In that article, I mentioned larger issues and more technical legal matters that dealt with the powers of the court. Rather than muddying up the waters and trying to take on both subjects at the same time, it seemed prudent to re-visit these issues in their own article.
Musnuff v. Haeger, which will be heard by the Supreme Court sometime this term touches on everything from courts' powers to sanction bad faith behavior as well as the 5th Amendment protections of those accused of acting in bad faith. For many, this may seem like a mundane matter, but its consequences will be felt far beyond this case.
A Brief History of Musnuff v. Haeger
The genesis for this case was a 2003 RV accident involving the Haeger family. The family suspected a tire defect may have caused their vehicle to lose control, triggering the accident. They contacted an attorney and filed suit in 2005 against Goodyear. During the course of discovery, the Haeger's attorneys made numerous requests for tests. Goodyear's counsel objected to the request on the grounds that it was overly broad.
At issue was whether or not Goodyear knew there were issues with the particular model of tire that was on the Haeger family RV. Of particular importance is whether or not Goodyear had internal tests showing that the tires lost integrity at speeds greater than 70 mph. Crucially, for what came later, the court never ruled on Goodyear's objection and never issued an order to hand over all tests.
Without the heat stress tests, the Haeger's case was hamstrung. Lacking a smoking gun that proved the theory of liability, they were left with little choice but to accept a paltry offer from Goodyear to settle the case shortly before trial. A similar pattern emerged in at least a dozen other products liability cases involving the same tires around the country.
This would normally have been the end of the matter, but a similar case, involving the same tires was going on in Florida. In that instance, the judge issued an order for Goodyear to hand over all testing related to the tire and contained within that testing was the heat stress tests sought by the plaintiffs in the Haeger case. Armed with that information, a jury eventually awarded the plaintiff in that case $5.6 million. It happened that one of the Haeger's attorneys read about the Florida case in a newspaper and recognized that the tests that were handed over in this Florida case were the ones that were sought on behalf of the Haegers a few years earlier.
The Haeger's attorneys then filed for a sanctions hearing against Goodyear on the grounds that they acted in bad faith by not handing over the heat stress tests. The court awarded damages of $2.7 million dollars against both good year and their attorney, Mr. Musnuff.
Unfortunately, the plaintiffs never sought sanctions against Mr. Musnuff, nor was he notified of the hearing and given the opportunity to attend and answer the accusations against him. This created a thorny legal problem and proved to grounds for appeal. At the heart of the appeal is the questions, "By what powers and under what circumstances can a court impose sanctions.
Court Sanctioning Powers: A Quick Overview
To understand the issues in this case as it exists now, it is crucial to have a basic familiarity with the powers of courts. The most important concept is that of inherent powers. These powers are those that exist, unless modified by statute, which are necessary for the court to fulfill its duties. Most people are familiar with the idea of being held in contempt of court. Once one is held in contempt, the judge is free to fine or imprison the person in contempt in order to assure that they will comply with the expected rules of behavior within the courtroom throughout the rest of the legal proceedings.
A crucial check on this power is that it only empowers the court to impose sanctions that are necessary to keep the court running. For this reason, these sanctions are generally progressive, escalating with each offense, until the bad actor begins to behave responsibly. Fines generally start low and increase as infractions mount. Similarly, most people imprisoned for contempt are released when the agree to abide by a judge's order or ruling.
As a quick example, if a lawyer were to make a crude remark in a courtroom, it is well within a judge's inherent powers to fine or imprison the lawyer; but what if the judge fined the attorney $1 million dollars for being in contempt? The likelihood is that such an excessive amount would be overturned on appeal and the judge would be admonished for imposing such a strict penalty right out of the gate. However, if the judge started with a $100 fine and the offending attorney kept talking, it might jump to $500. In theory, an attorney who doesn't head the judge's warning at some point could work their way up to a legitimate $1 million fine. This is merely an intellectual exercise, since an attorney who was committing that great an offense would likely be tossed in jail long before the fine ever reach those proportions.
Courts are also empowered to impose two different types of sanctions, compensatory sanctions and punitive sanctions. The former can only be imposed for the actual damages that are linked to a specific act of malpractice or bad faith. For instance, if the defense didn't hand over a document and as a result, the plaintiff had to spend $5,000 on an expert to make the same point that the evidence would have shown, the court might fine the defense $5,000. The critical element for awarding compensatory damages is that the court has to demonstrate a causal link between the offending actions and damages incurred by the other side. They also have to accurately assess the damages that the unethical behavior caused. Given the minor nature of these damages, the protections the court has to afford the accused as significantly less than what a defendant would be afforded in a criminal case.
Punitive damages are a completely different matter. Whereas compensatory damages are designed to allow opposing counsel and clients to recover expenses that were incurred unnecessarily, punitive damages are designed to punish egregious behavior that undermines the ability of the courts to function properly. Put more simply, punitive damages exist to punish cheaters.
The obstacle to imposing punitive sanctions is that courts have determined that those accused of wrongdoing must be afforded the same rights as those accused of a crime. This hurdle is intentionally high, since there is currently no cap on punitive sanctions. Given the courts' discretion in these matters, as well as the severity of the penalties that those accused in these matters can incur, such protections are an essential safeguard against judicial over-reach. It would be inconsistent with the civil rights protections built into every other branch of the government were courts to possess the power to arbitrarily impose financially ruinous fines or prison sentences.
