SCOTUS Won’t Review District Courts’ Authority to Award Sanctions

The U.S. Supreme Court on Monday denied a petition that challenged the U.S. Court of Appeals for the Ninth Circuit’s decision that found a district court had authority to impose $36 million in sanctions for abusive litigation practices in a trademark case.

The underlying case relates to AECOM Energy & Construction, Inc.’s (AECOM) suit against Gary Topolewski, who owned a clothing business called Metal Jeans, Inc., for infringing use of trademarks associated with AECOM’s predecessor, Morrison Knudsen Corporation. In a February 22, 2022, order, the U.S. District Court for the Central District of California said that “[t]hroughout the underlying discovery period, [Topolewski] showed no respect for this Court or for the judicial process.” According to the court, Topolewski and his co-defendants “violated this Court’s preliminary injunction order, ignored multiple discovery deadlines, failed to respond to discovery requests, served false discovery responses, failed to comply with Court orders compelling discovery, and failed to appear at depositions.”

As a result, the court eventually awarded damages in the amount of $36 million to AECOM as a sanction. The amount derived from the fact that the defendants had collected on a $36 million contract and the district court exercised the “inherent power of federal courts to levy sanctions in response to abusive litigation practices” to impose a sanction in that amount. According to the Ninth Circuit’s opinion, courts may impose sanctions under their inherent power “if the court specifically finds bad faith or conduct tantamount to bad faith.” The Ninth Circuit ultimately said the district court did not abuse its discretion in awarding the sanctions and affirmed the district court’s decision and Topolewski therefore petitioned the Supreme Court.

In the petition, Topolewski argued that the Supreme court held in Societe Internationale Pour Participations Industrielles Et Commerciales, S. A. v. Rogers, 357U.S. 197, 209 (1958) that “district courts, when imposing discovery sanctions, cannot rely on their ‘inherent authority’ and instead must apply only jurisprudence under Federal Rule of Civil Procedure 37.” And although the Court later held in Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991) that “an ‘inherent authority’ analysis could be used in place of some procedural statutes…. the Court suggested in dicta (and in Justice Scalia’s dissent) that Societe Internationale still applies to Rule 37 discovery sanctions,” said the petition. Nonetheless, Topolewski argued, the Ninth Circuit applied an “inherent authority” analysis without even mentioning Rule 37 and affirmed “$36 million in evidentiary and terminating sanctions against one defendant for another defendant’s discovery failings.” The petition claimed that it was the corporate defendants, and not Topolewski, that failed to produce certain financial documents leading to the sanctions.

The petition asked the Court to address whether Societe Internationale is still good law and whether a district court violates “Due Process protections when it determines both damages and liability as a matter of sanctions ‘for the same discovery misconduct.’”

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