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This past July, the 2nd U.S. Circuit Court of Appeals affirmed more than $84,000 in Rule 11 sanctions against two law firms. Corroon v. Reeve, 2001 WL 811203 (2d Cir. 2001). The assessment should alert commercial litigators to two troublesome situations involving potential attorney sanctions. The assessment in Carroon was based on the trial court’s finding that a class action complaint for alleged securities violations was frivolous. The court assessed $73,634 against the lead firm and $10,519 against a second firm. The second firm represented a party that first appeared in the case when a second amended complaint was filed. Despite the limited role of the non-lead firm, the court concluded that Rule 11 sanctions were warranted by the signature of counsel on the second amended complaint. TRUSTING ANOTHER LAWYER’S DUE DILIGENCE IS RISKY A relatively small number of commercial litigators find themselves in the role of non-lead counsel in class actions. Many firms, however, will act as local counsel on matters referred by the corporate client’s in-house or general litigation counsel. Often, the referring lawyer will transmit a completed complaint or motion to local counsel for filing. This is where the hazard arises for local counsel. Appreciative of the business and recognizing that the referring firm is in a superior position to obtain the material facts from the client, local counsel may be tempted to rely on referring counsel’s due diligence and simply sign and file the complaint. Such reliance is a risky business. Rule 11 of the Federal Rules of Civil Procedure imposes on every lawyer who signs or files a pleading, motion or other paper the obligation to engage in “an inquiry reasonable under the circumstances,” sufficient to justify the belief that the filing is not for the purpose of harassment or unnecessary delay, that the position asserted has a reasonable legal foundation and that all factual allegations have evidentiary support or are likely to have such support after a reasonable opportunity for further investigation or discovery. While the case law is not entirely consistent, there are a sufficient number of cases to cause concern. These hold that reliance by local counsel on the due diligence of referring counsel, without more, will not meet the requirements of Rule 11. See, e.g., Garr v. U.S. Healthcare Inc., 23 F.3d 1274 (3d Cir. 1994); Long v. Quantex Resources Inc., 108 F.R.D. 416 (S.D.N.Y. 1985). It should be remembered that the risk is present regardless of the stage at which the lawyer enters the case. Rule 11 as worded imposes the duty of due diligence on a lawyer, not only for signing or filing a paper, but for “later advocating” a position. The risk runs in both directions. Corporate in-house or general litigation counsel will sometimes refer cases to local counsel and rely on local counsel’s judgment in the filing of pleadings and motions. Before 1993, referring counsel was safe if he or she did not actually sign the papers. See, e.g., Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1339 (9th Cir. 1995). Even inclusion of an attorney’s typewritten name on papers was insufficient to warrant sanctions in the absence of a signature. See, e.g., White v. American Airlines, 915 F.2d 1414 (10th Cir. 1990). In 1993, however, the rule was amended to subject an attorney to sanctions for improperly “presenting” a paper to the court by “signing,” “filing” or “submitting” it. Thus, referring counsel risks sanctions even when no appearance is made if the attorney actively participates in the development of the pleading, motion or other paper, or authorizes local counsel to file it. Before 1993, when a signature was an essential prerequisite to sanctions, law firms were insulated from the Rule 11 transgressions of their attorneys. Pavelic & LeFlore v. Marvel Entertainment Group, 493 U.S. 120 (1989). That is no longer true. The 1993 revision traded a new safe harbor provision for expanded liability. A motion for Rule 11 sanctions must now be served on the opposing party, but not filed unless the party accused of violation has not withdrawn or appropriately corrected the challenged paper or position within 21 days. This revision led the Advisory Committee on the 1993 amendments to include the following note on liability of a law firm: “Absent exceptional circumstances, a law firm is to be held also responsible when, as a result of a motion under subdivision (c)(1)(A), one of its partners, associates, or employees is determined to have violated the rule. Since such a motion may be filed only if the offending paper is not withdrawn or corrected within 21 days after service of the motion, it is appropriate that the law firm ordinarily be viewed as jointly responsible under established principles of agency.” It is unnecessarily costly for the client to pay for separate lawyers to engage in duplicative due diligence, and the necessity for referring and local counsel to make separate inquiries may, in some instances, create time problems. The