Commercial Litigation and Arbitration

Rule 11 — Liability of Lead Counsel for Others’ Acts

Complicated actions involve teams of lawyers. The most senior on the team may have little to do with drafting or filing papers with the court, but Rule 11 is not limited in scope to those who sign offending papers (not since December 1, 1993). There are at least two ways that lead counsel may fall victim to Rule 11. The first is ‛presenting“ a baseless or ill-motivated argument to the Court under Rule 11(b) (‛[b]y presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper“ that violates the Rule). The second is to be found a person ‛responsible for the violation“ under Rule 11(c).“

Both grounds were asserted against lead plaintiffs’ counsel in the securities class action, Morris v. Wachovia Secs., Inc., 2007 U.S. Dist. LEXIS 52675 (E.D. Va. July 20, 2007). Two partners responsible for the day-to-day management of this complex action reported to lead counsel. They admitted that they violated Rule 11 by pressing certain fraud claims that were unfounded. Lead counsel did not himself sign, file or submit a violative paper. Therefore, District Judge Robert E. Payne held, lead counsel did not ‛present“ a paper to the court within the meaning of Rule 11(b)): ‛Rule 11(b) placed a non-delegable duty on those attorneys who filed and submitted the offending papers or who argued them before the Court. This non-delegable duty does not extend to an attorney who authorized the filing or submission, but who did not file the papers himself.“

Authorizing the filing of a paper, however, does render a lawyer ‛responsible for the violation,“ within Rule 11(c). The lawyer is, consequently, amenable to sanctions unless the lawyer acted reasonably in relying on the other lawyers reporting to him or her. The factors for evaluating reasonableness include:

(1) The complexity of the factual and legal issues in question;

(2) The availability of alternate sources of information;

(3) The extent to which counsel relied upon other counsel for the facts underlying the paper;

(4) The extent to which the attorney was on notice that further inquiry might be appropriate;

(5) The respective experience of relying counsel and of counsel on whom reliance is placed;

(6) The history, duration and nature of the relationship between counsel; and

(7) The respective roles of counsel in the litigation (e.g., local counsel, lead counsel, forwarding counsel).

The Court found that ‛it is reasonable for complex litigation to be organized in a way that allows counsel to provide the best professional service at the most reasonable expense,“ and the structure adopted by plaintiffs’ counsel was reasonable. Therefore it was reasonable of lead counsel, given his knowledge of his experienced subordinates, to rely on them ‛correctly to cite, or to assure the correct citation of, deposition testimony in the opposition brief“ regarding the challenged claim. Accordingly, as a general matter, lead counsel was not subject to sanction.

Beware the Rule 11 Letter. There was, however, one specific claim that was factually defective and was called to the personal attention of lead counsel by letter from opposing counsel. Lead counsel authorized the filing of the motion opposing the dismissal of the defective claim after having been told in a Rule 11 letter that the predicate for it was false. ‛It is the responsibility of lead counsel in a case who holds the responsibility for overall strategic decisions and overall management of the case ... to assure himself that the basic legal theories upon which a case is to proceed are grounded in fact and law.“ Because lead counsel did not do so and there was no evidence that he directed that the merits of the claim be reviewed, and because subordinate counsel did not do so (thus precluding reasonable reliance on the subordinate), lead counsel was admonished for violating Rule 11 as a person ‛responsible for the violation.“

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