Filed 12/1/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
WILLIAM VILLARROEL et al.,
Plaintiffs and Appellants,
A165515
v.
RECOLOGY, INC., et al., (City & County of San Francisco
Super. Ct. No. CGC-21-589528)
Defendants and Respondents.
The filed rate doctrine, which has its origins in federal law, provides
that rates duly adopted by a regulatory agency are not subject to collateral
attack in court. In this appeal, we address the applicability of the filed rate
doctrine to claims involving rates approved by a municipal board.
In 2017, the San Francisco Refuse Collection and Disposal Rate Board
(Rate Board) approved an application by defendants Recology, Inc., Recology
San Francisco, Sunset Scavenger Company, and Golden Gate Disposal &
Recycling Company (collectively Recology) for increased refuse collection
rates. Some years later, plaintiffs William Villarroel, Liese Sand, and Robert
Sand (collectively plaintiffs) sued Recology on behalf of themselves and a
putative class of Recology customers, alleging the company violated the
Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) (UCL) and other
laws by bribing a city official to facilitate the approval of Recology’s
application, allowing Recology to charge artificially inflated rates.
1
Shortly after the putative class action was filed, public prosecutors
brought a UCL enforcement action against Recology on substantially similar
facts. The law enforcement action quickly settled and resulted in a consent
judgment requiring Recology to pay over $94 million in restitution to San
Francisco ratepayers due to omission errors in Recology’s 2017 rate
application that led to the approval of the inflated rates.
Thereafter, the trial court sustained Recology’s demurrer to plaintiffs’
second amended complaint without leave to amend, finding the claims barred
by the filed rate doctrine because they involve rates approved by the Rate
Board. As we shall explain, although a California version of the filed rate
doctrine exists, it does not bar this action as a matter of law because the
purposes underlying the doctrine—the so-called “nondiscrimination” and
“nonjusticiability” strands—are not implicated by plaintiffs’ claims.
The remaining grounds for Recology’s demurrer were not specifically
addressed by the trial court’s ruling. But because the court rejected
Recology’s res judicata claim in a previous demurrer, we elect to reach that
issue and conclude the judgment in the law enforcement action does not pose
a res judicata bar to the instant putative class action. As for Recology’s
remaining challenges to the sufficiency of the specific causes of action pleaded
in the second amended complaint, we remand for the trial court’s
consideration of these issues in the first instance.
FACTUAL AND PROCEDURAL BACKGROUND
A. Allegations of the Second Amended Complaint
We accept as true the following factual allegations of the operative
second amended complaint. (Tarkington v. California Unemployment Ins.
Appeals Bd. (2009) 172 Cal.App.4th 1494, 1498, fn. 1.)
2
Recology is a waste management company providing refuse collection
services for residential and commercial properties in the City of San
Francisco (City). Under the 1932 San Francisco Refuse Collection and
Disposal Ordinance (hereafter the 1932 ordinance), Recology enjoys a
monopoly on refuse collection in the City.
In 2017, former Recology executive Paul Giusti led Recology through a
rate increase application process. During this process, Recology made false
representations to the Rate Board regarding its costs, expenses, and other
components of proper rates, thereby misleading the board into approving a
significant increase in rates charged for residential buildings in the City. In
2018, Giusti gave the former director of the Department of Public Works
(DPW), Mohammed Nuru, $20,000 to secure his support for Recology’s efforts
to implement a price increase on the “ ‘tipping fees’ ” it charged the City to
dump materials at a Recology facility. The illicit payments were funneled
through a nonprofit organization.
In 2020, Giusti was criminally indicted on federal bribery and money
laundering charges. A joint task force of the Federal Bureau of Investigation
and the Internal Revenue Service’s Criminal Investigation Division
determined there was probable cause to believe Giusti “ ‘arranged for
Recology to provide a stream of benefits to Nuru worth over $1 million’ ” in
order “ ‘to ensure Nuru’s cooperation in connection with his role in approving
Recology’s requests for rate increases for residential garbage collection.’ ”
Nuru “ ‘played a very significant role in the process by which Recology
periodically sought to increase the rates paid by the citizens of San Francisco
for garbage collection.’ ” While the Rate Board makes the final decision on
rate increases, the board relies on the recommendation of the DPW director,
3
and thus, Nuru’s approval was “ ‘essential to any request for a rate increase
by Recology.’ ”
The putative class is defined as “ ‘[a]ll current and former rate-paying
customers of Recology in the City and County of San Francisco who were
subject to Recology’s garbage collection rate increases at any time from four
years prior to the initial filing of this action through the date of the Court’s
granting of class certification.’ ” Plaintiffs assert nine causes of action
against Recology for (1) violation of the UCL; (2) intentional
misrepresentation; (3) negligent misrepresentation; (4) fraudulent
concealment; (5) intentional indirect misrepresentation; (6) breach of
contract; (7) breach of the implied covenant of good faith and fair dealing;
(8) violation of the CLRA; and (9) negligence per se. In their prayer for relief,
plaintiffs seek restitution, injunctive relief, compensatory damages, and
punitive damages.
B. Procedural History
Following plaintiffs’ initiation of this suit, the City and the People of
the State of California (People), by and through the City of Attorney of San
Francisco, filed a UCL enforcement action against Recology in People of the
State of California, et al. v. Recology San Francisco, et al., Superior Court
case No. CG-21-589528 (hereafter People v. Recology).
The People’s complaint alleged that Recology “regularly provided gifts
of money, meals, and accommodations to City employees with the intent to
influence City decisions impacting [Recology].” The complaint further alleged
that “[i]n addition” to the bribery, during the 2017 ratemaking process,
Recology “omitted substantial revenues in their application for an upward
adjustment of rates. That omission was not caught during the 2017 rate-
making process, which resulted in the approval of excessive rates. The result
4
is that San Francisco residents and companies have been paying excessive
rates since July 1, 2017.” The People asserted two causes of action for
(1) injunctive relief, restitution, and civil penalties for violation of the UCL;
and (2) injunctive relief for violation of Campaign and Governmental Conduct
Code (CGCC) section 3.216(a), which prohibits any person from offering or
making any gift to a City officer or employee with the intent of influencing
their performance of any official act.