Court Powers in Musnuff v. Haeger
In issuing its unprecedented, large fine, the court in Musnuff acted in a very curious manner. The court found that both Goodyear and their attorney, Mr. Musnuff acted in bad faith by not handing over the heat stress documents that were requested. This raises an interesting point for all civil litigation, because there is no record of the court issuing an order to hand over all documents.
That is why the charge has to be bad faith. Absent a court order, defendants and their counsel, who is an officer of the court, have a duty to act in a reasonable manner when it comes to handing over evidence in the discovery process. I have very little doubt that Goodyear knew the heat stress tests were vital to the case against them. They had a lot to gain by not sharing this information. From the documents in the case, it is difficult to tell when Mr. Musnuff became aware of these tests.
This would normally be a crucial point of fact and necessary to determine before meting out sanctions. After all, it would hardly be in the interest of justice or fairness to penalize an attorney for not handing over documents whose existence he could not have possibly known about.
I understand that the court was rightfully upset about Goodyear's subterfuge, which manipulated the outcome of business before the court, but in attempting to send a message, the court likely went too far.
What is curious is that the court, having not notified Mr. Musnuff that he was part of the proceedings, went on to fine him anyway. Since Mr. Musnuff would have had to be present and aware of the charges against him in order to invoke compensatory or punitive sanctions, the court decided that is had the authority to do so under the inherent powers of the court. This strikes me as a pretty blatant abuse of inherent powers, which if we recall, are in place to ensure the court has the ability to conduct its business. As the case had long since been settled, there wasn't any business before the court. The proper remedy in this instance was either compensatory or punitive sanctions.
Illustrative of just how shaky the court's standing to impose sanctions in the manner they chose to is the fact that the court entered two separate damages figures. There was the $2.7 million dollar figure mentioned before, and a figure of a bit more than $700,000 in the event that the larger sanction was overturned on appeal. In essence, the court was saying, "If I can get away with it, you'll pay the big amount, but if not, here's a lesser penalty." That certainly doesn't inspire confidence in the court's legal reasoning in this matter.
To find some justification for their outrageous decision, the court invokes Chambers v. NASCO (1991). In that decision, the Supreme Court held that the inherent powers of court permitted the defendant to be fined an unusually large amount of money, because the defendant's sole aim in using the courts was to prevent the execution of a legally binding sale agreement. The seller, having changed his mind, sought to tie matters up in court until the purchaser backed out of the agreement, thereby using the courts to invalidate a contract, de facto. The difference between withholding crucial evidence in a case and litigating to avoid fulfilling the terms of a contract is stark.
It is most likely why the Supreme Court in agreeing to take this case strongly rebukes the invocation of Chambers by both the trial court and the 9th Circuit Court of Appeals. While it is always advisable to read pre-opinion documents from the court with caution, the severity of their rebuke of the lower courts in this case is pretty startling. The Supreme Court writes:
...the district court relied on its own reading of Chambers to fashion its own idiosyncratic set of rule with respect to civil and punitive sanctions.
It's usually foolish to predict the outcome of a Supreme Court decision ahead of time, but it's hard to see how such harsh criticism doesn't manifest itself in the ultimate outcome of the case. Further, despite talks of how polarized the court is, a full 70% of cases are decided unanimously. Given that this case is about the powers of the courts and their limits, it seems much more likely that this will not be a close case.
Musnuff v. Haeger: A Case with No Heroes
Some might find this analysis to be puzzling, since just a few days ago I chastised Goodyear for withholding evidence. They should have handed over the heat stress test and they know it. However, defendants in civil cases are afforded the right to defend themselves for a reason. They're trials, not executions and due process is crucial to obtaining justice. There were ample grounds for sanctioning Goodyear in this case, but the trial court attempted to do an end-run around the due process safeguards Goodyear, and every other defendant, enjoys.
The fact is that the initial discovery request, which serves as the basis for sanctions was never ruled on. The blame here lies with the plaintiff's attorneys and the trial court. The plaintiff's attorneys could have pressed the issue and forced the court to rule on the discovery request, one way or the other. Similarly the court could have stepped in and ordered that all relevant documents be handed over to the plaintiffs. Neither happened and the Haegers were left to deal with the consequences.
Having failed in litigation, with an assist from Goodyear's behavior, the court sought to make things right after the fact, but without providing the safeguards that all of us are guaranteed by the Constitution. In attempting to right a wrong, the trial court committed an even greater wrong. If their decision is allowed to stand, courts in our country will have unilaterally expanded their powers on a vast scale.
Some may suspect that Mr. Musnuff must have known that his clients were withholding vital evidence and should be punished. Whether he knew or not, to punish him to the degree that the trial court sought to do is unconscionable. To do so without even giving him a chance to defend himself is tyrannical.
Were this decision allowed to stand, any attorney, business owner, or private individual who committed misconduct defending themselves would have potentially unlimited liability in the aftermath of future legal proceedings. In this case, the court limited damages to 80% of attorney's fees, but unfettered from having to justify sanctions in the future, courts would be free to do as the please in order to "send a message."
Yes, Goodyear's behavior in this case was scummy at best. The Haegers were denied their right to a fair and open hearing of their disputes by Goodyear's tactics, but that cannot be the grounds for giving courts the power to wreck lives, when they feel they've been wronged. Fighting for justice often means sticking up for unsavory characters, but that is because whatever ills can be inflicted on those we find distasteful can also be inflicted upon the rest of us in different circumstances.
The question in this case will not be whether the court sides with Mr. Musnuff, but how much sting will be in their rebuke to the lower courts?