”]; Harrott v. County of Kings (2001) 25 Cal.4th 1138. 1154-1155 [“great weight”]; Dix v. Superior Court (1991) 53 Cal.3d 442, 460 [“great deference”]; People v. Woodhead (1987) 43 Cal.3d 1002, 1013 [“respect”]; State Building & Construction Trades Council of California v. Duncan (2008) 162 Cal.App.4th 289, 304 [agency view “may be helpful”].) “The amount of deference given to the administrative construction depends ‘ “upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” ’ ” (Hoechst Celanese Corp. v. Franchise Tax Bd. (2001) 25 Cal.4th 508, 524, quoting Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 14-15.)

The special factor undergirding the Board’s admission is the failed history of its efforts to vindicate the very power plaintiffs would have the Board ordered to wield. The Board has the scars to prove that it has been down this road already, and more than once. The interest it tried and failed to protect—regulation of California’s own waters—is an interest to which no state is indifferent.

California, like most Western states, has long appreciated the importance of water. “The present and future well-being and prosperity of the state depend upon the conservation of its life-giving waters. . . . The conservation of other natural resources is of importance, but the conservation of waters of the state is of transcendent importance. Its waters are the very life blood of its existence.” (Gin S. Chow v. City of Santa Barbara (1933) 217 Cal. 673, 701-702; see Ivanhoe Irr. Dist v. All Parties (1957) 47 Cal.2d 597, 621 [“It was early realized that water in this semiarid region was of the utmost importance to the welfare, progress and prosperity of the people of the state.”], revd. on other grounds Ivanhoe Irrig. Dist v. McCracken (1958) 357 U.S. 275; Joerger v. Pacific Gas & Electric Co. (1929) 207 Cal. 8, 22 [“It is . . . the policy of the state to require the highest and greatest public duty from the waters of the state in the interest of agriculture and other useful and beneficial purposes.”]; Cucamonga County Water Dist. v. Southwest Water Co. (1971) 22 Cal.App.3d 245, 259 [noting the “special importance attached to the efficient and economical use and distribution of water in the arid western states”].) Porter-Cologne codifies the Legislature’s recognition of these interests. (Water Code, § 13000.) More recently, recreation has become accepted as having equal importance. (See Cal. Const., at. X, § 4; Marks v. Whitney (1971) 6 Cal.3d 251, 257, 259; Kern River Public Access Com. v. City of Bakersfield (1985) 170 Cal.App.3d 1205, 1214-1216 & fn. 4.)

When the matter of a state’s water resources becomes the subject of a state-federal dispute, it would be hard to identify a more vital state interest. It follows that when that interest has twice been subordinated to sweeping federal authority in the form of the FPA, there is no “skew” because the federal interest prevails even in the presence of the “high value tension” of traditional state power. (Cohen, Field Theory and Judicial Logic, supra, 59 Yale L.J. 238, 249.) It is hardly credible that when it decided California v. FERC the Supreme Court was unaware of the vital interest of states in regulating their water resources, particularly in regard to the most populous state in the union.

The power of the federal precedents, particularly First Iowa and California v. FERC, have a clear and undeviating potency. This explains the Board’s submission and gives it unusual persuasive force. It is also corroborated by logical inference. Even the attorney for the Board who unsuccessfully argued to preserve the state’s power in California v. FERC, although originally not reconciled to the decision, came to accept the principle that California’s “regulatory laws do not apply to hydropower projects.” (Walston, California Water Law: Historical Origins to the Present (2008) 29 Whittier L.Rev. 765, 788; see Walston, California v. Federal Energy Regulatory Commission: New Roadblock to State Water Rights Administration (1991) 21 Envtl. L. 89, 110 [criticizing California v. FERC as “fail[ing] to consider and apply the broad historical and policy themes that have persuaded the Court in other recent federal-state water cases to recognize broad state authority”]. )

In both First Iowa and California v. FERC, the judicial tone is emphatic in declaring the broadest scope to federal supremacy in the field of regulating hydropower projects, retaining to the states only the limited matter of “proprietary rights.” It is true that plaintiffs are relying on a number of provisions in the Clean Water Act (see fn. 17, ante) which, considered in the abstract, might support their contention, and which were not expressly considered in either decision. But such statutory isolation is not possible. The obvious import of the Clean Water Act provisions upon which plaintiffs rely seem indistinguishable both in tone and in perceived import from the provision in the Reclamation Act that underlay California’s futile attempt to breach the wall erected by First Iowa. (See fn. 12 and accompanying text, ante.)

The remaining arguments plaintiffs advance to avert this conclusion are unavailing. Plaintiffs invoke the principle that courts presume that Congress did not intend to preempt the States power over traditional subjects of regulatory authority, including water quality. However, in California v. FERC the Supreme Court explicitly held that this principle is not operative vis-à-vis the FPA. (California v. FERC, supra, 495 U.S. 490, 497-498.)

Nor can our Supreme Court’s decision in Calif. Oregon Power, supra, 45 Cal.2d 858, be used to sustain plaintiffs’ argument that “There is no principled distinction between the California Supreme Court’s . . . ruling allowing a public nuisance action to proceed in the face of the FPA and . . . whether the Regional Board should be allowed to proceed pursuant to its authority and duty to implement Porter-Cologne.” In point of fact, there are several distinctions.

First, Calif. Oregon Power did not consider Porter-Cologne because that measure was not enacted until 14 years later (Stats. 1969, ch. 482). So, the decision cannot qualify as binding authority concerning that measure. (Goldstein v. Superior Court, supra, 45 Cal.4th 218, 228.)

Second, the Calif. Oregon Power court made a point of noting that the facilities at issue were not operating pursuant to an FPC license. (Calif. Oregon Power, supra, 45 Cal.2d 858. 861.) It is thus factually distinguishable from the situation here, where it is undisputed that at all relevant times the facilities operated by PacifiCorp have been licensed by the FERC. (See fn. 2 and accompanying text, ante.)

Third, the court read First Iowa as not occupying the field of hydropower regulation. (Calif. Oregon Power, supra, 45 Cal.2d 858, 868-869 [“Implicit in the foregoing opinions is the concept that the field is not exclusively occupied for all purposes by the Federal Power Act or the federal commission.”].) This estimation is clearly no longer tenable after California v. FERC. Calif. Oregon Power cannot be viewed in isolation from consideration of subsequent federal decisions which are either independently persuasive—as in the case of the Ninth Circuit’s construction of the FPA in Sayles Hydro—or which are themselves superior to Calif. Oregon Power—as in the case of California v. FERC. Because the point is ultimately one of how federal law is construed, the state Supreme Court’s construction cannot overcome a contrary interpretation by the United States Supreme Court. (Chesapeake & Ohio Ry. v. Martin, supra, 283 U.S. 209, 220-221; Stock v. Plunkett, supra, 181 Cal. 193, 194-195.)

Fourth, it appears that the utility of Calif. Oregon Power to plaintiffs may have been eroded by subsequent decisions of the United States Supreme Court. In International Paper Co. v. Ouellette (1987) 479 U.S. 461, Vermont property owners sued to halt pollution discharged into Lake Champlain by a paper company located in New York as an alleged nuisance under Vermont common law. The court held that the Clean Water Act preempted the action, and that the only law applicable to an interstate state discharge was “the law of the State in which the point source [of the pollution] is located.” (Id. at p. 487.) The court reiterated this holding in Arkansas v. Oklahoma (1992) 503 U.S. 91, concluding that downsource victims of pollution could not claim the assistance of federal common law when the upstream polluter had a discharge permit issued by the Environmental Protection Agency. Thus, if the pollution of which plaintiffs complain has its source in Klamath facilities in Oregon, especially if they have an EPA-issued permit, Calif. Oregon Power cannot be treated as controlling. However, neither of these possibilities is established by the record before us. We mention them simply to underscore that, with respect to a 55-year-old decision antedating enactment of the Clean Water Act, as well as California v. FERC and Sayles Hydro, there are legitimate and obvious grounds for questioning whether it states an eternal verity.

