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Goodyear and Inherent Authority

Wednesday, May 31, 2017   (0 Comments)
Posted by: Mary Mack
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It is rare when the Supreme Court addresses an ediscovery issue.  FRCP 37(e) has remedies for explicit electronically stored information.  However, those limits have given rise to ruminations about how far a judge’s inherent authority goes to remedy bad behavior.  Goodyear explores the inherent authority of judges, how far a judge can go to address problem behavior, and what level of proof or causality is necessary for an award of costs.  This case involves pre-settlement withholding of test results.

In pregaming, Scotus blog described the situation:
“Although the Haegers sought sanctions under rules and statutes regulating discovery and litigation conduct, the district court unilaterally relied on its inherent power in imposing the sanctions. The court found that Goodyear and its counsel had acted in bad faith, eschewed a close look at the linkage between any specific act of bad faith and specific expenses, and ordered Goodyear and two of its attorneys to pay more than $2.7 million in attorney’s fees and costs, covering most of what the Haegers incurred over the course of the litigation…The U. S. Court of Appeals for the 9th Circuit affirmed the award. Relying on the Supreme Court’s decision in Chambers v. NASCO, the court of appeals held that the district court did not abuse its discretion in awarding the full amount of litigation fees, even without finding a precise linkage, given Goodyear’s bad faith and the pervasiveness of its misconduct. Goodyear asked the Supreme Court to review the 9th Circuit’s decision…”

In a unanimous decision (Justice Gorsuch did not participate) the court held that:

“When a federal court exercises its inherent authority to sanction bad-faith conduct by ordering a litigant to pay the other side’s legal fees, the award is limited to the fees the innocent party incurred solely because of the misconduct—or put another way, to the fees that party would not have incurred but for the bad faith.”

Noting that damages are to be compensatory but not punitive, Justice Kagan states that the wronged party may be compensated for losses sustained; 

“it may not impose an additional amount as punishment for the sanctioned party’s misbehavior…(quoting United States v. Mine Workers, 330 U. S. 258, 304 (1947)). 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. “

While not requiring lower courts to become green eyeshade accountants, Justice Kagan did require a “but-for” standard to determine whether categories of costs should be awarded, and allowed for substantial deference to lower courts that determine those costs.
“A sanctioning court must determine which fees were incurred because of, and 
solely because of, the misconduct at issue (however serious, or concurrent with a lawyer’s work, it might have been).”

The case was sent back for the lower court to consider the issue of waiver.

“Although the District Court considered causation in arriving at its back-up award, we cannot tell from its sparse discussion whether its understanding of that requirement corresponds to the standard we have described. That uncertainty points toward demanding a do-over, under the unequivocally right legal rules. But the Haegers contend that Goodyear has waived any ability to challenge the $2 million award. In their view, that sum reflected Goodyear’s own submission—which it may not now amend…”

Read the full case here


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