Commercial Litigation and Arbitration

Law Firm Must Act with Bad Faith Independent of Its Partner to Warrant Inherent Power Sanctions Against Firm

From Wolters Kluwer Fin. Servs. v. Scivantage, 2009 U.S. App. LEXIS 8246 (2d Cir. April 21, 2009):

[Law Firm Must Act with Bad Faith Independent of Partner’s, in Order to Warrant Inherent Power Sanctions Against the Firm]

The district court found that Dorsey's [the law firm’s] main purpose in filing a Rule 41 voluntary dismissal of the Wolters litigation was to judge-shop in order to conceal from its client "deficiencies in counsel's advocacy" that had been noted by the district judge in New York. The district court reasoned that this sort of judge-shopping was an improper purpose and was accordingly sanctionable.

In seeking reversal of the sanction, Dorsey advances two arguments: (1) the district court's finding that Dorsey lawyers acted with an improper purpose was not accompanied by a finding that the firm itself acted in bad faith; and (2) the conduct itself is not sanctionable because the Rule 41 dismissal was not entirely without color. We agree with Dorsey on both grounds.

With regard to bad faith, the only passage in the district court's opinion touching on culpability of the firm itself is in a footnote to its conclusion, in which the court wrote that the firm's culpability "stems not only from Ms. Peters [a Dorsey partner], but also from the firm's inability ... to adequately supervise its attorneys, as well as its decision to leave Ms. Peters in charge of the litigation while she was on vacation." This passage reflects that the district court imputed Peters's bad faith to Dorsey because Dorsey failed to prevent what she did. But we have held that "[b]ad faith is personal" and "may not automatically be visited" on others. Browning Debenture Holders' Comm. v. DASA Corp., 560 F.2d 1078, 1089 (2d Cir. 1977). Accordingly, absent other specific evidence of Dorsey's bad faith, a sanction under the court's inherent power is unjustified. See Milltex Indus. Corp. v. Jacquard Lace Co., 55 F.3d 34, 38 (2d Cir. 1995) ("[T]he court's factual findings of bad faith must be characterized by a high degree of specificity.") (internal quotation marks omitted).

[“Unfettered” Right to Voluntarily Dismiss Action under Rule 41]

With regard to the Rule 41 dismissal, a plaintiff who has not been served with an answer or motion for summary judgment has an "unfettered right voluntarily and unilaterally to dismiss an action." Thorp v. Scarne, 599 F.2d 1169, 1175 (2d Cir. 1979). Dismissal of a suit may be disruptive and annoying, but it is permitted by the rules:

[P]laintiffs tend to dismiss actions that do not look promising while defendants generally want to obtain an adjudication on the merits in precisely the same cases. [But as] long as the plaintiff has brought himself within the requirements of Rule 41, his reasons for wanting to do so are not for us to judge.

Id. at 1177 n.10. It follows that Dorsey was entitled to file a valid Rule 41 notice of voluntary dismissal for any reason, and the fact that it did so to flee the jurisdiction or the judge does not make the filing sanctionable. Accordingly, because the district court made no finding that Dorsey acted in bad faith in voluntarily dismissing the case under Rule 41, and because Dorsey was entitled by law to dismiss the case, the district court's sanction against Dorsey for filing the voluntary dismissal must be reversed.

[Deception Ordered by Partner-in-Charge Does Not Warrant Imposing Sanction on His or Her Partner]

The district court had directed the parties to schedule the depositions of key witnesses. Dorsey (on behalf of Wolters) asked to depose Bill Wagner, whose deposition was scheduled for Friday, April 13 — the day of the dismissal. On April 12, Reiner [Peters’ partner] e-mailed defendants' counsel to confirm the deposition. Later that day, Peters told Reiner that she wanted to depose another witness instead. She then e-mailed opposing counsel and asked to substitute the witness; opposing counsel responded that Wagner would appear as scheduled.

The next morning, in view of the imminent dismissal of the New York suit, Reiner asked Peters if he could notify an adversary lawyer that the Wagner deposition would not be going ahead. Peters told Reiner to wait because she didn't "want to tip him off." She later authorized Reiner to cancel the Wagner deposition, and he then advised opposing counsel by e-mail that Dorsey was unable to go forward with the Wagner deposition as scheduled because he hadn't heard from them regarding the substitution of witnesses — which was not so. The district court sanctioned Reiner for his conduct in cancelling the Wagner deposition, finding that his last e-mail "was simply a bad faith subterfuge" to hide the true reason for the cancellation--namely the impending voluntary dismissal.


This sanction must be reversed. It is true that Reiner made a misrepresentation when he claimed that the reason for the cancellation was the failure of opposing counsel to answer Dorsey's request to substitute witnesses. But not every pretextual or tactical misdirection is a sufficient ground for sanctions. It was in everyone's interest that the deposition be cancelled, for a reason that Reiner lacked authority (from Peters) to disclose. The district court's findings clearly show that the cancellation of the deposition was done for the purpose of concealment, but that was the intent of Peters, not Reiner. In the absence of other specific evidence of Reiner's intentional misconduct, the sanction must be reversed. See Schlaifer, 194 F.3d at 338.

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