RULE
11 SANCTIONS: AN ILLUSORY DETERRENT TO FRIVOLOUS LAWSUITS
(published August 1996)
One of the most troubling aspects of modern litigation, for clients and defense attorneys alike, is the filing of frivolous lawsuits. Caricatures notwithstanding, crooks are not always as ignorant as they seem. Many are aware that under our current legal system lawsuits are often settled solely to avoid litigation expenses and the losing party will not typically be required to pay the prevailing party's legal fees. This creates a situation where an unscrupulous plaintiff has little to lose in filing a bogus lawsuit. Reminiscent of the movie "Network," individuals and business entities have recently begun to shout loudly to any who will listen, they are "mad as hell and won't take it anymore."
It therefore comes as no surprise that referenda, initiatives and legislation calling for tort reform have emerged at both the state and federal levels. It is also no surprise that many members of the powerful "plaintiffs' bar," with obvious interests in maintaining the status quo, have steadfastly opposed such reform. Battles in state and federal courts can be expected to last for years, during which time our current system will trudge ahead, ineffective as it is in deterring suits filed without factual or legal justification.
Those defending against frivolous lawsuits are not entirely without protection. Rule 11 of the Federal Rules of Civil Procedure ("F.R.C.P.") and similar state statutes are intended to deter dilatory or abusive pretrial tactics, and to streamline litigation by excluding baseless filings. Cooter & Gell v. Hartmarx Corp., 496 U.S.384, 110 S. Ct.2447, 2454 (1990); Golden Eagle Dist Corp. v. Burroughs Corp., 801 F.2d 1531, 1532 (9th Cir. 1986). To this end, Rule 11 provides that when an attorney signs a pleading, the attorney's signature constitutes a certificate that the pleading "to the best of the signer's knowledge, information, and belief formed after reasonable inquiry, is well grounded in fact and is warranted by existing law." If this mandate is violated, Rule 11 provides the court shall impose an "appropriate" sanction against the attorney.
When Rule 11 is violated, such as, for example, when a complaint is entirely unsupported by fact, the court may impose one or more types of sanctions. A party or attorney (or both) may be ordered under Rule 11 to pay an opposing party's attorneys' fees "incurred because of the filing of the pleading, motion or other paper." The court can also impose monetary sanctions under Rule 11 payable to the court. In addition to Rule 11 'so statutory authority, federal courts have inherent power to impose certain sanctions, including fines and imprisonment for civil contempt and an award of attorneys' fees for "bad faith" conduct. United States v. United Mine Workers of America, 330 U.S.258, 303-304, 67 S. Ct.677 (1947); Chambers v. NASCO, Inc.,501U.S.32,111 S.Ct. 2123, 2132 (1991), reh 'g denied, 501 U.S. 1269, 112 S. Ct. 12 (1991); Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-766, 100 S. Ct. 2455 (1980). Also in its quiver of sanctions, federal courts have discretion to impose public reprimand, directives of a nonmonetary nature (such as continuing legal education courses) and suspension of practice privileges in the district. F.RC.P. Rule 1 l(c)(2); Pony Express Courter Corp. of America v. Pony Express Delivery Service, 872 F.2d 317,319 (9th Cir. 1989).
At least in theory, Rule 11 prevents attorneys from using their clients as shields by disassociating themselves with the facts and matters represented in papers filed with the court. Rule 11 imposes a duty upon the attorney handling the case "to certify that the pleading is factually sound and substantiated by the existing state of the law." The attorney must, accordingly, conduct a reasonable inquiry prior to filing papers with the court. The reasonable factual inquiry requires, at a minimum, "some kind of investigation, some affirmative conduct on the part of the attorney." Schwarzer, "Sanctions Under Rule 11 - A Closer Look," 104 F.R.D. 181, 187 (1985). "Suspicion, rumor or surmise will not do."
