Moonlight in California
US vs. Sierra Pacific Industries,
Inc.
I could have stopped the fire, but I was high…
On September 3, 2007, at approximately 2:00 pm, U.S. Forest
Service employee Karen Juska arrived at Red Rock Tower in Plumas and Lassen
National Park in the California Sierra Nevada mountains to relieve the previous
watchman. Juska found said watchman
standing on the tower’s catwalk, peeing on his bare feet. Not far away from the tower, Juska found a
marijuana pipe and the employee she was taking over for smelled like pot. Shortly after this fun little incident, a
fire would start that would ultimately scorch just under 65,000 square miles of
protected California forest. This fire would be known as the "Moonlight Fire."
We didn’t start the fire
U.S. and California authorities (hereafter known as Cal
Fire, or the plaintiffs) investigated the fires and determined that Sierra
Pacific Industries was at fault. This
was based on the discovery of two Sierra Pacific bulldozers working in the area
that Cal Fire determined was the origination point of the fire. Authorities theorized that one of the bulldozers
struck a rock, causing a spark which then started the fire. They claimed they had the testimony of one
the bulldozer drivers that corroborated this theory. (Ahem…spoiler alert…they
did not.)
A mighty flame followeth a tiny spark
Investigators failed to note the appearance of Ryan Bauer,
who was cutting firewood nearby with an illegally altered chainsaw. In fact, Bauer had false alibi, which was
that he had been at his girlfriend’s house all day instead of in the forest
with his chainsaw. They also failed to prove the origin-and-cause report’s
point of origins. Later investigation by
the defendant proved that the points of origin (which proved the plaintiff’s bulldozer-hitting-a-rock
theory) were incorrect. The Cal Fire investigator who placed the point of
origin flags conveniently couldn’t remember anything about the point of origin
discrepancy because he destroyed all his notes. Whoops!
Oh no, you didn’t!
Despite some concerns about some fraudulent discovery they found out about on the part
of the plaintiffs, Sierra Pacific agreed to a $55 million settlement while
protesting their innocence. Sierra
Pacific was pressured into the settlement: the plaintiffs had threatened them
with a $1 billion lawsuit. The federal
settlement did not include state action, and while the state action was
pending, Sierra Pacific found out about more instances of misconduct with
the federal court case. Discovery no-nos
like “’false testimony, spoliation of critical evidence,’ and abuses that had ‘permeated nearly every single significant issue in the case.’”
Ha! In your face Cal Fire!
On
the state court level, the state court voted in favor of Sierra Pacific,
stating that they found “misconduct so ‘deliberate’ and ‘egregious’ that ‘any remedy short of dismissal’ would be ‘inadequate.’”
The state court dismissed Cal Fire’s case against Sierra Pacific. An appellate court would later affirm the
dismissal based on the discovery misconduct of Cal Fire.
Wait, hold up!
Sierra Pacific then
moved to have the federal settlement dismissed based on the preponderance of
evidence that the plaintiff had committed deliberate misconduct (under Rule 60(d)(3),
which alleges fraud on the court). Problem
was, the motion of alleged misconduct was with the U.S. Attorney’s office. The U.S. Attorney’s office was in daily
contact with…wait for it…judges in the Eastern District of California. The Chief Judge on the Ninth Circuit directed each judge on the Ninth
Circuit to consider recusal individually due to a possible conflict of interest.
Only one actually did it.
‘Cause he’s a life
ruiner. He ruins people’s lives.
One the judges,
Judge Shubb, heard the petitioner's motion. He
determined that Rule 60(d)(3) did not apply to Sierra Pacific’s situation. He stated that because Sierra Pacific did
know about some of the fraud prior to the settlement, Rule 60(d)(3) didn’t
cover it. The Rule only applied to after-discovery
fraud. So even though Sierra Pacific
learned more about the discovery fraud after settling, it didn’t count because they
knew some of it before. Additionally, Judge Shubb decided that the
after-discovery fraud that Sierra Pacific found out about wasn’t that big a
deal.
And the hits just
keep on coming
The Ninth Circuit
affirmed Judge Shubb’s decision. They
also felt like Judge Shubb did a fine job and there wasn’t any need for him to
have recused himself. (By the way, there is a whole other issue with Judge
Shubb tweeting about this case which I don’t have time to get into here but it
is very interesting. Read the articles
linked below for more information.)
