California Court of Appeals, Second District, First Division
JEFFERY L. ELLIS et al., Plaintiffs,
TOSHIBA AMERICA INFORMATION SYSTEMS, INC., Defendant and Respondent LORI J. SKLAR, Objector and Appellant.
ORDER Filed Date: 9/10/13
ORDER Filed Date: Filed 8/14/13
APPEAL from orders of the Superior Court of Los Angeles County, No. BC328556 Anthony J. Mohr, Judge.
Lori J. Sklar, in pro. per.; Murphy, Pearson, Bradley & Feeney, Harlan B. Watkins and John P. Girarde for Objector and Appellant.
Manatt, Phelps & Phillips, Dean J. Zipser, Benjamin G. Shatz, Carole E. Reagan and Adina L. Witzling for Defendant and Respondent.
ORDER MODIFYING OPINION AND DENYING PETITION FOR REHEARING
It is ordered that the opinion filed herein on August 7, 2013, be modified as follows:
1. On page 4, the first sentence of the first paragraph, the amount “$11, 000” is changed to “$11, 900.”
2. On page 39, the second sentence of the second full paragraph, the word “Toyota” is changed to “Toshiba.”
3. On page 45, the second sentence of the disposition, the amount “$179, 600” is changed to “$176, 900.”
The modification changes the judgment.
Appellant’s petition for rehearing is denied.
ORDER MODIFYING OPINION
It is ordered that the opinion filed herein on August 7, 2013, be modified as follows:
1. On page 45, the last sentence of the disposition, “section 6087” is changed to “section 6086.7”.
The modification changes the judgment.
Lori J. Sklar represented the plaintiffs in a class action against Toshiba America Information Systems (Toshiba). Sklar appeals from the trial court’s orders awarding monetary sanctions against her and the court’s order awarding her no attorney fees. Toshiba cross-appeals the order awarding staff fees to Sklar Law Offices. We affirm the order awarding monetary sanctions against Sklar, and affirm in part and reverse in part the order regarding attorney fees.
In February 2005, Caddell & Chapman, a Texas law firm with experience litigating class actions, and Sklar, a sole practitioner and a member of the California bar doing business as Sklar Law Offices (SLO) out of her home office in Minnesota,  filed a class action against Toshiba,  on behalf of a class of purchasers of a Toshiba laptop computer which had an electrostatic discharge problem with the top cover. After a two-day mediation, in November 2005 Sklar and all other counsel signed a settlement term sheet, giving each class member a 12-month repair warranty extension (or, if the class member already had the extended warranty, a $35 credit voucher), and either $25 in cash or a $50 voucher for the repair to replace the defective top cover. Conflicts ensued between counsel regarding the drafting of a settlement agreement. Sklar later objected to the settlement, including an objection to the inclusion of the amount of her fees in the class notice, and the proposed settlement initially was submitted to the court without her signature in May 2006.
After further negotiations, Sklar filed a motion for preliminary approval of the settlement in August 2006. In an attached declaration, Sklar stated that she would seek legal fees of more than $24, 700, 000 (represented as 25 percent of a settlement value placed at $98, 975, 862),  to be apportioned between Sklar and Caddell & Chapman, plus expenses of $99, 750. Toshiba filed a declaration by counsel stating that it had agreed not to oppose the application by Caddell & Chapman for $1, 125, 000 in fees, but Toshiba intended to take discovery into the basis of Sklar’s “exorbitant” fee request, and would seek the production of documents and the depositions of Sklar and others, including Sklar’s expert.
The trial court granted preliminary approval of the settlement in October 2006. The class notice, disseminated in October and November 2006, stated: “Sklar Law Offices will ask the Court for attorneys’ fees in the amount of $24, 743, 965.50, less whatever the Court awards Caddell & Chapman for its attorneys’ fees. Sklar Law Offices will ask for litigation expenses in the amount of $114, 900. Toshiba will oppose these requests.” In May 2007, the court granted final approval and entered judgment.
In January 2008 the trial court awarded Caddell & Chapman $1, 050, 000 in attorney fees and $75, 000 in costs, for a total of $1, 125, 000. Sklar’s initial fee petition, filed later in January 2008, requested fees of either $7, 847, 362.50 under a lodestar/multiplier approach, or $24, 743, 965.50 as a percentage of the settlement value, and $410, 383.53 in expenses (this time for Sklar alone). Sklar’s subsequent fee application in October 2009 requested fees of $12, 079, 534.69, plus expenses for SLO of $905, 752.72.
