United States: Policing Bad Claims In Consolidated Litigation: Part 2

With the proliferation of consolidated litigation in recent years, various courts have lamented the lack of scrutiny often given to individual cases prior to filing in a class action or multidistrict litigation. Given the structure of these mass proceedings, individual claims frequently do not get meaningfully assessed. Against this backdrop, recent federal court decisions demonstrate courts' increased willingness to police meritless claims by assessing whether counsel's pre-suit investigation was adequate.

The first part of this article examined the obligation to conduct a pre-suit investigation under Rule 11 of the Federal Rules of Civil Procedure, and reviewed what different courts have said in recent years about meritless claims in mass litigation.

This part will discuss the importance of conducting plaintiff interviews, gathering basic information, avoiding language copied from dissimilar complaints and other issues.

Given the recent pronouncements of courts on the lack of scrutiny applied to individual cases in consolidated litigation, plaintiffs counsel should pay strict attention to Rule 11's requirements prior to filing suit, particularly in a consolidated litigation, and defense counsel should be aware of the circumstances under which plaintiffs counsel's efforts fall short of Rule 11's requirements such that sanctions may be warranted. While the analysis is a factual determination that varies to some extent by jurisdiction, an examination of recent cases provides general guidance.

Failure to Review Available Information

Where counsel failed to obtain and review readily available information to determine whether a particular case has merit, sanctions may be warranted. An in-person meeting with the client is not always required. Counsel must, however, conduct an initial interview with the plaintiff, and gather and review easily accessible information.

This was the problem cited in Carroll v. E One Inc.1 — according to the court, had the plaintiffs' counsel had an initial discussion with the plaintiffs prior to filing suit, they would have discovered that the plaintiffs' yearly hearing tests rendered their claims time-barred.

Similarly, in Wolfington, the plaintiff's counsel brought a class action under the Truth in Lending Act, alleging the defendant loaned the plaintiff funds for knee surgery while failing to put the terms of the financing agreement in writing and making unauthorized deductions from the plaintiff's checking account. It turned out the plaintiff did not have sufficient funds in his account for the payments to be debited as agreed, so no deductions were actually made, which precluded bringing a claim under the TILA.

The court noted that the plaintiff's lawyers each admitted that "they did not ask Plaintiff to send them any of Plaintiff's bank records or credit card statements prior to filing the Complaint," and only learned after filing that no money was ever withdrawn from the plaintiff's accounts. The court further noted that the complaint was filed three months after counsel was first contacted by the plaintiff, and thus "there was ample time for counsel to fully investigate the substantive claims and to request or otherwise secure documents that would have corroborated and supported the Plaintiff's TILA claim."

In issuing sanctions, the court stated, "[w]hen a lawyer undertakes the responsibility of acting as counsel in a class action, they assume a significant responsibility of being accurate in their factual allegations."

Copying Language From Other Complaints

Sanctions may be awarded where the plaintiff's complaint copies language from other complaints, and the allegations cannot be supported in the particular case at issue. Generally, counsel may not copy verbatim portions of a different complaint unless the facts alleged are applicable and can be supported.

In Brown v. Ameriprise Financial Services Inc.,2 the plaintiff alleged discrimination against herself and a class of 1,000 African-American employees. It was later discovered that portions of the plaintiff's complaint had been copied and pasted from a discrimination complaint filed against Coca-Cola. When the plaintiff could not support the allegations in the complaint at her deposition, the court found that sanctions were warranted.

The court stated that while "copying itself is not inherently problematic ... [the problem is] what was copied: specific, detailed allegations regarding policies and procedures that were applicable to Coca-Cola but for which there is no evidence of applicability to the Defendant in this case."

This specific issue has arisen at a surprising rate, and can be particularly problematic in the context of deceased plaintiffs. In Engle, millions of dollars in sanctions were imposed because counsel brought 588 lawsuits on behalf of deceased plaintiffs. These personal injury suits could not survive the death of the plaintiffs, and the court refused to permit counsel to convert the claims to wrongful death suits, stating, "Florida's preference for deciding cases on the merits says nothing of requiring courts to perpetuate hollow, uninvestigated lawsuits filed by counsel on behalf of dead people."3

Even where claims survive the death of the plaintiff, counsel must conform the allegations in the complaint to the facts of case. In U.S. Equal Employment Opportunity Comm'n v. Marquez Bros. Int'l Inc.,4 following investigation of claims by two charging parties, the EEOC brought suit on behalf of a class alleging discriminatory hiring practices. It turned out, however, that the two charging parties had died prior to the filing of the suit, and EEOC did not disclose their deaths.

The EEOC argued the omission was simply an "oversight due to using similar standard language" in other complaints, and was immaterial because the class action survived the death of the charging parties. The court held that sanctions were warranted, because the use of language from other complaints demonstrated recklessness in pleading — the EEOC had "litigated this case as if [plaintiffs] were alive," requesting relief such as the hiring of the charging party, front pay and punitive damages.