After the Ninth Circuit’s decision, Sierra Pacific was invited to submit
a Writ of Certiorari to the Supreme Court for October 2018’s session. They were denied.
Up for discussion
First, what do you
think about Judge Shubb’s decision? Did Cal Fire commit fraudulent activity?
Does Rule 60(d)(3)
only apply to after-discovery fraud or can it include pre-trial fraud?
Despite being
threatened with a $1 billion lawsuit, should Sierra Pacific have gone to trial,
knowing there was some fraudulent activity on the part of Cal Fire?
What are the
implications of this ruling for individuals and small companies rather than a
gigantic company like Sierra Pacific?
Should there be some
protections in place for fraud no matter when it’s discovered? What would be the advantages/disadvantages of
this?
Sources and for more information
on the case:
A Wildfire of Corruption
DOJ Urges Justices to Pass on Judicial Tweeting Issue
Prosecutorial Fraud Arrives at the Supreme Court
Above the Law to the Supreme Court
Writ of Certiorari
Ninth Circuit Court of Appeals
Rule 60
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ReplyDeleteWow--this is insane! I'm going to tackle the question of whether Sierra Pacific should have gone to trial rather than settle. In my opinion, they made the right decision, because it allowed them to stay in business, particularly in the face of $1 billion in damages. According to the article, "assistant United States Attorney Kelli Taylor filed motions warranting to the court that there was not a 'shred of physical evidence' to suggest another party might have been liable," and that Judge Kimberly Mueller--a trial judge--assented. SPI could not argue that someone else started the fire. Therefore, I think SPI weighed its options and decided to go with the most viable option of settling with the government while still being able to stay afloat.
ReplyDeleteThis comment has been removed by the author.
DeleteI agree! This case is a perfect example of one of the weaknesses of our litigation system. In many situations people are forced to settle as a result of the cost involved to prove a point. Settlement doesn’t mean you are assuming liability, it simply might mean you are cutting your loses. This was likely a very difficult decision for SPI to make. Considering who they were up against and what was at stake, I believe they made a business decision to settle in order to save costs and public image.
DeleteIncredible! However, it looks like the defendant did not convince Judge Shubbs that there was fraud with a preponderance of evidence. Unfortunately, under Rule 60(3)(d), this should have been proven before settlement.
ReplyDeleteI absolutely think Sierra Pacific should have gone to trial (maybe I'm in "litigator mode!"). First, they could have used their expert/investigator to argue the different point of origin of the fire. This would have been compelling given that Cal Fire could not have convincingly disputed the point of origin because their notes had been destroyed. Additionally, where is that chainsaw!? Ryan Bauer's false alibi is clearly compelling information. I imagine there is an expert out there who could testify as to the reason altered chainsaws are illegal. Further, the expert could have testified that "gasoline and hot chainsaw engines can be contributing factors in starting fires in the woods" (found in an article from a simple Google search). Sierra Pacific should have gone to trial because it was not their duty to prove they DID NOT start the fire, it was Cal Fire's burden to prove Sierra Pacific did start the fire. And without contemporaneous documentation from the original investigation, I'd say they were in the power-down position, not Sierra Pacific.
ReplyDeleteIt sounds like the cost of litigation was a deciding factor in this case. The settlement and moving on with business was more economical than the time it would take to pay for lawyers, experts, and other expenses regarding discovery. Would be interesting to know how much was covered by the insurance carrier.
DeleteThis is… something. There seems to be a lot to this case, but I first want to say that Sierra Pacific should not have settled so quickly. Protections put in place for fraud could be beneficial for situations like this however I feel that part of the issue was the decision to settle so quickly. Protections put in place (as in a situation such as this) would take more resources (money spent) and potentially add time to an already lengthy process (the whole litigation process is already lengthy). If you are a party in a lawsuit it is your responsibility to perform a thorough discovery before making the decision to settle. Where I can see the benefits of fraud protection, I really do not see the benefits outweighing the resources required to implement such a practice.
ReplyDeletePart of the litigation strategy is determining what information to go for and what information is too expensive and not worth the cost. My PI attorney mentions that for some cases, he only wants a cheap expert (he calls them whores) for a case in order to get a settlement without going through the expense of hiring the best in the business. For another case that involves more parties and the negligence is clear, we hired some of the best experts because the recovery is higher and we want to limit the attacks the defense can have on our experts in this case.