Courts consider several factors in deciding whether an attorney's pre-filing inquiry was "reasonable": (1) how much time for investigation was available before filing; (2) whether the attorney had to rely on a client for information as to the facts underlying the pleading, motion or other paper; (3) whether the pleading, motion or other paper was based on a plausible view of the law; (4) whether the attorney depended on information from a referring attorney or other member of the bar; and (5) the complexity of the factual issues and the threatened liability. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533, 550, 111 S. Ct. 922, 933 (1991); Hamer v. Career College Ass 'n, 979 F.2d 758, 759 (9th Cir. 1992).
KR&P recently disposed of a case illustrative of an attorney's failure to satisfy his duty of reasonable investigation. In that case, a passenger on a cruise ship refused to enroll in a "workshop," organized exclusively by a travel agency unaffiliated with the cruise line. Instead, she purchased her ticket for the cruise through another travel agency so she could save money on the cruise fare. Once aboard she repeatedly attempted to attend sessions of the workshop, and was repeatedly advised she had not properly registered or paid for the workshop, and was therefore not welcome. After a physical altercation allegedly arose, workshop organizers became obliged to summon ship's security to remove plaintiff from the room where the workshop was held. The security officer politely escorted plaintiff from the room to the chief purser's office, in an admittedly "gentlemanly" manner.
After the cruise, plaintiff engaged an attorney who filed a complaint stating causes of action against the travel agency sponsoring the workshop, as well as the cruise line, for negligence, assault, battery, medical malpractice, and other causes of action. The medical malpractice count was based on plaintiff's claim that she suffered such obvious and extreme mental distress, evidenced by trembling, that the chief purser was negligent in not assuring medical attention was provided. The claim was astonishing, particularly in view of the fact that plaintiff failed to seek medical assistance and neither her sister, with whom she travelled, nor her physician brother, with whom she spoke after the alleged incident, suggested she report to the infirmary.
At the outset of the litigation a letter was written to plaintiff's counsel, advising the case was without merit and demanding a dismissal at the peril of Rule 11 sanctions. Instead, plaintiff's attorney forged ahead with discovery, thereby needlessly compounding costs. Had plaintiffs attorney engaged in even minimal inquiry, he would have questioned his client as to her level of satisfaction with the cruise, and would as a result have discovered what plaintiff memorialized in a "comment card" she completed at the end of the cruise - that she rated the cruise an "11" on a scale of one to ten, and that she specifically singled out both the security officer and the purser (the only crewmembers with whom she dealt) for glowing praise! Shortly thereafter, KR&P filed a Motion for Summary Judgment and served plaintiff with a Motion for Rule 11 Sanctions. The case settled and plaintiff agreed to make a settlement payment to the cruise line. Had plaintiff's attorney taken seriously his Rule 11 duty of reasonable investigation, significant litigation expenses would have been avoided and court time conserved.
As seen above, Rule 11 vests federal courts with the power to deter frivolous lawsuits. In practice, however, Rule 11 (and other) sanctions are only rarely imposed, with insufficient regularity to dissuade the hoards of would-be litigants who seek to "cash in" by filing meritless lawsuits. Because sanctions are so infrequently awarded the question arises why courts seem reluctant to do so. One reason is a judicially recognized reluctance to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories. Greenberg v. Sala, 822 F.2d 882,887 (9th Cir. 1987). Courts also sometimes view requests for Rule 11 sanctions as manifestations of objectionable"hardball litigation." Practitioners have been cautioned, for example, that use of "hardball" litigation techniques invites "retribution from courts which are far from enchanted with such abusive conduct." Gaiardo v. Ethyl Corp., 835 F.2d 479, 485 (3rd Cir. 1987). Not only do judges sometimes unfairly view requests for sanctions as merely a "hardball" litigation tactic, clients and their attorneys are sometimes dissuaded from seeking sanctions under proper circumstances, for fear of alienating the court.
