GOODYEAR TIRE & RUBBER CO. v. HAEGER et al.

Certiorari To The United States Court Of Appeals For The Ninth Circuit

No. 15-1406. Argued January 10, 2017--Decided April 18, 2017

Respondents Leroy, Donna, Barry, and Suzanne Haeger sued petitioner Goodyear Tire & Rubber Company, alleging that the failure of a Goodyear G159 tire caused the family’s motorhome to swerve off the road and flip over. After several years of contentious discovery, marked by Goodyear’s slow response to repeated requests for internal G159 test results, the parties settled the case. Some months later, the Haegers’ lawyer learned that, in another lawsuit involving the G159, Goodyear had disclosed test results indicating that the tire got unusually hot at highway speeds. In subsequent correspondence, Goodyear conceded withholding the information from the Haegers, even though they had requested all testing data. The Haegers then sought sanctions for discovery fraud, urging that Goodyear’s misconduct entitled them to attorney’s fees and costs expended in the litigation.

The District Court found that Goodyear had engaged in an extended course of misconduct. Exercising its inherent power to sanction bad-faith behavior, the court awarded the Haegers $2.7 million—the entire sum they had spent in legal fees and costs since the moment, early in the litigation, when Goodyear made its first dishonest discovery response. The court said that in the usual case, sanctions ordered pursuant to a court’s inherent power to sanction litigation misconduct must be limited to the amount of legal fees caused by that misconduct. But it determined that in cases of particularly egregious behavior, a court can award a party all of the attorney’s fees incurred in a case, without any need to find a “causal link between [the expenses and] the sanctionable conduct.” 906 F. Supp. 2d 938, 975. As further support for its award, the District Court concluded that full and timely disclosure of the test results would likely have led Goodyear to settle the case much earlier. Acknowledging that the Ninth Circuit might require a link between the misconduct and the harm caused, however, the court also made a contingent award of $2 million. That smaller amount, designed to take effect if the Ninth Circuit reversed the larger award, deducted $700,000 in fees the Haegers incurred in developing claims against other defendants and proving their own medical damages. The Ninth Circuit affirmed the full $2.7 million award, concluding that the District Court had properly awarded the Haegers all the fees they incurred during the time when Goodyear was acting in bad faith.

Held: When a federal court exercises its inherent authority to sanction bad-faith conduct by ordering a litigant to pay the other side’s legal fees, the award 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. Pp. 5–13.

(a) Federal courts possess certain inherent powers, including “the ability to fashion an appropriate sanction for conduct which abuses the judicial process.” Chambers v. NASCO, Inc., 501 U. S. 32–45. One permissible sanction is an assessment of attorney’s fees against a party that acts in bad faith. Such a sanction must be compensatory, rather than punitive, when imposed pursuant to civil procedures. See Mine Workers v. Bagwell, 512 U. S. 821–830. 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. Hence the need for a court to establish a causal link between the litigant’s misbehavior and legal fees paid by the opposing party. That kind of causal connection is appropriately framed as a but-for test, meaning a court may award only those fees that the innocent party would not have incurred in the absence of litigation misconduct. That standard generally demands that a district court assess and allocate specific litigation expenses—yet still allows it to exercise discretion and judgment. Fox v. Vice, 563 U. S. 826. And in exceptional cases, that standard allows a court to avoid segregating individual expense items by shifting all of a party’s fees, from either the start or some midpoint of a suit. Pp. 5–9.

(b) Here, the parties largely agree about the pertinent law but dispute what it means for this case. Goodyear contends that it requires throwing out the fee award and instructing the trial court to consider the matter anew. The Haegers maintain, to the contrary, that the award can stand because both courts below articulated and applied the appropriate but-for causation standard, or, even if they did not, the fee award in fact passes a but-for test.

The Haegers’ defense of the lower courts’ reasoning is a non-starter: Neither court used the correct legal standard. The District Court specifically disclaimed the need for a causal link on the ground that this was a “truly egregious” case. 906 F. Supp. 2d, at 975. And the Ninth Circuit found that the trial court could grant all attorney’s fees incurred “during the time when [Goodyear was] acting in bad faith,” 813 F. 3d 1233, 1249—a temporal, not causal, limitation. A sanctioning court must determine which fees were incurred because of, and solely because of, the misconduct at issue, and no such finding lies behind the $2.7 million award made and affirmed below. Nor is this Court inclined to fill in the gap, as the Haegers urge. As an initial matter, the Haegers have not shown that this litigation would have settled as soon as Goodyear divulged the heat-test results (a showing that would justify an all-fees award from the moment Goodyear was supposed to disclose). Further, they 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.

Although the District Court considered causation in arriving at its back-up award of $2 million, it is unclear whether its understanding of that requirement corresponds to the appropriate standard—an uncertainty pointing toward throwing out the fee award and instructing the trial court to consider the matter anew. However, the Haegers contend that Goodyear has waived any ability to challenge the contingent award since the $2 million sum reflects Goodyear’s own submission that only about $700,000 of the fees sought would have been incurred regardless of the company’s behavior. The Court of Appeals did not address that issue, and this Court declines to decide it in the first instance. The possibility of waiver should therefore be the initial order of business on remand. Pp. 9–13.

813 F. 3d 1233, reversed and remanded.

Kagan, J., delivered the opinion of the Court, in which all other Members joined, except Gorsuch, J., who took no part in the consideration or decision of the case.


