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Supreme Court Reins in Sanctions for Bad-Faith Conduct

By Casey C. Sullivan, Esq. | Last updated on

Courts cannot sanction a party for their bad-faith conduct by forcing the offending litigant to cover all of the opponent's legal fees without first showing but-for causation, the Supreme Court ruled this morning. The case stems from a dispute between Goodyear Tire & Rubber and a family who claimed the company's tires were responsible for their motorhome accident. During discovery, Goodyear withheld important internal reports. Finding the misconduct especially egregious, the district court sanctioned the tire company, ordering it to pay all of the family's attorney's fees and costs since the deception began -- a total of $2.7 million.

But such an award must be "limited to the fees the innocent party incurred solely because of the misconduct," a unanimous Court determined.

Goodyear's Failure to Produce

The case began after the Haeger family was injured when their motorhome swerved off a highway and flipped over. The accident, the Haegers claimed, was the fault of Goodyear -- its tires couldn't withstand the heat generated when slapped on a motorhome traveling at highway speeds. The Haegers sued and the discovery process lasted several years, before the parties settled on the eve of the trial.

Throughout the discovery process, the Haegers' attorney had sought internal tests on the tires, tests which were never produced. After the settlement, the lawyer learned that Goodyear had disclosed just such tests in a separate lawsuit. He moved for sanctions.

Finding Goodyear's conduct to be especially egregious, the district court awarded $2.7 million to the Haegers, representing attorney's fees since the deception began early in the trial. In such "unusual cases," the court reasoned, it did not need to establish a "causal link" between the fees and the sanctionable conduct. A divided Ninth Circuit panel affirmed the sanction, saying that the court could award attorney's fees and costs during the entire time in which Goodyear's bad-faith conduct occurred.

Need a Causal Connection

Neither lower court got it right, Justice Kagan explained for the unanimous, eight-justice Court. While a court has the inherent power to sanction, those sanctions must be compensatory, rather than punitive. "That means, pretty much by definition," Justice Kagan wrote, "that the court can shift only those attorney's fees incurred because of the misconduct at issue."

That requires a but-for test, the kind which was not conducted here. "This but-for causation standard generally demands that a district court assess and allocate specific litigation expenses," the Court explained, "yet still allows it to exercise discretion and judgement."

A district court can shift all of a party's fees, as it did here, the Court explained. But it cannot do so without determining that those fees were caused by the other party's wrongdoing, a calculation the district court did not make and which, the Supreme Court suggested, the facts here would not support.

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