Garr v. U.S. Healthcare, Inc.

22 F.3d 1274 (3d Cir. 1994)

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Nature of the Case

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Facts

On November 4, 1992, an article was published in the Wall Street Journal with the title 'U.S. Healthcare Insiders Sold Stock Before Last Week’s 17% Price Decline.' Malone (D), an attorney, read this article, did some background research on U.S. Healthcare (P) and thought that there was a good chance that he could file a class action lawsuit against the directors of U.S Healthcare. Essentially, D had a case without a client. Then D called Greenfield, a shareholder, and convinced him to be the named plaintiff in the complaint against the directors of U.S. Healthcare. Usually it is the client who seeks out the attorney, and in this case, that was reversed. However, Greenfield readily agreed to the suit. On the same day, November 4, 1992, D prepared and filed the complaint for class action lawsuit against the directors of U.S. Healthcare which named Greenfield as the class representative. Greenfield himself had not even read the complaint until four days after it was filed. Next, D called another lawyer, Levin, briefly discussed the case with him and had Levin file a second complaint against the directors of U.S. Healthcare. The question at hand is whether D and Levin breached Rule 11 of the federal rules.