In June 2006, Michael Fowler and others, as qui tam “whistleblower” plaintiffs on behalf of the State of California, filed a third amended complaint alleging that Caremark Rx, Inc.
violated the False Claims Act (see Gov.Code, § 12650 et seq.) in the course of providing prescription drug services to employee and retiree members of the California Public Employees' Retirement System (CalPERS). Broadly summarized, the complaint alleges that Caremark has entered into a number of contracts with CalPERS to provide members with mail and retail prescription drug benefit plans, “in exchange for hundreds of millions of dollars in monetary remuneration.” Plaintiffs allege that drugs provided under those plans were sometimes returned to the company's distribution facilities due to damage in transit, or because the medications or dosages were not correct, or the mailing addresses were not correct. The complaint alleges that Caremark did not credit or pay back or refrain from billing CalPERS for those returned drugs. The complaint also alleges that Caremark did not always destroy returned drugs, and instead had implemented “Standard Operating Procedures” directing its employees to “eyeball” returned drugs for suitability (without actual testing), and to restock the returned drugs into inventory, and to resell the returned drugs. As the language of Plaintiffs' complaint put it: “In short, Caremark sold the same prescription drugs twice
and was compensated for both transactions.”
In May 2007, the trial court overruled Caremark's demurrer to the third amended complaint and ordered the parties to meet and confer regarding a discovery plan focused first on the issue whether Caremark wrongfully billed CalPERS. At the same time, the court set a status conference for July 9, 2007, at which the parties and the court would discuss a proposed discovery plan. The record does not show whether the July 2007 status conference was held, nor what ground rules, if any, were set.
On August 13, 2007, Plaintiffs served their first set of requests for production of documents on Caremark. Plaintiffs discovery included a request for evidence of “each and every invoice, bill, request for payment, or other documents or electronic record ... for payment for prescription drugs or services purportedly provided by Caremark arising out of [its contract with CalPERS dated January 1, 2003].” The requested evidence covered the time period from “January 1, 2003 to the present.” Under the discovery rules, Caremark's response would have been due, in the absence of an agreement extending its time for responding, within 30 days, i.e., sometime around mid-September 2007. (Code Civ. Proc., § 2031.260.)
On September 4, 2007, the trial court held a status conference. At that time, the court noted that the parties had “a little disagreement, shall we say, as to how we're going to proceed in discovery, and that [the parties had] wildly different plans....” The court indicated that it was in trial and arranged with the parties for a “roll-up-the-sleeves off-the-record working session” telephone conference for the coming Friday afternoon, September 7, 2007. The record does not disclose any information regarding whether the telephone conference occurred, or, in the event that it did, what its outcome was.
*2 On October 17, 2007, the trial court held another status conference. At that time, the court noted that Plaintiffs had served Caremark with interrogatories and requests to produce, and that there had been “some objections ... and some back and forth.” The court and the lawyers discussed Caremark's concerns about the difficulties of the actual physical retrieval of evidence that was in electronic data form, and the costs involved. At one point, the court expressed its desire to address the problems related to the discovery sought by Plaintiffs by taking what the court referred to as “baby steps.” At another point, the court raised the possibility of applying the “cost-shifting provisions” available under the discovery rules. At the conclusion of the October 2007 status conference, the court ordered the parties to continue conferring and to be prepared at the time of the next status conference to discuss the computer software programs that Caremark used to maintain its prescriptions data, as well as the name of a “person most knowledgeable” (PMK) at the company who could testify regarding how the data was stored, and how it best could be retrieved, and regarding the cost of doing so.
At a status conference on January 7, 2008, Plaintiffs advised the trial court that Caremark continued to take the position that the cost of retrieving the electronic data evidence was prohibitive. Plaintiffs further advised the court that they planned to take a PMK deposition on the subject of retrieving Caremark's electronic data evidence.
On February 20, 2008, some five months after the usual 30-day response date had passed, Caremark served its responses, including objections, to Plaintiffs' requests for production of documents served in August 2007. Although it is not directly shown in the record, the entire tenor of the record persuades that the parties had regularly agreed to extend the time for service of Caremark's responses. Under the usual rules of discovery, Caremark's responses triggered a 45-day cutoff for a discovery motion to compel further responses, thus setting the discovery motion cutoff date for sometime in early April 2008. Whether or not Caremark returned Plaintiffs' cooperation with regard to discovery deadlines and agreed to extend the 45-day discovery motion cutoff date is discussed below.
