«JOURNAL OF LAW, ECONOMICS & POLICY VOLUME 10 SPRING 2014 NUMBER 2 EDITORIAL BOARD 2013-2014 Steve Dunn Editor-in-Chief Crystal Yi Meagan Dziura Sarah ...»
sure that the “correct” plaintiffs bring suit.96 They develop a formal model to show that Rule 11, as a two-sided fee-shifting statute, should be interpreted favorably to plaintiffs when litigation costs are high and the stakes of trial are low.97 On the other hand, when litigation costs are low and the stakes of trial are high, courts should interpret Rule 11 favorably to defendants.98 And, although tangential to their core topics, Cooper briefly notes that Rule 11 sanctions further a purpose of discovery—to determine whether there is a legitimate reason to sue99—and Kaplow recognizes that sanctions, like Rule 11, affect a party’s incentive to litigate.100 In addition to Rule 11, courts have an inherent equitable power to impose sanctions—such as the imposition of attorney’s fees—upon parties to litigation. Indeed, the Rules of Civil Procedure do not preclude a court from exercising its “inherent power”101 to punish when an attorney or a party has “acted in bad faith, vexatiously, wantonly, or for oppressive reasons,”102 insofar as such sanctions are not forbidden by Congress.103 As the
United States Supreme Court noted in Chambers v. NASCO, Inc.:
[W]hen there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power. But if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power. 104 Thus, despite the common law American rule, the imposition of attorney’s fees is a permissible sanction under the inherent equitable power of the courts.105 At the federal level, a common statutory remedy for the filing of a frivolous lawsuit is attorney’s fees. For instance, attorney’s fees are recoverable for frivolous, unreasonable, or meritless equal employment opporLucian A. Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371, 371 (1996).
97 Id. at 397–98.
99 Edward H. Cooper, Discovery Cost Allocation: Comment on Cooter and Rubinfeld, 23 J.
LEGAL STUD. 465, 475 (1994).
100 Louis Kaplow, The Value of Accuracy in Adjudication: An Economic Analysis, 23 J. LEGAL STUD. 307, 363 (1994).
101 As Klausner recognizes, the “inherent power” of the courts extends to lawyers, their clients, or both. Klausner, supra note 86, at 312.
102 Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 258–59 (1975) (citations omitted).
103 Id. at 259.
104 Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1975).
105 See Roadway Express, Inc. v. Piper, 447 U.S. 752, 765 (1980) (stating “[t]here are ample grounds for recognizing... that in narrowly defined circumstances federal courts have inherent power to assess attorney’s fees against counsel”).
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tunity106 and civil rights claims.107 Indeed, under Title VII of the Civil Rights Act, attorney’s fees may be awarded for the filing of a frivolous lawsuit, even if the lawsuit was not initiated in bad faith.108 The Civil Rights Attorney’s Fees Awards Act, codified at 42 U.S.C. § 1988, also provides for a remedy of attorney’s fees.109 This statute was enacted to “relieve defendants of the burdens associated with fending off frivolous litigation.”110 In addition, frivolous patent actions permit the recovery of attorney’s fees.111 In the context of criminal law, the Hyde Amendment,112 which punishes for vexatious, frivolous, or bad-faith forms of prosecutorial misconduct in criminal proceedings, permits a party to recover attorney’s fees and court costs.113 These examples are not meant to be exhaustive, and fee shifting is not the only means by which the federal government may seek to reduce the frequency of frivolous litigation.114 In addition to the foregoing, the common law of torts has evolved to sanction the initiation of frivolous lawsuits. The common law doctrines of champerty and maintenance have been enveloped by the current torts of 106 See Title VII of the Civil Rights Act, 42 U.S.C. § 2000e et seq. (2012).
107 See Civil Rights Attorney’s Fees Awards Act, 42 U.S.C. § 1988(b) (2012).
108 Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421 (1978).
109 See 42 U.S.C. § 1988(b) (2012).
110 Fox v. Vice, 131 S. Ct. 2205, 2215 (2011). Under this statute, a defendant may only recover the additional expenses, at the margin, from defending a frivolous claim. Id. at 2216. The United States Supreme Court has articulated a “but-for” test for the magnitude of recovery—a defendant may “receive only the portion of his fees that he would not have paid but for the frivolous claim.” Id. at 2215.
