In 1986, the Indiana legislature passed a law against "frivolous, unreasonable, or groundless" actions or defenses on a claim.(1) During the eleven years since the statute was enacted, our state appellate courts have crafted an extensive body of common law laying the boundaries over which litigants and their counsel must not cross without risking violating the law against frivolity.
In addition to refraining from filing an action or asserting a defense that is frivolous, unreasonable or groundless, the cost statute prohibits continuing to litigate a claim or defense if it clearly becomes frivolous, unreasonable or groundless after it was originally asserted. Therefore, attorneys have a continuing duty to re-assess the validity of claims and defenses as investigation and discovery progresses.
Suggesting to a court that an action or defense is or has become frivolous is a duty which the litigator owes to the client. However, it should be reserved for appropriate cases. Handling a case with a charge of frivolity hanging over the action can be distracting to say the least. In our judgment, it is very important for every trial lawyer to know the law which has been developed in this area.
I.C. 34-1-32-1 - Indiana's Cost Statute
I.C. 34-1-32-1 provides as follows:
34-1-32-1 General recovery rule
Sec.1. (a) In all civil actions, the party recovering judgment shall recover costs, except in those cases in which a different provision is made by law.
(b) In any civil action, the court may award attorney's fees as part of the costs to the prevailing party, if it finds that either party:
(1) brought the action or defense on a claim or defense that is frivolous, unreasonable or groundless;
(2) continued to litigate the action or defense after the party's claim or defense clearly became frivolous, unreasonable or groundless; or
(3) litigated the action in bad faith.
Rule 3.1 Of The Indiana Rules Of Professional Conduct
Rule 3.1 of the Indiana Rules of Professional Conduct provides, in pertinent part, that:
A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.
The comments to this Rule provide, in pertinent part, that:
The filing of an action or defense or similar action taken for a client is not frivolous merely because the facts have not first been fully substantiated or because the lawyer expects to develop final evidence only by discovery. Such action is not frivolous even though the lawyer believes that the client's position ultimately will not prevail. The action is frivolous, however, if the client desires to have the action taken primarily for the purpose of harassing or maliciously injuring a person or if the lawyer is unable to make a good faith argument on the merits of the action taken or to support the action taken by a good faith argument for an extension, modification or reversal of existing law. [Emphasis added.]
Indiana Case Law
In Kahn v. Cundiff(2), the plaintiffs, Paulette Brown and Terry Willis, were injured when their vehicle was struck by a car being operated by the defendant, Rachel Cundiff. The car that Rachel Cundiff was driving was owned by her husband, Larry Cundiff. The plaintiffs filed suit against both Rachel and Larry Cundiff on December 1, 1996. On the same day the plaintiffs tendered interrogatories, a request for production and a request for admissions to the defendants. The Cundiffs filed several motions for extension of time to respond to the plaintiffs' discovery requests, as well as two motions to dismiss and a motion for judgment on the pleadings for failure to state a claim against Larry Cundiff. The defendants responded to the plaintiffs' request for production of documents and request for admissions on April 25, 1987.
On April 30, 1987, the plaintiffs filed their pre-trial entry, stating that they intended to pursue a negligent entrustment theory against Larry Cundiff, depending upon the outcome of discovery. On May 27, 1987, the Cundiffs responded to that entry, alleging that the pleadings and discovery did not support a negligent entrustment theory against Larry.(3)
On June 9, 1987, the trial court denied all pending motions and set the case for trial to begin on June 16, 1987. On June 10, 1987, Larry filed a request for rulings on his motions to dismiss and on his motion for judgment on the pleadings. The trial court apparently denied Larry's renewed request.