Plaintiffs moved to consolidate the two actions. In opposing the motion,
both the People and the City contended the purposes of consolidation would
not be served because a tentative settlement had already been reached in the
law enforcement action. Recology, meanwhile, moved to stay this action
pending the settlement proceedings in People v. Recology. In June 2021, the
trial court denied plaintiffs’ motion for consolidation and granted Recology’s
motion to stay this action until completion of the settlement process in People
v. Recology.
After the stay was lifted, Recology demurred to the then-operative first
amended complaint, arguing that each cause of action was barred by res
judicata and the filed rate doctrine, and that plaintiffs failed to sufficiently
plead any causes of action. In support of the demurrer, Recology submitted a
copy of the consent judgment entered in People v. Recology, which attached
the parties’ settlement agreement and a court-ordered stipulated injunction
as the terms of the judgment.
The settlement agreement set forth the core factual allegations of the
law enforcement action, stating Recology violated the CGCC by “exceed[ing]
the allowable limits on gifts to City employees and City officials in an
attempt to influence City decisions affecting [Recology].” Recology also
allegedly violated the UCL “by submitting a model as part of its 2017 refuse
5
rate application that inadvertently omitted certain revenue, resulting in a
higher rate increase than would have occurred in the absence of the
omission.”1 As part of the settlement, Recology agreed to reimburse
ratepayers for the additional amounts they paid for refuse collection due to
Recology’s inflated rate; to make a $7,000,000 settlement payment to the City
for its violations of the UCL and CGCC; and to utilize the adjusted rate sheet
attached to the agreement.
As for injunctive relief, Recology was enjoined during a four-year
compliance period from making any gift to a City employee or officer, and
from making any behested payment, except for charitable contributions to a
nonprofit entity not made at the behest of a City employee or officer.
Recology was also required to: make quarterly disclosures of all
contributions of money or goods valued at $1,000 or more to any nonprofit
entity based in the City; make monthly disclosures of all contacts with City
officials; ensure that all Recology employees qualifying as contact lobbyists
register with the San Francisco Ethics Commission and comply with CGCC
section 2.110 et seq.; disclose any material mistake or error, suspected or
confirmed, in prior disclosures; disclose any material differences between
actual operating ratio and projected operating ratio, projected as of the most
recent rate application process; use the revised refuse rates beginning no
later than July 1, 2021; and cooperate with and provide full, accurate, and
audited financial statements in response to any reasonable requests for
1 The settlement agreement defined Recology’s “ ‘[o]mission error’ ” as its
“failure to account for revenues in two separate accounts, the Impound
Account and the Zero Waste Incentive Account, in its 2017 Rate Application.
The spreadsheets submitted with the 2017 Rate Application erroneously
omitted those amounts, resulting in lower overall revenues which resulted in
a higher rate increase than would have occurred in the absence of the omitted
amounts.”
6
information from DPW or successor agencies as part of any future
ratemaking process.
For restitution, Recology agreed to pay “the full amount of the
difference between the rate increases that would have resulted in the absence
of the Omission Error and the rate increases that took effect on July 1, 2017,
and subsequent rate increases through March 31, 2021, . . . for a total of
$94,520,000 (with interest).”
The trial court overruled in part, and sustained in part, Recology’s
demurrer to the first amended complaint. Relying on Payne v. National
Collection Systems, Inc. (2001) 91 Cal.App.4th 1037 (Payne) and People v.
Pacific Land Research Co. (1977) 20 Cal.3d 10 (Pacific Land), the court ruled
that res judicata principles are inapplicable in a subsequent private UCL
action when the initial suit was by a public prosecutor. The court also
determined that because “it is an open question as to whether or not the filed-
rate doctrine applies to the allegations as pled, it need not decide this issue
based on the current state of the record.” Finally, the court sustained, with
leave to amend, the demurrers as to the UCL, CLRA, fraud, and contract
claims on the ground that plaintiffs failed to sufficiently allege causation.
The court, however, overruled the demurrer as to the claims for intentional
and negligent misrepresentation, indirect misrepresentation, and fraud by
concealment.
Plaintiffs filed the second amended complaint, and Recology again
demurred on the grounds of the filed rate doctrine and plaintiffs’ failure to
state sufficient facts. This time, the trial court ruled the action was barred
by the filed rate doctrine. After describing the ratemaking process for
Recology’s 2017 rate adjustment application, the court concluded that
because “Recology both filed and had its rates approved by the Rate Board,”
7
the filed rate doctrine’s requirements were met, and the rates could not be
collaterally attacked in court. The court sustained the demurrer to the
second amended complaint without leave to amend, and plaintiffs timely
appealed from the ensuing judgment.2
DISCUSSION
“A demurrer tests the sufficiency of the plaintiff’s complaint, i.e.,
whether it states facts sufficient to constitute a cause of action upon which
relief may be based.” (McKell v. Washington Mutual, Inc. (2006) 142
Cal.App.4th 1457, 1469.) “On appeal, we review the trial court's sustaining
of a demurrer without leave to amend de novo, exercising our independent
judgment as to whether a cause of action has been stated as a matter of law
and applying the abuse of discretion standard in reviewing the trial court’s
denial of leave to amend.” (Ibid.)
A. The Filed Rate Doctrine Does Not Bar Plaintiffs’ Claims
The main questions raised in this appeal are whether a general filed
rate doctrine exists in California, and if so, whether it bars plaintiffs’ claims
because rates approved by a municipal rate board are implicated.
The filed rate doctrine originated in the federal courts as a judicially
created rule that applies where a regulated entity is required to file tariffs
with a government agency authorized to determine whether the rates are just
2 Plaintiffs request judicial notice of various federal court records filed
during the pendency of this appeal in the criminal cases against Nuru and
Giusti. We deferred our ruling pending consideration of the merits of the
appeal, and we now deny the request as unnecessary to the resolution of the
appellate issues before us. We do, however, take sua sponte judicial notice of
those matters for which judicial notice was requested and properly granted
below. (Evid. Code, § 459.) Those matters are: the complaint and consent
judgment in People v. Recology; the ordinance approving the settlement in
People v. Recology; the 1932 ordinance; and records from Recology’s 2017 rate
adjustment application.
