The Ninth Circuit recently created a circuit split when it affirmed a $2.7 million attorney fee sanction against Goodyear for the “willful suppression” of adverse testing data.  This sanction accounted for all fees incurred by the plaintiffs’ attorneys from the very first day it was determined that Goodyear had failed to provide the requested data.  Thus, the Ninth Circuit’s affirmation of the enormous fee sanction suggested that courts have the inherent authority to impose punitive attorney fee sanctions when a party is acting in bad faith.  The U.S. Supreme Court on April 18, 2017 resolved this circuit split against the Ninth Circuit in Goodyear Tire & Rubber Co. v. Haeger.  The Supreme Court unanimously found that the lower court exceeded its authority by failing to limit the award to the fees incurred due to Goodyear’s improper discovery responses, reversing the Ninth Circuit’s ruling and reaffirming the longstanding principal that a court must conduct an accounting of the fees actually incurred due to misconduct before issuing an attorney fee sanction. 

The plaintiffs had sued Goodyear alleging that a design defect in the G159 model tire left it unable to withstand heat generated at highway speeds.    Plaintiffs relentlessly sought Goodyear’s testing data to no avail, and eventually settled their case with Goodyear without obtaining the full testing file.  Months later, the plaintiffs’ attorney read in the paper that Goodyear disclosed its internal testing data in a separate case.  Included within that production were internal Goodyear test results confirming that the G159 tire got unusually hot at 55 to 65 miles per hour.  Goodyear admitted concealing the testing data when asked, and plaintiffs promptly sought sanctions for discovery fraud. 

The District Court determined Goodyear knowingly concealed the internal heat test records early in the litigation and thereafter engaged in a “years-long course” of bad behavior by making “repeated and deliberate attempts to frustrate the resolution of this case on the merits.”  Noting its inherent power to sanction litigation misconduct, the trial court imposed $2.7 million in sanctions -- the equivalent amount of all fees and costs incurred from the moment Goodyear made its first improper discovery response. 

The Ninth Circuit affirmed the district court’s sanction, reasoning that the lower court was justified in imposing sanctions for all fees incurred “during the time [Goodyear was] acting in bad faith.”  In affirming the temporal-based attorney fee sanctions for attorney misconduct, the Ninth Circuit split from other circuits which had ruled that attorney fee sanctions must be limited to the actual fees incurred by the misconduct. 

The Supreme Court reversed the Ninth Circuit, resolving the circuit court split.  The Supreme Court reasoned that due process requires a causal link between the sanctionable conduct and the expenses incurred and determined that the massive sanction affirmed by the Ninth Circuit had a temporal relationship to the misconduct, but not a causal one.  Because this award necessarily included fees unrelated to Goodyear’s improper discovery conduct, the Supreme Court ruled that the award was punitive in nature and therefore beyond the district court’s inherent authority.   The Supreme Court’s ruling reinforces the principle that a court may not issue a fee sanction without first conducting an accounting of the fees and costs actually incurred due to the misconduct at issue.