On June 16, 1987, prior to the selection of the jury, plaintiffs' counsel admitted that he had no facts to support a negligent entrustment theory against Larry Cundiff. Therefore, the trial court dismissed Larry from the case. The case was tried against Rachel Cundiff and the jury returned a verdict in her favor, based upon the comparative fault of the plaintiffs.(4)
Larry Cundiff subsequently filed a request for attorney fees pursuant to I.C. 34-1-32-1. The trial court ultimately granted Larry's request and awarded him $8246.65 in attorney fees and $411.11 for jury costs. Plaintiffs' counsel appealed the trial court's decision. The Court of Appeals affirmed the trial court's findings as to the frivolous, unreasonable and groundless nature of the claim against Larry Cundiff, outlining the definitions of each of those terms. However, the Court of Appeals vacated the award of attorney fees - because the amount of fees had been determined only on the basis of judicial notice and affidavits submitted by Larry. In that regard, the Court of Appeals observed that judicial notice can support only relatively small amounts of attorney fees in "routine cases". In addition, the Court noted that the affidavits were conflicting with regard to the time spent by defense counsel and did not clearly indicate what time had been spent in working on Rachel's defense, Larry's defense, or both. Therefore, the Court of Appeals remanded for an evidentiary hearing relative to the amount of attorney fees to be paid.(5) The Indiana Supreme Court subsequently affirmed the decision of the Court of Appeals.(6)
Definition of "frivolous". In Kahn v. Cundiff(7), the Court of Appeals stated that the first issue that must be addressed in determining the propriety of an award of costs under I.C. 34-1-32-1 involves the interpretation of the terms "frivolous, unreasonable or groundless". In that regard, the Court noted that I.C. 34-1-32-1 must be interpreted and applied "in a manner which carries out the legislative purpose which is to deter frivolous, unreasonable, groundless and bad faith litigation. Thus, we must balance the attorney's duty to zealously represent his clients within the bounds of the law against the important policy of discouraging unnecessary and unwarranted litigation".(8)
In Kahn v. Cundiff, the Court of Appeals held that:
[A] claim or defense is "frivolous" (a) if it is taken primarily for the purpose of harassing or maliciously injuring a person, or (b) if the lawyer is unable to make a good faith and rational argument on the merits of the action, or (c) if the lawyer is unable to support the action taken by a good faith and rational argument for an extension, modification, or reversal of existing law.(9)
Definition of "unreasonable". In Kahn v. Cundiff, the Court of Appeals held that the definition of "unreasonable", as used in I.C. 34-1-32-1, is as follows:
[A] claim or defense is unreasonable if, based on a totality of the circumstances, including the law and facts known at the time of the filing, no reasonable attorney would consider the claim or defense was worthy of litigation or justified.(10)
In addition, the Court of Appeals noted that in examining the circumstances surrounding an attorney's conduct, the court should consider:
(a) the amount of time the attorney had to investigate the facts, research the law, and prepare the document;
(b) the extent to which the attorney had to rely upon the client for the factual foundation;
(c) the complexity of the factual basis and legal questions involved;
(d) the ability to conduct a pre-filing investigation, and the extent to which discovery was necessary and beneficial to the development of the factual basis; and
(e) the plausibility of the arguments forwarded, including good faith efforts to extend or modify the law.
See e.g., Brown v. Federation of State Medical Boards of U.S. (7th Cir.1987), 830 F.2d 1429, 1435; Wong v. Tabor (1981), Ind.App., 422 N.E.2d 1279, 1288 n. 9.(11)
Definition of "groundless". In Kahn v. Cundiff, the Court of Appeals held that the definition of "groundless", as used in I.C. 34-1-32-1 is that:
[A] claim or defense is groundless if no facts exist which support the legal claim relied on and presented by the losing party.(12)
A finding of improper motive is not required. In Kahn v. Cundiff, plaintiffs' counsel asserted that I.C. 34-1-32-1 essentially codifies the obdurate behavior exception, which provides that a court may award attorney fees if a party has filed or continued a knowingly baseless claim and the trial court determines that such conduct was "'vexatious and oppressive in the extreme and a blatant abuse of the judicial process' Kikkert v. Krumm (1985), Ind., 474 N.E.2d 503, 505". Plaintiffs' counsel argued that since the trial court did not find that he had an improper motive in bringing and maintaining the action against Larry Cundiff, attorney fees were improperly awarded. However, the Court of Appeals disagreed.
