## Facts

- In the early 1970s, psychologist Gerald Zuk, then employed at Eastern Pennsylvania Psychiatric Institute (EPPI), had an EPPI technician film two family-therapy sessions.
- EPPI duplicated the films and rented them through its library.
- Zuk wrote a book containing transcripts of the sessions and registered the book’s copyright in 1975.
- After Zuk was furloughed in 1980, he demanded return of all film copies; EPPI did not return them and allegedly continued rentals for some time.
- In 1995, Zuk’s attorney, Benjamin G. Lipman, sued EPPI for copyright infringement based on EPPI’s rental of the films.
- EPPI moved to dismiss under Rule 12(b)(6) and served notice seeking sanctions under Rule 11, asserting inadequate factual and legal investigation.
- The district court dismissed the complaint and imposed $15,000 in sanctions and fees jointly and severally on Zuk and Lipman under Rule 11 and 28 U.S.C. § 1927.
- Zuk settled his portion, leaving Lipman to appeal the sanctions order.

## Issues

1. Whether sanctions against Lipman were proper under Federal Rule of Civil Procedure 11 for filing and advocating claims without a reasonable pre-filing inquiry into the facts and law.
2. Whether sanctions were proper under 28 U.S.C. § 1927 for unreasonably and vexatiously multiplying proceedings, including whether the court made the required bad-faith finding and provided adequate notice and opportunity to be heard.
3. Whether the type and amount of the monetary sanction complied with Rule 11’s deterrence function and tailoring requirements.

## Decision

- The court affirmed that Rule 11 sanctions were warranted because counsel’s filing and advocacy were objectively unreasonable given inadequate investigation of controlling law and key facts.
- The court vacated the amount and form of the Rule 11 sanction and remanded for recalculation consistent with deterrence and the least severe adequate sanction.
- The court vacated the § 1927 sanction and remanded because the record lacked the necessary finding of willful bad faith and the district court did not clearly separate the bases and amounts attributable to Rule 11 versus § 1927.

## Legal Principles

- Rule 11 requires attorneys to conduct a pre-filing inquiry reasonable under the circumstances; violations are assessed under an objective unreasonableness standard.
- Copyright in a derivative work does not create rights in preexisting material under 17 U.S.C. § 103(b); a copyright in a later work (e.g., a book containing transcripts) does not, by itself, establish control over earlier audiovisual recordings.
- Alleging actionable infringement requires factual support for infringing acts within the limitations period; pleading ongoing infringement without evidentiary support can support Rule 11 sanctions.
- Rule 11 sanctions must be designed primarily to deter misconduct, not to compensate an opponent, and should be the least severe sanction adequate to deter; ability to pay may be considered.
- In the Third Circuit, § 1927 sanctions require a finding of willful bad faith and target conduct that multiplies proceedings; courts must distinguish § 1927 from Rule 11 in both findings and monetary allocation, with fair notice and an opportunity to respond.

## Conclusion

The Third Circuit held that counsel’s objectively unreasonable copyright theory and weak factual inquiry justified Rule 11 liability, but required the district court to reassess the sanction to ensure it was properly tailored to deterrence; it also set aside § 1927 sanctions because the district court neither made the required bad-faith finding nor clearly separated the statutory basis and amount of the award.


Zuk v. E. Pa. Psychiatric Inst. of the Med. Coll. of Pa., 103 F.3d 294 (3d Cir. 1996)