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(excerpted from The Manual for Complex Litigation, '95 ed.)

20.15 Sanctions
.151 General Principles
.152 Sources of Authority
.153 Considerations in Imposing
.154 Types
.155 Procedure

20.151 General Principles

The rules and principles governing the are the same in complex as in other litigation, but the potential of sanctions requires careful attention in complex litigation because misconduct may have more severe consequences. Because the litigation will generally be conducted under close judicial oversight and control, there should be fewer opportunities for sanctionable conduct to occur.

If the court's management program is clear, specific, and reasonable - having been developed with the participation of counsel - the parties will know what is expected of them and should have little difficulty complying. The occasions for sanctionable conduct will therefore be reduced. Indeed, the need to resort to sanctions may reflect a breakdown of case management. On the other hand, the stakes involved in and the pressures generated by complex litigation may lead some parties to violate the rules.

Although as a general matter sanctions should not be a means of management, the court needs to make clear its willingness to resort to sanctions, sua sponte if necessary, to assure compliance with the management program. -fn.19

The design of the case management program should anticipate compliance problems and include prophylactic procedures, such as requiring parties to meet and confer promptly in the event of disputes and providing ready access to the court if they cannot resolve them. In addition, the court should inform counsel at the outset of the litigation of the court's expectations about cooperation and professionalism. Perceptions of the limits of legitimate advocacy differ; advance guidance from the court can reduce the need for sanctions later. Though at times unavoidable, sanctions should be considered a last resort.

The court should exercise its discretion with care and explain on the record or in an order the basis for its action and the purpose to be achieved. Sanctions may be imposed for general or specific deterrence, to punish, or to remedy the consequences of misconduct. Sanctions proceedings can be disruptive, costly, and may create personal antagonism inimical to an atmosphere of cooperation. Counsel should therefore avoid moving for sanctions unless all reasonable alternatives have been exhausted.

20.152 Sources of Authority

The primary codified sources of authority to impose sanctions in civil litigation are 28 U.S.C. 1927 and Fed. R. Civ. P. 11, 16, 41, and 56(g). -fn.20 Sanctions relating to discovery are authorized by Fed. R. Civ. P. 26, 30, 32(d), 33(b)(3)-(4), 34(b), 35(b)(1), 36(a), and, most prominently, Rule 37. -fn.21 Under limited circumstances sanctions may also be imposed under local rules. -fn.22

Sanctions may also be imposed through the exercise of the court's inherent powers. -fn.23 The court may resort to this power even where the conduct at issue could be sanctioned under a statute or rule; the court should, however, avoid resort to its inherent power if the statute or rule is directly applicable and adequate to support the intended sanction. -fn.24

The court may assess attorneys' fees pursuant to its inherent power, but when sitting in diversity should avoid doing so in contravention of applicable state law embodying a substantive policy, such as a statute permitting prevailing parties to recover fees in certain classes of litigation. -Fn.25

Because the applicable standards and procedures and the available sanctions will vary depending on the authority under which the court proceeds, it needs to decide on the choice of the authority on which it will rely and make that choice clear in its order. For example, 28 U.S.C. 1927 authorizes the assessment of costs and fees against an attorney only - it therefore cannot provide authority to impose sanctions on a party.

20.153 Considerations in Imposing

In considering the imposition of sanctions, the judge should take these factors into account:

* the nature and consequences of the dereliction or misconduct;
* the person(s) responsible;
* the court's discretion under the applicable source of authority to impose sanctions and to choose which sanctions to impose;
* the purposes to be served by imposing sanctions, and what is the least severe sanction that will achieve the intended purpose; and
* the appropriate time for conducting sanctions proceedings.

With respect to the consideration of the nature and consequences of the dereliction or misconduct, the court should take these factors into account:

* whether the act or omission was willful or negligent;
* whether it directly violated a court order or a federal or local rule;
* its effect on the litigation and the trial participants;
* whether it was isolated or part of a course of misconduct or dereliction; -fn.26 and
* the existence of any extenuating circumstances.

Rule 11 substantially limits the authority of the court to impose monetary sanctions, but they may still be available in unusual cases or under other rules or powers.

If monetary sanctions are warranted, they should generally be imposed only on the person(s) responsible for the misconduct; if assessed against counsel, they should be accompanied by a direction not to pass the cost on to the client.

