Opinion
NOT TO BE PUBLISHED
Super. Ct. No. T062239C
RAYE, J.The underlying lawsuit involves a Nevada utility company, a Nevada water company, and a Nevada irrigation district’s fight over their respective rights to water in Donner Lake and the Truckee River in California. However, in this appeal we are not required to consider water rights issues or concern ourselves with choice-of-law questions. The appeal arises from a protracted discovery dispute over the production of documents and the scope of the attorney-client privilege.
The trial court imposed formidable monetary sanctions on the utility and water companies for failing to produce documents. The sole issue presented is whether the court abused its discretion by ordering sanctions if, as the appellant utility and water companies contend, there was substantial justification for their position. Due to the narrow question presented, we need not decide whether any of the earlier findings or rulings by either the trial court or the discovery referee were correct. But the convoluted chronology of the discovery proceedings plainly discloses more than substantial justification for appellants’ positions and demonstrates the court abused its discretion by imposing sanctions that can only be described as unjust. We reverse.
FACTS
In 1943 Sierra Pacific Power Company (SPPC) and the Truckee-Carson Irrigation District (TCID) entered into an operating agreement following their joint acquisition of Donner Lake. TCID operates a federal water reclamation project, which relies on Donner Lake and the Truckee River as sources of water.
On June 11, 2001, the Truckee Meadows Water Authority (TMWA) purchased all the assets of SPPC’s water utility division to provide public water service to Reno, Sparks, and Washoe County. In connection with the sale, SPPC transferred its books, records, and papers relating to the water utility. Gordon DePaoli, a lawyer specializing in water law, had represented SPPC before the sale and continued to represent the same business on behalf of TMWA.
In 2006 TCID filed a complaint against TMWA and SPPC for breach of the 1943 operating agreement. Effective August 29, 2006, TMWA and SPPC entered into a joint defense agreement. The agreement provides, in pertinent part: “The Parties have concluded that: (a) there are common questions of law and fact that affect the ability of the Parties to defend themselves; (b) the Parties share a mutuality of interest in a common and joint defense of the Action; and (c) the Parties desire to share and exchange confidential, privileged information without waiving or otherwise diminishing any attorney-client privilege, attorney work product protection, or any other protections that might apply, inasmuch as the Parties believe such cooperation is reasonably necessary to permit the best representation and defense of the Action.”
On January 5, 2007, TCID served a request for production of documents on TMWA. TMWA objected to 13 categories of documents as protected from disclosure under the attorney-client privilege and the work product doctrine. It provided a privilege log identifying the documents withheld on that basis.
SPPC had been served with a similar request on December 1, 2006. SPPC located 291 documents it retained relating to its former water utility, none of which it deemed to be privileged. On January 25, 2007, SPPC responded to the request for documents as follows: “Defendant [SPPC] sold its entire water division to co-defendant TMWA in January 2001. Virtually all documents in [SPPC’s] possession were transferred to TMWA at that time. [SPPC] does not have copies of any documents pertaining to its former water division and therefore pursuant to Cal. Code Civ. Proc. 2031.230 represents that it is unable to comply with this request because any documents responsive to this request are no longer in its possession and control, but are in the possession and control of co-defendant TMWA [with a few irrelevant exceptions].”
In March 2007 and again in April 2007 SPPC granted TCID’s requests for extensions of time to compel further responses. In June 2007, beyond the extended statutory time, TCID ultimately filed its motion to compel further responses to request for production of documents.
TCID argued that California Evidence Code section 953, subdivision (d) foreclosed TMWA’s claim of attorney-client privilege because the holder of the privilege includes a successor to an organization no longer in existence and SPPC continued to exist after the 2001 asset transfer. TMWA insisted that under Nevada law, the attorney-client privilege “may be claimed by the client, his guardian or conservator, the personal representative of a deceased client, or the successor, trustee or similar representative of a corporation, association or other organization, whether or not in existence.” (Nev. Rev. Stat. § 49.105.)
