Third Circuit: Rule 11 Reaches Attached “Dispute Letters” and Removed Complaints; Inherent-Power Sanctions Extend to Prelitigation Schemes to Manufacture FDCPA Claims

Introduction

In a precedential decision authored by Judge Bibas, the U.S. Court of Appeals for the Third Circuit affirmed sanctions against a consumer law firm and two of its attorneys who orchestrated handwritten “dispute letters” designed to fail, thereby attempting to manufacture Fair Debt Collection Practices Act (FDCPA) violations and trigger fee awards. The consolidated appeals arose from two cases—Sofaly v. Portfolio Recovery Associates, LLC and Malcolm v. Portfolio Recovery Associates, LLC—removed from Pennsylvania state court to the Western District of Pennsylvania, where Judge Cathy Bissoon imposed sanctions.

The opinion squarely addresses three salient issues:

• Whether Rule 11 sanctions may be imposed for misrepresentations embedded in a complaint and its exhibits (here, the handwritten dispute letters)
• Whether Rule 11 can apply to complaints first filed in state court but then removed to federal court
• Whether a district court may impose monetary sanctions under its inherent authority for prelitigation conduct aimed at manipulating the judicial process

The court held that the attorneys’ conduct—ghostwriting and signing clients’ names on confusing, template letters calculated to evade a debt collector’s processing so as to precipitate an FDCPA claim—warranted nonmonetary sanctions under Rule 11 and monetary sanctions under the court’s inherent power. The decision provides clear guidance on Rule 11’s reach to exhibits and to removed pleadings via “later advocating,” and confirms that inherent authority extends to prefiling schemes intended to corrupt the judicial process.

Summary of the Opinion

The Third Circuit affirmed comprehensive sanctions against JP Ward & Associates and two of its lawyers, Joshua Ward and Travis Gordon. The firm had instituted a standardized practice of sending rambling, handwritten debt-dispute letters—signed with the clients’ names by the firm’s staff—to increase the likelihood that debt collectors’ automated processes would miss the dispute, thereby violating 15 U.S.C. § 1692e(8) (reporting a debt to credit bureaus without noting a dispute). When Portfolio Recovery Associates allegedly failed to record the debts as disputed, the firm sued.

After removal, the district court convened an evidentiary hearing and determined the letters were contrived and deceptive, not genuine client communications. The court dismissed the complaints with prejudice; imposed nonmonetary sanctions under Federal Rule of Civil Procedure 11, including apology letters and an order to attach the sanction decision to future debt-dispute filings in the district; and awarded Portfolio Recovery Associates its attorney’s fees and costs under the court’s inherent authority.

On appeal, the Third Circuit:

• Affirmed the Rule 11 nonmonetary sanctions, holding that:
  • Exhibits attached to a complaint are part of the pleading under Rule 10(c), and thus subject to Rule 11
  • Rule 11 applies to removed complaints through “later advocating” in federal court
  • Agency agreements do not excuse misrepresentations or half-truths
• Affirmed the monetary sanctions under the district court’s inherent authority, holding that:
  • Courts may sanction prelitigation conduct that is intended to improperly influence the judicial process
  • Although courts should consider rule- or statute-based sanctions first, any error was harmless because 28 U.S.C. § 1927 and 15 U.S.C. § 1692k(a)(3) would have supported the same result

Standards of review mattered: the court reviewed Rule 11 sanctions for abuse of discretion, but the inherent-power sanctions only for plain error because the attorneys had not properly challenged them below.

