In 2010, the City of Los Angeles contracted with PricewaterhouseCoopers to modernize the billing system for the City’s Department of Water and Power. 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 (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. 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.

One of the discovery issues was the Cities assertion of attorney client privilege. At one point the City filed a petition for writ of mandate to appeal the court’s determination that the attorney-client privilege did not apply. But before the Court of Appeal could review the writ petition, the City voluntarily dismissed with prejudice its case against PwC. As a result of the dismissal, the City did not complete its production of documents responsive to PwC’s discovery requests.

After the dismissal, federal prosecutors announced that Paul Paradis, Thomas Peters, and two other City officials had pleaded guilty to criminal charges. Paradis and Peters admitted that the City had pursued a collusive litigation strategy wherein Paradis and Kiesel would represent both Jones and the City in parallel lawsuits against PwC.

Paradis, a disbarred New York City lawyer, who simultaneously represented the Los Angeles Department of Water and Power and a ratepayer suing the City of Los Angeles in the wake of an LADWP billing debacle, was sentenced to 33 months in federal prison for accepting a kickback of nearly $2.2 million for causing another lawyer to purportedly represent his ratepayer client in a collusive lawsuit against the city, which enabled the city to settle the case on favorable terms.

After years of stonewalling discovery efforts, 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 which the City appealed. .

This order worked its way to the California Supreme Court. The central question before the Supreme Court was 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.

The Supreme Court reversed the Court of Appeal in the Case of City of Los Angeles v. Pricewaterhousecoopers, LLP -S277211 (August 2024).

Sections 2023.010 and 2023.030 were enacted as part of the Civil Discovery Act of 1986, a comprehensive revision of the statutes governing discovery in California courts. Before 1986, discovery in civil cases was governed by the Discovery Act of 1957, which had been “the California Legislature’s first attempt to codify a comprehensive system of discovery procedures in California.”

After decades of experience under the 1957 Act revealed gaps in the statute’s coverage, a Joint Commission on Discovery of the State Bar and Judicial Council began a top-to-bottom reexamination of California’s system of civil discovery. It then made recommendations that were ultimately enacted, with some amendments, as part of the 1986 Act.

“Before the Court of Appeal’s decision in this case, courts frequently cited sections 2023.010 and 2023.030 as sources of authority to impose sanctions for discovery misuse.” The Court of Appeal in this case acknowledged cases reflecting this prevailing understanding of sections 2023.010 and 2023.030. But as the court correctly noted, none of these cases carefully considered the language of the provisions in their broader statutory context. (City of L.A., supra, 84 Cal.App.5th 466.).

The Supreme Court concluded: “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.”

Supreme Ct. Increases Scope of Discovery Sanctions in $2.5M Example