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In coda to water billing scandal, California Supreme Court asked to weigh discovery sanctions law

PricewaterhouseCoopers wants the high court to reinstate a $2.5 million sanctions judgement issued by the trial court.

LOS ANGELES (CN) — In what may be one of the final codas to LA's long and convoluted Department of Water and Power billing scandal, lawyers for PricewaterhouseCoopers asked the California Supreme Court, on Wednesday, to revive a $2.5 million sanctions motion issued by the trial court but thrown out on appeal.

The saga dates all the way back to 2010, when the city of Los Angeles hired PricewaterhouseCoopers — one of the four biggest accounting firms in the world, known for its role in tallying votes for the Academy Awards — to modernize its billing system for the Department of Water and Power. Introduced three years later, the new software was a complete disaster, undercharging some customers and significantly over-billing others.

Ratepayers filed multiple class actions against the city, which in turn sued PricewaterhouseCoopers.

During discovery, PricewaterhouseCoopers learned of the existence of an unfiled complaint: Jones v. PricewaterhouseCoopers. The case caption's Jones was Antwon Jones, the lead plaintiff in one of the class actions filed against the city by overcharged Department of Water and Power customers.

This eventually led to some fairly shocking revelations, namely that a lawyer hired by the city, Paul Paradis, had also been representing Jones — a clear conflict of interest. Paradis hired another lawyer to file the Jones v. Los Angeles lawsuit, which settled in 2017 for $67 million, including  $19 million in plaintiffs’ attorney fees. From that, Paridis received an illegal kickback of $2.1 million, which he disguised as a real estate investment and funneled through shell companies.

From there, the scandal further unspooled. Paradis pleaded guilty and was sentenced to 33 months in prison. Another attorney, a top adviser to then-city attorney Mike Feuer and the former Department of Water and Power general manager, David Wright, also pleaded guilty to federal felonies. Though Feuer himself was never charged, recently unsealed FBI files revealed that investigators believed that Feuer had lied to them and likely obstructed justice — and the scandal helped sink Feuer's congressional campaign.

Los Angeles meanwhile dropped its lawsuit against PricewaterhouseCoopers, but not before the firm filed a motion for monetary sanctions, asking the court to fine the city more than $9 million for a panoply of misdeeds 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 to recover attorneys fees, but also to punish the city for its "egregious" behavior.

The trial court agreed there had been serious discovery abuse and ordered the city to pay PricewaterhouseCoopers $2.5 million.

The city appealed the ruling, and in 2022, a three-judge panel reversed the sanctions, finding 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.

One of the judges dissented, writing, "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."

On Wednesday, PricewaterhouseCoopers attorneys asked the high court to reverse the appellate court's decision.

"They were lying through their teeth during discovery," PricewaterhouseCoopers attorney Julian Poon told the court during oral arguments. "This was an almost three-year pattern of mass criminality and falsehoods." Surely, he argued, the courts had the power to punish that kind of egregious conduct.

Katherine McCann, a lawyer hired by the city, said Poon's arguments were "more appropriate for a legislative committee" in Sacramento. The law as written simply didn't give the court the authority to issue monetary sanctions for actions taken during discovery.

"Monetary sanctions must be authorized by a method-specific statute," McCann said, rather than the code of civil procedure. Reversing the appellate court, she said, would "open up the floodgates" to sanctions motions filed at any time.

Poon called that argument a "straw man," saying, "We've never maintained that sanctions can be filed willy-nilly" under the code of civil procedure. "There has to be the power to deal with the worst kinds of abuse."

The court will issue a ruling within 90 days.

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Categories / Appeals, Politics

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