Garr v. U.S. Healthcare, Inc.
22 F.3d 1274 (1994)
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Rule of Law:
Under Federal Rule of Civil Procedure 11, each attorney who signs a pleading has a personal, non-delegable duty to conduct a reasonable pre-filing inquiry into the facts and law, which cannot be satisfied by relying solely on another attorney's investigation.
Facts:
- On November 4, 1992, the Wall Street Journal published an article reporting that insiders at U.S. Healthcare, Inc. had sold significant amounts of stock shortly before a 17% drop in its price.
- Attorney Malone read the article, conducted independent research into U.S. Healthcare's SEC filings and financial data, found a stockholder plaintiff named Greenfield, and filed a securities class action complaint that same day.
- Malone then spoke with attorney Arnold Levin, who read the same article. Malone faxed his complaint to Levin.
- Levin concluded the suit had merit based on the article, the complaint, and his reliance on the integrity of Malone's pre-filing investigation.
- Attorney Harris J. Sklar was authorized by his clients, the Garrs, to file a similar suit. Sklar contacted Levin to act as co-counsel.
- Levin faxed Malone's complaint to Sklar, who also determined it had merit based on the article and the complaint itself.
- On November 6, 1992, Levin and Sklar filed a complaint on behalf of the Garrs that was a verbatim copy of the Greenfield complaint, changing only the plaintiffs' names and number of shares owned.
- Neither Levin nor Sklar independently reviewed the SEC filings or other financial documents that formed the basis of the complaint's allegations of fraud.
Procedural Posture:
- Attorneys for Greenfield and the Garrs filed separate but nearly identical class action complaints against U.S. Healthcare, Inc. and its chairman in the U.S. District Court for the Eastern District of Pennsylvania.
- U.S. Healthcare immediately moved in the district court for the imposition of sanctions against the attorneys pursuant to Fed. R. Civ. P. 11.
- The district court held an evidentiary hearing and found that attorneys Levin and Sklar had violated Rule 11 by failing to conduct a reasonable pre-filing inquiry before filing the Garr complaint.
- The district court imposed monetary sanctions on Levin and Sklar.
- Levin and Sklar, the appellants, appealed the district court's sanction orders to the United States Court of Appeals for the Third Circuit.
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Issue:
Does an attorney violate Federal Rule of Civil Procedure 11's reasonable inquiry requirement by filing a class action complaint based only on a newspaper article and another attorney's previously filed complaint, without independently reviewing the underlying documents supporting the claim?
Opinions:
Majority - Greenberg, Circuit Judge
Yes. An attorney violates Rule 11 by failing to personally conduct an independent, reasonable inquiry into the facts and law underlying a pleading. The rule imposes a personal, non-delegable responsibility on the signing attorney that cannot be fulfilled by simply relying on another attorney's investigation, even if that attorney is reputable. Here, Levin and Sklar abdicated their responsibility by relying exclusively on the Wall Street Journal article and Malone's complaint without examining any of the underlying SEC filings or financial data themselves. No exigent circumstances, such as an impending statute of limitations, justified their failure to conduct an independent investigation. The purpose of duplicate personal inquiries is to provide a check, as a second attorney might review the same materials and reach a different conclusion about the merits of the case.
Dissenting - Roth, Circuit Judge
No. When a complaint is found to be meritorious on its face, a court should not impose sanctions based on the inadequacy of the attorney's pre-filing investigation. The central purpose of Rule 11 is to deter baseless filings, not to punish attorneys who file a meritorious claim after a deficient inquiry—a so-called 'lucky shot.' Because the Garr complaint was substantively identical to another complaint the district court found sufficient, it was not a 'baseless filing.' Sanctioning attorneys in such circumstances encourages wasteful satellite litigation over the adequacy of pre-filing research and incentivizes defendants to file premature motions for sanctions rather than addressing the merits of the case.
Analysis:
This decision reinforces that the Rule 11 inquiry focuses on the attorney's pre-filing conduct, not the ultimate merit of the claim. It establishes a clear precedent that 'piggybacking' or filing 'copycat' complaints without independent verification is sanctionable, thereby discouraging a pure race to the courthouse in class action litigation. The ruling solidifies the concept of a personal, non-delegable duty, meaning that every signing attorney is individually accountable for the pleading's factual and legal basis. This puts attorneys on notice that they cannot outsource their professional judgment or due diligence, even to trusted co-counsel.
