The City of Los Angeles filed a lawsuit against a private contractor.
The contractor sought discovery relevant to the claims and defenses. After years of stonewalling, the City eventually turned over information revealing serious misconduct in the initiation and prosecution of the lawsuit. The trial court found that the City had been engaging in an egregious pattern of discovery abuse as part of a campaign to cover up this misconduct. The court ordered the City to pay $2.5 million in discovery sanctions.
The question before the California Supreme Court was whether the trial court had the authority to order sanctions under the general provisions of the Civil Discovery Act.
Background
In 2010, the City of Los Angeles contracted with PricewaterhouseCoopers (PwC) to modernize the billing system for the City's Department of Water and Power (LADWP). The rollout of the new billing system didn’t go as planned, and when the system went live in 2013, it sent inaccurate or delayed bills to most residents. In March 2015, the City filed suit against PwC, alleging that it fraudulently misrepresented its qualifications to land the project. About a month later, a Los Angeles resident filed a putative class action against the City on behalf of overbilled LADWP customers. The two lawsuits were assigned to the same trial judge.
Instead of filing an answer to the second suit, the City entered into negotiations with the attorney for the class action. The parties arrived at a preliminary settlement agreement, which provided that the City would:
- Reimburse 1.6 million LADWP customers the full amount by which they were overcharged;
- Implement “remedial and corrective measures” that the City valued at $20 million; and
- Award up to $19 million in attorney's fees to plaintiffs' counsel.
The settlement resulted in a payment of $10.3 million in attorney's fees to the class action attorney. The City publicly announced its intent to recover the full cost of the second lawsuit settlement in its lawsuit against PwC.
Over the next five years, pretrial discovery in the PwC case gradually revealed a substantial connection between the two lawsuits: Counsel for the City had been behind the second lawsuit, and they’d sought to engineer the litigation so that the City could settle all of the claims brought by overbilled customers while passing the costs of the settlement in a suit against PwC.
Throughout the pretrial proceedings, PwC raised the possibility of discovery sanctions, but the trial court told them to wait until the close of discovery. After the City voluntarily dismissed its suit against PwC and the court declined to order further discovery, PwC filed a motion for monetary sanctions for the City's discovery misconduct under Code of Civil Procedure §§ 2023.010 and 2023.030. PwC sought $2.8M attorney's fees and costs incurred for its efforts to compel production; $4.2M in fees resulting from the City's attempt to conceal its participation in the collusive litigation scheme; and $1.1M in fees for the time spent preparing the sanctions motion.
After a hearing, the trial court granted PwC's motion for sanctions, concluding that “Code of Civil Procedure section 2023.030 authorizes a trial court to direct any party or attorney who has engaged in the misuse of the discovery process to pay the reasonable expenses, including attorneys' fees incurred, as a result of that conduct.”
“Misuses of the discovery process include, among other things, failing to respond or to submit to an authorized method of discovery, making without substantial justification an unmeritorious objection to discovery, making an evasive response to discovery, disobeying a court order to provide discovery, and making or opposing unsuccessfully and without substantial justification a motion to compel to limit discovery.”
The court also concluded that sanctions could be imposed under its “inherent power to deal with litigation abuse.” Finding a serious abuse of discovery by the City and its counsel, the court awarded PwC $2.5 million in sanctions against the City.
The City Appeals
The City appealed the sanctions award, arguing that the trial court lost jurisdiction to issue the order once the case was dismissed and that PwC's sanctions motion was untimely. The Court of Appeals panel unanimously rejected both arguments but ordered additional briefing on an issue the City had not previously raised: whether the trial court had authority to impose the sanctions award under §§ 2023.010 and 2023.030. By a divided vote, the panel concluded that the trial court lacked such authority.
On appeal to the California Supreme Court, Associate Justice Leondra R. Kruger wrote that to curtail surprises and enhance efficient trial preparation, the 1957 Act provided for new methods of discovery and “liberalized” each method “as to person, scope, and situation.” But “to protect against the abuses of the liberality thus created, safeguards were provided unknown to the old California procedures.”
One such safeguard was found in Code of Civil Procedure § 2034, which gave trial courts the authority to impose sanctions for certain abuses of the discovery process. But over time, § 2034 increasingly came under criticism for failing to adequately respond to the problem of discovery abuse. The Civil Discovery Act sets out six methods by which litigants can obtain pretrial disclosure of relevant information:
- depositions;
- interrogatories;
- inspections of documents, things, and places;
- physical and mental examinations;
- requests for admissions; and
- exchanges of expert trial witness information.