In rejecting the argument that an award of attorney fees under I.C. 32-1-32-1 is improper absent a finding of improper motive, the Court of Appeals noted that "[t]he only wording in the statute which hints at such a requirement is found in subsection (b)(3), which allows the court to award attorney fees if a party 'litigated the action in bad faith'".(13) According to the Court:
Nothing in subsections (b)(1) or (b)(2) indicates that a court must find an improper motive to award attorney fees. Rather, these subsections clearly contemplate an examination of the legal and factual basis of a claim and the arguments advanced in support thereof. See Hall, Attorney's Fees for Frivolous, Unreasonable, or Groundless Litigation, 20 Ind.L.Rev. 151, 156 (1987). Although under our definition of frivolous a trial court may award attorney fees based on a client's motive, a finding of frivolousness and an award of attorney fees may be based solely upon the lack of a good faith and rational argument in support of the claim. Therefore, the trial court was not required to find an improper motive to award attorney fees under subsections (b)(1) or (b)(2).(14)
In Brant v. Hester(15), the Court of Appeals reiterated the fact that a trial court is not required to find an improper motive on the part of counsel to support an award of attorney fees for violation of I.C. 34-1-32-1. Rather, the award is appropriately based solely upon the lack of a good faith and rational argument supporting the claim or defense asserted.
Continuing to pursue a frivolous or groundless claim or defense. In its opinion in Kahn v. Cundiff(16), the Indiana Supreme Court noted that:
Commencing an action against a particular party will less often be frivolous, unreasonable, or groundless than continuing to litigate the same action. Because of the system of notice pleading and pre-trial discovery, commencement of an action may often be justified on relatively insubstantial grounds. Thorough representation will sometimes require a lawyer to proceed against some parties solely for the purpose of investigation through pre-trial discovery. In such cases, counsel is expected to determine expeditiously the propriety of continuing such action and to dismiss promptly claims found to be frivolous, unreasonable, or groundless. In this case, fees should be due for the costs of defending Larry (as distinguished from defending Rachel) from that point in the litigation at which pursuing the claim became frivolous, unreasonable, or groundless.(17)
In Owens v. Schoenberger(18), the plaintiff brought a defamation action against a fraternity member who sent a letter to the presidents of fraternities on a college campus, in which the defendant urged fraternity members who had been in sexual contact with the plaintiff to go to Dr. Beard's office to be tested for sexually transmitted disease; saying that he had done so and that he had been treated for a sexually transmitted disease; and, suggesting that the plaintiff had given him the disease. The jury returned a verdict for the plaintiff and the trial court judge granted the plaintiff's motion for additur with regard to the compensatory damage award.
After the trial, the plaintiff moved to recover attorney fees under I.C. 34-1-32-1(1)(b). In support of that motion, the plaintiff asserted that three (3) months prior to trial, when the defendant was deposed, and during trial, the defendant admitted that: 1) he had absolutely no good faith basis for believing that the plaintiff had given him a sexually transmitted disease; 2) he had taken absolutely no steps to ascertain whether the plaintiff had a sexually transmitted disease; and, Dr. Baird testified that he had not diagnosed or treated the defendant for a sexually transmitted disease at the time to which the defendant referred in his letter to the fraternity presidents. Despite this evidence, the plaintiff stated that the defendant continued with his "baseless" defense of truth until the end of the three-day jury trial. Plaintiff's counsel did not seek any fees for their time spent in the initial investigation, pleading preparation and discovery. Rather, fees were sought only for plaintiff's counsels' immediate trial preparation (64 hours of work). The trial court granted the Plaintiff's motion and awarded $16,000.00 in attorney fees.
The defendant argued on appeal that the trial court abused its discretion when it awarded the plaintiff $16,000.00 in attorney fees. The Court of Appeals pointed out that the Indiana Supreme Court, in Kahn v. Cundiff(19), declared that during the pre-trial stage, I.C. 34-1-32-1 requires a litigant to re-evaluate and "'determine the propriety of continuing'" an action throughout the course of discovery. In addition, the Court of Appeals noted that I.C. 34-1-32-1(b)(2) provides that fees may be awarded against a party who continued to litigate the action or defense after the party's claim or defense clearly became frivolous, unreasonable or groundless. Therefore, the Court of Appeals concluded that the defendant in Owens had an obligation to re-evaluate and determine the propriety of continuing his defense of truth. Based on the defendant's admission during his deposition and during trial that he had "absolutely no information to this moment" that the plaintiff ever caused him to have "anything at all", the Court of Appeals held that the trial court "could well have found" that the defendant's continued assertion of the defense of truth after his deposition and through a three-day jury trial approximately three months later warranted an award of the "attorney trial fees" that the plaintiff incurred.
