George E. Failing Company v. Cascade Drilling, Inc.
73017-7
| Wash. Ct. App. | Dec 27, 2016Background
- Cascade Drilling used a 50K rig bought from Gefco on a 2008 Wheeler Canyon well; the rig experienced four pump drive shaft failures and Cascade ordered replacement shafts from Gefco.
- Gefco sued Cascade in 2009 for unpaid equipment; Cascade counterclaimed alleging Gefco sold defective shafts (including the three replacement shafts tied to the Wheeler Canyon failures).
- Over three years of litigation, Cascade produced three shafts it claimed were the 2nd–4th failed shafts from Wheeler Canyon; later evidence suggested those shafts came from other rigs.
- After the parties dismissed claims on the merits and Gefco prevailed on the original collection claim, Gefco moved for sanctions alleging Cascade fabricated shaft evidence and litigated in bad faith.
- The trial court (Nov. 27, 2013) found Cascade fabricated evidence and acted in bad faith; after a fee hearing it awarded Gefco $1,394,435 in attorney fees and $247,286 in expert fees (Dec. 29, 2014), and held Cascade’s president Niermeyer personally liable.
- Cascade appealed; the appellate court treated the timely appeal from the amount order as also bringing up the earlier liability finding and affirmed the sanctions and personal liability.
Issues
| Issue | Plaintiff's Argument (Gefco) | Defendant's Argument (Cascade/Niermeyer) | Held |
|---|---|---|---|
| Whether the trial court properly invoked inherent power to sanction for bad faith/fabrication | Trial court may use inherent power to sanction where party fabricated evidence and acted in bad faith; fees vindicate judicial authority and make plaintiff whole | Fabrication is a fraud on the court and requires proof by clear, unequivocal, and convincing evidence; findings are inconsistent, rely on equivocal expert testimony, and are unsupported | Affirmed: substantial evidence (and under clear-and-convincing, still sufficient) supports finding Cascade fabricated evidence and litigated in bad faith; inherent-power sanction proper |
| Whether the appeal was timely as to the liability finding | Appeal from the fee-amount order brings up the earlier nonfinal liability ruling on sanctions | Liability ruling was a separate, earlier order and not timely appealed alone | Affirmed: appeal of the December 2014 amount order timely raises review of the November 2013 liability determination because liability was not final until damages/amount set |
| Whether the doctrine of unclean hands bars Gefco’s fee award because Gefco was sanctioned for discovery violations | Sanctions doctrine serves judicial authority and making prevailing party whole; proportional sanctions permissible | Gefco’s own sanction (smaller) means it has unclean hands and cannot recover | Rejected: proportional sanctions for each party are proper; unclean hands defense does not bar award here |
| Whether Niermeyer may be held personally liable absent piercing corporate veil | An officer who participates in or approves wrongful conduct is personally liable for sanctions | Personal liability requires veil-piercing; Niermeyer was not a party at trial | Affirmed: findings that Niermeyer was centrally involved, directed or approved conduct support personal liability under Grayson test |
| Whether the court applied correct judgment interest rate | Fees are a money judgment under the catch-all interest rate (RCW 4.56.110(4)) | Award should be treated like tortious-bad-faith judgments with lower tort rate (RCW 4.56.110(3)(b)) | Affirmed: trial court correctly applied the catch-all interest rate; no persuasive analogy to insurance bad-faith tort |
Key Cases Cited
- United States v. Hudson, 11 U.S. (7 Cranch) 32 (1812) (recognizing courts’ inherent powers necessary to their function)
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (courts may assess fees for fraud on the court or bad-faith conduct abusing judicial process)
- Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980) (inherent powers must be exercised with restraint; fee awards under inherent power limited to narrow circumstances)
- Universal Oil Prods. Co. v. Root Refining Co., 328 U.S. 575 (1946) (fraud on the court justifies sanctions)
- State v. Wadsworth, 139 Wn.2d 724 (2000) (Washington follows federal law limiting inherent powers to protect judicial function)
- Grayson v. Nordic Construction Co., 92 Wn.2d 548 (1979) (corporate officer personally liable for penalties if he participates in or approves wrongful conduct)