PG&E Corporation v. AECOM Technical Services, Inc..

Background

JH KELLY, LLC brought claims arising from the Burney K2 Replacement Project, including a claim against Pacific Gas & Electric Company (PG&E) and AECOM Technical Services, Inc. to foreclose a mechanics lien. JH Kelly alleged that AECOM owed it approximately $37,504,464.95 and recorded a $15,881,776.21 mechanics lien against project property owned by PG&E.

The property was part of PG&E’s natural-gas distribution system. The parties did not dispute that the property was necessary and useful for PG&E’s public duties or that the California Public Utilities Commission had not authorized JH Kelly’s mechanics lien.

Motion and arguments

PG&E moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim. PG&E argued that California Public Utilities Code section 851 prohibited an encumbrance on necessary and useful public-utility property without prior Commission authorization and made an unauthorized encumbrance void.

JH Kelly argued that section 851 applied only to an encumbrance created by the public utility itself, not to a mechanics lien imposed by a private party. It also argued that foreclosure would not necessarily require a sale before the parties could seek Commission authorization, and it requested discovery concerning PG&E’s prior handling of mechanics liens.

Court’s analysis

The court noted that no California Supreme Court decision directly addressed whether section 851 barred foreclosure of a mechanics lien on public-utility property. Looking to California appellate decisions and a Public Utilities Commission decision, the court concluded that section 851 applied to JH Kelly’s attempted foreclosure.

The court relied in part on authority stating that an encumbrance on necessary and useful public-utility property requires prior Commission authorization before a court may foreclose it. The court also reasoned that JH Kelly’s own complaint requested foreclosure and sale of the property, and that California mechanics-lien law provided for enforcement through a property sale. Because the lien had not been authorized, the court held that the foreclosure claim failed to state a claim under Rule 12(b)(6). The court further concluded that this legal defect could not be cured by alleging additional facts, so amendment was not allowed. The proposed discovery would not change that legal conclusion and was therefore unnecessary.

Disposition

The court granted PG&E’s motion to dismiss. JH Kelly’s claim for foreclosure of the mechanics lien against PG&E was dismissed without leave to amend. The court also denied JH Kelly’s request for discovery concerning PG&E’s prior handling of mechanics liens. The opinion states that JH Kelly brought separate breach-of-contract and other claims against AECOM; this order addressed the foreclosure claim against PG&E.