On March 3, 2008, the trial court held another status conference at which the issue of the discovery of Caremark's electronic data evidence was addressed. Plaintiffs again advised the court that Caremark continued to maintain that the electronic data evidence was too burdensome and expensive to produce. Plaintiffs advised the court that they had noticed a PMK deposition for later in the month, and that the deposition would inquire into the burden and expense of the retrieval of the evidence. In the words of Plaintiffs' counsel, the PMK deposition was the next “baby step” in discovery. Caremark's counsel confirmed the company's position that the electronic data evidence was too burdensome to produce, but agreed it would be best to proceed with Plaintiffs' proposal for a PMK deposition.
*3 When the trial court directly asked Caremark's counsel how the company would like to go forward procedurally to resolve the ongoing discovery issues, and whether it wanted “to do a motion” or proceed “more informally” with a PMK deposition, written submissions, and further status conferences, Caremark's counsel expressly responded that the only issue in dispute was “who pays the cost,” and that Caremark “would prefer to do it the informal way. We don't need the formality [of a motion] unless something comes up that changes that in the course of things.” At the conclusion of the status conference on March 3, 2008, the court scheduled a further status conference for April 25, 2008, and invited briefing on any issues to be addressed at that time.
On March 25, 2008, Caremark advised Plaintiffs by letter that data prior to about May 2005 did not exist in a “screen prints” format, and that the cost to retrieve the data (which was archived on tapes) in a form for production would be between $800,000 and $1 million, and would require six to eight months.
On April 17, 2008, Plaintiffs deposed Caremark's PMK, Michael Fisher, in Cook County, Illinois. Fisher was a “[m]anager of compliance and integrity,” and, in that position, had regular dealings with Caremark's information technology (IT) workers who prepared reports for various company departments. Fisher testified that Caremark maintained 28 months of data in an “active environment” of “screen prints,” and that the company then removed data to an “archive” on a “rolling” basis. According to Fisher, Caremark had not developed, as a regular course of its business operations, a data process system to retrieve data from its archived records. Fisher also testified that Caremark had not stopped its practice of transferring data from its computer system's active environment after litigation by Plaintiffs in Florida had been commenced in 2004, nor had it done anything to develop any process for retrieval of the archived data since the current litigation commenced. Caremark had stopped its normal archiving practices sometime in late 2007.
Fisher produced a document dated November 26, 2007, containing two estimates for the cost of retrieving purged and archived electronic data: (1) between $809,400 and $1,079,200 with a project duration of six to eight months; or (2) between $440,000 and $480,000 with a project duration of 10 to 12 months. Fisher had no conversations with the author of the document regarding the cost projections; knew of no other documents that supported Caremark's cost estimate for retrieval of the electronic data evidence; could not state the basis for any of the claimed expenses and could not state a basis or reason why the data was archived. Fisher did not know whether the projected costs associated with the retrieval were to reimburse Caremark for in-housework, or to pay an outside vendor for retrieving the information. Fisher did not know whether anyone at Caremark had received a quote regarding the claimed expenses nor could he explain how the various expenses were computed. Fisher did not know the basis for the estimate that the project would take six to eight months to complete, and could not provide a factual foundation for the alternate project estimate of $440,000 to $480,000.
*4 On April 25, 2008, Plaintiffs and Caremark filed status conference statements on the subject of the cost of retrieving Caremark's archived electronic data. Fisher's deposition was discussed. In sum, Plaintiffs' statement proposed that Caremark should bear the costs of producing the electronic data evidence because it had archived the electronic data knowing of prior pending lawsuits and claims involving the exact same data, and had never developed a retrieval process, and because Fisher had no basis for the cost estimates supplied by Caremark. On April 29, 2008, the issues were further discussed at yet another status conference. Plaintiffs argued that, had Caremark stopped its practice of “archiving” the electronic evidence around June or December 2004, rather than in 2007, it would not have needed to restore the electronic data evidence by a new retrieval system, and the parties and the court could have been spared the time and expense incurred in litigating the cost issue. The trial court found Plaintiffs' allegations regarding Caremark's conduct were “very troubling” and ordered Plaintiffs to file a motion to compel, and advised the parties that the motion would entail the cost allocation issue, an issue dependent upon the case circumstances.
