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

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