Goodyear Tire & Rubber Co. v. Haeger

Issues 

Should there be a direct causal link between a litigant’s discovery misconduct and a compensatory sanction that a court imposes in response to such misconduct pursuant to the court’s inherent authority?

Oral argument: 
January 10, 2017

Respondents Leroy Haeger, et. al (“the Haegers”) were injured during a vehicle accident as a result of a failed tire, which was manufactured by Petitioner Goodyear Tire & Rubber Company (“Goodyear”). After the case settled, the Haegers discovered that Goodyear did not disclose several tests that it performed on the tire; the Haegers then moved the court to sanction Goodyear for its discovery misconduct. The district court relied on its inherent powers to sanction Goodyear and its counsel. Goodyear argues that the Supreme Court should limit inherent authority sanctions to those fees and costs directly caused by the claimed misconduct. The Haegers argue that although compensatory damages must be causally linked to the sanctioned misconduct, when the sanctionable misconduct is not limited to a single, discrete instance, but instead is so pervasive as to undermine or affect the whole litigation, an award of the entire amount of attorney’s fees and costs incurred by the party who is victim to the misconduct may be appropriate to compensate that party. The outcome of this case could potentially affect the scope of district courts’ inherent power to impose sanctions for discovery misconduct, when the courts cannot rely on the Rules or other statutory authority. The case will show whether a more exacting causation standard or a more discretionary standard should be used by the district court to impose sanctions under its inherent powers. 

Questions as Framed for the Court by the Parties 

Is a federal court required to tailor compensatory civil sanctions imposed under inherent powers to harm directly caused by sanctionable misconduct when the court does not afford sanctioned parties the protections of criminal due process?

Facts 

BACKGROUND

In June 2003, Leroy Haeger, et al. (“the Haegers”) suffered serious injuries when, as they were driving on a highway, a Goodyear G159 tire on their vehicle failed, causing the vehicle to swerve off the road and overturn. Haeger v. Goodyear Tire & Rubber Co., 813 F.3d 1233, 1238 (9th Cir. 2016). The Haegers sued Goodyear Tire & Rubber Company (“Goodyear”) in Arizona state court, but Goodyear removed the case to federal court. Id. Basil J. Musnuff (“Musnuff”) and Graeme Hancock (“Hancock”) were Goodyear's counsel for the case. Id.

GOODYEAR’S DISCOVERY MISCONDUCT

In September 2006, the Haegers served their First Request for Production of Documents, asking Goodyear to produce the records of all tests conducted on G159 tires, such as high speed tests and durability tests. Haeger, 813 F.3d at 1238. Goodyear, however, only produced G159 tire’s Department of Transportation (DOT) test results, which showed that the tire was tested at 30 mph. Id.

The Haegers’ initial theory of the case was that prolonged exposure to heat caused the tire to deteriorate and fail prematurely. See Haeger, 813 F.3d at 1238. In January 2007, the Haegers’s expert witness prepared a report, which concluded that speed also contributed to the tire’s premature failure. Id. at 1239. In light of this report, Musnuff wrote to Hancock contemplating whether they should produce the results of G159 tire’s testing at speeds higher than 30 mph. Id. Although Musnuff emailed the High Speed tests to Hancock in February 2007, on April 6, 2007, in response to the district court’s question about whether there were any additional documents that Goodyear did not disclose yet, Hancock stated that Goodyear had produced all documents that it had in its possession. See Id.

In May 2007, the Haegers made a Third Request for Production of Documents requesting Goodyear to produce G159 tire’s testing results at a speed of 75 mph. Haeger, 813 F.3d at 1238. In June 2007, Goodyear produced the High Speed tests, and, in October 2007, Hancock told the court that Goodyear did not possess any tests other than those already disclosed. Id. at 1240.

In April 2010, the Haegers and Goodyear reached a settlement. Haeger, 813 F.3d at 1238. Subsequently, the Haegers discovered that in another case involving a G159 tire, Goodyear produced several tests that it had never disclosed to the Haegers. See id. On May 31, 2011, the Haegers filed a motion for sanctions, alleging that Goodyear had committed discovery fraud. Id.