111 See 35 U.S.C. § 285 (2012). This statute reads, in pertinent part, that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Id. Meritless patent actions are deemed “exceptional” under 35 U.S.C. § 285 (2012). Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989) (citations omitted). Courts may award reasonable attorney’s fees to the prevailing party in “exceptional” cases. Id. (citations omitted).
112 18 U.S.C. § 3006A (2012).
113 See United States v. Capener, 608 F.3d 392, 400 (9th Cir. 2010) (citations omitted). In this context, a frivolous prosecution is one that is groundless, such that the government’s claims were foreclosed by binding precedent or obviously wrong. Id. at 401 (citation omitted).
114 For instance, the federal government has imposed substantial pleadings barriers to frivolous litigation in the context of class action securities fraud. See, e.g., 15 U.S.C. §§ 78u–4(b)(1), (2) (2012).
The Private Securities Litigation Reform Act of 1995 was enacted, in part, “to curb frivolous, lawyerdriven litigation,” Tellabs v. Makor Issues & Rights, 551 U.S. 308, 322 (2007), particularly through the abuse of securities fraud class action lawsuits, Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006). As the United States Supreme Court noted in Tellabs, “[p]rivate securities fraud actions... if not adequately contained, [could] be employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.” Tellabs, 551 U.S. at 313. As a result, the Private Securities Litigation Reform Act of 1995 imposed barriers to litigating these suits, including heightened pleadings requirements, a limit on recoverable damages and attorney’s fees, and sanctions for frivolous suits. Merrill Lynch, 547 U.S. at 81. Incidentally, this statute led to a widespread forum shift—plaintiffs began bringing class actions for securities fraud in state courts as opposed to federal court. See id. at 82. Hence, Congress enacted the Securities Litigation Uniform Standards Act in 1998 to preempt state law and ensure compliance with the objectives of the Private Securities Litigation Reform Act. Id.
2014] THE IMPACT OF FRIVOLOUS LAWSUITS ON DETERRENCE 331 abuse of process115 and malicious prosecution.116 However, the tort of abuse of process only applies after the wheels of litigation have been set in motion.117 Specifically, a cause of action must have already been initiated for an aggrieved party to obtain a remedy for abuse of process, and accordingly, the initiation of a known, meritless lawsuit will not necessarily afford the aggrieved party a remedy. In contrast, depending on the jurisdiction, the intentional tort of malicious prosecution may be employed to, in essence, abrogate the common law American rule when a party litigates a frivolous lawsuit. The United States Supreme Court has observed that “the gist of the tort [of malicious prosecution] is... commencing an action or causing process to issue without justification.”118 It exists when one maliciously and without probable cause119 initiates a civil or criminal legal proceeding which is later terminated against the plaintiff (in a civil proceeding) or the government (in a criminal proceeding).120 The tort goes by different names in different jurisdictions,121 and sometimes the distinction between 115 Abuse of process involves, according to the United States Supreme Court, “misusing, or misapplying process justified in itself for an end other than that which it was designed to accomplish.” Heck v. Humphrey, 512 U.S. 477, 495 n.2 (1994) (citation omitted). This tort imposes liability upon a party for improperly utilizing the judicial system for a purpose for which it is not designed, see, e.g., Batten v.
Abrams, 626 P.2d 984, 988 (Wash. App. 1981); 1 AM. JUR. 2D Abuse of Process § 1 (2013);
RESTATEMENT (SECOND) TORTS § 682 (1977), and accordingly, its objective is to deter parties from using the litigation process to achieve an undesired end. All states recognize the tort of abuse of process or some variant thereof. Jeffrey J. Utermohle, Look What They’ve Done to my Tort, Ma: The Unfortunate Demise of “Abuse of Process” in Maryland, 32 U. BALT. L. REV. 1, 7–8 (2002). Since the tort is a state-level construct, states tend to differ with respect to the essential elements of a successful abuse of process claim. See id. States use either a two-prong or three-prong test, with disagreement over the necessity of a showing of damages. See id. at 8 n.24. For a comprehensive state-by-state summary of the essential elements of a claim for abuse of process, see id. at. 36–49.
