Committee Reports

Formal Opinion 1989-3

Committee Report

Formal Opinion 1989-3

Formal Opinion 1989-3

December 14, 1989

ACTION: Formal 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.


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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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).