Fifth, the preemption of state authority under the FPA that has been accepted by the Board is in line with the approach courts have taken subsequent to California v. FERC and Sayles Hydro. Our research has discovered only two subsequent decisions which resemble the general outlines of this case: Hackett v. J.L.G. Properties, LLC (2008 Conn.) 940 A.2d 769 (Hackett) and Wisconsin Valley Improvement Co. v. Meyer (W.D. Wis. 1996) 910 F.Supp. 1375 (Meyer). In Hackett, the Supreme Court of Connecticut held that the FPA preempted enforcement of municipal zoning laws as to a commercial marina situated on a reservoir generating hydroelectric power pursuant to a FERC license. The court held that that the construction given section 27 of the FPA by First Iowa and California v. FERC “is not limited to water flow issues, but is instructive on all matters in which the states seek to impose requirements on hydroelectric power projects.” (Hackett, supra, at p. 777.) Sayles Hydro was cited for its determination of congressional intent “to occupy the field and create a ‘broad and paramount federal regulatory role . . . .’ ” (Hackett, supra, at p. 778.) And in Meyer, a federal district considered a claim that the FPA preempted a state statute characterized as “authoriz[ing] the Wisconsin Department of Natural Resources to impose fees on applicants for hydropower licenses to cover the costs of studies the department conducts to determine the environmental impact of proposed hydroelectric projects.” (Meyer, supra, at p. 1377.) The court concluded that the state statute was preempted: “Although the Wisconsin statute is directed only to the payment of the cost of studies . . . it adds another requirement and an additional cost to the securing of a license. Having to pay fees to the state to cover the costs of such studies may deter a hydropower company from developing its project in the state of Wisconsin. . . . To that extent, [the state statute] functions as an economic deterrent to license applicants and can be construed as an implicit ‘veto power’ by the state similar to laws requiring applicants to meet more stringent state requirements than those provided by the federal licensing scheme.” (Id. at pp. 1382 1383.)

Plaintiffs urge us to start at square one, applying the standard preemption criteria, and determine whether Congress intended an exclusive federal occupation of the field of hydropower regulation. They contend that such an analysis will demonstrate that the Clean Water Act was not meant to oust state power, and that the FPA was not meant to ignore what plaintiffs characterize as “state water quality protection laws.” But the court in California v. FERC declined a similar invitation when it refused to revisit the soundness of First Iowa. We think this a sound precedent to follow. And we mean precedent in both its literal and figurative senses.

It is literally true because in California v. FERC the Supreme Court reiterated First Iowa’s conclusion that the FPA occupies the field of hydropower regulation (California v. FERC, supra, 495 U.S. 490, 499, 506), and, to reiterate once again, we are not at liberty to ignore that conclusion. (Chesapeake & Ohio Ry. v. Martin, supra, 283 U.S. 209, 220-221; Stock v. Plunkett, supra, 181 Cal. 193, 194-195.) Even were we not strictly obliged by stare decisis to follow the two decisions by the United States Supreme Court, we would still choose to do so.

Justice Brandeis famously said that “Stare decisis is usually the wise policy, because in most matters it is more important that the applicable rule of law be settled than that it be settled right” (Burnet v. Coronado Oil & Gas Co. (1932) 285 U.S. 393, 406 (dis. opn. of Brandeis, J.)), a principle invoked by the court in California v. FERC, supra, 495 U.S. 490, 500.) Translated to the vernacular, this means “Enough is enough.” And at some point, it has to mean “Knock it off.”

The Board eventually reached the latter conclusion, halting its efforts to get around FPA preemption. Plaintiffs have now taken up the standard for state power, bringing up the same policy and prudential arguments federal and state courts have uniformly rejected when advanced by the Board. But when the United States Supreme Court unanimously holds that “the FPA establishes a broad and paramount federal . . . role” (California v. FERC, supra, 495 U.S. 490, 499, italics added), that conclusion should be afforded a respect that goes beyond what is strictly demanded by stare decisis. The court there noted that its earlier opinion in First Iowa had subsequently been “employed . . . with approval in a range of decisions, both addressing the FPA and in other contexts.” (Id. at p. 499.) Allowing for its shorter existence, so too it has proven with California v. FERC. (See John R. Sand & Gravel Co. v. United States (2008) 552 U.S. 130, 139; PUD No. 1, supra, 511 U.S. 700, 720-722; Maislin Industries U.S., Inc. v. Primary Steel. Inc. (1990) 497 U.S. 116, 131, 135.)

A determination of federal preemption does not automatically mean that state input is categorically prohibited and state opinion of no consequence. The Clean Water Act gives states what appears to be a very substantial role by requiring that an applicant for any federal license comply with state water quality procedures. (See fns. 17, ante; S.D. Warren, supra, 547 U.S. 370, 386; PUD No. 1, supra, 511 U.S. 700, 707, 713.) But the crucial points are (1) that it is Congress that determines what is the extent of state input, and (2) that input takes place within the context of FERC licensing procedures as specified in the FPA. It is only when states attempt to act outside of this federal context and this federal statutory scheme under authority of independent state law that such collateral assertions of state power are nullified. All of these points were acknowledged by the Board in its supplemental analysis. (See fn. 6 and accompanying text, ante.)

“Rivers mean different things to different people. Rivers are home and habitat to fish and wildlife. They are a means both of transportation and of waste disposal. They can be a source of spiritual regeneration. They can also be a source of power production. They provide life and they can take it away. [] Given the conflict of expectations associated with rivers and the institutional structures that have developed to fulfill those expectations, conflict is inevitable.” (Sherk, Approaching A Gordian Knot: The Ongoing Conflict State/Federal Conflict Over Hydropower (1996) 31 Land & Water L.Rev. 349, 350.) So it has proved.

California has long appreciated the nonpareil importance of its internal waters. (See, e.g., Ivanhoe Irr. Dist v. All Parties, supra, 47 Cal.2d 597, 621; Gin S. Chow v. City of Santa Barbara, supra, 217 Cal. 673, 701-702; Joerger v. Pacific Gas & Electric Co., supra, 207 Cal. 8, 22.) The state and the Board appear to have done their utmost in trying to keep as much power as possible in California’s hands. But their efforts met only defeat. The FPA has established “a highly complex and long-enduring regulatory regime.” (California v. FERC, supra, 495 U.S. 490, 500.) Reasonable minds might disagree as to the wisdom of entrusting the subject to federal supremacy, but the reality of that decision is no longer open to debate. (Chesapeake & Ohio Ry. v. Martin, supra, 283 U.S. 209, 220-221; Stock v. Plunkett, supra, 181 Cal. 193, 194-195.) The trial court correctly determined that it should not compel the Board to upset this long-settled applecart.

The Trial Court Abused Its Discretion In Granting The

Request For Attorneys Fees Pursuant To Section 1021.5

The trial court decided to return the matter to the Board in order that it could “give a more complete response to [plaintiffs] as to the reasoning involved” in the Board’s decision. Specifically, the court apparently thought the Board had not sufficiently considered the United States Supreme Court decisions in S.D. Warren, supra, 547 U.S. 370, and PUD No. 1, supra, 511 U.S. 700, which considered state power under the Clean Water Act and which were decided after California v. FERC.