On July 11, 2007, the trial court ruled that TMWA could not assert the attorney-client privilege because it was not a successor in interest; rather, “[t]he transaction between SPPC and TMWA was a pure asset sale, ” SPPC “reserved the right... to re-engage in the water business after a certain period of time, ” and “SPPC remains in business, albeit not as a water purveyor.” Although the court found a choice of law analysis unnecessary, it nevertheless stated, “in the issue of the attorney-client privilege, a choice of law approach is procedural not substantive” and “[t]he law is well settled that in procedural matters, the law of the forum state applies.” The court granted TCID’s motion to compel and ordered TMWA to produce all documents that were responsive to the request but withheld on a claim of privilege. The court expressly found, however, that “TMWA acted with substantial justification in asserting the claim of privilege.”
In August 2007 TMWA petitioned our court for a writ of mandate (Truckee Meadows Water Authority v. Super. Court (Aug. 21, 2007, C056588) [petn. den. by order]), and when we denied its request for extraordinary relief, it petitioned the California Supreme Court (Truckee Meadows Water Authority v. Super. Court (Sept. 7, 2007, S155934) [petn. den. by order]). Aware that the petition in our court had been denied, on August 22, SPPC filed a motion for protective order. The motion states, “In order to avoid loss of any privilege, [SPPC] contends that if the privilege is not TMWA’s, it is [SPPC’s], and [SPPC] wishes to protect and preserve its privilege.” SPPC further explained, “From and after the date of sale, the ‘water utility’ was owned and operated by TMWA. In connection with that sale, TMWA also assumed (with minor exceptions) all liabilities of the water utility, and it was the understanding and intent of [SPPC], that all attorney-client privileges of the water utility would be transferred to TMWA, as well as all liabilities, or that such privileges would at least be joint. If that is wrong, it was never [SPPC’s] intent that any privileges would be abandoned, waived or impaired.” SPPC requested the court “for an order preventing disclosure and production of its privileged documents.”
The Supreme Court denied the petition for review on September 7, 2007. (Truckee Meadows Water Authority v. Super. Court, supra, S155934.)
In its tentative ruling on September 17, 2007, the trial court denied SPPC’s motion for protective order. The court found SPPC waived the privilege when it “voluntarily transferred the documents in question to TMWA as a part of the Asset Purchase Agreement.” The court also found “SPPC additionally waived the privileges when they did not raise them in response to request for production of documents served on them by Plaintiff and when they did not raise them in conjunction with the motion to compel further responses to requests for production of documents served on TMWA in this case, at which time they had standing and the opportunity to so raise.”
From here on things get very hazy. At the hearing, the court explained that the tentative ruling on waiver applied only to those documents that were literally turned over to TMWA. In response to counsel’s clarification that the privilege log embodied two categories of documents (documents that were transferred from SPPC to TMWA and those that were retained in Mr. DePaoli’s files), the court stated: “The answer to that is category one is not subject to protective order and [is] no longer capable of privilege. [¶] Number two, category number two is they remain subject to the claim of privilege and the Court, in the event of any discovery about them or motions about that, will take it on a case by case basis. However, the Court makes a finding of no waiver.”
In the formal order of September 27, the court reiterated that SPPC had waived the privilege, “provided, however, that this order is limited to those documents mentioned in the priviledge [sic] log which was the subject to the earlier discovery motions filed by [TCID].” In the meanwhile, SPPC voluntarily agreed to conduct additional word searches on its computerized files and to produce any additional documents relating to the subject matter of the litigation.
On October 5, TCID filed the motion for sanctions against both TMWA and SPPC, asserting that they had “repeatedly and willfully failed to comply with this Court’s orders.” On November 19, the trial court tentatively ruled that TMWA had not fully complied with the discovery order and should be sanctioned. As to SPPC, however, the court acknowledged that “[t]here is no formal discovery order from this court about SPPC beyond a denial of a request for a protective order.” Thus, no sanctions were imposed against SPPC. Moreover, the court further distinguished the two appellants: “TMWA was, therefore, required to allow discovery of those documents listed by it in the log. SPPC, alternatively, was found to be without attorney client protection only as to those documents which were listed by TMWA in its litigation log and which had been delivered by SPPC or its attorneys to TMWA as part of the asset transfer.”
