Appeals from a judgment and postjudgment orders of the Superior Court of Orange County, William M. Monroe, Judge. Affirmed in part, reversed in part, and remanded. Motion to dismiss appeal or strike appellant‟s opening brief. Denied. Requests for sanctions. Denied. (Super. Ct. No. 04CC06715).
The opinion of the court was delivered by: Fybel, J.
CERTIFIED FOR PUBLICATION
In this case, we make the extraordinary, yet justified, determination that the trial court abused its discretion by failing to impose terminating sanctions against defendant for misuse of the discovery process. The record demonstrates defendant engaged in repeated and egregious violations of the discovery laws that not only impaired plaintiff‟s rights, but threatened the integrity of the judicial process.
August B. Doppes sued Bentley Motors, Inc. (Bentley), for violation of the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.), breach of express warranty, breach of implied warranty, and fraud, after Bentley failed to repair, repurchase, or replace a 2001 Bentley Arnage that had an obnoxious odor in the interior. Over the course of litigation, Bentley persistently misused the discovery process, withheld documents, and violated four discovery orders or directives from the discovery referee. A report and recommendation prepared by the discovery referee just a few weeks before trial declared: "Although Bentley has been repeatedly ordered to provide full and complete discovery, Bentley has steadfastly failed to do so. [¶] The history of Bentley‟s failure to make discovery is chronicled in Plaintiff‟s numerous discovery motions."
The discovery referee, in an abundance of caution and with exercise of great moderation, recommended denying Doppes‟s request for terminating sanctions and instead recommended giving the jury a special instruction as a form of issue sanctions.
The trial court did not abuse its discretion in approving the discovery referee‟s report and recommendation. However, in the middle of trial, it was learned Bentley still had not complied with discovery orders and that Bentley‟s discovery abuses were worse than originally known. Rather than grant Doppes‟s renewed request for terminating sanctions, the trial court gave another special instruction regarding Bentley‟s discovery practices. As we shall explain, at that point, the trial court erred by not imposing terminating sanctions against Bentley.
The jury found in favor of Doppes on his causes of action under the Song-Beverly Consumer Warranty Act and for breach of express and implied warranties. The judgment on those claims is affirmed. The jury found against Doppes on his fraud cause of action and made a finding that Bentley did not intentionally violate the Song-Beverly Consumer Warranty Act. As sanctions for Bentley‟s discovery abuses, we reverse the judgment on the fraud cause of action and remand with directions to enter Bentley‟s default on that cause of action, to make a finding to be entered on the judgment that Bentley intentionally violated the Song-Beverly Consumer Warranty Act, and to consider civil penalties and other relief against Bentley.
Doppes also contends the trial court abused its discretion in failing to award him the full amount of attorney fees sought in two motions. We conclude the amount of attorney fees awarded on the first motion must be increased to compensate Doppes for the cost of discovery motions, but otherwise affirm the trial court‟s award. We remand with directions to the court to reconsider the second motion in light of this opinion.
II. FACTS AND PROCEDURAL HISTORY
A. The "Obnoxious Odor" Problem
In April 2002, Doppes purchased a new, model year 2001, Bentley Arnage automobile from Newport Auto Center (NAC). Soon after purchasing the automobile, he noticed an "obnoxious odor" in its interior. At Doppes‟s request, NAC tried unsuccessfully to repair the car on several occasions, resulting in the car being out of service for 171 days. Doppes demanded that Bentley replace the car or make restitution in accordance with Civil Code section 1793.2, subdivision (d)(2) (part of the Song-Beverly Consumer Warranty Act). Bentley refused.
An internal Bentley document issued June 7, 2001, entitled "Odour Reduction & Rear Seat Belt Draft Reduction Procedure," states: "Obnoxious odour present in the passenger compartment when the vehicle is driven with the sunroof tilted or the door drop glass lowered 1 to 2 inches from the glasses[‟] fully raised position. The odour is also detected in the luggage compartment at a higher concentration." Doppes was not informed of this document or of the information in it when he purchased his Bentley automobile.
B. The Better Business Bureau Hearing
Doppes first sought relief from the Better Business Bureau. At a hearing before the Better Business Bureau in March 2004, Bentley employee Colin Ham*fn1 testified that, as of that date, he knew of only three cars with odor problems and that Bentley addressed the problem by placing foam blocks in the body cavities of the cars to obstruct the flow of cold air. Ham also testified he instructed NAC not to provide Doppes with internal documentation of the odor problem. The Better Business Bureau hearing officer ruled in Bentley‟s favor.
