Opinion ID: 7377
Heading Depth: 3
Heading Rank: 1

Heading: Vaughan v. Atkinson

Text: 15 In Holmes, we cited Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed.2d 88 (1962), only for the proposition that a willful and arbitrary failure to pay maintenance and cure gave rise to a claim for attorney's fees as well as general damages. See 734 F.2d at 1118. We did not cite Vaughan as an example of the Supreme Court's approval of punitive damage awards in the maintenance and cure context; indeed, we explicitly noted that it was subsequent decisions that made punitive damages available. See id. Nevertheless, it is possible that Vaughan, while only upholding an award of attorney's fees, announced a principle broader than its result. Thus, we now attempt to determine how broad this principle is. 16 Vaughan, a brief opinion by Justice Douglas, is a difficult decision--not because of its holding, but because of the rationale for its holding. It is clear that the majority in Vaughan upheld an award of attorney's fees to a seaman where his employer had deliberately withheld payment of maintenance and cure. See Vaughan, 369 U.S. at 529-31, 82 S.Ct. at 998-1000. The difficulty, however, stems from the theory on which the majority awarded the attorney's fees. 17 On the one hand, the adjectives used by the majority to describe the employer's behavior--callous, recalcitran[t], willful and persistent--imply that the award of attorney's fees was meant to be a punitive sanction. See id. at 530-31, 82 S.Ct. at 999-1000. On the other hand, the majority cited Cortes v. Baltimore Insular Line, 287 U.S. 367, 371, 53 S.Ct. 173, 174, 77 L.Ed. 368 (1932), for the proposition that an employer's failure to pay maintenance and cure may entitle a seaman to the recovery of necessary expenses. The Court further stated that the seaman was forced to hire a lawyer to get what was plainly owed him, and the Court noted that [i]t is difficult to imagine a clearer case of damages suffered for failure to pay maintenance than this one. Vaughan, 369 U.S. at 531, 82 S.Ct. at 1000-1001. This terminology clearly suggests that the attorney's fees were meant as a compensatory award for out-of-pocket expenses, as punitive damages are not owed as expenses and are not designed to remedy damages suffered. Indeed, the language of the dissent implies that the majority's rationale for the attorney's fees award was compensatory, while the dissent believed that the rationale should be punitive: 18 Cortes [, cited by the majority, ] dealt with compensatory damages for a physical injury, and the opinion in that case contains nothing to indicate a departure from the well-established rule that counsel fees may not be recovered as compensatory damages. ... 19 However, if the shipowner's refusal to pay maintenance stemmed from a wanton and intentional disregard of the legal rights of the seaman, the latter would be entitled to exemplary damages in accord with traditional concepts of the law of damages. While the amount so awarded would be in the discretion of the fact finder, and would not necessarily be measured by the amount of counsel fees, indirect compensation for such expenditures might thus be made. 20 Id. at 540, 82 S.Ct. at 1004 (Stewart, J., dissenting) (citation omitted). 2 Because of this difficulty stemming from the Vaughan rationale, it is not surprising that commentators are divided as to whether the attorney's fees award was intended to be compensatory or punitive in nature. Compare 6 James Wm. Moore, Moore's Federal Practice p 54.78, at 54-503 to -504 & n. 29 (2d ed. 1994) (The [Vaughan ] court found that when a seaman's employer refused to pay the seaman maintenance that 'was plainly owed under laws that are centuries old,' thus forcing the seaman to retain counsel and sue for it, the expenses of the suit could rightly be treated as part of the compensatory damage.) with Gilmore & Black, supra, Sec. 6-13, at 313 (noting that Vaughan awarded what were essentially punitive damages under the name of counsel fees). 3 21 Fortunately, in deciphering Vaughan, we are aided by seven subsequent Supreme Court cases that have cited the opinion. 4 In all seven cases, the Court has treated Vaughan as supporting an exception to the American Rule that litigants generally must bear their own costs. In the 1967 Maier Brewing case, the Court read Vaughan as establishing a compensatory basis for fee-shifting: 22 Limited exceptions to the American rule ... have been sanctioned by this Court when overriding considerations of justice seemed to compel such a result. In appropriate circumstances, we have held, an admiralty plaintiff may be awarded counsel fees as an item of compensatory damages (not as a separate cost to be taxed). Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed.2d 88 (1962). 23 386 U.S. at 718, 87 S.Ct. at 1407 (emphasis added) (footnote omitted). Since Maier Brewing, however, Vaughan has come to stand for the proposition that attorney's fees can be awarded to a prevailing party when his opponent has engaged in bad-faith conduct during litigation. See Shimman v. International Union of Operating Eng'rs, 744 F.2d 1226, 1229-30 (6th Cir.1984) (tracing the citation history of Vaughan ), cert. denied, 469 U.S. 1215, 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985). In fact, Vaughan is often cited as a foundational case for this bad-faith exception to the American Rule. See Summit Valley, 456 U.S. at 721, 102 S.Ct. at 2114-15; Hall, 412 U.S. at 5, 93 S.Ct. at 1946; Shimman, 744 F.2d at 1230. 