Supreme Court Says Attorney Fees Must Be Causally Linked to Misconduct

Goodyear Tire & Rubber Co. v. Haeger, No. 15-1406 (U.S. Apr. 18, 2017).

The Supreme Court recently issued a unanimous opinion resolving a split in the circuit courts about what attorney fees courts can award for misconduct in litigation.

In this case, four members of the Haeger family sued the Goodyear Tire & Rubber Company and other defendants for personal injuries they suffered when “the family’s motorhome swerved off the road and flipped over.” The Haegers alleged that the accident was caused by a Goodyear tire that failed because it “was not designed to withstand the level of heat it generated” at high speeds.

Discovery took years. The Haegers repeatedly asked Goodyear to produce test results relating to its tires’ ability to withstand the heat produced by high-speed travel. Goodyear consistently refused. Eventually, the parties settled for an undisclosed amount.

Months later, the Haegers’ lawyer “learned from a newspaper article that, in another lawsuit … Goodyear had disclosed a set of test results he had never seen.” Goodyear “conceded withholding the information” despite the Haegers’ repeated requests for it.

The Haegers returned to court seeking attorneys’ fees for bad-faith discovery fraud. The district court held that this case was “truly egregious.” It awarded the Haegers the entire $2.7 million they had spent since the “first dishonest discovery response.” “Perhaps sensing thin ice,” the district court also designated a contingent award of $2 million, discounting $700,000 that the Haegers had spent litigating against other defendants and establishing their damages, in case the Ninth Circuit reduced its award.

Goodyear appealed, but a divided Ninth Circuit agreed with the lower court. However, the Supreme Court granted Goodyear’s appeal to resolve the circuit courts’ split. Each of the courts involved took a “harsh” view of Goodyear’s actions.

Justice Elena Kagan began the Supreme Court’s analysis by noting that federal courts possess certain “inherent powers.” These powers include being able to create a sanction for conduct [that] abuses the judicial process.” However, that inherent authority is limited to reimbursing the harmed victim, not punishing the offending party.

The Supreme Court also pointed out that while a district court has “broad discretion” to determine an award, there must be a causal link between a party’s misbehavior and awarded legal fees. In short, a sanction must be “limited to the fees the innocent party incurred solely because of the misconduct — or put another way, to the fees a party would not have incurred but for the bad faith.” Courts must therefore “assess and allocate specific litigation expenses” and evaluate whether the misconduct caused each expense.

The Supreme Court decided that, because the district court “granted legal fees beyond those resulting from the litigation misconduct” without requiring a “causal link,” then “its award cannot stand.” The Supreme Court also noted that the circuit court used the incorrect standard: it applied a “temporal limitation, not a causal one.”

It is true that in “exceptional cases,” a court can shift all the fees “in one fell swoop.” To do so, however, the injured party must prove that, without the misconduct, the litigation would have ended. Here, the Haegers failed to demonstrate that the case would have settled the moment they received the withheld results.

Because the “sanctioning court must determine which fees were incurred … solely because of … the misconduct at issue,” the Supreme Court held that neither lower court “used the correct legal standard.”

Finally, the Haegers argued that Goodyear waived any objection to the $2 million contingent award. Because Goodyear did not address that argument before the circuit court, the Supreme Court refused to consider it.

Therefore, the Supreme Court reversed and remanded the case for the Ninth Circuit to assess the “possibility of waiver.” Absent a waiver, the district court “must reassess fees in line with a but-for causation requirement.”

Takeaways to ensure above-board ediscovery

If you move for sanctions under the court’s inherent authority — such as after the resolution of a case — show the costs that are caused by the misconduct and explain the linkage. To argue that expenses after a certain point are due to the misconduct, you must establish that the case would have settled at that point absent the misconduct.

Additionally, if you suspect that another party is violating its discovery obligations, you may not want to settle.

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