Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. ___ (2017)
In this rare opinion from our Supreme Court addressing discovery, the court considered â€œa federal courtâ€™s inherent authority to sanction a litigant for bad-faith conduct by ordering it to pay the other sideâ€™s legal fees.â€� The court held that â€œsuch an order is limited to the fees the innocent party incurred solely because of the misconductâ€”or put another way, to the fees that party would not have incurred but for the bad faith.â€� Because neither the trial court nor the appellate court applied the correct legal standard, the judgment of the Court of Appeals (9th Cir.) was reversed and the case remanded for further proceedings.
Plaintiffs sued Defendant after their motorhome swerved off the road and flipped. Plaintiffs alleged the accident was caused by the failure of their Goodyear tire.Â In the course of discovery, Plaintiffs repeatedly sought disclosure of Defendantâ€™s internal test results related to at-issue tire, but â€œresponses were both slow in coming and unrevealing in content.â€�Â Ultimately, the case settled.
Several months later Plaintiffsâ€™ counsel read in the newspaper about test results disclosed in a separate litigation involving the same model tireâ€”which he had never seen. The test indicated that the at-issue tire model â€œgot unusually hotâ€� at certain speeds, which had been Plaintiffsâ€™ theory all along.Â Defendant conceded withholding the information.
Plaintiffs sought sanctions for discovery fraud, specifically payment of their attorneyâ€™s fees and cost â€œexpended in the litigation.â€� The District Court, reasoning that no statute or rule â€œenabled it to reach all the offending behaviorâ€� granted Plaintiffsâ€™ motion pursuant to its inherent authority.Â Moreover, despite acknowledging the usual need to limit such an award to expenses caused by the offending behavior, the court justified its authority to award a greater amount based on the egregious behavior of Defendant and its determination that disclosure of the test results would â€œmore likely than notâ€� have allowed settlement much earlier. Ultimately, the court awarded $2.7 million to account for Plaintiffsâ€™ legal costs â€œsince the moment, early in the litigation, when Goodyear made its first dishonest discovery response.â€�Â Notably, in the event the Circuit Court required a causal connection, the court also made a â€œcontingent awardâ€� of $2 million, reducing the award to exclude $700,000 based on costs associated with developing claims against other defendants and proving Plaintiffsâ€™ medical damages.Â On appeal, the Ninth Circuit affirmed the full $2.7 millionÂ award.Â This created a split of authority for the Supreme Court to resolve.
Summarizing broadly, the Supreme Court confirmed that federal courts possess inherent authority to impose sanctions â€œfor conduct which abuses the judicial processâ€� and that one such sanction is the â€œassessment of attorneyâ€™s fees.â€� However, the court made clear that such an award â€œmay go no further than to redress the wronged party â€˜for the losses sustainedâ€™; it may not impose an additional amount as punishment . . . .â€�Â â€œThat means, pretty much by definition, that the court can shift only those attorneyâ€™s fees incurred because of the misconduct at issue.â€�Â The court further explained that â€œ[t]hat kind of causal connection . . .Â is appropriately framed as a but-for test . . . .â€�Â Thus, a complaining party may recover â€œâ€˜only the portion of his fees that he would not have paid but forâ€™ the misconduct.â€�
In the present case, the court reasoned, neither of the lower courts used the â€œcorrect legal standard.â€� The District Court, for example, â€œspecifically disclaimed the â€˜usual[ ]â€™ need to find a â€˜causal linkâ€™â€� between the misconduct and the fees awarded in light of the seriousness of the misconduct and possible effect (delay) on settlement.Â The Circuit Court, for its part, also â€œmistook what findings were needed to support [the] awardâ€� when it concluded that the trial court could grant all fees incurred â€œduring the timeâ€� of Defendantâ€™s bad behaviorâ€”a â€œtemporal limitation, not a causal one . . . .â€�
Ultimately, the court reversed the judgment of the Circuit Court and remanded the case for further proceedings.
A copy of the courtâ€™s full opinion is available here.