Category: Rule 11 Sanctions

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.

Rule 11 Sanctions Granted For Frivolous Damages Claim


The plaintiff, a jewelry merchant, sustained damage when its inventory was destroyed in a fire in a BMW. Plaintiff sued BMW for damages and sought $5,677,114 in lost profits. The District Court granted the motion and sanctioned plaintiff $5,000 because the law is well settled that the merchant can only recover the replacement cost of the merchandise. The reasoning is provided below:

The claim for full retail value had absolutely no chance of success under governing precedents.[4] Where property is partially destroyed, the plaintiff may recover the lesser of: (1) the difference between the market value of the property before and after the harm was inflicted;[5] or (2) the replacement cost.[6] Hartshorn v. Chaddock, 135 N.Y. 116, 31 N.E. 997, 998 (1892)see also In re Sept. 11th Litig.,590 F. Supp. 2d 535, 541 (S.D.N.Y. 2008). Where the plaintiff’s property is totally destroyed, the measure of damages is its reasonable market value. Gass v. Agate Ice Cream, Inc., 264 N.Y. 141, 144, 190 N.E. 323 (1934)Reed v. Cornell Univ.,138 A.D.3d 816, 818 (N.Y. App. Div. 2016).[7]

Crucially, “[t]he market value of a merchant’s goods is the price at which they could be replaced in the market, not the retail price at which they could be sold.” Ever Win, Inc. v. 1-10 Indus. Assoc., 111 A.D.3d 884, 886, 976 N.Y.S.2d 123 (N.Y. App. Div. 2013) (quoting Wehle v. Haviland, 69 N.Y. 448, 450 (1877)). Recovery of the retail value, including the merchant’s lost profits, is only permissible in limited cases which do not apply here—for instance, if the merchandise was already under contract for a specified price and awaiting delivery, or if the goods were stolen by the defendants. Reed, 138 A.D.3d at 818Wehle v. Butler, 61 N.Y. 245, 245 (1874).

In opposing Rule 11 sanctions, Plaintiff’s counsel concedes that “after reviewing the available evidence” its client could not plausibly be entitled to damages based on retail value or lost profits. (ECF No. 109, “Pl’s Opp’n” at 5, 9-10). However, Plaintiff’s counsel nonetheless urges this Court to deny the motion on mootness grounds, citing a December 6, 2019 email he sent to Defendant’s counsel:

“In performing our review and analysis … we believe that the plaintiff can establish its damages based on the diminution in value of the business … and will seek permission from the court to amend our claim accordingly, and to produce expert analysis establishing a lost valuation claim of $1.5 Million. In the event the Court denies our motion to so amend and produce expert analysis, we agree to amend our complaint by withdrawing the claim for lost profits, and proceed with a claim based upon replacement cost….”

(Id. at 5). The Court is perplexed by Plaintiff’s counsel’s interpretation of his own email. He insists this email proves that Plaintiff accepted Defendant’s request to calculate damages based on replacement cost. (Id.). But his purported acceptance is no acceptance at all. It is a counteroffer, conditioned in part upon this Court’s uncertain permission to reopen discovery based on a new theory of damages.[8]

Accordingly, Defendant’s Rule 11 motion is granted.[9] Sanctions are imposed in the amount of $5,000, payable to the Clerk of the Court, to be paid within 30 days of this order.

Comment: the lawyer attempted to avoid the sanctions issue by writing an email to opposing counsel offering to withdraw the allegation. Instead, the lawyer should have simply withdrawn the allegation within the safe harbor period.

Zsa Zsa Jewels, Inc. v. BMW of North America, LLC, No. 15-cv-6519 (E.D. NY April 2, 2020).

Eleventh Circuit Affirms Rule 11 Sanctions For False Allegations in Complaint


This is an unpublished opinion, Estrada v. FTS USA, LLC, No. 18-15336 (11th Cir. April 20, 2020), the Eleventh Circuit affirmed a $60,000 Rule 11 sanctions award against lawyers who included a false allegation in their complaint.

The explanation follows:

The district court imposed sanctions under Rule 11(b)(3) because it found that Mr. Zidell and his firm filed a Fair Labor Standards Act (“FLSA”) complaint making the objectively frivolous allegation that FTS had “never” paid their client, Orlando Estrada, “any” overtime wages as required by the Act. The district court found this allegation demonstrably false because (1) FTS’s weekly time records—signed by Mr. Estrada—showed that FTS had paid him overtime wages during the months in question, and (2) Mr. Estrada acknowledged in his deposition that he had been paid the overtime wages documented in his earnings statements. The district court explained that Mr. Zidell and his firm did not conduct a reasonable investigation into Mr. Estrada’s claims and neglected to withdraw or modify the allegation in question when given the opportunity….