It may be appropriate to sanction the client or the client and attorney jointly. If the proper allocation of responsibility between counsel and client is unclear, its determination may raise problems; by pitting the attorney against the attorney's client, it can create a conflict of interest. -fn.27 In addition, it may require inquiry into potentially privileged communications. -Fn.28 The court should seek the least disruptive alternative, which may be to impose joint and several liability on both counsel and client, -fn.29 or to defer the matter of sanctions until the end of the litigation. -Fn.30

Some types of nonmonetary sanction, such as dismissal, default, or preclusion of a claim or evidence, will or may affect the outcome. They should be imposed only in egregious circumstances and only after consideration of the following factors:

* the policy favoring trial on the merits;
* whether the sanction will further the just, speedy, and inexpensive determination of the action;
* the degree to which the sanctioned party acted deliberately and knew or should have known of the possible consequences;
* the degree of responsibility of the affected client;
* the merits and importance of the claim(s) affected;
* the impact on other parties or the public interest; and
* the availability of less severe sanctions to accomplish the intended purpose.

20.154 Types

In imposing the least severe sanction adequate to accomplish the intended purpose, the court can select from a broad range of options. -Fn.31 These include the following:

* Reprimand. For most minor violations, particularly a first infraction, an oral reprimand will suffice. In more serious cases, a written reprimand may be appropriate.

* Cost shifting. The purpose of Rule 11 sanctions is deterrence rather than compensation; the rule therefore permits cost shifting only in "unusual circumstances." -fn.32 In contrast, many of the discovery rules (primarily Rules 26(g) and 37) and Rule 16(f) (dealing with pretrial conferences) require or permit cost shifting in specified situations. Under 28 U.S.C. 1927, Fed. R. Civ. P. 56(g) (depositions), and its inherent power, the court may order cost-shifting sanctions for actions taken in bad faith.

* Denial of fees or expenses. The court may decline to award otherwise recoverable attorneys' fees and expenses, or order counsel not to charge them to their client, when incurred through dilatory or otherwise improper conduct, or in proceedings brought on by such conduct.

* Remedial action. Counsel and parties may be required to remedy a negligent or wrongful act at their own expense, as by reconstructing materials improperly destroyed or erased.

* Grant/denial of time. Improper delay may justify awarding opposing parties additional time for discovery or other matters, -fn.33 or denying otherwise proper requests for extension of time.

More serious sanctions, reserved for egregious circumstances, include the following:

* Demotion/removal of counsel. An attorney may be removed from a position as lead, liaison, or class counsel, or (in an extreme case) from further participation in the case entirely. Such a sanction, however, is likely to disrupt the litigation, may cause significant harm to the client's case and the reputation of the attorney or law firm, and can conflict with a party's right to counsel of its choosing.

* Removal of party as class representative. Before imposing this sanction, the court should consider ordering that notice be given to the class under Rule 23(d)(2) to enable them to express their views concerning their representation or intervene in the action. -fn.34

* Enjoining party from commencing other litigation. While there is a strong policy against denying access to the courts, a party may be enjoined from commencing other actions until it has complied with all orders in the current action, or from bringing, without court approval, other actions involving the same or similar facts or claims.

* Preclusion/waiver/striking. Failure to timely make required disclosures or production, raise objections, or file motions may be grounds to preclude the introduction of related evidence, deem certain facts admitted and objections waived, strike claims or defenses, or deny the motions, including those seeking to amend pleadings or join parties. -fn.35

* Dismissal. This severe sanction should generally not be imposed until the affected party has been warned and given a chance to take remedial action, and then only when lesser sanctions, such as dismissal without prejudice and assessment of costs, would be ineffective.

* Vacation of judgment. The court may vacate a judgment it has rendered if procured by fraud. -fn.36

* Suspension/disbarment. The court may initiate proceedings to suspend an attorney from practice in the court for a period of time or for disbarment. -fn.37

* Fine. The court may assess monetary sanctions apart from or in addition to cost shifting, even without a finding of contempt. The amount should be the minimum necessary to achieve the deterrent or punitive goal, considering the resources of the person or entity fined. - fn.38

* Contempt. The court may issue a contempt order under its inherent authority, -fn.39 statute, -fn.40 or rule. -fn.41 The order should indicate clearly whether the contempt is civil or criminal. The procedure and possible penalties will depend on that determination and the nature and timing of the contemptuous act. -fn.42

* Referral for possible criminal prosecution. Where the misconduct rises to the level of a criminal offense, -fn.43 the matter may be referred to the U.S. Attorney's Office.

20.155 Procedure

The appropriate timing for the imposition of sanctions depends on the basis for their imposition. Generally sanctions are most effective when imposed promptly after the improper conduct has occurred. -Fn.44 This maximizes their deterrent effect in the litigation. Prompt imposition also allows the court to try to deal with the problem by imposing less severe sanctions before resorting to more severe measures should they become necessary. Some sanctions, however, depend for their predicate on further proceedings.