Documents produced later showed that Ham knew of at least 11 odor complaints by March 2004, and knew the problem was not cold airflow but odor emanating from corrosion protection wax. Documents showed too that, by June 2001, Bentley knew of an obnoxious odor problem in all of its four-door cars for model year 2001. The odor emanated from the corrosion protection wax and entered the passenger cabin from the "body shell box sections." Bentley created a service kit to reduce the odor, but "[d]ue to [the] complex nature of the odour reduction procedure and the limited number of kits," they were released to dealers on a restricted basis only.
C. Doppes's Lawsuit and the Document Request
Later in 2004, several months after the Better Business Bureau hearing, Doppes filed his initial complaint against Bentley and NAC. The operative complaint became the third amended complaint, filed in August 2005, which alleged seven causes of action: (1) damages and civil penalties under the Song-Beverly Consumer Warranty Act; (2) breach of express warranty; (3) breach of implied warranty of fitness; (4) fraudulent concealment; (5) fraudulent misrepresentation (against NAC only); (6) fraudulent concealment (against NAC only); and (7) breach of contract (against NAC only). The third amended complaint sought damages of no less than $192,736.49, a civil penalty of two times the amount of actual damages, punitive damages, rescission, and attorney fees.
In October 2004, Doppes served Bentley with a deposition notice of Bentley‟s person most knowledgeable of all warranty complaints concerning the Bentley Arnage for the 2001 and 2002 model years, including those related to the rust inhibitor used on the car frames. Doppes also requested Bentley to produce all documents relating to (1) customer complaints concerning the rust inhibitor used on the 2002 Bentley Arnage; (2) all notices to Bentley dealers for the period 2001 to date concerning the rust inhibitor used on the Bentley Arnage; (3) all warranty repairs during the period of January 2002 to date of the Bentley Arnage related to the rust inhibitor used on the vehicle; (4) all customer complaints of a wax oil smell caused by the rust inhibitor on the 2002 Bentley Arnage; and (5) vehicle tests conducted on the 2002 model year Arnage to confirm whether there was a wax oil smell arising from the vehicle‟s rust inhibitor.
D. The First Motion to Compel Attendance and to Produce Documents
In May 2005, Bentley produced Ham as its person most knowledgeable in response to the deposition notice. Ham brought with him only certain documents relating to the purchase and repair of Doppes‟s Bentley automobile and brought no documents concerning customer complaints of odor.
In response, Doppes moved to compel attendance of the person most knowledgeable at the deposition and the production of documents. The trial court granted the motion on June 28, 2005. In the formal order entered July 20, Ham was ordered to appear for his deposition on August 17 and to produce documents on or before August 9. At that time, no sanctions were awarded.
E. Bentley Fails to Comply with the Order to Produce
Bentley did not produce any documents by the court-ordered production date of August 9, 2005. Instead, in a letter dated August 19, 2005, Bentley‟s counsel represented it was producing some responsive documents but it "was required to develop a system to query its warranty computer" in order to comply with the discovery order. Bentley‟s counsel stated, "[w]ith this correspondence, we have produced documents containing lists of warranty claims and the corresponding vehicles identified by chassis number."
In a letter dated August 30, 2005 (21 days beyond the court-ordered production date), Bentley‟s counsel wrote: "As we have told you on numerous occasions, the scope of your document requests will require an extremely voluminous and time consuming production. We set forth a sequence for such a production in written correspondence and clarified questions you had regarding that correspondence in a subsequent conversation. If you do not agree with our proposal (as we thought you indicated you had), we ask that you set forth an alternate proposal." Notwithstanding a court order compelling Bentley to produce documents by August 9, its counsel stated, "We cannot, however, produce all responsive documents immediately. That is why we proposed a staggered production in an orderly manner. We are, however, willing to produce the documents in any other reasonable manner. Please understand, though, that we have already embarked on retrieval of documents in the manner set forth in our correspondence. Changing the sequence of retrieval of documents and production will add to the time necessary to fulfill the request." Also on August 30, Bentley sent a two-page document, under separate cover, which purported to be "tier-two documents relative to the body cavity odor complaints."
In a letter dated September 8, 2005, Bentley‟s counsel wrote: "The tier-3 and tier-4 documents relative to the body cavity odor complaints and responsive to your document requests in the above-referenced matter consist of approximately 250 pages. As requested earlier, please advise whether you would prefer production of the originals... for inspection and copying." With a letter dated September 9, Bentley‟s counsel enclosed "documents labeled BMI 2200 through BMI 2446, inclusive, which represent the tier-3 and tier-4 body cavity odor complaints."
