Goodyear Asks Supreme Court to Nix $2.7M Sanction

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By Samson Habte

Goodyear Tire & Rubber Co. spent the morning of Jan. 10 at the U.S. Supreme Court trying to wiggle out of a record-breaking $2.7 million sanction for alleged discovery abuses ( The Goodyear Tire & Rubber Co. v. Haeger, U.S., No. 15-1406, argued 1/10/17).

The Fortune 200 company asked the court to put new limits on the amorphous scope of federal judges’ "inherent powers” to penalize parties for what they deem abusive litigation behavior.

The appeal challenged an order that hit Goodyear and two outside lawyers who defended the tire manufacturer in a products-liability case with a $2.7 million sanction for what the federal district judge who issued the order described as “widespread discovery misconduct.”

That alleged misconduct involved Goodyear’s failure to produce “heat tests” that may have allowed the plaintiffs—who were injured in an accident allegedly caused by malfunctioning tires—to secure a more favorable settlement.

The lawyers who represented Goodyear settled with the plaintiffs, but the tire manufacturer—supported by amicus briefs filed by the American Bar Association and the National Association of Manufacturers—took its challenge to the U.S. Supreme Court after a divided panel of the U.S. Court of Appeals for Ninth Circuit affirmed the sanction order.

The appeal presented the justices with an opportunity to clarify the murky boundaries of courts’ inherent powers to sanction discovery abuses. Although those inherent judicial powers have roots in centuries-old Anglo-American common law, there is little authority from the U.S. Supreme Court identifying the contours of those powers.

Goodyear’s lawyer, Pierre H. Bergeron of Squire Patton Boggs (US) LLP, urged the high court to rein in the sanctioning authority of federal judges by requiring them to tailor any sanctions for discovery-related abuses to the harm directly caused by that misconduct.

Goodyear told the justices that the monetary award they were ordered to pay—believed to be one of the largest discovery sanctions ever imposed by a U.S. court—should be vacated because the district court that issued the sanction failed to tailor it to harm directly caused by the alleged discovery abuses.

‘Green Eye-Shade Accountants.’

The questions from the bench indicated that the court was skeptical about that argument. Several justices questioned whether it was reasonable to hold district courts to the “direct causation” standard Goodyear proposed and suggested that a “proximate causation” standard would be more appropriate.

Justice Elena Kagan said existing cases make it clear that “we don’t expect district court judges to be, you know, green eye-shade accountants.”

Goodyear’s lawyer argued a direct causation standard was not only workable but essential to the proper functioning of democracy.

Invoking separation-of-powers principles, Bergeron said a direct causation test was “necessary in light of the historic restrictions” on a court’s inherent authority—which, unlike the “statutory and rule-based” regimes that govern judicial sanctions, is exercised “without legislative guidance.”

But although Goodyear dedicated much of its briefing to separation-of-powers issues, the questions from the bench barely touched on those principles. Instead, the justices focused on the practicality and workability of the “direct causation” standard that Goodyear urged the court to endorse.

“I guess I’m curious as to how you would apply that in practice,” Chief Justice John G. Roberts Jr. asked.

Goodyear’s lawyer argued that it would not be terribly difficult for a district judge to apply a direct causation standard that tied monetary sanctions for discovery abuses to the harm caused by those alleged misdeeds.

The district court ordered Goodyear and its lawyers to cover nearly all of the attorneys’ fees and costs that the plaintiffs incurred in the case, reasoning that the discovery abuses permeated the entire litigation.

The lawyer for the plaintiffs, John J. Egbert of Jennings Strouss & Sallmon PLC in Phoenix, said that finding was entitled to deference.

‘Sham’ Litigation?

Egbert said the district court judge, who spent five years overseeing the litigation and two years considering the sanction motion, correctly determined that the plaintiffs were deprived of critical evidence and forced to try the case “based on a false set of facts.”

The judge made “extensive findings” and concluded that the the “evidence that was concealed and all the related deceits were so important to the plaintiffs’ claims and so devastating to Goodyear’s defense that it ... caused the entire litigation as a whole to be a sham,” Egbert said.

The district judge concluded that the entire litigation “was a wasted effort,” and she properly exercised her discretion “in holding that the whole thing should be reimbursed,” Egbert said.

But Bergeron said the district court should have calibrated the award in a more careful fashion, by tying the award more closely to the costs that the plaintiffs incurred as a result of discovery misconduct.

"[T]his is something that can be quantifiable,” Bergeron said.

Bergeron suggested that a district court should require parties harmed by alleged discovery abuses to specifically identify the expenses they were forced to incur as a result of those abuses. Bergeron said a party in this scenario should be required to identify, for example, a deposition that it conducted that would not have been needed if a withheld document were produced.

The district court judge in this case said one reason she awarded the plaintiffs nearly all of the fees and costs they incurred in the litigation was because she believed “the case more likely than not would have settled much earlier” if the improperly withheld discovery had been produced.

But Bergeron argued that district courts shouldn’t be “excused” from “the task of actually looking at what the misconduct was and how that impacted the fees incurred.”

Justice Samuel A. Alito Jr. responded to that statement with a question that forced a potentially damaging concession from Goodyear.

Alito asked whether it was “impossible to imagine” a situation in which a defendant withheld a document in discovery that would, if produced, cause that party “to say, ‘wow, once this comes out, we are going to have no option but to settle the issue of liability.’”

Bergenon said he “can certainly imagine such a document,” but that the heat tests at issue here did not rise to that level.

To contact the reporter on this story: Samson Habte in Washington, D.C. at shabte@bna.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bna.com

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