SCOTA RULES SANCTIONS FOR DISCOVERY ABUSE MUST BE LIMITED TO FEES INCURRED BECAUSE OF THE ABUSE

By Ted Schmidt

Today the United States Supreme Court announced an important ruling in Goodyear Tire & Rubber Co. v. Haeger, No. 15-1406 (April 18, 2017) (J. Kagan) https://www.supremecourt.gov/opinions/16pdf/15-1406_db8e.pdf.

Despite particularly egregious and dishonest conduct by the defendant Goodyear Tire & Rubber Company the court found that an AWARD OF ATTORNEYS' FEES AS A SANCTION FOR DISCOVERY ABUSE MUST PASS A “BUT FOR” TEST—FEES THAT WOULD NOT HAVE BEEN INCURRED “BUT FOR” THE BAD FAITH DISCOVERY ABUSE.

In this case he Haeger family sued Goodyear Tire & Rubber Company [Goodyear] in products liability claiming Goodyear's tire was defectively vulnerable to overheating and failure which resulted in their motor home swerving off the road and flipping.  Throughout several years of litigation Goodyear delayed and obfuscated in response to discovery requests. Months after the case ultimately settled, plaintiffs' attorneys learned that Goodyear had disclosed test results on the subject tire in other litigation which revealed the tire in fact got unusually hot at highway speeds.  Goodyear conceded that it had withheld this information in plaintiffs' case despite the fact it had been properly requested.

Plaintiffs' then sought sanctions from the United States District Court. The district court found Goodyear had engaged in an extended course of deliberate misconduct and awarded plaintiffs all of the costs and attorneys' fees they had incurred from the date of the first dishonest act by Goodyear—a total of $2.7 million. The court reasoned that had the proper disclosure been timely made the case likely would have settled earlier and plaintiffs would not have incurred as much in fees related to any work on the case.  The  district court recognized that this award exceeded the amount of fees and costs solely attributable to the failure to disclose the test results in question but found it had the inherent power to award fees above those attributable to the specific misconduct when that misconduct was particularly egregious. Alternatively,  the district court found that should the appellate court disagree, $2 million was an appropriate amount of fees and costs related solely to the misconduct.

The Ninth Circuit Court of Appeals affirmed and on a writ of certiorari the United States Supreme Court reversed and remanded.

The supreme court stated, “We hold that such  an  order  is  limited  to  the  fees  the  innocent  party incurred solely because of the misconduct—or put another way, to the fees that party would not have incurred but for the  bad  faith.”  Discovery sanctions must be compensatory and not punitive; there must be a causal link between the bad faith conduct and the fees incurred. The court found that plaintiffs could not prove the case would have settled earlier had there been a timely and full disclosure of the test results and  it was unclear that the trial court had in fact applied the “but for” test properly in suggesting an alternative award of $2 million.  Generally it is expected the district  court will assess  and  allocate  specific litigation  expenses—yet  while exercising some  discretion and judgment. 

Finally, while Goodyear may have waived the right to challenge the alternate award of $2 million when it took the position $700,000 of the $2.7 million award was unrelated, it is for the court of appeals to first address that issue on remand.