King County Superior Court issued sanctions of $1,641,721 in favor of Gefco and against Cascade Drilling, Inc. and its President, Bruce Niermeyer, composed of $1,394,435 in attorneys’ fees and $247,286 in expert fees. [i]
Cascade Drilling is a contractor. Gefco manufactures and sells large drilling machinery. The dispute centered around a project that began in 2008. Cascade was hired to drill a water well at a housing development in Wheeler Canyon, California. Cascade used a 50K drilling rig purchased from Gefco. The pump drive shafts on the drilling rig failed four times. After each failure, Cascade ordered a replacement pump drive shaft from Gefco.
In September 2008, Cascade ordered drilling equipment for an unrelated drilling rig from Gefco, but did not pay Gefco. Gefco then sued to collect. Cascade admitted not paying, but asserted counterclaims alleging that Gefco was indebted to Cascade for non-conforming and defective goods, including the replacement pump drive shafts purchased from Gefco for the Wheeler Canyon project.
For the next three years, the parties litigated extensively. Cascade produced three pump drive shafts, representing them to be the second, third, and fourth pump drive shafts that failed on the Wheeler Canyon job.
In August 2012, Cascade voluntarily dismissed its counterclaims with prejudice and paid Gefco the amount due on the disputed invoice. This resolved the merits of the original claim and counterclaim.
Gefco moved for sanctions against Cascade based on information that came to light in the litigation. Gefco alleged that the three pump drive shafts produced by Cascade did not come from the rig used on the Wheeler Canyon job and that Cascade had fabricated evidence. Eventually, the trial court issued its ruling that Cascade engaged in bad faith litigation and fabricated the pump drive shaft evidence. The court ordered Cascade and its President to pay Gefco’s reasonable attorneys’ fees and costs. Cascade appealed the trial court’s award of over $1,600,000 in sanctions against it. The Court of Appeals affirmed.
In rendering its opinion, the Court of Appeals noted that a court may resort to its inherent powers only to protect the judicial branch in the performance of its constitutional duties when reasonably necessary for the efficient administration of justice. If the court finds that fraud has been practiced upon it, or that the very temple of justice has been defiled, it may assess attorneys’ fees against the responsible party. A court may assess attorneys’ fees where a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Washington courts follow federal cases in holding that a trial court’s inherent authority to sanction litigation conduct by assessing attorneys’ fees and costs is properly invoked upon a finding of bad faith. Here, the trial court made an explicit finding that Cascade engaged in bad faith litigation. The trial court found that Cascade and Niermeyer “fabricated the evidence upon which Cascade’s counterclaims were based.”
Cascade argued that fabricated evidence must be proven by clear, unequivocal, and convincing evidence because it is tantamount to a fraud on the court. Assuming, without deciding, that the clear, cogent, and convincing standard is applicable to the allegation that Cascade fabricated evidence, the Court concluded that the trial court would have made the same finding under that standard, and that the finding is affirmable under that standard.
Although Niermeyer, Cascade’s President, was not a party to the suit, the trial court held him personally liable for the award of sanctions. The trial court concluded that the fabrication of the evidence upon which Cascade’s counterclaims were based was attributable to Niermeyer, as well as to Cascade. The Court of Appeals affirmed, noting that if a corporate officer participates in wrongful conduct or, with knowledge, approves the conduct, then the officer, as well as the corporation, is liable for its penalties.
The Court of Appeals ruled that the parties should bear their own attorneys’ fees and costs on the appeal.
[i] George E. Failing Company d/b/a Gefco v. Cascade Drilling, Inc., and Bruce Niermeyer, Washington Court of Appeals Cause No. 73017-7-1 (Div. 1, December 27, 2016) (unpublished opinion).