Reliance on Facts Provided by the Client

Where counsel relies on facts provided by the client to support the claims in the complaint, sanctions may be awarded for failure to take additional steps to confirm those facts and/or because reliance was not reasonable under the circumstances. The extent to which counsel may rely on the version of the facts supplied by a client depends on the circumstances of the case.

Courts have held that while counsel is not expected to disbelieve her client, she must do more than merely rely on the client's version of the facts before certifying that a claim is well-grounded in fact.5 "If a reasonable inquiry would have demonstrated the client's assertions were untrue, or if other relevant documents and witnesses are readily available, it is unreasonable for counsel to rely exclusively on his client for factual support."6 Counsel may not rely on the lay opinion of a client rather than available documentary evidence.7

Failure to Verify Witness Allegations

Where the complaint contains witness allegations, sanctions may be awarded where counsel did not verify the accuracy of those allegations prior to filing.

In the context of a securities class action, counsel may not rely on an investigator without verifying the confidential witness allegations relied on in the complaint. In In re Millennial Media Inc. Securities Litig.,8 the complaint quoted or attributed information to 11 confidential witnesses. Shortly after filing, it came to light that these witnesses had been interviewed by an investigator. Counsel had never spoken to them, several did not consent to being designated in the complaint and several had been misquoted.

The plaintiffs voluntarily dismissed the case with the defendants' consent, and thus no sanctions were issued, but the court noted that the plaintiffs' investigation did not comply with Rule 11. Stating that while it is customary for facts to be gathered by investigators, "by the time counsel are readying to file a Complaint, an 'inquiry reasonable under the circumstances' demands more. ... [I]t is reasonable to expect counsel, before filing the Complaint, to attempt to confirm with the witness the statements that counsel proposes to attribute to him. ..." See also City of Livonia Employees' Retirement System v. Boeing Co.9 (Rule 11 sanctions warranted where counsel failed to interview confidential source before filing complaint).

Advocating Against Known Facts

Advocating for a position which runs counter to facts discovered during pre-suit investigation may violate Rule 11.

In Sunday's Child LLC v. Irongate AZREP BW LLC,10 the Ninth Circuit agreed with the plaintiffs' counsel that the agreement at issue was ambiguous and remanded the case for a determination of the intent of the parties. On remand, however, the court held that sanctions were warranted because the plaintiffs' counsel had access to the attorney-client communications demonstrating the parties' clear intent to release all claims, but nonetheless continued to advance his legal argument that the terms of the agreement were ambiguous based on a "distortion of the parties' intent and omission of material facts."

While the court recognized that Rule 11 should not be used to discourage appropriately zealous advocacy or to deter novel legal arguments, sanctions are proper when "the claims certified in the pleadings and arguments made before the Court ... are directly contrary to and/or wholly unsupported by the evidence, the law of the case, and clear and controlling existing law."

While conducting a pre-suit investigation sufficient to file a lawsuit may seem like a perfunctory enterprise, courts appear increasingly willing to affirm the importance of complying with Rule 11's requirements. This issue is particularly ripe in consolidated and MDL proceedings and, importantly, it is not sufficient to rely on the volume of the caseload to explain a lack of detail or investigation. On the other hand, defendants have growing precedent to challenge meritless claims when adequate evidence is not presented to legitimize pleadings. With class action and MDL courts increasingly scrutinizing counsel's efforts prior to filing a case in consolidated litigation, parties should continue to be mindful of pre-suit investigation requirements.

Footnotes

1 Carroll v. E One Inc., 893 F. 3d 139 (3d Cir. 2018).

2 Brown v. Ameriprise Financial Services Inc., 276 F.R.D. 599 (D. Minn. 2011).

3 In re 73 Engle-Related Cases, 239 So.3d 166, 170 (Fla. 1st DCA 2018).

4 U.S. Equal Employment Opportunity Comm'n v. Marquez Bros. Int'l Inc., 2018 WL 3197796 (E.D. Ca. June 26, 2018).

5 Hawk Mountain LLC v. Mirra, 2016 WL 3182778 (D. Del. June 3, 2016).

6 Letren v. Trans Union LLC, 2017 WL 4098743 (D. Md. Sept. 15, 2017).

7 Johnson v. Q.E.D. Environ. Sys. Inc., 2017 WL 1685099 (N.D. Cal. May 3, 2017).

8 In In re Millennial Media Inc. Securities Litig., 2015 WL 3443918 (S.D.N.Y. May 29, 2015).

9 City of Livonia Employees' Retirement System v. Boeing Co., 306 F.R.D 175 (N.D. Ill. 2014).

10 Sunday's Child LLC v. Irongate AZREP BW LLC, 2018 WL 2728015, at *1 (D. Haw. June 6, 2018).

Originally published in Law360

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