Olmstead v. Arthur J. Gallagher & Co.

128 Cal. Rptr. 2d 573, 104 Cal. App. 4th 858
CourtCalifornia Court of Appeal
DecidedApril 16, 2003
DocketA097117
StatusPublished

This text of 128 Cal. Rptr. 2d 573 (Olmstead v. Arthur J. Gallagher & Co.) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Olmstead v. Arthur J. Gallagher & Co., 128 Cal. Rptr. 2d 573, 104 Cal. App. 4th 858 (Cal. Ct. App. 2003).

Opinion

128 Cal.Rptr.2d 573 (2002)
104 Cal.App.4th 858

Carleen OLMSTEAD et al., Plaintiffs and Respondents,
v.
ARTHUR J. GALLAGHER & COMPANY et al., Defendant and Appellants.

No. A097117.

Court of Appeal, First District, Division Three.

December 20, 2002.
Review Granted April 16, 2003.

*574 Tarkington, O'Connor & O'Neil, Thomas C. Burch, Robert A. Roth, Pacific Palisades, for Appellant.

Appell & Wolf, Mervyn H. Wolf, Encino; Marc J. Appell, Los Angeles, for Respondent.

PARRILLI, J.

This case presents the question whether Code of Civil Procedure section 128.5 applies, after 1994, to bad-faith actions or tactics that do not involve pleadings, while Code of Civil Procedure section 128.7 governs pleading abuses.[1] We. hold that the language of section 128.5 and the example of federal sanctions law, on which the Legislature modelled section 128.7, make it clear that the two statutes apply concurrently to different kinds of misconduct.[2]

This case also presents the question whether a directly false response to discovery may qualify as a "misuse of the discovery process" subject to sanctions under section 2023, subdivision (a). We hold that section 2023 does encompass such conduct.

Our conclusions require us to reverse the trial court's denial of motions seeking sanctions under sections 128.5 and 2023.

BACKGROUND

Arthur J. Gallagher & Company, an insurance broker, and its employee Vicki Sundgren (collectively, "Gallagher") appeal from post-trial orders denying their motions for an award of attorney fees. Gallagher claimed that plaintiffs Carleen Olmstead and Cherie Rose engaged in a variety of sanctionable misconduct in their unsuccessful action to recover underinsured motorist benefits. On appeal, Gallagher confines its arguments to three grounds for sanctions.

In its first motion, Gallagher relied on sections 128.5 and 128.7 in an effort to *575 recover $100,000 of the approximately $330,000 it had incurred in attorney fees. Gallagher complained that plaintiffs had lied about the existence of a fax purportedly requesting personal automobile insurance coverage for Olmstead. Gallagher also claimed that plaintiffs had failed to produce any documents in response to its request for information on other insurance plaintiffs obtained after the accident, but then attempted to introduce evidence of such insurance at a late stage of the trial. In its reply memorandum, Gallagher raised another point. In an interrogatory answer, Olmstead had denied making any other claim for compensation for her injuries. At trial, Rose and plaintiffs' counsel had said the only other claim was one against the owner and driver of the car in which Olmstead was a passenger when she was injured. However, just before filing its reply memorandum Gallagher discovered that plaintiffs had a pending action against the Department of Transportation (Caltrans), in which they alleged that roadway design defect had caused the accident. The same attorneys representing plaintiffs in this case had filed the CalTrans action the month before Gallagher propounded its interrogatories.

The trial court denied this motion. It ruled that plaintiffs and their counsel "may well have" engaged in conduct sanctionable under section 128.5, but the statute did not apply because the action was filed after December 31, 1994. The court rejected Gallagher's argument that section 128.5 applied to "reprehensible conduct" outside of pleadings, while section 128.7 applied to "pleading conduct." The court also ruled (that Gallagher could not recover sanctions under section 128.7 because it had failed to comply with that statute's 30-day safe harbor provision. (§ 128.7, subd. (c).)

