Unfortunately, defending frivolous lawsuits may be a necessary part of doing business. After your company has been served with a copy of the complaint and you have determined whether there is applicable insurance covering the suit, your attorneys will evaluate the case to determine whether there is a basis to move to dismiss the suit at the outset of the case. A motion to dismiss the complaint is filed before you are required to “admit” or “deny” the allegations and undergo discovery — a lengthy, expensive process during which evidence is obtained — and ultimately, summary judgment and/or a trial. A motion to dismiss might be the proper vehicle to dispose of the suit if, for example, the complaint lacks necessary allegations in support of the alleged claims, if the proper parties are not named, or if the statute of limitations on the claim has expired.
Whether the case is quickly disposed of at the motion stage, or whether you successfully defeated the case after a trial, you knew the case was frivolous from the beginning. Although you’ve won the case, you’ve had to spend tens or hundreds of thousands of dollars in attorneys’ fees to get there. Depending on the facts and circumstances and whether the suit was pending in state or federal court, your fees may be recoverable from the plaintiff and/or his attorneys as a sanction for filing frivolous claims against you. However, absent a contract or statute providing otherwise, you will likely be unable to recover your attorneys’ fees simply because you won a meritless lawsuit.
Not every meritless case is considered “frivolous” for purposes of recovery of attorneys’ fees. The United States Supreme Court has held that an action or claim is frivolous if “it lacks an arguable basis either in law or in fact.” Similarly, the Seventh Circuit Court of Appeals has characterized a filing that is incoherent and lacks a legal basis as “frivolous.” Thus, “frivolous” does not necessarily mean “meritless,” but rather a frivolous suit lacks a factual or legal basis, and as such, has little to no chance of being won. For this reason, it is best that a party wishing to seek sanctions do so at the end of the case, i.e., after the court makes a determination that the claim lacks legal and/or factual merit.
If the complaint against your business was filed in Illinois, depending on whether you’ve been sued in state or federal court, sanctions may be available under either Federal Rule of Civil Procedure 11 or Illinois Supreme Court Rule 137. Generally, to recover fees against a party or his or her attorney under either rule, it must be shown that the party and/or his attorney either: (1) failed to reasonably investigate the facts or the law before filing the offending complaint, or (2) filed the complaint for the purpose of harassment, delay, or to increase the cost of litigation for the opposing party.
There is one principal difference between Federal Rule of Civil Procedure 11 and Illinois Supreme Court Rule 137. Under Rule 11, only an attorney – and not the plaintiff himself – can be monetarily sanctioned for complaints found to contain unwarranted legal contentions. FRCP 11(c)(5)(A). Thus, if the complaint was filed in federal court, while both the attorney and client are responsible for ensuring that the facts contained in the complaints are accurate and complete, as well as for complaints filed with an improper purpose, only the attorney may be sanctioned for a complaint based on a claim or argument that is not warranted by existing law. On the other hand, under certain circumstances, Illinois Supreme Court Rule 137 permits the court to sanction both the party and his attorney for any violation of the rule—even if the complaint is found to have been legally (as opposed to factually) unwarranted.
Both rules are discretionary and are strictly applied by the courts. As such, sanctions are infrequently granted. No matter the stage of litigation after which it is ultimately resolved, you and your attorneys should evaluate whether seeking sanctions at the conclusion of your case is appropriate and a worthwhile endeavor from both a time and cost perspective.
