Gregory P. Joseph*

Sanctions jurisprudence has infiltrated many aspects of practice and directly affects how cases are litigated, as reflected in recent columns dealing with Electronic Spoliation (12/9/02) and Expert Spoliation (2/3/03). This column summarizes several significant sanctions decisions of the past eighteen months in a variety of practice areas. It should be read in conjunction with my last column, dealing with Sua Sponte Sanctions (4/14/03).

Offensive Filings. Speech may be free, but that does not necessarily mean it is inexpensive. In Thomas v. Tenneco Packaging Co., 293 F.3d 1306, 1324-28 (11th Cir. 2002), the Eleventh Circuit affirmed the imposition of inherent-power sanctions on a lawyer for filing offensive documents — including affidavits executed by others (client and third-party witnesses) — ‛that do not simply relate facts, but instead overflow with personal insults that obviously are calculated to harass and intimidate opposing counsel“ by, inter alia, charging him with racism and racial animus. The Eleventh Circuit held that: ‛An attorney should not be an unreflecting conduit through which the opinions or desires of a client or witness are permitted to flow unchecked.“

The sanction imposed by the Thomas Court was not monetary. It was, however, perhaps more costly — a censure and reprimand. As the Second Circuit observed a few years ago: ‛Sanctions carry much more than a pecuniary impact: Reputations are at stake and licenses to practice are in danger.“ Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 335 (2d Cir. 1999).

Confronting Adverse Precedent. The line between an impermissible, legally frivolous argument, and a permissible ‛nonfrivolous argument for the extension, modification or reversal of existing law,“ is not always clear. The touchstone is often the candor with which counsel address the existing law that they are trying to avoid. In Brunt v. Service Employees Int’l Union, 284 F.3d 715, 721 (7th Cir. 2002), the Seventh Circuit declined to impose sanctions even though the appellants’ ‛claims were barred by existing Supreme Court and Seventh Circuit case law.“ The Brunt Court stressed that: ‛Appellants did attempt to distinguish their case from [the controlling authorities], and we defer to the district court’s finding that Appellants’ complaint was not so frivolous that Rule 11 sanctions are warranted.“

Absence of Merit vs. Inartfulness of Expression. Legal and factual complexity breed error. The more complicated the case, the more likely that the presentation of counsel will not fully — or even sufficiently — capture the underlying merits. Is a pleading or other paper sanctionable if the underlying position has merit, even if counsel has not properly articulated it? The answer is, ‛No.“ Sanctions are intended to deter baseless positions, not to punish inartfulness. Losing on the merits is sufficient punishment for that. As the Fourth Circuit explained in Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 153 (4th Cir. 2002), in the context of a dismissed complaint: ‛Although a legal claim may be so inartfully pled that it cannot survive a motion to dismiss, such a flaw will not in itself support Rule 11 sanctions — only the lack of any legal or factual basis is sanctionable.... ‘[C]reative claims, coupled even with ambiguous or inconsequential facts, may merit dismissal, but not punishment.’“

Absence of Subject Matter Jurisdiction. The Supreme Court ruled in Willy v. Coastal Corp., 503 U.S. 131 (1992), that a federal court has power to impose sanctions on counsel (or litigants) appearing before it, even if the court lacks subject matter jurisdiction over lawsuit. That does not necessarily mean, however, that the range of sanctions at the court’s disposal is the same in that situation.

The Sixth Circuit ruled in Tropf v. Fidelity Nat’l Title Ins. Co., 289 F.3d 929, 942-43 (6th Cir. 2002) that, where the district court lacks subject matter jurisdiction over an action, the court may not enter an injunction obliging the offender to post a bond before filing a civil proceeding in a state (as opposed to federal) forum. It reasoned that: ‛Where a district court dismisses a case for lack of jurisdiction, it does not have the authority ... to enjoin actions by the parties in the state courts or state administrative proceedings.... Because the district court did not have subject matter jurisdiction over the [plaintiffs’] claims and did not adjudicate them on the merits, the court should not have enjoined the [plaintiffs] from filing any civil lawsuit in the state courts or in state administrative proceedings without posting a bond or cash.“

Mandatory Mediation. The First Circuit ruled in In re Atlantic Pipe Corp., 304 F.3d 135 (1st Cir. 2002) that, at least in complex cases, the federal courts may order parties to mediation — and to bear the costs of that mediation — under the doctrine of inherent judicial power but not under Rule 16. The Atlantic Pipe Court held that ‛it is within a district court's inherent power to order non-consensual mediation in those cases in which that step seems reasonably likely to serve the interests of justice,“ and distinguished (and disagreed with) older Sixth and Seventh Circuit cases barring district judges from ordering parties to participate in summary jury trials.