Continuing to lean on the language of the complaint, Mr. Zidell and his firm contend that satisfying the pleading requirements to state an FLSA claim under Federal Rule of Civil Procedure 8 render sanctions inappropriate here. This argument fails to advance Mr. Zidell and his firm’s position. The factual allegations required under Rule 8 “are subject to Rule 11’s command—under pain of sanctions—that `the allegations and other factual contentions have, or are likely to have following discovery, evidentiary support.'” Lowery v. Ala. Power Co., 483 F.3d 1184, 1216 (11th Cir. 2007) (quoting FED. R. CIV. P. 11(b)). Therefore, alleging facts sufficient under Rule 8 does not shield the pleading from Rule 11 scrutiny when the allegations are objectively frivolous. Said another way, the magistrate court sanctioned Mr. Zidell and his firm not because the wording of the complaint failed to state a claim, but instead because the allegation as worded objectively lacked evidentiary support.

Second, Mr. Zidell and his firm assert that their factual claim was not objectively frivolous because Mr. Estrada was also alleging that he was not paid “all” of the overtime wages to which he was entitled. This argument, however, ignores the fact that the unsupported factual allegation—that FTS “never” paid Mr. Estrada “any” overtime wages—was never withdrawn, and FTS was forced to defend against it. The assertion by Mr. Zidell and his firm that their case for Mr. Estrada “just . . . did not pan out,” see Appellant’s Br. at 32, does not show an abuse of discretion.

The court affirmed an award of $60,000 in sanctions, which was about 1/2 of the requested amount. A dissenting judge would remand for a full hearing on the reasonableness of the fee request.

Should you have an issue under Rule 11, do not hesitate to contact me.

Ed Clinton, Jr.

http://www.clintonlaw.net

New York Bankruptcy Court Denies Rule 11 Motion as Untimely


The timeliness of a Rule 11 motion is an issue which has not been adequately addressed by the courts. The issue can arise in the following situation: you represent a client and you file a claim. Some time later you withdraw from the case with the claim still pending. After you have withdrawn, the claim is dismissed and the opposing party files a Rule 11 motion against you. In re Patsy Fierro, No. 14-41439 (Bankruptcy Court E.D. New York, March 31, 2020).

Early in the case a creditor filed a claim that a debt was not dischargeable under the Bankruptcy Code. (A non dischargeable debt remains with the debtor after the bankruptcy). The lawyer withdrew and eventually the claim was rejected. 18 months after the lawyer withdrew the debtor file a Rule 9011 (Rule 11 in Bankruptcy Court) motion against the creditor and its lawyer. The court denied the sanctions motion. The court found that the lawyer acted appropriately and that the sanctions motion was untimely. The key fact is that when the lawyer withdrew there was no sanctions motion pending nor was there any threat that the other party would file such a motion.

Because it is not patently clear that the claims had no chance of success, it cannot be said that they were groundless. Thus, Kipiniak [Lawyer] and J.C. Ryan [Her Client] were under no obligation to withdraw the Proofs of Claim or the Non-Dischargeability Actions during Kipiniak’s time as lead counsel. This case can be distinguished from Fuerst v. Fuerst, where the District Court for the Eastern District of New York found that sanctions under Rule 11 were appropriate where an attorney failed to withdraw a complaint. 832 F.Supp.2d 210, 220 (E.D.N.Y. 2011). There, the parties previously signed a settlement agreement that released the claims brought in the complaint, causing the court to find that the complaint was groundless, as there was no longer a legal or factual basis to assert the causes of action. See id. Here, the Default Judgment was still in place at the time Kipiniak was lead counsel, and thus there was still a legal and factual basis to maintain the Proofs of Claim and the Non-Dischargeability Actions. As such, the actions of Kipiniak and J.C. Ryan were objectively reasonable pursuant to the Rule 9011(b) standard. See In re Beinhauer, 570 B.R. at 137. Consequently, the Court does not find sanctions appropriate under Rule 9011(b)….

