Understanding and Avoiding Sanctions in Litigation

The ABA/BNA Lawyers’ Manual on Professional Conduct™ is a trusted resource that helps attorneys understand cases and decisions that directly impacts their work, practice ethically, and...

By Elizabeth J. Cohen

Nov. 29 — “Sanctions are a greater risk, at the trial level and the appellate level, than any kind of malpractice claim is,” according to Douglas R. Richmond, managing director of Aon Risk Solutions' Professional Services practice in Chicago.

And he wasn't talking about disciplinary sanctions, but rather the array of sanctions courts have at their disposal to respond to misbehavior at every stage of litigation and appeal.

In “Understanding and Avoiding Sanctions in Litigation,” his solo presentation Nov. 17 at the 2016 Aon Law Firm Symposium in Chicago, Richmond delved into many of these sanction authorities: Federal Rules of Civil Procedure 11, 16, 26, 30, and 37, and their state equivalents; Federal Rule of Appellate Procedure 38; 28 U.S.C. § 1927; and the inherent power of state and federal courts to regulate the conduct of those appearing before them. In intellectual property cases there's also 25 U.S.C. § 285 and 15 U.S.C. § 117(a)(3).

Richmond said the key variables among sanctioning authorities are:

  •  Is a finding of bad faith required?
  •  What sanctions are available and what are they intended to accomplish?
  •  Who is to be sanctioned—the individual lawyer, the firm, the client, or all of the above?

For monetary sanctions, important considerations are whether they are limited to the fees and expenses attributable to the offending behavior, and whether they are compensatory or deterrent, he said.

Richmond said alternative sanctions come in two varieties: “shaming” sanctions, which are “intended to shame errant lawyers into improving their behavior and, in addition, to deter other layers from engaging in similar misconduct,” and “reflective” sanctions, which are “intended to cause the offending lawyers to reflect on their conduct with a goal of reform.”

Another key consideration is whether the court has discretion not to impose any sanction even after it finds a violation, he said

Rule 11

“Rule 11 is narrower than lawyers appreciate,” Richmond said. “It does not apply to discovery responses or disclosures under Rule 26.”

Rule 11 requires that any pleading, motion, or other document you present to the court (signed or not) be based upon an investigation that was reasonable under the circumstances. “Information and belief does nothing for you under Rule 11 unless you've already satisfied the reasonable inquiry standard,” he said.

There is no continuing duty to correct, update, or withdraw whatever you've filed because of later-acquired information, but “you must evaluate the viability of your position each time the pleading or document is presented,” Richmond cautioned.

Some of the questions courts consider in deciding if an inquiry was reasonable under the circumstances are:

  •  How much time did the lawyer have?
  •  What information was available to the lawyer and what was not available because it was in the control of others?
  •  Did the lawyer have to rely on the client or on other counsel for the facts?
  •  Was the lawyer on notice that further investigation might be required?

Once you're served with a motion under Rule 11, the “safe harbor” provision gives you 21 days to withdraw or correct the challenged paper, claim, defense, or denial before the motion will be presented to the court.

“Take advantage of this,” Richmond advised. “If you look at the motion and say, ‘They have a point,’ it's OK to fix that rather than to soldier on blindly.”

But if the court on its own initiative orders a lawyer, law firm, or party to show cause why it should not be sanctioned, there is no safe harbor.

Monetary sanctions must be deterrent, not compensatory, and must be proportionate to the misconduct, he said. The court may also impose non-monetary sanctions.

And firms are jointly liable for their lawyers' Rule 11 violations, absent “exceptional circumstances,” he said.

Rule 16

“It's an accomplishment to violate Rule 16,” Richmond said.

Rule 16 governs pretrial conferences, scheduling conferences, and scheduling orders. The court on motion or on its own initiative can sanction a lawyer if she fails to appear at a scheduling conference or other pretrial conference, if she is substantially unprepared to participate in the conference, or if she fails to obey a scheduling or other pretrial order

“Show up. That's the secret to avoiding sanctions under Rule 16,“ he said.

But Rule 16 does not require a finding of bad faith, Richmond cautioned. And if the court does decide to sanction, it must order the party or its lawyer or both to pay the reasonable expenses the other side incurred because of the noncompliance.

