A Theory of Discovery Sanctions

Cornerstone Realty Advisors, LLC v. Summit Healthcare REIT, Inc., No. G057176 (D4d3 Oct. 28, 2020) 

Plaintiffs in this case refused to turn over some key financial records. Even after the trial court ordered them to. For that, they ultimately got hit with terminating sanctions. But that’s not the subject of this appeal. 

Instead, Defendants appeal a related assessment of monetary sanctions, arguing that (a) the ~$580k awarded wasn’t adequate to compensate them for the costs incurred as a result of Plaintiffs’ non-compliance, which Defendants claim is over $2 million; and (b) the trial court should have held Plaintiffs’ counsel jointly and severally liable for the sanctions.

On the amount question, the Court of Appeal identifies three principles that should guide a court in issuing monetary discovery sanctions: compulsion, causation, and reasonableness. I haven’t seen it laid out that way before, but it’s a useful rubric. 

Compulsion means sanctions are required absent substantial justification. The discovery statutes that deal with monetary sanctions generally say stuff like “shall impose.” Of course, anyone who has spent time slogging away in state court knows that rule is honored more in the breach. The vast majority of superior court judges believe that discovery sanctions are a waste of time, cause unnecessary work, encourage unnecessary discovery disputes, and are just another thing to get reversed on. The first superior court judge I ever had a discovery dispute in front of made the partner I was with ask his clerk how often he issued sanctions. “Never,” she said (with a smile). So, although there a few judges who routinely issue sanctions, for the most part, discovery disputes where the losing party is not found to be substantially justified are few and far between.

Causation addresses the compensatory purpose of discovery sanctions. (Which is why they are supposed to be mandatory, FWIW.) The losing party should make the prevailing party whole for the cost of having to deal with the dispute. 

Finally, reasonableness means that the fees awarded need to be reasonable. The prevailing party shouldn’t get a windfall. In practical effect, this means that almost any fee award gets reduced below billed rates (even if the client is actually paying them) because superior court judges generally think private lawyers make too much money.

The Court of Appeal goes through the various errors asserted by Defendants and finds most of them lacking on either causation or reasonableness grounds. Some of the stuff was too tangential to the discovery misconduct and other was deemed excessive. For one category, however, the trial court categorically denied fees incurred prior to a certain date because it incorrectly believed that Defendants had already been awarded sanctions for those fees. That being the case, the trial court violated the principle of compulsion. So it will need to reassess this category on remand.

So far as tagging the Plaintiffs’ lawyer goes, sanctions can only be assessed against lawyers for “advising that conduct” that misuses the discovery process. To avoid the sanction, the attorney bears the burden of showing that he or she did not advise the client to commit the misconduct. Here, the discovery responses were generally ok—Plaintiffs said they would produce the documents. The problem was that they never did. The record generally showed that the lawyers sought to comply with the obligations but were stymied by their clients’ recalcitrance. Under those circumstances, substantial evidence supported the trial court’s decision not to sanction the attorneys.

Affirmed in part.