116 Allied Med. Assocs. v. State Farm Mut. Auto. Ins. Co., No. 08-02434, 2008 WL 4771850, at *9 n.6 (E.D. Pa. Oct. 30, 2008).
117 See Batten, 626 P.2d at 991 (stating “[t]he initiation of vexatious civil proceedings known to be groundless is not abuse of process.... There is no liability if nothing is done with the lawsuit other than carrying it to its regular conclusion”) (citation omitted). Therefore, the tort of abuse of process does not necessarily safeguard against the filing of a frivolous lawsuit. However, malicious prosecution remedies this defect.
118 Heck, 512 U.S. at 495 n.2 (1994) (alteration in original) (citation omitted) (internal quotation marks omitted).
119 Notice that this requirement is not an element of an abuse of process claim. Another substantial distinction between malicious prosecution and abuse of process is that in some states, attorneys are immune from liability for malicious prosecution when they act in good faith or perform a reasonable investigation of their clients’ claims. However, there is no blanket immunity for attorneys for abuse of process. See David W. Pollak, Comment, Sanctions Imposed by Courts on Attorneys Who Abuse the Judicial Process, 44 U. CHI. L. REV. 619, 639 (1977).
120 52 AM. JUR. 2D Malicious Prosecution § 1 (2013).
121 Wade recognizes that the tort of malicious prosecution has a muddled history, and today, identifying the proper name is jurisdiction-specific. John W. Wade, On Frivolous Litigation: A Study of Tort Liability and Procedural Sanctions, 14 HOFSTRA L. REV. 433, 437–38 (1986). Despite its inherent
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the original cause of action (be it civil or criminal) is integral in identifying the appropriate cause of action for maliciously prosecuting an individual.122 Despite the lack of a concrete designation across jurisdictions, its purpose is clear—to provide a tort remedy that deters the initiation of unwarranted, baseless causes of action. The remedy for the tort of malicious prosecution also differs across jurisdictions, though a majority of states permit the recovery of reasonable attorney’s fees and even litigation expenses for aggrieved parties.123 The existence of these legal regimes permitting cost and fee shifting raises the question of how they influence deterrence. Economic models tend to assume that a switch from the American rule to the English rule would permit a victorious party at trial to recover all of its litigation costs, including its expenses.124 Consistent with this pattern, and as an extension to our original theoretical model, we assume that a switch to the English rule implies that a genuine plaintiff will be able to recover her trial and filing costs from the defendant if the case goes to trial, given that the plaintiff will win at trial with certainty under strict liability. As a result, a genuine plaintiff will only be willing to accept a settlement if the defendant offers an amount at least equal to the plaintiff’s damages plus her filing costs.125 differences across states, he synthesizes the following five elements of a valid claim for malicious civil
(1) the present defendant must have taken an active part in the initiation, continuation, or procurement of the original civil proceeding; (2) the original proceeding must have terminated in favor of the present plaintiff; (3) there must be damage of the type that the court regards as appropriate for an action of this nature; (4) there must be a lack of probable cause for the original action; and (5) there must have been ‘malice’ in the bringing of the original action.
Id. at 438. Due to the requirement that the original cause of action was terminated in favor of the present plaintiff, a separate cause of action is required to maintain a claim under this tort.
122 For instance, the Restatement (Second) of Torts uses “wrongful use of civil proceedings” or “wrongful institution of civil proceedings” to identify a claim originating under tort law, while the term “malicious prosecution” is reserved solely for criminal prosecutions. 52 AM. JUR. 2D Malicious Prosecution § 2 (2013) (citations omitted). Some states use the term “malicious use of process” when the original cause of action sounded in tort law. Id. (citations omitted).
123 Id. at 442. It should be noted that a minority of states, particularly those following the English rule, require a showing of special damages. In these states, special damages include those incurred as a result of an arrest, interference with property, or those damages occurring in similar actions. Michael J.
Philippi, Malicious Prosecution and Medical Malpractice Legislation in Indiana: A Quest for Balance, 17 VAL. U. L. REV. 877, 893 (1983). This requirement may render a remedy under malicious prosecution unavailable for certain causes of action. Wade, supra note 121, at 442.