Again during the hearing on the motion, the court distinguished between the two categories of documents-those that were never given to TMWA and were subject to the privilege, and those turned over to TMWA during the asset purchase. The court, however, could not determine which category the documents were in, which were subject to joint defense, and which were not. The court announced that it would appoint a referee to solve three problems:
“Number one, in the litigation log, which of the various documents were turned over to TMWA as a direct result of the asset transfer?
“Number two, which were the documents that became known to TMWA after the asset transfer, after the date of the Joint Defense Agreement to be precise? If Sierra Pacific voluntarily gives documents to TMWA prior to the date of the joint defense, in my view that’s waiver.
“And then number three, to identify if any exist, documents listed on the litigation log that were neither part of one nor two and were always in the sole possession and knowledge of Sierra Pacific as to which there is no waiver, and the referee is designed to figure out which of the documents in the first item I mentioned have been disclosed and compare that with that [sic] which were identified.
“If there is a variance between those which were disclosed versus those which were identified, then I can properly consider sanctions. But unless and until I get that report, I’m stuck.”
Subsequently, by a form order signed December 6 and filed December 20, 2007, the court appointed a referee. At the center of the controversy is the ambiguous language of the order. The form contains standard language explaining a discovery reference pursuant to section 639 of the Code of Civil Procedure. The form provides: “It is necessary for the court to appoint a referee to hear and determine any and all discovery motions and disputes relevant to discovery in the action and to report findings and make a recommendation.” This language is followed by the italicized admonition: “State the exceptional circumstances specific to the particular case that require the discovery reference, below or in Attachment 2a.” In response, the court wrote: “In order to determine whether sanctions should be ordered, it is necessary to review the disclosed items and see whether they conform with the order and compare it with the privilege log.”
Throughout the contentious proceedings following the December 20 reference, TCID has relied on the form language to justify the referee’s expansive ruling on matters unrelated to whether the disclosed items conformed with the order or were indicated on the privilege log and at odds with the trial court’s prior rulings. Appellants, on the other hand, point to the circumstances delineated by the trial court and “specific to the particular case that require the discovery reference” as a limitation on the matters before the referee.
On February 4, 2008, TCID filed a motion to compel further responses by SPPC to its request for production of documents. On March 6, 2008, the court referred the motion to the referee who had been appointed in the December 20 order. The court wrote: “This order is to be in conjunction with the 12/20/07 order, to review the motion filed 2/5/08 to compel further responses to request for production of documents.”
In April 2008 TCID obtained subpoenas in Nevada for three Nevada witnesses. In response, SPPC sought to quash the deposition subpoenas and to obtain protective orders asserting the attorney-client privilege.
The referee did not issue a tentative report until June 2008. He did not, as the court had directed, determine whether the disclosed items conformed to the court’s order; nor did he compare it to the privilege log. He did, however, reexamine the entire discovery dispute and offer his own assessment and recommendations. He found: TMWA must have possessed documents listed in its privilege log, even those in DePaoli’s possession; SPPC had waived the privilege by not asserting it in its initial responses to requests for production of documents; the joint defense agreement did not cover documents generated before the 2001 asset transfer; and the “common interest” doctrine did not apply.
At the hearing on his report, the referee rebuffed appellants’ argument that he had misunderstood his charge and overstepped his authority. In his final report in August, he concluded that “a document by document review of the documents identified on the January 11, 2008 privilege log is unnecessary and the Referee has not conducted such a review.” Indeed, the referee eschewed the entire debate about different categories of documents because, in his view, SPPC had waived the privilege.
Nevertheless, the referee made a poignant observation about the protracted discovery dispute. He wrote, “While it is certainly evident that the discovery disputes which have arisen in this litigation have been the subject of extensive court proceedings and litigation between the parties, the discovery Referee observes that such disputes centered not so much around improper tactical maneuvers, but more so in the vein of legitimate differences of opinion regarding somewhat complex areas of law.” He recommended that the trial court order all documents be produced and sanctions imposed.
