Case Summary
Grider v. Keystone Health Plan Central, Inc., 2009 U.S. App. LEXIS 19642 (3d Cir. Sept. 1, 2009).
Sanctions requiring defendants and their counsel to pay over $3.2 million of plaintiffs' attorney fees were vacated because the trial court failed to specify, as required by Fed. R. Civ. P. 26(g)(3), how defendants' general discovery objections were "without substantial justification."
A doctor and her medical practice filed an action alleging failure of a health maintenance organization to make payments promptly as required by statute. Although the action was eventually settled, three defendants and their counsel appealed two orders imposing sanctions in the form of plaintiffs' attorney fees of over $3.2 million. The trial court held that all appellants violated Fed. R. Civ. P. 26(g)(2)(A) and (B) and Fed. R. Civ. P. 37(c)(1) and that appellant law firms and their attorneys violated 28 U.S.C.A. § 1927 and a local rule of court.
Although lamenting the lack of "civility and professionalism one expects from such experienced attorneys," the court of appeals vacated the sanctions orders. The court first held that settlement of the action did not moot the appeals because the appellants suffered "reputational harm" from the sanctions. The court then ruled that sanctions entered under Rule 26(g)(3) had to be set aside because the trial court did not make any finding that good faith certifications of appellants in making their general discovery objections were—in the language of the Rule—"without substantial justification." Rule 37(c)(1) also required a finding by the trial court that any failure to provide required discovery was "without substantial justification," and sanctions against all appellants under that rule had to be set aside.
Sanctions against counsel imposed under Rule 37(c)(1) were set aside because reasoning of the Second and Seventh Circuits in deciding the rule did not permit sanctions against counsel was persuasive. Sanctions against counsel under 28 U.S.C.A. § 1927 and a local rule also were vacated because the trial court made only generalized findings of bad faith by counsel in unreasonably and vexatiously multiplying the proceedings in the case. The trial court in its 77-page opinion referred to bad faith of each sanctioned attorney, but the section of the opinion in which the trial court discussed imposition of sanctions on the attorneys due to their bad faith had “such little specificity that we cannot affirm.” According to the court, “individualized analysis” was required:
A doctor and her medical practice filed an action alleging failure of a health maintenance organization to make payments promptly as required by statute. Although the action was eventually settled, three defendants and their counsel appealed two orders imposing sanctions in the form of plaintiffs' attorney fees of over $3.2 million. The trial court held that all appellants violated Fed. R. Civ. P. 26(g)(2)(A) and (B) and Fed. R. Civ. P. 37(c)(1) and that appellant law firms and their attorneys violated 28 U.S.C.A. § 1927 and a local rule of court.
Although lamenting the lack of "civility and professionalism one expects from such experienced attorneys," the court of appeals vacated the sanctions orders. The court first held that settlement of the action did not moot the appeals because the appellants suffered "reputational harm" from the sanctions. The court then ruled that sanctions entered under Rule 26(g)(3) had to be set aside because the trial court did not make any finding that good faith certifications of appellants in making their general discovery objections were—in the language of the Rule—"without substantial justification." Rule 37(c)(1) also required a finding by the trial court that any failure to provide required discovery was "without substantial justification," and sanctions against all appellants under that rule had to be set aside.
Sanctions against counsel imposed under Rule 37(c)(1) were set aside because reasoning of the Second and Seventh Circuits in deciding the rule did not permit sanctions against counsel was persuasive. Sanctions against counsel under 28 U.S.C.A. § 1927 and a local rule also were vacated because the trial court made only generalized findings of bad faith by counsel in unreasonably and vexatiously multiplying the proceedings in the case. The trial court in its 77-page opinion referred to bad faith of each sanctioned attorney, but the section of the opinion in which the trial court discussed imposition of sanctions on the attorneys due to their bad faith had “such little specificity that we cannot affirm.” According to the court, “individualized analysis” was required:
Where attorneys' reputations (and, therefore, their livelihood and ability to practice their chosen profession) are at stake, we require a judge to analyze the sanctionable conduct with greater specificity than [the trial court] did in this case in imposing sanctions under 28 U.S.C. § 1927 and Local Rule 83.6.1.
