BILL ANALYSIS
AB 1891
Page 1
Date of Hearing: March 25, 2008
ASSEMBLY COMMITTEE ON JUDICIARY
Dave Jones, Chair
AB 1891 (Niello) - As Introduced: February 7, 2008
SUBJECT : CIVIL PROCEDURE: SANCTIONS
KEY ISSUE : SHOULD THE ESTABLISHED RULE FOR EVALUATING AND
PENALIZING IMPROPER CONDUCT IN CIVIL LITIGATION - WHICH WAS
UNANIMOUSLY RATIFIED BY THE LEGISLATURE LAST SESSION - BE
REJECTED IN FAVOR OF A CONSIDERABLY EXPANDED VERSION OF AN
OUTDATED RULE?
SYNOPSIS
This fiscal bill would revive and dramatically expand a largely
obsolete statute regarding sanctions for conduct in and outside
of civil litigation, contrary to the Legislature's consistent
and unanimous approval of the alternative approach reflected in
existing law. Supporters argue that California has too many
meritless lawsuits, and too many lawsuits where lawyers engage
in litigation tactics of dubious merit in order to gain
strategic advantage, and that this bill would address those
problems by improving the definition of frivolous actions to
include actions that are devoid of merit, use improper
litigation tactics, use unjustified delaying attempts, and are
claims for the purpose of obtaining settlement leverage. The
opposition contends that the bill would chill legitimate
advocacy and discourage claims that are intended to encourage
extension of law. The analysis notes additional issues
regarding how the bill might or might not work in practice.
SUMMARY : Significantly revises the standards by which conduct
during and outside of civil litigation is subject to penalty, as
well as the scope of conduct that is subject to sanction, and
the types of penalties that are to be imposed. Specifically,
this bill :
1)Requires that every trial court shall order a party, the
party's attorney, or both to pay any reasonable expenses,
including attorney's fees, incurred by another party as a
result of any filing, action, or tactic that is frivolous,
clearly unjustified, or otherwise substantially devoid of
merit in view of the pertinent facts, the applicable law, and
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the cause or position asserted.
2)Specifies that "action or tactic" includes but is not limited
to a written claim alleging liability, even if no lawsuit has
been filed, and the filing or the filing and serving of a
complaint or cross-complaint.
3)Provides that improper litigation tactics that are clearly
unjustified shall include but not be limited to, each of the
designated misuses of the discovery process listed in Code of
Civil Procedure section 2023.010.
4)States that unjustified actions shall include an action or
appeal filed solely or primarily for the purpose of delaying
the enforcement of a judgment or court order.
5)Requires that whenever a trial court finds that an attorney
has engaged in any filing, action, or tactic that is
frivolous, clearly unjustified, or otherwise substantially
devoid of merit the court shall report each instance and
finding to the State Bar of California.
EXISTING LAW:
1)With regard to a complaint, petition, or other paper filed on
or after January 1, 1995, requires every pleading, petition,
written notice of motion, or other similar paper to be signed
by the attorney of record, or if a party is unrepresented, by
the party, thereby certifying to the best of the person's
knowledge, information, and belief that it is not being
presented for an improper purpose, as specified, and that the
claims, defenses, and legal and factual contentions are
warranted, as specified, and provides that trial courts may
impose sanctions upon attorneys, law firms, or parties that
violate these provisions. (Code of Civil Procedure section
128.7.)
2)With regard to a complaint filed, or a proceeding initiated,
on or before December 31, 1994, authorizes every trial court
to order a party, the party's attorney, or both to pay
reasonable expenses, including attorney's fees, incurred by
another party as a result of bad-faith actions or tactics that
are frivolous or solely intended to cause unnecessary delay.
In addition to that award, the court may assess punitive
damages against the plaintiff on a determination that the
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plaintiff's action was maintained by a person convicted of a
felony against the person's victim for injuries arising from
the acts for which the person was convicted, and that the
plaintiff is guilty of fraud, oppression, or malice in
maintaining the action. (Section 128.5.)