On May 16, 2008, Plaintiffs filed a motion to compel in which they argued that the cost of production should be borne by Caremark, and requesting that the trial court order sanctions against Caremark for its discovery tactics related to the requests for production. On June 6, 2008, Caremark filed an opposition in which it argued that its cost estimates had been in good faith, and that it had not been put on notice that Plaintiffs would want “screen prints” of data, and that its contracts with CalPERS did not prohibit it from archiving its data. Caremark argued that at least some portions of costs should be shifted to Plaintiffs. Caremark supported its opposition with a declaration from a retained expert, Scott Cooper, who offered an opinion Caremark's cost estimates were reasonable, and that its business reasons for archiving the electronic data were also reasonable. On June 23, 2008, Plaintiffs filed their reply, including additional evidence showing Caremark's involvement in other lawsuits in which its prescription data was at issue, and that the company had not stopped its archiving practices even after those other lawsuits had been filed. More specifically, Plaintiffs showed that requests for production of documents were at issue in an earlier qui tam action in Florida involving similar types of data that Plaintiffs sought in the current case, and in an earlier action in federal court in Illinois, in which the plaintiffs (some of whom were the same as in the current action) had specifically sought the production of “screen prints.”
At a hearing on June 18, 2008, the trial court advised the parties that it understood its main task was to determine what the discovery costs would be, and whether there was any reasonable way to reduce those costs. Caremark's counsel expressly confirmed that the main issue for the court to decide was cost allocation, and that the company did not object to providing the electronic data. The court contacted Caremark's expert, Cooper, by telephone to discuss his declaration. When the court asked about the cost to obtain a sampling of data, Cooper provided a general explanation about the history and operating practicalities of Caremark's computer system of archiving. When the court asked why Caremark created an archive in which retrieval of data was “really illusory because ... it's so costly to do it that nobody would,” Cooper responded that the system was not illusory because the company had “preserved [its] data,” and that, generally speaking, there is always “some level of effort to recover and retrieve old data.” At the end of the hearing, the court ordered Caremark, through Cooper, to investigate whether sampling was a possibility and ordered the parties to return for a further hearing on August 4, 2008.
*5 On August 4, 2008, Cooper appeared in person in the trial court and provided an estimate to perform the data retrieval work required by Plaintiffs' discovery requests. In Cooper's opinion, the cost would probably be about $1.6 million, and he did not see any reasonable way that the data could be retrieved for less than $1.1 million to $1.2 million. After listening and questioning Cooper, the trial court advised Caremark that the court saw significant “flexibility [and] elasticity” in the cost estimates that the company had been providing over the course of the discovery dispute. In response to the court's observation, Caremark's counsel responded that the company's earlier estimates had been “provided by just Caremark I.T. people,” and that Caremark then believed that the $1.6 million number provided by Cooper was a more reliable “professional estimate,” a “realistic number of what it would cost,” and “an estimate now that [was] probably more accurate.” The court also expressed its view that Caremark knew of the importance of the data dating back at least to 2004, but had done “nothing to preserve the data that was pretty clear that it was going to be the subject of a lawsuit and would be the subject of discovery,” and had done “nothing, or little, to preserve this data ... where it would be readily accessible,” and had, “by its actions, put Plaintiffs and [the] court in a very difficult position.” The court ordered Plaintiffs to pay 25 percent of the cost of the data retrieval project. After turning to the issue of sanctions, the court awarded Plaintiffs $3,500 in sanctions for their expenses in making the motion to compel, and allowed Plaintiffs to depose Cooper to determine whether he could substantiate the reasonableness of Caremark's new cost estimates.
On September 4, 2008, Plaintiffs deposed Cooper. During his testimony, Cooper admitted that he had not reviewed any documents supporting Caremark's decision to begin archiving data, and had not requested that Caremark provide any such corroborating documentation regarding its reasons for archiving. Regarding Caremark's previous cost estimates, Cooper confirmed the opinion in his earlier declaration that the estimates were reasonable, but conceded that he had not fully investigated the estimates, explaining that had not been asked to “critique” the two options Caremark had proffered during the course of the discovery matter.
