## Facts

- On November 4, 1992, the Wall Street Journal published an article reporting that insiders of U.S. Healthcare, Inc. sold stock shortly before a sharp decline in the stock price.
- That same day, attorney James R. Malone, Jr. filed a federal securities class action against U.S. Healthcare and its president/chairman, Leonard Abramson, on behalf of Robert K. Greenfield.
- On November 5, 1992, Malone filed a second, substantially similar class action on behalf of Allen Strunk.
- Before Malone filed the first complaint, he spoke with attorney Arnold Levin about the case; Malone told Levin about the article and stated he had researched the matter and believed suit was warranted.
- On November 6, 1992, Levin and attorney Harris J. Sklar filed a third class action on behalf of Scott and Patricia Garr. The Garr complaint was virtually identical to the Greenfield and Strunk complaints, with changes mainly to plaintiff-specific information.
- Defendants moved for sanctions under Federal Rule of Civil Procedure 11, arguing that plaintiffs’ counsel failed to conduct a sufficient factual and legal inquiry and that the complaints lacked a basis in fact or law.
- The district court found Malone’s prefiling inquiry reasonable in the Greenfield and Strunk cases, but found that Levin and Sklar did not conduct a reasonable inquiry and unreasonably relied on Malone’s work.
- The district court dismissed the Garr complaint, ordered Levin and Sklar to pay defendants’ attorneys’ fees, and referred the matter to the Disciplinary Board of the Supreme Court of Pennsylvania.
- Levin and Sklar appealed the Rule 11 sanctions and related orders.

## Issues

1. Whether Levin and Sklar violated Rule 11 by signing and filing the Garr complaint without conducting a reasonable inquiry into the factual and legal basis for the claims, instead relying largely on Malone’s assurances and work.
2. Whether the district court abused its discretion in the type and scope of sanctions imposed (including dismissal, fee-shifting, and disciplinary referral).

## Decision

- The Third Circuit affirmed the district court’s determination that Levin and Sklar violated Rule 11 by filing the Garr complaint without a reasonable prefiling inquiry under the circumstances.
- The court held that Levin and Sklar could not satisfy Rule 11 merely by adopting another lawyer’s conclusions, where they made no meaningful effort to verify the factual or legal grounds for the pleading they signed.
- The Third Circuit upheld sanctions in general as within the district court’s discretion, while requiring that any monetary award be properly tied to costs caused by the Rule 11 violation (and remanding as needed for proper calculation and findings).

## Legal Principles

- Rule 11 imposes an affirmative duty on the attorney who signs a pleading to conduct a reasonable inquiry into both the facts and the law before filing.
- The adequacy of a prefiling inquiry is judged by an objective standard: what a reasonable attorney would have done under the circumstances.
- The Rule 11 duty is personal to the signing attorney; consultation with or reliance on other lawyers may be considered, but it does not excuse the signer from making a reasonable effort to confirm that the filing is well-grounded.
- When a complaint is filed rapidly and closely tracks another pleading, a court may consider whether counsel’s speed and lack of verification show an unreasonable inquiry.
- A district court’s Rule 11 determinations, including the selection of sanctions, are reviewed for abuse of discretion.
- Rule 11 sanctions are aimed primarily at deterrence; monetary sanctions should bear a reasonable relationship to the expenses and burdens caused by the improper filing.

## Conclusion

Garr held that attorneys who sign and file a complaint must themselves make a reasonable prefiling inquiry into the factual and legal basis of the claims. Because Levin and Sklar filed a near-duplicate securities complaint with no meaningful independent investigation and relied largely on Malone’s assurances, the Third Circuit affirmed the Rule 11 violation and approved sanctions in general, while requiring that any fee award be properly supported and limited to costs attributable to the violation.


Garr v. U.S. Healthcare, Inc., 22 F.3d 1274 (1994)