When it sent the matter back to the Board, the trial court told the Board: “it is insufficient to refuse to grant petitioners’ request based solely on the FPA’s preemption of state laws; respondent [i.e., the Board] must also address the role of state laws through the Clean Water Act and in light of the rulings and rationale of all of the relevant authority, including the two most recent U.S. Supreme Court cases [i.e., PUD No. 1 and S.D. Warren].” Prior to doing so, the trial court stated to counsel that “it wouldn’t do much harm basically.” The court also inquired of counsel for the Board, “I don’t see much prejudice in it to the defendants/respondents, do you?” Not having the gift of prescience, counsel was unable to foresee that the court’s action would form the basis for its subsequent decision to award plaintiffs over $138,000 in attorneys fees

In the order announcing the award, the trial court reasoned: “Because Respondent [Board] and Real Party in Interest [PacifiCorp] did not include any discussion or rationale for this determination in their opposition to Petitioners’ Petition (or attempt to reconcile the U.S. Supreme Court cases that appeared to conflict [i.e., PUD No. 1 and S.D. Warren]), the court must assume that Respondent had not conducted a thoughtful, well considered analysis of this issue, but simply assumed (as both Respondent and Real Party in Interest stated in their opposition) that Federal law applies because it preempts California law—even though that argument is inconsistent with two recent U.S. Supreme Court cases. Thus the court assumes that it was Petitioner’s action in bringing this lawsuit, and the court’s granting of their petition and issuance of a writ ordering Respondent to reconsider their decision about the application of RWDs [Reports of Waste Discharge] and WDRs [Water Discharge Requirements], that caused Respondent to make a thoughtful and well-reasoned determination about this issue. Well-reasoned decisions about water quality and waste discharge are an important public benefit.” “Though the court understands that Respondent and Real Party In Interest may well feel they are the prevailing parties, nevertheless it is the court’s intention to grant attorneys fees to the Petitioners in the amount of $138,250, half of which is to be paid by Respondent and half of which is to be paid by Real Party in Interest.”

The Governing Principles

Section 1021.5 provides in pertinent part: “Upon motion, a court may award attorneys’ fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any . . . .”

“ ‘The Legislature adopted section 102l.5 as a codification of the private attorney general doctrine of attorney fees developed in prior judicial decisions . . . . [T]he private attorney general doctrine “rests upon the recognition that privately initiated lawsuits are often essential to the effectuation of the fundamental public policies embodied in constitutional or statutory provisions, and that, without some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible.” Thus, the fundamental objective of the doctrine is to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases.’

“In order to effectuate that policy, we have taken a broad, pragmatic view of what constitutes a ‘successful party.’ ‘Our prior cases uniformly explain that an attorney fee award may be justified even when the plaintiff’s legal action does not result in a favorable final judgment. [Citations.] It is also clear that the procedural device by which a plaintiff seeks to enforce an important right is not determinative of his or her entitlement to attorney fees under section 1021.5. [Citation.] Similarly, a section 1021.5 award is not necessarily barred merely because the plaintiff won the case on a preliminary issue. [Citations.] In determining whether a plaintiff is a successful party for purposes of section 1021.5, “[t]he critical fact is the impact of the action, not the manner of its resolution.” [Citation.] [] The trial court in its discretion “must realistically assess the litigation and determine, from a practical perspective, whether or not the action served to vindicate an important right so as to justify an attorney fee award” under section 1021.5. [Citation.]’ ” (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 565-566 (Graham), quoting Maria P. v. Riles (1987) 43 Cal.3d 1281, 1290-1291 (Maria P.).)

Put another way, courts check to see whether the lawsuit initiated by the plaintiff was “demonstrably influential” in overturning, remedying, or prompting a change in the state of affairs challenged by the lawsuit. (E.g., Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668, 687; RiverWatch v. County of San Diego Dept. of Environmental Health (2009) 175 Cal.App.4th 768, 783; Lyons v. Chinese Hospital Assn. (2006) 136 Cal.App.4th 1331, 1346, fn. 9.) “ ‘Entitlement to fees under [section] 1021.5 is based on the impact of the case as a whole.’ ” (Punsly v. Ho (2003) 105 Cal.App.4th 102, 114, quoting what is now Pearl, Cal. Attorney Fee Awards (Cont.Ed.Bar 2d.ed 2008) § 4.11, p. 100.) As for what constitutes a “significant benefit,” it “may be conceptual or doctrinal, and need not be actual and concrete, so long as the public is primarily benefited.” (Planned Parenthood v. Aakhus (1993) 14 Cal.App.4th 162, 171.)

Thus, a trial court which grants an application for attorneys’ fees under section 1021.5 has made a practical and realistic assessment of the litigation and determined that (1) the applicant was a successful party, (2) in an action that resulted in (a) enforcement of an important right affecting the public interest and (b) a significant benefit to the general public or a large class of persons, and (3) the necessity and financial burden of private enforcement of the important right make an award of fees appropriate. “ ‘On review of an award of attorney fees . . . the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees . . . have been satisfied amounts to statutory construction and a question of law.’ ” (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175, quoting Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142.)

Plaintiffs Did Not Qualify As “Successful Parties” Who

Caused the “Enforcement Of An Important Right

Affecting The Public Interest” And Thereby “Conferred

A Significant Benefit On The General Public”

The Board and PacifiCorp contend that the trial court was legally incorrect in determining that plaintiffs qualified as successful parties who had enforced an important right that resulted in a significant benefit to the public. Because the trial court misapplied, as a matter of law, the statutory criteria of section 1021.5, the Board and PacifiCorp argue that no informed exercise of discretion occurred, and thus no deference is due under the lenient abuse standard. We agree that, however the trial court’s decision is characterized, and regardless of which standard of review is applied, the award made by the trial court is too flawed to survive.

“ ‘ “The appropriate benchmarks in determining which party prevailed are (a) the situation immediately prior to the commencement of suit, and (b) the situation today, and the role, if any, played by the litigation in effecting any changes between the two.” ’ [Citations.] . . . ‘ “[P]laintiffs may be considered ‘prevailing parties’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.” ’ [Citations.]” (Maria P., supra, 43 Cal.3d 1281, 1291 1292.)

The Board and PacifiCorp hit the obvious points. The relief sought by plaintiffs was (1) a determination by the trial court that the Board was legally wrong as to the enforceability of Porter-Cologne in the face of the FPA, and (2) a peremptory writ of mandate compelling the Board to abandon its non-enforcement of Porter-Cologne. Neither objective was ever achieved. The only relief—using the term in the broadest sense—obtained by plaintiff was the limited remand to the Board, and that was not something sought by plaintiffs, but which appears to have been the brainchild of the trial court. There is no answer to the Board’s statement that plaintiffs “can point to no meaningful success whatever in this action,” an absence eloquently demonstrated by plaintiffs’ appeal from the judgment “in which they are challenging the trial court’s ruling against them on all issues.”

Plaintiffs insist they did prevail: “Here, the Karuk were the successful party, having obtained a final judgment and writ of mandate in their favor requiring the Regional Board to set aside the portions of Resolution R1-2007-0028 that the Karuk Tribe challenged and to reconsider those portions in light of the applicable federal law. This outcome secured essentially all of the relief sought by the Karuk Tribe . . . . The order obtained by the Karuk Tribe ensured that the Regional Board did not arbitrarily and without sufficient explanation forego its statutory duties to protect water quality and provided the trial court—for the first time—a reviewable basis of the Regional Board’s decision that federal hydropower law preempts the fundamental California water quality law. Thus, the action meets the criteria of section 1021.5 in that it has ‘contributed in a significant way’ to vindicating an important public right that the Regional Board not arbitrarily disavow its duty to protect California’s water quality and wildlife resources. In doing so, the Karuk Tribe conferred a substantial benefit on the public.”