Perhaps the paramount reason Rule 11 sanctions are only infrequently imposed lies in the so-called "safe harbor" provision of Rule 11 itself. Therein also lies the fundamental source of Rule 11's intrinsic ineffectiveness. Rule 11 places a 21-day hold on filing sanction motions to allow the party against whom sanctions are sought an opportunity for correction. F.R.C.P. Rule I l(c)(l)(A). In other words, one must first prepare and serve the Rule 11 motion, spelling out the deficiencies in the opponent's case, and allow the opponent 21 days to dismiss the claim or correct the offending pleading. The 21-day hold is an absolute prerequisite to imposition of Rule 11 sanctions. The very purpose of the "safe harbor" provision is to afford litigants an opportunity to insulate themselves against Rule 11 sanctions. Thomas v. Treasury Management Ass'n, Inc., 158 F.R.D.364, 369 (D. Md.1994).
The practical effect of this requirement is the "free" dismissal of frivolous lawsuits or causes of action, without imposition of often richly deserved sanctions. After all, only an imprudent attorney would fail within 21 days of service of a motion for sanctions to withdraw a clearly offending pleading, for doing so avoids any possibility that Rule 11 sanctions will be imposed. As an unfortunate consequence of Rule 11's "safe harbor" provision, it is relatively common for unprincipled attorneys to dismiss a meritless lawsuit only after being served with a motion for sanctions, leaving the opposing party to bear the full expense of its litigation and the motion, while the offending party is left free to engage in future misconduct, undeterred by Rule 11.
In the absence of amendment to Rule 11 by Congress to either eliminate the "safe harbor" provision altogether, or to provide for retention of jurisdiction by courts to impose Rule 11 sanctions after en offending document has been withdrawn, it appears certain imposition of Rule 11 sanctions will remain scarce. Moreover, although courts have inherent authority to impose sanctions, the fact remains they rarely do so. Sanctions, in short, do little to deter the filing of meritless claims.
Before a prospective litigant and his or her counsel file a lawsuit, it is reasonable to expect there exists a credible basis for the action. It follows that those who do not sincerely believe they have a supportable case should be discouraged from filing suit. The most effective tool for this purpose, the "English Rule" has been adopted by virtually every other judicial system worldwide. The English Rule requires the losing party pay the costs of suit and a portion of attorneys' fees accrued by the prevailing party. The judge has routine discretion upon request, to award costs (defined in the U.K. as disbursements plus attorneys' fees) to the prevailing party. In the majority of cases, the losing party must actually pay all of the other party's costs, plus part of its attorneys' fees. Under the English Rule, after a party is awarded fees, he or she prepares and submits a bill to the opponent. Disputes as to this bill are resolved at an informal hearing. Not all attorneys' fees are recoverable, however, as they are limited to "the minimum amount [necessary] to achieve justice." See generally P. Bishop, Let's Adopt the English Fees Award System, 4 Cal. Law. 10 (Feb., 1984).
Courts in the United States adhere to the so-called "American Rule," which provides (in most U.S. jurisdictions) that attorneys' fees are not recoverable as costs, damages, or otherwise, either at law or in equity, in the absence of a stipulation or express contractual or statutory authority. See, e.g, Le Fave v. Dimond, 46 Cal. 2d 868, 870 (1956). Were courts of the United States to abandon the American Rule in favor of the English Rule, such action would result in at least three profound improvements: (1) most unethical or careless litigants and their attorneys would consider the merits of the case much more carefully before filing suit; (2) a reduction in civil court backlogs, to the extent they are caused by the filing of frivolous cases; and (3) encouragement of early settlement.
In recognition of the importance of not dissuading the filing of "close call" cases that are well-intentioned and based on existing facts and reasonable interpretation of the law, legislation similar to the English Rule could be drafted that would reserve the courts' discretionary authority to require each party to bear its own costs, under exceptional or compelling circumstances. This would provide a mechanism for discouraging the filing of meritless actions, reduce courts' caseloads, and at the same time provide a "safety valve" to enable courts on rare occasion to apply the American Rule. Unfortunately, until such action is taken, defendants will generally continue to bear the expense incurred in contesting contrived, frivolous or even fraudulent claims.