8
and reasonable. (Gallivan v. AT&T Corp. (2004) 124 Cal.App.4th 1377,
1382–1383 (Gallivan).) “Simply stated, the doctrine holds that any ‘filed
rate’—that is, one approved by the governing regulatory agency—is per se
reasonable and unassailable in judicial proceedings brought by ratepayers.”
(Wegoland Ltd. v. NYNEX Corp. (2d Cir. 1994) 27 F.3d 17, 19 (Wegoland).)
The doctrine was first articulated in Keogh v. Chicago & Northwestern
Railway (1922) 260 U.S. 156 (Keogh), which held that a private shipper could
not recover treble damages under the Sherman Act (15 U.S.C. § 1 et seq.)
against railway companies whose rates were filed and approved by the
Interstate Commerce Commission (ICC). (Knevelbaard Dairies v. Kraft
Foods, Inc. (9th Cir. 2000) 232 F.3d 979, 992.) “Although the doctrine has
been questioned by many including the Supreme Court itself, it lives on to a
limited extent.” (Ibid.)
Two primary purposes underlie the filed rate doctrine: “ ‘(1) preventing
[regulated parties] from engaging in price discrimination as between
ratepayers (the “nondiscrimination strand”) and (2) preserving the exclusive
role of federal agencies in approving rates for [the applicable] services that
are “reasonable” by keeping courts out of the rate-making process (the
“nonjusticiability strand”), a function that the federal regulatory agencies are
more competent to perform.’ ” (Gallivan, supra, 124 Cal.App.4th at p. 1382.)
The nonjusticiability strand reflects a policy to avoid “enmesh[ing] the trial
court in a determination of the reasonableness of the rates” because such
matters are “within the exclusive province” of the regulatory agency. (Day v.
AT&T Corp. (1998) 63 Cal.App.4th 325, 338 (Day); see Wegoland, supra, 27
F.3d at p. 19 [attack on filed rate “would unnecessarily enmesh the courts in
the rate-making process” as “ ‘courts are not institutionally well suited to
engage in retroactive rate setting’ ”].)
9
This federal doctrine has been held to bar claims alleging fraud and
other tortious conduct by a regulated entity that would, if successful, yield a
damages award that effectively constitutes preferential rate treatment for
the plaintiff. (See Gallivan, supra, 124 Cal.App.4th at p. 1382 [doctrine bars
all claims that would effectively result in modification of filed tariff through
damages award]; Marcus v. AT&T Corp. (2d Cir. 1998) 138 F.3d 46 (Marcus)
[barring class action claims alleging carrier’s advertising and bills were
misleading for failing to disclose rounding up practice]; Wegoland, supra, 27
F.3d at p. 22 [refusing to recognize fraud exception to federal filed rate
doctrine].)
California courts have applied the federal filed rate doctrine to bar
state law claims challenging rates filed with federal agencies. (See, e.g.,
Gallivan, supra, 124 Cal.App.4th at p. 1385 [barring fraud claim against
telephone companies regarding network access charges for interstate calls
because companies voluntarily filed tariffs with Federal Communications
Commission (FCC) for the challenged rates]; Duggal v. G.E. Capital
Communications Services, Inc. (2000) 81 Cal.App.4th 81, 91 (Duggal) [barring
negligence claim alleging long distance providers’ failure to provide faster
provisioning and billing services than set forth in tariff filed with FCC]; but
see Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 101 (Lovejoy) [not
barring fraud claim because it fell within Federal Communications Act
savings clause permitting state law actions that do not frustrate purposes of
uniformity and agency ratemaking]; Day, supra, 63 Cal.App.4th at pp. 336–
339 [barring deceptive advertising claims for disgorgement but not barring
claims seeking injunctive relief].)
Whether the federal filed rate doctrine applies to rates approved by a
municipal agency appears to be an issue of first impression. In MacKay v.
10
Superior Court (2010) 188 Cal.App.4th 1427, 1448 (MacKay), the court held,
as a matter of statutory interpretation, that an insurer’s use of rating factors
approved by the California Department of Insurance could be challenged only
through the administrative procedures set forth in the Insurance Code.
(MacKay, at pp. 1443–1444.) In so holding, MacKay found the federal filed
rate doctrine “ ‘analogous to the scheme explicitly embodied in the Insurance
Code.’ ” (Id. at p. 1448.) Citing non-California authorities, MacKay
commented that “[n]umerous state courts have applied the filed rate doctrine
to approved insurance rates,” including one case noting that, despite its
origin in the federal courts, the doctrine “ ‘has been held to apply equally to
rates filed with state agencies by every court to have considered the
question.’ ” (Id. at pp. 1448–1449.)
Relying on MacKay, Recology maintains the filed rate doctrine applies
to rates approved by agencies at all levels of government, including the
municipal Rate Board. Plaintiffs, however, insist that the doctrine applies
only to rates approved by a federal agency and that MacKay’s comments on
the point constituted mere dicta. No matter. Whatever the effect of
MacKay’s reliance on the filed rate doctrine to buttress its interpretation of
the Insurance Code, California appellate courts have rejected a strict
application of the federal filed rate doctrine where no federal tariff is
involved.
Notably, in Pink DOT v. Teleport Communications Group (2001) 89
Cal.App.4th 407 (Pink DOT), the court rejected a direct application of the
federal filed rate doctrine in an action against a public utility regulated by
the California Public Utilities Commission (PUC). Though the court
accepted, for the sake of argument, the public utility’s “restrictive view of the
federal filed rate doctrine,” it declined to apply the doctrine because the
11
public utility had filed its tariff with the California PUC and not with any
federal regulatory authority. (Pink DOT, at p. 416.) “Since this is a state
case with no tariff filed with any federal regulatory agency, the direct
application of the federal filed doctrine is inappropriate.” (Pink DOT, at
p. 416.)
