City of L.A. v. PricewaterhouseCoopers

553 P.3d 1194

324 Cal.Rptr.3d 410

CITY OF LOS ANGELES, Plaintiff and Appellant,

v.PRICEWATERHOUSECOOPERS, LLP, Defendant and Respondent.

S277211

Supreme Court of California.

August 22, 2024

Second Appellate District, Division Five, B310118, Los Angeles County Superior Court, BC574690, Elihu M. Berle, Judge

Michael N. Feuer and Hydee Feldstein Soto, City Attorneys, Kathleen A. Kenealy, Chief Assistant City Attorney, Joseph A. Brajevich, Assistant City Attorney, Julie C. Riley; Browne George Ross O’Brien Annaguey & Ellis, Ellis George Cipollone O’Brien Annaguey, Ellis George Cipollone, Eric M. George, Guy C. Nicholson; Annaguey McCann, Kathryn L. McCann and Jason Y. Kelly for Plaintiff and Appellant.

Gibson, Dunn & Crutcher, Julian W. Poon, Samuel Eckman, Los Angeles, Casey J. McCracken, Irvine, Ryan Azad, San Francisco, Daniel J. Thomasch, Lauren J. Elliot and Joseph M. Ortega, for Defendant and Respondent.

Orly Ravid for Amicus Project at South-western Law School, Joshua D. Cahn, Warren S. Grimes, Michael M. Epstein, Martin J. Tangeman and Erwin Chemerinsky as Amici Curiae on behalf of Defendant and Respondent.

Opinion of the Court by Kruger, J.

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 central question before us is whether the trial court had the authority to issue the order under the general provisions of the Civil Discovery Act concerning discovery sanctions, Code of Civil Procedure sections 2023.010 and 2023.030. The Court of Appeal in this case answered no. 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 as conferring no general authority to sanction other kinds of discovery misconduct, including the pattern of discovery abuse at issue here.

[1] We now conclude the prevailing understanding of the Civil Discovery Act was, in fact, correct: Under the general sanctions provisions of the Civil Discovery Act, Code of Civil Procedure sections 2023.010 and 2023.030, the trial court had the authority to impose monetary sanctions for the City’s pattern of discovery abuse. The court was not limited to imposing sanctions for each individual violation of the rules governing depositions or other methods of discovery. We reverse the Court of Appeal’s judgment to the contrary.

I.

A.

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 did not go smoothly. When the system went live in 2013, it sent inaccurate or delayed bills to a significant portion of the City’s population.

In March 2015, following the botched rollout, the City filed suit against PwC. In a complaint filed by the City’s attorneys and special counsel Paul Paradis, Gina Tufaro, and Paul Kiesel, the City alleged that PwC had fraudulently misrepresented its qualifications to undertake the LADWP billing modernization project. Then, about a month later, in April 2015, attorney Jack Landskroner, representing Los Angeles resident Antwon Jones, filed a putative class action against the City on behalf of overbilled LADWP customers (Jones v. City of Los Angeles). The two lawsuits were assigned to the same trial judge. (City of Los Angeles v. PricewaterhouseCoopers, LLC (2022) 84 Cal.App.5th 466, 477, 300 Cal.Rptr.3d 432 (City of L.A.).)

Instead of filing an answer to the Jones v. City of Los Angeles complaint, the City quickly entered into negotiations with Landskroner. On August 7, 2015, 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; that it would implement "remedial and corrective measures" that the City valued at approximately $20 million; and that it would award up to $19 million in attorney’s fees to plaintiffs’ counsel. In the end, the settlement resulted in a payment of $10.3 million in attorney’s fees to Landskroner. The City publicly announced its intent to recover the full cost of the Jones v. City of Los Angeles settlement in its lawsuit against PwC.