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
COMMENTS : The author argues that this bill is necessary because
"California has too many meritless lawsuits, and too many
lawsuits where lawyers engage in litigation tactics of dubious
merit in order to gain strategic advantage." The author states,
"AB 1891 would improve the definition of frivolous actions to
include actions that are devoid of merit, use improper
litigation tactics, use unjustified delaying attempts,[and] are
claims for the purpose of obtaining settlement leverage. The
bill allows a judge to award attorney's fees to the opposing
side for response to a motion or action without justification."
The author adds, "Lawsuit abuse costs Californians millions of
dollars every year and perpetuates a climate of fear for many
small business owners. Consumers pay for frivolous lawsuits as
businesses increase prices to cover their legal costs or shut
down entirely. National studies rank California at the bottom -
45of 50 - for having a fair and reasonable litigation climate.
Excessive and unnecessary lawsuits drive up business expense,
cost governments additional money, and are a problem for all of
us." In support of this contention, the author points to an
opinion poll of defense lawyers for large corporations (those
with annual revenues of at least $100 million) last year,
reported in "Institute for Legal Reform and Harris Poll 2007
Ranking of State Liability Systems."
This Measure Revives An Obsolete Code Section That Was Allowed
To Effectively Sunset And Has Been Replaced By A Longstanding
Alternative Approach That Was Enacted And Repeatedly Extended
With Unanimous Bipartisan Support. As the author indicates,
Code of Civil Procedure section 128.5 was enacted in 1981. It
specifies that every trial court may order a party, the party's
attorney, or both to pay any reasonable expenses, including
attorney's fees, incurred by another party as a result of
bad-faith actions or tactics that are frivolous or solely
intended to cause unnecessary delay." This section includes
making or opposing motions and filing and service of a complaint
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or cross-complaint. This sanction is in addition to any other
liability imposed by law for similar acts or omissions.
This section was effectively superseded in 1994 when it was
limited to actions or tactics arising from a complaint filed or
a proceeding initiated on or before December 31, 1994. In its
place, the Legislature enacted section 128.7 in 1994 at the
urging of Mr. Weggeland (R-San Jose) by adopting AB 3594 with
respect to actions after 1994. This section imposes upon
attorneys or their parties a duty of reasonable inquiry before
filing or proceeding with a lawsuit. It also granted judges
broader authority to assess sanctions for the filing of
frivolous motions and lawsuits. Under section 128.5, judges had
discretionary authority to assess sanctions only for "bad faith
actions or tactics that are frivolous or solely intended to
cause unnecessary delay." The "reasonable inquiry" requirement
of the new section 128.7 was designed to conform to the Federal
Rules of Civil Procedure, constricting the filing of frivolous
claims and broadening the authority of judges to assess
sanctions.
Section 128.7 was enacted with a sunset, which was repeatedly
extended by unanimous votes in both houses as satisfactory
experience with the approach taken by this section has
continued, first as the result of SB 1511 in 1998 carried by
Senator Haynes (R-Murrieta), which extended the sunset date to
January 1, 2003. In 2002, Mr. Morrow (R-Oceanside) authored SB
2009 to further extend the sunset of Section 128.7 until January
1, 2006. Last session, again by a unanimous bipartisan vote,
the Legislature eliminated the sunset altogether as the result
of measure carried by this Committee, AB 1742 (Judiciary),
sponsored by the Judicial Council.
This Measure Appears To Create Multiple Inconsistent Standards
For Evaluating And Penalizing Improper Conduct In Court
Proceedings. As the legislative history above illustrates,
section 128.7 was intended to be, and has operated as, an
alternative to the largely superseded section 128.5. The two
sections are separated by a bright line based on whether the
lawsuit was initiated before or after December 31, 1994.
However, section 128.5 has remained on the books, presumably
because it may theoretically still be applicable to the extent
that any action filed prior to 1995 is still being litigated.
Curiously, AB 1891 does not repeal 128.7 which, as explained in
more detail below, has a different standard and process for
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challenging alleged improprieties in litigation. Because both
standards and processes would be in effect going forward for all
cases if this bill were enacted, these two sections would
apparently need to be harmonized in some fashion. It is not
clear how these inconsistent standards and processes are to be
harmonized under this bill. For example, section 128.7 demands
that documents filed by a party or his or her lawyer contain a
certification that they are not "presented primarily for an
improper purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation," whereas
section 128.5 under this bill would impose a different standard
- that the filing, action or tactic is not "frivolous, clearly
unjustified or otherwise substantially devoid of merit."
