A state appeals panel has revived a class action lawsuit accusing San Francisco's garbage collection company of allegedly overcharging San Francisco residents for trash pickup by bribing regulators tasked with approving their rates.
On Dec. 1, a three-justice panel of the California First Appellate District Court overturned the decision of San Francisco County Superior Court Judge Andrew Cheng, saying neither the so-called "filed rate" legal doctrine nor the settlement of a criminal investigation into the alleged bribes should pull the plug on the class action against waste hauler Recology Inc. and its subsidiaries over the alleged bribes.
"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," the justices wrote. "Rather, the claims alleging bribery and fraud fall within the category of tort claims that may properly proceed..."
David Ongaro
| Ongaro P.C.
The legal action against Recology and its subsidiaries was launched by attorney David Ongaro and others with the firm of Ongaro P.C., of San Francisco, in 2021 in San Francisco County Superior Court.
The lawsuit was filed on behalf of a group of named plaintiffs, including William Villarroel, Liese L. Sand and Robert F. Sand. The complaint seeks to expand the action include everyone who paid trash collection bills to Recology or its subsidiaries in San Francisco since 2017, which is likely at least tens of thousands of San Francisco residents.
The lawsuit centers on claims that Recology owes all of its San Francisco residential customers restitution for allegedly bribing San Francisco officials, including the former director of the San Francisco Department of Public Works to secure allegedly exorbitant rate increases and other publicly-funded trash-related fee increases for Recology in 2017.
According to the complaint, those rate approvals raised waste pickup rates on San Francisco residential property owners by as much as 21% on average.
The bribery allegations came to to light when federal prosecutors indicted Recology Group Government and Community Relations Manager Paul Giusti in 2020.
That was followed by a city enforcement action against Recology under California's Unfair Competition Law, resulting in a $94 million settlement, ostensibly paid to San Francisco ratepayers due to so-called "omission errors" in the 2017 rate application package that allegedly led to San Francisco's rate board approving the inflated rates.
Facing the class action complaint, Recology argued in court that settlement with the city should end any other attempts to sue them over the bribes, because any further legal action amounted to litigation of a settled matter under the doctrine known as res judicata, and would result in illegal double recovery on the same claims.
The company further claimed the lawsuit should be disallowed as an illegal attempt to sue over decisions made by public utility regulators, under the so-called filed rate doctrine.
Judge Cheng sided with Recology, and tossed the lawsuit in September 2022.
On appeal, however, the First District justices said Cheng got the law wrong, because neither of those defenses should apply in this case.
The decision was authored by Justice Carin T. Fujisaki. Justices Alison M. Tucher and Victor Rodriguez concurred.
In the opinion, Fujisaki said the nature of the claims against Recology essentially make the lawsuit a fraud case, not a challenge to the authority of the rate board to set prices for trash collection in the city and county.
Further, the appellate judges said the need to calculate possible restitution also does not necessarily draw the rate board into the case at this point. And even if it may in the future, that should not cause the courts to close the lid on the case altogether now.
Fujisaki and her colleagues also ruled that the actions of prosecutors do not close off private lawsuits against the same alleged bad actors.
The enforcement action against Recology "was fundamentally a law enforcement action by prosecutors designed to protect the public, not one to benefit the private parties suing in the instant putative class action," Fujisaki wrote.
The justices noted prosecutors specifically told the court hearing the enforcement action that they did not intend for the enforcement action to trash future class actions against Recology related to the rates, as such lawsuits "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...," Fujisaki wrote.
Recology has been represented by attorney Joseph R. Palmore, of the firm of Morrison & Foerster, of Washington, D.C.
Attorney Glen E. Taylor, of Ongaro P.C., argued the case before the First District Appellate Court on behalf of the plaintiffs.