Academic journal article Journal of Accountancy

Plaintiffs' Sanction in Shareholder Lawsuit

Academic journal article Journal of Accountancy

Plaintiffs' Sanction in Shareholder Lawsuit

Article excerpt

In a case affecting future shareholder actions against professionals and corporations, the U.S. District Court for the Eastern District of Pennsylvania imposed sanctions on the plaintiffs' attorney in connection with shareholder lawsuits filed against U.S. Healthcare, Inc.

The case began when the plaintiff's law firm read a Wall Street Journal article saying "insiders" of U.S. Healthcare sold company stock before announcing third-quarter losses. The firm asked a client with holdings in U.S. Healthcare to be lead plaintiff in a class action suit. Shortly after filing the lawsuit, the lead plaintiff realized he could not verify the complaint and that he had a conflict of interest. He requested that counsel withdraw the complaint. Attorneys for U.S. Healthcare filed a motion for rule 11 sanctions.

In general, rule 11 requires the attorney bringing an action to attest that the complaint is well grounded in fact, is warranted by existing law and is not brought for improper purposes such as harassment or increasing litigation costs. If the court finds a violation of rule 11, it may order the attorney bringing the action to pay the defendant's reasonable expenses in defending the suit. …

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