In a letter dated October 3, 2005, Bentley‟s counsel represented Bentley had "produced the majority of documents responsive to the request for production of documents subject to the Order of the Court related to body cavity odor complaints.... [¶]... [Y]ou may now assume all documents will be produced no later than Thursday of this week." In a letter dated October 6, Bentley‟s counsel wrote, "[w]e have now sent your offices all documents responsive to the Request for Production included in the October 21, 2004 Notice of Deposition... and that are subject to the July 20, 2005 Order of the Court."
However, in a letter dated November 4, 2005, Bentley‟s counsel conceded Bentley had not produced all responsive documents and represented, "[w]e will broaden our search for e-mail correspondence that could be responsive to the categories of documents requested in the Notice of Deposition." In correspondence dated November 21, Bentley‟s counsel acknowledged Bentley had not produced all documents "relative to repurchase of 2000, 2001, and 2002 Arnage Motorcars due to body cavity odor complaints" because of privacy concerns. In essence, over a year after Doppes‟s original document request and four months after the discovery order, Bentley acknowledged it had not fully complied with the court order.
F. The First Motion for Terminating Sanctions and the Second Motion to Compel Production of Documents
Doppes moved for terminating sanctions against Bentley for misuse of the discovery process. The trial court‟s tentative ruling, posted November 1, 2005, stated: "Disobeying a court order to provide discovery constitutes a misuse of the discovery process. Bentley Motors has produced all the documents, albeit two months after it was ordered, and "has fallen on its sword.‟... Monetary sanctions are warranted. I am still considering how much and against whom." (The record does not include the trial court‟s final ruling, but Bentley does not dispute Doppes‟s representation the trial court ordered Bentley to pay monetary sanctions.) Bentley does not dispute Doppes‟s assertion it "never produced all documents responsive to the first court order in advance of Ham‟s court-ordered deposition."
In early December 2005, Doppes again moved to compel Bentley to produce documents in compliance with the July 20, 2005 order and for monetary or evidentiary sanctions if Bentley again failed to comply. On December 15, the court granted the motion, ordered Bentley to produce documents responsive to seven categories no later than December 23, 2005.*fn2 The order stated: "If there are no documents responsive to any particular category identified above or if any responsive documents are not within Bentley‟s care, custody or control, then Bentley is ordered to provide a declaration to that effect under penalty of perjury and signed by both counsel and Bentley as to each specific category." The court deferred the hearing on Doppes‟s sanctions request to January 10, 2006.
Bentley did not produce any documents in response to this discovery order. Instead, Bentley submitted two declarations (one from its counsel and another from Richard Mills, a former customer service manager), stating no further production was required because "Bentley Motors, Inc. has produced all documents within its possession, custody or control."
G. The Appointment of a Discovery Referee
At the hearing on January 10, 2006, the trial court appointed a discovery referee. The parties agreed on the appointment of retired Court of Appeal Justice John Zebrowski as discovery referee.
On January 31, 2006, the discovery referee directed Bentley to produce documents responsive to eight categories, including all documents relating to odor complaints concerning four-door Bentley automobiles in model years 1999 to 2003, all documents regarding the origin of the odor problem, and all documents concerning the criteria or procedures for authorizing installation of the odor control kits.
In response to the discovery referee‟s directive, Bentley produced documents labeled BMI 17000 through BMI 17089 on March 6, 2006. The documents confirmed Bentley had received dozens of odor complaints, not just the three to which Ham testified at the Better Business Bureau hearing. Documents within the March 2006 production revealed Ham knew Bentley employee David Cartman had performed "extensive work" in connection with the odor problem as early as 1999 and showed Bentley often flew Cartman from the United Kingdom to North America to "assist, monitor and verify" the odor reduction effort.*fn3 Until this document production, neither Bentley nor Ham had identified Cartman.
H. The Discovery Referee's June 5, 2006 Report
On June 5, 2006, the discovery referee submitted his report to the court. On June 6, 2006, the trial court approved the report as drafted. The court‟s order included the following findings:
"1. The record establishes that defendant Bentley failed to timely produce relevant and properly demanded, but potentially damaging, documents. Document production was requested early in this case (in October 2004) and was ordered by the Court in July 2005. In December 2005, the Court again ordered document production. Yet some responsive documents were not produced until March 6, 2006, and then only in response to a directive from the undersigned Discovery Referee. As of March 6, 2006, trial was set for April 17. As a consequence of Bentley‟s tardy production, Plaintiff lacked sufficient time to prepare for trial. Following my recommendation, the Court continued the trial date to August 28, 2006.
