April 25, 2017 Practice Points

SCOTUS Overturns Attorney-Fee Sanction for Discovery Fraud

Litigants should pay careful attention to document (or refute) the relationship between the amount sought and the alleged wrongful conduct.

By Robert J. Will

In an 8–0 ruling, the U.S. Supreme Court in Goodyear Tire and Rubber Co. v. Haeger, 581 U.S. _____ (2017) overturned a sanction of $2.7 million against Goodyear for failing to disclose unfavorable testing results for a tire that was the subject of an Arizona district court products-liability case, and remanded the case to the Arizona district court for further consideration of the sanction amount.

At issue was an allegedly defective tire that blew at highway speed, causing personal injuries to plaintiffs. During discovery, testing results for the subject tire were requested of Goodyear, but were not produced. The case was eventually settled. Later, during the pursuit of a similar products-liability claim for a different plaintiff, the same plaintiffs’ counsel discovered the unfavorable testing results that were not produced in the prior case that settled. Counsel then sought and won monetary sanctions in the earlier settled case under the court’s inherent authority to address issues concerning attorney conduct in matters appearing before it. The amount of the sanctions represented the entire amount of attorney fees incurred in the case after the moment of the discovery fraud, with the district court justifying the departure from the normal “but for” causation rule because it was a particularly “egregious” case. It also entered an “alternate” reduced sanction, deducting $700,000 in fees that plaintiffs incurred pursuing claims against other defendants than Goodyear, in the event the full sanction were to be found unenforceable. A divided Ninth Circuit panel affirmed the sanction, thus creating a circuit split.

Writing for the unanimous court, Justice Kagan held that irrespective the legal basis for a discovery sanction (e.g., statutory, Federal Rules of Civil Procedure, or a court’s inherent powers), a monetary discovery sanction in a civil case must, in all instances, bear a causal relationship to the wrongful conduct, even if egregious circumstances are present. Because the district court awarded the plaintiffs all of their attorney fees even though it was admitted that the plaintiffs would have incurred at least $700,000 in fees even absent the defendant’s wrongful conduct, the sanction as entered could not stand. But, rather than “starting over” completely in determining the proper sanction amount, the district court on remand was directed to consider whether Goodyear waived its right to challenge the remaining monetary sanction ($2,000,000) by failing properly to raise the issue on appeal; and if it did not waive that right, then to consider what portion of the remaining monetary sanction would have been incurred by plaintiffs but for the wrongful conduct (as it was admitted by the parties that even if the results had been disclosed, Goodyear still maintained colorable defenses to liability, which it maintained in the case at issue and in other cases, that could operate to further reduce the sanction amount).

In addition to the obvious lesson that severe consequences may result from bad faith and/or otherwise egregious discovery abuse even after a case is resolved, this case stands for the proposition that when pursuing or defending monetary sanctions resulting from discovery abuse, litigants should pay careful attention to document (or refute) the relationship between the amount sought and the alleged wrongful conduct, and should make a thorough record to preserve all rights for any eventual appeal. Of course, avoiding ever putting your client in the position of having to defend such a motion should be considered “job one” for any careful practitioner. 

Robert J. Will is a member of Lewis Rice LLC in St. Louis, Missouri.

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