The frivolous nature of a paper may not be established until further action by the court. Some misconduct or the extent of its consequences may not become apparent until the litigation has developed further; some sanctions are expressly conditioned on later developments. -fn.45 Certain facts may have to be established before the court can decide the sanctions issue, a process which may delay the litigation unless deferred until its conclusion.

Similarly, as discussed above, deferral is advisable where the decision may require inquiry into potentially privileged communications and create a conflict of interest between counsel and client. Delaying rulings on sanctions may allow the court to consider the issue more dispassionately; the court must be careful, however, not to apply the wisdom of hindsight. Sanctions should not be assessed without notice and an opportunity to be heard. -Fn.46

The extent of the process afforded, however, depends on the circumstances, primarily the type and severity of sanction under consideration. -fn.47 An oral or evidentiary hearing may not be necessary for relatively minor sanctions; the issue may be decided on papers. -fn.48 To provide notice when acting sua sponte, the court should issue an order to show cause why sanctions should not be imposed, specifying the alleged misconduct. -Fn.49 To avoid disrupting a settlement, monetary sanctions should generally not be assessed sua sponte once the parties have reached agreement. -Fn.50

Unless the sanction is minor and the misconduct obvious, the court should memorialize its findings and reasons on the record or by written order. - fn.51 The findings should identify the objectionable conduct clearly, state the factual and legal reasons for the court's action, including the need for the particular sanction imposed and the inadequacy of less severe measures, and the authority relied on. Making such a record will facilitate appellate review and help the appellate court understand the basis for the court's exercise of its discretion. -fn.52 Normally the court need not explain its denial of sanctions. -fn.53

Footnotes

19. See Fed. R. Civ. P. 11(c)(1)(B); Chambers v. NASCO, Inc., 111 S. Ct. 2123, 2131 n.8 (1991).

20. A number of federal statutes allow the court, in its discretion, to award prevailing parties costs, including attorneys' and sometimes experts' fees. See, e.g., 42 U.S.C.A. 1988, 2000e-5(k) (West Supp. 1993); 15 U.S.C. 78i(e), 78r(a). Such statutes may expressly predicate such an award on a finding that the action (or defense) was meritless, see, e.g., 15 U.S.C. 77k(e), and common law may impose the same requirement when awards under such statutes are sought by defendants. See Christansburg Garment Co. v. EEOC, 434 U.S. 412, 416 (1978). But see Fogerty v. Fantasy Inc., 62 U.S.L.W. 4153 & 4155 n.12 (U.S. March 1, 1994) (same standard applies to plaintiffs and defendants seeking fees in copyright, patent, and trademark cases). Such awards may therefore be considered a sanction for meritless litigation.

21. Note that Rule 11 is expressly made inapplicable to discovery. Fed. R. Civ. P. 11(D).

22. See, e.g., Rule 11.1 of the Local Rules for Civil Cases, E.D. Mich.; Miranda v. Southern Pacific Transp. Co., 710 F.2d 516 (9th Cir. 1983).

23. See Chambers, 111 S.Ct. at 2132-33, and cases cited therein.

24. Id. at 2135-36 & n.14 (distinguishing Societe Internationale v. Rogers, 357 U.S. 197 (1958) (Rule 37)); United States v. One 1987 BMW 325, 982 F.2d 655, 661 (1st Cir. 1993) (where civil rule limits sanction that may be imposed, court may not circumvent by resort to inherent power).

25. Chambers, 111 S.Ct. at 2136-37.

26. See Fed. R. Civ. P. 11(b), (c) advisory committee's note (listing these and other considerations).

27. See Healy v. Chelsea Resources, Ltd., 947 F.2d 611, 623 (2d Cir. 1991); White v. General Motors Corp., 908 F.2d 675, 685 (10th Cir. 1991).

28. Though it may be ethically permissible for an attorney to reveal client confidences to the extent necessary in this context, see Model Rules of Professional Conduct 1.6(b)(2); Model Code of Professional Responsibility DR 4-101(c), this does not resolve the privilege issue.

29. See Martin v. American Kennel Club, 1989 U.S. Dist. LEXIS 201, at *22-23 (N.D. Ill. 1989) ("Absent a clear indication of sole responsibility" liability should be joint and several).

30. See, e.g., O'Neal v. Retirement Plan for Salaried Employees of RKO Gen. Inc., 1992 U.S. Dist. LEXIS 237, at *12-13 (S.D.N.Y. 1992); Fed. R. Civ. P. 11 advisory committee's note.

