Securities case costs sanctions for two firms.

The Second Circuit had a procedural tangle to work out before affirming sanctions against two law firms as a result of a class action in which they participated. Corroon v. Reeve, 258 F.3d 86 (2001).

The lead firm was Schoengold & Sporn, which filed a class action in the name of Polar International Brokerage Corp., alleging violations of Section 14(e) of the Securities Exchange Act of 1934 in connection with a tender offer. An amended complaint was filed later, adding a claim under Section 13(e) of the act, as well as new plaintiffs, one of which was represented by another law firm, Berger & Montague, who became non-lead counsel.

In the district court, Judge Scheindlin dismissed the entire action and ordered the plaintiffs and their counsel to show cause why sanctions should not be imposed under Rule 11 for instituting "abusive litigation" within the meaning of the Private Securities Litigation Reform Act of 1995. 108 F.Supp.2d 224 (S.D. N.Y. 2000). At the sanctions hearing, she found that the Section 14(e) claim was "both legally frivolous and without support," while the Section 13(e) claim was meritless but not frivolous. She levied sanctions of $105,191, apportioning it 70 percent, $73,634, to the Schoengold as the lead firm, and 30 percent, $31,557, to the Berger firm. 196 F.R.D. 13.

After the law firms sought reconsideration, Judge Scheindlin reduced the Berger firm's share of the sanctions to...