Improper Notarization of Signature for Complaint Results in Dismissal
Bessenyei v. Vermillion, Inc., C.A. No. 7572-VCN (Del. Ch. Nov. 16, 2012).
Issues Addressed: (1) Whether a notarized signature signed in the absence of a notary results in an invalid verification; and (2) Whether knowingly presenting an improperly notarized verification is a basis to dismiss the complaint under Delaware Court of Chancery Rule 41(b).
Short Answers: (1) Yes; and (2) Under the circumstances, dismissal of the complaint is appropriate.
This case involved, initially, a dispute regarding the election of directors and the reduction in the number of directors whose positions were available for election at the annual stockholders meetings, and related breach of fiduciary duty claims in connection with the elimination of an open board seat. However, the merits of those claims were never addressed in this opinion because of the claims that several signatures of one of the plaintiffs had been improperly notarized.
The threshold issue in this decision was the legitimacy of three verifications executed by one of the plaintiffs for use in this litigation as required by Court of Chancery Rule 3(aa). The verifications were attached to the original and the amended verified complaint and a third improper verification was filed with responses to the first set of interrogatories by the defendant. Court of Chancery Rule 3(aa) requires that all complaints and related pleadings be accompanied by a notarized verification from a qualified individual for each named plaintiff, which attests to the correctness and the truthfulness of the filing. Each of the three verifications at issue in this case was signed by a Pennsylvania notary public who works in Philadelphia. When each of the three documents at issue was signed, the plaintiff was not in Pennsylvania, nor was he in the United States.
Court of Chancery Rule 41(b) provides that a defendant may move for dismissal of an action or of a claim against the defendant for failure of the plaintiff to comply with Court of Chancery Rules or any order of court. The applicable standard governing the application of Rule 41(b) was announced in the Chancery decision of Parfi Holdings AB v. Mirror Image Internet, Inc., 954 A.2d 911 (Del. Ch. 2008). The Parfi case acknowledged that although dismissal is a harsh sanction, it is proper under Rule 41(b) when a party knowingly misleads the Court of equity in order to secure an unfair advantage. The Parfi court also held that: “Dismissal is proper when the tradition of civility and candor that has characterized litigation in this court is threatened because the integrity of the litigation process is fundamentally undermined if parties are not candid with the Court.” Id. at 932-33.
The purpose of verifications under Rule 3(aa) is that a pleading must be verified and a signature on that verification must be notarized in order to confirm the authenticity of the signature. The validity of the notarization is based on the jurisdiction in which the document is signed. The law that applies to the notary issue in this case is Pennsylvania.
Pennsylvania Notary Law
The Court of Chancery discussed Pennsylvania decisions and Pennsylvania statutes that refer to the requirements for a valid notarization of a document in Pennsylvania. The statute and the cases make it clear that it is “unlawful in Pennsylvania to notarize documents that are not signed in the notary’s presence.” See Pennsylvania cases cited at footnotes 12 through 16. [Delaware has an identical requirement for the notarization of a signature that requires the physical presence of the person whose signature is being notarized.]
Delaware Uniform Unsworn Foreign Declarations Act
For those persons signing documents for a verification outside of the United States, a procedure to comply with Court of Chancery Rule 3(aa) is provided in the Delaware Uniform Unsworn Foreign Declarations Act. Under the Declarations Act, an unsworn declaration in lieu of a notarization can satisfy the requirements of Court of Chancery Rule 3(aa) if certain specified language is contained in the verification and other requirements are met. The record in this case indicates that there was no effort to comply with this statute.
The record was clear that the person whose signature was notarized did not physically appear before the notary public at the time the notarizations took place and therefore those notarizations are invalid for purposes of Rule 3(aa).
Was Rule 41(b) Violated?
The court next addressed whether the invalidly notarized verifications rose to the level of deliberate violation of the Rules of the Court of Chancery which would warrant an involuntary dismissal with prejudice under Rule 41(b). The conclusion was yes.
The court reviewed the individual and collective conduct of the plaintiff whose signature was invalidly notarized, as well as the notary public, the co-plaintiff who happened also to be a Pennsylvania lawyer, as well as the Delaware counsel for the plaintiffs in this case. The result of the analysis led to the dismissal of the complaint.
Actions and Errors of the Notary Public
This opinion should be read by every notary public who is asked to notarize a signature of a person who does not personally appear before her. In this case, the notary public was a legal assistant employed in the law office of the co-plaintiff and was instructed to notarize documents even though the person whose signature was being notarized was not personally present. The only potential defense referred to a “credible witness exception” although that exception does not provide an excuse for the person whose signature is being notarized not to personally appear. In sum, the Court found that the actions of the notary public were improper, and even though the co-plaintiff was not acting in his capacity as a lawyer, he was subject to the obligations of a Pennsylvania lawyer which were violated because of his involvement in having a signature notarized in violation of applicable requirements for notarized signatures.
Discussion of Applicable Legal Ethics Rules
For example, under the Rules of Professional Conduct for attorneys in both Pennsylvania and Delaware: “A lawyer having direct supervisory authority over a non-lawyer shall make reasonable efforts to insure that the person’s conduct is compatible with the professional obligations of the lawyer.” See Delaware Lawyers’ Rules of Professional Conduct 5.3(b) and the Pennsylvania counterpart. Delaware and Pennsylvania law further provide that a lawyer who orders or ratifies misconduct by another is responsible for such misconduct. See Delaware Lawyers’ Rule of Professional Conduct 5.3(c) and Pennsylvania Rules of Professional Conduct 5.3(c).
Further, the Court observed that Rule 8.4 of the Pennsylvania Rules of Professional Conduct provide that it is professional misconduct for a lawyer to engage in dishonesty or conduct that is prejudicial to the administration of justice. Further, Rule 3.3(a)(3) is violated when a lawyer files or uses a document knowing that it was improperly notarized and offers it as evidence that the lawyer knows to be false.
The Court described in detail the involvement of the Delaware lawyers and whether or not they knew that the signature was improperly notarized. It concluded that they did not.
Why Improper Verification Was Basis for Dismissal
The court reasoned that failing to comply with the requirement that complaints, answers and comparable pleadings be submitted with verifications is “not some mere technicality; and undercuts the integrity of the judicial process.” Slip op. at 20. The Court further reasoned that both the court and opposing counsel were misled to the extent that the notarizations and verifications were presented as valid when the law is clear that they were not.
The court concluded that conduct of this nature warrants dismissal and explained why dismissal would be ordered as to both plaintiffs even though one of the plaintiffs was not a lawyer and may not have known about the violation of the notarization requirements.
The court elaborated that anything less than a dismissal would be contrary to the very reasons that the Court adopted Rule 3(aa) and its notarization requirements. Anything less than dismissal would fail to preserve the integrity of the judicial process that was commenced by the parties who failed to comply with the rule.
The court left to the authorities in Pennsylvania what, if any, penalties would be imposed on the notary public and the plaintiff, who was also a lawyer licensed in Pennsylvania, for their transgressions.
Bad Faith Exception to American Rule that Each Party Pays for its Own Attorneys’ Fees–Not Applied
The court explained why it would not apply the bad faith exception to the American Rule that each party pay its own attorneys’ fees. The court concluded that the troubling conduct was adequately addressed by the dismissal of the complaint. The ethical failures that arose in the context of not complying with the rule about notarized signatures, is not the typical circumstance of bad faith conduct which would form the basis for an exception to the American Rule.