DeleteThis may have been in one of our readings, but it is important to set out a litigation budget early on in the process. The equation I read was that you divide the hourly rate into a fee limit to determine the litigation budget. You do this even in contingent cases because it does not make sense to do work that you ultimately cannot recover fees for. Of course, it is important to do your due diligence and get a comprehensive set of information, but comprehensive does not necessarily mean complete.
A remedy that amount 55M, does it make any difference going to trial and settling for 1M less? At that level I think you should exhaust all your resources. On the other hand the common people (middle class) then think twice where you want to be in the process of litigation bases on finances.
DeleteI’ve been totally sucked into motions to dismiss and I found it interesting that the defendants in this case were arguing that De novo review is appropriate. The argument was the district court created a procedural posture they compared to Rule 12(b)(6) when they asked the parties to brief only on the legal sufficiency of the defendants allegations.
ReplyDeleteThis section was somewhat odd and difficult to decipher, but…
Rule 12(b)(6) “Failure to state a claim upon which relief can be granted” is one of the seven grounds to dismiss under 12(b). The motions states, even if the facts are true the plaintiff’s pleading doesn’t have a legally recognizable claim. (Not every wrong has a legal remedy.) The court discussed that 60(d)(3) is appropriate because it’s grounded in the courts inherent power to set aside a judgment, and therefore abuse of discretion is appropriate. Of course, we know how that worked out for the defendants, don’t we?
Tyrrell, I'm glad you brought this up. I would love more examples of times in which a wrong does not have a legal remedy. And aren't punitive damages part of a remedy to dissuade people/businesses from acting negligently in the future?
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DeleteExcept the court didn't go for the defendant’s argument, for De Novo review. What the defendants were saying (if I have it correct) was that the court, in its requirement to brief only on the sufficiency of the defendant's allegations narrowed the information that it would consider. The Ninth Circuit agreed with Judge Shubb that the instances of the alleged fraud known before the settlement couldn’t justify relief under Rule 60(d)(3). The Ninth Circuit also concluded that the totality of the after-discovered fraud here did not warrant Rule 60(d)(3) relief. However, did the court ever consider whether both circumstances together constituted fraud? Meaning, both what was discovered before and after the settlement? If so, would the totality of those two situations combined be enough to show fraud?
DeleteThere are so many aspects of this case that don’t make sense. I can’t believe Sierra Pacific Industries (SPI) settled, but as in many cases of settlements it comes down to cutting prospective losses. First of all, the Cal Fire origin and cause investigation report claiming to have interviewed the dozer drivers, hired by SPI to clear private land, should have been disclosed or at least subject to a GRAMA request by SPI. The fraudulent claims of the alleged corroborating testimony should have been investigated by SPI. The investigation had originally identified a different area of origin, as well. This fire took place in 2007, the original findings of the C&O weren’t revealed until 2009, followed shortly there after with a lawsuit citing three defendants, SPI being the largest. Discovery went on for three years, when in 2012 SPI settled, still denying guilt, mostly because a federal trial judge had held just before trial that SPI could be liable even if its independent tree removal contractor didn’t start the fire. Although the original filing for damages was $800 million, SPI settled for the $55 mill plus a significant land swap.
ReplyDeleteThe disparity in the State actions on this case and the Federal court’s is what’s intriguing to me. In a case that the State clearly found significant fault with the Federal agencies actions, it is fascinating that the Federal court did not find any aspect of the exposed fraud worthy of a Rule 60(b)(3) relief from the judgment for SPI. From what I’ve read there is significant reason to be suspect of fraud and corruption on the part of the Federal government agencies. The actions involving the lead counsel for the federal government is another twisted tail of intrigue. https://www.sacbee.com/news/local/article2645729.html
This is a fascinating, but disturbing case and I wish SPI hadn’t settled in the first place.
Nitpick for the sake of clarification: GRAMA is Utah's government records access law. The California Public Records Act is the rough equivalent in this instance.
DeleteMore to your point, this case is a fascinating study in the tendency of some businesses to settle hastily, just to "make things go away." Cutting losses and saving face are understandable motivations, but you're right -- the cascading effects were absurd. This is exactly how the road to Hell gets paved!