Analysis

Precedents Cited and Their Influence

• Wharton v. Superintendent Graterford SCI, 95 F.4th 140 (3d Cir. 2024): The Third Circuit reiterated that Rule 11 embodies a duty of candor, violated by misrepresentations and half-truths. That principle underpinned the conclusion that the complaints and exhibits here mischaracterized who authored and signed the letters and their purpose, justifying sanctions.
• Chambers v. NASCO, Inc., 501 U.S. 32 (1991): Chambers confirms the inherent power of courts to police abuse and bad faith, including awarding fees. It provided the foundation for affirming monetary sanctions for a scheme that sought to “defile” the judicial process.
• Fashauer v. N.J. Transit Rail Operations, Inc., 57 F.3d 1269 (3d Cir. 1995): Cited for applying plain error review to an argument not preserved below—crucial here because appellants failed to specifically challenge the court’s inherent-power sanctions in the district court.
• Scott v. Vantage Corp., 64 F.4th 462 (3d Cir. 2023): Reinforces that filing complaints for improper purposes—such as extracting settlements without factual basis—supports Rule 11 sanctions. The court drew an analogy to the improper purpose here: manufacturing FDCPA violations to generate fee awards.
• King v. Fleming, 899 F.3d 1140 (10th Cir. 2018): Supports Rule 11 sanctions where an exhibit attached to a complaint (a doctored email) was deceptive. This bolsters the holding that the handwritten letters, as exhibits, were part of the pleadings for Rule 11 purposes.
• Tejero v. Portfolio Recovery Associates, LLC, 955 F.3d 453 (5th Cir. 2020): While primarily about FDCPA issues, it recognized that Rule 11 could apply to debt-dispute letters incorporated into a complaint. The Third Circuit cited Tejero to underscore Rule 11’s reach to such exhibits.
• Advisory Committee Notes to the 1993 Amendments to Rule 11; Buster v. Greisen, 104 F.3d 1186 (9th Cir. 1997): Establish that Rule 11 applies not only at filing, but also when a party later advocates a paper after removal. This directly answers the argument that removal insulates state-filed complaints from Rule 11 scrutiny.
• Meyer v. U.S. Bank, N.A., 792 F.3d 923 (8th Cir. 2015): Appellants’ contrary cases derived from the pre-1993 regime; the Third Circuit explained those authorities are inapposite because Rule 11 was expanded in 1993 to cover later advocacy.
• United States v. Hudson & Goodwin, 11 U.S. (7 Cranch) 32 (1812); Ex parte Burr, 22 U.S. (9 Wheat.) 529 (1824): Early recognition of the judiciary’s inherent authority to protect the integrity of its proceedings, setting the conceptual stage for modern inherent-power sanctions.
• Universal Oil Products Co. v. Root Refining Co., 328 U.S. 575 (1946): The “temple of justice” metaphor underscores why courts may sanction fraud upon the court and other abuses that subvert the adversary process—apt here given the calculated deception.
• Xyngular v. Schenkel, 890 F.3d 868 (10th Cir. 2018); Snider v. L-3 Communications Vertex Aerospace, LLC, 946 F.3d 660 (5th Cir. 2019), abrogated on other grounds by Ben E. Keith Co. v. Dining Alliance, Inc., 80 F.4th 695 (5th Cir. 2023): Support the principle that prelitigation conduct may be sanctionable when it is intended to improperly influence judicial proceedings.
• Montrose Medical Group Participating Savings Plan v. Bulger, 243 F.3d 773 (3d Cir. 2001): Requires courts to consider rule- or statute-based sanctions before invoking inherent powers. The Third Circuit found any shortfall harmless here because § 1927 and § 1692k(a)(3) would have allowed similar sanctions.

Legal Reasoning

The core of the court’s reasoning is ethical and procedural: lawyers owe a duty of candor to the tribunal and cannot file pleadings that present a half-true narrative designed to mislead. The complaints asserted that the clients had sent written dispute letters; in truth, the firm’s staff had written, signed, and sent them using a template engineered to confuse. That misrepresentation mattered because the letter’s authorship and purpose were central to the plausibility and equity of the FDCPA claims the firm intended to litigate and to the narrative the firm put before the court.

On Rule 11:

• Rule 11(b)(1) forbids filings for improper purposes, including harassment, needless expense, or delay. The district court found, and the Third Circuit agreed, that the lawyers’ campaign aimed to gin up fee-generating claims by ensuring disputes would be missed—an improper purpose.
• Rule 11’s duty of candor (as articulated in Wharton) encompasses misrepresentations and half-truths. The pleadings’ portrayal of client-authored, good-faith dispute letters was materially false or misleading.
• Rule 10(c) makes exhibits to pleadings “part of the pleading for all purposes.” By attaching the letters and incorporating them by reference, the attorneys brought them within Rule 11’s ambit.
• Removal does not immunize a state-court complaint. Under the 1993 amendments, Rule 11 applies to “later advocating” the pleading in federal court. The attorneys defended the letters post-removal—thus subjecting themselves to Rule 11 review.
• Agency agreements do not excuse deception. While clients can authorize counsel to act on their behalf, that authority does not permit counsel to misrepresent who wrote or signed a document or to create a false impression about the document’s authenticity and purpose.

On inherent authority:

• Courts possess inherent power to safeguard the integrity of their processes, including imposing monetary sanctions for bad faith, fraud on the court, and manipulative schemes.
• Prelitigation conduct is sanctionable if it is intended to improperly influence the court. Here, the letters were crafted to create a distorted record that would later be presented to the court as evidence of a bona fide dispute effort—squarely affecting the judicial process.
• Although district courts should consider rule- or statute-based sanctions before turning to inherent powers (Montrose Medical), any failure to do so here was harmless because the same monetary relief would have been available under 28 U.S.C. § 1927 (unreasonably and vexatiously multiplying proceedings) and 15 U.S.C. § 1692k(a)(3) (fee shifting for bad-faith FDCPA actions).