THE DISTRICT COURT’S ORDER AND GOODYEAR’S APPEAL

After a hearing, the district court found that Goodyear failed to disclose several tests that it produced in the other G159 tire cases. Haeger, 813 F.3d at 1241. On November 8, 2012, the district court imposed sanctions in the sum of $548,240 against Hancock and $2,192,961 jointly against Musnuff and Goodyear for their deliberate discovery misconduct and misrepresentations to the court. Id. at 1237, 1241. The sanctions reflected all of the attorney’s fees and costs that the Haegers incurred after Goodyear’s discovery misconduct. See id. at 1242. The court held that, without Goodyear’s misconduct, the case more likely than not would have settled earlier, and, possibly, for more money. See id. The court relied on its inherent powers to impose the sanctions because it concluded that sanctions under 28 U.S.C. § 1927 or Rule 11 were not available in this already closed case. Id.

In July 2015, the Ninth Circuit affirmed the district court’s decision. Haeger, 813 F.3d at 1237. On February 16, 2016, the Ninth Circuit issued an amended opinion and denied request for rehearing en banc. On September 29, 2016, the Supreme Court granted certiorari. Brief for Petitioner, The Goodyear Tire & Rubber Co. at 1.

Analysis 

CAUSAL-LINK REQUIREMENT

Goodyear contends that fees and costs awarded as compensatory sanctions under a court’s inherent authority must be causally linked to the sanctioned misconduct. Brief for Petitioner, Goodyear Tire and Rubber Co. at 11. Furthermore, Goodyear argues that the Supreme Court should limit inherent authority sanctions to those fees and costs directly caused by the claimed misconduct. See id. Goodyear asserts that the Ninth Circuit erred by refusing to apply any causation requirement to the $2.7 million sanction imposed in this case against Goodyear and its outside counsel. See id. at 32. Goodyear argues that the Ninth Circuit avoided the causation requirement by relying on the case Chambers v. NASCO, Inc., 501 U.S. 32 (1991), and suggesting that it created a different test for non-contempt inherent authority sanctions. See id. at 23. Goodyear asserts that the Haegers incorrectly interpreted Chambers to mean that so long as the misconduct was “frequent and severe” the amount of the compensatory sanctions award need not be causally linked to the misconduct. Id.        

The Haegers maintain that the Ninth Circuit did not reject a causation requirement for the sanctions imposed, but rather, the Ninth Circuit expressly concluded that Goodyear’s bad faith conduct caused significant harm by forcing the Haegers to waste significant resources engaging in a sham litigation. Brief for Respondents, Leroy Haeger, et al. at 22. The Haegers argue that the fees awarded as sanctions were appropriate to compensate them for the damages they suffered as a result of Goodyear’s bad faith in complying with the Haeger’s discovery requests. See id. at 18. Furthermore, the Haegers argue that the Ninth Circuit acknowledged that a causal link is required between the harm caused and the compensatory sanctions awarded when a court invokes its inherent power. See id. at 17. Instead, the Haegers argue the Ninth Circuit rejected only the additional requirement proposed by Goodyear that the harm be “directly caused” by the misconduct. See id. at 18. Contrary to Goodyear’s contentions, the Haegers argue that they do not dispute that fees and costs awarded as sanctions under a court’s inherent power must be causally connected to the bad faith misconduct. Id. at 30.

DIRECT CAUSAL LINK & DUE PROCESS

Goodyear contends that remedial monetary sanctions must be “calibrated to compensate the complainant for losses sustained,” otherwise such sanctions are criminal in nature and entitle the sanctioned party to the due process protections of criminal contempt. See Brief for Petitioner  at 17. Applying Int’l Union v. Bagwell, 512 U.S. 821 (1994), Goodyear argues that a sanction may be found to be “punitive” rather than “remedial,” if a court does not indicate that the sanctions awarded were directly caused by the misconduct and meant to compensate the complainant for the losses sustained. See id. Goodyear maintains that such “uncalibrated” punitive fines warrant criminal due process protections. Id.     

