Judge Allows Shareholders' Lawsuit Against PG&E to Resume

A San Mateo County Superior Court judge Monday lifted a stay on a shareholders' lawsuit that accuses PG&E Co. officers and directors of violating their fiduciary duty by allegedly failing to prevent safety violations that led to a fatal pipeline explosion in San Bruno in 2010.

Judge Steven Dylina said in a written order that it was in the best interests of both the company and the public to have the lawsuit proceed.

The public has "an interest in having this matter resolved quickly and any safety issues immediately addressed," Dylina wrote.

No date has been set for a trial of the lawsuit, which could be months away, but Dylina scheduled a case management conference in his Redwood City courtroom for Aug. 11.

The shareholders' lawsuit had been stayed for more than three years while PG&E worked on settling more than 200 other civil lawsuits filed on behalf of about 530 victims who were injured by the blast, were relatives of people who died or had property damaged.

The explosion of a PG&E natural gas pipeline and resulting fire in San Bruno on Sept. 9, 2010, killed eight people, injured 66 others, destroyed 38 houses and damaged dozens of other buildings.

The National Transportation Safety Board later concluded the explosion resulted from a fracture of a substandard seam weld in a pipe installed in 1956. It said the accident was caused by a combination of inadequate quality control by PG&E in 1956 and a subsequent failure by the utility to detect, repair or remove the defective pipe section.

This spring, PG&E completed settling nearly all the personal injury, wrongful death and property damage lawsuits, which were also pending in Dylina's court, for $565 million.

The utility asked Dylina to continue the stay while it defends itself in a federal criminal case in which it is accused of obstructing justice in the NTSB probe and 27 counts of violating record-keeping and management requirements in a U.S. pipeline safety law.

PG&E argued the shareholders' lawsuit could distract it from the federal criminal case and that evidence gathered in the civil case could undermine its defense in the criminal proceeding.

But Dylina said those arguments were "unpersuasive," in part because the federal criminal indictment names the utility as a defendant, while the shareholders' lawsuit is filed against individual officers and directors.

The current lawsuit is a consolidation of three lawsuits filed by a total of four shareholders in Superior Court beginning in 2010.

It is a type of lawsuit known as a shareholder derivative complaint, in which stock owners sue on behalf of the company itself.

It claims the officers and director violated their fiduciary duty to the utility by placing profit above safety and "utterly abdicating their duty of oversight."

As a result, the lawsuit alleges, the company has been harmed because it is exposed to "hundreds of millions, if not billions of dollars in losses."

In addition to the $565 million in civil settlements, PG&E is currently facing an expected administrative fine and penalty from the California Public Utilities Commission, which is considering proposals to levy more than $2 billion.

If convicted of the federal criminal charges, the utility could also be fined up to $1.13 billion - or twice the amount of the victims' losses - on each of the 28 counts. The actual penalty, if PG&E is convicted, would be determined by the trial judge.

The shareholders' lawsuit will be tried before Dylina without a jury, according to Frank Pitre, a lawyer for the plaintiffs. Pitre said he could not estimate when the trial will be held, but said he could be ready in six months.

The lawsuit asks the court to order unspecified financial compensation to the company from the individual officers and directors for the alleged harm caused, including "as applicable, all of their salaries and other compensation received for the periods when they breached their duties."

Pitre said that while any money gained in the lawsuit will go back to the company itself, the compensation could aid customers because the potential influx of cash could help prevent utility rates from being raised to pay for fines and settlements.

"Every nickel I can get out of the pocket of a director or executive who circumvented safety is a nickel that helps the ratepayers," Pitre said.

PG&E spokesman Greg Snapper said in a statement, "While this legal process continues, our progress on our gas system will not stop. We'll keep upgrading our gas system and operations as we continue to make significant progress replacing pipe, automating valves and testing our lines - all to keep our communities safe."

The utility has previously said the San Bruno explosion was a tragic accident for which it is "deeply sorry." It has said it believes that "even where mistakes were made, employees were acting in good faith to provide customers with safe and reliable energy."

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