United States District Court, C.D. California, Southern Division
SHARON COBB, et al. individually and on behalf of all other similarly situated, Plaintiffs,
BSH HOME APPLIANCES CORPORATION, Defendant.
ORDER DENYING MOTION FOR SANCTIONS 
DAVID O. CARTER, District Judge.
Before the Court is Defendant's Motion for Sanctions ("Mot.") (Dkt. 232). After reviewing the Motion, Plaintiffs' Opposition to the Motion for Sanctions ("Opp.") (Dkt. 242), and Defendant's Reply ("Reply") (Dkt. 247) and considering the arguments at the hearing, the Court DENIES the motion.
This case arises out of Plaintiffs' allegations that Defendant BSH Home Appliances Corporation failed to disclose various biofilm, mold, and odor problems to consumers of its front-loading washing machines, leading consumers to pay more for BSH's washing machines than they otherwise would have. Third Consolidated Amended Complaint ("TCAC") (Dkt. 193) ¶ 32, 33, 37, 44.
II. Legal Standard
The Court has the inherent power to impose sanctions for bad faith conduct. Chambers v. NASCO, Inc., 501 U.S. 32, 46-47 (1991). "The district court may, in its informed discretion, rely on [its] inherent power rather than the federal rules." Fink v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001). "Bad faith" includes "a variety of types of willful actions, including.... an attorney's reckless misstatements of law and fact, when coupled with an improper purpose, such as an attempt to influence or manipulate proceedings in one case in order to gain tactical advantage in another case." Id. at 994. Sanctions may be imposed for fraud upon the court. Fraud upon the court involves "an unconscionable plan or scheme which is designed to improperly influence the court in its decision." Pumphrey v. K.W. Thompson Tool Co., 62 F.3d 1128, 1131 (9th Cir. 1995).
Defendant asserts that Plaintiffs should be sanctioned pursuant to the Court's inherent power because Plaintiffs have attempted to perpetuate a fraud upon the Court. Mot. 8-9. Defendant makes two core allegations: 1) Plaintiffs' counsel advanced a damages theory in this Court based on facts that are irreconcilable with facts that Plaintiffs' counsel is asserting before another federal district court in a similar lawsuit against Defendant's competitor Whirlpool, In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., No. 1:08-wp-65000 (N.D. Ohio), id. at 2-4; and 2) Plaintiffs' expert in this case copied Whirlpool plaintiffs' expert's report without attribution and Plaintiff's counsel attempted to conceal it, id. at 5-8.
i. Irreconcilable Damages Theories
One of Plaintiffs' models for measuring consumers' damages, the price elevation model, involves comparing the prices of Defendant's front-loading washing machines in the "actual world" versus the prices in a "but for" world. Mot. at 3. The "actual world" is a world in which Defendant had failed to disclose its products' alleged propensity to develop mold and odor problems. The "but for" world is a world in which Defendant did disclose the problems. Id. In this action, Plaintiffs' actual world model assumes that BSH failed to disclose the problems while all of its competitors did disclose them. In the Whirlpool action, which involves similar claims against BSH's competitor Whirlpool and where plaintiffs are also represented by Plaintiffs' counsel Lieff Cabraser Heimann & Bernstein LLP, the plaintiffs' actual world model assumes that Whirlpool failed to disclose while all of its competitors did disclose. Id. The Whirlpool plaintiffs also assert in their motion for summary judgment that Whirlpool failed to make adequate disclosures. Reply Ex. 1 at 4. Defendant claims that Plaintiffs' damages theories in this action and the Whirlpool action are factually irreconcilable because the facts used to calculate the "actual world" price must be "real world facts, " not assumptions, and it is inconsistent for Plaintiffs to assert in one action that BSH failed to disclose while asserting in another that BSH did disclose. Mot. at 4. Plaintiffs respond that the "actual worlds" are not in conflict because it is normal practice for economists to construct models based on factual assumptions and that assumptions had to be made in both models here because it is still legally contested whether BSH and Whirlpool made adequate disclosures. Opp. at 4. Plaintiffs respond also that they have been transparent about the factual assumptions underlying the "actual world" models in each action because they shared the Whirlpool export report with Defendant. Opp. at 7.
The Court agrees with Plaintiffs that assuming in this action that BSH did not disclose the alleged biofilm, mold, and odor problems while asserting in the Whirlpool action that BSH did disclose the problems does not constitute assertion of irreconcilable facts. Plaintiffs' damages theories are based on economic models. Models should be based on factual assumptions that are reasonable and based in reality. However, given that models are approximations by nature, the experts cannot claim and Plaintiffs' expert Dr. Rysman does not claim to be using only "real world facts" even in the "actual world" of their price elevation model. Thus, Plaintiffs' counsel did not act in bad faith by instructing Dr. Rysman and the Whirlpool plaintiffs' expert Dr. Van Audenrode to use contradictory factual assumptions. To the extent that Defendants are challenging the soundness of Dr. Rysman's methodology, those concerns should be addressed in the parties' Daubert motions or on cross-examination. Cf. Negrete v. Allianz Life Ins. Co., CV 05-6838, 2013 U.S. Dist. LEXIS 176313 (C.D. Cal. Dec. 9, 2013), at *81.
ii. Copying Without Attribution and Concealment
Defendant argue that sanctions are also justified by Plaintiffs' failure to attribute portions of their expert witness Dr. Rysman's report to Dr. Van Audenrode's report even though Dr. Rysman used the same analysis and virtually identical language in his report. Mot. at 6-7; Mot. Ex. 3. Defendant claims that Plaintiffs tried to hide the copying by allowing Dr. Rysman to testify inaccurately about his authorship of his report and refusing to make available for deposition Dr. Weglein, who worked with both Dr. Rysman and Dr. Van Audenrode on their reports and who could answer questions about them. Mot. at 7-8.
Plaintiffs do not dispute that the language in the two reports are very similar or that Dr. Rysman's report does not cite Dr. Van Audenrode's report. Plaintiffs argue instead it was justified for Analysis Group, the economic consultancy that employed Dr. Weglein and Dr. Van Audenrode and worked with both Drs. Van Audenrode and Rysman, to provide similar language to each expert and for each expert to adopt the language without major changes because that section of the report merely describes basic economic principles. Opp. at 10. Additionally, Plaintiffs contend that there was no fraud because they disclosed Dr. Van Audenrode's report to Defendant seven months before Dr. Rysman's ...