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SUPREME COURT OF THE UNITED STATES
_________________
No. 15–1406
_________________
GOODYEAR TIRE & RUBBER COMPANY, PETITIONER
v. LEROY HAEGER, et al.
on writ of certiorari to the united states
court of appeals for the ninth circuit
[April 18, 2017]
Justice Kagan delivered the opinion of the
Court.
In this case, we consider a federal court’s
inherent authority to sanction a litigant for bad-faith conduct by
ordering it to pay the other side’s legal fees. We hold that such
an order 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. A district
court has broad discretion to calculate fee awards under that
standard. But because the court here granted legal fees beyond
those resulting from the litigation misconduct, its award cannot
stand.
I
Respondents Leroy, Donna, Barry, and Suzanne
Haeger sued the Goodyear Tire & Rubber Company (among other
defendants) after the family’s motorhome swerved off the road and
flipped over.[
1] The Haegers
alleged that the failure of a Goodyear G159 tire on the vehicle
caused the accident: Their theory was that the tire was not
designed to withstand the level of heat it generated when used on a
motorhome at highway speeds. Discovery in the case lasted several
years—and itself generated considerable heat. The Haegers
repeatedly asked Goodyear to turn over internal test results for
the G159, but the company’s responses were both slow in coming and
unrevealing in content. After making the District Court referee
some of their more contentious discovery battles, the parties
finally settled the case (for a still-undisclosed sum) on the eve
of trial.
Some months later, the Haegers’ lawyer learned
from a newspaper article that, in another lawsuit involving the
G159, Goodyear had disclosed a set of test results he had never
seen. That data indicated that the G159 got unusually hot at speeds
of between 55 and 65 miles per hour. In ensuing correspondence,
Goodyear conceded withholding the information from the Haegers even
though they had requested (both early and often) “all testing data”
related to the G159. Record in No. 2:05–cv–2046 (D Ariz.), Doc.
938, p. 8; see
id., Doc. 938–1, at 24, 36;
id.,
Doc. 1044–2, at 25 (filed under seal). The Haegers accordingly
sought sanctions for discovery fraud, claiming that “Goodyear
knowingly concealed crucial ‘internal heat test’ records related to
the [G159’s] defective design.”
Id., Doc. 938, at 1.
That conduct, the Haegers urged, entitled them to attorney’s fees
and costs expended in the litigation. See
id., at 14.
The District Court agreed to make such an award
in the exercise of its inherent power to sanction litigation
misconduct.[
2] The court’s
assessment of Goodyear’s actions was harsh (and is not contested
here). Goodyear, the court found, had engaged in a “years-long
course” of bad-faith behavior. 906 F. Supp. 2d 938, 972 (D Ariz.
2012). By withholding the G159’s test results at every turn, the
company and its lawyers had made “repeated and deliberate attempts
to frustrate the resolution of this case on the merits.”
Id., at 971. But because the case had already settled, the
court had limited options. It could not take the measure it most
wished: an “entry of default judgment” against Goodyear.
Id., at 972. All it could do for the Haegers was to order
Goodyear to reimburse them for attorney’s fees and costs paid
during the suit.
But that award, in the District Court’s view,
could be comprehensive, covering both expenses that could be
causally tied to Goodyear’s misconduct and those that could not.
The court calculated that the Haegers had spent $2.7 million in
legal fees and costs since the moment, early in the litigation,
when Goodyear made its first dishonest discovery response. And the
court awarded the Haegers that entire sum. In the “usual[ ]” case,
the court reasoned, “sanctions under a [c]ourt’s inherent power
must be limited to the amount [of legal fees] caused by the
misconduct.”
Id., at 974–975 (emphasis deleted). But this
case was not the usual one: Here, “the sanctionable conduct r[ose]
to a truly egregious level.”
Id., at 975. And when a
litigant behaves that badly, the court opined, “all of the
attorneys’ fees incurred in the case [can] be awarded,” without any
need to find a “causal link between [those expenses and] the
sanctionable conduct.”
Ibid. As further support for its
decision, the court considered the chances that full and timely
disclosure of the test results would have affected Goodyear’s
settlement calculus. “While there is some uncertainty,” the court
stated, “the case more likely than not would have settled much
earlier.”
Id., at 972.
Perhaps sensing thin ice, the District Court
also made a “contingent award” in the event that the Court of
Appeals reversed its preferred one. App. to Pet. for Cert. 180a.
Here, the District Court recognized the possibility that a “linkage
between [Goodyear’s] misconduct and [the Haegers’] harm is
required.”
