Occasionally (read: all too often), a lawsuit is brought which, after lengthy and expensive proceedings, is found to be “meritless,” or even “frivolous.” In such cases, the plaintiff and its law firm may be found liable for the costs incurred by the defendant. Well, no more. The putz plaintiff may be held liable, but NOT ITS LAW FIRM. (BDT Products Inc. v. Lexmark International Inc.)
BDT sued Lexmark for alleged misappropriation of trade secrets. The trial court, finding that Lexmark had never agreed not to use the subject information and, more importantly, that the subject information was not a legally recognizable trade secret, granted summary judgment in favor of Lexmark. BDT, continuing its misguided ways, appealed.
The appellate court affirmed the judgment and remanded the case to the trial court to consider an award of attorney’s fees to Lexmark. The trial court concluded that the suit had been “meritless” and entered sanctions (judicalspeak for “an order to pay money”) against BDT and its two law firms, in the amount of $5M¹. Half of the five mil was to be paid by BDT and the balance split between the two law firms.
BDT and one of the law firms quietly paid their shares. The other law firm, more aggressive, appealed, on the grounds that the statute which governed the award of sanctions – that’s 28 USC §1927 for you obsessive-compulsive types – is limited to “any attorney or other person admitted to conduct cases.”
The Sixth Circuit Court of Appeals agreed. Federal courts may not impose sanctions on law firms – as opposed to individual lawyers – for knowingly pursuing meritless lawsuits.
THE LESSON TO BE LEARNED: A law firm which brings a meritless lawsuit cannot be sanctioned, but the lawyers can be.
¹Yes, kiddies, Lexmark had apparently spent in excess of FIVE MILLION DOLLARS defending itself and never even got to trial!
The other lesson to be learned: if a court orders you to pay $1.25 million in sanctions, appeal the decision!