As promised, Toshiba opposed Sklar’s fee request, and protracted litigation and many discovery disputes followed Sklar’s initial fee estimate in 2006. On August 31, 2009, the trial court granted Toshiba’s motion for monetary sanctions against Sklar in the amount of $165, 000 for fees and costs Toshiba incurred related to Sklar’s failure to comply with court discovery orders, and her failure to meet and confer in good faith. Sklar appealed, and the sanctions order is the subject of appeal No. B220286.
On June 30, 2010, the trial court issued a 27-page ruling awarding SLO $176, 900 in fees (for work during the merits phase of the class action by the staff of SLO), and awarding nothing for Sklar’s work; subtracting the $165, 000 sanctions award, the net award to SLO was $11, 000. Sklar appealed the order denying attorney fees, Toshiba cross-appealed from the award of fees for work by SLO staff, and the fee award is the subject of appeal No. B227078.
We consolidated the two appeals. For the reasons detailed below, we affirm the order awarding monetary sanctions against Sklar, and affirm in part and reverse in part the order regarding attorney fees.
I. Sklar disobeyed the court order to allow forensic computer inspections, and the trial court imposed monetary sanctions.
We describe in some detail the arduous procedural history of Toshiba’s attempt to obtain discovery of electronically stored information regarding Sklar’s request for attorney fees.
A. Toshiba sought Sklar’s electronic billing records.
After the preliminary approval of the settlement in October 2006, Toshiba began to seek discovery, including document production and Sklar’s deposition, related to Sklar’s August 2006 statement that she would make a fee request of over $24 million. Among other items, Toshiba sought an electronic, searchable, copy of time records Sklar had produced in hard copy. Toshiba characterized those records as showing that Sklar worked on the class action “nearly all day (sometimes as much as 16.75 hours), every day, seven days a week, including holidays, for some 22 months.” Toshiba served subpoenas in October 2006 and January 2007, each of which sought computer data and files related to time billed by Sklar or SLO in the class action. In response, Sklar produced a compact disc (CD) containing Portable Document Format (PDF) copies of the time records, which on appeal she characterizes as “redacted to protect attorney-client and work product privileges.” Toshiba continued to request a searchable electronic copy of Sklar’s time records.
The trial court held a hearing on January 26, 2007 on Sklar’s objections to Toshiba’s discovery requests, asking Sklar’s counsel and Sklar: “[D]o you really think that I’m going to allow this to proceed and give Ms. Sklar the benefit of $24 million in fees without having her be deposed, without having her produce any documents?” Given that Sklar’s fee request included time records showing she worked “up to 16-hour days seven days a week for a number of weeks, ” the court stated that Sklar would have to produce time records which were not redacted. Sklar’s counsel argued that the records were complete; counsel for Toshiba rejoined that Sklar had represented that the time records were redacted, and Toshiba was unable to tell what had been excised. The court responded: “I’m not going to take your [Sklar’s] word for it, I must tell you.... [N]ot with this kind of a request. The amount of money you want is staggering, and I think it has to be... scrutinized... before I approve this kind of an award.” Allowing that “[a]t the end of the day I may award [Sklar] every penny, ” the court emphasized that Toshiba had the right to verify both that the time records showed what Sklar actually did, and that the claimed attorney time did not represent something that could have been done by a secretary or paralegal.
Counsel for Toshiba requested that the electronic version of the time records be produced “in its native format in the program it was used or at least something... searchable.” The trial court ordered Sklar to appear for deposition and to produce the electronic time records in “native format, ” and told Sklar’s counsel to hire an “I.T. expert” or consultant to redact any privileged information.
Toshiba’s counsel subsequently wrote to Sklar’s counsel to clarify that “[n]ative format is the format[s] in which the documents were originally created and maintained, including all metadata associated with those files.” Sklar then produced a CD-Rom containing a set of Microsoft Word files of Sklar’s time records which were searchable versions of the time records produced in hard copy, with none of the metadata associated with the original files. Sklar’s counsel explained that at the time of the October subpoena the time records only existed in Adobe Acrobat form and had no associated metadata, and the Microsoft Word files were the time records as they existed at the time of the subpoena.
At Sklar’s deposition in March 2007, she testified that before she produced the time records (including around the end of 2006), she had converted the records into Adobe format, deleting the original Word files using a program called “Wipe and Delete.” Sklar had used this program daily to eliminate metadata. As a result, it was not possible to tell when or how often Sklar created time records, among other things.
After Sklar’s deposition, Toshiba requested that Sklar allow Toshiba’s expert to inspect Sklar’s computers (at Sklar’s expense) to determine whether it was possible to recover any of the deleted files and metadata. Sklar refused.