On August 29, 2008, the trial court ruled: (1) “The first and obvious point is that SPPC has never been the subject of a discovery order compelling it to disclose documents. The fact that [SPPC] jointly opposed the request for sanctions is explained by examining the motion for sanctions itself, which targeted not only TMWA but also SPPC.”
(2) “The question then becomes whether sanctions should be ordered against TMWA. The court adopts the findings of the referee. Although the court understands that a hearing may be set, the hearing is not required and this court believes that no such hearing is necessary. See: Marathon National Bank v Superior Court (1993) 19 Cal.App.4th, 1256, 1261.”
(3) The court requested TCID to provide additional declarations to enable the court to order an appropriate amount of sanctions.
On September 10, 2008, TMWA produced all remaining documents on its privilege log pursuant to the August 29 ruling.
On September 18 TCID filed another motion for sanctions against TMWA (Motion No. 1). On October 2, TCID filed a motion for sanctions against SPPC for failure to comply with the trial court’s August 29, 2008, order (Motion No. 2), and on October 6 TCID filed a second motion for sanctions against SPPC for failing to comply with deposition notices (Motion No. 3).
On December 23, 2008, the trial court granted all three motions and ordered the sanctions now on appeal. As to Motion No. 1, the court imposed $35,390.27 in sanctions against TMWA, finding that it had acted without substantial justification. As to Motion No. 2, the court ordered SPPC to pay $9,717.50 in sanctions. Finally, as to Motion No. 3, the court ordered SPPC to pay an additional $7,500 for challenging the Nevada subpoenas; the amount took into consideration that there was no final ruling that SPPC had waived the attorney-client privilege until August 2008. Both TMWA and SPPC appeal their respective sanctions.
DISCUSSION
I
Standard of Review
Section 2023.030, subdivision (a) of the Code of Civil Procedure authorizes the court to impose monetary sanctions for misuse of the discovery process. Subdivision (a) provides: “The court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorney’s fees, incurred by anyone as a result of that conduct. The court may also impose this sanction on one unsuccessfully asserting that another has engaged in the misuse of the discovery process, or on any attorney who advised that assertion, or on both. If a monetary sanction is authorized by any provision of this title, the court shall impose that sanction unless it finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.”
While it is true that “[w]e review an order imposing discovery sanctions under the abuse of discretion standard” (New Albertsons, Inc. v. Superior Court (2008) 168 Cal.App.4th 1403, 1422), “[a]n abuse of discretion is shown when the trial court applies the wrong legal standard” (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 733) or its ruling appears “arbitrary, capricious, or whimsical” (Sinaiko Healthcare Consulting, Inc. (2007) 148 Cal.App.4th 390, 401 (Sinaiko), internal quotation marks omitted).
Appellants urge us to reverse the sanctions order because they acted with “substantial justification” within the meaning of Code of Civil Procedure section 2023.030, subdivision (a) in withholding a category of documents they believed was protected by the attorney-client privilege. In their view, the trial court abused its discretion by imposing sanctions despite overwhelming evidence there was substantial justification for their positions. They are correct.
The facts in this case contrast with those issues supporting the court’s exercise of discretion in the cases cited by TCID. For example, in Espinoza v. Classic Pizza, Inc. (2003) 114 Cal.App.4th 968, 975-976, the plaintiff persisted in obtaining subpoenas for records in blatant defiance of court orders, and in R.S. Creative, Inc. v. Creative Cotton, Ltd. (1999) 75 Cal.App.4th 486, 496-497, the plaintiff forged documents and destroyed evidence, resulting in the imposition of terminating sanctions. There is no evidence in the record before us of any conduct even approximating the egregious misuse of discovery and willful misconduct supporting sanctions in Espinoza and R.S. Creative.