Gallagher moved for reconsideration, arguing that while it had belatedly discovered and raised the concealment of the CalTrans lawsuit in its first motion, it had not had an opportunity to brief the issue of discovery sanctions under section 2023. The court granted reconsideration but denied Gallagher's request for sanctions, ruling that a false but unequivocal denial did not qualify as an "evasive response" under section 2023, subdivision (a)(6).

DISCUSSION

1. Sections 128.5 and 128.7

The Legislature enacted section 128.5 in 1981 as a response to Bauguess v. Paine (1978) 22 Cal.3d 626, 150 Cal.Rptr. 461, 586 P.2d 942, in which the Supreme Court held that trial courts lack the power to impose sanctions in the form of attorney fees without statutory authorization. (Stats.1981, ch. 762, § 1, p. 2968; Bauguess v. Paine, supra, 22 Cal.3d at pp. 637-639, 150 Cal.Rptr. 461, 586 P.2d 942; Trans-Action Commercial Investors, Ltd. v. Firmaterr, Inc. (1997) 60 Cal.App.4th 352, 367, 70 Cal.Rptr.2d 449.) Section 128.5, subdivision (a) authorizes trial courts to award attorney fees incurred as a result of "bad faith actions or tactics that are frivolous or solely intended to cause unnecessary delay." In 1994, the Legislature decided to try a different approach to sanctions based on rule 11 of the Federal Rules of Civil Procedure (Fed. Rules Civ. Proc, rule 11, 28 U.S.C; hereafter, "rule 11"). To that end, the Legislature enacted section 128.7. Like rule 11, section 128.7 makes sanctions, including an award of attorney fees, contingent on violation of the implied certification that pleadings and other papers filed with the court have factual and legal merit and are not being presented for an improper purpose. (Levy v. Blum (2001) 92 Cal.App.4th 625, 636, 112 Cal.Rptr.2d 144; Barnes v. Department of Corrections (1999) 74 Cal.App.4th 126, 132, 87 Cal.Rptr.2d 594.)

*576 The Legislature specified that section 128.7 would be repealed as of January 1, 1999 unless a later statute deleted or extended the repeal date. (Former § 128.7, subd. (j); Stats.1994, ch. 1062, § 3, pp. 6397-6399.) In 1998 the Legislature extended the repeal date of section 128.7 to January 1, 2003. It also added section 128.6, a provision identical to the pre 1995 version of section 128.5, except for a subdivision specifying that the section would become operative only if section 128.7 were allowed to expire. (Stats.1998, ch. 121, pp. 602-604; § 128.6, subd. (f).) This year, the Legislature extended the repeal date of section 128.7 to January 1, 2006. (Stats. 2002, ch. 491, § 1, p. 2339.)

The provisions at issue in this case were enacted as part of the 1994 legislation. (Stats.1994, ch. 1062, §§ 1 & 3, pp. 6395-6399.) Section 128.7, subdivision (i) states: "This section shall apply to a complaint or petition filed on or after January 1, 1995, and any other pleading, written notice of motion, or other similar paper filed in such a matter." Section 128.5, subdivision (b)(1), defining the kind of bad-faith conduct that may lead to sanctions, states: "`Actions or tactics' include, but are not limited to, the making or opposing of motions or the filing and service of a complaint or cross-complaint only if the actions or tactics arise from a complaint filed, or a proceeding initiated, on or before December 31, 1994...."

These provisions have been widely viewed, in dicta from the courts and in treatises, as establishing mutually exclusive sanctions regimes, with section 128.5 controlling in proceedings initiated before January 1, 1995 and section 128.7 controlling thereafter.

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128 Cal. Rptr. 2d 573, 104 Cal. App. 4th 858, Counsel Stack Legal Research, https://law.counselstack.com/opinion/olmstead-v-arthur-j-gallagher-co-calctapp-2003.