Month: February 2018

An Old But Important Sanctions Case Where Sanctions Were Defeated Because the Defendant Did not Comply with the Safe Harbor.


This is a case where the Defendant sought sanctions from an attorney but never complied with the safe harbor required by Rule 11(c)(2). The safe harbor requires the party seeking sanctions to serve an actual motion on the other side. Instead, the Bank argued that it had “substantially complied” by writing two letters to the lawyer. The District Court awarded sanctions, but the Seventh Circuit reversed the award. The explanation follows:

To return to the case at hand, PNC Bank simply did not comply with this warning–shot/safe–harbor requirement. It did not prepare and serve a Rule 11 motion on NITEL and Riffner, nor did it allow 21 days for them to withdraw NITEL’s claims. The district court concluded that PNC Bank’s two settlement offers with Rule 11 threats to Riffner were sufficient warning shots under Rule 11(c)(2) on the theory that they substantially complied with the rule. NITEL II, 2015 WL 1943271, at *4. To support the substantial compliance approach, the court cited our decisions in Methode Electronics, Inc. v. Adam Technologies, Inc., 371 F.3d 923, 927 (7th Cir. 2004) (dicta), and Matrix IV, Inc. v. American National Bank & Trust Co. of Chicago, 649 F.3d 539, 552–53 (7th Cir. 2011).

Our line of cases on “substantial compliance” with the warning–shot requirement began with Nisenbaum v. Milwaukee County, 333 F.3d 804, 808 (7th Cir. 2003), where we concluded that where the failure to satisfy the warning–shot requirement was only “technical,” the moving party’s substantial compliance with the warning–shot requirement entitled it “to a decision on the merits.” In Nisenbaum, we held that there was substantial compliance with Rule 11 because the defendants sent a letter—rather than a motion—that explained the grounds for sanctions and provided more than 21 days to remedy the problem. Insisting on a formal motion seemed unduly formalistic.

……

PNC Bank’s warning–shot letters fell far short of even the generous target of substantial compliance.5

On July 31, 2012, before discovery began, PNC Bank’s lawyer sent a letter to Riffner offering to settle the case. The letter explained the defects in the breach of contract claim. We assume the explanation of those defects was sufficient. The problems in terms of substantial compliance were that the letter demanded dismissal of the suit within eight days, as well as payment to PNC Bank of $9,195 for its fees and costs. The letter also demanded within five days a written response agreeing to the demand. The letter concluded: “If I do not receive written confirmation by that date, please be advised that PNC will be seeking sanctions under Federal Rule 11 against NITEL and your firm ․ .”

On April 2, 2013, shortly after the close of discovery and before moving for summary judgment, PNC Bank’s lawyer sent a second settlement offer. It again reviewed the serious problems with NITEL’s case and explained why the suit was frivolous. This letter proposed different settlement terms, demanding that NITEL dismiss the complaint with prejudice and pay PNC Bank $24,000. The letter demanded written acceptance within six days. The settlement proposal concluded much as the earlier letter had: “If I do not receive written confirmation by that date, please be advised that PNC will seek sanctions under Federal Rule 11 against your firm and NITEL, for all fees and costs incurred by the bank in defending your client’s baseless and patently false complaint.”

The Rule 11 threats did not transform PNC Bank’s settlement offers into communications that substantially complied with the Rule 11(c)(2) warning–shot/safe–harbor requirements. Even if we treat the criticisms of NITEL’s case and litigation tactics as containing the equivalent of a Rule 11 motion, the letters simply did not offer NITEL or Riffner the 21–day safe harbor that was offered in Nisenbaum or Matrix IV. Substantial compliance requires the opportunity to withdraw or correct the challenged pleading within 21 days without imposition of sanctions. Neither PNC Bank letter offered that opportunity. PNC Bank was entitled, if it chose, to huff and puff about Rule 11 in its settlement demands for dismissal of baseless claims. But its posturing did not amount even to substantial compliance with the warning–shot/safe–harbor provision, let alone to the actual compliance that other circuits demand.

The district court’s award of sanctions against Riffner is REVERSED.

via ROBERT RIFFNER v. PNC BANK | FindLaw

Another Botched Attempt At Removal to Federal Court


The court remanded this case to the state court because the requirements for removal were not met. First, the amount in controversy was $10,000, far less than the $75,000 required for diversity jurisdiction. Second, all the parties appear to be California citizens so there was no diversity of citizenship. Because there was no basis for federal jurisdiction, the court remanded the case to the state court. 28 USC § 1447(c), which provides “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”

via PACIFIC URBAN RESIDENTIAL LLC v. Smith, Dist. Court, ND California 2018 – Google Scholar

Don’t Remove A Case to Federal Court Before Ascertaining Whether The Statute Permits It.


