Ninth Circuit affirms a $2.7 million sanction against Goodyear and its attorneys (updated 2/16/16)

Haeger v. Goodyear Tire & Rubber Co., Nos. 12-17718 et al. (9th Cir. July 20, 2015).

Federal courts have the inherent power to sanction counsel and parties for bad-faith behavior. Here, the district court invoked its inherent power to impose a $2.7 million sanction against Goodyear and two of its attorneys for failing to turn over tire-test data. 

The underlying case arose from a serious auto crash. One of the tires on the Haeger family’s motor home failed, causing the vehicle to overturn. The Haegers then sued Goodyear. During litigation, the Haegers asked Goodyear to produce test data on how the tires reacted to heat and speed. Goodyear produced test data in response to this request. In the end, the Haegers settled their claims after the first day of trial. 

Thereafter, counsel for the Haegers saw an article suggesting that, in another case, Goodyear had produced heat and speed tests that it hadn’t produced to the Haegers. It turns out, in fact, that Goodyear had produced those tests in several other cases—cases where Goodyear was represented by the same attorneys who represented it against the Haegers. 

So the Haegers moved for sanctions. After briefing and an extended evidentiary hearing, the district court had no trouble finding that Goodyear and its counsel had withheld the tests from the Haegers in bad faith.

Figuring out the correct sanction was more difficult. The court decided, though, that it would award the Haegers $2.7 million, an amount that represented all of the attorneys’ fees and costs the Haegers had incurred after Goodyear had first responded dishonestly to their request for test data. This, the district court believed, would compensate the Haegers for the other side’s misconduct.

The district court seems to have articulated two justifications for this award. First, if the misconduct had come to light during the litigation rather than after it, the court would have entered a default judgment against Goodyear (presumably in an amount that equaled or exceeded $2.7 million). Second, looking at the cases in which the data had been produced—one of which resulted in a plaintiff’s verdict of $5.6 million, and the other two of which settled—the district court concluded that if Goodyear had produced the data to the Haegers, the case would have settled much earlier. 

The majority of this Ninth Circuit panel affirms, holding that the district court didn’t abuse its discretion in any way—either in finding that Goodyear and its attorneys had acted in bad faith, or in fashioning a $2.7 million award in these unusual circumstances. Even if the district court’s award wasn’t strictly compensatory, it was justified because of the “frequency and severity” of the misconduct in this case. 

Judge Watford dissents on the amount of the sanction. He notes that inherent sanctions are either compensatory or punitive. If they’re punitive, a court must employ criminal procedures—a jury trial and proof beyond reasonable doubt, for example—before imposing them. Here, the award was intended to be compensatory and not punitive. According to Judge Watford, though, there’s no real causal connection between the misconduct and the sanction. It’s “anyone’s guess,” he says, what would have happened had Goodyear disclosed the tests at the beginning. And, unlike the majority, he believes that an award of sanctions under a court’s inherent power must be strictly compensatory.

UPDATE (2/16/16): The Ninth Circuit has issued an amended opinion here. The result, the divide among the panel, and, as far as I can tell, the basic analysis, have remained the same.