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Safeco Insurance Company of America v. Superior Court of Los Angeles County

April 30, 2009

SAFECO INSURANCE COMPANY OF AMERICA ET AL., PETITIONERS,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT;
LISA KARNAN ET AL., REAL PARTIES IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Anthony J. Mohr, Judge. Petition denied, with directions. (Los Angeles County Super. Ct. No. BC266219).

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

Safeco Insurance Company of America (Safeco) and First National Insurance Company of America (First National) challenge an order granting a motion by the plaintiffs‟ class representative, Lisa Karnan, for precertification discovery for the purpose of finding a new class representative. Karnan is not a member of the class she purports to represent. She seeks to identify potential class members and substitute a new class representative in her place. We conclude that the trial court properly exercised its discretion by weighing the potential for abuse of the class action procedure against the rights of the parties in these circumstances and that the defendants have shown no error in the granting of the motion.

FACTUAL AND PROCEDURAL BACKGROUND

1. Complaint, Demurrer, and Stays

The Proposition 103 Enforcement Project (the Project) filed a complaint against Safeco and First National in January 2002, alleging that the defendants charged higher premiums to drivers with no prior automobile insurance coverage or no continuous coverage, in violation of Insurance Code section 1861.02, and that they failed to report their true underwriting practices, in violation of section 1859.*fn1 The Project alleged counts for (1) violation of section 1859, (2) violation of section 1861.02, and (3) unfair competition. The Project filed the complaint as a representative action under the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq).

Safeco and First National demurred to the complaint, arguing that the action should be dismissed because the challenges to their approved insurance rates were within the exclusive jurisdiction of the Insurance Commissioner. They argued, in the alternative, that the action should be stayed based on the primary jurisdiction doctrine. The trial court determined that the alleged violations were within the primary jurisdiction of the Commissioner, and stayed the action in July 2002. The Commissioner issued an order in December 2002, declining to exercise jurisdiction "because the factual questions presented by the litigation do not require any actuarial or rate making expertise, matters which the California Department of Insurance regularly handles, and matters in which the Commissioner is vested with unique authority. The particular facts necessary to resolve the dispute will best be obtained through the discovery processes available to the Superior Court."

Safeco and First National moved for judgment on the pleadings in November 2003, arguing that the Commissioner had exclusive jurisdiction over the matters alleged in the complaint. They also moved to stay the action pending a decision by the Court of Appeal in Poirer v. State Farm Mut. Auto Ins. Co., in which the trial court had dismissed a similar complaint. The Project opposed the motions, arguing that Poirer was distinguishable. The trial court stayed the action in March 2004, pending a decision by the Court of Appeal in Donabedian v. Mercury Ins. Co. After that opinion was filed (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968), the trial court continued the stay pending a final decision by the Court of Appeal in Poirer. The Court of Appeal filed a nonpublished opinion in Poirer on October 15, 2004 (B165389). The trial court lifted the stay in this action in December 2004.

2. Motions for Judgment on the Pleadings

Safeco and First National moved for judgment on the pleadings in January 2005, arguing that the Project had suffered no actual injury and therefore had no standing to sue for violation of the UCL after Proposition 64.*fn2 The trial court granted the motion as to the UCL count on March 22, 2005, allowing 30 days‟ leave to amend to substitute a plaintiff who had suffered an actual injury.*fn3 On April 19, 2005, the trial court stayed the action for 60 days pending any writ review by the Court of Appeal. The Project did not seek writ review of the ruling and did not amend the complaint at that time.

Safeco and First National filed a separate motion for judgment on the pleadings in March 2005, arguing that the alleged violations of sections 1859 and 1861.02 did not give rise to a private right of action. The trial court determined that section 1861.10, subdivision (a) created a private right of action for a violation of section 1861.02, and denied the motion.*fn4 Safeco and First National petitioned the Court of Appeal for a writ of mandate, challenging the denial of the motion. We filed an opinion in March 2006, in consolidated writ proceedings in this and another action (Douglas Ryan v. Farmers Ins. Exchange, Super. Ct. L.A. County, No. BC297437 (Ryan)), holding that there is no private right of action for a violation of section 1861.02. (Farmers Ins. Exchange v. Superior Court (2006) 137 Cal.App.4th 842, 853-859 (Farmers).) We directed the trial court to vacate its order denying the motions for judgment on the pleadings in the two actions and enter new orders granting the motions without leave to amend. (Id. at pp. 859-860.) This decision did not impact the viability of the Project‟s cause of action for unfair competition.