On November 17, 2008, Plaintiffs filed a case management conference statement which included a copy of Cooper's deposition testimony and argued that Cooper had not supported any of Caremark's previous cost estimates, and that nothing of substance had been accomplished by his intercession into the case. On November 26, 2008, Caremark filed its status conference statement, advising the court that Cooper was “no longer affiliated” with the experts retained by Caremark to look into the retrieval of data, and that Caremark was “investigating the options for performing the retrieval and conversion work in light of this development.”
*6 On January 9, 2009, the trial court conducted a case management conference. On the morning of the January 9, prior to the hearing, the court faxed a tentative ruling to the parties which included the following findings: (1) the electronic data evidence was vital to the litigation; (2) Caremark had “acted in bad faith in all aspects of the production of their prescription data base;” (3) Caremark had “consistently failed to be candid with this court as to the cost and difficulty of retrieval of their prescription data base;” and (4) that in light of the multiple disparate cost estimates, “given without foundation” by Caremark, the court “no longer [had] faith” in Caremark's ability or willingness to state an accurate estimate for cost of retrieval. At the hearing itself, the court explained that, because Caremark had provided several different cost estimates and had been unable to justify its decision to continue removing data from its system, with no reasonable means of recovery, while aware of this lawsuit and the importance of the data, it could no longer trust Caremark. The court stated it felt as though it had been “played” by Caremark, and found that Caremark had acted in bad faith in all aspects of their production of the prescription database and had consistently failed to be candid with the court. The court issued an order to show cause why it should not reconsider its prior order for Plaintiffs to pay 25 percent of the cost of data retrieval, and why additional sanctions should not be imposed, and provided Caremark time to submit a response in writing.
On January 23, 2009, Caremark filed a “Proposal for Retrieving the Data in the Screen Prints Archived to Tape in Response to the Court's Tentative Ruling.” Caremark's three-page submission included a “heartfelt apology” for a “poor job communicating with the Court,” and acknowledged that its responses on the data retrieval issue had been “disjointed, sometimes vague and, in retrospect, [had] understandably created confusion.” Caremark again stressed that its primary concern was the cost of the data retrieval and again argued Plaintiffs were “responsible for the full cost of retrieving the data.” (Citing Toshiba v. Superior Court
(2004) 125 Cal.App.4th 762.) Notwithstanding its stated position, Caremark proposed “to handle the retrieval project internally without cost to Plaintiffs.”
At a hearing on February 17, 2009, Caremark's counsel admitted that the ongoing discovery matter had caused a “lot of soul searching,” and that mistakes had been made, and that Caremark understood the time the trial court had put into the issue. The court and the lawyers discussed the history of the discovery, the processes that were being implemented by Caremark, and stipulations, including to address delays in getting the case to trial, and to allow for “some type of reasonable monitoring” of the retrieval by Plaintiffs, and for language for a protective order. For its part, Caremark stated it would have people working 24 hours a day, seven days a week, loading information archived on “tapes” into “readers” which would reduce the data to a producible form. At the end of the hearing, the court continued the matter.
*7 On March 11, 2009, the court expressed its conclusions that Caremark's actions, “whether careless or conscious, ... cost all of us time and money in going forward in this matter,” and that the court had “inherent power to order reasonable fees and costs to cover [those expenses].” The court directed Plaintiffs' counsel to submit a request for fees and costs.
On April 21, 2009, Plaintiffs filed a motion for fees and costs pursuant to Code of Civil Procedure section 2023 et seq., requesting a total of $42,978.43. On May 13, 2009, the trial court granted Plaintiffs' motion. The reporter's transcript of the hearing on fees shows the trial court expressly found that Caremark had been “acting in bad faith ... in terms of all this discovery,” and that Caremark had gotten itself into its situation by their own behavior. The court found that there “was no miscommunication, there was no misunderstanding” between Caremark and its counsel, and that the company “caused the problem.” Based on all that it had experienced and heard, the court found that sanctions were warranted.
Caremark filed a timely notice of appeal.
