Sanctions Under Section 128.5 Must Comply With 21-Day Safe Harbor Provision

in Civil Litigation by

Stephen L. RaucherIn Nutrition Distribution, LLC v. Southern SARMs, Inc. (2018) 2018 Cal. App. LEXIS 81, the California Court of Appeal, Second Appellate District, Division 7, was asked to interpret Code of Civil Procedure Section 128.5(f), which governs the procedure applicable to motions for sanctions for bad faith actions or tactics. The court held that under the version of Section 128.5(f) in effect from January 1, 2015 to August 7, 2017, a 21-day safe harbor waiting period applied to such motions for sanctions. This is in contrast to the holding in San Diegans for Open Government v. San Diego (2016) 246 Cal. App.4th 1306, 1317, which held: “[A] party filing a sanctions motion under Section 128.5 does not need comply with the safe harbor waiting period described in Section 128.7, subdivision (c)(1).”

Section 128.5(a) authorizes a trial court to order a party, the party’s attorney, or both to pay reasonable expenses, including attorney fees, incurred as a result of bad faith actions that are frivolous or solely intended to cause unnecessary delay. Former subdivision (f) was in effect from January 1, 2015 to August 7, 2017. It provided: “Any sanctions imposed pursuant to this section shall be imposed consistently with the standards, conditions, and procedures set forth in subdivisions (c), (d), and (h) of Section 128.7.” Section 128.7 governs misconduct in the filing or advocacy of groundless claims in signed pleadings and other papers. Under Section 128.7(c)(1), service of the motion for sanctions initiates a 21-day safe harbor period, patterned after Federal Rule of Civil Procedure 11. During this time, the offending document may be corrected or withdrawn without penalty, and the motion for sanctions cannot be filed. San Diegans for Open Government found that motions for sanctions under Section 128.5 did not need to comply with the safe harbor provision. This had the effect of allowing parties to request sanctions as part of their moving or opposition papers, in a throwback to the process in California prior to adoption of Section 128.7 and its safe harbor provision.

In Nutrition Development, as part of its demurrer, the defendant argued that the plaintiff’s assertion of frivolous claims and bad faith conduct warranted imposition of sanctions pursuant to Sections 128.5 and 128.7. The court sustained the demurrer and dismissed the case but denied the request for sanctions. The court indicated that the defendant could choose to file a separate motion for sanctions. The defendant did so, but the motion was denied pursuant to the safe harbor rule on January 9, 2017. The defendant appealed.

Meanwhile, in August 2017, the Legislature amended Section 128.5 to include subdivision (f)(1)(B), which contains an explicit 21-day safe harbor period. The Nutrition Development court stated that this amendment confirmed the Legislature’s intent to include a safe harbor provision in former subdivision (f) and “abrogate several of the holdings under San Diegans for Open Government.” The court in Nutrition Development explicitly disagreed with the holding in San Diegans for Open Government and found the plain meaning and obvious intent of the Legislature in Section 128.5 prior to the August amendment was to incorporate the Section 128.7 safe harbor provision by cross-reference. Accordingly, the court affirmed the denial of sanctions.

Given the clear intent to incorporate the safe harbor requirement as stated in the new version of Section 128.5(f), the effect of the holding in Nutrition Development will be limited to sanctions orders issued under the prior version of the law without compliance with the safe harbor rule in reliance on San Diegans for Open Government. How many such orders are or will be subject to appeal — and whether the California Supreme Court will be asked to resolve the split of opinion on this now mostly moot issue — remains to be seen.

Author’s Note:  In CPF Vaseo Associates, LLC v. Gray, 29 Cal. App. 5th 997 (2018) (filed December 6, 2018), the Fourth Appellate District reversed its decision in San Diegans for Open Government in favor of the holding and reasoning in Nutrition Distribution.  Accordingly, there is no longer a conflict between the Fourth and Second Appellate Districts on this issue.