COVENTRY HEALTH CARE OF MISSOURI, INC., fka GROUP HEALTH PLAN, INC. v. NEVILS

Certiorari To The Supreme Court Of Missouri

No. 16-149. Argued March 1, 2017--Decided April 18, 2017

The Federal Employees Health Benefits Act of 1959 (FEHBA) authorizes the Office of Personnel Management (OPM) to contract with private carriers for federal employees’ health insurance. 5 U. S. C. 8902(a), (d). FEHBA contains an express-preemption provision, 8902(m)(1), which states that the “terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law . . . which relates to health insurance or plans.”

OPM’s contracts have long required private carriers to seek subrogation and reimbursement. Accordingly, OPM’s regulations make a carrier’s “right to pursue and receive subrogation and reimbursement recoveries . . . a condition of and a limitation on the nature of benefits or benefit payments and on the provision of benefits under the plan’s coverage.” 5 CFR 890.106(b)(1). In 2015, OPM published a new rule confirming that a carrier’s subrogation and reimbursement rights and responsibilities “relate to the nature, provision, and extent of coverage or benefits (including payments with respect to benefits) within the meaning of” 8902(m)(1), and “are . . . effective notwithstanding any state or local law, or any regulation issued thereunder, which relates to health insurance or plans.” 890.106(h).

Respondent Jodie Nevils was insured under a FEHBA plan offered by petitioner Coventry Health Care of Missouri. When Nevils was injured in an automobile accident, Coventry paid his medical expenses. Coventry subsequently asserted a lien against part of the settlement Nevils recovered from the driver who caused his injuries. Nevils satisfied the lien, then filed a class action in Missouri state court, alleging that, under Missouri law, which does not permit subrogation or reimbursement in this context, Coventry had unlawfully obtained reimbursement. Coventry countered that 8902(m)(1) preempted the state law. The trial court granted summary judgment in Coventry’s favor, and the Missouri Court of Appeals affirmed. The Missouri Supreme Court reversed. Finding 8902(m)(1) susceptible to diverse plausible readings, the court invoked a “presumption against preemption” to conclude that the federal statute’s preemptive scope excluded subrogation and reimbursement. On remand from this Court for further consideration in light of OPM’s 2015 rule, the Missouri Supreme Court adhered to its earlier decision. A majority of the Missouri Supreme Court also held that 8902(m)(1) violates the Supremacy Clause.

Held:

1. Because contractual subrogation and reimbursement prescriptions plainly “relate to . . . payments with respect to benefits,” 8902(m)(1), they override state laws barring subrogation and reimbursement. Pp. 6–9.

(a) This reading best comports with 8902(m)(1)’s text, context, and purpose. Contractual provisions for subrogation and reimbursement “relate to . . . payments with respect to benefits” because subrogation and reimbursement rights yield just such payments. When a carrier exercises its right to either reimbursement or subrogation, it receives from either the beneficiary or a third party “payment” respecting the benefits the carrier had previously paid. The carrier’s very provision of benefits triggers the right to payment. Congress’ use of the expansive phrase “relate to,” which “express[es] a broad pre-emptive purpose,” Morales v. Trans World Airlines, Inc., 504 U. S. 374, weighs against Nevils’ effort to narrow the term “payments” to exclude payments that occur “long after” a carrier’s provision of benefits. Nevils’ argument that Congress intended to preempt only state coverage requirements, e.g., inclusion of acupuncture and chiropractic services, also miscarries.

The statutory context and purpose reinforce this conclusion. FEHBA concerns “benefits from a federal health insurance plan for federal employees that arise from a federal law.” Bell v. Blue Cross & Blue Shield of Okla., 823 F. 3d 1198, 1202. Strong and “distinctly federal interests are involved,” Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U. S. 677, in uniform administration of the program, free from state interference, particularly in regard to coverage, benefits, and payments. The Federal Government also has a significant financial stake in subrogation and reimbursement. Pp. 6–8.

(b) McVeigh’s suggestion that 8902(m)(1) has two “plausible” interpretations, 547 U. S., at 698, Nevils asserts, supports application of the presumption against preemption here. But the Court never chose between the two readings set out in McVeigh, because doing so was not pertinent to the discrete question whether federal courts have subject-matter jurisdiction over FEHBA reimbursement actions. Having decided in McVeigh that 8902(m)(1) is a “choice-of-law prescription,” not a “jurisdiction-conferring provision,” id., at 697, the Court had no cause to consider 8902(m)(1)’s text, context, and purpose, as it does here. Pp. 8–9.

2. The regime Congress enacted is compatible with the Supremacy Clause. The statute itself, not a contract, strips state law of its force. FEHBA contract terms have preemptive force only if they fall within 8902(m)(1)’s preemptive scope. Many other federal statutes found to preempt state law, including the Employee Retirement Income Security Act of 1974 and the Federal Arbitration Act, leave the context-specific scope of preemption to contractual terms. While 8902(m)(1)’s phrasing may differ from those other statutes’, FEHBA’s express-preemption provision manifests the same intent to preempt state law. Pp. 9–11.

492 S. W. 3d 918, reversed and remanded.

Ginsburg, J., delivered the opinion of the Court, in which all other Members joined, except Gorsuch, J., who took no part in the consideration or decision of the case. Thomas, J., filed a concurring opinion.