Supreme Court Vacates $2,700,000 Fees and Costs Award

Last Tuesday, the Supreme Court of the United States decided Goodyear Tire & Rubber Co. v. Haeger and vacated the district court’s award of $2,700,000 of fees and costs.[1]  The Haegers had alleged personal injury arising from a defective Goodyear G159 tire that the plaintiffs contended overheated and failed at highway speeds.  The Haegers asked for Goodyear’s own testing data concerning the G159 tire “but the company’s responses were both slow in coming and unrevealing in content.”  The case settled on the eve of trial.  After settlement, plaintiffs learned of testing data they had never seen before.  The data were produced in a different case, but not theirs.  The Haegers filed a post-settlement motion to impose fees and costs against Goodyear for “discovery fraud.”

“The District Court agreed to make such an award in the exercise of its inherent power to sanction litigation mis­conduct.”  It concluded since the case was settled “[a]ll it could do for the Haegers was to order Goodyear to reimburse them for attorney’s fees and costs paid during the suit.”  The District Court awarded the Haegers $2,700,000 for fees and costs “since the moment, early in the litigation, when Goodyear made its first dishonest discovery response.”  The award covered “both expenses that could be causally tied to Goodyear’s misconduct and those that could not.”  The Ninth Circuit affirmed and “created a split of authority: Other Circuits have insisted on limiting sanctions like this one to fees or costs that are causally related to a litigant’s misconduct.”

There was no dispute that a federal court has an inherent ability to sanction and order “a party that has acted in bad faith to reimburse legal fees and costs incurred by the other side.”  The dispute concerned the extent of that ability in the context of this case.

“This Court has made clear that such a sanction, when imposed pursuant to civil procedures, must be compensa­tory rather than punitive in nature. In other words, the fee award may go no further than to redress the wronged party ‘for losses sustained’; it may not impose an additional amount as punishment for the sanctioned party’s misbehavior.”  To impose a punitive sanction, “a court would need to provide procedural guarantees applicable in criminal cases, such as a ‘beyond a reasonable doubt’ standard of proof.”  Absent those protections, only compensatory damages are available.

For practical purposes, “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.”  This creates a “but-for test: The complaining party (here, the Haegers) may recover only the portion of his fees that he would not have paid but for the misconduct.”[2]  “This but-for causation standard generally demands that a district court assess and allocate specific litigation ex­penses—yet still allows it to exercise discretion and judg­ment.”  “The essential goal in shifting fees is to do rough justice, not to achieve auditing perfection.”[3]

Having said that, it remains possible, in rare cases, for an award similar to what the District Court entered here.  “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 Supreme Court gave an example of when such an award may be appropriate.  “If a plaintiff initiates a case in complete bad faith, so that every cost of defense is attributable only to sanctioned behavior, the court may again make a blanket award.”

The Supreme Court vacated the $2,700,000 award of fees and costs first because the District Court specifically rejected any requirement to link this amount to the extent of the misconduct.  The Ninth Circuit allowed the award to stand for the fees and costs incurred during the period of time that Goodyear had acted in bad faith, but did not specifically require a link between the fees and costs awarded and the misconduct at issue.  “A sanctioning court must determine which fees were incurred because of, and solely because of, the misconduct at issue (however serious, or concurrent with a lawyer’s work, it might have been). No such finding lies behind the $2.7 million award made and affirmed below.”

What does this mean?

If you are in a federal court and seek an award of fees and costs relying upon the court’s “inherent authority,” you had best directly connect the fees and costs you seek to the alleged misconduct.  The fees and costs sought should also be verifiable and likely broken down so the District Court may provide the “rough justice” Haeger permits.  I do not necessarily believe Haeger has a direct impact upon the daily workings of most courts, but it certainly resolves the circuit split that led to granting certiorari.

As a practical matter, Haeger also highlights a problem made greater in the digital age: Discovery in one case can, and often is, easily shared.  For clients like the Goodyears of the world, whatever is said in one case is now far more likely to be used against you later.  This may be what has in turn led to the rise of discovery related protective orders.

[1] 581 U.S. ___, 2017 U.S. LEXIS 2613, 2017 WL 1377379 (April 18, 2017).  Paginated citations are not yet available.
[2] Quotation omitted.
[3] Quotation omitted.