When Legal Proceedings Are a Sham: Legal Risks

Key Takeaways

• Sham litigation refers to lawsuits that are legally baseless and used to harass or burden the opposing party.
• Courts use a two-pronged test from the Supreme Court to determine whether litigation qualifies as a sham.
• The “sham exception” can strip protections like the Noerr-Pennington antitrust immunity and attorney-client privilege.
• Sham pleas are knowingly false or dilatory legal tactics that courts may disregard as nullities.
• Judicial reforms, including education and streamlined rules, are being proposed to reduce abusive legal filings.
• Courts can impose sanctions or even consider malicious prosecution claims when litigation is found to be sham-driven.

Sham Litigation

The Supreme Court has recently provided a two-tiered definition of sham litigation.

First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. PRE, 113 S.Ct at 1928, 26 USPQ at 1646 (footnote omitted).

The second tier, to be reached "only if challenged litigation is objectively meritless," id., is "whether the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process -- as opposed to the outcome of that process -- as an anticompetitive weapon." Id., 113 S.Ct. at 1928, 26 USPQ2d at 1646.

On the one hand, the Supreme Court has cautioned that "when the antitrust defendant has lost the underlying litigation, a court must resist the understandable temptation to engage in post hoc reasoning by concluding that an ultimately unsuccessful action must have been unreasonable or without foundation." Id.. On the other hand, a preliminary success on the merits does not necessarily preclude a court from concluding that litigation was baseless. See Boulware, 960 F.2d at 788-89.

Proposed Judicial Reforms to Curb Sham Litigation

The Florida Supreme Court’s Workgroup on Sanctions for Sham and Vexatious Litigation proposed several ways to reduce abusive filings, including:

• Enhanced legal education for judges and attorneys on identifying frivolous filings.
• Revised rules of civil procedure to allow more proactive management of abusive conduct.
• Streamlined mechanisms in the E-Filing Portal to flag repetitive or duplicative suits.
• Stronger sanctions guidelines, including fee-shifting provisions and contempt penalties​.

These reforms aim to preserve court resources and protect parties from being unfairly targeted.

Recognizing a Sham Lawsuit

A lawsuit may be deemed a sham when it exhibits one or more of the following traits:

• Objectively baseless: No reasonable litigant would expect success on the merits.
• Filed to harass: Intended to burden the opposing party with costs or delay.
• Pattern of abusive filings: Frequent litigation without legal merit.
• Intent to disrupt: Designed to interfere with a competitor’s business operations.
• Evidence fabrication or falsification: Use of knowingly false claims or documentation.

Courts are careful not to label unsuccessful lawsuits as shams without substantial evidence that the litigation was unfounded from the outset.

Legal Consequences of Sham Litigation

When legal proceedings are a sham, the consequences can extend beyond a simple dismissal of the case. Courts may:

• Impose monetary sanctions on the filer.
• Refer the matter for disciplinary action against attorneys involved.
• Permit the defendant to pursue a malicious prosecution or abuse of process claim.
• In antitrust contexts, allow claims under the sham exception to the Noerr-Pennington doctrine, which normally protects petitioning the government from liability.
• Invalidate attorney-client privilege, as communications in furtherance of a sham lawsuit may fall under the "crime-fraud exception"​.

These consequences are intended to deter parties from misusing the judicial system for retaliatory or anticompetitive motives.

Is a Cause of Action Reasonable or an Abuse of Process?

Because there is no dispute over the facts, the question of whether or not a cause of action is reasonable or an abuse of process is a question of law. See PRE, 113 S.Ct. at 1930 ("Where, as here, there is no dispute over the predicate facts of the underlying legal proceeding, a court may decide probable cause as a matter of law.") (citations omitted).

We review questions of law without deference to the trial forum.

As noted, the Supreme Court has forbidden us to equate loss on the merits with objective unreasonableness. The Court requires an inquiry into the reasonableness of the antitrust defendant's litigation when filed. "[S]ham litigation must constitute the pursuit of claims so baseless that no reasonable litigant could realistically expect to secure favorable relief." PRE, 113 S.Ct. at 1929. Conversely, "[t]he existence of probable cause to institute legal proceedings precludes a finding that an antitrust defendant has engaged in sham litigation." Id.

The Sham Exception in Antitrust Law

Under the Noerr-Pennington doctrine, parties are generally immune from antitrust liability when petitioning the government. However, this protection does not apply when legal action is a sham.

To overcome this immunity, plaintiffs must show:

1. The litigation was objectively baseless, and
2. It was filed with subjective intent to interfere with a competitor’s business, rather than to obtain a favorable judicial outcome.

Courts applying the sham exception focus on the plaintiff’s intent and factual basis at the time of filing, not merely on whether the lawsuit was ultimately unsuccessful​.

Sham Plea Definition

One entered for the mere purpose of delay; it must be of a matter which the pleader knows to be false; as judgment recovered, that is, that judgment has already been recovered by the plaintiff for the same cause of action.

These sham pleas are generally discouraged, and in some cases are treated as a nullity.

Sham Litigation and Attorney-Client Privilege

Filing a sham lawsuit can erode certain legal protections—including the attorney-client privilege. Under the crime-fraud exception, courts may compel disclosure of communications that were:

• Intended to further fraudulent conduct, including filing knowingly baseless litigation.
• Part of a strategy to manipulate the legal system or obstruct justice.

For attorneys, participating in sham litigation can not only jeopardize privilege protections but also expose them to ethical and disciplinary actions, especially if they were aware of the improper intent behind the case​.

Frequently Asked Questions

1. What qualifies a lawsuit as sham litigation?
   A lawsuit is sham litigation if it is objectively baseless and intended to harass, delay, or harm the opposing party rather than seek legitimate judicial relief.
2. What is the sham exception to Noerr-Pennington immunity?
   This antitrust doctrine exception applies when litigation is used not for redress but to interfere with a competitor’s business in bad faith.
3. Can filing sham litigation lead to sanctions?
   Yes. Courts may impose monetary penalties, dismiss the case, refer attorneys for discipline, or allow the opposing party to file counterclaims.
4. How does sham litigation affect attorney-client privilege?
   If legal communications are used to facilitate a sham lawsuit, they may lose privilege under the crime-fraud exception.
5. What steps are courts taking to reduce sham litigation?
   Judicial bodies have recommended education, procedural reforms, and better e-filing oversight to deter and address abusive filings.

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