The procedures relevant to discovery under each of these six methods are outlined in different chapters of the Act. Each chapter authorizes sanctions for certain conduct constituting misuse or abuse of different discovery methods. Each of the provisions that authorizes a court to impose sanctions states that such sanctions may (or shall) be imposed “under Chapter 7 (commencing with Section 2023.010).”
Justice Kruger explained that the referenced chapter, titled “Sanctions,” contains the provisions central to the question presented in this case. The first of these provisions, § 2023.010, states: “Misuses of the discovery process include, but are not limited to, the following:
- Persisting, over objection and without substantial justification, in an attempt to obtain information or materials that are outside the scope of permissible discovery.
- Using a discovery method in a manner that does not comply with its specified procedures.
- Employing a discovery method in a manner or to an extent that causes unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.
- Failing to respond or to submit to an authorized method of discovery.
- Making, without substantial justification, an unmeritorious objection to discovery.
- Making an evasive response to discovery.
- Disobeying a court order to provide discovery.
- Making or opposing, unsuccessfully and without substantial justification, a motion to compel or to limit discovery.
- Failing to confer in person, by telephone, or by letter with an opposing party or attorney in a reasonable and good faith attempt to resolve informally any dispute concerning discovery, if the section governing a particular discovery motion requires the filing of a declaration stating facts showing that an attempt at informal resolution has been made.
The second provision, § 2023.030, states, as relevant here:
To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court, after notice to any affected party, person, or attorney, and after opportunity for hearing, may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process:
(a) The court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorney's fees, incurred by anyone as a result of that conduct. The court may also impose this sanction on one unsuccessfully asserting that another has engaged in the misuse of the discovery process, or on any attorney who advised that assertion, or on both. If a monetary sanction is authorized by any provision of this title, the court shall impose that sanction unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.
Section 2023.030(b) - (e) similarly provide that a “court may impose” issue sanctions, evidence sanctions, terminating sanctions, and contempt sanctions, respectively, but none mandates imposition of these various nonmonetary sanctions in the same manner as subdivision (a).
Section 2023.010 addresses the general subject of “[m]isuses of the discovery process.” Such misuses, it says, “include, but are not limited to,” failures to respond or submit to authorized methods of discovery, making unmeritorious objections without substantial justification, and making evasive responses. It is undisputed that the misconduct the trial court found in this case qualifies as discovery misuse within the meaning of § 2023.010. It is also, however, undisputed that § 2023.010 contains no language authorizing action in response to the sorts of discovery misuses it describes.
The focus of the dispute here centers largely on the interaction between § 2023.010 and § 2023.030. The latter section contains language that, on its face, appears to authorize action addressing the sort of discovery misuse described in § 2023.010, including imposition of monetary sanctions:
To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court … may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process: […] … The court may impose a monetary sanction.
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.
Both parties agreed that the prefatory phrase “[t]o the extent authorized” signals a limitation on the court's authority to impose sanctions, but they disagree as to the scope of this limitation. When no other provision applies, the judge explained that courts may rely on the general authority conferred in § 2023.030 to impose sanctions for any “[m]isuse[] of the discovery process,” as that term is defined in § 2023.010.
The Supreme Court said it could readily infer that when the Legislature wrote § 2023.030 to provide that a court “may impose” sanctions for discovery misuse, the choice was deliberate.
Consistent with the practices outlined in the Civil Discovery Act, trial courts must afford any party or person accused of engaging in an abuse of the discovery process “notice” and an “opportunity for hearing,” and courts must consider whether the party or person “acted with substantial justification,” or whether “other circumstances make the imposition of the sanction unjust.” Trial courts must also be mindful not to impose sanctions that exceed “the reasonable expenses, including attorney's fees, incurred by anyone as a result of” the discovery misconduct. These principles of causation and reasonableness ensure fidelity to the well-established principle that “the court may not impose sanctions which are designed not to accomplish the objects of discovery but to impose punishment.”
Justice Kriger and the Supreme Court said it saw no genuine danger that reading §§ 2023.010 and 2023.030 as an independent source of sanctions authority in any way undermines the intended functioning of the statute. Courts have for decades read §§ 2023.010 and 2023.030 in just this way, she opined. The trial court did not err in relying on those provisions here. The judgment of the Court of Appeal was reversed. City of Los Angeles v. PricewaterhouseCoopers, LLP (California Supreme Court 8/22/24).
Bottom Line
The Supreme Court held that trial court had the authority to impose monetary sanctions under Cal. Code of Civil Procedure §§ 2023.010 and 2023.030 for misuse of the discovery process.