While seeming to acknowledge that a state version of the filed rate
doctrine could apply to rates filed with the PUC, Pink DOT expressly rejected
the notion that “the same restrictive notions of liability” in the federal filed
rate doctrine “are inherent in the state filed rate doctrine.” (Pink DOT,
supra, 89 Cal.App.4th at p. 416.) As Pink DOT emphasized, “[t]here is no
parallel state filed rate doctrine that would operate to bar all state statutory
or common law claims”; instead, “there are limits” to that doctrine in
California. (Ibid.) Relying on the Supreme Court’s decision in Empire West
v. Southern California Gas Co. (1974) 12 Cal.3d 805 (Empire West), Pink
DOT held a public utility could be liable for making false representations
about its reliability and ability to implement caller ID to a grocery delivery
service that relied heavily on telephone orders. (Pink DOT, at pp. 416–417;
see also BullsEye Telecom, Inc. v. Public Utilities Com. (2021) 66 Cal.App.5th
301, 333 (BullsEye) [rejecting application of federal filed rate doctrine to a
potential refund award against PUC because petitioners “fail to show the
doctrine applies under California law”].)
In turn, the issue in Empire West was whether a fraudulent
misrepresentation claim effectively sought preferential rate treatment in
violation of Public Utilities Code section 532.3 A gas company prepared a cost
3 This statute provides in relevant part that “no public utility shall
charge, or receive a different compensation for any product or commodity
furnished or to be furnished, or for any service rendered or to be rendered,
12
analysis for a utility customer who, in reliance on the analysis, installed a
gas heating system. When the operating costs of the heating system
exceeded the estimates, the customer sued the gas company for fraud.
(Empire West, supra, 12 Cal.3d at pp. 807–809.) As the Supreme Court
explained, “[s]cheduled rates must be inflexibly enforced in order to maintain
equality for all customers and to prevent collusion which otherwise might be
easily and effectively disguised. [Citations.] Therefore, as a general rule,
utility customers cannot recover damages which are tantamount to a
preferential rate reduction even though the utility may have intentionally
misquoted the applicable rate.” (Empire West, supra, 12 Cal.3d at pp. 809–
810 [because customers are charged with knowledge of published rate
schedules, they may not justifiably rely on a utility’s lower rate quote to avoid
liability for approved rate charges].) However, the court determined the
customer was not seeking a reduced rate or other preferential rate treatment;
instead, he was claiming the defendant had misrepresented the quantity of
estimated gas usage, which resulted “in a substantial understatement of [the
customer’s] total cost for gas service.” (Empire West, at p. 810.) In allowing
the customer’s suit to proceed, the court held that “a utility customer who has
been actually damaged by a utility’s fraudulent misrepresentations regarding
matters not contained in the published tariffs should be entitled to bring suit
to recover those damages.” (Id. at pp. 810–811, fn. omitted.)
Empire West was likewise cited as analogous authority in Cellular Plus,
Inc. v. Superior Court (1993) 14 Cal.App.4th 1224 (Cellular Plus). There, the
court held that antitrust claims against two cellular telephone carriers for
treble damages under the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.)
than the rates, tolls, rentals, and charges applicable thereto as specified in its
schedules on file and in effect at the time.” (Pub. Util. Code, § 532.)
13
were not barred “even if the fixed prices had been approved as reasonable by
a regulatory agency.” (Cellular Plus, at pp. 1241–1242.) In rejecting the
argument that a treble damages award would result in rate discrimination in
violation of Public Utilities Code section 453, subdivision (a),4 Cellular Plus
first noted that “punitive damages are not an item of compensatory damages
and, thus, cannot be construed as an ‘adjustment’ of customer rates under the
Public Utilities Code.” (Cellular Plus, at p. 1249.) The court further
reasoned that “Cellular Plus seeks compensatory damages in the amount and
to the extent the fixed prices were excessive. Such damages are not any
different from what damages any other customer of U.S. West or PacTel may
be entitled to, and Cellular Plus should not be precluded from seeking
compensatory damages merely because other customers do not similarly
enforce their rights to damages. Accordingly, we conclude this action will not
result in any prohibited rate discrimination.” (Id. at p. 1250.)
As a caveat, we note neither Empire West nor Cellular Plus mentioned
the “filed rate doctrine” expressly by name. Rather, both cases addressed
whether claims involving PUC-approved rates violated Public Utilities Code
sections 453 and 532. But in substance, these statutes reflect policies similar
to those underlying the filed rate doctrine. (See Bullseye, supra, 66
Cal.App.5th at p. 333 [noting PUC’s acknowledgment that Pub. Util. Code,
§ 532 “ ‘express[es] the filed rate doctrine’ ”].) Additionally, Cellular Plus’s
holding was based on its refusal to follow Keogh and other federal filed rate
4 This statute prohibits a public utility from giving any preferential or
advantageous treatment to a corporation or person, or subjecting any
corporation or person to prejudice or disadvantage, as to rates, charges,
services, facilities, or in any other respect. (Pub. Util. Code, § 453, subd. (a).)
14
doctrine cases on the grounds they were inapplicable to a California
Cartwright Act claim. (Cellular Plus, supra, 14 Cal.App.4th at p. 1242.)5
In short, the foregoing authorities acknowledge the existence of a state
version of the filed rate doctrine that applies to rates approved by California
agencies. (Empire West, supra, 12 Cal.3d at pp. 809–811; MacKay, supra, 188
Cal.App.4th at pp. 1448–1449; Pink DOT, supra, 89 Cal.App.4th at p. 416.)
But they make reasonably clear that the state doctrine has “limits” and is not
as “restrictive” as its federal counterpart. (E.g, Pink DOT, at p. 416.)
The parties further dispute whether the California filed rate doctrine
applies only when a specific legislative scheme bars preferential rate
treatment or establishes an exclusive procedure for challenging rates.
