“Objectively Baseless” Claims Lead To Heavy Sanctions
By David W. Magana (bio)
You may remember that in 2008, Magistrate Judge Barbara L. Major dinged Qualcomm for $8.5 million in a widely discussed order finding that six of Qualcomm’s outside attorneys had intentionally withheld thousands of relevant documents in discovery. See Qualcomm Inc. v. Broadcom Corp., 2008 WL 66932 (S.D. Cal. Jan. 7, 2008). Those six attorneys were later absolved by attorney-client email correspondence establishing that Qualcomm had misled them regarding the existence of the withheld documents.
Earlier this month, in Gabriel Technologies Corp. v. Qualcomm Inc., [PDF], Qualcomm was once again linked with a significant sanctions order, albeit as the recipient of a substantial award, rather than a sanctions target.
Plaintiff Gabriel Technologies asserted eleven causes of action against Qualcomm, including claims for fraud and correction of inventorship of a patent. Plaintiff apparently had difficulty stating a claim, however; while they alleged that there were additional inventors omitted from the patent at issue, they could not identify who those omitted inventors were:
At no point during this case has Plaintiff been able to offer the evidence necessary to overcome this presumption. It is apparent that Plaintiffs did not know the identity of the allegedly omitted inventors when they filed this action in 2008 or at any later point in the case.
The Court determined that the Plaintiff had asserted objectively baseless claims in subjective bad faith, and awarded $11.6 million in attorneys’ fees in favor of Qualcomm.
The most interesting (and perhaps troubling) aspect of the award is that the Court also awarded attorneys’ fees against Wang, Hartman, Gibbs & Cauley, PLC (“WHGC”), the law firm acting as local counsel on the case:
As a general matter, the Court recognizes that local counsel plays a unique role in the litigation process. The local rules require out-of-state attorneys to acquire local counsel, and often local counsel serves primarily in an administrative capacity for the limited purpose of filing documents with the Court. Thus, the reasonable inquiry required for local counsel under Rule 11 may not be the same as that required for lead counsel in many situations. However, Rule 11 remains applicable and sanctions may be imposed against local counsel when appropriate under the circumstances.
The Court recognized that WHGC had “served in a more limited capacity,” but found that WGHC, by receiving notice of the Court’s order questioning Plaintiff’s original allegations, had an obligation to undertake an independent investigation on the merits of the case. “As such, every WHGC filing after September 20, 2010 was in violation of Rule 11.”
Qualcomm requested that WHGC be held jointly and severally liable for all $11.6 million in attorneys’ fees against the client. The Court determined that such an award would be excessive, however, and reduced the award to $64,316.50 (the total fees WHGC had collected for its representation in the case).
This case should be an eye-opener for those law firms that regularly act as local counsel, particularly in cases involving complex areas of the law. The current economic climate is undoubtedly contributing to pressure on local counsel to minimize their rates and level of case involvement. But to agree to such an arrangement has inherent risks, as WHGC learned. A local counsel appointment should no longer be considered a gravy train of easy billing and no responsibility.