B. Toshiba filed a motion for sanctions regarding Sklar’s destruction of her original electronic billing records.
Toshiba then filed a motion for sanctions in June 2007. The motion argued that Sklar had destroyed (deleted) files and records that were responsive to the trial court’s January 26, 2007 order requiring that Sklar produce her time records in their native format. Toshiba requested that its forensic computer expert be allowed to inspect Sklar’s computers to determine whether the original time record files could be recovered. If Toshiba could not recover the original time record files, Sklar would have “purposely destroyed the evidence of how and when her time records were created and edited, ” warranting terminating sanctions or, alternatively, an order prohibiting Sklar from introducing her time records to support her fee request. Toshiba argued that at a minimum, the trial court should impose issue sanctions, and should determine conclusively that Sklar did not prepare her time records contemporaneously with her work on the case, that Sklar’s time records did not accurately reflect the time she claimed to have billed, and that Sklar had not been precluded from taking on other work during the pendency of the class action. Toshiba also requested monetary sanctions of $25, 000, less than half the attorney fees Toshiba had incurred in its efforts to obtain Sklar’s electronic files.
In a declaration attached to her opposition, Sklar stated that she had no obligation to produce metadata and that backups of the original Word time record files on this case were maintained. She also claimed that her testimony at the deposition (that she had deleted the original files altogether) was limited to a computer she had to return and replace. Sklar understood “native format” to mean “the software program and version used to create the document, ” which “usually does not include metadata.” After the court’s January 16, 2007 order Sklar converted her time records (which by then existed in hard copies and PDF format) back into Word format, with redactions for privileged information and “little or no metadata.” Sklar believed that producing those redacted Word files (not the originals) complied with the court’s order. Because Toshiba’s requests did not specifically ask for metadata, Sklar argued in her opposition brief that it was sufficient to produce a searchable version of her time records, and added: “In any event, SLO could not have produced what did not exist, and thus, could not have produced metadata that had been removed pursuant to ordinary business practice long before [Toshiba] sought electronic records of any sort.”
In reply, Toshiba argued that Sklar’s claim that she possessed backup files of her time records contradicted her deposition testimony, and that she had an obligation to preserve the original files (including the metadata showing when and how often Sklar entered her time).
C. The court ordered Sklar to allow forensic inspection of her computers.
At the August 15, 2007 hearing on Toshiba’s motion for sanctions, the trial court stated: “When I said produce native format, I wasn’t thinking about metadata one way or the other, ” and noted that Toshiba’s subpoena said nothing about metadata. Counsel for Toshiba pointed out that the metadata no longer existed at the time of the order in January 2007, because Sklar had already removed the metadata from the time files. The court agreed: “So it’s not a question of her violating my order with respect to metadata.... What I’m concerned about is this is a person who wants $22 million and some change in legal fees, knows when she starts preparing... timesheets, ... knows that this will be the heart and soul of her claim for attorney fees and does not preserve the early drafts.” The court declined to say that “metadata is included in native format.”
Nevertheless, the court stated that in the context of a request for class action attorney fees, “it is extremely poor judgment to wipe and delete an original file of your timesheets.” When Sklar’s counsel protested that Sklar had not deleted any time records, the court stated: “Well, we’re going to find out because I’m going to appoint an expert to search her hard drives.” The expert would be of Toshiba’s choosing and at Toshiba’s expense, although if the expert determined that the time records were not contemporaneous with the work claimed, the cost would be shifted to Sklar which “will only be my first step.” Sklar’s counsel claimed that the backup of the original Word file was in Minnesota, but contained privileged information. The trial court responded that Sklar had testified that she had wiped and deleted the original Word file, and “I think she’s really misleading me. I’m beginning to get very upset with this.” The court believed “the backup has metadata on it. I’ll bet you anything.”
The trial court ordered that the parties select a neutral expert to search the backup file and produce anything that was not privileged, reserving a ruling whether any relevant privileges were waived. The court also reserved the issue of monetary sanctions: “I tend to think that you [Toshiba] are going to be entitled to something, but I want to see what happens with the metadata, with the backup file. But I will tell you that the testimony in the deposition coupled with the briefs coupled with the behavior here is such that I probably could conclude by a preponderance of the evidence that this has constituted a discovery abuse under [section] 2023[.010] of the Code of Civil Procedure, and I think that Toshiba is going to be entitled to a monetary sanction.... [¶]... [¶] There just seems to be kind of a shifting series of explanations which ...