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May 2010

Wallace v. GEICO Gen. Ins. Co. ? Insurer Cannot Defeat Class Action by Compensating Representative Plaintiff for Her Injuries

A Class-Action Defendant May Not Avoid Class Claims by "Picking Off" the Representative Plaintiff by Remedying, After Suit is Filed, the Injuries He or She Suffered

(April 19, 2010) ___Cal.App.4th__; 10 C.D.O.S. 4804

The California Court of Appeal, Fourth Appellate District reversed a trial court's order striking class allegations in an action against an insurer because the trial court improperly concluded the insurer's tender of settlement to the lead plaintiff caused the lead plaintiff to lose standing.

Plaintiff Wallace had automobile insurance with defendant GEICO.  On March 5, 2007 Wallace's car was damaged in an accident, necessitating body work.  Wallace obtained a repair estimate and submitted it to GEICO.  GEICO responded that it would not pay the full amount of the estimate because the hourly labor rate was above what GEICO considered to be the prevailing rate.  Wallace had the repairs performed and paid the difference between what she was charged and what GEICO agreed to pay.

On August 7, 2007 Wallace brought a class action against GEICO, alleging causes of action for unfair competition under California Business & Professions Code § 17200 ("Section 17200"), breach of contract and bad faith, on behalf of a proposed class consisting of California residents who had paid or "become indebted to" a repair shop because GEICO improperly refused to pay the shop's rates.

GECIO moved for summary judgment.  In support, GEICO submitted a consent order between GEICO and the California Department of Insurance (DOI), that covered the same subject matter as Wallace's complaint, i.e., the failure to reimburse repair costs above "prevailing rates," and an implementing order (together the "consent order").  In the consent order, GEICO was ordered, among other things, to reimburse insureds who had submitted claims or complaints to GEICO that they had paid additional amounts.  GEICO also submitted evidence that on October 10, 2007 GEICO sent Wallace a check for $387.56, to cover the amount Wallace had paid out of pocket for her repairs.  GEICO's letter accompanying the check stated that the payment was being made in accordance with the consent order.

GEICO argued Wallace's claims had been completely remedied and her individual claims were moot, and thus she lacked standing to pursue the class claims.  The trial court rejected GEICO's argument that the tender of payment by GEICO mooted Wallace's claims, but agreed that Wallace did not have standing to serve as the putative class representative because the payment removed any injury she might have suffered.  The court allowed Wallace a short time and limited discovery to locate a new class representative.

Wallace did not locate a new class representative before the discovery deadline, and GEICO moved to strike the class allegations from the operative complaint.  The trial court granted the motion on the ground that the class had no designated class representative.  Wallace appealed this ruling.

On appeal, Wallace argued she should be permitted to act as a representative plaintiff, and that the trial court thus erred in striking the class allegations, under the doctrine described in La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871 and other cases, under which a class-action defendant is not permitted to avoid a class suit by "picking off" the representative plaintiff by remedying the injuries he or she suffered.

The appellate court agreed, ruling that California and federal "pick off" cases disapprove of attempting to moot a class action by picking off a representative plaintiff.  The court found the trial court should have considered whether the named plaintiffs could continue to fairly represent the class in light of the individual relief the defendant offered. 

The court rejected the trial court's finding that the "pick off" cases do not apply to unfair competition claims, as those claims require that the plaintiff suffered "injury-in-fact."  The appellate court found that the pick off cases presuppose injury-in-fact at the time the lawsuit is filed, and that at the time she filed suit Wallace was a proper plaintiff under Section 17200.

Finally, GEICO argued the pick off cases did not apply because it paid Wallace's claim pursuant to the consent order, not in an effort to pick off Wallace.  The court rejected this argument, however, because Wallace did not make a complaint prior to filing the lawsuit, as contemplated by the consent order.  Because GEICO was not required to reimburse Wallace under the terms of the consent order, the pick off cases applied, and Wallace did not lose standing to act as a representative plaintiff.  The court reversed and remanded the case for further proceedings. 

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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Jordan S. Altura