Likewise, the two sections differ procedurally in that 128.7 is
discretionary while 128.5 would be mandatory, and 128.7 requires
notice and an opportunity to cure a deficiency while 128.5 has
no such requirements.
Moreover, AB 1891 would enact a new standard and scope of
prohibited behavior for any case already covered by existing
section 128.5. While that section has been largely superseded
because it currently applies only to cases filed before 1995,
there may still be pending matters involving complex or
protracted litigation where amending section 128.5 may have
retroactive effect so as to penalize behavior that was not
previously subject to sanction (e.g., pre-suit statements) or by
changing the rules under which sanctions are imposed (e.g.,
"substantially devoid of merit" instead of "totally and
completely without merit.")
This Bill Would Substantially Revise The Standards And
Procedures By Which Allegedly Meritless Actions And Tactics Are
Evaluated. This bill imposes new standards by which to evaluate
conduct in litigation. The current standards are:
whether a document is presented primarily for an
improper purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation;
whether the claims, defenses, and other legal
contentions therein are warranted by existing law or by a
non-frivolous argument for the extension, modification, or
reversal of existing law or the establishment of new law;
whether the allegations and other factual contentions
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have evidentiary support or, if specifically so identified,
are likely to have evidentiary support after a reasonable
opportunity for further investigation or discovery; and
whether the denials of factual contentions are warranted
on the evidence or, if specifically so identified, are
reasonably based on a lack of information or belief.
Under this bill the standards would become: whether the filing,
action or tactic is frivolous, clearly unjustified, or otherwise
substantially devoid of merit in view of the pertinent facts,
the applicable law, and the cause or position asserted.
Currently, courts have discretion to decide when and what type
of sanction is appropriate to inappropriate conduct in
litigation. Under this bill, a judge would have no discretion.
Current law also requires that the court to consider whether the
party seeking sanctions has exercised due diligence. This bill
requires no such consideration of the moving party's conduct.
In addition, under this bill the sanction would always be the
same: paying the other side's attorney's fees. Under current
law, courts are to fashion the sanction to the misconduct so
that it is sufficient to deter repetition of the same conduct or
comparable conduct by others similarly situated. And under
current law the sanction may consist of "directives of a
non-monetary nature, an order to pay a penalty into court, or,
if imposed on motion and warranted for effective deterrence."
Indeed, current law prohibits monetary sanctions against
represented parties themselves for alleged legal errors - i.e.,
when the claims, defenses, and other legal contentions are not
warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the
establishment of new law. This bill would not only allow but
require a party to suffer a financial penalty for legal
arguments made by his or her lawyer.
The bill also revises the type of conduct that is subject to
sanction. Currently, section 128.7 applies to every pleading,
petition, written notice of motion, or other similar paper. It
does not apply to disclosures and discovery requests, responses,
objections, and motions. This bill would apply every filing,
action or tactic, including "each of the designated misuses of
the discovery process listed in [Code of Civil Procedure]
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Section 2023.010. This bill also applies to appeals. By
expanding the scope of litigation conduct subject to sanction,
the bill thus opens new doors to "satellite" disputes that may
detract from the focus on the merits of the case. Strangely,
the bill does not expressly apply to the sanctions motion itself
or the other conduct of parties in these satellite disputes,
unlike current law which expressly states "a motion for
sanctions ? shall itself be subject to a motion for sanctions."
Moreover, this bill would also apply to certain out-of-court
conduct, and would do so even if no law suit is ever filed,
because it covers "a written claim alleging liability even if no
lawsuit has been filed." This is presumably directed at the
common practice of alerting a potential defendant to the alleged
unlawful activity and attempting to resolve the dispute by a
demand letter or settlement offer. The author has not provided
information whether or why this activity should be regulated by
the litigation sanctions statute for the first time. Moreover,
it is not clear how an aggrieved person would initiate the
sanctions process if no suit were filed against them.