This Court also finds that the Motion is untimely as to Kipiniak. Although the Debtors sent Kipiniak the Demand Letter on November 16, 2015, the Debtors did not properly comply with Rule 9011(c) until they served the Motion on April 28, 2018, which is eighteen months after Kipiniak was active in this matter. See Star Mark Mgmt., Inc. 682 F.3d at 175 (“An informal warning in the form of a letter without service of a separate Rule 11 motion is not sufficient to trigger the 21-day safe harbor period.”). This conclusion is supported by this jurisdiction’s recent holding in Goodwin v. MTA Bus Co. where the court found that Rule 11 sanctions were improper, in part, because the moving party waited approximately two years after the alleged sanctionable conduct to file the sanctions motion and the attorney they were seeking to sanction had already withdrawn from the case. 2017 U.S. Dist. LEXIS 41555, at *10 (E.D.N.Y. Mar. 22, 2017). The court explained that awarding sanctions would “defeat the goal, apparent from the text of Rule 11(c)(2) of streamlining litigation by allowing the party in the wrong the first opportunity to withdraw an offending paper.” Id. (internal quotations omitted). While it is true that Kipiniak never filed a formal notice of withdrawal, the record reflects she did not appear and argue on behalf of J.C. Ryan on any matters after October 2016. Even if the Debtors met the Rule 9011(b) standard, Kipiniak was no longer suited, in April 2018, to withdraw the Proofs of Claim and the Non-Dischargeability Actions. See In re Pennie & Edmonds LLP, 323 F.3d 86, 89 (2d Cir. 2003) (“[M]otions have been disallowed as untimely when filed after a point in the litigation when the lawyer sought to be sanctioned lacked an opportunity to correct or withdraw the challenged submission.”).

Comment: I agree wholeheartedly with this opinion. It is almost impossible to second guess the decisions of a lawyer who withdrew from a case (with no sanctions motion pending or threatened). In my career, on two occasions I had to defend sanctions motions that were filed after a hard fought case had concluded. In both instances the sanctions motion was denied.

Lawyer Sanctioned For Removing Case After Deadline Passed


The right of a defendant to remove a case to federal court is set forth in several statutes. To remove the defendant normally has to prove that there is federal jurisdiction. In this slip and fall case, the defendant had to show that the plaintiff and defendant were citizens of different states and that the amount in controversy exceeded $75,000. There is also a rule that no case can be removed more than one year after it was first filed.

Here, in Hajdasz v. Magic Burger, LLC, No. 19-12528 (unpublished) (11th Circuit, March 11, 2020), the case was a slip and fall case. The plaintiff had medical expenses of $26, 434, 31 and some future medical expenses. An expert testified that those expenses would be $2,800 per year for 22 years. The defendant then removed the case. The federal court remanded the case back to the state court and assessed Rule 11 sanctions in the amount of $2750 against the lawyer. The lawyer appealed the sanctions award.

Result: sanctions were affirmed. The lawyer’s decision to remove a case more than one year after it was filed was unreasonable. The explanation:

Because Metsch’s decision to remove his clients’ case is the basis for the Rule 11 sanctions, we review that law here. Any removal to federal court on the basis of diversity jurisdiction must satisfy both the substantive jurisdiction requirements of 28 U.S.C. § 1332 and the “procedural requirements regarding the timeliness of removal” pursuant to 28 U.S.C. § 1446. Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 756 (11th Cir. 2010). Where the requirements for diversity jurisdiction can be derived from the face of the complaint, “notice of removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant . . . of a copy of the initial pleading.” 28 U.S.C. § 1446(b)(1). Where, as here, the complaint does not state facts that satisfy diversity jurisdiction, “a notice of removal may be filed within 30 days after receipt by the defendant . . . of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Id. § 1446(b)(3). This late-removal procedure has a time limit, however, as a case that comes to satisfy the substantive requirements of federal diversity jurisdiction may not be removed “more than 1 year after the commencement of the action.” Id. § 1446(c)(1). The sole exception to this one-year removal cutoff is where “the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action.” Id. § 1446(c)(1). Bad faith is shown where the district court determines that “the plaintiff deliberately failed to disclose the actual amount in controversy to prevent removal.” Id. § 1446(c)(3)(B).

Here, Metsch removed his client’s case beyond the one-year anniversary of the filing of the complaint. Thus, one-year bar was plainly implicated. Id.. § 1446(c)(1). Metsch argues nonetheless that his client was excepted from the one-year deadline for two reasons: (1) Hajdasz’s refusal during discovery to provide a damages calculation amounted to “bad-faith”; and (2) our cautionary language in Lowery v. Alabama Power Co., where we stated that, in the context of a § 1446(b)(3)-type removal, a defendant removing a case to federal court must possess a document containing an “unambiguous statement that clearly establishes federal jurisdiction.” 483 F.3d 1184, 1213 n.63 (11th Cir. 2007). For these reasons, Metsch contends he had no option but to wait until Hajdasz moved in writing for a directed verdict of more than $75,000—which just happened to occur at the end of trial—before removing the case, and thus his decision to remove the case was not frivolous.