Ibid. If so, the court stated, its fee award
should be reduced to $2 million. The deduction of $700,000, which
was based on estimates Goodyear offered, represented fees that the
Haegers incurred in developing claims against other defendants and
proving their own medical damages. See App. 69.
A divided Ninth Circuit panel affirmed the full
$2.7 million award. According to the majority, the District Court
acted properly in “award[ing] the amount [it] reasonably believed”
the Haegers expended in attorney’s fees and costs “during the time
when [Goodyear was] acting in bad faith.” 813 F. 3d 1233, 1250
(2016). Or repeated in just slightly different words: The District
Court “did not abuse its discretion” in “award[ing] the Haegers all
their attorneys’ fees and costs in prosecuting the action once
[Goodyear] began flouting [its] discovery obligations.”
Id.,
at 1249. Judge Watford disagreed. He would have demanded a “causal
link between Goodyear’s misconduct and the fees awarded.”
Id., at 1255 (dissenting opinion). The only part of the
District Court’s opinion that might support such a connection,
Judge Watford noted, was its hypothesis that disclosure of the test
results would have produced an earlier settlement, and thus
obviated the need for further legal expenses. But Judge Watford
thought that theory unpersuasive: Because Goodyear would still have
had plausible defenses to the Haegers’ suit, “[i]t’s anyone’s guess
how the litigation would have proceeded” had timely disclosure
occurred.
Ibid. Accordingly, Judge Watford would have
reversed the District Court for awarding fees beyond those
“sustained
as a result of Goodyear’s misconduct.”
Id., at 1256.
The Court of Appeals’ decision created a split
of authority: Other Circuits have insisted on limiting sanctions
like this one to fees or costs that are causally related to a
litigant’s misconduct.[
3] We
therefore granted certiorari. 579 U. S. ___ (2016).
II
Federal courts possess certain “inherent
powers,” not conferred by rule or statute, “to manage their own
affairs so as to achieve the orderly and expeditious disposition of
cases.”
Link v.
Wabash R. Co., 370 U. S. 626
–631 (1962). That authority includes “the ability to fashion an
appropriate sanction for conduct which abuses the judicial
process.”
Chambers v.
NASCO, Inc., 501 U. S. 32
–45 (1991). And one permissible sanction is an “assessment of
attorney’s fees”—an order, like the one issued here, instructing a
party that has acted in bad faith to reimburse legal fees and costs
incurred by the other side.
Id., at 45.
This Court has made clear that such a sanction,
when imposed pursuant to civil procedures, must be compensatory
rather than punitive in nature. See
Mine Workers v.
Bagwell, 512 U. S. 821 –830 (1994) (distinguishing
compensatory from punitive sanctions and specifying the procedures
needed to impose each kind).[
4]
In other words, the fee award may go no further than to redress the
wronged party “for losses sustained”; it may not impose an
additional amount as punishment for the sanctioned party’s
misbehavior.
Id., at 829 (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. See
id., at
826, 832–834, 838–839. When (as in this case) those criminal-type
protections are missing, a court’s shifting of fees is limited to
reimbursing the victim.
That means, pretty much by definition, that the
court can shift only those attorney’s fees incurred because of the
misconduct at issue. Compensation for a wrong, after all, tracks
the loss resulting from that wrong. So as we have previously noted,
a sanction counts as compensatory only if it is “calibrate[d] to
[the] damages caused by” the bad-faith acts on which it is based.
Id., at 834. A fee award is so calibrated if it covers the
legal bills that the litigation abuse occasioned. But if an award
extends further than that—to fees that would have been incurred
without the misconduct—then it crosses the boundary from
compensation to punishment. Hence the need for a court, when using
its inherent sanctioning authority (and civil procedures), to
establish a causal link—between the litigant’s misbehavior and
legal fees paid by the opposing party.[
5]
That kind of causal connection, as this Court
explained in another attorney’s fees case, is appropriately framed
as a but-for test: The complaining party (here, the Haegers) may
recover “only the portion of his fees that he would not have paid
but for” the misconduct.
Fox v.
Vice, 563 U. S.
826, 836 (2011) ; see
Paroline v.
United States, 572
U. S. ___, ___ (2014) (slip op., at 12) (“The traditional way
to prove that one event was a factual cause of another is to show
that the latter would not have occurred ‘but for’ the former”). In
Fox, a prevailing defendant sought reimbursement under a
fee-shifting statute for legal expenses incurred in defending
against several frivolous claims. See 563 U. S., at 830; 42
U. S. C. §1988. The trial court granted fees for all
legal work relating to those claims—regardless of whether the same
work would have been done (for example, the same depositions taken)
to contest the
non-frivolous claims in the suit. We made
clear that was wrong. 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.
