Violation of In Limine Rulings Does Not Give Rise To Attorney’s Fees Sanctions

First District Reverses Fee Sanctions Award and Award to State Under Code of Civil Procedure section 1038, But Affirms 998 Award to State.

            This next case establishes that fee sanctions must have a firm basis in legislatively-authorized statutes (or implementing rules) that have solid due process protections.  Relying only on inherent court authority statutes or Code of Civil Procedure section 128.7 when dealing with trial misbehavior may jeopardize the ability to preserve fee sanction awards on appeal, as many of the respondents learned in the next case.

            InClark v. Optical Coating Laboratory, Inc., Case No. A115399 (1^st Dist., Div. 1 July 24, 2008) (certified for publication), 32 plaintiffs brought a toxic tort case against the State of California, Union Pacific, and Optical Coating.  Before completion of plaintiffs’ case-in-chief at trial, after several warnings, the trial court granted a mistrial based on plaintiff’s attorney violation of several in limine orders.  Based primarily on Code of Civil Procedures sections 128.5, 128.7 and 187, the lower court assessed attorney’s fees/costs sanctions against plaintiffs’ attorneys and in favor of the defendants in the total sum of $1,151,041,25. Separately, the lower court made awards to the State and against all plaintiffs jointly and severally (1) of $672,501.25 in attorney’s fees under Code of Civil Procedure section 1038, and (2) of $439,535.31 in expert witness fees under Code of Civil Procedure sections 1038 and 998.

            Except for the section 998 award, the Court of Appeal, in a 3-0 decision authored by Justice Margulies, reversed the substantial fee/costs awards, finding a lack of legal basis for them.

            Although the opinion is lengthy due to the proceedings involved, the main grounds for reversal were:

·       Section 128.5 was an inappropriate anchor, because it did not apply to cases filed after January 1, 1995;

·       Section 128.7 is inappropriately applied to conduct involving obedience to in limine orders, because that section only focuses on sanctioning groundless claims based on filings or advocacy in signed pleadings and papers;

·       Section 187 (the catchall inherent court authority provision) has due process limitations, with Bauguess v. Paine, 22 Cal.3d 626 (1978) holding that attorney’s fee sanctions are not allowed unless legislatively authorized in a specific manner with many protections; and

·       Because public entities cannot bring malicious prosecution suits, Code of Civil Procedure section 1038 allows them to recoup defense costs if a trial court finds plaintiff lacked either reasonable cause or a good faith belief that the case was justified.  In the case before it, there was no evidence of subjective bad faith.  As to reasonable cause, the appellate court analogized this to the probable cause element of a malicious prosecution lawsuit, finding that the lower court’s previous denial of State’s summary judgment motion demonstrated the requisite reasonable cause, citing Wilson v. Parker, Covert & Chidester, 28 Cal.4^th 811, 824 (2002).

The $439,535.31 expert fee award under section 998 (but not section 1038) was affirmed, however.  Plaintiffs’ main challenge was that the trial court had to determine the severe financial impact on them before such a substantial award could be entered.  Aside from finding the argument had been waived, the First District panel disagreed on the merits.  It reasoned:  “ …we find no indication that the Legislature intended to require courts to conduct a means test as part of determining the amounts to award under section 998.  Such a rule, which would alter the settlement incentives provided by section 998 in a wide range of cases, should not be mandated by placing a judicial gloss on the statute’s text.”