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California Supreme Court:
Discovery Sanctions May Be Predicated on Pattern of Abuse
Kruger Says Court Is Not Limited to Penalties for Individual Rule Violations; Holding Comes in Case Stemming From DWP Overbilling Scandal
By Kimber Cooley, Associate Editor
The California Supreme Court held yesterday that a trial court has authority to order monetary sanctions for a pattern of discovery abuses under general provisions of the Civil Discovery Act and is not limited to imposing penalties for each individual violation of a rule.
The decision comes in the high-profile lawsuit by the City of Los Angeles against PricewaterhouseCoopers LLP (“PWC”) based on a contract in which the accounting firm agreed to modernize the billing system for the Department of Water and Power (“DWP”). When the new system went live in 2013, it sent inaccurate or delayed bills to more than one million customers.
In 2015, a complaint was filed by the city’s attorneys and special counsel Paul O. Paradis, Gina Tufaro, and Paul Kiesel, alleging that PWC had fraudulently misrepresented its qualifications to undertake the project. In April 2015, attorney Jack Landskroner (now deceased) filed a class action against the city on behalf of overbilled DWP customers, naming Antwon Jones as a representative plaintiff.
The two lawsuits were each assigned to Los Angeles Superior Court Judge Elihu M. Berle.
Instead of filing an answer to the class action complaint, the city quickly entered into negotiations with Landskroner and the parties arrived at a settlement agreement under which Los Angeles would reimburse 1.6 million DWP customers the full amount by which they were overcharged and implement remedial measures. The settlement resulted in a payment of $10.3 million in attorney fees to Landskroner.
Over the next five years of litigation, it was discovered that Paradis had been behind the Jones lawsuit—contacting Landskroner to file a complaint Paradis had drafted—and had sought to engineer litigation so that the city could definitively settle all the overbilling claims while passing the costs of the settlement onto PWC.
Paradis admitted to accepting $2.175 million in kickbacks from Landskroner and was sentenced to 33 months in federal prison on Nov. 7, 2023.
Motion for Sanctions
After the city voluntarily dismissed its suit, PWC moved for monetary discovery sanctions under Code of Civil Procedure §2023.010, providing a non-exhaustive list of discovery violations, and §2023.030, which says that monetary sanctions may be imposed “[t]o the extent authorized by the chapter governing any particular discovery method or any other provision of this title…against anyone engaging in…misuse of the discovery process….”
PWC claimed that the city had engaged in misuses of the discovery process by, among other things, asserting attorney-client privileges to prevent discovery of the draft Jones complaint—which listed Paradis, Kiesel and Tufaro as counsel for Jones—and otherwise stonewalling efforts by the city to uncover the relationship between the two lawsuits.
PWC sought $2,801,946.49 in attorney’s fees and costs incurred in connection with its efforts to compel production of the draft complaint, $4,259,529.14 in fees resulting from the city’s attempt to conceal its participation in the litigation scheme, and $1,149,907.90 for the time spent preparing the sanctions motion. Berle found that the city engaged in a pattern of “serious abuse” and awarded $2.5 million in sanctions to PWC.
Div. Five of the Second District Court of Appeal, in an opinion by Justice Carl H. Moor, reversed, saying that the Discovery Act does not independently authorize trial courts to impose monetary sanctions for general discovery abuses.
Justice Leondra Kruger authored the opinion for the unanimous court, reversing the Court of Appeal. She wrote:
“Under the general sanctions provisions of the Civil Discovery Act, Code of Civil Procedure sections 2023.010 and 2023.030, the trial court had the authority to impose monetary sanctions for the City’s pattern of discovery abuse. The court was not limited to imposing sanctions for each individual violation of the rules governing depositions or other methods of discovery. We reverse the Court of Appeal’s judgment to the contrary.”
Justice Mark W. Snauffer of the Fifth District Court of Appeal sat by assignment on the matter and Justice Joshua P. Groban did not participate.
Action in Response
Kruger looked to the two sections under which the sanctions were ordered and said:
“It is undisputed that the misconduct the trial court found in this case qualifies as discovery misuse within the meaning of section 2023.010. It is also, however, undisputed that section 2023.010 contains no language authorizing action in response to the sorts of discovery misuses it describes.
