SCOTUS Decides Causation Standard for Bad-Faith Conduct Sanctions

SCOTUS Decides Causation Standard for Bad-Faith Conduct Sanctions.

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When sanctioning a party for bad conduct, what causation standard must a federal trial court apply to determine the appropriate award for the innocent, injured party? This question was recently answered by the U.S. Supreme Court in Goodyear Tire & Rubber Co. v. Haeger, ___ U.S. ___ (2017) (No. 15-1406; 4-18-17).

In Goodyear Tire, the tire on the Haegers’ motorhome blew out, causing the motorhome to swerve off the road and flip. The Haegers claimed that the tire was defective—that it was not built to withstand the heat created by use on a motorhome at highway speeds.[1] After several years of discovery, the parties settled.

However, after the case wrapped up, the Haegers’ lawyer read about a set of test results that Goodyear disclosed in another suit but not in the Haegers’ suit. This revelation triggered a sanctions case. Calling Goodyear’s behavior “truly egregious,” the trial court ordered Goodyear to reimburse the Haegers $2.7 million to cover all of the attorney fees and costs after the point that Goodyear “made its first dishonest discovery response.”[2] Goodyear argued that the award was overinclusive and not tailored to the damages their sanctionable conduct actually caused. The Ninth Circuit upheld the trial court’s award.[3] The Supreme Court granted certiorari.[4]

In an 8-0 opinion written by Justice Kagan, the Court reversed and remanded the case, holding that the trial court may award sanctions damages only if they are supported by a causal, “but-for” causation standard. The opinion laid the foundation for the holding by discussing sanctions damages generally:

This Court has made clear that such a sanction, when imposed pursuant to civil procedures, must be compensatory rather than punitive in nature. In other words, the 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.[5]

So, by extension, sanctions awards must be limited to the actual costs generated by the bad-faith behavior. Explaining the appropriate standard, the Court held:

[The] kind of causal connection … is appropriately framed as a but-for test: The complaining party (here, the Haegers) may recover only the portion of his fees that he would not have paid but for the misconduct.[6]

Finding that neither the trial court nor the court of appeals applied the correct standard—the but-for standard—the Court held it had no other option but to reverse and remand. Given the circumstances, the Court explained that “the Haegers cannot demonstrate that Goodyear’s non-disclosure so permeated the suit as to make that misconduct a but-for cause of every subsequent legal expense, totaling the full $2.7 million.”[7] Ultimately, the Court found that “uncertainty points toward demanding a do-over, under the unequivocally right legal rules.”[8]

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[1] Goodyear Tire & Rubber, ___ U.S. at ___ (slip op. 2).

[2] Id. (slip op. 2-3).

[3] Haeger v. Goodyear Tire & Rubber Co., 813 F.3d 1233, 1254 (9th Cir. 2016).

[4] Certiorari Granted & Questions Presented, Goodyear Tire & Rubber Co. v. Haeger, ___ U.S. ___ (2017) (No. 15-1406). The Court limited the review to the first question presented: “Is a federal court required to tailor compensatory civil sanctions imposed under inherent powers to harm directly caused by sanctionable misconduct when the court does not afford sanctioned parties the protections of criminal due process?”

[5] Goodyear Tire & Rubber, ___ U.S. at ___ (slip op. 5-6).

[6] Id. at ___ (slip op. 7) (quotations omitted).

[7] Id. at ___ (slip op. 12).

[8] Id.