simplest solution is for referring and local counsel to work together at the initial due diligence stage. When this is not practicable, referring counsel should provide local counsel, or vice versa, with a memorandum detailing the sources of information on which factual allegations are based and citing supporting legal authority. HOW TO DEAL WITH THE DILATORY CLIENT ON DISCOVERY Virtually all commercial litigators will be faced with clients who will not cooperate in preparing thorough responses to discovery requests. Typically, the lawyer will warn the client that sanctions against the client are likely if the failure to fully disclose continues. The prudent attorney will also be sure to keep a written record of efforts to persuade the client to discontinue its evasive behavior in order to establish that the lawyer was not guilty of condoning such conduct. Such actions are appropriate, but inadequate. Rule 37 provides that if the court grants a motion to compel after failure of a party to disclose fully, the party “or attorney advising such conduct” may be ordered to pay the opposing party’s expenses in obtaining the order, including attorney fees. If the court orders the attorney to show cause why the attorney should not personally be assessed for such expenses, the attorney will be placed in the intolerable posture of having to present a personal defense at the expense of the client. Instead of simply warning that the client faces sanctions, the attorney should advise the client of this likely scenario, and inform the client that the attorney will withdraw from further representation unless the client fully cooperates. If the noncooperation continues, the attorney should move to withdraw. The above problem is not limited to intentionally recalcitrant clients. Commercial litigators representing large corporations will often send a request for production to the client with directions to gather the requested documents and transmit them to the lawyer before the return date. Such a laissez-faire attitude is an invitation for sanctions. Some corporations that have a high level of litigation and an efficient in-house legal staff can be relied on to do a thorough records search, but such clients are rare luxuries for the litigator. Corporate records are usually scattered throughout the company. For corporations that do not routinely become involved in litigation, a request for production presents the only occasion on which a company-wide record search is necessary. Most such companies have no established procedure for conducting the kind of comprehensive search required for litigation discovery. Litigation counsel must be prepared to assist the corporate client in rapidly establishing a structure designed to locate responsive records thoroughly and efficiently. Over the years, I have developed a procedure that I find effective. When the request for production is presented to the client, the client is instructed to designate a coordinating person and, in each department, a key person, and to schedule a meeting (or conference call if a meeting is impracticable) to be attended by the coordinating person and all key people. At the meeting, litigation counsel will emphasize the importance of full and timely disclosure and the serious consequences of failure to make such disclosure. Key people are instructed to contact every person within their respective departments and to make a conscientious effort to locate any responsive records. Dates are set for submission to the coordinating person, and then to litigation counsel, of a written report detailing the search, including the name and position of every person contacted. Copies of all located records must accompany the report. A set of written guidelines detailing the procedure is handed out at the initial meeting. While the above procedure forms a good foundation for a records search, litigation counsel cannot rely on most clients to implement it effectively. A paralegal or other administrative employee of the law firm should be appointed to remain in regular communication with the coordinating person to be sure that the activities of the key people are continuously monitored throughout the process and that deadlines are met. The above procedure may appear unnecessarily cumbersome, but in my experience, it is not. Discovery responses are of central importance to trial lawyers, but are alien and annoying to corporate employees who usually consider the process an intrusion on their real responsibilities. It requires a major effort to force the process to the forefront of their workday. The imposition of sanctions can be costly and, more importantly, a permanent stain on a lawyer’s and firm’s professional record. Implementation of procedures such as those suggested is a wise precaution. Barry Richard, based in Tallahassee, Fla., is a partner and co-chairman of the national litigation group at Greenberg Traurig. He was lead litigation counsel in Florida for George W. Bush during the Bush-Gore election dispute.

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