Sanctioning Bad Behavior in Litigation: The Supreme Court Speaks to the Limits of Courts’ Inherent Power to Award Attorney Fees for Discovery Abuses

Litigate long enough, and you are bound to encounter an opposing party or attorney who does not play by the rules. Luckily, courts have lots of tools at their disposal to sanction parties who engage in misconduct like discovery abuses. One of those tools is the court’s inherent power to manage its own affairs. Sanctions under this power can include shifting attorney fees, and the awards can be extreme given certain misconduct. But can a sanction ever go too far? The Supreme Court’s latest opinion on the subject, Goodyear Tire & Rubber Co. v. Haeger, says yes, holding that a federal court’s inherent authority to sanction a litigant for bad faith conduct by awarding shifting attorney fees is limited to “to the fees the party would not have incurred but for the bad faith.”¹

Goodyear’s Bad Behavior

A family brought suit against Goodyear after their motorhome flipped while on the road. The litigation was contentious. The family’s claims were premised in part on their allegations that Goodyear’s tires had caused the accident. The family sought discovery regarding testing on this particular tire. Goodyear stalled, evaded, and basically lied about the existence of these documents.

Nevertheless, the family and Goodyear eventually settled the case. But it was after the settlement documents were signed that things got interesting.

The family’s attorney discovered the existence of the very reports the family had sought in the litigation, reading that they had been disclosed in another case. When confronted with this evidence, Goodyear admitted that it had knowingly withheld the documents in the family’s case. So, the family turned around and brought the issue back up to the trial court, arguing that Goodyear should now be sanctioned for its discovery abuses.

The Trial Court’s Sanction

The trial court was clearly furious with Goodyear, calling the stunts they had pulled during the litigation egregious. But, given that the parties had settled the case, the court was limited in what it could do. No rule or statute could justify a sanction at this point. For example, had the litigation been ongoing, the court could have gone so far as to enter default judgment against Goodyear due to its extreme misconduct. But given where the parties were in the litigation, the only thing the court could do was award sanctions based on its inherent authority to manage its own affairs.

But the court concluded that this sanction could be severe, and that it need not be limited to the costs that flowed from the misconduct itself. While normally, the court acknowledged, fees are limited to those caused by the discovery abuse, in this case, because of the severity of the misconduct, a more robust award was warranted. The court ordered that Goodyear pay the family’s attorney fees and costs, beginning from the moment the first dishonest discovery response was issued. This amounted to an award of $2.7 million. But the trial court also hedged its bets a bit and made a contingent award, separating out about $700K that Goodyear estimated were fees attributable to other defendants and proving the plaintiff’s own medical damages, just in case it was wrong in not requiring a causal link between the harm and the fees incurred. Goodyear appealed.

The Ninth Circuit affirmed the trial court’s award, ruling that the court had not abused its discretion in awarding the entire $2.7 million award. Because the Ninth Circuit ruled that no causal link was necessarily required to justify the sanction, a circuit split was created. Other jurisdictions had held that sanctions like these were limited to fees and costs that are causally related to a party’s misconduct.² And where a circuit split occurs, the Supreme Court often steps in to set things straight.

Supreme Court Speaks: Sanctions Must be Compensatory

In a well-reasoned opinion by Justice Elena Kagan, the U.S. Supreme Court reversed the Ninth Circuit. The logic was simple. Courts have inherent powers to manage their own affairs, and this clearly includes the power to sanction parties for misconduct before the courts. However, these sanctions—though they may feel disciplinary—should be compensatory rather than punitive. The Court remarked: “[T]he fee award may go no further than to redress the wronged party ‘for losses sustained;’ it may not impose an additional amount as punishment for the sanctioned party’s misbehavior.”³

Why this limit? The issue goes back to the nature of these sanctions. The sanctions awarded based on a civil court’s inherent authority (or even any other civil rule) are not awarded with the level of process required for punishment. In our system, in order to have punitive sanctions, different protections would need to be present, such as imposition of the “beyond a reasonable doubt” standard. When those protections are missing, the award is limited to reimbursement. Any sanction awarded through a court’s inherent powers must be limited to only the portion of fees that the party would not have paid but for the misconduct by the other side. Said differently, “when ‘the cost would have been incurred in the absence of’ the discovery violation, then the court (possessing only the power to compensate for harm the misconduct has caused) must leave it alone.”⁴

Here, because the trial court’s award did not include discussion of the causal link between the fees awarded and Goodyear’s discovery abuses, it was necessary for the trial court to consider anew the issue of how much was really required to compensate for the harm caused. However, the Supreme Court did note that the trial court should first consider whether Goodyear had waived its opportunity to dispute the fact that $2 million of the $2.7 million was attributable to its misconduct, as it had apparently done below. The remand was to first focus on waiver before turning, if at all, to the issue anew.

This case’s result is not surprising given the weight of authority and settled law on similar subjects. The decision by Justice Kagan was for a unanimous court, with the exception of Justice Gorsuch who did not participate. Nevertheless, the case is worthwhile because the Court did provide some helpful guidance on how lower courts are to decide just how much of a party’s attorney fees were incurred but for another party’s misconduct. For example, if the facts support it, the Court approved of the following courses of action:

• District courts may use “estimates in calculating and allocating an attorney’s time.”⁵

• “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.”⁶

• “[I]f a court finds that a lawsuit, absent litigation misconduct, would have settled at a specific time . . . then the court may grant all fees incurred from that moment on.”⁷

So long as all the fees awarded meet the but-for standard (“[t]hey would not have been incurred except for the misconduct”), the trial court has a lot of leeway to award sanctions.

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¹581 U.S. ___ (2017) (slip. op at 1).

² See id. (slip op. 5 n.3) (collecting cases).

³ Id. (slip op. at 6).

⁴ Id. (slip op. at 7).

⁵ Id. (slip op. at 8).

⁶ Id.

⁷ Id. (slip op. at 8-9).