City of L.A. v. PricewaterhouseCoopers, LLC, No. B310118 (D2d5 Oct. 20, 2022)
So the City of L.A.’s Department of Water & Power was overbilling its customers for years. Customers began to sue. The City sued PwC—which had developed the accounting software that allegedly caused the overbilling—to cover its losses. In 2015, the City settled a class action brought on behalf of ratepayers by some rando attorney from Ohio for $67 million, which included $19 million in attorneys fees, effectively forcing all of the ratepayer litigation into a claims settlement process. The settlement was struck prior to the City’s filing its answer in the class action.
But then a funny thing happened in the PwC case. A draft complaint—a class action against PwC by a bunch of ratepayers—showed up on the City’s Privilege Log. The named plaintiff was identical to the plaintiff in the class action. The draft was attached to an email from a city attorney to some DWP employees.
Chaos ensued. There were round after round of motions to compel. The City did a bunch of stonewalling at a PMQ depo. It made wacky assertions of privilege. It slowly came to light that first the City’s special counsel, and then key personnel in the city attorney’s office had colluded with the class action plaintiff attorney to orchestrate the class action and obtain a sham settlement. The Court eventually found that the crime-fraud exception applied, forcing the City to disclose communications regarding the draft class action complaint and the sham settlement. After getting pummeled in discovery, the City voluntarily dismissed its case against PwC.
PwC, however, filed a post-dismissal motion for discovery sanctions under Code of Civil Procedure §§ 2023.010 and 2023.030, alleging that the City engaged in bad-faith discovery tactics throughout the litigation. PwC sought about $8 million in fees incurred in connection with: (1) efforts to obtain discovery about the draft complaint; (2) efforts to obtain discovery about the sham settlement; and (3) fees on fees. The City objected, arguing that the court no longer had jurisdiction to issue discovery sanctions, that §§ 2023.010 and 2023.030 don’t actually authorize sanctions, and that the amount of fees sought were unreasonable. The trial court found that the City had engaged in serious and widespread discovery abuse. It awarded $2.5 million in sanctions.
On appeal, the key issue is whether §§ 2023.010 and 2023.030 give the trial court authority to impose monetary sanctions for discovery abuse. These statutes are in a chapter of the Discovery Act that specifically addresses sanctions. There are also sanctions provisions in each of the chapters in the Act that address specific methods of discovery. See, e.g., §§ 2025.420(h) (sanctions in connection with deposition protective order); 2025.450(g) (sanctions in connection with party depositions); 2025.480(j) (sanctions in connection with non-party deposition); 2030.300(d) (interrogatories); 2031.310(h), (i) (inspection demands).
Section 2023.010 lists out nine non-exhaustive categories of conduct that constitute misuse of the discovery process. Section 2023.030 lists possible sanctions to be awarded by the court, starting with monetary sanctions, and escalating to evidence, issue, and terminating sanctions. But § 2023.030 starts out with “To the extent authorized by the chapter governing any particular discovery method or any other provision of this title . . . .” Thus, as the Court of Appeal reads it, §§ 2023.010 and 2023.030 are definitional, the actual authority to issue sanctions comes from the sanctions provisions that are embedded in the statutes that address the specific methods of discovery. The trial court thus abused its discretion when it had that violations of § 2023.010 merited imposition of sanctions under § 2023.030. The trial court instead should have imposed sanctions in connection with PwC’s various motions to compel.
The Court notes that some Court of Appeal cases have made exceptions to the rule that discovery sanctions relate to a discovery motion. It classifies them into: (1) when false answers cause an opponent to stop seeking discovery; (2) when evidence has been destroyed; or (3) for excessive coaching at a deposition. It seems somewhat skeptical regarding whether they were correctly decided, but at the end of the day, it says they are inapplicable.
But the lack of authorization under §§ 2023.010 and 2023.030 does not end the case. Presumably, PwC relied on those statutes because the case against it had been dismissed when it sought sanctions, so seeking sanctions under, for instance, the inspection demand statute, seemed kind of awkward. The Court of Appeal notes, however, that a dismissed defendant can have collateral statutory rights that can still be enforced by the trial court. Here, there were any number of pre-dismissal discovery motions, on many of which the trial court deferred or denied sanctions requests without prejudice to seeking them later. So the trial court had jurisdiction to consider the sanctions motion.
Nor was the motion untimely. The Discovery Act does not require sanctions to be sought in the discovery motion itself, although the Court of Appeal notes that might be the better practice. There are cases that have permitted sanctions by a separate motion. Nor was the motion brought after the discovery cutoff date. Indeed, the City’s abrupt dismissal prevented PwC from litigating the issue while the case was pending. In the totality of it, the trial court was well within its discretion to find that the motion was timely made.
So, at the end of the day, the Court reverses the sanction award, but remands for the trial court to reconsider an award based on the sanctions authority provided in the discovery method statutes.
Justice Grimes, however, concurs and partially dissents. She agrees with the Court on the jurisdictional and timeliness points. She disagrees, however, with the Court’s interpretation of §§ 2023.010 and 2023.030.
She also thinks the Court’s opinion understates the egregiousness of the City’s conduct. Justice Grimes believes that the majority opinion fails to “describe how gradually, at hearing after hearing, it finally became clear to the trial court that the City Attorney’s office, and not just outside special counsel, had colluded from the outset with Mr. Antwon Jones’s lawyers to create a settlement in the Jones class action against the City that would enrich the lawyers, deprive the Jones class of due compensation, defraud the public, and orchestrate the amount of the City’s damages in its case against PwC—all the while engaging in a coverup of the collusion by refusing to provide discovery and asserting false claims of privilege.”
As to §§ 2023.010 and 2023.030, Justice Grimes makes a pretty good case that these provisions actually authorize discovery sanctions, instead of merely defining sanctionable conduct and sanctions that are elsewhere authorized. She says that the Court’s opinion is misreading the case law, and that the exceptions identified by the court are really instances of courts levying sanctions under §§ 2023.010 and 2023.030. For instance, nowhere in the statutes dealing with document discovery is there any authorization to sanction spoliation of evidence. So when sanctions for spoliation are handed out, they are handed out under § 2023.030.
But there is that “to the extent authorized” language at the beginning of § 2023.030(a) to deal with. Justice Grimes reads the cross reference to address only the types of sanctions that are authorized in the discovery method statutes. So, for instance, the inspection demand statute permits the court to issue non-monetary sanctions only if a party violates an order compelling discovery. § 2031.310(i). So the “to the extent” language would prohibit use of § 2023.030(b)-(d), which permit non-monetary sanctions, from evading that rule. This has some support in prior case law. See New Albertsons, Inc. v. Superior Court, 168 Cal. App. 4th 1403, 1422 (2008) (“Section 2023.030 authorizes a court to impose the specified types of sanctions, “[t]o the extent authorized by the chapter governing any particular discovery method or any other provision of this title.” This means that the statutes governing the particular discovery methods limit the permissible sanctions to those sanctions provided under the applicable governing statutes.”).
Reversed and Remanded.
***Update*** Missed this when it happened, but review was granted. 522 P.3d 1073.
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