$2.5M Discovery Sanction Reversed Because Not Authorized by a Specific Statute, But Justice Grimes Pens a Strong Dissent

Timothy Kowal, Esq.
November 9, 2022

Unless there is a specific section of the Discovery Act authorizing it, an award of sanctions may not be imposed. So the $2.5 million in sanctions awarded for the City of Los Angeles’s “egregious” abuses in City of Los Angeles v. PricewaterhouseCoopers, LLC (D2d5 Oct. 20, 2022 No. B310118) ---- Cal.Rptr.3d ---- (2022 WL 12010415) was reversed. The city’s attorneys had colluded with a nominally adverse party in a separate class action in order to enrich the attorneys and orchestrate damages against PricewaterhouseCoopers, and successfully hid that fact for two-and-a-half years through discovery abuse.

Bad as this was, the sanctions for the egregious abuse could not stand. The statutes generally providing for sanctions, sections 2023.010 and 2023.030, are only a definitional and do not themselves authorize any sanctions.

But dissenting, Justice Grimes raised this devastating point: There is no specific provision of the Discovery Act that sanctions spoliation of evidence, either. So if sections 2023.010 and 2023.030 do not authorize sanctions, then the majority’s holding has rendered spoliation—and here, the city attorneys’ two-and-a-half-years-long campaign of “obstruction, obfuscation, and outright lies”— as mere wrongs without a remedy. Just another one of those bummer things about the practice of law that no one can do anything about.

The facts and holding:

Here is the short version of the discovery abuse committed by the city’s attorneys. The city had hired PricewaterhouseCoopers to modernize its water and power department’s billing system. But apparently there were still problems with the billing, as ratepayers began suing the city, including a class action suit. So the city sued PricewaterhouseCoopers.

So that was the case that PricewaterhouseCoopers thought it was defending for two and a half years.

But there was a weird thing about the class action against the city about the rates: The city didn’t seem to put up much of a fight. In fact, the city agreed to what seemed a very one-sided settlement.

Turns out, the city’s “special counsel” had a special relationship with the class representative and his attorney to enrich the lawyers, deprive the class of compensation, defraud the public, and orchestrate the city’s damages case against PricewaterhouseCoopers.

This took an extraordinary effort for PricewaterhouseCoopers to discover because, obviously, the city’s attorneys objected and obfuscated at every turn. But when the court learned the truth, it ordered the city to conduct an internal ethics investigation. Ultimately, the city dismissed its suit against PricewaterhouseCoopers.

PricewaterhouseCoopers filed a motion for discovery sanctions. The motion was based on Code of Civil Procedure section 2023.010 and 2023.030 of the Discovery Act. And the trial court granted the motion, awarding $2.5 million in sanctions against the city.

But the Court of Appeal reversed. Held: “We conclude that these definitional statutes, standing alone or read together, do not authorize the court to impose sanctions in a particular case.” Instead, sanctions may only be awarded pursuant to a specific discovery motion, such as a motion to compel. The court remanded to allow PricewaterhouseCoopers to present the issue of sanctions based on such a motion.

Justice Grimes’ dissent:

Justice Grimes was flummoxed by the majority’s holding.

First, the facts described a discovery abuse “that is unmatched in my experience.”

Second, while the majority remanded with instructions to allow PricewaterhouseCoopers to try again with a more specific statutory vehicle for discovery sanctions, the majority appeared oblivious to the fact that there is no more specific statute fitting these facts. The long-con of the city attorneys’ fraud on the court “was not a course of conduct that lent itself to piecemeal motions for sanctions for each particular discovery abuse that occurred.” Because of the city’s “years-long course of obstruction, obfuscation and outright lies,” the trial court prudently decided “not to determine sanctions on a motion-by-motion basis but rather to await PwC's development of the necessary evidence for the terminating sanctions it hoped to obtain.” But just as the walls closed in on the city’s attorneys, they dismissed the case.

Third, Justice Grimes marshaled numerous authorities to support the position that section 2023.010 and 2023.030 do, in fact, authorize the discovery sanctions awarded here. The majority’s cramped interpretation, in contrast, actually is not supported by precedent, says Justice Grimes: “The "applicable principle[] of law" that the trial court transgressed, according to the majority, is a principle announced for the first time today-one that has never before been applied in any published opinion or argued by counsel, one that was not raised in the trial court below, and one that was not raised by the City in this appeal.”

(Among the cases Justice Grimes marshals is Kwan Software Engineering, Inc. v. Hennings (2020) 58 Cal.App.5th 57, covered here, which the majority makes inadequate effort, in Justice Grimes’ view, to distinguish.)

Most persuasive, perhaps, among Justice Grimes’ reasons for finding a general discovery-sanctions authority is based on the Supreme Court's comments in Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 17. There, the Court declined to create a tort remedy for intentional spoliation of evidence, but discussed the broad range of potent sanctions for misuse of the discovery process under then-section 2023. The Court observed that "[d]estroying evidence in response to a discovery request after litigation has commenced would surely be a misuse of discovery within the meaning of section 2023, as would such destruction in anticipation of a discovery request." (Id. at p. 12; see id. at p. 17 ["remedies already available . . ., especially [the evidentiary inference in the Evidence Code] and the discovery remedies of Code of Civil Procedure section 2023, provide a substantial deterrent to acts of spoliation"].)

And here is where Justice Grimes lowers the boom: “And yet, so far as I am aware, the chapters of the Discovery Act governing particular discovery methods do not mention sanctions for spoliation of evidence.”

That gives the match to Justice Grimes, in this commentator’s view. The majority’s holding, in addition to shrinking trial court’s ability to redress the worst discovery abuses, strays from Supreme Court interpretation of the Discovery Act.

Justice Grimes concludes forcefully: “The majority's conclusion that the only way a trial court can deal with an egregious pattern of stonewalling and falsity in discovery responses is by adhering to the procedural prerequisites of each separate discovery statute for each particular discovery violation does not, in my view, comport with Legislative intent, much less with decades of precedent.

“Because I conclude there was no abuse of discretion in any respect, I would affirm the trial court's order awarding sanctions of $2.5 million to PwC for reasonable expenses incurred as a result of the City's egregious misuse of the discovery process.”

Tim Kowal is an appellate specialist certified by the California State Bar Board of Legal Specialization. Tim helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

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