Presumably the aggrieved person would need to file a law suit -
paradoxically leading to more, not less, litigation.
In addition, the bill changes the procedure by which sanctions
motions would be handled.
Section 128.7 allows a party to cure an allegedly inappropriate
filing by withdrawing or correcting the offending document
within 21 days after service of the other party's motion for
sanctions, or an order to show cause in the case of a motion by
the court.
ARGUMENTS IN SUPPORT: The Civil Justice Association of
California, sponsor of the bill, argues that it "will strengthen
our laws regarding frivolous or unjustified lawsuits and will
empower judges to carve out frivolous claims in an otherwise
meritorious lawsuit. This bill will help cut down on our courts
congestion with meritless lawsuits and questionable tactics.
The bill will give judges stronger tools to punish lawyers who
file frivolous claims." CJAC has not provided the Committee
with any information regarding the incidence of frivolous suits
or inappropriate tactics, or any alleged deficiencies in the
operation of the current statute in effect since 1994. However,
CJAC states, "With California's civil justice system ranked 45th
out of 50 by the Institute for Legal Reform and the Harris Poll
in its 2007 Ranking of State Liability Systems, it is time for
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California to empower our judges to reduce the excessive and
unwarranted litigation that increases business and government
expenses, discourages innovation, and drives up the costs of
goods and services for all consumers."
With CJAC, a coalition of business interests writes in support
of the bill, arguing that it "aims to derail frivolous claims in
an otherwise legitimate lawsuit and gives judges more precision
in determining frivolous actions." These groups argue that
"excessive and unnecessary lawsuits drive up business expenses,
cost government additional money and increase the cost of goods
and services for all Californians. Consumers pay for frivolous
lawsuits as businesses increase their prices to cover legal
costs or shut down. Meanwhile, existing law does not allow a
judge the ability to monitor improper or delaying attempts in a
lawsuit without throwing out the whole case."
Specifically, supporters state, the bill will have the following
beneficial effects:
Allows an award of attorney's fees to a party for
opposing an action or appeal filed only for the purpose of
delay or to obtain settlement leverage, and requires a
judge to award attorney's fees to the opposing side once
the judge has determined an action or tactic was frivolous;
Improves the definition of frivolous actions to include
actions that are devoid of merit, use improper litigation
tactics, use unjustified delaying attempts, or are claims
filed solely for the purpose of obtaining settlement
leverage;
Requires (rather than allows) judges to report attorneys
who file frivolous claims to the State Bar.
ARGUMENTS IN OPPOSITION: Consumer Attorneys of California
argue:
AB 1891 will chill legitimate advocacy and discourage
claims that are intended to encourage extensions of law.
The mandatory sanctions of AB 1891 would reach into
pre-litigation conduct and is subject to misuse by
well-heeled defendants for the purpose of intimidation. It
would abrogate the long-standing litigation privilege
(Civil Code Sec. 47) and in doing so would effectively
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discourage people from attempting to resolve problems
before filing a lawsuit. This makes no sense. This
legislature has carefully reviewed California's sanctions
statutes and in 1994 enacted Code of Civil Procedure 128.7,
modeled after Federal Rule 11, and its purpose was to
provide additional checks against "frivolous" actions. The
amendments were carefully crafted to permit sanctions
against attorneys' improper conduct, and to address tactics
whether engaged in by a plaintiff or defense attorneys.
Most importantly, the legislature strove to strike a
balance in deterring bad tactics without chilling
legitimate advocacy. Finally, the Discovery Act provides
for sanctions for abuses of the discovery process. AB 1891
is neither necessary nor justified.
REGISTERED SUPPORT / OPPOSITION :
Support
Civil Justice Association of California (sponsor)
California Apartment Association
California Manufacturers and Technology Association
California Restaurant Association
California Retailers Association
Citizens Against Law Suit Abuse - Orange County and San Diego
County
Cooperative of American Physicians
National Federation of Independent Business -- California
Phrma
Western Electrical Contractors Association
Opposition
Consumer Attorneys of California
Consumer Federation of California
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334