"Our Supreme Court's decision makes it clear that a claim may be reasonable when filed, but become unreasonable when continued after the attorney conducts an investigation and pre-trial discovery".(20) "A litigant is obligated to investigate the legal and factual basis of the claim when filing it and to continuously evaluate the merits of counterclaims or defenses asserted in litigation. General Collection, Inc. v. Decker (1989), Ind. App., 545 N.E.2d 18, 20."(21)
In Tipton v. Roerig(22), the Plaintiff, Ronald Tipton, experienced a bilateral hearing loss after undergoing dialysis treatment at Wishard Hospital. Tipton sued the hospital and his physician, alleging negligence during his medical treatment. Tipton's medical records revealed that during his hospitalization, he had received two drugs: Lasix (not manufactured by the Defendant, Pfizer, Inc.) and Cefobid (a drug manufactured by Pfizer). Tipton subsequently amended his Complaint to include a product liability claim against Pfizer, in its capacity as the manufacturer and seller of Cefobid, which was the drug that Tipton claimed had caused his injuries.
Tipton's Amended Complaint was served on Pfizer on April 30, 1986. The parties conducted discovery for nearly three years. Then, in September of 1989, in response to the Court's Order to Produce, Tipton furnished Pfizer with a copy of an affidavit from Tipton's treating physician, Beverly Perkins-Edwards, M.D., which Tipton had submitted to the medical review panel almost a year earlier. In that affidavit,
Dr. Perkins-Edwards stated her opinion that Tipton's injuries were caused by Lasix. There was no mention of Cefobid in the affidavit or in any of the contentions that Tipton presented to the medical review panel.
Approximately three months after receiving Dr. Perkins-Edwards' affidavit, Pfizer moved for Summary Judgment and requested costs and attorney's fees for the work that its attorney had done since the date of Dr. Perkins-Edwards' affidavit, contending that it had been improper for Tipton to continue litigating his claim against Pfizer while contending before the medical review panel that Lasix had caused his injuries.
The trial court found that continuing the action against Pfizer after receiving the doctor's affidavit fell within I.C. 34-1-32-1 (continuing to litigate an action after the claim had clearly become frivolous, unreasonable, or groundless). Therefore, the trial court ordered Tipton's attorney to pay Pfizer's reasonable and necessary costs and attorney's fees associated with the continued defense of the lawsuit after the date of Dr. Perkins-Edwards' affidavit.
Tipton's attorney appealed, arguing that it was not unreasonable for him to fail to dismiss the action against Pfizer because discovery had not been completed. In addition, he argued that he had not done anything to actively pursue the claim against Pfizer. Rather, he asserted that it was Pfizer's attorneys who pursued discovery against him, which "ran up their own costs".
The Court of Appeals affirmed the trial court's award of costs and attorney fees to Pfizer. In its opinion, the Court of Appeals acknowledged that Tipton's attorney was entitled to pursue alternative claims through discovery. However, the court stated:
However, during the nearly three year period after the Complaint was filed, he had obtained no facts -- or other expert opinion -- implicating Pfizer's product as a cause of Tipton's injuries. He did not even claim that he had conducted any investigation (except for discovery requests to Pfizer) to determine whether there was any evidence implicating Cefobid as a cause of Tipton's hearing loss. Therefore, the claim must be considered groundless.(23)
Tipton's attorney also claimed that his conduct was not unreasonable because he was simply waiting for the decision of the medical review panel and did not take any action to obtain discovery from Pfizer until forced to do so when Pfizer filed a Trial Rule 41(E) motion. The Court of Appeals also rejected that argument, stating:
We do not find that argument persuasive because Pfizer's attorneys were required to zealously represent their clients and to request from discovery from him. Furthermore, our Supreme Court's opinion in Kahn makes it clear that an attorney should take steps to "determine expeditiously" the merits of continuing an action. [Tipton's attorney] did not argue to the trial court, or to this court, that he sought other expert opinion or documentation implicating Pfizer's drug as a factor in Tipton's injuries. His defense is that he did nothing but wait -- and that is precisely the problem. The evidence supports the conclusion that it was unreasonable for [Tipton's attorney] to sit back and wait for years for the findings of the medical review panel before beginning an investigation of Cefobid as "the" cause or as "a" factor in Tipton's injures.(24)
In United Farm Bureau Mutual Insurance Company v. Ira(25), Ira, a Farm Bureau insured, sued Farm Bureau to enforce its obligation under an agreed judgment to pay Ira's future medical expenses which were "reasonably related" to a 1981 car crash. In July of 1988, Ira underwent his third surgery. He submitted his medical bills to Farm Bureau, and also provided Farm Bureau with letters from two of his treating physicians, Dr. Shields and Dr. Jelsma. Dr. Shields stated that Ira's injuries were related to the 1981 car wreck, but did not recommend surgery. Dr. Jelsma stated that Ira's cervical arthritis was "acquired and probably aggravated by" the 1981 collision.
