The U.S. Supreme Court has thrown out a $2.7 million fine levied against Goodyear Tire & Rubber Co. for what a federal judge had called “deliberate misconduct” in failing to produce a key test in a motor vehicle crash lawsuit. This was a case focused on the authority of judges to set fines over litigation misconduct, Goodyear successfully challenged an Arizona district court decision that the company and two of its lawyers should pay the sanction to a family that sued the company, but settled on the eve of trial without ever seeing a very important test. The Supreme Court declined to set a new award and left it to the lower court to reconsider the possibility that Goodyear has waived its ability to challenge $2 million of the sanctions fine.
In her opinion, Justice Elena Kagan, writing for the high court, said that such orders should be restricted to “the fees the innocent party incurred solely because of the misconduct. The opinion said:
A district court has broad discretion to calculate fee awards under that standard. “But because the court here granted legal fees beyond those resulting from the litigation misconduct, its award cannot stand.”
Three Defendants – Goodyear, onetime Goodyear local counsel Fennemore Craig PC lawyer Graeme Hancock and coordinating counsel Basil J. Musnuff – challenged the lower court’s decision. The Haeger family were seriously injured when a tire on their motor home blew, causing their vehicle to crash. The family sued the tire maker and settled the case.
During the next year, the Haegers’ lawyer read an article mentioning a relevant Goodyear tire test that had not been produced in their case. A motion for sanctions was filed on behalf of the Haegers. The trial court judge concluded the test should have been produced in response to the Haegers’ first document request, and found Goodyear, Hancock and Musnuff had engaged in “blatant discovery fraud.”
The trial court judge ultimately imposed sanctions on Hancock for $550,000 and jointly against Musnuff and Goodyear for $2.2 million. The judge also imposed a “contingent award” of $2 million, in case the $2.7 million award was rejected by the Ninth Circuit. Fees incurred by the Haegers relating to demonstrating medical damages and against other defendants were subtracted from the total. The Ninth Circuit affirmed the district court’s penalties in 2015 in full.
The Supreme Court said the standard governing civil procedure sanctions was limited to compensating the party disadvantaged for the conduct, rather than punishing the party that committed the misconduct. The court said:
To level that kind of separate penalty, a court would need to provide procedural guarantees applicable in criminal cases, such as a “beyond a reasonable doubt” standard of proof. When (as in this case) those criminal-type protections are missing, a court’s shifting of fees is limited to reimbursing the victim.
The limits of compensating only costs related to the wrongdoing were governed by a “but for” test, or whether the misconduct led to legal work that would not have to have been done anyway. The results of the tire test definitely should have been provided to the Haegers. Would that have caused Goodyear to settle the case much earlier? In any event, the Haegers contended that the fees against the company should be justified “for any moment past when the test should have been disclosed.”
The high court disagreed with the Haegers, however, noting the existence of defenses that Goodyear would still have been able to use, including claims about the age of the tires on the Haegers’ vehicle. The court explained its decision as follows:
Further, the Haegers cannot demonstrate that Goodyear’s nondisclosure so permeated the suit as to make that misconduct a but-for cause of every subsequent legal expense, totaling the full $2.7 million. If nothing else, the district court’s back-up fee award belies that theory.
While the lower $2 million award from the district court was said to have more carefully considered which expenses were caused by Goodyear’s misconduct, the Supreme Court said it was unclear whether the court took into account “the right standard” in calculating that award.
In its May petition to the Supreme Court, Goodyear argued that its due process rights were violated when the trial court judge levied what the company said amounted to “a criminal sanction untethered from the discovery problems.” It should be noted that Musnuff and Hancock settled with the Haegers in October and were not parties in the case at the time of Supreme Court oral arguments. The case is The Goodyear Tire & Rubber Co. v. Haeger et al. (case number 15-1406) in the Supreme Court of the United States.
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