The integrity of the discovery process was similarly at stake in three other cases cited by TCID. In Walker v. San Francisco Housing Authority (2002) 100 Cal.App.4th 685, the defendant agency offered absolutely no justification for its repeated refusal to comply with court orders in a sexual harassment lawsuit. The plaintiff in a wrongful discharge case, Sauer v. Superior Court (1987) 195 Cal.App.3d 213, demonstrated the same recalcitrance by his willful noncompliance with a court order to produce his personal financial records. While we must address the singular question whether appellants lacked substantial justification for the positions they held, the court in Walker considered whether the commissioner had jurisdiction to rule on a subsequent section 473 motion (Walker, at pp. 691-693), and the court in Sauer determined the trial court had not abdicated its judicial responsibility to a discovery referee (Sauer, at pp. 225-226). Similarly, in Sinaiko, supra, 148 Cal.App.4th 390, the issue was not whether the trial court had abused its discretion or whether the record disclosed substantial justification, but whether the court had authority to rule on a motion to compel further answers when the party had failed to file timely responses.
TCID cites these authorities for the unremarkable principle that an appellate court must review a discovery order for abuse of discretion. We remain mindful of the limited scope of appellate review. But TCID has failed to present analogous cases where the facts and the legal issues are salient to the record before us. In short, the paucity of cases demonstrates that this case does not present any difficult or thorny legal issues. The task is ours to determine whether, based on the unique factual record before us, the trial court’s exercise of discretion exceeded the bounds of reason.
II
What This Case is Not
Our job is simplified by a swift rejection of arguments advanced by both sides. TMWA, as TCID points out, argues the merits of the court’s underlying rulings, particularly the scope of the attorney-client privilege under Nevada law. At issue is not the propriety of the discovery rulings, but whether the trial court abused its discretion by imposing sanctions for discovery abuse. As a result, we discuss the privilege issue only as it relates to whether appellants acted with substantial justification.
That is not to say, however, as TCID insists, that the substance of the rulings or the chronology of the litigation is irrelevant. Quite to the contrary, the evolution of the litigation, the context in which the rulings were made and challenged, and the timetable of events are all material to the essential question whether appellants acted with substantial justification. We will not review the merits of any ruling other than the sanctions order, but we will consider the context in which appellants failed to produce the requested documents.
Finally, the referee is not on trial here. Both appellants challenge the scope of the referee’s authority, the trial court’s failure to explain why it adopted the referee’s findings, the disparity between the reference and the expansive findings, and a host of other infirmities with the reference. Again the reference is material to our understanding of the challenges the parties faced and the ambiguities that arose from the trial court’s orders. But we will not review the merits of either the referee’s findings or the propriety of the court’s reference. We must, however, try to unravel the trial court’s apparent about-face in accepting the referee’s carte blanche conclusion the attorney-client privilege had been waived, despite its consistent holdings to the contrary, and the trial court’s subsequent imposition of sanctions against SPPC, despite its express ruling that SPPC had never violated a discovery order.
III
A Close Look at the Discovery Chronology
There are two different starting points. TCID requested SPPC to produce documents in December of 2006 and TMWA in January of 2007, but then requested extensions of time to file a motion to compel for several months. But in June of 2007 TCID filed a motion to compel only against TMWA. It did not file a motion for further production of documents against SPPC until February of 2008.
TMWA
It is true that the court rejected TMWA’s reliance on its attorney-client privilege on July 11, 2007. But the court expressly found that TMWA had acted with substantial justification in asserting the privilege. And TCID concedes that TMWA should not be punished for pursuing its right to seek review of the trial court’s ruling in the Court of Appeal and in petitioning the Supreme Court for review. These proceedings terminated in September 2007. Nevertheless, by October 5 TCID sought sanctions for misusing the discovery process.
TCID argues that TMWA’s year-long recalcitrance occurred after the July order, not before. Since it filed its request for sanctions barely a month after the Supreme Court denied review, we find scant evidence of a calculated or stubborn refusal to turn over the documents TMWA believed had been shielded by privilege. Ironically, the proceedings on the sanctions motion itself spawned the ambiguity that gave rise to substantial justification for TMWA’s further delay in producing the documents.
TCID denigrates appellants’ distinction between categories of documents, as did the referee in his final report. But it was the trial court that gave meaning to the distinction by exempting any documents that had been retained by SPPC during the asset sale to TMWA. Moreover, the document issue was complicated by the fact that outside counsel for SPPC became counsel for TMWA after the sale, and many of the documents remained with him. In addition, the privilege logs apparently did not identify where the documents were located. As a result, in December 2007 the court ordered the reference for the express purpose of deciphering which documents remained privileged and which did not.