Plaintiffs contend a relevant legislative scheme is necessary. (See, e.g.,
Empire West, supra, 12 Cal.3d at p. 809 [Pub. Util. Code, § 532 forbids public
utility from giving preferential rate treatment]; MacKay, supra, 188
Cal.App.4th at p. 1448 [Ins. Code, § 1860.1, which precludes challenge to
approved rates based on laws outside of Ins. Code, is analogous to filed rate
doctrine].) Recology vigorously disagrees, but fails to cite any California
authority applying the doctrine without what Recology terms a “statutory
5 Cellular Plus acknowledged the “strong similarities” of its facts with
Keogh, supra, 260 U.S. 156, a case which held the federal filed rate doctrine
barred an action for treble damages under the Sherman Act. (Cellular Plus,
supra, 14 Cal.App.4th at p. 1241.) But the court concluded Keogh was not
controlling given the breadth of California’s Cartwright Act as compared to
the Sherman Act; differences between the regulatory authority of the PUC
over the cellular telephone industry and the ICC’s authority over common
carriers; and the defendants’ failure to cite any California decision similar to
Keogh. (Cellular Plus, at p. 1242.) Though Cellular Plus commented that the
fact of a regulatory agency’s approved rate should, at most, “be a factor in
determining the amount of damages awarded,” the decision rejected the
notion that such fact should determine “whether a cause of action exists at all
under the Cartwright Act.” (Cellular Plus, at pp. 1242–1243.)
15
hook.”6 In any event, we assume for the sake of argument the 1932
ordinance’s rate adjustment process is sufficiently akin to a statutory scheme
that triggers policy concerns regarding rate uniformity and the authority of
the Rate Board.7 (See City of Santa Paula v. Narula (2003) 114 Cal.App.4th
485, 492 [city ordinance has same force within its corporate limits as
statute].) But for the reasons that follow, we conclude the California filed
rate doctrine does not bar plaintiffs’ claims for injunctive relief, punitive
damages, and restitution.
As indicated, plaintiffs’ second amended complaint seeks injunctive
relief under the UCL and CLRA in order to enjoin Recology’s unlawful,
6 Loeffler v. Target Corp. (2014) 58 Cal.4th 1081 (Loeffler) does not assist
Recology on this point, as the Supreme Court concluded in that case that
UCL and CLRA claims challenging a retailer’s collection of sales tax
reimbursements were impermissible given the “comprehensive statutory
scheme” under the Revenue and Taxation Code by which such disputes may
be resolved. (Loeffler, at pp. 1103, 1123.)
7 Under its “Procedure for Adjustment” of refuse collection rates, the
1932 ordinance created the Rate Board, which consists of the Chief
Administrative Officer as chairman, the Controller, and the Manager of
Utilities. (Boldface omitted.) The ordinance provides that any affected
person, firm or corporation that desires an increase, decrease, or other
adjustment or change to the rates, schedules, or applicable regulations may
file an application with the chairman, “who shall thereupon refer the same to
the Director of Public Works for hearing, report and recommendation.” The
DPW director is also in charge of holding public hearings, initiating studies
and investigations “pertinent to the application,” and making a report to the
chairman “setting forth the facts as found by him from the evidence taken
and record made at the hearing, and a Recommended Order.” After the
report and recommended order are published and notice given, if no
objections are filed, “then the Recommended Order shall be deemed the Order
of the Rate Board and shall take effect according to its terms without other or
further action by the Rate Board.” If there are objections, the Rate Board
hears them and shall grant or deny the application in whole or in part and
make such order as may be just and reasonable.
16
unfair, and fraudulent business acts and practices as alleged throughout the
pleading. (See Bus. & Prof. Code, § 17203; Civ. Code, § 1780, subd. (a)(2).)
Because this requested relief will have no impact on rates, the filed rate
doctrine is not implicated and has no application. The decision in Day, supra,
63 Cal.App.4th 325, which involved application of the federal filed rate
doctrine, illustrates this point. There, the plaintiffs alleged claims under the
UCL and False Advertising Law (Bus. & Prof. Code, § 17500 et seq.) seeking
to enjoin misleading or deceptive practices in the advertising of prepaid
phone card rates. Day determined the federal filed rate doctrine was not
implicated because the injunctive relief, if granted, “ ‘would have no impact
on the tariff charged. It would not require [the carrier] to charge more or less
than the filed rate, nor would it permit a customer to pay more or less than
the filed rate.’ ” (Day, at pp. 329, 336.) For the same reasons articulated in
Day, the California filed rate doctrine does not defeat plaintiffs’ claims for
injunctive relief.
Plaintiffs also seek punitive damages against Recology for its allegedly
willful and fraudulent conduct. But as already discussed, “punitive damages
are not an item of compensatory damages and, thus, cannot be construed as
an ‘adjustment’ of customer rates.” (Cellular Plus, supra, 14 Cal.App.4th at
p. 1249.) Accordingly, plaintiffs’ punitive damages claim8 is not barred by the
California filed rate doctrine.
8 In tort actions, punitive damages may be recovered where it is proven
by clear and convincing evidence that the defendant is guilty of oppression,
fraud, or malice. (Civ. Code, § 3294, subd. (a).) A UCL claim cannot serve as
the basis for punitive damages (Korea Supply Co. v. Lockheed Martin Corp.
(2003) 29 Cal.4th 1134, 1147–1148), but a consumer who suffers damages as
a result of an act or practice declared unlawful in the CLRA may recover
punitive damages (Civ. Code § 1780, subd. (a)(4)).
17
Plaintiffs’ claims for restitution present a closer question. As Recology
observes, the federal filed rate doctrine has been held to bar claims seeking
disgorgement of profits because any attempt to calculate the monetary
amount would enmesh court in rate-setting process. (See Day, supra, 63
Cal.App.4th at p. 340.) In this regard, the federal filed rate doctrine “is
applied strictly” when “either the nondiscrimination strand or the
nonjusticiability strand underlying the doctrine is implicated by the cause of
action the plaintiff seeks to pursue.” (Marcus, supra, 138 F.3d at p. 59; cf.
Lovejoy, supra, 92 Cal.App.4th at p. 101 [fraud claim did not contravene
federal filed rate doctrine because it fell within statutory savings clause
permitting state law actions that do not frustrate purposes of uniformity and
agency ratemaking].)
At issue here, however, is the California filed rate doctrine. Given the
narrower application of the California doctrine (Pink DOT, supra, 89
Cal.App.4th at p. 416), we shall assess whether plaintiffs’ restitution claims
materially implicate the nondiscrimination and nonjusticiability strands that
support application of the filed rate doctrine.