II. The Trial Court Did Not Abuse its Discretion in Imposing Sanctions
An order awarding attorney fees and costs for misuse of discovery is subject to reversal under the abuse of discretion standard, meaning that we will not reverse the trial court's order unless Caremark persuades us that the court's order resulted from arbitrary, capricious, or whimsical thinking. (Liberty Mutual Fire Ins. Co. v. LcL Administrators, Inc. (2008) 163 Cal.App.4th 1093, 1102, 78 Cal.Rptr.3d 200.) Caremark argues we should find such thinking in this case because none of the three bases upon which the trial court relied for its order, namely: (1) the opinions of Scott Cooper were attributable to Caremark; (2) Caremark's archiving practices became wrongful once litigation began; and (3) Cooper's opinions lacked a factual foundation, is supported by evidence. Caremark also contends the award for attorney fees was excessive. We disagree.
Caremark overstates the trial court's dependence on any specific bases for its order imposing sanctions. In the trial court's words, it was the “the whole gestalt” that tipped the scales in favor of reimbursing Plaintiffs for their discovery expenses. We cannot say the trial court's assessment was unreasonable. The first step that needed to be resolved to accomplish the discovery was to determine how much the discovery would cost. Once that issue became settled, the next issue would be who should pay. With regard to the first step cost issue, Caremark first agreed to a PMK deposition, and then offered up a manager of compliance who provided no materially helpful information-his estimates were not supported by foundational facts. When the trial court set the matter for a motion to compel, the company then offered up a declaration from an expert who provided no materially helpful information-his estimates, too, were not supported by foundation. In the end, Caremark acknowledged that it had done a “poor job” communicating to the court on the cost issue. The court found Caremark had acted in “bad faith,” but we need not go that far to sustain the court's order. A trial court is not required to find that a party's misuse of the discovery process was in bad faith as a prerequisite to impose an order reimbursing another party for its costs unnecessarily incurred to obtain the discovery. We are satisfied that the trial court's order may stand because we see nothing in the record which tends to show that Caremark had any “substantial justification” for failing to provide competent cost information. (Cf. Ghanooni v. Super Shuttle (1993) 20 Cal.App.4th 256, 260, 24 Cal.Rptr.2d 501.)
*9 We reject Caremark's position that the events surrounding expert Scott Cooper should not have been considered by the trial court as a factor favoring its order because Cooper was more a court-appointed expert, rather than Caremark's expert. Caremark offered Cooper's declaration in support of its opposition to Plaintiffs' motion to compel. At that point, it was within the trial court's authority to examine the bases for Cooper's opinions. The fact that Cooper thereafter performed work at the court's exhortation, and submitted to a deposition, all regarding the cost issue, did not make Cooper the court's independent expert.
We also disagree with Caremark that Cooper's opinions were not in any event given without any foundation. Caremark's argument is not supported by any reference to any foundational facts proffered by Cooper in support of his cost estimates. We are satisfied that Cooper did not move the discovery forward, and that his presence in the case did little more than promote further delay in resolving the discovery.
In sum, we cannot conclude that the trial court's finding of a misuse of discovery on the part of Caremark amounts to an abuse of judicial discretion. A reasonable trial court could have, and did, decide that the delay and added expenses created in this case by the discovery issue could be laid at Caremark's doorstep.
Caremark also takes issue with the amount
of the trial court's order. Caremark argues the trial court's award in the current matter is excessive because it reimbursed for appearances by multiple attorneys on Plaintiffs' behalf at the hearings on August 4, 2008, January 9, 2009, and February 17, 2009, and also reimbursed for legal work by multiple attorneys on Plaintiffs' status conference statement and reply. We disagree.
A trial court's decision concerning the reasonable value of legal services is reviewed under the abuse of discretion standard. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095, 95 Cal.Rptr.2d 198, 997 P.2d 511.) A fair review of the record, undertaken in the light of the deferential standard of review, discloses that Plaintiffs' lawyers prepared and filed hundreds of pages of material to the court, including references to deposition transcripts and other evidence, and does not disclose that the lawyers were doing any duplicative work. We find it unremarkable in the context of complex litigation that three or four attorneys would jointly work on the case, and that lawyers who may have addressed different issues working outside of court might also attend hearings for the possible eventuality that discussions about the different issues might arise. Simply put, $42,000 does not seem an “excessive” amount of money for the legal work which the record reflects was done in connection with Plaintiffs' motion to compel.