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A Discovery Dispute Makes the Big Time (SCOTUS!)

Likely to the delight of many a district court judge, a discovery dispute made its way into the rarefied air of the United States Supreme Court. In Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. _____ (2017), the high court overturned a $2.7 million sanctions order stemming from Goodyear’s violation of discovery rules.

 

Although not letting the tire company off the hook, the court rejected the sanctions order concluding that the amount of attorneys fees awarded may not have directly related to the misconduct. The Court sent the case back to the trial court and held that when courts sanction improper litigation conduct by awarding attorneys fees, only the fees incurred as a result of misconduct may be awarded–not all fees incurred by the innocent party as a result of the litigation.

 

Goodyear Failed to Turn Over Testing Data

The Haegers sued Goodyear after their motor home swerved off the highway and flipped. The Haegers attributed the crash to the inability of Goodyear tires to withstand heat generated by use at highway speeds.

 

After many years of litigation and several protracted discovery disputes, the Haegers settled with Goodyear.  A few months after settlement, the Haegers’ attorney learned from a newspaper article that Goodyear turned over test data in a different case indicating the tires may get unusually hot at high speeds.

 

The Haegers returned to court and requested reimbursement from Goodyear for attorneys fees they incurred pursuing the case. The Haegers sought sanctions because despite requests to Goodyear to turn over all testing data about the tires, Goodyear did not produce the tests in the Haegers’ case.

 

Court Sanctions Goodyear Under its “Inherent Authority”

The trial court agreed that Goodyear engaged in bad-faith conduct and awarded the family $2.7 million in attorneys fees pursuant to a court’s inherent authority “to manage [its] own affairs to achieve the orderly and expeditious disposition of cases.” Included in that authority is the ability to levy sanctions for abuse of the judicial process.

 

In awarding the attorneys fees, the trial court noted that sanctions under a court’s “inherent authority” are generally limited to the amount of legal fees actually caused by the misconduct but because the court believed Goodyear’s conduct was “truly egregious”, it awarded the Haegers all attorneys fees incurred pursuing their claim, not just those incurred as a result of Goodyear’s failure to turn over the testing data.

 

The Dispute Heads to Washington D.C.

After a divided panel of the Ninth Circuit Court of Appeals concluded the trial court did not abuse its discretion in giving the Haegers all of their attorneys fees, the case ended up before the United States Supreme Court.

 

In an opinion authored by Justice Elena Kagan, the Court overturned the sanctions and sent the case back to the trial court for further consideration. The Court pointed out sanctions under a court’s inherent authority “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.”

 

Put another way, the Court noted, the Haegers were only entitled to the attorneys fees they incurred “but for” Goodyear’s bad acts:

 

That means, pretty much by definition, that the court can shift only those attorney’s fees incurred because of the misconduct at issue. Compensation for a wrong, after all, tracks the loss resulting from that wrong. So as we have previously noted, a sanction counts as compensatory only if it is “calibrate[d] to [the] damages caused by” the bad faith acts on which it is based. A fee award is so calibrated if it covers the legal bills that the litigation abuse occasioned. But if an award extends further than that—to fees that would have been incurred without the misconduct—then it crosses the boundary from compensation to punishment. Hence the need for a court, when using its inherent sanctioning authority (and civil procedures), to establish a causal link—between the litigant’s misbehavior and legal fees paid by the opposing party.

(Citations omitted).

 

Does The Opinion Impact E-Discovery Sanctions?

What does the Goodyear case mean for e-discovery enthusiasts? Maybe not much and probably depends on the the misconduct being remedied.

 

When sanctions are requested for failing to preserve electronically stored information (ESI), courts are supposed to follow Federal Rules of Civil Procedure 37(e). In short, Rule 37(e) permits sanctions for loss of ESI only if the loss was negligent and causes prejudice or the ESI is intentionally destroyed.

 

Important to the Goodyear opinion is that under 2015 amendments to the Federal Rules of Civil Procedure, Rule 37(e) is supposed to supplant a court’s ability to sanction parties under its “inherent authority” for failing to preserve ESI. Notes to the 2015 amendments state that the sanctions provisions in Rule 37(e) are meant to replace prior rules and “forecloses reliance on inherent authority or state law to determine when certain measures should be used.”

 

So, in theory, it would seem that the Goodyear opinion should have little impact on sanctions for failure to preserve.

 

However, even after the amendments, some courts are of the opinion that they still may issue sanctions under their “inherent authority” for failing to preserve electronic evidence.  See e.g. CAT3, LLC v. Black Lineage, Inc.,164 F. Supp. 3d 488 (S.D.N.Y. 2016).

 

But what about sanctions other types of e-discovery misconduct? Say, a party fails to thoroughly collect and produce all relevant ESI? Again, the Goodyear case may just reinforce the standard courts must use when awarding attorneys fees for discovery misconduct. The Supreme Court pointed out in Goodyear that its mandate limiting fee awards only to those occasioned by misconduct is in line with other rules, such as Rule 37(b)(2), which permits courts to award attorneys fees for discovery misconduct, but only those fees “caused by” the misconduct.

 

Posted on April 25, 2017 in Court Rules, E-Discovery, Electronically Stored Information (ESI), ESI preservation, ESI Production, Sanctions

About the Author

Chad Main is an attorney and the founder of Percipient. Prior to founding Percipient, Chad worked as a litigator in Los Angeles and Chicago. He is a member of the Seventh Circuit Electronic Discovery Pilot Program Committee and may be reached at cmain@percipient.co.