3. Motion for Leave to Conduct Discovery

In order to proceed with the unfair competition claim, however, the Project had to address the issue of its lack of standing, given the passage of Proposition 64. It did so by filing a motion in July 2006 for leave to conduct discovery for the purpose of identifying a prospective plaintiff who satisfied the new standing requirements imposed by Proposition 64. Safeco and First American opposed the motions, arguing that our opinion in Farmers, supra, 137 Cal.App.4th 842, disposed of the entire action, and that the trial court was required to enter a judgment on the pleadings without leave to amend and deny the motion for leave to conduct discovery. The trial court filed an order on September 7, 2006, granting judgment on the pleadings on that basis and denying the motion for leave to conduct discovery. The trial court filed an identical order in the Ryan action.*fn5

Ryan petitioned the Court of Appeal for a writ of mandate (Ryan v. Superior Court (B194498)), challenging the order in the Ryan action. Safeco and First American joined in the petition, challenging the order in this action. We filed an order on November 16, 2006, pursuant to Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, stating that we were considering the issuance of a peremptory writ of mandate in the first instance directing the trial court to vacate the orders. We stated that Farmers, supra, 137 Cal.App.4th 842, did not address the question whether the plaintiffs could amend their UCL counts, and that the California Supreme Court in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235 (Branick), filed after our opinion in Farmers, held that Proposition 64 did not necessarily preclude an amendment to a complaint to substitute a new plaintiff who suffered an injury in fact. We stated that it was reasonable for the plaintiffs to delay amending the complaints during the pendency of the prior writ proceedings, and that the trial court should consider the merits of the plaintiffs‟ motions under Branick.

The trial court filed an order on December 8, 2006, vacating its prior order granting judgment on the pleadings and resetting a hearing on the motion for leave to conduct discovery. We filed our opinion in First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564 (First American) in January 2007, holding that a plaintiff who was not a class member was not entitled to precertification discovery for the purpose of identifying a new class representative, in the circumstances of that case. The trial court conducted hearings on the Project‟s motion for leave to conduct discovery in March and June 2007, and took the matter under submission. The court stated that if it denied the motion, it would allow the Project 90 days to file an amended complaint.

The trial court filed an order on August 21, 2007, denying the motion for leave to conduct discovery. Balancing the "potential for abuse of the discovery process" against the interests of the Project and the putative class members, the court stated that the potential for abuse was "virtually non-existent" because the Project qualified as a representative plaintiff when it filed the complaint, long before Proposition 64 was enacted. The court stated further, however, that the Project had no interest in the continued prosecution of this action because it was not a member of the alleged class and that the Project had not shown that a future action would be time-barred or that the putative class members would be denied relief if this action did not proceed. The court concluded that the potential for abuse outweighed the interests of the parties, and therefore "reach[ed] the admittedly harsh conclusion that discovery should not be available under these facts." The court stated that there was a controlling question of law as to which there were substantial grounds for difference of opinion, and invited appellate resolution of that question pursuant to Code of Civil Procedure section 166.1. In an order filed on September 13, 2007, the court allowed the Project until November 19, 2007, to amend the complaint.

The Project petitioned the Court of Appeal for a writ of mandate, challenging the denial of its motion for leave to conduct discovery, but withdrew its petition after the filing of a first amended complaint.

4. First Amended Complaint

Plaintiffs‟ counsel filed a first amended class action complaint on October 31, 2007, naming Karnan as the representative of a class of California residents who purchased automobile insurance from the defendants and who were surcharged based on the lack of prior insurance or lack of continuous coverage. Karnan alleged a single count under the UCL. She alleged that the defendants‟ conduct was unlawful because it

She sought an injunction, restitution, disgorgement of money, and a constructive trust. violated sections 1859 and 1861.02, and that their ...


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