Villarroel v. Recology
| Docket Number | A165515 |
| Decision Date | 01 December 2023 |
| Citation | 315 Cal.Rptr.3d 774 |
| Parties | William VILLARROEL et al., Plaintiffs and Appellants, v. RECOLOGY, INC., et al, Defendants and Respondents. |
| Court | California Court of Appeals |
Ongaro PC, Glen Elliot Turner for Plaintiff and Appellant
Morrison & Foerster LLP, Joseph R. Palmore for Defendant and Respondent
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.
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.
We accept as true the following factual allegations of the operative second amended Complaint. (Tarkirigton v. California Unemployment Ins. Appeals Bd. (2009) 172 Cal.App.4th 1494, 1498, fn. 1, 92. Cal. Rptr.3d 131.)
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, 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.
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 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 8.216(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 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...
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