24 Our knowledge that Vaughan is later cited as a foundation of the bad-faith exception to the American Rule, however, does not tell us whether this type of fee-shifting is compensatory or punitive in nature. In Hall v. Cole, the Court made the following observation: 25 Thus, it is unquestioned that a federal court may award counsel fees to a successful party when his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. In this class of cases, the underlying rationale of 'fee-shifting' is, of course, punitive, and the essential element in triggering the award of fees is therefore the existence of 'bad faith' on the part of the unsuccessful litigant. 26 412 U.S. at 5, 93 S.Ct. at 1946 (emphasis added) (citations omitted) (internal quotation omitted). Hall 's reasoning was reaffirmed in the recent case of Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). Quoting Hall, the Chambers Court noted that in the case of the bad-faith exception to the American Rule, 'the underlying rationale of 'fee-shifting' is, of course, punitive.'  Id. at 53, 111 S.Ct. at 2137. 27 A careful reading of Chambers, however, belies the view that awards made under the bad-faith exception to the American Rule are punitive damages in the sense that they punish the conduct giving rise to a plaintiff's claim. The Chambers Court distinguished between fees awarded pursuant to the bad-faith exception, which are based upon a federal court's inherent power to sanction parties for their litigation behavior, see id. at 47, 111 S.Ct. at 2134, and other fee-shifting rules that embody a substantive policy, such as a statute which permits a prevailing party in certain classes of litigation to recover fees. Id. at 52, 111 S.Ct. at 2136. In other words, as the Court explained, the imposition of sanctions under the bad-faith exception depends not on which party wins the lawsuit, but on how the parties conduct themselves during the litigation. Id. at 53, 111 S.Ct. at 2137 (emphasis added). 28 While the Chambers majority expressed no opinion on the question of whether a federal court has the inherent power to impose sanctions for conduct giving rise to an underlying claim, rather than for bad-faith conduct during the litigation process, see id. at 54 n. 16, 111 S.Ct. at 2137-38 n. 16, four justices were firmly of the view that bad-faith fee-shifting may not be used to sanction pre-litigation conduct. Justice Scalia noted that the American Rule prevents a court (without statutory authorization) from engaging in what might be termed substantive fee shifting, that is, fee shifting as part of the merits award. It does not in principle bar fee shifting as a sanction for procedural abuse. Id. at 59, 111 S.Ct. at 2140 (Scalia, J., dissenting). Similarly, Justice Kennedy, joined by Chief Justice Rehnquist and Justice Souter, made the following observation: 29 [I]t is impermissible to allow a District Court acting pursuant to its inherent authority to sanction such prelitigation primary conduct. A court's inherent authority extends only to remedy abuses of the judicial process. By contrast, awarding damages for a violation of a legal norm, [such as] the binding obligation of a legal contract, is a matter of substantive law.... [The] bad-faith exception permits fee shifting as a sanction to the extent necessary to protect the judicial process.... When a federal court, through invocation of its inherent powers, sanctions a party for bad-faith prelitigation conduct, it goes well beyond the exception to the American Rule.... 30 Id. at 74, 111 S.Ct. at 2148 (Kennedy, J., dissenting). 31 The upshot of this extended discussion is that the bad-faith exception to the American rule, of which the Vaughan award is cited as an example, is not a punitive award in the tort sense of punishing the underlying conduct that gives rise to a plaintiff's claim. Tort-like punitive damages are awarded on the basis of the merits of a case, while bad-faith fee-shifting punishes abuses of the litigation process. 32 In the end, we need not definitely resolve whether Vaughan awarded attorney's fees as an item of compensatory or punitive damages. The award clearly has a make-whole compensatory aspect, see Maier Brewing, 386 U.S. at 718, 87 S.Ct. at 1407, and, based upon the facts of Vaughan, the award also has a punitive aspect to the extent that it punished an abuse of the litigation process. See, e.g., Chambers, 501 U.S. at 52-53, 111 S.Ct. at 2136-37; Shimman, 744 F.2d at 1230-32. According to the case law, however, the punitive aspect of the Vaughan award is the bad-faith exception to the American Rule, and that exception is limited to a recovery of attorney's fees. The Vaughan award was clearly not a punitive damages award in the tort sense of punishing the underlying conduct that gave rise to the litigation, and the developing case law does not support such a position. 33 Simply put, all we can confidently say about Vaughan is that it entitles an injured seaman to recover attorney's fees--perhaps as part of compensatory damages--when his employer willfully fails to pay maintenance and cure. We cannot definitively conclude, however, that Vaughan establishes any broader principle to support Holmes 's rule that tort-like punitive damages, not limited to attorney's fees, are available in cases of willful nonpayment of maintenance and cure. 34