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June 05, 2012 Practice Points

The Chilling Effect of Sanctions on Small and Solo Firms

By Norayr Zurabyan

Sanctions can undeniably have a tremendous impact on law firms, regardless of the size of the firm. However, with respect to small and solo firms, the effect of sanctions can be fatal. Accordingly, the threat of sanctions can completely change the way small and solo law firms perceive the risk of litigation. Indeed, in one real-life scenario, a small-firm attorney was sanctioned $50,000 and ordered to pay the attorney fees of the opposing party for bringing claims that the court found to be frivolous.

Currently, because of heavy case loads, courts are more willing to use sanctions against attorneys that bring cases and motions without merit. However, the line between "frivolous" and "incorrect" is not always easy to draw. Many commentators reason that the imposition of sanctions without commenting on the merits of the case can certainly have a chilling effect on small and solo firms to litigate "close" cases. Indeed, the imposition of such sanctions is likely to have a stronger impact on young solo attorneys who are more likely to make mistakes, especially the ones who do not have mentors from whom they can seek advice.

On the other hand, other commentators reason that sanctions are merely intended to deter future attorney misconduct. Nevertheless, the real problem is the threat of sanctions. That is, solo attorneys are more vulnerable to tactics used by big firms that are intended to intimidate solo and small firms into dropping their claims or going out of business. This is particularly true in light of the fact that almost no insurance carrier provides insurance against sanctions. Thus, if an attorney is sanctioned, it is going to come out of the pockets of the small and solo firms.

The increase of sanctions undoubtedly creates one extra factor that solo and small firms have to take into consideration when determining whether to litigate a close case. This, in turn, moves the American system, which was designed to protect meritorious cases from such threats, one step closer to the British system, where the loser pays.

Keywords: litigation, solo practitioners, small firms, sanctions

Norayr Zurabyan is at Loyola Law School in Los Angeles, California.

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