First, we observe that plaintiffs bring this action on behalf of a putative
class of all residential ratepayers in the City who were subjected to the 2017
rates, and we accept as true the allegation that Recology has a monopoly on
refuse collection in the City. As such, any award of restitution based on the
allegations of inflated 2017 rates does not appear to implicate the
nondiscrimination strand because any such award will inure to the benefit of
the entire residential ratepaying class. That is, the award will not result in
18
preferential rate treatment for any subset of residential ratepayers.9 (Cf.
Cellular Plus, supra, 14 Cal.App.4th at p. 1250 [no prohibited rate
discrimination where plaintiffs sought compensatory damages claims that
other customers could similarly enforce].)
Second, the gravamen of plaintiffs’ claims concerns Recology’s bribery,
fraudulent misrepresentations, and concealment. These are not matters
“contained in the published tariffs” that implicate the nonjusticiability strand
of the filed rate doctrine. (Empire West, supra, 12 Cal.3d at pp. 810–811.) As
case law reflects, the nonjusticiability strand posits that courts should not
become involved in “second guess[ing] the regulators’ decisions and
overlay[ing] their own resolution” of rate disputes. (Wegoland, supra, 27 F.3d
at pp. 19, 21.) That is because the regulatory agencies possess the requisite
expertise and institutional competence that courts lack, such as specific
knowledge of the economics and technology of the regulated industry. (Nader
v. Allegheny Airlines (1976) 426 U.S. 290, 304–305 (Nader).)
But the legal standards governing actions for unlawful bribery and
fraudulent concealment of material information fall comfortably within the
institutional competence of trial courts. For instance, in Nader, supra, 426
U.S. 290, the United States Supreme Court held the analogous doctrine of
primary jurisdiction10 did not preclude a plaintiff’s fraud claims targeting an
9 Gallivan recognized that nondiscrimination concerns are “ ‘alleviated’ ”
in a putative class action, but the court noted there were still remaining
policy concerns regarding agency authority, justiciability, and institutional
competence. (See Gallivan, supra, 124 Cal.App.4th at p. 1387, fn. 8.) We
address, post, why plaintiffs’ claims do not appear to implicate the
nonjusticiability strand.
10 The doctrine of primary jurisdiction, which requires courts to refer
specific issues to a regulatory agency for initial determination in order to
secure uniformity and consistency in the regulation of business entrusted to
19
airline’s overbooking and “bumping” practices. (Nader, at pp. 300, 305–306.)
The alleged fraud did not implicate the agency expertise of the Civil
Aeronautics Board, and as the high court explained, “[t]he standards to be
applied in an action for fraudulent misrepresentation are within the
conventional competence of the courts.” (Id. at p. 305; cf. Cellular Plus,
supra, 14 Cal.App.4th at p. 1249 [rejecting application of “primary
jurisdiction” doctrine because courts “are accustomed to hearing and deciding
claims under the Cartwright Act”].) That is the situation here. Plaintiffs’
claims do not challenge the reasonableness of the rates as determined by the
Rate Board based on its methods, ratings factors, or institutional expertise;
nor do the claims threaten to usurp the Rate Board’s authority. Rather, the
claims alleging bribery and fraud fall within the category of tort claims that
may properly proceed without implicating California’s filed rate doctrine.
(See, e.g., Empire West, supra, 12 Cal.3d at pp. 810–811; Pink DOT, supra, 89
Cal.App.4th at pp. 416–417; Cellular Plus, supra, 14 Cal.App.4th at
pp. 1241–1242, 1249.)
Recology nevertheless insists that restitution can only be calculated “by
determining what rate would have been approved but for Recology’s alleged
wrongdoing,” which “would require the court to supplant the ratemaking
function entrusted to the Rate Board, and to do so without the Rate Board’s
considerable institutional advantages.” Mindful of the procedural posture of
this case, we are not convinced that judicial ratemaking will be necessary to
calculate restitution. For instance, Recology offers no reason why the parties
should be barred from relying on the calculation methods used to determine
the agency (Nader, supra, 426 U.S. at p. 303), is closely related to the
nondiscrimination and nonjusticiability strands of the filed rate doctrine.
(See Duggal, supra, 81 Cal.App.4th at pp. 88–89.)
20
restitution in People v. Recology, with further adjustments for any additional
omissions or other irregularities during the 2017 ratemaking process that are
uncovered in the instant litigation. Nor does Recology suggest how such
methods threaten to usurp or second guess the Rate Board’s authority and
determinations.
More to the point, a key distinguishing feature of this case is that a
judgment has already been rendered in favor of the City based on an express
finding that the 2017 rates were inflated due to omission errors that escaped
scrutiny during the ratemaking process. Thus, the legal presumption
underlying the nonjusticiability strand of the filed rate doctrine—namely
that approved rates are per se reasonable and unassailable (Wegoland, supra,
27 F.3d at pp. 18–19)—has no practical application here, since there is no
dispute the approved rates were excessive. As such, application of the filed
rate doctrine at this juncture would be incongruous. In so concluding, we do
not foreclose the possibility that further development of the record may
establish the necessity of the Rate Board’s expertise to calculate a revised
restitutionary amount. However, given the narrow scope of the California
filed rate doctrine as discussed above, as well as the unique circumstances of
this case, we believe one appropriate course in that circumstance would be for
the trial court to refer the restitution issue to the Rate Board rather than bar
the action outright under a restrictive application of the filed rate doctrine.
(See Nader, supra, 426 U.S. at pp. 303–304 [specific issues may be referred to
agency when an action otherwise in the jurisdiction of the court raises a
question of the validity of a rate].)
In sum, we conclude the demurrer should not have been sustained
based on the filed rate doctrine. In light of our conclusion, we need not
21
address plaintiffs’ additional policy and constitutional arguments against the
filed rate doctrine.
B. Res Judicata Does Not Bar This Action
Because the trial court sustained Recology’s demurrer without leave to
amend solely on the filed rate doctrine defense, the court did not determine
whether the second amended complaint fails to state a cause of action for the
other reasons articulated in the demurrer.