Fox, 563 U. S., at 836. Substitute
“discovery abuse” for “frivolous claim” in that sentence, and the
same thing goes in this case. Or otherwise said (and again
borrowing from
Fox), when “the cost[ ] would have been
incurred in the absence of” the discovery violation, then the court
(possessing only the power to compensate for harm the misconduct
has caused) must leave it alone.
Id., at 838.
This but-for causation standard generally
demands that a district court assess and allocate specific
litigation expenses—yet still allows it to exercise discretion and
judgment. The court’s fundamental job is to determine whether a
given legal fee—say, for taking a deposition or drafting a
motion—would or would not have been incurred in the absence of the
sanctioned conduct. The award is then the sum total of the fees
that, except for the misbehavior, would not have accrued. See
id., at 837–838 (providing illustrative examples). But as we
stressed in
Fox, trial courts undertaking that task “need
not, and indeed should not, become green-eyeshade accountants” (or
whatever the contemporary equivalent is).
Id., at 838. “The
essential goal” in shifting fees is “to do rough justice, not to
achieve auditing perfection.”
Ibid. Accordingly, a district
court “may take into account [its] overall sense of a suit, and may
use estimates in calculating and allocating an attorney’s time.”
Ibid. The court may decide, for example,that all (or a set
percentage) of a particular category of expenses—say, for expert
discovery—were incurred solely because of a litigant’s bad-faith
conduct. And such judgments, in light of the trial court’s
“superior understanding of the litigation,” are entitled to
substantial deference on appeal.
Hensley v.
Eckerhart, 461 U. S. 424, 437 (1983) .
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. 501 U. S., at 51, 57 (brackets omitted). Thus,
the district court could reasonably conclude that all legal
expenses in the suit “were caused . . . solely by [his] fraudulent
and brazenly unethical efforts.”
Id., at 58. 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. And similarly,
if a court finds that a lawsuit, absent litigation misconduct,
would have settled at a specific time—for example, when a party was
legally required to disclose evidence fatal to its position—then
the court may grant all fees incurred from that moment on. In each
of those scenarios, a court escapes the grind of segregating
individual expense items (a deposition here, a motion there)—or
even categories of such items (again, like expert discovery)—but
only because all fees in the litigation, or a phase of it, meet the
applicable test: They would not have been incurred except for the
misconduct.
III
It is an oddity of this case that both sides
agree with just about everything said in the last six paragraphs
about the pertinent law. Do legal fees awarded under a court’s
inherent sanctioning authority have to be compensatory rather than
punitive when civil litigation procedures are used? The Haegers and
Goodyear alike say yes. Does that mean the fees awarded must be
causally related to the sanctioned party’s misconduct? A joint yes
on that too. More specifically, does the appropriate causal test
limit the fees, a la
Fox, to those that would not have been
incurred but for the bad faith? No argument there either. And in an
exceptional case, such as
Chambers, could that test produce
an award extending as far as all of the wronged party’s legal fees?
Once again, agreement (if with differing degrees of enthusiasm).
See Brief for Petitioner 17, 23–24, 31; Brief for Respondents
17–18, 22–23; Tr. of Oral Arg. 34–35, 46–47.
All the parties really argue about here is what
that law means for this case. Goodyear contends that it requires
throwing out the trial court’s fee award and instructing the court
to consider the matter anew. The Haegers maintain, to the contrary,
that the award can stand. They initially contend—pointing to a
couple of passages from the Ninth Circuit’s opinion—that both
courts below articulated and applied the very but-for causation
standard we have laid out. See Brief for Respondents 17–18
(highlighting the Ninth Circuit’s statements that Goodyear’s “bad
faith conduct caused significant harm” and that the District Court
“determine[d] the appropriate amount of fees to award as sanctions
to compensate the [Haegers] for the damages they suffered as a
result of [Goodyear’s] bad faith”). And even if we reject that
view, the Haegers continue, we may uphold the fee award on the
ground that it in fact passes a but-for test. That standard is
satisfied (so they say) for either of two reasons. First, because
the case would have settled as soon as Goodyear disclosed the
requested heat-test results, thus putting an end to the Haegers’
legal bills. Or second, because (settlement prospects aside) the
withholding of that data so infected the lawsuit as to account for
each and every expense the Haegers subsequently incurred. See
id., at 14–15, 22, 26.
