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Interstate Specialty Marketing, Inc. v. ICRA Sapphire, Inc.

California Court of Appeals, Fourth District, Third Division

June 27, 2013

ICRA SAPPHIRE, INC., Defendant and Respondent.

Appeal from an order of the Superior Court of Orange County, No. 30-2011-00495173 David R. Chaffee, Judge.

Logan Retoske and William R. Mitchell for Plaintiff and Appellant.

No appearance for Defendant and Respondent.



Sanctions are a judge’s last resort. At bottom, they are an admission of failure. When judges resort to sanctions, it means we have failed to adequately communicate to counsel what we believe the law requires, failed to impress counsel with the seriousness of our requirements, and failed even to intimidate counsel with the fact we hold the high ground: the literal high ground of the bench and the figurative high ground of the state’s authority. We don’t like to admit failure so we sanction reluctantly.

But sanctions can level the playing field. If we do not take action against parties and attorneys who do not follow the rules, we handicap those who do. If we ignore transgressions, we encourage transgressors. So sanctions serve a purpose other than punishment. If we cannot convince attorneys to conduct themselves honorably and ethically by appealing to their character, we can sometimes bring them into line by convincing them that obeying the rules is the route of least resistance – the less expensive alternative.

This case illustrates what happens when we turn to sanctions too quickly. The trial judge here, understandably chagrined by the rather dilatory pace at which the case was being prosecuted, imposed sanctions pursuant to Code of Civil Procedure[1] section 128.7 against plaintiff’s counsel – on his own motion. The result was three different kinds of error.

One, the text of section 128.7 clearly gives an attorney 21 days to correct a pleading otherwise sanctionable under the statute, and that 21 days plainly runs from the service of the order to show cause (OSC) threatening the sanctions. Here, the motion to amend was filed (on June 5, 2012), 17 days prior to the trial court’s even setting the OSC regarding sanctions, and granted on the very day the court set the OSC (June 22, 2012). (§ 128.7, subd. (c)(2).)

Two, attaching the wrong draft of a contract even to a verified complaint does not appear to be, under the particular circumstances of this case and the text of the statute, sanctionable at all. (§ 128.7, subd. (b).) The statute requires bad faith. Only lamentable inattention was shown here and no finding of bad faith was made.

And three, making sanctions payable to the defendant is not allowed under the statute when a trial court sets an OSC for sanctions pursuant to section 128.7 on its own motion. (Malovec v. Hamrell (1999) 70 Cal.App.4th 434, 436-437: [“We conclude:... (2) a trial court may not award section 128.7 monetary sanctions to an opposing party on its own motion.”]) We therefore reverse with the direction to vacate the sanction order.

But there is plenty of blame to go around here. While we reverse the trial judge’s order, and acknowledge the poor performance of plaintiff’s counsel, we find ourselves equally disappointed by defendant’s counsel. A little civility on his part could have resolved the problems in this case early on, saved everyone a lot of time, money, and toner, and spared us the unpleasant role of judicial scold this case has forced upon us.


As might be expected of a case that enables an appellate court to antagonize both parties and the trial judge in the same opinion, the facts here are unusual. In late July 2011 Interstate Specialty Marketing (Interstate) filed a verified complaint for breach of contract against ICRA Sapphire (Sapphire). The basic point of the complaint was that, sometime around November 2002, Interstate had contracted for Sapphire to convert a computer software application from a “DOS” format to a format supportable by Microsoft. Five years and $1 million later, Sapphire hadn’t completed the conversion.

The complaint averred that a true and correct copy of “the agreement” was attached as exhibit “A” – a letter dated either November 14 or 15, 2002, outlining Sapphire’s conversion proposal.[2] Counsel for Interstate might have more felicitously phrased the assertion that the attached letter was the agreement. As he would later explain, at the time of preparation of the complaint, Interstate “diligently” searched for a copy of the agreement, but couldn’t find a “signed” version, because the true, signed version had either been lost or perhaps not provided to Interstate in the first place. Interstate and its attorney believed “to the best of their knowledge” that the copy attached was indeed a true and correct copy of ...

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