Defendants sued in the state court have a right to remove a case to federal court if there is diversity of citizenship and all defendants join the removal petition.  Here, the Defendants removed the lawsuit from the California courts to federal court before they determined the citizenship of each of the parties. Diversity must be complete. In other words, if a citizen of California sues another citizen of California, there is no diversity and no jurisdiction. Here, the court issued a rule to show cause to require the Defendants to justify the removal petition. They did not respond, but instead sought additional time. The court remanded the case back to state court.

The reasoning:

By failing to respond to the Order to Show Cause Defendants have not assuaged the Court’s concerns regarding jurisdiction. In order to invoke this Court’s diversity jurisdiction, Defendants must demonstrate there is complete diversity of citizenship between the parties and that the amount in controversy exceeds $75,000. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). To meet their burden to establish complete diversity, Defendants must allege the actual citizenship of all of its members/partners. Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). Here, the vague assurances provided that all entities related to Defendants are Delaware entities with their principal places of business in New York, NY are not sufficient. Furthermore, the myriad of reasons[1] provided by Defendants for needing more time to comply with the OSC is evidence that Defendants have not determined the existence of complete diversity between the parties. Thus, although being given the opportunity to do so, Defendants have not met their burden of demonstrating there is complete diversity of citizenship.

Because Defendants fail to establish diversity jurisdiction as required by 28 U.S.C. § 1332 and 1441 removal was improper and the Court sua sponte REMANDS this action back to the San Diego Superior Court for lack of subject matter jurisdiction.

via EP EX REL. PRESTON v. CHULA VISTA CENTER, LP, Dist. Court, SD California 2018 – Google Scholar

Employment Lawsuit Avoids Sanctions Despite Arbitration Clause in Employment Agreement


Plaintiff was employed by Defendant for 22 years. He became involved in a dispute with Robert Mercer, who was Co-CEO of the Company. The dispute concerned the political views of Mercer. Plaintiff was suspended, then terminated. Despite have an employment agreement with the Defendant which required him to submit any dispute “relating to” his employment to arbitration, plaintiff filed suit in federal court.

Defendant moved to compel arbitration and moved for Rule 11 sanctions. Defendant argued that there was no basis for the case to be filed in federal court and that the lawsuit was filed in court to generate adverse publicity for the Company.

Federal law supporting arbitration clauses in employment agreements is exceptionally strong. Despite that long-standing federal law, the district court denied the motion for sanctions. The court discounted the claim of an improper purpose by finding it speculative. The court held that the sanctions motion was premature because the dispositive motion (to compel arbitration) had not been decided).

via MAGERMAN v. Mercer, Dist. Court, ED Pennsylvania 2018 – Google Scholar

Rule 11 Motion Denied Where It Was Used Incorrectly to Substitute for A Dispositive Motion


This is an intellectual property dispute, where the defendant answered the complaint alleging trademark infringement and then moved for Rule 11 sanctions. The case caption is FCOA, LLC v. Foremost Title and Escrow Services, LLC,  Case No. 17-Civ-23971-WILLIAMS/TORRES.  United States District Court, S.D. Florida.

Plaintiff claimed that the defendant’s use of the term “Foremost” infringed Plaintiff’s trademarks and other intellectual property rights.

Defendant did not file a dispositive motion. Instead, it filed a Rule 11 motion. Defendant argued that the lawsuit was frivolous, given that the two companies were in different lines of business and there was no likelihood of confusion.