Eventually the referee concluded that the “categories” did not justify withholding the documents. This may or may not be correct. But the court’s ruling certainly gave appellants substantial justification for continuing to withhold the documents until the reference was completed. We agree with TMWA that if the court had determined the attorney-client privilege did not apply at all, as the referee volunteered in his final report, there would have been no need for the reference. The court, however, ordered the reference precisely because it could not distinguish which documents were protected and which were not. The court’s decision to send the case to the referee in essence delayed any duty to disclose documents because the parties did not know which documents were protected by the privilege.
The referee did not issue his final report until the following August-eight months after the reference order was made. TMWA cannot be punished for the referee’s delay. Finally, the trial court accepted the referee’s findings as to TMWA on August 29, 2008. By September 10, TMWA had produced all the documents.
Thus, unlike the cases marked by either willful disregard of court orders or crafty gamesmanship over a protracted period of time, we conclude the evidence is overwhelming that TMWA acted with substantial justification in asserting its positions and awaiting final adjudication of which documents were protected by the attorney-client privilege. Both the trial court and the referee acknowledged the complexity of the law and the legitimacy of the debate as to whether the documents were protected by the privilege under Nevada or California law following the sale of the assets. It could have been that by September of 2007 TMWA had exhausted its judicial remedies when the Supreme Court denied review and production would have been expected soon. But because TCID’s motion for sanctions was filed almost immediately and those proceedings resulted in the court’s distinction between categories of documents, we further conclude that TMWA was justified in awaiting the result of the reference and the court’s ruling thereafter. Ultimately, TMWA turned over the documents within a few days of the final ruling by the court. Simply put, a careful evaluation of the chronology of the discovery request, the judicial proceedings, the reference, and the final ruling provides no support for the trial court’s determination that TMWA’s acts were without substantial justification.
SPPC
As mentioned above, SPPC’s relevant timeline is much more abbreviated. As late as August 29, 2008, the trial court expressly acknowledged that SPPC had violated no court orders, and consequently, the court imposed no sanctions on it. Within a month and a few days, however, TCID filed two motions for sanctions, arguing SPPC had committed egregious misconduct by seeking protective orders in Nevada, which, in TCID’s view, was an underhanded attempt to collaterally attack the orders of the California court, and had failed to produce documents encompassed by the August 29 order.
SPPC argues at considerable length that Nevada and California law justified its attempt to litigate the Nevada discovery issues pertaining to Nevada witnesses in possession of their own documents in Nevada. (Nev. Rev. Stat. § 53.060; Code Civ. Proc., §§ 2025.450, subds. (c)(1), (d), 2026.010, subd. (c).) We need not determine whether SPPC’s position should have prevailed or who the documents belonged to or whether International Ins. Co. v. Montrose Chemical Corp. (1991) 231 Cal.App.3d 1367 applies, because as the court itself conceded there was no discovery order against SPPC at the time it sought the protective orders. TCID refers repeatedly to the arguments SPPC made in Washoe County before the Nevada Discovery Commissioner in an attempt to demonstrate SPPC’s nefarious purpose to collaterally attack the California court’s order. The arguments TCID cites, however, were made on July 17, 2008, before any discovery order was issued against SPPC.
Nor can we accept the court’s novel remedy. Recognizing that SPPC was not subject to a discovery order at the time it sought protective orders in Nevada, the court reduced the amount of the sanctions. In effect, the court imposed a duty not to file the protective orders retroactively but gave SPPC an offset in the amount of sanctions based on some calculation tied to the date when the duty actually arose, i.e., August 29, 2008. In our view, either the request for protective orders and the supporting arguments were substantially justified at the time they were filed or they were not. Since SPPC, according to the trial court, was not subject to any order at the pivotal point in time, any later rulings against SPPC are irrelevant.
