LOS ANGELES (CN) — Overturning an appeals court in a unanimous opinion Thursday, the California Supreme Court ruled that a trial court did in fact have authority to impose a $2.5 million sanction against the City of Los Angeles for a pattern of discovery abuse and misconduct in litigation against a contractor.
The zigzagging case dates back to 2010, when the city of Los Angeles hired PricewaterhouseCoopers, one of the biggest accounting firms in the world, to modernize its billing system for the Department of Water and Power.
When that new system and software was introduced three years later, it caused chaos, undercharging some customers while significantly overbilling others.
Ratepayers filed multiple class actions against the city. Los Angeles in turn sued PricewaterhouseCoopers.
During discovery, PricewaterhouseCoopers learned of the existence of an unfiled complaint, Jones v. PricewaterhouseCoopers. The Jones in that case was Antwon Jones, who also served as lead plaintiff in a class action, Jones v. Los Angeles, brought by overcharged Department of Water and Power customers.
It soon came out city lawyer Paul Paradis had also been representing Jones — a clear conflict of interest.
Paradis had hired another lawyer to file the Jones v. Los Angeles lawsuit, which was settled in 2017 for $67 million, including $19 million in attorney fees. From that, Paridis received an illegal kickback of $2.1 million, which he funneled through shell companies and disguised as a real-estate investment.
Paradis was sentenced to 33 months in prison for his role in the scheme. David Wright, the former general manager of LA’s Department of Water and Power, pleaded guilty to bribery for his role and was likewise sentenced to six years in prison.
Los Angeles moved to drop its case against PricewaterhouseCoopers — but not before PricewaterhouseCoopers filed a motion for monetary sanctions. In that motion, the firm asked the court to fine the city more than $9 million for what it called a litany of misconduct, including lying, destroying evidence, failing to produce evidence and “testifying evasively or falsely about the city’s knowledge of the collusive nature of the class action.” The sanctions were intended not only to recover attorneys fees but also to punish the city for its behavior.
Agreeing there had been serious discovery abuse, the trial court and ordered the city to pay PricewaterhouseCoopers $2.5 million.
Los Angeles appealed — and in 2022, a three-judge panel reversed the sanctions. In their decision, the judges reasoned that “trial courts may award attorney fees as a sanction for misconduct only when authorized by statute or an agreement of the parties” and that existing law does not permit judges to issue monetary sanctions for discovery violations.
Reversing that decision on Thursday, the state Supreme Court ruled that the appeals court did not properly interpret the Civil Discovery Act, a 1986 law governing the process of exchanging information between parties in civil discovery proceedings.
At a hearing in June, lawyers for the city of Los Angeles had argued that relevant law simply didn’t allow the court to issue monetary sanctions for actions taken during discovery.
The Supreme Court rejected that argument.
“Bucking the long-prevailing understanding of these provisions, the appellate court read the Civil Discovery Act as conferring authority to sanction the misuse of certain discovery methods, such as depositions or interrogatories,” but not other violations “including the pattern of discovery abuse at issue here,” wrote Associate Justice Leondra Kruger, a Jerry Brown appointee.
In fact, one of the main purposes of the Civil Discovery Act was to give courts the tools and authority to respond to abuses of the discovery process, Kruger wrote.
“Against this backdrop, we can readily infer that when the Legislature wrote … that a court ‘may impose’ sanctions for discovery misuse, the choice was deliberate,” Kruger wrote. “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.”
In a statement to Courthouse News, Julian Poon, a partner at Gibson Dunn representing PricewaterhouseCoopers, said they were “gratified by the Supreme Court’s complete vindication of PwC’s position on the law and the facts.”
“The shameless discovery abuse committed by the City of Los Angeles, which PwC uncovered in the trial court, has led to several federal guilty pleas and convictions of City officials, including at the Department of Water and Power, and its outside counsel,” Poon said. “Justice Kruger’s unanimous opinion reinstating an extraordinary multimillion dollar sanctions award rights a grievous wrong.”
Counsel for the city of Los Angeles did not respond to requests for comment before the deadline.