Farm Bureau refused to pay the bills relative to Ira's third surgery, claiming that Dr. Jelsma's letter created some doubt as to the causal connection between the 1981 collision and the third surgery. In December of 1988, Dr. Jelsma submitted a second report stating that "the report would suggest that the changes occurred immediately after the accident and were related to the accident itself and then aggravated with the passage of time . . .". Ira subsequently deposed Dr. Jelsma, and the doctor again expressed the opinion that Ira's third surgery was related to the 1981 collision. Later, Farm Bureau offered to pay Ira's medical expenses if he would dismiss all of his claims against Farm Bureau. Ira refused.
A bench trial was held and the trial court judge determined that Ira's medical expenses were reasonably related to the 1981 crash and ordered Farm Bureau to pay the bills relative to Ira's third surgery. In addition, the trial court ordered Farm Bureau to pay Ira $18,000 in attorney fees.
The Court of Appeals held that attorney fees were appropriately assessed against Farm Bureau under I.C. 34-1-32-1(b)(2). The Court of Appeals based its decision on its finding that it was clear from the record Farm Bureau continued its defense when no facts existed to support its claim that Ira's expenses were not related to the collision after it received Dr. Jelsma's December letter. "That is, that Farm Bureau had doggedly pursued its defense even after it had proof to the contrary and no substantial evidence supporting its position".(26)
What Is Required To Avoid Liability
For Asserting A Frivolous Or Groundless Claim Or Defense
In its opinion in the case of Whittington v. Ohio River Company(27), the United States District Court for the Eastern District of Kentucky set out a list of seven (7) factors to be considered in determining whether attorney fees should be awarded for a violation of Rule 11 of the Federal Rules of Civil Procedure.(28) Trial Rule 11 of the Indiana Rules of Trial Procedure tracks Federal Rule 11 in stating that an attorney's signature on a pleading or motion "constitutes a certificate by him that he has read the pleadings; that to the best of his knowledge, information, and belief, there is good ground to support it; and that it is not interposed for delay"; and, that "[f]or a wilful violation of this rule an attorney may be subjected to appropriate disciplinary action".(29)
The factors set out by the court in Whittington are as follows:
1. Reading The Document. If an attorney signs a document, he must have read it.(30)
2. Factual Inquiry. An attorney must make an investigation of the facts before filing a claim or defense. [citations omitted] An attorney has not made a "reasonable inquiry" concerning the facts, if he has not made any inquiry, or if he has relied only on his client, [citations omitted] when time permitted him to make a further investigation. A defendant must not be joined, or claim asserted against a defendant merely in the hope that discovery will turn up something against the defendant. [citations omitted] The cost of determining whether a defendant should be named in the action must be borne by the plaintiff and his attorney before suit is filed. [citations omitted] The burden cannot be shifted to a defendant to prove himself out of the case after filing. Thus, naming all of the manufacturers of a certain kind of drug, when a reasonable inquiry would have disclosed that the plaintiff took only the products of a few members of the industry, will result in mandatory sanctions. [citation omitted](31)
Before a defendant is named or a claim (such as a RICO claim) is asserted against a defendant, the attorney's file should contain facts admissible in evidence, or at least facts indicating the probable existence of evidence, implicating that defendant or supporting that claim. The shotgun complaint is out. ...(32)
3. Legal Inquiry. An attorney must perform reasonably sufficient legal research before filing a claim or defense. [citation omitted] An attorney has not made a reasonable inquiry as to whether a claim or defense is warranted by existing law if he or she hasn't done any research. An attorney cannot have a reasonable belief that a claim or defense is warranted by a good faith argument for the "extension, modification or reversal of existing law," unless he or she knows what the existing law is. [citations omitted] Counsel's interpretation of the law, formulated after sufficient research, must be non-frivolous, that is, reasonable as evaluated by a competent attorney. [citations omitted](33)