The question remains whether SPPC violated the August 29 order by failing to produce documents before TCID filed yet another motion for sanctions a month later. SPPC insists the court never ordered it to produce the “category two” documents in its privilege log; that is, the documents the court identified that had never been turned over to TMWA but had resided with attorney DePaoli throughout the time the assets were sold to TMWA and to the present time. The confusion arises from the court’s mysterious rulings in light of the referee’s final report, which, as TMWA and SPPC have argued vociferously and consistently, was at odds with the prior and subsequent rulings of the court.
We agree with SPPC’s reading of the court’s August 29, 2008, ruling. Organizationally, the ruling is in two parts. We have reported on the contents of the ruling above. But it is important to note that the court addresses SPPC and TMWA separately. As to SPPC, the court’s ruling is simple and straightforward: “The first and obvious point is that SPPC has never been the subject of a discovery order compelling it to disclose documents. The fact that [SPPC] jointly opposed the request for sanctions is explained by examining the motion for sanctions itself, which targeted not only TMWA but also SPPC.”
The problem, of course, is that this ruling is directly at odds with the referee’s final report. Yet the court ignores the incongruity. After plainly exonerating SPPC, the court goes on to consider whether sanctions should be imposed on TMWA. The court writes: “The question then becomes whether sanctions should be ordered against TMWA. The court adopts the findings of the referee. Although the court understands that a hearing may be set, the hearing is not required and this court believes that no such hearing is necessary. [Citation.]”
Thus, when the court goes on to state that “sanctions are clearly authorized” but it lacks sufficient information to determine the proper amount of sanctions, the ruling applies exclusively to TMWA. We reject TCID’s interpretation to the contrary. Yet four months later, the court imposed $9,717.50 in sanctions, finding “SPPC acted without substantial justification on the second dispute submitted to the discovery referee.” We conclude the sanctions order of December 23, 2008, against SPPC for failing to produce documents it had never been ordered to produce was an abuse of the trial court’s discretion.
The question is not the scope of the second dispute submitted to the referee but the scope of the trial court’s ruling on the referee’s report. The referee issued an in-depth analysis of the many discovery disputes. But, as we discussed above, we are not reviewing the referee’s report. The problem with this case is the incongruity between the trial court’s rulings, reference orders, and, ultimately, the sanctions it imposed.
The second dispute the trial court referred to the referee was TCID’s February 4, 2008, motion to compel SPPC to provide further responses to its production request. Because the substance of TCID’s argument was based on its contention that SPPC had waived the attorney-client privilege, it is understandable the referee undertook such a broad examination of the discovery disputes. The problem, of course, is that the referee’s findings were at odds with the trial court’s prior rulings recognizing that some of the documents remained privileged, and the trial court never explained the incongruity. Indeed, in its pivotal August 29 ruling, the court never mentioned waiver, never ordered SPPC to produce documents, and plainly stated that it was not subject to sanctions.
At a minimum, the ambiguity in the August 29 ruling provided SPPC substantial justification for failing to disclose documents between August 29 and October 2, when TCID filed its motion for sanctions. Moreover, it would be unjust within the meaning of Code of Civil Procedure section 2023.030 to impose sanctions under these circumstances. If the trial court had decided, contrary to its own prior rulings and the reason it gave for the reference, that SPPC had waived the privilege as to all the documents, then it should have said so. But neither the August 29 nor December 15 ruling give any coherent explanation as to how SPPC violated a court order. As a result, the sanctions are arbitrary, capricious, and unjust.
We emphasize that we express no opinion as to whether SPPC waived the privilege or not, whether the referee exceeded the scope of the reference, or whether TCID is entitled to the documents it seeks. For the most part, those issues are now moot. We do conclude, however, that the record demonstrates that both TMWA and SPPC acted with substantial justification in challenging the document requests, and it was the convoluted interplay between the referee and the court that led to delay and ultimately to vague and ambiguous orders. Imposition of sanctions under these circumstances constituted an unfortunate abuse of discretion and must be reversed.
DISPOSITION
The December 23, 2008, order imposing sanctions on TMWA and SPPC is reversed. Appellants shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
We concur: SIMS, Acting P. J., ROBIE, J.