It sounds like we are split on the decision to settle. Perhaps we should have a class mock trial! Valid points on both sides!
ReplyDeleteShould you settle if someone puts a gun on your head? That's the allegation on Sierra's attorney.
DeleteWhat is the based authority of the defendant’s lawyers to allege fraud that took place before the settlement? The defendant lawyers respond that based on precedent cases it is the totality of the fraud the court has to look at the whole expect-rum of fraud. One of the court judges of the court of appeals of the Ninth Circuit said to defendants, you had the opportunity to show those allegations in a jury, and you decided not to do so. You knew of these evidences and decided not proof them in front of a jury as strategic decisions. Defendant claimed that those evidences should not be allowed to show discovery from a third party causation. The judge clarified that defendant could have pursued with the allegations even though was limited. It was subject at the time of the investigation that defendant could have changed the minds of the District Court for a trial having the possibility to show more. Defendants did not exhaust all their resources to proof wrong the District Court.
ReplyDeleteSecond defendant attorney alleges that they were motivated to settle because of the exposure of the remedy. In other words, the District Court put a gun on their head to settle. This was a very weak way to have a hearing and the motion not to be denied. Second defendant confirmed that they had evidence before settling, why then accepting to settle before a trial? Very stupid in my opinion.
U.S attorney clarified that defendants agreed with the settlement and plaintiff did nothing wrong just based on what was agree in the negotiation that took place for 2 weeks. Also U.S attorney clarified that there was no fraud on the allegations by the defendants. If the settlement is obtained by fraud that settlement can be erased years later. To proof fraud there has to be a court’s decision that must have been influenced or graveness in the judgment.
In this case judgment has been done upon a settlement agreement at a join request by the defendants, they asked themselves to enter into that judgment. There was no hearing, no arguments, no finding of facts, nothing but the parties’ agreement. The parties acknowledged all the fact and non-facts material. The settlement had a clause that states that settlement was not compulsory instead voluntarily. And also the case was dismissing with prejudice at the request of defendants. In my opinion the Court of Appeals asserted that decision of the denial on the motion filed by the defendant. The court ruled that all accusations of fraud discovered before the settlement were legally insufficient.
Reflection do not settle to soon before discovery. And if you have a great BATNA chose the right path for a good judgment.
"By the way, there is a whole other issue with Judge Shubb tweeting about this case which I don’t have time to get into here but it is very interesting. Read the articles linked below for more information."
ReplyDeleteChallenge accepted! AtL has a great rundown/update here, with links to the government's brief defending Shubb and to Sierra Pacific's response, which (to me) reads like a pretty impressively thorough takedown. This guy didn't only do a disservice to his own air of impartiality; he actually tweeted a link to a news article whose headline contradicted the basic facts of the settlement.
I share AtL's position that judges should not tweet about their cases in-progress. Any illusion of proper disinterest is completely shattered here.
(Is this why the 9th Circuit has such a weird rap? Is this why they can't have nice things?)
The Cal Investigator had a duty to preserve evidence and did not by “destroying” all of his paperwork. This seems odd. I would assume that these point of origin flags were tracked electronically and therefore stored in the cloud. The fact that this evidence was destroyed is especially suspect. When more instances of misconduct were discovered after the discovery phase, this should have been retried in district court. By introducing this new evidence, it could potentially change the outcome of the lawsuit. By Sierra Pacific knowing some of this evidence previously and not presenting it to the other side would be cause for a motion to dismiss or even summary judgement in the sense that they could have been covering up what really happened. I hope I am understanding this correctly but would like to discuss it more in class with you, Tricia!
ReplyDeleteI think it’s just as likely for the State Courts to be in bed with Sierra Pacific as it is for the US District Court and the 9th Circuit Court of Appeals to be in bed with the State and Federal investigators. Frankly though, I’m not sure there’s a whole lot to substantiate either scenario. There’s no doubt that the state and federal investigators mangled the case. There was certainly “misconduct” in the true sense of the word. But the Apprllate Court’s ruling seems pretty cut and dry. Whether we like it or not, facts and procedure are stubborn things. Appellate courts don’t retry caseses on new evidence, they look at how the District Court case was argued, and rule based on interpretation of applicable statutes and procedures. If the defense didn’t make a strong enough case using the available evidence, I’m not sure how presenting more of the same would have made a difference to the outcome.
ReplyDelete