"2. One repeated obstacle to full discovery in this matter has been a repeated, and legally erroneous, position taken by Bentley. Defendant Bentley Motors, Inc., (Bentley USA) insists that it is independent of Bentley Motors Ltd., a United Kingdom entity (Bentley UK). This may be true for some purposes in a certain technical sense, but not for purposes of discovery on the record in this case. The evidence preponderates that Bentley USA, in the normal course of business, regularly obtains documents from Bentley UK when those documents are needed for business purposes.... It was apparently on this theory that Bentley USA delayed production of requested documents that were ordered produced.
"3. On January 31, 2006, I took an extraordinary step in an effort to move this case to trial on the then-set date of April 17. I issued directly to counsel a "directive‟ that Bentley produce documents, and "directed‟ Bentley either to comply or to notify me that it objected.... [¶]... [¶]
"4. In response to this "directive,‟ documents were produced which appear to show, among other things, that Bentley has long been aware of an odor problem in a significant number of Bentley automobiles, and that personnel from the UK (specifically a Mr. Cartman) have been sent from the UK to the United States for the purpose of remediating odor problems. These documents were produced on March 6, 2006. [¶]... [¶]
"9. In addition to the difficulties interposed by Bentley with regard to depositions, it appears that many documents which have been requested, and must necessarily exist, have not been produced. The record leaves good reason to believe that Bentley is either withholding documents, or has failed to conduct a diligent search to find them. Perhaps these documents in fact do not exist, but in that event Bentley should provide, pursuant to [Code of Civil Procedure] §2031.230, a declaration or declarations detailing the efforts expended to locate such documents. No such detailed explanation has been provided.
"10. Plaintiff has thus been significantly prejudiced. First, Plaintiff has been delayed in the preparation of its case (and has incurred unnecessary expense).... Had Bentley produced documents disclosing its knowledge of the odor problem when first requested to do so, or later when first ordered by the Court to do so, or even when ordered to do so a second time by the Court, Plaintiff would most likely have had ample time to obtain the depositions of Messrs. Cartman and Morley.... Third, it still as of this date appears that Bentley has not produced all responsive documents."
In the June 6, 2006 order, the court agreed with the discovery referee the evidence and issue sanctions against Bentley were in order, but gave Bentley an opportunity to ""cure‟" the problems it had created. The court ordered Bentley to produce the following documents by June 25, 2006 or provide declarations describing in detail the efforts made to locate them: "(1) instructions on how to apply the rust inhibitor, (2) repair invoices or other records of odor reduction work and/or odor repair on all Bentleys from model years 1999 to... 2006, (3) all documents recording approval for installation of odor reduction kits for model years 1999 to 2006, (4) all documents denying approval for installation of odor reduction kits for model years 1999 to 2006, (5) any correspondence (other than email) from Bentley dealers to Bentley USA or UK regarding customer odor complaints, (6) documents notifying dealers that odor reduction kits were available, (7) all responsive documents referenced in other documents produced, and (8) all other documents of any description referring or relating to the odor problem or complaints of odor in Bentley automobiles for model years 1999 to 2006."
The court order provided the discovery referee should consider the issue of sanctions if Bentley failed to comply with its June 6, 2006 order.
I. The July 6, 2006 Hearing Before the Discovery Referee
On July 6, 2006, the parties attended a hearing before the discovery referee to discuss all outstanding discovery issues. At the hearing, Bentley‟s counsel told the discovery referee that Bentley Motors Limited (Bentley‟s United Kingdom parent company) would not produce documents in response to the court‟s June 6, 2006 order. Instead, Bentley submitted declarations describing its efforts to locate documents. Mills submitted a declaration stating: "In or about early November 2005 it became apparent that plaintiff was seeking e-mail correspondence and/or electronic stored information regarding vehicle odor complaints and remediation. I therefore sent an e-mail... to all then current Bentley Motors, Inc. After-sales Managers and Regional Team Leaders requesting that each search their electronic records to determine whether any responsive documents existed. I received a negative response from each recipient of my e-mail correspondence." Ham submitted a declaration identifying a few more responsive documents, but otherwise declaring he found no responsive documents.
The trial court‟s June 6, 2006 discovery order required Bentley to provide access, via computer terminal, to its e-mail files to Doppes‟s attorney, Steven Brower, before June 25 and that Brower be permitted to "data-mine" the e-mail files for references to the odor problem and to copy e-mails referencing the odor problem. Bentley first arranged to give Brower access to its e-mail system through Deloitte & Touche, which had indexed the e-mails. Brower was allowed access only to a hard drive of e-mail that was downloaded from Bentley‟s computer system, and many e-mails appeared to be missing; for example, the "sent" folder of the Microsoft Outlook program dated ...