The court denied the Rule 11 motion on two grounds. First, it noted that the use of Rule 11 was improper because Rule 11 is not designed to serve as a dispositive motion. The court explained:

Defendant’s motion is unpersuasive for at least two independent reasons. First, the motion represents an improper attempt to convert a disagreement over the factual allegations and legal arguments in Plaintiff’s complaint into a sanctions dispute. Defendant’s motion is merely an attempt to seek disposition on the merits of this case via Rule 11. Yet, a Rule 11 motion is not an avenue to seek judgment on the merits of a case. Instead, its purpose is to determine whether an attorney has abused the judicial process. See Bigford v. BESM, Inc., 2012 WL 12886184, at *2 (S.D. Fla. Oct. 12, 2012) (“`Rule 11 should not be used to raise issues as to the legal sufficiency of a claim or defense that more appropriately can be disposed of by a motion to dismiss, a motion for judgment on the pleadings, a motion for summary judgment, or a trial on the merits.'”) (quoting In re New Motor Vehicles Canadian Export Antitrust Litigation, 244 F.R.D. 70, 74 (D. Me. 2007) (denying Rule 11 motion without prejudice to its renewal “if and when [Defendant] obtains summary judgment”) (citations omitted)); see also Safe-Strap Co., Inc. v. Koala Corp., 270 F. Supp. 2d 407, 417-21 (S.D.N.Y. 2003) (discussing that Rule 11 sanctions are not a substitute for motions for summary judgment).

As the plain language of Rule 11 indicates, “an attorney . . . certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances” that a court document “is not being presented for an improper purpose”, “the claims, defenses, and other legal contentions are warranted by existing law,” and the “factual contentions have evidentiary support. . . .” Fed. R. Civ. Pro. 11(b). Instead of relying on a Rule 11 motion to dispose of this case, Defendant should have filed a dispositive motion — such as a motion to dismiss — rather than answering Plaintiff’s complaint. Because Defendant relies on the wrong type of motion for the relief sought, Defendant’s motion must be DENIED.

The second reason for the denial was that the motion was premature. Again the explanation:

Second, Defendant’s motion must be denied because it is premature at this stage of the litigation. As the Eleventh Circuit has found, Rule 11 sanctions are ordinarily not determined until the end of a case:

Although the timing of sanctions rests in the discretion of the trial judge, it is anticipated that in the case of pleadings the sanctions issue under Rule 11 normally will be determined at the end of the litigation, and in the case of motions at the time when the motion is decided or shortly thereafter.Donaldson v. Clark, 819 F.2d 1551, 1555 (11th Cir. 1987) (quotation marks and citation omitted). The Eleventh Circuit’s position is consistent with the Rules Advisory Committee which “anticipated that in the case of pleadings the sanctions issue under Rule 11 normally will be determined at the end of the litigation. . . .” Fed. R. Civ. P. 11 (Advisory Committee Notes, 1983 Amendment); see also Lichtenstein v. Consolidated Serv. Group, Inc., 173 F.3d 17, 23 (1st Cir. 1999)(

In other words, if the Defendant had filed and won a summary judgment motion, it would be able to seek sanctions. Using Rule 11 was improper as the case had not been decided.

Edward X. Clinton, Jr.

https://scholar.google.com/scholar_case?case=16660803745935797275&hl=en&lr=lang_en&as_sdt=400006&as_vis=1&oi=scholaralrt

Sanctions Awarded For Frivolous Foray Into Federal Court


This case involves two litigants who lost a state court custody case.  They then sued everybody the could think of for violating their constitutional rights. Everybody included two state court judges, two guardians ad litem and five lawyers. The court dismissed the action and awarded sanctions.  One basis for the dismissal was the Rooker-Feldman doctrine which, to simplify, prohibits a litigant who lost in state court from trying to relitigate the same issue in federal court.

The rationale:

I agree with defendants that the claims that plaintiffs asserted in their complaint are legally frivolous. As discussed above, plaintiffs have not even attempted to assert an arguable basis for suing defendants Veith, Otto or Asher. Further, plaintiffs’ counsel should have known that plaintiffs’ claims were legally groundless. Plaintiffs’ counsel violated Rule 11(b)(2) by asserting claims that are not “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.” By failing to withdraw the frivolous claims after being warned by defendants, plaintiffs’ counsel caused both defendants and the court to expend significant time and resources in addressing the claims. Accordingly, I conclude that an appropriate sanction is to require plaintiffs’ counsel, Eliyahu Yuli Kaplunovsky, to pay the attorney fees and expenses defendants Veith, Otto and Asher incurred in defending against the frivolous claims. Brandt v. Schal Associates, Inc., 960 F.2d 640, 646 (7th Cir. 1992)(“When defending a spurious lawsuit attorneys’ fees are an inevitable ingredient in the expenses, and they represent one reasonable measure of sanctions aimed at deterring the perpetrator and compensating the victim.”).

via Pettengill v. Cameron, Dist. Court, WD Wisconsin 2018 – Google Scholar