Year 1989 Ethics Opinions
THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK
FORMAL OPINION 1989-3
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
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December 14, 1989
ACTION: Formal Opinion
OPINION:
With increasing frequency, courts
are imposing sanctions on litigants and their counsel. These
sanctions are being imposed in federal court pursuant to Rules 11
and 26(g) of the Federal Rules of Civil Procedure, as well as
under 28 U.S.C. § 1927 and in the exercise of the court's
inherent powers, and more recently in New York state courts
pursuant to Part 130 of the Rules of the Chief Administrator of
the Courts of New York State. We address here the propriety of
any agreement to shift from a lawyer to a client sanctions
imposed upon the lawyer.
A provision purporting to shift
sanctions from lawyer to client might be included either in a
retainer or other agreement signed prior to the imposition of
sanctions or by agreement after a court already has imposed
sanctions on the lawyer. We conclude that such an agreement --
whether entered into before or after sanctions are imposed --
would violate several ethical prohibitions and is thus improper.
I.
Before analyzing the ethical
principles applicable to agreements purporting to shift sanctions
from lawyer to client, we briefly outline the statutory standards
and rules under which sanctions may be imposed. Part 130 of the
Rules of the Chief Administrator authorizes a court in civil
litigation to impose costs or financial sanctions against either
a lawyer or a party, or both, for "frivolous conduct."
n1 Similarly, Rule 11 of the Federal Rules of Civil Procedure
requires a court to impose sanctions against a lawyer or a party
or both if they file a "pleading, motion, or other
paper" without first having undertaken a "reasonable
inquiry" to ensure that the pleading, motion, or other paper
is "well grounded in fact and is warranted by existing law
or a good faith argument for the extension, modification, or
reversal of existing law" or if the pleading, motion, or
other paper is "interposed for any improper purpose, such as
to harass or to cause unnecessary delay or needless increase in
the cost of litigation." n2 Some form of notice and a
hearing is necessary before sanctions may be imposed under state
or federal law, as required in the former case by statute and in
the latter case by developing case law. See Section 130.1(b)
& (d); Roadway Express, Inc. v. Piper, 447 U.S. 752, 766-67
(1980); Sanko S.S. Co. v. Galin, 835 F.2d 51, 53-54 (2d Cir.
1987); see also INVST Financial Group, Inc. v. Chem-Nuclear
Systems, Inc., 815 F.2d 391, 405 (6th Cir.), cert. denied, 484
U.S. 927 (1987); Miranda v. Southern Pacific Transportation Co.,
710 F.2d 516, 522-23 (9th Cir. 1983).
n1 Part 130, Section 130.1(c),
provides that conduct is frivolous if:
(i) it is completely without merit
in law or fact and cannot be supported by a reasonable argument
for an extension, modification or reversal of existing law; or
(ii) it is undertaken primarily to
delay or prolong the resolution of the litigation, or to harass
or maliciously injure another.
n2 Rule 26(g) requires a court to
impose sanctions upon a party or its lawyer if the lawyer
violates the Rule's requirement that every discovery request,
response or objection be consistent with the Federal Rules of
Civil Procedure, that it meet the two-pronged Rule 11 standard
and that it be "not unreasonable or unduly burdensome or
expensive."
Under 28 U.S.C. § 1927, a court
may impose monetary sanctions on a person authorized to practice
before the federal courts who "so multiplies the proceedings
in any case as to increase costs unreasonably and
vexatiously."
Finally, as an exception to the
so-called American Rule that each party bears the cost of its own
attorneys' fees regardless of which party prevails, a federal
court has inherent equitable power to award monetary sanctions
against a party or its lawyer for engaging in "bad faith
litigation." See Quadrozzi v. City of New York, 127 F.R.D.
63, 83 (S.D.N.Y. 1989) (citing Alyeska Pipeline Service Co. v.
Wilderness Society, 421 U.S. 240, 258-59 (1975)).
Because Part 130 has been in
effect for less than a year, there are very few reported
decisions elucidating the standards for imposing sanctions or for
allocating responsibility for sanctions between lawyer and
client. Under the body of case law interpreting the analogous
Rule 11 in the federal courts, however, sanctions may be imposed
upon a lawyer only if the court finds that the lawyer has
violated the standards of conduct reasonably expected of a member
of the bar. See, e.g., Calloway v. Marvel Enterprises Group, 854
F.2d 1452, 1474-75 (2d Cir. 1988), rev'd in part on other grounds
sub nom. Pavelic & LeFlore v. Marvel Entertainment Group, No.
88-791, 58 U.S.L.W. 4038 (U.S. Dec. 5, 1989); Engh v. United
States, 658 F. Supp. 698, 703 (N.D. Ill. 1987).
Sanctions may be imposed on a
party alone -- rather than on the lawyer either singly or jointly
with the client -- where "a party misleads an attorney as to
facts or the purpose of a lawsuit, but the attorney nevertheless
had an objectively reasonable basis to sign the papers in
question." Calloway, supra, 854 F.2d at 1475. n3 In any
other situation, "the attorney, because of professional
standards, is held to know of the wrongfulness of the conduct
and, because of professional responsibility, should act to
prevent it." Id. at 1474; see also In re TCI Ltd., 769 F.2d
441, 446 (7th Cir. 1985). Therefore, if sanctions are imposed on
a lawyer, they are by definition based, at least in part, upon
the lawyer's own conduct, even if that conduct is only a failure
to prevent wrongful acts by his or her client.
n3 A recent New York Supreme Court
decision imposed sanctions on the client alone rather than on the
lawyer and client jointly based upon "counsel's
representation that [a frivolous motion] was made at his client's
direction." Smerling v. Smerling, N.Y.L.J., Nov. 21, 1989,
at 22, col. 3 (Sup. Ct. N.Y. Co. 1989). The decision in Smerling
highlights the potential conflict between lawyer and client in a
proceeding to determine who bears responsibility for sanctionable
conduct. See Calloway, supra, 854 F.2d at 1475; Schwarzer,
Sanctions Under the New Federal Rule 11 -- A Closer Look, 104
F.R.D. 181, 189 (1985).