The Haegers argue that requiring a more exacting causal link between the specific instances of misconduct and each expenditure by the victim would only encourage more needless and extensive “satellite litigation.” See Brief for Respondents at 39. The Haegers argue that the goal in shifting fees to either party is to achieve justice, and the court may use estimates in calculating and allocating an attorney’s time. See id. at 38. Furthermore, the Haegers contend that an appellate court must give substantial deference to the district court’s determination that there was a causal link between all of the attorney’s fees and costs awarded and the sanctionable misconduct, in light of the fact that the district court has a superior understanding of the litigation. See id.

NON-SPECULATIVE AWARD OF FEES

Goodyear argues that to award strictly compensatory civil sanctions, the court should limit the award to fees that can be linked in a non-speculative way to the misconduct alleged. See Brief for Petitioner at 36. Furthermore, Goodyear contends that the burden is on the Haegers to prove what damages they suffered as a direct result of Goodyear’s misconduct. See id. Goodyear argues that the court’s mere speculation that the Haegers would have settled the case if they had known of the missing test results cannot satisfy the direct causation requirement. See id. at 37. Goodyear asserts that in absence of such evidence showing a link between the amount of sanctions awarded and the amount of loss suffered, any sum awarded by the court is impermissively arbitrary. See id. Furthermore, Goodyear maintains that disclosure of the test results would not likely have prevented Goodyear from having to defend the case because the test results did not provide conclusive proof that the tire failed due to defective design. See id.

The Haegers argue that although compensatory damages must be causally linked to the sanctioned misconduct, when the sanctionable misconduct is not limited to a single, discrete instance, but instead is so pervasive as to negatively affect the whole litigation, an award of the harmed party’s entire attorney’s fees and costs may be appropriate to achieve fair compensation. See Brief for Respondents at 20. The Haegers rely on the above stated principle to argue that the causal-link requirement supports an award of almost the entire amount of attorney’s fees and costs incurred by them throughout this litigation. See id. The Haegers argue that the district court’s findings that Goodyear had begun to fraudulently conceal critical test results almost immediately after the case was filed and that the parties would more likely than not have settled earlier if Goodyear had disclosed the test results in a timely manner, provided a sufficient basis to satisfy the causal-link requirement, particularly since the district court found that Goodyear’s misconduct “permeated the entirety of this case.” See id.

AMERICAN RULE LIMITATION

Goodyear argues that a court’s inherent power to award attorney’s fees is further limited by the American Rule, which provides that the successful party cannot generally recover the attorney’s fees they expend litigating against their opposing party. Brief for Petitioner at 15. Furthermore, Goodyear argues that although this rule can sometimes be overridden in specific legislation, only Congress holds that power and the courts should not encroach on the legislature’s authority. See id.

The Haegers argue that the general rule that a litigant cannot recover their counsel fees does not apply when the opposing party has acted in bad faith. See Brief for Respondents at 39.

Goodyear counters that although a bad-faith exception may be recognized when a party has acted in bad faith, Congress has not extended authority to the courts to award fees and costs whenever they would like, and this exception must be narrow so as not to leave the American Rule meaningless. See Brief for Petitioners at 16.

WAIVER OF RIGHT TO OBJECTION

Goodyear argues that some of the fees and costs for which the Haegers sought reimbursement were not causally linked to their misconduct and hence the Haegers are not entitled to an award of those costs. Brief for Petitioner at 33. Goodyear argues that the Haegers incurred most of their attorney’s fees litigating against other defendants and authenticating their medical damages, neither of which is related to the alleged discovery misconduct. See id.