The Haegers’ defense of the lower courts’
reasoning is a non-starter: Neither of them used the correct legal
standard. As earlier recounted, the District Court specifically
disclaimed the “usual[ ]” need to find a “causal link” between
misconduct and fees when the sanctioned party’s behavior was bad
enough—in the court’s words, when it “r[ose] to a truly egregious
level.” 906 F. Supp. 2d, at 975 (emphasis deleted); see
supra, at 3. In such circumstances, the court thought, it
could award “all” fees, including those that would have been
incurred in the absence of the misconduct. 906 F. Supp. 2d, at
975. And the court confirmed that approach even while conceding
that it might be wrong: By issuing a “contingent award” of $2
million, meant to go into effect if the Ninth Circuit demanded a
causal “linkage between the misconduct and harm,” the District
Court made clear that its primary, $2.7 million award was not so
confined. App. to Pet. for Cert. 180a; see
supra, at 4.
Still, the Court of Appeals left the larger sanction in place,
because it too mistook what findings were needed to support that
award. In the Ninth Circuit’s view, the trial court could grant all
attorney’s fees incurred “
during the time when [Goodyear
was] acting in bad faith.” 813 F. 3d, at 1250 (emphasis added); see
id., at 1249 (permitting an award of fees incurred
“
once [Goodyear] began flouting [its] discovery obligations”
(emphasis added));
supra, at 4. But that is a temporal
limitation, not a causal one; and, like the District Court’s
“egregiousness” requirement, it is wide of the mark. 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). No such
finding lies behind the $2.7 million award made and affirmed
below.
Nor are we tempted to fill in that gap, as the
Haegers have invited us to do. As an initial matter, the Haegers
have not shown that this litigation would have settled as soon as
Goodyear divulged the heat-test results (thus justifying an
all-fees award from the moment it was supposed to disclose, see
supra, at 8–9). Even the District Court did not go quite
that far: In attempting to buttress its comprehensive award, it
said only (and after expressing “some uncertainty”) that the suit
probably would have settled “much earlier.” 906 F. Supp. 2d,
at 972. And that more limited finding is itself subject to grave
doubt, even taking into account the deference owed to the trial
court. As Judge Watford reasoned, the test results, although
favorable to the Haegers’ version of events, did not deprive
Goodyear of colorable defenses. In particular, Goodyear still could
have argued, as it had from the beginning, that “the Haegers’ own
tire, which had endured more than 40,000 miles of wear and tear,
failed because it struck road debris.” 813 F. 3d, at 1256
(dissenting opinion). And indeed, that is pretty much the course
Goodyear took in another suit alleging that the G159 caused a
motorhome accident. See
Schalmo v.
Goodyear, No.
51–2006–CA–2064–WS (Fla. Cir. Ct., 6th Cir., Pasco County). In that
case (as Judge Watford again observed), Goodyear produced the very
test results at issue here, yet still elected to go to trial. See
813 F. 3d, at 1256. So we do not think the record allows a
finding, as would support the $2.7 million award, that disclosure
of the heat-test results would have led straightaway to a
settlement.
Further, the Haegers cannot demonstrate that
Goodyear’s non-disclosure so permeated the suit as to make that
misconduct a but-for cause of every subsequent legal expense,
totaling the full $2.7 million. If nothing else, the District
Court’s back-up fee award belies that theory. After introducing a
causal element into the equation, the court found that the $700,000
of fees that the Haegers incurred in litigating against other
defendants and proving their own medical damages had nothing to do
with Goodyear’s discovery decisions. See App. to Pet. for Cert.
180a;
supra, at 4. The Haegers have failed to offerany
concrete reason for questioning that judgment, and we do not see
how they could. At a minimum, then, the sanction order could not
force Goodyear to reimburse those expenses—because, again, the
Haegers would have paid them even had the company behaved
immaculately in every respect.
That leaves the question whether the contingent
$2 million award should now stand—or, alternatively, whether the
District Court must reconsider from scratch which fees to shift. In
the absence of any waiver issue, we would insist on the latter
course. 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—that
only about $700,000 of the fees sought would have been incurred
“regardless of Goodyear’s behavior.” App. 69; see Brief for
Respondents 41;
supra, at 4. The Court of Appeals did not
previously address that issue, and we decline to decide it in the
first instance. See
Cutter v.
Wilkinson, 544
U. S. 709, 718, n. 7 (2005) (“[W]e are a court of review, not
of first view”). The possibility of waiver should therefore be the
initial order of business below. If a waiver is found, that is the
end of this case. If not, the District Court must reassess fees in
line with a but-for causation requirement.
For these reasons, we reverse the judgment of
the Court of Appeals and remand the case for further proceedings
consistent with this opinion.
It is so ordered.
Justice Gorsuch took no part in the
consideration or decision of this case.