Plaintiffs characterize their litigation as intended only “to cure the Regional Board’s flawed preemption analysis in Resolution No. R1-2007-0028.” They see themselves as vindicating “the public’s right to ensure that governmental agencies follow the letter of the law,” as well as the public’s “important right to challenge arbitrary decisions by the Regional Board, including those rendered arbitrary its failure to explain its reasoning.” “By forcing the Board to reconsider its Resolution, this case resulted in the enforcement of important public rights affecting the public interest and conferred significant benefits on the public by ensuring the proper review of decisions before the Board and the effectuation of fundamental statutory policy, including careful analysis by the Regional Board before disavowing its critical role under Porter-Cologne to protect the water quality of the Klamath River . . . .”

Plaintiffs’ attempt to recast the purpose, scope, and outcome of the litigation is completely unpersuasive. The cold hard reality, from a practical assessment, is that plaintiffs lost.

Before plaintiffs commenced this litigation, the Board declined to enforce Porter Cologne against the Klamath River dams on the ground that, as to the matter of water quality, federal authority was supreme and exclusive. When this litigation ended, the Board was still declining to enforce Porter-Cologne. Again, to quote the Board, “the final result of [plaintiffs’] efforts before the trial court were to change nothing, and those efforts had no impact on the Board’s position as it existed when the action was first filed.” The only difference was that the Board now had the concurrence of the trial court. If “ ‘ “the critical fact is the impact of the action” ’ ” (Graham, supra, 34 Cal.4th 553, 566), that impact can only be described as nil. “[I]n order to justify a fee award, there must be a causal connection between the lawsuit and the relief obtained” (Westside Community, supra, 33 Cal.3d 348, 353) or “a change in the defendant’s conduct.” (Urbaniak v. Newton (1993) 19 Cal.App.4th 1837, 1842.) But here there was neither genuine relief obtained by plaintiffs nor change by the Board. Any realistic assessment of this litigation from a practical perspective based on the impact of the case as a whole (see Graham, supra, at p. 566; Punsly v. Ho, supra, 105 Cal.App.4th 102, 111) can come to no other conclusion.

California accepts that “ ‘ “plaintiffs may be considered ‘prevailing parties’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.” ’ ” (Maria P., supra, 43 Cal.3d 1281, 1292, quoting Hensley v. Eckerhart (1983) 461 U.S. 424, 433, italics added; accord, Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 153.) The only relief/achievement/success from this litigation was the remand to the Board. However, it was not a significant issue—indeed, it was no issue—and it certainly was not sought by plaintiffs, but was engineered by the trial court for its own reasons.

Nowhere in plaintiffs’ petition is there a hint that they wanted a fuller explanation from the Board supporting its conclusion that it was powerless against the FPA. The Clean Water Act is mentioned, but there is no allegation that the Board had failed to give it adequate consideration. To hear plaintiffs tell it, all they sought was the Board’s reconsideration with fuller examination of the Clean Water Act, or as plaintiffs otherwise recast it, their litigation merely seeking to have the Board polish up and augment its decision, crossing a few more t’s and dotting a few extra i’s, showing that all analytical bases were touched on the way to concluding that plaintiffs’ request was barred by reason of the FPA’s preemptive effect. And having received that, it satisfied the goal of their litigation. This argument borders on the preposterous.

Leaving to one side plaintiffs’ understandable but questionable characterization of the writ issued as a final judgment (see fn. 5, ante), we cannot agree that it “secured essentially all the relief” they sought. Their position does not account for plaintiffs renewing their attack on the Board’s reconsidered decision that it was preempted by federal law. If indeed a fuller explanation was all plaintiffs sought, their appeal from the ultimate judgment is inexplicable. And a review of their petition leaves no doubt that plaintiffs’ goal was not to overturn Resolution R1 2007-0028 because it was procedurally flawed, but because it was substantively wrong. As plaintiffs admit in their respondents’ brief on the appeal from the fee order, they still maintain that the Board’s second denial is “incorrect.”

That plaintiffs do not qualify as successful parties can be demonstrated at a more elemental level, while also establishing that they do not satisfy two of the other criteria for an award of fees under section1021.5.

The Board does admit that, at best, the trial court’s remand corrected “ ‘no more than a procedural defect’ ” or “ ‘a minute blemish.’ ” (Quoting Balch Enterprises, Inc. v. New Haven Unified School Dist. (1990) 219 Cal.App.3d 783, 795, and Concerned Citizens of La Habra v. City of La Habra (2005) 131 Cal.App.4th 329, 335. PacifiCorp calls it a “limited procedural achievement” involving only “a purely technical and procedural matter.” However, even these modest characterizations are overgenerous.

As previously mentioned, plaintiffs’ request to the Board that it enforce Porter-Cologne was denied by Resolution No. R1-2007-0028. The resolution is seven pages in length and has 27 paragraphs preceding this decision: “Petitioners’ request to require PacifiCorp to submit a ROWD for Copco and Iron Gate Dams is DECLINED.”

However, a careful examination of the statutes governing the Board and its operations has uncovered nothing that requires such a decision by the Board to be in a particular form. This encompasses the statutes concerning the Board’s functioning either in general (Water Code, §§ 174-188.5, 1050-1124), or in enforcing Porter-Cologne (Water Code, §§ 13200-13228.15), as well as the implementing regulations (Cal. Code Regs., tit. 23, §§ 647-649.6). Concerning any “action or failure ,” the Board is expected to a issue only a “decision or order” (Water Code, §§ 1120, 1121, 1122, 1123, 1124, 1831, 13320), which is subject to judicial review via an aggrieved party’s petition for a writ of mandate (Water Code, §§ 1126, 13330). There is no directive that there must be “written findings,” an obligation found in various other codes and contexts. (E.g., Ed. Code, §§ 17250.20, 81702; Fish & G. Code, §§ 219, 2118.2; Food & Agr. Code, §§ 14023, 33264; Gov. Code, §§ 15606, 51133, 56810; Harb. & Nav. Code, § 86; Health & Saf. Code, §§ 33363, 39661; Ins. Code, §§ 1861.05, 1861.16; Pen. Code, § 2910.5; Pub. Resources Code, §§ 2774.4, 21080, 21104.2; Pub. Util. Code, §§ 783, 25815; Rev. & Tax. Code, § 254.6; Water Code, § 1813.)

This undermines the entire basis for the trial court’s returning the matter to the Board. If the Board had no obligation to explain the basis for its action, it follows that it had no obligation to provide a more detailed explanation. Contrary to plaintiffs’ argument, there was nothing “arbitrary” in the Board’s actions because the Board had no obligation “to explain its reasoning.” Generating the additional reasoning by the Board addressing the Clean Water Act, PUD No. 1 and S.D. Warren—all of which were already cited in Resolution No. R1-2007-0028—was not a “ ‘ “significant issue . . . [plaintiffs] sought in bringing suit.” ’ ” (Maria P., supra, 43 Cal.3d 1281, 1292.) And while the subject of water quality undoubtedly amounts to “ ‘an important right affecting the public interest,’ ” in no sense did plaintiffs cause it to be “enforced” because there was no change in the Board’s position. (Westside Community, supra, 33 Cal.3d 348, 352.) Providing that augmented explanation does not, as the trial court concluded, qualify as a “significant benefit” worth $138,000 to the people of California. (Planned Parenthood v. Aakhus, supra, 14 Cal.App.4th 162, 171.)