Finally, standards of review influenced the outcome. The court reviewed Rule 11 sanctions for abuse of discretion and found none. As to inherent power, the lawyers had not properly raised their challenge below, so plain error applied—a hurdle they could not clear given the egregious record of calculated deception.

Impact

This decision has immediate and practical consequences for FDCPA litigation and, more broadly, for litigation ethics and sanctions practice in the Third Circuit.

• FDCPA plaintiffs’ bar:
  • Ghostwriting or “testing” tactics that obscure authorship or intent are risky. If counsel designs a communication to fail so as to generate a violation—and then presents it as a genuine consumer dispute—counsel risks severe sanctions.
  • Transparency matters. If a dispute letter is authored by counsel, filings should not suggest otherwise. Candor about authorship and purpose is essential.
  • Mass-production templates laden with confusing filler intended to evade automated processing will be viewed as evidence of improper purpose.
• Debt collectors and furnishers:
  • While this opinion does not relax FDCPA duties under § 1692e(8), it encourages courts to scrutinize the provenance and purpose of “dispute” communications presented in litigation.
  • Where there is evidence of contrivance or forgery, collectors may seek sanctions and fee shifting, including under inherent authority, § 1927, and § 1692k(a)(3).
• Sanctions practice:
  • Exhibits are part of pleadings under Rule 10(c); attaching deceptive correspondence invites Rule 11 exposure.
  • Removed cases are not insulated from Rule 11; “later advocacy” in federal court brings earlier papers within the Rule’s scope.
  • Courts may sanction prefiling conduct targeted at shaping the judicial record. Lawyers should assume that prelitigation acts intended to mislead the court are sanctionable.
  • Nonmonetary remedies can be robust: dismissal with prejudice, forced apology letters, and requirements to attach sanction orders to future filings are within the toolkit.
• Error preservation:
  • Failure to challenge inherent-power sanctions in the district court can trigger plain-error review on appeal—often outcome-determinative.

Complex Concepts Simplified

• FDCPA § 1692e(8): When a debt collector furnishes information about a consumer’s debt to credit bureaus, it must disclose if the debt is disputed. Failure can yield statutory damages up to $1,000 plus reasonable attorney’s fees and costs.
• Rule 11(b)(1): Prohibits filings made for improper purposes like harassment, unnecessary delay, or needless costs. It also embodies a duty of candor—lawyers must not misrepresent facts in papers submitted to court.
• Rule 10(c): An exhibit attached to a pleading is deemed part of that pleading “for all purposes.” Thus, deceptive exhibits can trigger Rule 11 sanctions.
• “Later advocating” (1993 Rule 11 amendments): Rule 11 applies not only at filing but also when a lawyer later advocates a paper in court. In removed cases, reiterating or defending allegations can bring the state-filed complaint under Rule 11.
• Inherent authority: A court’s implicit power to protect the integrity of its process, including sanctioning bad-faith or fraudulent conduct. It can reach prelitigation acts intended to corrupt the judicial process.
• 28 U.S.C. § 1927: Authorizes fee shifting against an attorney who unreasonably and vexatiously multiplies proceedings.
• 15 U.S.C. § 1692k(a)(3): Allows a court to award fees to a defendant when an FDCPA action is brought in bad faith and for the purpose of harassment.
• Plain error vs. abuse of discretion:
  • Abuse of discretion: Deferential review; the appellate court asks whether the lower court’s decision was reasonable.
  • Plain error: More forgiving to the lower court; applicable when an argument was not preserved. The appellant must show a clear error that affected substantial rights and seriously affected the fairness, integrity, or public reputation of judicial proceedings.

Conclusion

The Third Circuit’s decision in the Sofaly/Malcolm appeals delivers an unambiguous message: courts will not tolerate contrived schemes that leverage deception to engineer statutory violations. The opinion clarifies and cements several important points of law in the Third Circuit:

• Exhibits are part of pleadings; deceptive exhibits can yield Rule 11 sanctions
• Rule 11 applies to removed complaints through “later advocating”
• Agency authority does not license misrepresentation to the court or adversaries
• Inherent authority can reach prelitigation conduct designed to manipulate the judicial process, and monetary sanctions may be imposed accordingly

For consumer litigators, the case is a cautionary tale: aggressive testing of statutory compliance must be paired with scrupulous candor. For courts and practitioners, it reinforces a robust sanctions framework that protects the “temple of justice” from half-truths and manufactured claims. The decision’s practical guidance on Rule 11’s reach and the scope of inherent power will shape ethical litigation conduct in FDCPA cases and beyond.