Law Firm's "Dishonest" Conduct Merits Sanctions
By Onika K. Williams, Litigation News Contributing Editor – June 15, 2015

Failing to voluntarily dismiss baseless claims can constitute bad faith and warrant sanctions. Johnson v. SmithKline Beecham Corp. The United States District Court for the Eastern District of Pennsylvania imposed sanctions against a firm for unnecessarily multiplying the proceeding and increasing litigation costs by refusing to dismiss meritless claims that were also clearly time-barred. The decision is a stark reminder to counsel, prior to filing suit, to examine the available evidence and case law closely to make sure it supports a good faith basis to file a claim.

Firm’s Intentional Misconduct Leads to Sanctions
Forty-nine plaintiffs filed a class-action suit in Pennsylvania state court alleging that they suffered from birth defects caused by their mothers’ ingestion of the drug thalidomide while plaintiffs were in utero in the late 1950s and early 1960s. The defendants removed the cases, and three additional plaintiffs joined the class. One law firm represented all 52 plaintiffs.

All 52 plaintiffs alleged manufacturer fraudulent concealment as a basis for tolling the two-year statute of limitations period for personal injury claims. These plaintiffs asserted that medical science had only recently evolved to the point where they could discover and allege that thalidomide was the cause of their particular defects. The district court denied the defendants’ time-bar related dismissal motions without prejudice, reasoning that at such an early stage in the proceeding, it could not determine the viability of plaintiffs’ tolling allegations.

During discovery, the defendants repeatedly attempted to determine when each plaintiff knew, or reasonably should have known, that thalidomide had caused his or her birth defects. Contrary to the district court’s orders to compel responses, several plaintiffs failed to produce dispositive evidence of their claims. For example, online posts indicated that several of the plaintiffs had known for years that thalidomide cause their birth defects, and one plaintiff filed—decades ago—a social security disability application seeking benefits for thalidomide-caused injuries.

As discovery continued, the defendants learned that several of the plaintiffs could not sue because they had previously done so. In fact, at least one plaintiff was already receiving monthly settlement payments from one of the defendants for the same alleged tort. To avoid conducting discovery on frivolous or time-barred claims, the defendants requested plaintiffs’ counsel to carefully review the claims it made in all of the pending cases. Plaintiffs’ counsel declined to dismiss any of the cases, electing to conduct discovery, which resulted in taking over 130 depositions.

The deposition testimony contradicted almost all of the plaintiffs’ claims. Defendants requested that the district court sanction plaintiffs’ firm for the bad faith prosecution of three specific invalid claims pursuant to 28 U.S.C. § 1927 and the court’s inherent authority. Under the statute, the court must find that the attorney has (1) multiplied proceedings; (2) in an unreasonable and vexatious matter; (3) thereby increasing the cost of proceedings; (4) doing so in bad faith or by intentional misconduct. The district court referred the defendants’ motions for sanctions to the special master.

The special master recommended the imposition of sanctions because the plaintiffs’ firm did not dismiss the three invalid claims until the summary judgment stage, knowing that the claims would not survive on a theory of fraudulent concealment. The special master concluded that sanctions were appropriate because (1) the plaintiffs’ firm failed to conduct investigations before filing the invalid claims; (2) the firm continued to prosecute the invalid claims after the defendants notified the firm that some of the claims may be time-barred or frivolous; and (3) the firm’s vigorous opposition to sanctions showed that the firm still refused to acknowledge the obvious flaws in the invalid claims.

The district court agreed with and adopted the special master’s recommendation, concluding that the record showed by clear and convincing evidence that the plaintiffs’ firm had unreasonably multiplied the proceedings in a vexatious manner by litigating the three invalid claims after being put on notice that the claims were baseless, time-barred, or both.   

How to Be a Zealous Advocate Without Being Sanctioned
Section leaders are in strong agreement that zealous advocacy does not include bad faith or intentional misconduct. “The Johnson decision serves as a warning to counsel pursuing such tort claims to examine early whether there is a good faith basis to contend that the statute of limitations has been tolled by the discovery rule or by fraudulent concealment,” advises Thomas G. Wilkinson Jr., Philadelphia, PA, cochair of the Conflicts of Interest Subcommittee of the the ABA Section of Litigation’s Ethics & Professionalism Committee.

“Attorneys are charged with zealous advocacy, but the facts must always anchor our zeal. We fight hard for our clients, and it can be easy to lose objectivity. A serious investigation of the facts and an end game strategy when the facts do not develop as we thought they would has to be done at the outset of a case, before we get caught up in the battle,” instructs Karen Woodward, Los Angeles, CA, cochair of the Pharmaceutical and Medical Device Subcommittee of the Section of Litigation’s Mass Torts Litigation Committee. “Counsel that proffer less than candid or nonsensical explanations for their conduct when defending against a sanctions motion only tilt the scales in favor of imposing sanctions,” Wilkinson cautions.

Keywords: 28 U.S.C. § 1927, frivolous, misconduct, sanctions, time-barred

 
Related Resources
Attorney-Client Privilege Does Not Apply to Risk Managers
To Enforce a Settlement, Jurisdiction Must Be Expressly Retained