In Morris v. Wachovia Securities, Inc., the Fourth Circuit held that the Private Securities Litigation Reform Act of 1995 (PSLRA) mandates a sanction in any private securities action where a party or lawyer violates Fed.R.Civ.P. 11(b). Having found that Morris violated Rule 11(b) three times, the district court thus should have imposed sanctions. Because it declined to do so, the Fourth Circuit vacated and remanded the case.
Morris invested $1.4 million in Wachovia's Masters Program, and lost over a $1 million of it within months. He subsequently filed a securities case against Wachovia, asserting claims under the '34 Act and SEC Rules 10b-5 and 10b-10. When the court dismissed the complaint without prejudice, Morris filed another one.
This one survived a motion to dismiss, but the court eventually entered summary judgment in Wachovia's favor. It also found that Morris violated Fed.R.Civ.P. 11(b) by making allegations for which he had no factual basis and by making factual misstatements in a brief.
Wachovia sought attorneys' fees for the Fed.R.Civ.P. 11(b) violations. The court denied Wachovia's request, finding that it failed to proffer proper documentation of the fees it incurred as a result of the violations. Indeed, it declined to impose any sanctions at all.
On appeal, the Fourth Circuit affirmed the lower court's Fed.R.Civ.P. 11(b) findings. However, the court held that the PSLRA required the district court to impose some type of sanction even if it was non-monetary. The Fourth Circuit thus remanded the case, instructing the district court to "issue a written order admonishing by name the individual lawyers responsible for the Rule 11(b) violations that the district court identified in Morris's complaints and in the brief."
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