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II.
It is likely that conduct
violative of Part 130 or Rule 11 also violates The Lawyer's Code
of Professional Responsibility (the "Code") even if the
conduct is "mere" acquiescence or assistance in the
improper actions of a client. For example, DR 7-102(A)(1) and (2)
obligate a lawyer, in his or her representation of a client, not
to take actions that "serve merely to harass or maliciously
injure another" or to knowingly adopt positions that are
unwarranted by existing law or by a good faith argument for
modifying, extending, or reversing existing law; these are
essentially the same standards as those embodied in Part 130 and
Rule 11. Thus, a lawyer should neither assert frivolous positions
in litigation, EC 7-4, nor assist the client in doing so, EC 7-5.
These duties are imposed by the Code on lawyers themselves, not
on their clients. See, e.g., N.Y. County 282 (1931) (lawyer
cannot obey orders of client in violation of Canons of
Professional Ethics); N.Y. County 95 (1916) (lawyer cannot raise
points in litigation that he or she knows to be without merit).
Any effort to transfer from lawyer
to client the consequences of obligations imposed squarely upon
the lawyer can only undermine the lawyer's incentive to fulfill
those ethical obligations. Therefore, the Committee believes it
would be improper to transfer contractually to a client the
consequences of a lawyer's violation of his or her ethical
duties.
The Code expressly forbids a
lawyer from attempting to escape liability for certain breaches
of professional obligations. DR 6-102 prohibits a lawyer from
attempting to "exonerate himself from or limit his liability
to his client for his personal malpractice." DR 6-102 is not
directly implicated by an agreement that purports to shift
sanctions from lawyer to client because DR 6-102 deals with
malpractice, and conduct which violates Part 130 or Rule 11 may
not give rise to a malpractice claim. In addition, DR 6-102
addresses attempts by a lawyer to avoid liability to his or her
own client, as opposed to liability for sanctions payable to
third parties. See Hashemi v. Shack, 609 F. Supp. 391, 397
(S.D.N.Y. 1984).
Nonetheless, DR 6-102 suggests by
analogy the impropriety of sanction-shifting agreements. An award
of sanctions against a lawyer under Part 130 or Rule 11 reflects
a judicial determination that the lawyer was responsible for
sanctionable conduct and that liability should be imposed upon
the lawyer. See Section 130.1(b); Calloway, supra, 854 F.2d at
1474-75; cf. Boyle v. Krebs and Schulz Motors, Inc., 239 N.Y.S.2d
143, 145 (2d Dep't 1963) (mem.) (where failure to remedy default
was "due primarily to neglect of plaintiff's attorney,"
costs should be borne by him personally and not by plaintiff). DR
6-102 expresses the principle that a lawyer should not enter into
an agreement that diminishes his or her professional
responsibility, which plainly precludes asking a client to accept
the consequences of the lawyer's own wrongful acts. If there has
been a judicial determination that a lawyer is responsible in
some fashion for sanctionable conduct, which appears to be a
prerequisite to the award of sanctions against the lawyer (see
pages 3-4, supra), then any effort to shift liability to the
client would run afoul of that principle. This remains true even
if liability is imposed for failing to exercise the diligence
necessary to prevent sanctionable conduct by the client, since
that responsibility is the lawyer's and he or she may not shift
to the client the consequences of failing to discharge it. See
Pavelic & LeFlore, supra, 58 U.S.L.W. at 4039 ("Where
the text [of Rule 11] establishes a duty that cannot be
delegated, one may reasonably expect it to authorize punishment
only of the party on whom the duty is placed.").
While the Committee does not opine
on questions of law, an attempt to shift sanctions from lawyer to
client also would appear to run afoul of the very purposes
underlying Rule 11 and Part 130. As Judge Weinstein stated in
Eastway Construction Corp. v. City of New York with respect to
sanctions under Rule 11:
Sanctions are imposed against the
client purely for their deterrent effect. But sanctions are
imposed against the attorney also for disciplinary purposes, as a
punishment for dereliction of duty by an officerr of the court
who should know better. Allowing the client to reimburse the
attorney would interfere with the court's attempt to maintain
discipline. Therefore reimbursement by the client should be
prohibited.
637 F. Supp. 558, 570 (E.D.N.Y.
1986) (citations omitted), aff'd in part, rev'd in part on other
grounds, 821 F.2d 121 (2d Cir.), cert. denied, 484 U.S. 918
(1987); see also Pavelic & LeFlore, supra, 58 U.S.L.W. at
4039 ("the purpose of Rule 11 as a whole is to bring home to
the individual signer his personal, nondelegable
responsibility"); Burger v. Health Insurance Plan of Greater
New York, 684 F. Supp. 46, 55, 56 (S.D.N.Y. 1988); Anschutz
Petroleum Marketing Corp. v. E. M. Saybolt & Co., 112 F.R.D.
355, 360 (S.D.N.Y. 1986); Seabrook v. R. H. Macy & Co., 488
N.Y.S.2d 689, 690 (1st Dep't 1985).
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