Earlier this month the Supreme Court decided Goodyear Tire & Rubber Co. v. Haeger et al., a case I wrote about way back in 2012 involving the scope of sanctions (including attorney’s fees) available when a party to a lawsuit brazenly lies about important evidence throughout most of the case.
The case involves a tire defect lawsuit and the extraordinary lengths to which the defendant, Goodyear, went to hide evidence of its culpability.
These are the underlying facts: the Haeger’s motorhome swerved and flipped over when one of the Goodyear G159 tires blew out. Goodyear’s G159 tire was originally designed for regional delivery trucks. In the 1990s, Goodyear started marketing it for Recreational Vehicles, even though the tire wasn’t meant to withstand the weight and heat of an RV traveling at interstate speeds, particularly in the hotter parts of the country. Goodyear’s own testing data showed that the G159 became unusually hot at speeds above 55 miles per hour – but in the Haeger case, Goodyear failed to produce this data. Instead, they repeatedly lied to the plaintiffs, claiming they had produced “all testing data” when, of course, they hadn’t.
After the Haeger case settled on the eve of trial, the Haeger’s lawyer read a newspaper article about another case in which, shockingly, those test results were introduced at trial. The Haegers filed for sanctions. Unfortunately, there aren’t really any clear mechanisms for addressing a violation of the rules after a case has been closed. The District Court held that sanctions under Federal Rule of Civil Procedure 11 should not be imposed after final judgment in a case. See 906 F. Supp. 2d 938, 973, n. 24 (D Ariz. 2012). Similarly, the District Court held that sanctions under 28 U. S. C. §1927 could address the wrongdoing of only Goodyear’s attorneys, rather than of Goodyear itself. See 906 F. Supp. 2d at 973.
The District Court eventually used its “inherent powers” to sanction Goodyear, awarding the Haegers $2.7 million in legal fees and costs, which was the full value of the attorney’s fees incurred in the litigation from the moment when Goodyear made its first dishonest discovery response. The Supreme Court overturned that awarded and remanded it to the trial court to re-evaluate the sanction amount based on the expenses the plaintiffs incurred that were specifically caused by Goodyear’s deception.
Let’s start with the holding, which, unfortunately, is far from clear. The Haeger opinion begins, “We hold that such [a sanction] 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.”
That rule sounds clear enough, except that the Supreme Court creates a gigantic exception just seven pages later, allowing District Courts to award the full fees for the entire litigation in “exceptional” cases:
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. Chambers v. NASCO offers one illustration. There, we approved such an award because literally everything the defendant did—“his entire course of conduct” throughout, and indeed preceding, the litigation—was “part of a sordid scheme” to defeat a valid claim. 501 U. S., at 51, 57 (brackets omitted). Thus, the district court could reasonably conclude that all legal expenses in the suit “were caused . . . solely by [his] fraudulent and brazenly unethical efforts.” Id., at 58.
Or to flip the example: 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.
And similarly, if a court finds that a lawsuit, absent litigation misconduct, would have settled at a specific time—for example, when a party was legally required to disclose evidence fatal to its position—then the court may grant all fees incurred from that moment on.
In each of those scenarios, a court escapes the grind of segregating individual expense items (a deposition here, a motion there)—or even categories of such items (again, like expert discovery)—but only because all fees in the litigation, or a phase of it, meet the applicable test: They would not have been incurred except for the misconduct.
(Line breaks added for clarity.)
If a court can, “in one fell swoop,” “escape[] the grind of segregating individual expense items” and “shift all of a party’s fees” whenever it “reasonably conclude[s]” the case should have been resolved or where the “course of conduct” was sufficiently egregious, then there is no meaningful “but for the bad faith” limitation on the amount of attorney’s fees a District Court can award as a sanction.
Regardless, the Haeger case would seem to be exactly the sort of case that would warrant a “blanket award” for the plaintiffs. Obviously, Goodyear felt that the G159 testing data was so damning that it was worth violating court orders and repeatedly lying to the plaintiffs and the court to keep it secret. It’s not just “reasonable” for a court to conclude that Goodyear’s course of conduct infected the whole case or that the case would have settled if Goodyear and its lawyers had complied with the law; it’s the only reasonable explanation for Goodyear’s blatant dishonesty.