We have exercised our independent review because, as a matter of law, plaintiffs satisfied none of the requisites for an award of attorneys fees under section 1021.5. (Connerly v. State Personnel Bd., supra, 37 Cal.4th 1169, 1175.) From a realistic appreciation of the entirety of this litigation, plaintiffs did not prevail on a significant issue and thus do not qualify as successful parties. They also did not enforce an important public right. Finally, what plaintiffs did here did not confer a significant benefit. For each and all of these reasons, the fee award to plaintiffs was not warranted.

DISPOSITION

In A124351, the judgment is affirmed. Respondents Board and PacifiCorp shall recover their costs of appeal.

In A124369 and A124370, the attorney fee order is reversed. Appellants Board and PacifiCorp shall recover their costs of appeal.

_________________________

Richman, J.

We concur:

_________________________

Haerle, Acting P.J.

_________________________

Lambden, J.

Trial Court: Superior Court of Sonoma County

Trial Judge: Hon. Elaine Rushing

Attorney for Plaintiffs and Appellants: Lozeau Drury, Michael R. Lozeau, Richard T. Drury, David A. Zizmor

Attorneys for Defendants and Respondents: Edmund G. Brown Jr., Attorney General, Mary Hackenbracht, Senior Assistant Attorney General, John Davidson, Supervising Deputy Attorney General,

Attorney for Real Party in Interest

Latham & Watkins, Karl S. Lytz, Andrea H. Hogan

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

LUCIA LOPEZ DOMINGUEZ,

Plaintiff and Appellant,

v.

FINANCIAL INDEMNITY COMPANY,

Defendant and Respondent.

A125133

(Contra Costa County

Sup. Ct. No. C08-2324)

Appellant Lucia Lopez Dominguez (Dominguez), injured in an automobile accident, brought an action for declaratory relief challenging the enforceability of provisions in an automobile insurance policy limiting liability coverage for permissive users. She appeals an adverse judgment in favor of respondent Financial Indemnity Company (FIC) following a bench trial. We conclude, as did the trial court, that the disputed policy provisions are sufficiently conspicuous, plain and clear and are enforceable. We therefore affirm.

I. BACKGROUND

The parties agree that the facts are undisputed. Most of the facts are taken from the parties’ written stipulation of facts and from a certified copy of the insurance policy at issue. To the extent any additional factual findings by the trial court are not challenged on appeal, we accept the fact findings set forth in the trial court’s “Order After Hearing.” (See City of Merced v. American Motorists Ins. Co. (2005) 126 Cal.App.4th 1316, 1322–1323.)

On November 2, 2007, Dominguez was the driver of a motor vehicle involved in an accident with a vehicle driven by Janet Ningju Qiu. At the time of the accident, the vehicle driven by Qiu was owned by Michael Welch and insured by FIC. Welch is a named insured under the subject “Family Car Policy” (Policy). Because Qiu was driving Welch’s vehicle with Welch’s permission, she was an “insured person” as defined by the Policy. Qiu had no separate insurance. On March 19, 2008, Dominguez filed an action in Contra Costa County Superior Court against Qiu and Welch for her injuries arising out of the accident.

On September 16, 2008, Dominguez filed the instant action for declaratory relief due to an actual controversy which arose between the parties “related to the amount of coverage available to pay out any claims asserted in the lawsuit by Dominguez against Welch and Qiu for Dominguez’s injuries arising out of the Accident.” (Boldface omitted.) The parties stipulated that Dominguez was a proper party plaintiff in the instant action.

The Policy

The first page of the two-page “California Private Passenger Auto Policy Renewal Declarations” (declarations) provides the insured’s (Welch’s) name and address, the policy and renewal policy numbers, the insurance broker’s name and contact information, and identifies Welch as a “Driver.” It also states, “Endorsements Attached to Policy at Date of Issue [] U-622 (09/04) California Family Car Policy.” The second page of the declarations includes a description of the insured vehicle and under “Part A – Liability Coverage” provides the following coverage limits: $100,000 for “each person” and $300,000 for “each accident” for bodily injury, and $50,000 for property damage for “each accident.”

The face sheet on page 1 of the Policy states, in relevant part: “This is your [] FAMILY CAR POLICY [] CALIFORNIA [] IMPORTANT NOTICE [] . . . [] See Reduction in Coverage – Page 7 & 11 [] This policy may have restrictive endorsements attached. If so, please read them carefully. If you have any questions regarding their effect on your coverage, contact your agent for further explanation. These policy provisions with the Declarations Page and any Endorsements, complete this policy.” “U-622 (09/04)” appears in the lower left hand corner of the face sheet.

On page 2, the Policy’s “TABLE OF CONTENTS” includes the following: “Liability Coverage [at page] 4 [] Important see Reduction in Coverage [at page] 7. . . .”

The Policy’s “AGREEMENT” section (on pages 3 and 4) provides: “We agree with you in return for your premium payment, to insure you subject to all the terms of this policy. We will insure you for the coverages and the limits of liability for which premium is shown in the Declarations of this policy. The limits shown on the Declarations page are subject to reduction to the state mandatory minimum of $15,000 each person, $30,000 each accident, and $5,000 for property damage, when there is a permissive user of the ‘insured vehicle.’ For accidents occurring outside of California, the reduced limits will be equal to the minimum limits required by that states [sic] Financial Responsibility Laws. [] Definitions Used Throughout This Policy [] As used throughout this policy and shown in bold print: [] 1[.] ‘We’, ‘us’ and ‘our’ mean the Company providing this insurance. [] 2[.] ‘You’ and ‘your’ mean the Policyholder named in the Declarations and spouse or registered domestic partner if living in the same household. [] . . . [] 5[.] ‘Your insured car’ means: [] a[.] Any vehicle shown in the Declarations. . . .” (Italics added.)

The Policy section entitled “PART I – LIABILITY” (on pages 4 and 5) provides, in relevant part: “Additional Definitions Used in This Part Only [] As used in this Part: [] 1[.] ‘Insured person’ or ‘Insured persons’ mean: [] a[.] You or a relative. [] b[.] Any person using your insured car. (subject to reduction, see page 7) [] c[.] Any other person or organization with respect only to legal liability for acts or omissions of: [] (1) any person covered under this Part while using your insured car; (subject to reduction, see page 7) . . . .”

At the top of page 7, the Policy provides: “Conformity With Financial Responsibility Laws [] When we certify this policy as proof under any financial responsibility law, it will comply with the law to the extent of the coverage required by the law. Any coverage provided under this provision, which is broader than the coverage otherwise provided under this Part, will be excess over any other valid and collectible insurance.”

At the middle of page 7, the Policy provides: “REDUCTION IN COVERAGE [] If this policy provides coverage that exceeds the minimum limits required by the applicable Financial Responsibility Law of the State of California, or the state in which the accident occurs, then such amounts in excess of the minimum limits shall not apply to a loss where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment. However, this limitation/reduction does not apply to any liability incurred by you or a relative.”

The issue in dispute at trial was the enforceability of the Policy’s “step-down” provisions, which reduced its bodily injury liability limits from $100,000/300,000 to the statutory minimum of $15,000/30,000 for certain permissive users. The trial court concluded that those provisions are “sufficiently conspicuous, plain and clear as to be enforceable.” We agree.

II. DISCUSSION

A. Standard of Review

Where, as here, the material facts are not in dispute our interpretation of the subject policy presents solely a question of law. (Haynes, supra, 32 Cal.4th at p. 1204; Garamendi v. Mission Ins. Co. (2005) 131 Cal.App.4th 30, 40.)

