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Class Action Defense Issues-Slesinger v. Walt Disney: California Appellate Court Affirms Terminating Sanction For “Deliberate And Egregious” Discovery Misconduct

As a Matter of First Impression, Trial Court has Inherent Power to Impose Terminating Sanction in the Face of Deliberate and Egregious Misconduct and Properly Imposed such a Sanction in this Case California Appellate Court Holds

Though not a class action, this case presents a vivid reminder that attorneys are officers of the court and may be held accountable for the misconduct of their clients and experts. Plaintiff filed suit against Walt Disney alleging that it had failed to pay certain royalties due under a licensing agreement for the Winnie the Pooh children’s stories, and “to assist in prosecuting its lawsuit, [plaintiff] hired an investigator to surreptitiously obtain Disney documents.” Slesinger v. The Walt Disney Co., ___ Cal.App.4th ___ [Slip Opn., at 2] (Cal.App. September 25, 2007). An anonymous caller tipped Disney to the fact that confidential documents had been obtained by an investigator, id., at 6-7. Once Disney learned of the investigator’s misconduct, defense attorneys moved for terminating sanctions, id. Plaintiff argued that it had instructed the investigator to “obey the law,” id. The trial court concluded that only terminating sanctions could protect Disney from plaintiff’s use of the information illegally obtained by its investigator, and granted the defense motion. Id. The California Court of Appeal held as a matter of first impression that the trial court had the inherent power to impose terminating sanctions and affirmed.

At issue were thousands of pages of documents that plaintiff’s investigator obtained “by breaking into an uncertain number of Disney office buildings and secure trash receptacles, and by trespassing onto the secure facility of the company with which Disney had contracted to destroy its confidential documents,” including documents marked “privileged and confidential.” Slesinger, at 2. During the course of the “lengthy, bitter litigation,” the court imposed evidentiary and monetary sanctions against Disney for destroying certain documents, id., at 3. But it then “fell victim to its own litigation abuses,” id., at 4. According to the court, plaintiff hired an investigator for the purpose of “surreptitiously obtaining Disney documents,” id., at 5. And while plaintiff instructed the investigator to “make sure what you’re doing is legal and that you do it by the book,” no other steps were taken to ensure that he complied with that instruction. Id., at 6. To the contrary, plaintiff argued that supervising the investigator “wasn’t my job” and that all plaintiff “did was pay his bills…[and] receive[] documents.” Id.

We do not here summarize the numerous reasons that the court concluded plaintiff and their counsel knew of the investigator’s misconduct, or at the very least should have known of it. By way of example, the investigator had obtained the documents illegally because the investigator produced documents marked “CONFIDENTIAL – For Internal Use Only” in the footer, but when plaintiff finally produced these pages to the defense, this “confidential” tag had been eliminated. Slesinger, at 8. The fact “Slesinger or someone else on [plaintiff’s] behalf altered copies of [Disney documents] after receiving them from [the investigator] to delete any reference to their confidentiality” was evidence of plaintiff’s misconduct. Id., at 22-23.\

The trial court concluded, “[Plaintiff’s] principals who read Disney’s writings possess in their minds information which no Court order or sanction can purge. The Court does not believe [plaintiff] will comply fully with any future remedial order if [plaintiff] concludes, as it apparently has in the past, that compliance with a court order does not serve its private tactical objectives.” Slesinger, at 24. The trial court concluded, “[Plaintiff] has tampered with the administration of justice and threatened the integrity of the judicial process. [Plaintiff’s] misconduct is so egregious that no remedy short of terminating sanctions can effectively remove the threat and adequately protect both the institution of justice and [Disney] from further [plaintiff] abuse. Exercising its inherent powers to preserve and protect the integrity of the judicial process, the Court dismisses [plaintiff’s] action with prejudice as a terminating sanction.” Id., at 24-25.

In rejecting plaintiff’s claim that it believed the investigator “was searching publicly accessible dumpsters,” the appellate court held at page 42: “[Plaintiff’s] argument suffers from two primary flaws. The first is legal: a litigant is vicariously liable for its investigator’s intentional misconduct committed within the course and scope of employment…. Indeed, ‘[i]t is immaterial that the employee acts in excess of authority or contrary to instructions.’…[¶] The second flaw in [plaintiff’s] is factual: [Plaintiff] relies only on the evidence that supports its position, and overlooks circumstantial evidence from which it may be inferred that [plaintiff] knew of [the investigator’s] illegal conduct, or at the very least acted with deliberate indifference to whether it was legal.” (Citations omitted.) The removal of the “confidential” designation on documents was substantial evidence of plaintiff’s knowledge. Slesinger, at 44. This supported the trial court’s finding that plaintiff “had to suspect [the investigator] was engaged in questionable conduct” but “essentially closed its eyes.” Id. In the words of the appellate court, “In other words, [plaintiff], at best, acted with deliberate indifference to whether [the investigator’s] conduct was legal.” Id. The appellate court also explained at page 45 the importance of plaintiff’s alteration of the documents: “[T]he inference of intended deception is self-evident from the act of alteration: deleting confidentiality markings from illicitly-obtained documents makes the documents appear non-confidential, makes questions about their provenances less pointed, and makes their unexplained possession appear less blameworthy.”

The appellate court affirmed the trial court judgment dismissing the complaint. The Court of Appeal agreed with the trial court that “[plaintiff] is dishonest and shows no remorse.” Slesinger, at 49. On the facts of this case, the trial court did not abuse its discretion in using its inherent power to issue terminating sanctions, id., at 51-52.

NOTE: As in Grider v. Keystone, summarized in yesterday’s article, the court rejected the suggestion that misconduct by an opposing party serves as some sort of “get out of jail free” card: “The earlier sanctions against Disney…provide no cover for [plaintiff’s] misconduct. The evidentiary sanctions against Disney…rectified the harm done to [plaintiff]. The terminating sanction imposed against [plaintiff] rectified the harm done by [plaintiff]. In obtaining a terminating sanction against [plaintiff], Disney did not ‘get away’ with its own misconduct. The demise of [plaintiff’s] lawsuit has one cause only: the deliberate and egregious misconduct of [plaintiff] itself, making any sanction other than dismissal inadequate to ensure a fair trial.” Slesinger, at 54.

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