How do we apportion sanctions under the federal rules?

This little-noticed Supreme Court case examines how to arrive at a precise sanction when a lawyer pulls a fast one in litigation and the court decides to order the offending litigant to pay the other side's legal costs.

The case is Goodyear Tire v. Haeger, decided on April 18. This is a product liability case alleging that Goodyear manufactured a defective tire that caused someone's motor home to drive off the road and flip over, a scary image, no doubt. During contentious discovery, Goodyear dragged its feet in producing test results for the tire, and the case eventually settled. Afterwards, the plaintiff's attorney learned that Goodyear had produced those test results in another case. Those test results showed that the tire got unusually hot at highway speeds, posing a safety risk. Goodyear admitted withholding the test results in this case. The trial court ordered Goodyear to pay the plaintiffs $2.7 million, the entire sum they had spent in legal fees and costs since the moment Goodyear had made its first dishonest discovery response. The Supreme Court says that was too much money and the trial court used the wrong formula in fixing the sanction.

Bad faith litigation behavior will cost you money. But how much money? The Supreme Court has said these sanctions must be compensatory and not punitive. "The fee award may go no further than to redress the wrongful party 'for losses sustained.'" This is a but-for causation fee test that the Supreme Court used in Fox v. Vice, 563 U.S. 826 (2011), a Title VII case where the prevailing defendant in a frivolous case could only recover the fees that it expended directly because of the plaintiff's behavior, which excluded the fees that the defendant expended in dealing with the plaintiff's good-faith behavior, and that "when a defendant would have incurred an expense in any event, he has suffered no incremental harm from the frivolous claim, and so the court lacks a basis for shifting the expense."

Justice Kagan writes that the lower courts in this case did not use the correct legal standard in setting the fine. While the district court dispensed with the correct standard because this was a "truly egregious case," and the Ninth Circuit said the trial court could grant all the attorneys' fees incurred "during the time when Goodyear was acting in bad faith," that does not take into account the surgical test the Supreme Court has previously articulated in sanctioning bad behavior. For one thing, the Supreme Court says, the plaintiffs cannot show that Goodyear's non-disclosure had so permeated the suit that Goodyear was on the hook for all the fees that the plaintiffs had incurred thereafter.

The Court does say that in exceptional circumstances, the but-for standard allows the trial court to shift all of a party's fees.

In exceptional cases, the but-for standard even permits a trial court to shift all of a party’s fees, from either the start or some midpoint of a suit, in one fell swoop. Cham­bers v. NASCO offers one illustration. There, we approved such an award because literally everything the defendant did—“his entire course of conduct” throughout, and indeed preceding, the litigation—was “part of a sordid scheme” to defeat a valid claim. Thus, the district court could reasonably conclude that all legal expenses in the suit “were caused . . . solely by [his] fraudulent and brazenly unethical efforts.” Or to flip the example: If a plaintiff initiates a case in complete bad faith, so that every cost of defense is at­tributable only to sanctioned behavior, the court may again make a blanket award.