The court may also impose other sanctions, including orders precluding evidence or striking pleadings. If an order was violated the court may also make a finding of contempt, he said.

Rule 26

Rule 26 governs discovery requests, responses, objections, and certain disclosures. These must be signed by counsel, and the signature certifies that a disclosure is complete and correct when made; or that a discovery request, response, or objection is not interposed for any improper purpose; is warranted by existing law or a nonfrivolous argument; and is neither unreasonable nor unduly burdensome or expensive.

If the certification violates the rule without substantial justification, under subsection (g) the court “must impose an appropriate sanction” on the signer, the party, or both. The court may act on motion or on its own, and the sanction may include an order to pay the reasonable expenses, including fees, caused by the violation.

“This overlaps a lot with what good litigation and good discovery practice is,” Richmond said.

Rule 30

Rule 30 governs depositions by oral examination. “There are a lot of Rule 30 cases,” Richmond said. “Lawyers get themselves in trouble in a number of ways that are remarkably obvious.”

Rule 30 usually involves a lawyer making baseless or speaking objections, or telling a witness not to answer.

He said a common Rule 30 violation is when a defending lawyer tells a witness to “answer if you know.”

Courts see this as an instruction to say “I don't know” or to refrain from speculation, he said.

Rule 30 lets the court to impose sanctions on its own motion.

This is what happened in the “alarming” case Richmond in his materials said must be considered the leading alternative sanctions case, Security Nat'l Bank of Sioux City, Iowa v. Jones Day, 2015 BL 276774, 31 Law. Man. Prof. Conduct 508 (8th Cir. 2015), rev'g 299 F.R.D. 595, 2014 BL 206909, 30 Law. Man. Prof. Conduct 521 (N.D. Iowa 2014).

In that case, a “skilled and experienced federal judge lost all patience” with an accomplished trial lawyer, he said. The court ordered her to make a training video, subject to the court's approval, about the impropriety of witness coaching, excessive interruptions, and (except in some jurisdictions) general objections as to “form.”

The Eighth Circuit reversed on appeal—but only because the district court had not given proper notice of its intent to impose an alternative sanction. Otherwise it might have upheld the sanction, Richmond said.

Rule 37

Rule 37 is the main mechanism for discovery sanctions.

There are just 6 possible grounds for a Rule 37 sanction in federal court:

  •  Failing to comply with a discovery order;
  •  Failing to make or supplement certain Rule 26 disclosures, or to amend or supplement a discovery response;
  •  Failing to admit under Rule 36, with some exceptions;
  •  Failing to appear for a party's own deposition, or to respond to interrogatories or requests for inspection;
  •  Failing to preserve electronically stored information (ESI); and
  •  Failing to participate in the development and submission of a Rule 26 discovery plan.

Richmond noted that a request for admission is not a discovery request for Rule 37 purposes. “It is an attempt to narrow the issues for trial, and conduct lawyers might think is OK in hedging an answer in discovery” may be judged differently in the context of a request to admit.

The recent amendments to Rule 37(e) (preserving ESI) make the rule more realistic and reasonable, Richmond said. But firms are right to remain concerned about preserving ESI, “just because of how diffuse information storage is,” he said. See Jessie Kamens, Conference Report: New E-Discovery Rule 37 Tricky to Apply, Judges Say, 331 Law. Man. Prof. Conduct 472 (Aug. 12, 2015).

Most Rule 37 sanctions are directed at the parties. Richmond identified three exceptions:

  •  If a party fails to comply with a discovery order the court must order “the disobedient party, the attorney advising that party, or both” to pay any fees and expenses occasioned, see Sun River Energy, Inc. v. Nelson, 2015 BL 284116, 31 Law. Man. Prof. Conduct 538 (10th Cir. 2015).
  •  If a party (including a party's officer, director, or witness designated under Rule 30(b)(6)) fails to appear for its own deposition, answer interrogatories, or respond to requests for production or inspection, the court must require “that party, the attorney advising that party, or both” to pay any resulting expenses, including attorney's fees.
  •  If a lawyer fails to participate in good faith in developing and submitting a Rule 26 discovery plan the court may require payment of whatever reasonable expenses and fees the other party has incurred as a result.