As to the specific causes of action pleaded, we observe the second
amended complaint contains material pleading differences from the first
amended complaint, including the addition of a new cause of action for
negligence per se. Because the trial court has not yet had the opportunity to
address such differences in the first instance, we will remand to provide that
opportunity. (See Linear Technology Corp. v. Applied Materials, Inc. (2007)
152 Cal.App.4th 115, 130–131.) We elect, however, to reach the res judicata
issue because the trial court previously considered the same arguments and
authorities on Recology’s demurrer to the first amended complaint, there are
no material changes between the pleadings as to this issue, and the matter is
fully briefed on appeal.11
As discussed earlier, People v. Recology was a UCL enforcement action
brought by public prosecutors against Recology for injunctive relief, civil
penalties, and restitution, while the instant private putative class action
asserts claims under the UCL, CLRA, and common law, with requests for
11 Although the trial court previously rejected Recology’s res judicata
argument in its demurrer to the first amended complaint, Recology may
demur to an amended pleading on the same basis. (Berg & Berg Enterprises,
LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1036.) We reach the issue now
because it provides a potential basis for concluding plaintiffs were not
prejudiced by the error discussed above. (Code Civ. Proc., § 906.)
22
injunctive relief, restitution, and punitive damages. A key difference between
the two actions is that the settlement agreement in People v. Recology
characterized Recology’s omission errors as “inadvertent[]” and drew no link
between those omissions and the allegations of bribery. Meanwhile, plaintiffs
allege here that Recology knowingly concealed and bribed Nuru to “assist in
concealing” required information in its 2017 rate adjustment application,
leading to the approval of inflated rates.
Notwithstanding these differences, Recology contends the prior
judgment in People v. Recology operates as a res judicata bar to the instant
action. Recology’s principal point is that plaintiffs are precluded from
additional recovery because the matters of Recology’s bribery and attempts to
influence ratemaking were already litigated to a final judgment in People v.
Recology. We are not persuaded.
“Res judicata, or claim preclusion, prevents relitigation of the same
cause of action in a second suit between the same parties or parties in privity
with them.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896–
897.) A claim is barred by res judicata when: (1) the claim raised in the
present action is identical to a claim litigated in a prior proceeding; (2) the
prior proceeding resulted in a final judgment on the merits; and (3) the party
against whom the doctrine is being asserted was a party or in privity with a
party to the prior proceeding. (Boeken v. Philip Morris USA, Inc. (2010) 48
Cal.4th 788, 797.) “Privity ‘ “refers ‘to a mutual or successive relationship to
the same rights of property, or to such an identification in interest of one
person with another as to represent the same legal rights [citations] and,
more recently, to a relationship between the party to be estopped and the
unsuccessful party in the prior litigation which is “sufficiently close” so as to
justify application of the doctrine of [res judicata]. [Citations.]’ [Citations.]
23
‘ “This requirement of identity of parties or privity is a requirement of due
process of law.’ ” ’ ” (Mooney v. Caspari (2006) 138 Cal.App.4th 704, 718
(Mooney).) “ ‘ “Whether someone is in privity with the actual parties requires
close examination of the circumstances of each case.” ’ ” (Citizens for Open
Access etc. Tide, Inc. v. Seadrift Assn. (1998) 60 Cal.App.4th 1053, 1070
(Seadrift).) “ ‘ “The circumstances must also have been such that the
nonparty should reasonably have expected to be bound by the prior
adjudication.” ’ ” (Ibid.)
As we shall explain, the doctrine of res judicata has been held
inapplicable to a private UCL class action where the prior action was a law
enforcement action by public prosecutors. Moreover, even assuming the
doctrine might otherwise apply if all the elements were shown, Recology fails
to establish that the prosecutors in People v. Recology were in privity with
plaintiffs so as to justify application of res judicata on the record here.
As the trial court recognized, the controlling authority on this issue is
Payne, supra, 91 Cal.App.4th 1037. There, public prosecutors filed suit
against an airline and a collection agency under the UCL and Education
Code for conspiring to defraud low-income job applicants out of fees for sales
training courses. (Payne, at pp. 1040, 1044.) The prosecutors secured
stipulated final judgments imposing injunctive and monetary relief against
the defendants, and “63 persons who were aggrieved by defendants’
misconduct were ordered to receive restitution from” the collection agency.
(Id. at p. 1039.) Thereafter, 23 individuals (who were not among the 63
persons identified in the law enforcement action) filed a putative class action
against the airline and collection agency under the UCL and other laws, and
the trial court sustained the collection agency’s demurrer to the UCL claim
on res judicata grounds. (Ibid.) The Court of Appeal reversed, holding that
24
traditional res judicata principles did not apply to the UCL judgment secured
by the prosecutors. (Id. at pp. 1044–1045.)
Relying on the Supreme Court’s decision in Pacific Land, Payne
explained that “[a]n action brought pursuant to [the UCL] by a prosecutor is
fundamentally different from a class action or other representative litigation”
because “ ‘[a]n action filed by the People seeking injunctive relief and civil
penalties is fundamentally a law enforcement action designed to protect the
public and not to benefit private parties. The purpose of injunctive relief is to
prevent continued violations of law and to prevent violators from dissipating
funds illegally obtained. Civil penalties, which are paid to the government
[citations] are designed to penalize a defendant for past illegal conduct. The
request for restitution on behalf of vendees in such an action is only ancillary
to the primary remedies sought for the benefit of the public. [Citation.]
While restitution would benefit the vendees by the return of the money
illegally obtained, such repayment is not the primary object of the suit, as it
is in most private class actions.’ ” (Payne, supra, 91 Cal.App.4th at p. 1045,
citing Pacific Land, supra, 20 Cal.3d at pp. 17–19.) Payne further
emphasized that “ ‘an action by the People lacks the fundamental attributes
of a consumer class action filed by a private party. The Attorney General or
other governmental official who files the action is ordinarily not a member of
the class, his role as a protector of the public may be inconsistent with the
welfare of the class so that he could not adequately protect their interests
[citation] and the claims and defenses are not typical of the class.’ ” (Payne,
at p. 1045, citing Pacific Land, supra, 20 Cal.3d at p. 18.)
