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Court: Class Members Must Be Disclosed

Sued Companies Must Disclose Class Members, Court Says

May 5, 2009
Evan George
Los Angeles
© 2009 Daily Journal Staff Writer

In a published opinion that loosens limits on consumer class actions, an appellate court said Safeco Insurance Co. must disclose which customers it allegedly surcharged illegally several years ago.

The rub is that the customer list, if produced, could identify hundreds - even thousands - of new plaintiffs in an on-going complaint against the Seattle-based auto insurer.

Safeco's lawyers argued that kind of discovery was burdensome and only benefits plaintiffs' lawyers fishing for aggrieved clients.

The question raised by the appeal was whether sued companies must hand over key customer information used expressly to round up litigants before a class has even been certified.

The answer: Let a trial judge decide.

In the case of Safeco, the 2nd District Court of Appeal last week ruled in favor of the unidentified customers allegedly hit with hidden charges by the company. Their rights outweighed the potential abuse by trial lawyers, the court said. Safeco Insurance Co. of America v. Superior Court, DJDAR 6288.

"The rights of the class members in these circumstances are substantial," Justice Walter H. Croskey wrote in the unanimous opinion. Trial courts must weigh each case rather than deny such requests on a de facto basis.

Past decisions had left the issue hazy. In a case called First American, an appeals court denied plaintiffs' lawyers access to the same type of records. First American Title Ins. Co. v. Superior Court 146 Cal App. 4th 1564.

Now, lawyers suing Safeco can proceed with demands for a list of California residents who were "ripped off by the defendants," said Harvey Rosenfeld, counsel for Santa Monica-based Consumer Watchdog.

"After 7 years of winning delays in the court Safeco is out of legal options. I think they are going to have to face the facts and issues refunds for consumers," said Rosenfeld.

Steven Weinstein, partner at Barger & Wolen in Los Angeles, argued the case for Safeco. Weinstein and a Safeco spokesman did not return calls for comment.

The ruling is good news for consumer advocates who were handed a resounding defeat in 2004 when voters approved Proposition 64, a ballot initiative that limits who can bring consumer complaints. Only those hurt by alleged wrongdoing, except for certain public prosecutors, can sue. That has put a stranglehold on most lawsuits using the unfair competition law.

Backers of Prop 64 touted the effort as a way to eliminate frivolous and costly litigation.

The problem, according to consumer groups, is that harmed plaintiffs often do not know they have been wronged or that they have a complaint. Typically the only party with that information is the company involved.

That was the case with the alleged surcharge by Safeco.

Though the company has denied any wrongdoing, consumer advocates complained Safeco secretly charged customers additional fees if they had prior auto insurance lapses - a scheme they said violated Proposition 103, the landmark insurance regulation initiative approved by voters in 1988. Rosenfeld helped write Prop 103.

But when Proposition 64 passed two years later, it derailed their lawsuit.

To keep the complaint alive, Consumer Watchdog named Lisa Karnan, a Safeco client who alleged she had been overcharged for letting her insurance lapse when she bought new coverage.

In 2008, the trial court found that Karnan did not qualify as a class representative either, but did allow her and her lawyers to conduct discovery to identify another class member. Safeco and its parent company First National Insurance appealed.

The case has been handed back to Los Angeles Superior Court Judge Anthony J. Mohr.

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