Nonetheless, the Supreme Court unanimously came up with multiple ways to excuse Goodyear’s deception and thereby lower the award:
As an initial matter, the Haegers have not shown that this litigation would have settled as soon as Goodyear divulged the heat-test results (thus justifying an all-fees award from the moment it was supposed to disclose, see supra, at 8–9). Even the District Court did not go quite that far: In attempting to buttress its comprehensive award, it said only (and after expressing “some uncertainty”) that the suit probably would have settled “much earlier.” 906 F. Supp. 2d, at 972. And that more limited finding is itself subject to grave doubt, even taking into account the deference owed to the trial court. As Judge Watford reasoned, the test results, although favorable to the Haegers’ version of events, did not deprive Goodyear of colorable defenses. In particular, Goodyear still could have argued, as it had from the beginning, that “the Haegers’ own tire, which had endured more than 40,000 miles of wear and tear, failed because it struck road debris.” 813 F. 3d, at 1256 (dissenting opinion). And indeed, that is pretty much the course Goodyear took in another suit alleging that the G159 caused a motorhome accident. See Schalmo v. Goodyear, No. 51–2006–CA– 2064–WS (Fla. Cir. Ct., 6th Cir., Pasco County). In that case (as Judge Watford again observed), Goodyear produced the very test results at issue here, yet still elected to go to trial. See 813 F. 3d, at 1256. So we do not think the record allows a finding, as would support the $2.7 million award, that disclosure of the heat-test results would have led straightaway to a settlement.
The Supreme Court nit-picks what the Haegers argued and what the District Court found, conveniently skipping over why Goodyear withheld the data.
It’s more than a little ridiculous for the Supreme Court to start making inferences in Goodyear’s favor when the underlying facts of the sanction weren’t even contested. If Goodyear didn’t think the testing data would have changed whether or not it had to settle the case (or whether it would have been liable at trial), then Goodyear would have produced it. If Goodyear thought the case had “colorable defenses,” then Goodyear wouldn’t have lied to a federal judge’s face about the evidence it possessed. A company that sells $15 billion worth of products every year doesn’t decide to break the law because it’s really curious about what the Supreme Court might say about attorney fee-shifting awards; it does so to avoid paying the plaintiff what they are due.
All in all, it’s hard to see how the Haeger opinion really changes much about sanction law, given that the Supreme Court itself reaffirmed, albeit with other words, the essential point of the District Court’s opinion’s that a party can be held responsible for the entirety of the litigation when its violation of the rules is so egregious that it tainted the rest of the case.
Indeed, if anything, the Supreme Court extended the scope of available sanctions by suggesting that its analysis could be applied to other sanctions contexts as well:
Rule-based and statutory sanction regimes similarly require courts to find such a causal connection before shifting fees. For example, the Federal Rules of Civil Procedure provide that a district court may order a party to pay attorney’s fees “caused by” discovery misconduct, Rule 37(b)(2)(C), or “directly resulting from” misrepresentations in pleadings, motions, and other papers, Rule 11(c)(4). And under 28 U. S. C. § 1927, a court may require an attorney who unreasonably multiplies proceedings to pay attorney’s fees incurred “because of” that misconduct.
On the surface, this suggests that sanctions awards under Rule 37, Rule 11, and § 1927 are limited to the attorney’s fees “caused” by the violation, but, by drawing parallels to these Rules and statute and the availability of blanket awards under the inherent power sanctions in “exceptional cases,” the Supreme Court may have just extended the attorney’s fees that are available as a sanction.
Truth is, although the discussion around sanctions often wrongly centers around plaintiffs, corporate America is the biggest abuser of the court system. Ford, for example, has a long history of the same misconduct, including being sanctioned in Sheila Johnson, et al., v. Ford Motor Company, No. 99-C-509 (N.D. Illinois 1999) for concealing testing results and, in Ford Motor Co. v. Conley, 757 S.E.2d 20, (Ga. 2014), having an entire new trial ordered after it was discovered Ford had a “general corporate practice” of giving misleading answers in discovery.
Nor are these violations limited to the world of automotive safety. Here, for example, is a June 2015 order sanctioning Eli Lilly and its lawyers at Covington and Burling for hiding a document until expert depositions, when it revealed the document while deposing one of the plaintiff’s experts. (The underlying motion is available here.) Or, as another example, in Lee v. Wal-Mart Stores, No. 2004-CV-01129E, Wal-Mart was sanctioned for destroying a videotape that captured the plaintiff being attacked and shot in a Wal-Mart parking lot.
These are but a handful of examples plucked out of my inbox; it is sadly an everyday occurrence for corporate defendants to willfully disregard their obligations to the courts.