But the rule's focus on parties is “cold comfort,” Richmond said, because a client who is sanctioned may demand indemnity or sue.

Appellate Rule 38

Federal Rule of Appellate Procedure 38 gives a court of appeals discretion to award “just damages and single or double costs” to the appellee if the court determines that an appeal is frivolous, meaning the arguments wholly lack merit. The court may act on motion or on its own.

The standard is an objective one, but bad faith may support sanctions, Richmond said.

Although the rule does not specify the possible targets of sanctions, “it is clear that courts may rely on it to sanction lawyers,” and that the sanctions must be monetary, Richmond said in his materials.

28 U.S.C. § 1927

Section 1927 gives trial and appellate courts the power to award attorney's fees, costs, and expenses as a sanction for “unreasonably and vexatiously” multiplying the proceedings. It applies to “any party or other person admitted to conduct cases in any court,” and the court may require the person sanctioned to satisfy the award personally.

The language “any party or other person admitted” would seem to limit the application to individuals only, Richmond pointed out, but there is a split of authority.

The 6th, 7th & 9th Circuits limit §1927 to individual lawyers, but the 2d, 3d, 11th & D.C. Circuits extend it to law firms. The 10th Circuit, he added, has district court decisions going both ways. The 4th Circuit has not decided the issue, he noted in his materials.

The award under §1927 is limited to the “damage you've caused,” Richmond said, meaning only the excess fees, costs, and expenses attributable to the offending behavior.

It's often hard to draw a line between “aggressive” versus vexatious litigation tactics, he said. “Most courts ask was there bad faith. What's bad faith? Courts ‘know it when they see it.’”

IP Cases

Special sanctions provisions can apply in intellectual property cases. The Patent Act, 35 U.S.C. § 285, and the Lanham Act, 15 U.S.C. §1117(a)(3), permit the court to award reasonable attorney fees to the prevailing party in “exceptional” cases. See SunEarth, Inc. v. Sun Earth Solar Power Co., 2016 BL 352669, 32 Law. Man. Prof. Conduct 636 (9th Cir. 2016) (en banc).

Although neither statute specifies “whose pocket is going to be shaken,” Richmond said, there is no reason why lawyers can't be sanctioned under either of these provisions.

Inherent Powers

Federal and state courts alike have inherent power to regulate those appearing before them. The scope of the power varies at the state level; for example, a California state court cannot award attorneys' fees pursuant to its inherent power.

“There is good law” for lawyers facing inherent-authority sanctions, Richmond said. A court must exercise caution and restraint when using its inherent powers; if the misconduct is sanctionable under a rule the court must use the rule or explain why the rule is inadequate to accomplish the purpose. “Judges take that very seriously.”

This standard is so favorable for lawyers that there's very little case law, Richmond said.

Finally there is the scolding. Even if the judge decides not to sanction you, “any judge can write an opinion calling your lawyers idiots, saying they have exercised bad judgment and are essentially bad people in all kinds of ways. But as long as no sanction is coupled with it, it's not appealable,” except possibly in the Ninth Circuit. See Douglas R. Richmond, Appealing From Judicial Scoldings, 62 Baylor L. Rev. 741 (2010). “Courts can do you real harm under their inherent authority without actually sanctioning you.”

Fight Hard, With a Team

“If you have to fight a sanctions fight you have to go all in at the trial level because the standard of review on appeal is abuse of discretion,” Richmond advised.

And even if it finds abuse of discretion, the appellate court usually will uphold the sanction under a different rule or as an exercise of the trial court's inherent authority if it can, he said.

The due process requirements of notice and an opportunity to be heard may be deemed satisfied as long as the lawyer was given a chance to brief the question, he said.

A lawyer should never file or respond to a motion for sanctions or disqualification without input and participation of other lawyers in the firm, he cautioned. See Samson Habte, “Firms Urged to Adopt Policies Requiring Management Approval for Sanctions Motions,” 28 Law. Man. Prof. Conduct 661 (Oct. 24, 2012).

“You don't want the subject of a motion to be the only one responding to it,” Richmond said. Litigation is “no time for lone wolves.”

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bna.com

Copyright © 2016 American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.