“The focus of the dispute before us thus centers largely on the interaction between section 2023.010 and section 2023.030. The latter section contains language that, on its face, appears to authorize action addressing the sort of discovery misuse described in section 2023.010, including imposition of monetary sanctions….The central question concerns the meaning of the prefatory phrase indicating that a court may impose sanctions ‘[t]o the extent authorized’ by other provisions of the Civil Discovery Act, including, primarily, the provisions governing the six different methods of discovery.”
The city argues that the plain meaning of the limiting phrase instructs that the sort of sanctions described in §2023.030 must be specifically authorized by another provision of the Civil Discovery Act. Unpersuaded, she remarked “[t]hough the City insists otherwise, its reading of section 2023.030 is far from the only plausible one” and pointed out that courts have generally understood the sanctions provisions to apply broadly.
Kruger reasoned:
“[T]he introductory phrase carries less weight than the City supposes, because when readers look to most of these other provisions, what they will find is language that directs them right back to section 2023.030….[I]f the ‘[t]o the extent authorized’ language in section 2023.030 seems to point to the sanctions authority conferred by provisions in the method-specific chapters of the Act, the method-specific chapters appear to point right back to section 2023.030 and the other provisions of Chapter 7 as a source of the authority to impose sanctions….The City’s argument about the plain language of section 2023.030 thus fails to account not only for the wording of section 2023.030 itself, but also for the wording of the other provisions on which the argument depends.”
She concluded:
“[I]t is one thing to read the ‘[t]o the extent authorized’ language to mean that the authority recognized in section 2023.030 cannot extend farther than the authority conferred by other applicable sanctions provisions, assuming other sanctions provisions are applicable. It is something else to say that section 2023.030 confers no sanctions authority at all—even for those relatively uncommon instances that may involve patterns of systemic abuse that transcend any individual instance of misuse, or in situations where the conduct undoubtedly meets section 2023.010’s definition of discovery misuse even though there are no other applicable sanctions provisions.”
Legislative Intent
Acknowledging some ambiguity in the plain terms of the statute, Kruger turned to what she described as “our final, and ultimately dispositive, consideration” which is “the Legislature’s overarching purposes in enacting the sanctions provisions of the Civil Discovery Act.”
The justice said:
“[I]t is undisputed that no method-specific provision of the Act addresses pervasive patterns of discovery misconduct of the sort that occurred in this case. This pattern of misconduct certainly included various discrete acts of discovery misconduct that would be individually redressable under certain chapters governing discovery methods….But the power to sanction discrete abuses of specific discovery methods…is not the same thing as the power to sanction a concerted, multi-year campaign to circumvent discovery that would have revealed serious abuses in the initiation and prosecution of the lawsuit.”
She opined:
“[W]e can readily infer that when the Legislature wrote section 2023.030 to provide that a court ‘may impose’ sanctions for discovery misuse, the choice was deliberate. As part of its concerted response to known deficiencies in the prior discovery sanctions statute, the Legislature gave trial courts a statutory basis for exercising authority to address egregious forms of misconduct not addressed elsewhere in the Act. It seems, by contrast, unlikely that a Legislature concerned with stemming the tide of discovery abuse would have consigned courts confronting patterns of egregious abuse to the choice the City’s position would offer them: either attempt to fit the component parts of the pattern into individual method-specific sanctions rulings, or else rely purely on their inherent authority to control the litigation, with no statutory guidelines relevant to that exercise.”
Escalating Sanctions
The jurist pointed out that the Civil Discovery Act provides a system of escalating sanctions which are reflected in the individual method-specific chapters and by which courts must typically consider monetary sanctions before turning to more severe penalties. The city contends that understanding §2023.030 as an independent source of authority to impose sanctions would undermine this scheme.
Kruger, however, explained that the authority to impose sanctions is not without limitations and said:
“A court may invoke its independent authority to impose sanctions under sections 2023.010 and 2023.030 only when confronted with an unusual form of discovery abuse, or a pattern of abuse, not already addressed by a relevant sanctions provision. And where it invokes that authority, it is constrained by the long-settled rules generally governing the imposition of discovery sanctions under the Act.”
The case is City of Los Angeles v. PricewaterhouseCoopers LLP, 2024 S.O.S. 2884.
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