Flights of legal fancy and optimistic speculation in complaints and answers are improper under the amended rule. ... Some defendants are clearly immune from suit. [citation omitted] Some defenses have no application to the case. A shotgun answer is as improper as a shotgun complaint.(34)
If a recent controlling court decision is fatal to a claim, sanctions will be imposed, whether the attorney actually found the case or not, if a reasonably competent attorney would have found it. [citations omitted](35)
Although Rule 11 does not literally require it, it would be my advice to all attorneys to be sure that the file contains at least a skeleton memo outlining concretely, not just abstractly, the legal basis for every claim or defense. It should apply the law disclosed by reasonably extensive legal research to the facts disclosed by a reasonably adequate factual investigation. The analysis should be that of a reasonably competent attorney admitted to federal practice.(36)
4. Objective Standard. Whether or not a "reasonable inquiry" into the facts or law has been made is to be determined by the court objectively. An attorney's subjective good faith is irrelevant.(37) ...
The ultimate test is: "If judged by an objective standard, a reasonable basis for the position exists in both law and fact at the time that the position is adopted, then sanctions should not be imposed." The standard imposed is that of a competent attorney admitted to the bar of the federal court.(38)
5. Improper Purpose. Some courts have held that, if there is a proper factual and legal basis for asserting a claim or defense, the "improper purpose" requirement of Rule 11 is not violated. Other authorities are to the effect that the "improper purpose" provision is a subjective requirement and that even meritorious litigation positions, if taken for purposes of harassment or other improper reason can violate Rule 11. This court holds that the latter is the better view. Indeed, it seems required by the plain meaning of Rule 11. Therefore, whether or not a pleading was interposed for an improper purpose involves a subjective standard of bad faith.(39)
6. Continuing Obligation. An attorney must not only conduct a reasonable investigation into the facts and law before filing but must also continually review and reevaluate his position as the case develops. He must abandon claims or defenses as soon as it becomes apparent that it is unreasonable to pursue them.(40)
7. Mandatory Sanctions. If Rule 11 has been violated, sanctions are mandatory, although the nature and amount of the sanctions are within the discretion of the trial court.(41)
The Court in Whittington summarized the requirements of Rule 11 as follows:
1. An attorney must READ every paper before signing it.
2. He must make a reasonable pre-filing investigation of the FACTS.
3. He must research the LAW, unless he is certain he knows it.
4. The law as applied to the facts must REASONABLY WARRANT the legal positions and steps he takes. If existing law does not warrant these positions, a plausible argument for the extension of the law to the facts of the case is required.
5. It must be demonstrated, as the basis of pre-filing investigation and research, that there is a REASONABLE BASIS to name each defendant named, and to support each claim asserted. The shotgun complaint or answer, filed in the hope that discovery will produce the justification for it, is improper.
6. The adequacy of an attorney's investigation, research and legal analysis will be evaluated by the court under an OBJECTIVE STANDARD, namely, whether the attorney acted as a reasonably competent attorney admitted to federal practice. Except as to improper purpose, subjective good faith is not a defense to Rule 11 sanctions. A pure heart but an empty head is of no avail.
7. The attorney must CONTINUALLY RE-EVALUATE his positions and abandon them if they are no longer reasonably warranted.
8. An attorney must not have an IMPROPER PURPOSE, such as harassment or intimidation, in naming any defendant, asserting any legal position or taking any legal step.
9. If an attorney violates Rule 11 the imposition of some sanction is MANDATORY, although the nature and extent of the sanction is discretionary with the district court.(4http://www.smithlaw.bz/lawyer-attorney-1182247.html
