PwC urged the California Supreme Court on Wednesday to revive a $2.5 million sanction against the city of Los Angeles for yearslong discovery misconduct in an underlying utility billing dispute, arguing the trial court's inherent authority to impose such penalties isn't limited to nonmonetary sanctions.

Julian W. Poon of Gibson Dunn & Crutcher LLP appeared before California Supreme Court justices, who were asked to clarify whether trial courts have independent authority to issue monetary sanctions for discovery abuse under California Code of Civil Procedure sections 2023.030 and 2023.010, or whether that authority is limited to situations described in the Civil Discovery Act, which governs specific methods of obtaining discovery, like interrogatories, depositions, and inspections.

Poon argued that when a litigant engages in systemic, pervasive patterns of discovery abuse like the one perpetuated by the city of Los Angeles that transcend discrete types of misconduct described in the Discovery Act's method-specific chapters, courts need sufficient remedies to address such abuse, including monetary sanctions.

There should be a two-step process, Poon said, with the first being to first look at the general authorization in Section 2023.030, which contains language empowering courts to impose sanctions. The section reiterates that courts "may impose" monetary sanctions for misuse of the discovery process, as defined under 2023.010, he added.

The next step is to look at the method-specific provisions for any further restrictions that might apply in a particular case as to the type, scope or order in which sanctions are imposed, he said.

Associate Justice Martin Jenkins asked what to do if one cannot find a method-specific provision for something like evidence spoliation. Poon replied that while it's true evidence spoliation isn't found in any method-specific chapters of the Discovery Act, that doesn't remove courts' abilities to deal with the type of evidence spoliation executed by officials with the City Attorney's Office in the underlying case.

When asked by Associate Justice Goodwin Liu what Section 2023.030 authorizes for sanctions, Poon replied that the authorization isn't restricted to only method-specific provisions, noting courts can't impose evidentiary sanctions or terminate sanctions unless they first impose monetary sanctions.

But Section 2023.010 also covers broad conduct, like "making an evasive response" to discovery requests, which is what the city did here, Poon argued. This included "lying through their teeth" and lying repeatedly to the trial court at discovery hearings.

Ordinarily, courts cannot, in the first instance, impose evidentiary or terminating sanctions for an initial failure to respond to an interrogatory, request for admission, or inspection demands; courts can only first impose monetary sanctions, then issue an order requiring the recipient of the request to respond. Only then can courts proceed gradually, Poon replied.

One may not immediately go to the most extreme sanction possible unless monetary sanctions are imposed first to try to induce compliance, he added.

Wednesday's oral argument stems from Los Angeles County Judge Elihu M. Berle's decision in October 2020 ordering the city to pay $2.5 million in sanctions for "serious abuse of discovery" in a since-dismissed lawsuit claiming PwC caused hundreds of millions of dollars in damages when it implemented a faulty utility billing system, leading to Los Angeles Department of Water and Power ratepayers to be overcharged.

The Second District Court of Appeal reversed sanctions in 2022, writing in a split opinion that monetary sanctions under 2023.030 can be issued only "to the extent authorized" by another provision of the Civil Discovery Act, but doesn't give courts independent authority to impose monetary sanctions.

The majority opinion also said that Section 2023.010 describes conduct and lists examples of misuse of the discovery process, but alone, it too doesn't give independent authority to issue monetary sanctions.

In court papers, the city contended that PwC failed to seek sanctions under the chapters governing specific discovery methods and sanctions, like Chapter 9, which involves deposition conduct, or Chapter 14, which involves inspection demands.

On Wednesday, Poon maintained that courts cannot simply impose sanctions under Section 2023.030 "willy-nilly" and disagreed with the city's position that courts are powerless to impose monetary sanctions unless they can find something in method-specific provisions of the Discovery Act to do so.

Reversing the state appellate court's majority opinion is necessary, as requiring courts to impose sanctions only under the Discovery Act's specific provisions would hamper courts' abilities to address such pervasive discovery abuse, he added.

"It's amazing what the city engaged in here and the kind of fraud and extortion that they tried to perpetuate to cover up, not just the discovery abuse, but frankly their crimes in this case," Poon argued, adding that to this day, the city still refuses to accept responsibility for those abuses and scapegoats others.

The city's counsel, Kathryn L. McCann of Annaguey McCann LLP, contended that reversing the majority's decision could open up the floodgates and cause litigants to bring any motions to court at any time, notwithstanding the procedures under the Discovery Act's method-specific provisions, which first require litigants to identify some form of abuse.

Litigants then must file a motion to compel, which the court will determine and later issue sanctions; if that order is violated, further nonmonetary sanctions are available, like evidentiary or terminating sanctions. The process is gradual, as it's "intended to put a chokehold on a litigant, to remind them to hit the brakes," McCann said.

Courts have the power to do more than impose monetary sanctions to ensure nobody benefits from discovery abuse and to ensure fairness of the proceedings, she added.

When Justice Liu asked for the definition of "any other provision" language in Section 2023.030, McCann replied that the language cannot refer to Section 2023.030 or Section 2023.010 because the phrase "to the extent authorized by" in Section 2023.010 doesn't authorize the court to levy monetary sanctions.

"Any other provision" would mean any other provisions found in the six-step method-specific chapters for obtaining discovery under the Discovery Act, she explained.

Associate Justice Leondra Kruger asked McCann if she believed the trial court had the inherent authority to impose sanctions other than monetary penalties. McCann replied that it did but that the underlying dispute was only in its procedural stages and no other sanction was available to issue since the city dismissed its lawsuit against PwC with prejudice.

Monetary sanctions are a "different animal" than nonmonetary sanctions, and courts recognize that monetary sanctions must be authorized by a statute or through an agreement of the parties, which means that the California Legislature made the conscious decision not to give trial courts inherent authority to issue monetary sanctions without limits, McCann added.

On rebuttal, Poon countered that the city is conceding that courts have the authority "to go nuclear" or issue much harsher nonmonetary penalties like terminating or issuing evidentiary sanctions, while simultaneously arguing that monetary sanctions are limited, or "off-the-table."

It makes no sense for the city to argue that courts are stripped of power to use monetary sanctions when "that's where you start, when a litigant refuses to comply" with discovery requests, he continued. The city dismissed its own suit against PwC to cover its tracks instead of coming clean, so the only sanction that can be imposed is monetary, Poon said.

The matter stood submitted.

PwC is represented by Julian W. Poon of Gibson Dunn & Crutcher LLP.

The city of Los Angeles is represented by Kathryn L. McCann of Annaguey McCann LLP, Eric M. George of Ellis George Cipollone and Hydee Feldstein Soto, Kathleen Kenealy and Julie C. Riley of the Los Angeles City Attorney's Office.

The case is City of Los Angeles v. PricewaterhouseCoopers LLC, case number S277211, in the Supreme Court of California.