31. See Chambers v. NASCO, Inc., 111 S. Ct. 2123, 2132-33 (1991) ("a primary aspect" of court's discretion to invoke inherent sanction power "is the ability to fashion an appropriate sanction" for abuse of judicial process).

32. See Fed. R. Civ. P. 11 advisory committee's note (monetary sanctions ordinarily paid into court, but may be directed to those injured if deterrence would otherwise be ineffective).

33. See, e.g., Fed. R. Civ. P. 30(D)(2).

34. See Fed. R. Civ. P. 23(d)(2) & advisory committee's note.

35. See, e.g., Fed. R. Civ. P. 37(b)(2), (c)(1).

36. Chambers, 111 S. Ct. at 2132 (inherent power); Fed. R. Civ. P. 60(B).

37. The court has inherent power to suspend or disbar attorneys, but should follow applicable local rules. See In re Snyder, 472 U.S. 634, 643 & n.4 (1985). For discussion of the standard for taking such action, see id. at 643-47 (refusal to supplement fee petition or accept CJA assignment coupled with single instance of discourtesy insufficient to support suspension).

38. See, e.g., Fed. R. Civ. P. 11(C)(2).

39. See Chambers, 111 S. Ct. at 2132; Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980).

40. See, e.g., 18 U.S.C. 401-403, 28 U.S.C. 1784, and statutes cited in Fed. R. Crim. P. 42 advisory committee's note.

41. See, e.g., Fed. R. Civ. P. 37(b)(2)(D), 45(e), Fed. R. Crim. P. 17(G).

42. See Bench Book for United States District Judges 2.08 (civil contempt), 1.24 (criminal contempt) (Federal Judicial Center 1986) [hereinafter Bench Book]; 18 U.S.C. 3691 (jury trial of criminal contempts), 3692 (jury trial for contempt in labor dispute cases), 3693 (summary disposition or jury trial; notice); Fed. R. Crim. P.42 (criminal contempt). Since there is no federal rule establishing a procedure for civil contempt, the court should follow the procedures of Fed. R. Crim. P.42 to the extent applicable.

43. In particular, see 18 U.S.C. 1501-1517 (obstruction of justice).

44. See Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 881 (5th Cir. 1988).

45. See, e.g., Fed. R. Civ. P. 37(c)(2) (recovery of expenses for failure to admit depends on later proof of matter not admitted); Fed. R. Civ. P. 68 (assessment of costs incurred after settlement offer refused depends on failure to obtain more favorable judgment).

46. Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980). Some rules expressly require this. See, e.g., Fed. R. Civ. P. 11(C).

47. See, e.g., Media Duplication Servs. v. HDG Software, 928 F.2d 122, 1238 (1st Cir. 1991) (citing Roadway, 447 U.S. at 767 n.14 (due process concerns raised by dismissal are greater than those presented by assessment of attorneys' fees)); G.J.B. Assoc., Inc. v. Singleton, 913 F.2d 824, 830 (10th Cir. 1990) (same); Fed. R. Civ. P. 11 advisory committee's note.

48. See, e.g., In re Edmond, 934 F.2d 1304, 1313 (4th Cir. 1991); Hudson v. Moore Bus. Forms, Inc., 898 F.2d 684, 686 (9th Cir. 1990); Fed. R. Civ. P. 11 advisory committee's note.

49. El Paso v. Socorro, 917 F.2d. 7 (5th Cir. 1990); Maisonville v. F2 Am., Inc., 902 F.2d 746 (9th Cir. 1990); Fed. R. Civ. P. 11(c)(1)(B) & advisory committee's note

50. See Fed. R. Civ. P. 11(c)(2)(B) & advisory committee's note.

51. See Fed. R. Civ. P. 11(C)(3).

52. The standard of review is abuse of discretion. Chambers v. NASCO, Inc., 111 S. Ct. 2123, 2138 (1991) (inherent power); Cooter & Gel v. Hartmax Corp., 496 U.S. 384, 405 (1990) (Rule 11); Blue v. United States Dep't of the Army, 914 F.2d 525, 539 (4th Cir. 1990) (28 U.S.C. 1927).

53. Fed.R.Civ.P. 11 advisory committee's note. Only the First Circuit has held to the contrary. See Metrocorps, Inc. v. Eastern Mass. Junior Drum & Bugel Corps Ass'n, 912 F.2d 1, 3 (1st Cir. 1990); Morgan v. Massachusetts Gen. Hosp., 901 F.2d 186, 195 (1st Cir. 1990).

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