U.S. Supreme Court Reverses $2.7 Million Discovery Sanction Against GM Where Not Causally Related to the Misconduct

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Plaintiffs sued Goodyear, alleging that the failure of a G159 tire caused the family’s motorhome to swerve off the road and flip over. After several years of contentious discovery, marked by Goodyear’s slow response to repeated requests for internal G159 test results, the parties settled the case. Some months later, the plaintiffs’ lawyer learned that, in another lawsuit involving the G159, Goodyear had disclosed test results indicating that the tire got unusually hot at highway speeds. In subsequent correspondence, Goodyear conceded withholding the information, even though the plaintiffs had requested all testing data. The plaintiffs then sought sanctions for discovery fraud, and the District Court found that Goodyear had engaged in an extended course of misconduct, and, exercising its inherent authority, awarded $2.7 million — the entire sum they had spent in legal fees and costs since the moment, early in the litigation, when Goodyear made its first dishonest discovery response. The court said that in the usual case, sanctions ordered pursuant to a court’s inherent power to sanction litigation misconduct must be limited to the amount of legal fees caused by that misconduct. But it determined that in cases of particularly egregious behavior, a court can award a party all of the attorney’s fees incurred. As further support, the District Court concluded that full and timely disclosure of the test results would likely have led Goodyear to settle the case much earlier. Acknowledging that the Ninth Circuit might require a link between the misconduct and the harm caused, the court also made a contingent award of $2 million. The Ninth Circuit affirmed the full $2.7 million award, but the U.S. Supreme Court reversed.

“Federal courts possess certain inherent powers, not conferred by rule or statute, to manage their own affairs so as to achieve the orderly and expeditious disposition of cases. That authority includes the ability to fashion an appropriate sanction for conduct which abuses the judicial process. And one permissible sanction is an assessment of attorney’s fees — an order, like the one issued here, instructing a party that has acted in bad faith to reimburse legal fees and costs incurred by the other side. This Court has made clear that such a sanction, when imposed pursuant to civil procedures, must be compensatory rather than punitive in nature….  That means, pretty much by definition, that the court can shift only those attorney’s fees incurred because of the misconduct at issue. Compensation for a wrong, after all, tracks the loss resulting from that wrong. So as we have previously noted, a sanction counts as compensatory only if it is calibrated to the damages caused by the bad-faith acts on which it is based. A fee award is so calibrated if it covers the legal bills that the litigation abuse occasioned. But if an award extends further than that—to fees that would have been incurred without the misconduct — then it crosses the boundary from compensation to punishment. Hence the need for a court, when using its inherent sanctioning authority (and civil procedures), to establish a causal link — between the litigant’s misbehavior and legal fees paid by the opposing party. That kind of causal connection, as this Court explained in another attorney’s fees case, is appropriately framed as a but-for test….

“In exceptional cases, the but-for standard even permits a trial court to shift all of a party’s fees, from either the start or some midpoint of a suit, in one fell swoop….”

The Court noted that both sides essentially agreed with the applicable law. All the parties really argued about was how the law should be applied. Goodyear took the position that the trial court’s fee award needed to be vacated in its entirety.  The plaintiffs argued that the entire $2.7 million award was supported under the but-for analysis.  Which the Supreme Court rejected.

As to whether the contingent $2 million award should then stand, the plaintiffs argued that the award was suppoerted under the but-for standard, but, in any event, should stand because Goodyear had waived any objection thereeto.  The Court found that the contingenct $2 million award was not clearly supported under the correct standard, but nevertheless remanded for consideration of the waiver issue.
Goodyear Tire & Rubber Co. v. Haeger, 137 S.Ct. 1178 (2017).

 

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