Opinion analysis: But-for causation and inherent-power civil sanctions

Goodyear Tire & Rubber Co. v. Haeger presented the court with an oddity – both sides agreed about the legal rules in play, but argued about what those rules mean in this case. Writing for a unanimous eight-person court (in a case that was argued in January, before Justice Neil Gorsuch joined the court), Justice Elena Kagan held that a court can impose attorney’s fees as a sanction for bad-faith discovery conduct under its inherent powers, but that any award must be “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.” Because the lower courts did not abide by that standard, the award of $2.7 million in attorney’s fees for the plaintiffs could not stand.

Leroy, Donna, Barry and Suzanne Haeger were injured when one of the Goodyear tires on their motor home failed while the car was traveling on a highway in Arizona, causing the vehicle to swerve off the road and flip over. The Haegers’ theory was that the tire was not designed to withstand the level of heat generated by a motor home traveling at highway speeds. The lawsuit in federal court consumed five years of discovery disputes – disputes that, Kagan said, themselves “generated considerable heat” – over Goodyear’s non-production of tests relating to the tire’s ability to withstand heat. The parties settled for an undisclosed amount. One year later, the Haegers’ attorney learned from media reports that Goodyear had produced certain reports in other litigation that it had not in the Haegers’ lawsuit. The Haegers returned to the district court, claiming bad-faith discovery fraud and seeking the attorney’s fees and costs expended in litigation from the point of non-production of the reports. The district court awarded $2.7 million, with a contingent award of $2 million, representing a reduction of the $700,000 expended on claims against other defendants.

The Supreme Court began with a statement of legal principles governing inherent sanctioning power. Federal courts possess inherent power to sanction parties for abuse of the litigation process, including awarding attorney’s fees. But civil sanctions must be compensatory rather than punitive in nature, so fee awards are limited to reimbursing the victim for “losses sustained.” That means, “pretty much by definition,” that a court can award only fees “incurred because of the misconduct at issue,” requiring the court to find a causal link between the litigant’s misbehavior and legal fees paid by the opposing party. The appropriate causal standard is a but-for test: The complaining party may recover only the portion of attorney’s fees that he would not have incurred but for the misconduct. That is, when the cost would have been incurred even absent the discovery violation, the court, limited only to compensation, “must leave it alone.” But “trial courts undertaking that task ‘need not, and indeed should not, become green-eyeshade accountants’ (or whatever the contemporary equivalent is).” The goal is “’rough justice,’” not “’auditing perfection.’” Courts may estimate and may account for the “’overall sense’” of the lawsuit. Courts may “shift all of a party’s fees, from either the start or some midpoint of a suit, in one fell swoop.” For example, when a plaintiff initiates a case in bad faith or the defendant’s entire course of conduct in defending is in bad faith, no fees would have been incurred if the misbehaving party had behaved appropriately. Courts also may find that a case would have settled at a point in time absent bad faith, justifying a sanction of attorney’s fees incurred after that point.

The parties, Kagan wrote, agreed with each of those principles (if not always with the same levels of enthusiasm). The question in this case was whether the lower courts had applied those principles and, if not, what to do about that.

The court rejected as a “non-starter” the Haegers’ argument that the lower courts applied the correct legal standard, concluding that the district court did not make the required findings of causation. The court also declined to fill in the gaps, insisting that the Haegers had not shown that had Goodyear produced the contested reports, those reports would have led “straightaway” to a settlement. Nor had the Haegers shown that the discovery misconduct “so permeated” the suit as to make it a but-for cause of every subsequent legal expense; the district court’s contingent award showed that some subsequent expenses were not caused by the discovery abuse. The court was also unwilling to default to the $2 million contingent award, concluding that although the district court considered causation in issuing that lower award, its discussion was too sparse to show that it understood and applied the proper legal principles. The only possibility, then, was a “do-over” of the fee calculation in the district court, under the “unequivocally right legal rules.”

The remaining wrinkle in the case is the possibility that Goodyear has waived its right to challenge the $2 million contingent award, because it argued for the $700,000 reduction, suggesting acceptance of the remainder of the award. The court declined to be the first to address that issue. It ordered the court of appeals to consider waiver as the “initial order of business” on remand. If the court of appeals finds a waiver, the $2 million award should stand; if not, the district court must reassess the fees under a but-for standard.

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