Lawyers, Not Law Firms, Must Pay Sanctions

A recent article, Josephine M. Bahn, Individual Lawyers—Not Firms—Must Pay Discovery Sanctions (americanbar.org)(Jan. 20, 2023), describes a Sixth Circuit decision, NPF Franchising, LLC v. SY Dawgs LLC, No. 21-3516 (June 15, 2022), holding that individual attorneys – not their law firms – were jointly and severally liable for discovery sanctions.  The opinion states that the Court was “asked to review a ‘foul ball’ in discovery.”

The Court reasoned that Fed.R.Civ.P. 37 mentions parties and their attorneys, but not law firms.  Ms. Bahn added: “The appellate court left the door open, however, for the trial court to use its inherent power upon remand to impose sanctions on the firm.”  Id.

The sanction reportedly exceeded $280,000.00.  The misconduct described by Ms. Bahn was serious: “[T]he league’s lawyers failed to show up to multiple discovery conferences and depositions, provided insufficient discovery responses to written discovery, and failed to act in a cooperative manner to move the case through the discovery phase.”  The league withdrew the lawsuit. Id.

Importantly, the Sixth Circuit wrote: “While we cannot sustain sanctions against the [name deleted] Law Firm under Rule 37, the district court could impose sanctions against the firm pursuant to its inherent authority. To sanction in this manner, the district court must find that the party litigated ‘in bad faith, vexatiously, wantonly, or for oppressive reasons.’”   The Sixth Circuit remanded for that determination.

Further, Ms. Bahn wrote:

Although the attorneys and not the firm were subject to sanctions in this case, firms may still be on the hook for Rule 37 sanctions awards, explains Tiffany A. Rowe, cochair of the Professional Liability Committee. “Law firms are responsible for their partners, their associates, and their staff. There is no veil to protect the firm, which is part and parcel of the LLP, LLC, or member structure of a law firm. There is no freestanding corporate entity and one cannot be created for purposes of avoiding liability,” offers Rowe.

The ABA article suggested a need to “overhaul” Rule 37.

The court’s holding cuts against the meaning of and intent of Rule 37, requiring revision to better protect lawyers who may not be the decisionmaker on a case, explains Alan R. Jampol, Los Angeles, CA, chair of the Attorney Liability Subcommittee of the ABA Litigation Section’sProfessional Liability Committee. “The court’s insistence that Rule 37 implies that only an individual lawyer can be liable is unsupported by the rule or by logic,” he argues.

That may have force as to, for example, failing to appear for depositions or failure to cooperate in negotiations.  However, at least as to signed pleadings and discovery requests and responses, when an attorney signs a pleading, the attorney – partner or associate – is making a Rule 26(g) certification.

Ms. Bahn’s excellent article highlights an interesting and important decision.