## Facts

- Interstate hired Sapphire in 2002 to convert Interstate’s software application from a DOS-based format to a modern platform.
- Interstate later sued Sapphire for breach of contract, alleging Sapphire failed to complete the conversion project.
- In discovery, Interstate produced an unsigned contract document dated November 26, 2002, stating counsel could not locate a signed copy despite a diligent search.
- Sapphire later found a slightly different contract version dated November 14–15, 2002, and asserted Interstate had concealed or mischaracterized the operative agreement.
- Sapphire moved for summary judgment; the trial court denied the motion, describing the two contract versions as similar and stating Sapphire failed to identify material differences.
- The trial court nonetheless imposed monetary sanctions against Interstate (and its counsel) based on Interstate’s handling of the contract documents in discovery.
- Interstate appealed from the sanctions order; the contract claim’s merits were not finally resolved in the appeal.

## Issues

1. Whether the trial court had a valid legal basis and followed required procedures to impose monetary sanctions for alleged discovery misconduct regarding the contract documents.
2. Whether the record supported a finding of sanctionable misconduct by Interstate or its counsel.
3. Whether sanctions could stand where the sanction theory conflicted with the trial court’s own merits-related finding that the contract versions were similar and not materially different.

## Decision

- The Court of Appeal vacated the sanctions order and remanded.
- The court held the sanctions lacked adequate legal and factual support under the record presented.
- The court awarded Interstate its costs on appeal.
- The underlying breach-of-contract action remained pending for further proceedings.

## Legal Principles

- Monetary sanctions for discovery misuse must rest on a specific legal authorization (statutory or inherent power) and an evidentiary record supporting sanctionable misconduct.
- A sanctions rationale must be logically consistent with the trial court’s own treatment of the same evidence in merits rulings; internal inconsistency can constitute an abuse of discretion.
- Appellate review of discovery sanctions is deferential, but a sanctions order may be reversed where it rests on an untenable legal theory or unsupported factual premise.

## Conclusion

The appellate court vacated monetary sanctions imposed for alleged discovery misconduct because the record did not substantiate willful wrongdoing and the sanction theory conflicted with the trial court’s merits determination that the competing contract versions were not materially different.


Interstate Specialty Mktg., Inc. v. ICRA Sapphire, Inc., 217 Cal. App. 4th 708, 158 Cal. Rptr. 3d 743 (Ct. App. 2013)