Meanwhile, over the next five years, pretrial discovery in the PwC case would gradually reveal a more substantial connection between the two lawsuits; Counsel for the City had been behind the Jones v. City of Los Angeles lawsuit, and they had sought to engineer the litigation so that the City could definitively settle all of the claims brought by overbilled customers while passing the costs of the settlement in a suit against PwC.

This story, which would ultimately result in federal criminal charges for some of the actors involved, was not immediately — or willingly — revealed. At the outset of the litigation, PwC served discovery requests for production relating to the merits of the City’s claims. In January 2017, the City served a privilege log to PwC with over 19,000 entries, almost all of which were described in identical terms: as "concerning investigation performed at the direction of counsel to assist in analyzing and preparing advice concerning attorney-directed remediation and LADWP’s legal rights and remedies." The vast majority of these documents did not, however, appear to be communications to or from a lawyer. More than 17,000 documents were marked as attorney work product but appeared to have no attorney involvement, and more than 1,100 documents were marked as protected by attorney-client privilege but did not show an attorney as the sender or recipient. Despite the fact that the City was the plaintiff in this action and the defendant in the suit brought by Jones, one of the documents that the City had labeled as attorney work product was titled "Jones v. PwC – Initial Complaint – FINAL.DOC," with a date of January 24, 2015. No author was listed.

PwC responded by filing a motion to compel production of documents improperly withheld as privileged. It sought production of the more than 18,000 documents that had been withheld on grounds of attorney work product or attorney-client privilege despite having no apparent attorney involvement. The court ordered production of the documents withheld based on attorney work product and denied the motion as to the documents withheld on the basis of attorney-client privilege, but it also ordered the City to produce a refined privilege log with descriptions that would allow the court to determine whether the documents were in fact privileged. In response, the City produced an updated privilege log with 1,547 entries, including the draft Jones v. PwC complaint listed on the previous privilege log. The City described the complaint as "Document created by counsel containing legal advice and work product concerning the claims asserted in this action."

In May 2017, PwC served another set of requests for production seeking all communications between the LADWP and Jones’s counsel before August 7, 2015. In response, the City claimed that the LADWP had not sent any documents to Jones’s counsel before the day of the settlement agreement. It also asserted that the only responsive document to the requests for production was the comprehensive settlement demand from Jones, which it claimed was protected by a "settlement/mediation" privilege. After counsel for PwC observed that the settlement demand did not appear on any privilege log, the City produced a revised privilege log in September 2017, where it continued to list the draft Jones v. PwC complaint as privileged.

PwC filed another motion to compel production. In response, the City claimed for the first time that the draft Jones v. PwC com- plaint was protected by the attorney-client privilege as well as attorney work product protection. At a hearing on the motion to compel in December 2017, Paradis stated that he drafted the complaint, and the court asked him why he drafted "a complaint for a plaintiff that’s not the City." Paradis claimed that the complaint was "drafted … for the City" as part of an effort to explore "different legal strategies, different legal theories." When the court asked Paradis how Antwon Jones’s name ended up on the complaint, Paradis stated that Jones’s name had been chosen out of the group of people who had been complaining to the department. Paradis averred that the draft complaint had never been provided to anyone other than the City.

The court reserved decision on the motion to compel, but in January 2018 it issued an order instructing the City to produce the person most qualified (PMQ) to testify about the creation of the Jones v. PwC draft complaint. The City, however, did not produce a PMQ witness until after PwC filed a motion for compliance with the court’s order. Eventually, in September 2018 — more than eight months after the court had originally issued its order on the PMQ deposition — the City produced then-Chief Assistant City Attorney Thomas Peters, with Paradis acting as his attorney. Peters, however, produced none of the documents called for by PwC’s deposition notice, despite the fact that the City had not objected to the requests listed in the notice. He also admitted that he did not prepare for the deposition and did not do any investigation into whether the City had any documents responsive to the deposition notice. Peters also claimed that he had directed Paradis to draft the Jones v. PwC complaint as a "thought experiment," and he represented that...