The Haegers on the other hand, argue that bad-faith actors are protected by their right to object to any attorney’s fees and costs which they believe are not caused by the sanctionable conduct, and hence do not satisfy the causal-link requirement. See Brief for Respondents at 41. However, the Haegers assert that Goodyear failed to object to all of the fees and costs awarded on such a basis and that Goodyear objected to only $722,406.52 of fees and costs based on lack of causation. See id. Therefore, the Haegers maintain that Goodyear should not be allowed to raise a lack-of-causation objection to the fees and costs awarded for the first time on appeal, except as to the $722,406.52 of fees and costs to which it previously objected. See id. at 42. The Haegers argue that by not raising the argument in the district court, Goodyear has waived any argument that the remaining attorney’s fees and costs awarded to the Haegers are not causally linked to the sanctionable misconduct. See id. The Haegers support their argument with the general rule that a federal appellate court should not give consideration to issues that were not raised below. Id. at 43. 

Discussion 

HOW STRONG SHOULD A CAUSAL LINK BETWEEN MISCONDUCT AND COMPENSATION BE?

The National Association of Manufacturers (“NAM”) argues that causation is an important limitation on the district court’s inherent power to impose sanctions for discovery misconduct. See Brief of Amicus Curiae National Association of Manufacturers ("NAM"), in Support of Petitioner at 7. NAM contends that a strong causallink between the misconduct and the sanctions ensures that sanctions, like other compensatory damages, match the actual injury that a victim suffered from the discovery misconduct. See id. NAM argues that without a strict causation requirement, courts could abuse their inherent authority to sanction parties, given that the district court judges would be the ones making the rule, applying it, and assessing the penalties for its violations. See id. If the judges can use their inherent power to sanction in such a broad manner, they might disregard the applicable Rules of Civil Procedure and impose sanctions according to their discretion, thus leading to potential sanction abuses. See id. at 9.

The Haegers, however, argue that requiring an exacting casual link between the sanction and the discovery misconduct would simply reward litigants who act in bad faith. See Brief for Respondents, Leroy Haeger, et al. at 37. The Haegers contend that a district court may impose sanctions under its inherent power as long as it finds that a party engaged in a severe bad faith conduct that permeated the entire litigation. See id. The Haegers argue that requiring a more exacting casual link would only result in more litigation over the sanctions and their imposition. See id.

EFFECT OF POSSIBLE SANCTION ABUSE ON MANUFACTURERS

NAM contends that abusive sanctions would especially harm manufacturers. Brief of NAM at 1. NAM contends that the process of developing, testing, and manufacturing products is complex and often accompanied by enormous quantities of documents and electronic data. Id. at 12. Accordingly, NAM argues that no matter how well a party complies with discovery requests, a page of a document can still go missing as a result of an innocent mistake or difficulty to comply with voluminous discovery requests. See id. at 12–13. NAM, therefore, argues that because not all discovery violations are in bad faith, it is important to require a definite causation link to protect the parties from abusive sanctions. See id. at 13.

The Haegers contend that the parties are protected from any possible abuses of the court’s inherent power to sanction because they can object and appeal the court’s sanctions. See Brief for Respondents at 39–40.

NAM, however, contends that if sanctions become discretionary under the court’s inherent power, review on appeal will be very limited, and thus, the district courts’ power will be practically unchecked. See Brief of NAM at 10–11.

WOULD A STRICTER CAUSATION REQUIREMENT DISCOURAGE JUDGES FROM INVESTIGATING MISCONDUCT?

The Haegers argue that imposing a stricter causation standard could discourage a judge’s efforts to investigate bad faith conduct. See Brief for Respondents at 37–38. The Haegers contend that judges already spend a considerable amount of time and effort investigating and sanctioning bad faith conduct, and adding a stricter causation requirement would only add to their already heavy burden. See id. at 38. Thus, the Haegers argue that a court should be allowed to use estimates in calculating attorney’s fees because the goal is “to do rough justice, not to achieve auditing perfection.” Id. at 38.

The American Bar Association (“ABA”) argues that when a court is not punishing for contempt, considerations of fairness override efficiency concerns, and the court may only use its inherent power to impose sanctions that are proportional to the misconduct. Brief of Amicus Curiae American Bar Association ("ABA"), in Support of Petitioner at 16. While the ABA concedes that it is not easy for the courts to calculate the expenses directly caused by discovery misconduct, it asserts that a court cannot simply enlarge its inherent powers to make its job easier. See id.

Edited by 

Acknowledgments