B. Applicable Legal Principles

“The interpretation of an insurance policy corresponds to the interpretation of contracts generally. The parties’ mutual intention when they form the contract governs interpretation; ‘[t]he fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.’ [Citation. ] ‘If possible, we infer this intent solely from the written provisions of the insurance policy. [Citation.] If the policy language “is clear and explicit, it governs.” [Citation.] [] When interpreting a policy provision, we must give its terms their “ ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage.’ ” [Citation.] We must also interpret these terms “in context” [citation], and give effect “to every part” of the policy with “each clause helping to interpret the other.” ’ [Citation.] ‘A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.’ [Citation.] [] ‘On the other hand, “[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.” [Citations.] This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, “the objectively reasonable expectations of the insured.” [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer.’ [Citation.]” (ACS Systems, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 147 Cal.App.4th 137, 146.) “The policy should be read as a layman would read it and not as it might be analyzed by an attorney or an insurance expert. [Citation.]” (Crane v. State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115.)

Special rules of construction and interpretation apply to enforcement of clauses which are exclusions from coverage. (Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 718–720.) In general, provisions relating to exclusions from coverage must be “ ‘conspicuous,’ ” that is “placed and printed so that [they] will attract the reader’s attention”; and must be “ ‘plain and clear’ ”—i.e., “stated precisely and understandably, in words that are part of the working vocabulary of the average layperson. [Citations.]” (Haynes, supra, 32 Cal.4th at p. 1204.) It is the insurer’s burden to make its coverage exclusions and limitations conspicuous, plain and clear. (Ibid.)

In construing an automobile policy’s permissive user limitations, we examine the reasonable expectations of the insured car owner, not the reasonable expectations of the permissive user who was involved in the accident. (Haynes, supra, 32 Cal.4th at pp. 1213–1215.)

C. Enforceability of the Provisions Reducing Coverage for Permissive Users

California’s Financial Responsibility Law (Veh. Code, § 16000 et seq.), requires “owners and operators of automobiles ‘to be “financially responsible” (usually by means of insurance) for any bodily injury or property damage that they may cause. [Citation.] [I]ts primary purpose . . . is to assure compensation for persons who have suffered injury or damage of this sort. [Citations.]” (Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 341, italics omitted.) As noted previously, minimum limits for insurance coverage are specified in Vehicle Code section 16056, subdivision (a), and require not less than $15,000 liability coverage for bodily injury to or death of one person in any one accident. The same minimum limits are incorporated in Insurance Code section 11580.1, subdivision (b)(1), mandating that automobile liability insurance policies issued in California provide at least that amount of coverage. Insurance Code section 11580.1, subdivision (b)(4) provides that, subject to certain exceptions, to the extent that insurance is afforded to the named insured, the same coverage must be provided to a permissive user, but expressly limits that requirement to the limits imposed by the Financial Responsibility Law, as incorporated in Insurance Code section 11580.1, subdivision (a).

Subdivision (a) of Insurance Code section 11580.1, read in conjunction with subdivision (b)(4), “means that the insurer and the named insured are empowered to provide in the insurance policy that permissive users will be provided only with the minimum statutory coverage.” (National Indemnity Co. v. Manley (1975) 53 Cal.App.3d 126, 133.) However, because a reduced coverage provision is a limitation or partial exclusion on coverage (see Jauregui v. Mid-Century Ins. Co. (1991) 1 Cal.App.4th 1544, 1551–1552 (Jauregui)), it “ ‘is subjected to the closest possible scrutiny.’ [Citation.]” (Haynes, supra, 32 Cal.4th at p. 1212.)

1. The Permissive User Coverage Limitations are Conspicuous

“ ‘A [coverage] limitation is conspicuous when it is positioned and printed in a form which adequately attracts the reader’s attention to the limitation. [Citation.]’ [Citation.]” (Thompson v. Mercury Casualty Co. (2000) 84 Cal.App.4th 90, 95, first citation omission in original; accord, Haynes, supra, 32 Cal.4th at p. 1204.)

In Haynes our Supreme Court considered the enforceability of step-down coverage limitations contained in a form “E-Z Reader Car Policy” issued by Farmers Insurance Exchange. As here, the declarations page of the policy set forth only the greater policy limits provided to the named insured (bodily injury limits of $250,000 per person and $500,000 per accident in that case). (Haynes, supra, 32 Cal.4th at p. 1202.) The only reference in the body of that policy to a lesser amount of coverage was contained in a section captioned “LIABILITY” section, under the subheading “Other Insurance,” which advised that, for “ ‘an insured person, other than you or a family member,’ coverage is provided ‘up to the limits of the Financial Responsibility Law only.’ ” (Id. at p. 1203.) The Court found this language not to be conspicuous, plain and clear, stating that “[t]here is nothing in the heading to alert a reader that it limits permissive user coverage, nor anything in the section to attract a reader’s attention to the limiting language.” (Id. at p. 1205.) The Court cited with approval the holding of the Court of Appeal in Jauregui, supra, 1 Cal.App.4th 1544, finding an identical limitation on permissive user coverage “ ‘inconspicuous and vague.’ ” (Haynes, at p. 1205.)

Farmers disclaimed reliance on this permissive user limitation and instead argued that a limitation contained within a form endorsement to the policy defeated any reasonable expectation by the policyholder of higher coverage limits. The endorsement appeared on the 24th page of the policy, with the permissive user limitation presented in three lines of ordinary type, “in the least conspicuous position on the page.” (Haynes, supra, 32 Cal.4th at p. 1209.) “[B]urying the permissive user limitation among such provisions renders it inconspicuous and potentially confusing to the average lay reader.” (Ibid.) The Court held that this coverage limitation, which unlike the limitation in the body of the policy, did specify the monetary limitations of the coverage, was not enforceable, since the limitation was not “ ‘positioned in a place and printed in a form which would attract a reader’s attention.’ [Citation.]” (Id. at p. 1207–1208.)

Because the insurer in Haynes included “ ‘[a]ny person using your insured car’ within its definition of ‘Insured person,’ ” it raised “a reasonable expectation that permissive user coverage would be coextensive with that for other insureds.” (Haynes, supra, 32 Cal.4th at p. 1213, bracketed material in original.) “ ‘Having created a reasonable expectation of coverage for permissive users coextensive with that of the named insured, defendant was required to cast coverage restrictions in plain and clear language which was conspicuously displayed.’ [Citation.]” (Id. at p. 1215.) The Court found that “Farmers’ unadorned alphanumeric reference to endorsement S9064 on the declarations page is ‘ineffective in alerting the reader to the important limitations contained on [a] back page of the policy.’ [Citation.] ‘The exclusionary clause . . . upon which the insurance company relies, is an unexpected one.’ [Citation.]” (Id. at p. 1211, only citation omissions added.)

Unlike the “E-Z Reader Car Policy” examined in Haynes, the insured is here notified early and often that coverage limits exist in the Policy. On the Face Sheet of the Policy and on page 2, in the Table of Contents, the insured is notified that there is a reduction in coverage. Finally, on pages 4 and 5 of the Policy, under “PART I – LIABILITY,” as part of the definition of “Insured person” it is noted twice that while any person using the insured vehicle is covered, this coverage is “subject to reduction.”

Each one of these reduction notices directs the insured to page 7. The permissive user limitation language on page 7 appears within the “Liability” section of the Policy, is placed immediately following sections on “Exclusions” and “Limits of Liability” and is set off under a “REDUCTION IN COVERAGE” heading whose typeface is both bolded and capitalized. Dominguez concedes that the reduction in coverage language on page 7 is conspicuous.