Based on the foregoing, we conclude res judicata does not bar the
instant matter. People v. Recology was fundamentally a law enforcement
action by prosecutors designed to protect the public, not one to benefit the
25
private parties suing in the instant putative class action. Accordingly, res
judicata principles are inapplicable. (Payne, supra, 91 Cal.App.4th at
pp. 1045, 1047.)
Recology argues that Payne is distinguishable because the decision
repeatedly emphasized that none of the named plaintiffs there were
identified as persons entitled to restitution in the prior UCL enforcement
action. (See Payne, supra, 91 Cal.App.4th at pp. 1039, 1040, 1044.) Even so,
we do not read Payne as hinging on that fact alone. Instead, the decision
rests on broader conclusions drawn from Pacific Land that a UCL action by a
prosecutor is fundamentally different from and lacks the fundamental
attributes of a private class action. (Payne, supra, 91 Cal.App.4th at p. 1045,
citing Pacific Land, supra, 20 Cal.3d at pp. 17–19.) That is, the primary
remedies that a prosecutor seeks—such as injunctive relief and civil
penalties—are fundamentally for the public benefit and not to benefit private
parties. (Payne, at p. 1045.) Thus, although restitution may be sought in the
law enforcement action, that remedy is ancillary to the object of the suit.
(Ibid.)
Recology insists that the restitution award in People v. Recology was
not ancillary but was “the core remedy sought and secured.” We acknowledge
that a sizeable restitution award of more than $94 million was obtained in
People v. Recology, but we are not convinced that the amount of restitution
obtained fundamentally changes the primary object of the People in filing
suit. The People sought principally to secure, and ultimately achieved,
vindication of broader governmental interests by obtaining injunctive relief
governing Recology’s conduct with City officials and disclosures of
contributions and contacts with City officials over a four-year compliance
period, as well as a $7 million civil penalty payable to the City for Recology’s
26
violations of the UCL and San Francisco CGCC. (Cf. California v.
IntelliGender, LLC (9th Cir. 2014) 771 F.3d 1169, 1179 [privity is present
when government sues for same relief as private plaintiff and does not seek
to vindicate broader governmental interests].) Meanwhile, in statements
before the trial court in opposition to plaintiffs’ motion to consolidate, the
prosecutor emphasized, “The People’s action is a law enforcement action, . . .
not a Class Action, nor is it a representative action brought on behalf of the
individuals. . . . No individuals are represented in the People’s action.”
Rather, “[t]he settlement is between the People and the City and Recology,
not between any individual ratepayer.” It is reasonably clear the primary
purpose of People v. Recology was law enforcement.
Furthermore, even if Payne does not bar outright the application of res
judicata principles on the facts presented here, Recology fails to establish
that the People were in sufficient privity with plaintiffs to justify application
of res judicata. Recology’s reliance on Rynsburger v. Dairymen’s Fertilizer
Cooperative, Inc. (1968) 266 Cal.App.2d 269 (Rynsburger) is unavailing and
merely serves to underscore why, under a “ ‘ “close examination of the
circumstances” ’ ” (Seadrift, supra, 60 Cal.App.4th at p. 1070), privity is
lacking here. In Rynsburger—which predates both Pacific Land and Payne—
the appellants sued a dairy cooperative for private nuisance and later
requested that the governing bodies of three cities bring public nuisance
actions against the cooperative, telling the city councils that “ ‘90% of the
work had been done and would be made available to the City Attorney.’ ”
(Rynsburger, at p. 276.) “Many of the appellants testified in the” public
nuisance trial. (Ibid.) After the trial court found against the cities on their
public nuisance claim, the appellants “reactivate[d]” their private nuisance
suit. (Id. at p. 274.) The Rynburger court concluded the suit was barred by
27
res judicata because it involved “the identical nuisance pleaded and tried” in
the public nuisance action, and there was sufficient privity between the
appellants and the cities. (Id. at pp. 277–278.)
The record here reflects no similar level of cooperation or coordination
or any other hallmarks of a “ ‘sufficiently close’ ” relationship between the
People and plaintiffs in this case. (Mooney, supra, 138 Cal.App.4th at p. 718;
see Victa v. Merle Norman Cosmetics, Inc. (1993) 19 Cal.App.4th 454, 467–
468 [prior Equal Employment Opportunity Commission (EEOC) case was not
res judicata to individual plaintiff’s later suit because EEOC prosecuted at
least as much, and perhaps more, in the general, public interest than in
plaintiff’s, and plaintiff “had no litigative participation or control in the
EEOC case”].) To the contrary, in filings and remarks to the trial court, the
People distanced the law enforcement action from the instant matter, stating
“[t]here is nothing that precludes these Class Plaintiffs from seeking the
remedies that they seek—with respect to their own distinct litigation,” and
“[s]hould Plaintiffs secure additional remedies in their separate litigation,
they would be additive and would only serve to increase the relief afforded to
San Francisco ratepayers.” Under these circumstances, plaintiffs should not
reasonably have expected to be barred from pursuing this action due to a res
judicata effect of People v. Recology. (See Seadrift, supra, 60 Cal.App.4th at
p. 1070.)
Finally, Recology argues that application of res judicata is necessary to
prevent double recovery. We cannot agree. The trial court may prevent
double recovery by simply precluding members of the putative class from
recovering any amounts they have received or are entitled to receive under
the settlement in People v. Recology, while still allowing the putative class to
obtain any additional remedies to which they may be entitled.
28
For the foregoing reasons, we conclude res judicata principles do not
bar the instant private putative class action.
DISPOSITION
The judgment is reversed, and the matter is remanded for further
proceedings on the remaining grounds for demurrer. Plaintiffs are entitled to
their costs on appeal.
_________________________
Fujisaki, J.
WE CONCUR:
_________________________
Tucher, P.J.
_________________________
Rodríguez, J.
29
Trial Court: City & County San Francisco Superior Court
Trial Judge: Hon. Andrew Y.S. Cheng
Counsel: Ongaro PC, Glen Elliot Turner for Plaintiff and Appellant
Morrison & Foerster LLP, Joseph R. Palmore for Defendant
and Respondent
Villarroel v. Recology (A165515)
30