District Court Denies Rule 11 Sanctions Even Though Plaintiff Did Not Respond To Motion


David Bailey v. Interbay Funding, LLC, 3:17-cv-1457 (VAB) (D. Connecticut, June 19, 2020) should be considered the case of the fortunate plaintiff. Bailey sued the finance companies after they initiated foreclosure proceedings against him. Bailey claimed a number of violations and added claims for common law fraud and civil conspiracy. In January 2020, the Court granted a defense motion for summary judgment. Defendants sought sanctions under Rule 11 because they argued that the fraud claim was baseless. The Court essentially held that while the claims might well have been sanctionable, it would deny sanctions to bring the case to an end.

To grant a motion for sanctions, the Court must conclude that it is “patently clear that a [targeted party’s] claim has absolutely no chance of success,” K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 131 (2d Cir. 1995) (citation and internal quotation marks omitted); or that the targeted party’s factual claims are “utterly lacking in support,” Storey, 347 F.3d at 388.[1]

Defendants argue that “there is not, and never was, any good faith basis to allege that Defendants engaged in fraud, and Plaintiff’s obstinate insistence on doing so has forced Defendants to spend a significant amount of money defending this vapid claim.” Mem. for Sanctions at 2. They argue that no factual or legal basis existed at the time the Fourth Amended Complaint was filed because (1) Mr. Bailey knew the fraud claim was barred by the statute of limitations, id. at 13-15 (“Plaintiff unequivocally admits that he learned about the alleged defects in the Property shortly after March 6, 2006, which he admits impacted its value,” and no later than October 5, 2010, requiring him to commence this action by October 5, 2013, even if the statute of limitations could be equitably tolled); (2) Mr. Bailey released Defendants from these claims in various stipulation agreements, id. at 16-17; and (3) Mr. Bailey “is incapable of presenting any evidence to support” his fraud claim, yet persists in making unsupported claims of fraud, id. at 17-19.

Further, Defendants argue that Mr. Cayo “did not conduct a reasonable and competent inquiry before signing and filing the Complaint,” id. at 20, as required by his obligation under Rule 11 “to conduct a reasonable investigation of both the relevant facts and the law,” id. at 2. In Defendants’ view, “[e]ven if [Mr.] Cayo could not have conducted a full investigation into Plaintiff’s factual assertions without discovery from Defendants, [ ] he certainly had all the necessary information by November 12, 2018, when Defendants produced the loan file,” yet he “chose to ignore this information . . . and to pursue the baseless fraud claim.” Id. at 20.

Neither Mr. Bailey nor Mr. Cayo has responded to Defendants’ motion for sanctions. Nonetheless, the Court will not impose sanctions.

As Defendants acknowledge, Mr. Bailey admitted that he did not have documents showing Defendants’ alleged fraudulent concealment, but rather believed that Bayview had such documents in its file. Mem. for Sanctions at 9. Defendants contend that “by November 12, 2018, when Defendants produced almost 900 pages of Plaintiff’s loan file, both [Mr. Bailey] and [Mr.] Cayo had all the information they needed to confirm that there was no good faith basis to assert a fraud claim.” Id. But this loan file was produced months after Plaintiff submitted his Fourth Amended Complaint and therefore does not establish that it was “patently clear” that there was no chance of success on Mr. Bailey’s fraud claim.

After Defendants produced the loan file, the parties engaged in further discovery regarding the validity of the documents produced. See, e.g., Minute Entry, ECF No. 96 (Apr. 5, 2019) (Judge Hall setting deadlines for second deposition of Mr. Bailey and completion of expert analysis of handwriting). Defendants then moved for summary judgment, which Mr. Bailey opposed. Mot. for Summ. J.; Pl.’s Obj.

“`[A] litigant’s obligations [under Rule 11] with respect to the contents of . . . papers are not measured solely as of the time they are filed with or submitted to the court, but include reaffirming to the court and advocating positions contained in those pleadings and motions after learning that they cease to have any merit.'” Galin v. Hamada, 753 F. App’x 3, 8 (2d Cir. 2018) (summary order) (noting, however, that “it would not be appropriate for a district court to impose sanctions simply because a party unsuccessfully opposed summary judgment”) (citing Fed. R. Civ. P. 11 Advisory Committee’s Note (1993)).

But “Rule 11 sanctions are a coercive mechanism, available to trial court judges, to enforce ethical standards upon attorneys appearing before them.” Pannonia Farms, Inc. v. USA Cable, 426 F.3d 650, 652 (2d Cir. 2005) (citing Estate of Warhol, 194 F.3d at 334 (internal alterations and quotation marks omitted)). “Although the imposition of sanctions is within the province of the district court, any such decision should be made with restraint and discretion.” Id.; see also Lawrence v. Richman Grp. of CT LLC, 620 F.3d 153, 158 (2d Cir. 2010) (“Rule 11 does not . . . authorize sanctions for merely frustrating conduct.”); E. Gluck Corp. v. Rothenhaus, 252 F.R.D. 175, 179 (S.D.N.Y. 2008) (“Courts maintain a high bar for establishing a Rule 11 violation given judicial concern for encouraging zealous advocacy.” (internal citations omitted)). Rule 11 therefore “limits the sanctions that may be imposed for a violation of Rule 11 `to what is sufficient to deter repetition of [the wrongful] conduct or comparable conduct by others similarly situated.'” Salovaara v. Eckert, 222 F.3d 19, 34 (2d Cir. 2000) (quoting Fed. R. Civ. P. 11(c)); see also Universitas Educ., LLC v. Nova Grp., Inc., 784 F.3d 99, 103 (2d Cir. 2015) (“`[T]he main purpose of Rule 11 is to deter improper behavior, not to compensate the victims of it or punish the offender.'” (quoting 5A Wright & Miller, Federal Practice and Procedure: Civil 3d § 1336.3 (3d ed. 2004))).

The Court has now granted summary judgment to Defendants based on Plaintiff’s inability to produce evidence supporting his claims. See Ruling on Summ. J. Thus, one of the outcomes Defendants sought through sanctions—dismissal of the case, Mem. for Sanctions at 2—has occurred. See On Time Aviation, Inc. v. Bombardier Capital Inc., 570 F. Supp. 2d 328, 332 (D. Conn. 2008) (“[A] firmly held conviction of the correctness of one’s position does not authorize collateral attack on an opponent’s legal arguments by resort to Rule 11.”), aff’d, 354 F. App’x 448 (2d Cir. 2009).

Since the Court granted summary judgment to Defendants, Mr. Cayo has withdrawn his appearance from the case, and Mr. Bailey has not filed—and having failed to comply with the Court’s deadline, cannot file—anything further in this case. The case therefore will be closed.

Accordingly, rather than prolong this matter any further, this Court chooses to exercise its discretion and end this case.

Comment: the court denied the sanctions motion out of a desire to end the litigation and, perhaps, because the attorney who had represented the plaintiff withdrew from the case.

Should you have a question about federal procedure, do not hesitate to call me.

Ed Clinton, Jr.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s