Haeger v. Goodyear Tire – Supreme Court to Consider Limits on Federal Court’s Inherent Power to Award Compensatory Sanctions

I will be attending oral argument at the Supreme Court next week, January 10, 2017.  Below is my brief of the 9th Circuit Opinion at issue.

Haeger v. Goodyear Tire and Rubber Co, 813 F.3d 1233 (9th Cir, 2016)

Issue: Do compensatory sanctions awarded under the district court’s inherent power have to be causally linked to the harm done by the bad conduct?

Holding: No, compensatory sanctions may be part punitive and part compensatory.

District Judge Roslyn O. Silver, District of Arizona,

Milan Smith, dissent by Paul Watford (other judge on the panel was Clifford Wallace).

Haeger was injured “when one of the Goodyear G159 tires on the front of their motor home failed while they were driving on a highway.” He sued Goodyear saying that the injuries were caused by faulty tires. During the litigation, Haeger requested copies of test reports Goodyear had done on the tires. The reports were never turned over. On the first day of trial, the parties settled “apparently … for a small fraction of what they might otherwise have done [had they received the reports].” “Some time” after settlement, Haeger’s attorney “saw an article” about a different case involving the same tires and “he realized that Goodyear had withheld evidence it was required to produce during discovery.” He filed a motion to reopen and requested sanctions. The district court held an evidentiary hearing and listened to testimony by Goodyear’s attorneys.

“The district court found their testimonies to be untruthful and unreliable, and held that [the attorneys] and Goodyear engaged in repeated and deliberate attempts to frustrate the resolution of this case on the merits.” The court also found that this conduct was repeated in other cases.  The district court concluded that sanctions under 28 U.S.C. § 1927 could not reach Goodyear’s conduct, and that sanctions pursuant to Rule 11 were unavailable as they should be imposed before a case is closed. Accordingly, relying upon its inherent power, the district court determined that the most appropriate sanction for “remedying a years long course of misconduct” would be “to award Plaintiffs all of the attorneys’ fees and costs they incurred after Goodyear served its supplemental responses to Plaintiffs’ First Request.”

The district court awarded $2.7 million in sanctions. Evidence of the amount comes from “’240 pages of time entries’ submitted by the Haegers.”

The 9th Circuit affirmed (2-1). “This inherent power is not limited by overlapping statutes or rules. The Supreme Court explained ‘that the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct.’ Chambers, 501 U.S. at 49.” “[N]either is a federal court forbidden to sanction bad-faith conduct by means of the inherent power simply because that conduct could also be sanctioned under the statute or the Rules . . . if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power.” The 9th Circuit specifically confirmed that the conduct here was “bad faith.” “This finding of bad faith is bolstered by [Goodyear’s attorney’s] repeated representations to the district court that Goodyear was complying with all discovery requests when in fact, Goodyear was withholding relevant and responsive documents.”

The 9th Circuit spends considerable time discussing the amount of the sanctions. “[W]e next consider how close a link is required between the harm caused and the compensatory sanctions awarded when a court invokes its inherent power.” It relied on the fact that the Supreme Court affirmed the district court in Chambers which allowed all attorneys fees without a showing that the fees were causally “linked” to the harm caused by the conduct. The court here concluded, “the district court awarded the amount the court reasonably believed it cost the Haegers to litigate against a party and attorneys during the time when that party and those attorneys were acting in bad faith. Nothing more is required under Chambers or our case law …”

In his dissent, Judge Watford said, “I agree with the majority that the district court’s misconduct findings are supported by the record, but I nevertheless conclude that the $2.7 million sanctions award must be vacated.” He points out that there are “punitive sanctions” and “compensatory sanctions.” The court here awarded compensatory sanctions. “The question for us is whether the court correctly labeled the sanctions compensatory. If it did not—if the sanctions are instead punitive—they cannot stand.” “The award [here] could be compensatory only if the record reveals a causal connection between the misconduct the court found and the amount it awarded.”

The record in this case is … devoid of evidence establishing a causal link between Goodyear’s misconduct and the fees awarded. It’s anyone’s guess how the litigation would have proceeded if Goodyear had disclosed all responsive test results from the start. The case might have settled right away, as the district court assumed, but that seems unlikely. The test results did not provide conclusive proof that the Haegers’ tire failed due to its defective design. To be sure, the test results were favorable to the Haegers:…”

Thus, I think the district court clearly erred in finding that “the case more likely than not would have settled much earlier” had Goodyear disclosed the test results when it should have.

He rejects the assertion that Chambers permits sanctions to be part punitive and part compensatory without the heightened protections to the defendant required in criminal cases. He rejects that Chambers “authorizes imposition of so-called ‘dual purpose’ sanctions without following the procedures applicable in criminal cases. . . ” . “The defendants in Chambers did not raise any due process arguments, and the Supreme Court therefore did not address whether the process afforded the defendants was adequate.”

There is a nice summary by Prof. Wasserman on the Scotusblog site.

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