Dominguez contends, however, that the limitation for permissive users contained on page 3, and which delineates the dollar amounts of that reduced coverage, is not conspicuous. We disagree. It is true that where the Policy (in four different locations) directs the policyholder to the location of a coverage reduction, each such reference specifies page 7, but not page 3. Nevertheless, the limits of coverage in this Policy are explicitly set forth within the insuring clause of the Policy, which is contained at pages 3 and 4. The insuring clause is placed at the outset of the body of the Policy, is captioned “AGREEMENT,” and provides in pertinent part “We agree with you in return for your payment, to insure you subject to all the terms of this policy. We will insure you for the coverages and the limits of liability for which premium is shown in the Declarations of this policy. The limits shown on the Declarations page are subject to reduction to the state mandatory minimum of $15,000 each person, $30,000 each accident, and $5,000 for property damage, when there is a permissive user of the ‘insured vehicle.’ ”

“An insuring clause is the foundation of the agreement and forms the basis for all obligations owed to the insured.” (Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, 3:71.) “[A] policy is written in two essential parts: the insuring agreement, which states the risk or risks covered by the policy, and the exclusion clauses, which remove coverage for risks that would otherwise fall within the insuring clause. [Citation.] . . . ‘ “[W]hen an occurrence is clearly not included within the coverage afforded by the insuring clause, it need not also be specifically excluded.” ’ [Citation.]” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 16.) “Most exclusions limit the scope of coverage an insured would reasonably expect; the requirement they be conspicuous and clear is intended to protect the insureds from unexpected and unreasonable denials of coverage. [Citation.]” (TIG Ins. Co. of Michigan v. Homestore, Inc. (2006) 137 Cal.App.4th 749, 760.)

Whether or not we consider the lower coverage limitations provided for permissive users to be an “exclusion” under these circumstances, the specification of the limits of coverage in the insuring agreement which defines the coverage is necessarily “conspicuous” and precludes any reasonable expectation by the insured that a permissive user of the insured vehicle would have liability coverage greater than $15,000 per person, or $30,000 per occurrence. We still assume that the insured reads the policy. (Fields v. Blue Shield of California (1985) 163 Cal.App.3d 570, 578–579 [insured has a duty to read the policy and is bound by all of its conspicuous, plain, and clear provisions].) Recognizing that “ ‘ “[i]t is a matter almost of common knowledge that a very small percentage of policy-holders are actually cognizant of the provisions of their policies” ’ ” (Haynes, supra, 32 Cal.4th at p. 1210), we are not prepared to say that an insured is not at minimum expected to read the basic insuring agreement defining the scope of coverage the insured will receive in exchange for the premium paid.

The Policy here does not fail “ ‘to alert a policyholder to limitations on anticipated coverage by hiding the disfavored language in an inconspicuous portion of the policy.’ ” (Haynes, supra, 32 Cal.4th at p. 1211, citing Jauregui, supra, 1 Cal.App.4th at p. 1550.) Placement of the lesser coverage limits within the insuring agreement on page 3, particularly in combination with the multiple emphasized references to coverage limitations on the face page, table of contents, and page 7 of the Policy, conspicuously advise the insured that the coverage for a permissive user of the insured vehicle are not coextensive with his or her own, and explicitly tells the policyholder what those limits are.

2. The Permissive User Coverage Limitations are Plain and Clear

Dominguez focuses on the coverage limitation language on page 7 of the Policy which provides that where coverage otherwise exceeds the minimum limits required by California’s “Financial Responsibility Law,” “then such amounts in excess of the minimum limits shall not apply to a loss where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment. However, this limitation/reduction does not apply to any liability incurred by you or a relative.” In reliance on Jauregui, supra, 1 Cal.App.4th at pages 1551–1552, Dominguez argues that this language is not plain and clear. We disagree.

In Jauregui, the Third District disapproved policy language which merely incorporated reference to the Financial Responsibility Law, since it was necessary to look outside the terms of the policy itself to determine the restricted policy coverage limits which would apply. (Jauregui, supra, 1 Cal.App.4th at p. 1552.) The court held that “[a]lthough ‘Financial Responsibility Law’ may be an obvious reference to the Vehicle Code to lawyers and judges, . . . it is too vague to meet the stringent obligation of an insurer to limit coverage in plain and clear language.” (Id. at p. 1551.)

In the Policy before us it is unnecessary to go outside the document in order to determine the extent of the coverage provided. As we have discussed ante, in addition to the repeated references in this Policy to the Financial Responsibility Law, the insuring agreement on the initial page of the Policy body provides that “The limits shown on the Declarations page are subject to reduction to the state mandatory minimum of $15,000 each person, $30,000 each accident, and $5,000 for property damage, when there is a permissive user of the ‘insured vehicle.’ ”

The dissent finds this language nonetheless deficient in that the Policy fails to define a “permissive user,” citing Haynes for the proposition that the term would not necessarily be understood by the average layperson. “Although the term ‘permissive user’ appears in the title of the endorsement containing the limitation, the term is nowhere defined, neither in the policy nor the endorsement, for the average lay reader. While an attorney or an insurance professional likely could deduce from close examination of the entire document that permissive user refers to ‘an insured person, other than you, a family member or a listed driver’ (the phrase that appears in the permissive user limitation itself) . . . the average lay reader encountering the term in the title of [the] endorsement . . . would not necessarily understand its significance.” (Haynes, supra, 32 Cal.4th at p. 1211.) The Court in Haynes did not, however, rest its decision to invalidate the coverage limitation on this failure, but rather noted the “confusing language surrounding and introducing the actual text of the permissive user limitation [in the policy endorsement], along with confusing cross-references to other insurance policies Farmers’ insured did not possess.” (Id. at pp. 1211–1212.) The Court found that “[c]ombined with Farmers’ failure to define ‘permissive user,’ the repeated cross-references in endorsement S9064 to policies other than the car policy, and the confusing language surrounding and introducing the permissive user limitation, these dual-insertion directions seriously impair the clarity with which the limitation imparts its intended message that some portion or aspect of the insurance provided by the policy is extended ‘only up to the minimum required limits of your state’s Financial Responsibility Law.’ ” (Id. at p. 1212.)

Here the Policy section entitled “PART I – LIABILITY” (on pages 4 and 5) provides, in relevant part: “Additional Definitions Used in This Part Only [] As used in this Part: [] 1[.] ‘Insured person’ or ‘Insured persons’ mean: [] a[.] You or a relative. [] b[.] Any person using your insured car. (subject to reduction, see page 7) [] c[.] Any other person or organization with respect only to legal liability for acts or omissions of: [] (1) any person covered under this Part while using your insured car; (subject to reduction, see page 7) . . . .” (Italics added.) More importantly, page 7 of the Policy, where the reader is repeatedly directed on this issue provides: “REDUCTION IN COVERAGE [] If this policy provides coverage that exceeds the minimum limits required by the applicable Financial Responsibility Law of the State of California, or the state in which the accident occurs, then such amounts in excess of the minimum limits shall not apply to a loss where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment. However, this limitation/reduction does not apply to any liability incurred by you or a relative.” (Italics added.)

Thus, unlike Haynes, the policyholder, in a location that Dominguez acknowledges is conspicuous (page 7), is advised that coverage no greater than the minimum limits will be provided where the insured vehicle is operated by “a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment,” and further that the coverage reduction “does not apply to any liability incurred by you or a relative.”

While the term “permissive user” may not be separately defined in the Policy, we do not believe that a reasonable lay person reading the literal language in subdivision 1b of the “Additional Definitions” section of PART I could reasonably conclude that any person (other than the insured or a relative) “using” the “insured car” would not be subject to the reduced coverage referenced on page 7—unless the reader ignored the other Policy provisions and failed to “see page 7.” The insuring document must be construed as a whole, in context, and “ ‘ “cannot be found to be ambiguous in the abstract.” [Citations.]’ [Citations.]” (Feurzeig v. Insurance Co. of the West (1997) 59 Cal.App.4th 1276, 1282–1283, final citation omission added.) Nor do we agree that a reasonable insured, cognizant of the coverage reduction language on pages 3 and 7, is likely to conclude that anyone operating the insured vehicle, other than the insured (or his/her relative), would be provided coverage in excess of the reduced dollar limits of $15,000 per person and $30,000 per occurrence for bodily injury.