Compensatory Damages as Sanction. The Ninth Circuit upheld an award of $5,000 compensatory damages (in addition to $5,000 attorneys’ fees) for pain and suffering caused by the defendants’ wrongful introduction of humiliating evidence concerning plaintiff’s sexual history, in violation of Federal Rule of Evidence 412, in an employment discrimination trial. In B.K.B. v. Maui Police Dep't, 276 F.3d 1091, 1108-09 (9th Cir. 2002), the Ninth Circuit reasoned that this was necessarily a lesser included power since dismissal is an available remedy. ‛[B]y imposing sanctions for the embarrassment and pain suffered by Plaintiff as a result of the improper testimony, the district court was not invading the province of the jury or providing a substantive remedy to an aggrieved party. Instead, the amount the court imposed reflected its assessment of the actualharm incurred by Plaintiff, both in terms of additional attorneys' fees and emotional and reputational damage. This was well within the bounds of the court's discretionary power.“

Securities Fraud Lawsuits. The Private Securities Litigation Reform Act of 1995 re-instituted mandatory sanctions in securities fraud cases. Section 21D(c)(2) of the PSLRA (15 U.S.C. § 78u-4(c)(2) requires, at the end of each securities fraud lawsuit, that the court consider whether Rule 11 has been honored and, if not, ‛the court shall impose sanctions on [the violating] party or attorney.“ In securities fraud cases only, this effectively reversed the 1993 amendment to Federal Rule of Civil Procedure 11, which made the imposition of sanctions discretionary, not mandatory.

If an entire case or document is frivolous, then the PSLRA provision is not problematic. The problems arise if only part, not all, of a pleading or brief is frivolous. The statute (in 15 U.S.C. § 78u-4(c)(3)) sets up a series of interrelated presumptions, which the Second Circuit addressed in Gurary v. Nu-Tech Bio-Med, Inc., 303 F.3d 212 (2d Cir. 2002). Under the Gurary reading, if some of a plaintiff’s claims are sanctionable and some not, the court must assess the non-sanctionable claims and decide whether they are qualitatively sufficient to render the action as a whole pleading ‛nonabusive“ and the Rule 11 violation ‛not substantial.“ If so, that defeats the statutory presumption that the court is to award all of the attorneys’ fees and expenses that the defendants have ‛incurred in the action.“ If not, the statutory presumption is triggered and the defense is presumptively entitled to all of its reasonable fees and expenses from the outset of the case. If the presumption is triggered, the court must then determine whether the Rule 11 violation is de minimis. If so, the presumption is rebutted. If the presumption is not rebutted, the plaintiff’s lone hope for avoiding the presumptive award of all reasonable fees and expenses is to bear the burden of proving that the award would be unjust in the circumstances and not impose a greater burden on the defense.

Gurary is a fair reading of the PSLRA, and therefore constitutes a strong argument against this unique sanctions treatment and in favor of the straightforward, discretionary approach of Rule 11. Gurary did not even address all of the complexities of sanctions under the PSLRA. Among other things, the Second Circuit declined to decide whether, in appropriate circumstances, the presence of a non-frivolous claim against one defendant may keep frivolous claims against another defendant from being viewed as ‛substantial,“ nor whether the presence of a sufficiently meritorious state law claim might preclude a finding of a ‛substantial“ violation if the federal securities claim lacks merit. This complexity is a function of the mandatory sanctions regime erected by the PSLRA. In the discretionary realm of Rule 11, all of these issues are important, but not dispositive.

Pro Se Litigants. There is almost nothing worse than losing to a pro se litigant, but having to pay attorney fees to a pro se litigant would clearly fall in that category. The Federal Circuit ruled last year that no award of attorneys’ fees is awardable as a sanction under Rule 37 to a pro se litigant who is also a lawyer, if that sanction is calculated as though the litigant were represented by counsel. See Pickholtz v. Rainbow Techs., Inc. 284 F.3d 1365, 1375 (Fed. Cir. 2002) (‛The rule requires that the expenses be ‘incurred.’ We consider that term to be controlling on the issue.... [O]ne cannot ‘incur’ fees payable to oneself, fees that one is not obliged to pay.... Moreover, the word ‘attorney’ connotes an agency relationship between two parties (client and attorney), such that fees a lawyer might charge himself are not ‘attorney fees.’ ... Nor are such fees a payable ‘expense,’ as there is no direct financial cost or charge associated with the expenditure of one's own time“).

* Mr. Joseph is a fellow of the American College of Trial Lawyers, a past Chair of the Litigation Section of the American Bar Association and the principal of Gregory P. Joseph Law Offices LLC in New York.