The Court of Appeals for the Seventh Circuit has held that baseless counterclaims, as well as baseless claims, may subject a law firm to sanctions.
In United Stars v. Plastech, 525 F.3d 605 (7th Cir. 208) the Jones Day law firm represented the defendant and filed a counterclaim. The district court found that the counterclaim was baseless and sanctioned Jones Day under 28 U.S.C. ? 1927. The Court of Appeals held that the sanction was appropriate because the defendant and its counsel had not produced adequate evidence to support its counterclaim. In affirming, the Seventh Circuit changed the basis for imposing sanctions from ?1927 to Rule 11(c)(3) of the Federal Rules of Civil Procedure because it gives the court the power to sanction lawyers or law firms. The court said:
“Rule 11(c)(3) is the best foundation for this sanction. The judge found that Jones Day advanced a position that never had any evidentiary support, and thus necessarily could not have been based on a reasonable investigation preceding the counterclaim. Rule 11 also allows the imposition of sanctions on law firms as well as on individual lawyers.” (525 F.3d at 610)