III. DISPOSITION

We find the permissive user liability limitations of the Policy to be conspicuous, plain and clear. We therefore affirm the judgment entered for FIC.

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Bruiniers, J.

I concur:

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Needham, J.

SIMONS, Acting P.J., Dissenting.

I respectfully dissent.

Haynes v. Farmers Ins. Exchange (2004) 32 Cal.4th 1198 (Haynes) is the leading California Supreme Court case on the interpretation of automobile insurance policy provisions limiting the coverage provided to permissive users of the insured vehicle. As the majority recognizes, Haynes held that such a coverage limitation is effective only if the applicable permissive user provision was not only conspicuous, but also plain and clear. (Id. at p. 1211.) In construing the policy before it, Haynes determined that laymen do not “necessarily” understand the term “permissive user” unless it is further defined in the policy. (Ibid.). Haynes also concluded that a statement that insurance coverage for permissive users is limited to that required by the “Financial Responsibility Law” is insufficient to notify the insured of the dollar limits resulting from that reduction in coverage. (Id. at p. 1205, citing Jaurequi v. Mid-Century Ins. Co. (1991) 1 Cal.App.4th 1544, 1547 (Jaurequi).)

Haynes concluded its discussion of the plain and clear requirement with a footnote that frames the analysis in this case: “We do not . . . suggest that [the insurer] necessarily must correct all of the identified deficiencies in order to render a permissive user limitation enforceable in future cases. Nor have we the expertise to dictate the precise wording or placement of such a limitation an insurer must adopt in order to satisfy the established legal standard. Indeed, ‘we do not rewrite any provision of any contract, including the standard policy underlying any individual policy, for any purpose.’ [Citations.] There may be a number of ways for [the insurer] to correct the problem.” (Haynes, supra, 32 Cal.4th at p. 1212, fn. 9.) Respondent Financial Indemnity Company concedes that the Policy was drafted post-Haynes to comply with the requirements set forth in that case regarding a coverage reduction for permissive users. Has respondent succeeded in that task? I would conclude it has not and reverse.

Respondent and the majority rely principally on the reduction in coverage language on page 3 and page 7. When an insurer wishes to limit coverage, “ ‘[t]he language itself must be plain and clear. [Citation.] “This means more than the traditional requirement that contract terms be ‘unambiguous.’ Precision is not enough. Understandability is also required.” ’ ” (Haynes, supra, 32 Cal.4th at p. 1211, quoting Jauregui, supra, 1 Cal.App.4th at p. 1550, fn. omitted.)

The coverage limitation on page 7 states that if the Policy “provides coverage that exceeds the minimum limits required by [California’s] Financial Responsibility Law,” “then such amounts in excess of the minimum limits shall not apply to a loss where the operation, maintenance or use of your insured car is by a person other than you, a relative, and an agent or employee of you or a relative in the course and scope of their agency or employment. However, this limitation/reduction does not apply to any liability incurred by you or a relative.” In Jauregui, the policy stated, “ ‘We will provide insurance for an insured person, other than you or a family member, up to the limits of the Financial Responsibility Law only.’ ” (Jauregui, supra, 1 Cal.App.4th at p. 1547) The Court of Appeal determined that the average policyholder could not be expected to know that the Financial Responsibility Law provided limits of $15,000 per person or that the Financial Responsibility Law is contained within section 16000 et seq. of the Vehicle Code; therefore, the permissive user limitation was not plain and clear. (Jauregui, at pp. 1551-1552.)

The reduction in coverage language on page 7 is different, but not any more plain and clear, than the reduction in coverage language in Jaurequi. The majority says the ruling in Jaurequi rested on the fact that “it was necessary to look outside the terms of the policy itself to determine the restricted policy coverage limits that would apply. (Jaurequi, supra, 1 Cal.App.4th at p. 1552.) . . . [] In the Policy before us it is unnecessary to go outside the document in order to determine the extent of the coverage provided.” (Maj. opn., ante, p. 14) It then distinguishes Jaurequi by focusing on the language in the Policy’s insuring agreement on page 3 in an attempt to bolster its conclusion that the Policy’s permissive user coverage reduction limitation is enforceable.

However, the majority’s attempt to distinguish Jaurequi and find the limitation language plain and clear is inadequate under Haynes. If, on page 7, the Policy set out the dollar limits imposed on the coverage of permissive users by the Policy’s reference to the Financial Responsibility Law or referred the insured to some other Policy provision (for example, page 3) that provided this explanation, it would clearly pass the Haynes test. But page 3 and page 7 do not cross-reference each other. A reasonable insured, aware of the language on page 3 and page 7, would not likely conclude that the reduction in coverage language on page 7 defines a “permissive user,” since the reduction in coverage language on page 7 does not utilize that term. And, a reasonable insured is not likely to conclude that the dollar limits which appear on page 3 refer to the California Financial Responsibility Law, since the page 3 language does not refer to that statute.

Moreover, the reduction language in the insuring agreement on page 3, itself, is not plain and clear. It provides: “The limits shown on the Declarations page are subject to reduction to the state mandatory minimum of $15,000 each person, $30,000 each accident, and $5,000 for property damage, when there is a permissive user of the ‘insured vehicle’.” This provision clearly sets out the dollar limitations imposed on coverage for permissive users, but, as Haynes explains, the italicized term would not necessarily be understood by the average layperson. “Although the term ‘permissive user’ appears in the title of the endorsement containing the limitation, the term is nowhere defined, neither in the policy nor the endorsement, for the average lay reader. While an attorney or an insurance professional likely could deduce from close examination of the entire document that permissive user refers to “an insured person, other than you, a family member or a listed driver” (the phrase that appears in the permissive user limitation itself) . . . , the average lay reader encountering the term in the title of [the] endorsement . . . would not necessarily understand its significance.” (Haynes, supra, 32 Cal.4th at p. 1211.) As in Haynes, “permissive user” is not defined anywhere in the Policy.

The majority correctly notes that Haynes’s conclusion that the permissive user provision lacked clarity stemmed not only from the failure to define that term but from other factors as well. (Maj. opn., ante, pp. 14-15.) But although the Policy improves upon the language in the Haynes policy, it is still not plain and clear and, therefore, it is unenforceable.

Respondent, the Policy’s drafter, is not held to a standard of perfection. But it is not enough that respondent wrote a policy that is better than the policies in Haynes and Jaurequi. Respondent could have placed the applicable dollar reduction in coverage on the declarations page, but did not. Respondent could have spelled out the dollar limitations in the California Financial Responsibility Law referred to on page 7 or defined “permissive user” in the Policy, but did not. Respondent could have provided the insured some express link between the provisions on page 3 and page 7, but did not. Or it could have selected “any number of ways . . . to correct the problem” Haynes identified (Haynes, supra, 32 Cal.4th at p. 1212, fn. 9), but did not. I would reverse and oblige it to try again.

SIMONS, Acting P.J.

Superior Court of Contra Costa County, No. C08-02324, Judith Craddick, Judge.

Law Offices of Matthew R. Stall, Matthew R. Stall and Felipe R. Parker, for Plaintiff and Appellant.

Zinder & Koch, Jeffrey E. Zinder and Richard L Hinson, for Defendant and Respondent.