The district court found that Metsch’s invocation of the bad-faith exception to § 1446(c)(1) was “insupportable.”[9] We agree.[10] The district court found that the plaintiff’s discovery objections were well-taken and that there was no “bad-faith pattern” or failure to disclose the amount in controversy. Metsch has not demonstrated that the district court abused its discretion in so ruling.

Further, as the district court noted, the delay in learning the total damage amount was squarely attributable to Metsch:

The most telling factor in this particular case is the timeline of the discovery and the lack of any effort by Magic Burgers to take any steps whatsoever within the one-year removal period to compel [Hajdasz’s] damages response which it now alleges [Hajdasz] “deliberately withheld to avoid removal.”

Hajdasz v. Magic Burgers, LLC, No. 6:18-cv-01755-ACC-LRH, 2018 WL7436133, at *8 (M.D. Fla. Dec. 10, 2018) (emphasis added). Indeed, Magic Burgers took Hajdasz’s deposition 10 months after the suit was filed, asked only a few questions at that deposition pertaining to the damage amount, and neglected to move to compel answers to those deposition questions for nearly 16 months after the complaint was filed. And not once did Magic Burgers seek to compel responses to written discovery regarding damages. Because of Metsch’s lack of diligence, the one-year deadline passed. His untimely attempt to remove during trial, accordingly, was arguably frivolous. And therefore the district court did not abuse its discretion in so ruling. See A.S. ex rel. Miller v. SmithKline Beecham Corp., 769 F.3d 204, 212 (3d Cir. 2014) (finding that the bad-faith exception to the one-year limit applies only where a defendant can demonstrate “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” (quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005))).

Federal removal rules are tricky and contain traps for the unwary. Federal judges often find ways to remand cases to state court, even where it seemed clear that there was removal jurisdiction. In this case, a bad decision to remove cost a lawyer $2,750.

Edward X. Clinton, Jr.

http://www.clintonlaw.net

No Sanctions For Plaintiff Which Challenged Subject Matter Jurisdiction


In this case, Northeast Natural Energy, LLC, v. Larson, 3:18-cv-240 (W.D. Pennsylvania November 25, 2019), the plaintiff originally filed the case in state court. The Defendant removed the action to federal court. Plaintiff then filed an unsuccessful motion to challenge subject matter jurisdiction.

The procedural history: “

Defendants argue that Plaintiff’s conduct in this lawsuit warrants Rule 11 sanctions. (ECF No. 42.) Defendants state the following as Plaintiff’s “bad faith and vexatious conduct:” (1) Plaintiff filed a complaint and a motion to vacate the arbitration award in state court in West Virginia the same day it filed its Amended Motion to Vacate Arbitration Award in this Court without informing either this Court or Defendants, (2) Plaintiff did not inform this Court about any protentional lack of diversity of citizenship until after this Court issued its September 20 Order and Opinion, (3) Plaintiff served Defendants in the West Virginia action five days after this Court issued its September 20 Order and Opinion, and (4) the West Virginia action is wasteful because the West Virginia court lacks personal jurisdiction over the Defendants and service on the motion to vacate was eight months late. (ECF No. 28 ¶¶ 12-18.)

In response, Plaintiff asserts that sanctions are not warranted because its conduct was not vexatious or in bad faith. (ECF No. 41.) Plaintiff asserts that it filed its Motion to Vacate and the West Virginia action to preserve its case. (Id.)”

The district court denied the motion for sanctions on the ground that Plaintiff had an absolute right to challenge subject matter jurisdiction, at any time during the litigation.

Here, Plaintiff has a right to challenge subject-matter jurisdiction at any time, even for the first time on appeal, or even if the party had previously acknowledged the Court’s jurisdiction. See Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434-35 (2011). Plaintiff has filed an appeal in this action and therefore could have skipped over this Court and raised the issue of subject-matter jurisdiction for the first time before the Third Circuit. The Court finds that Plaintiff filed the Motion to Vacate for the Court to address its jurisdiction before the Third Circuit would address it.

The Third Circuit has held Rule 11 sanctions unwarranted when a party files a motion as of right. See Lony v. E.I. Du Pont de Nemours & Co., 935 F.2d 604, 616 (3d Cir. 1991) (holding that defendant’s filing of a forum non conveniens motion did not warrant Rule 11 sanctions because defendant had a right to move for such a dismissal). Because Plaintiff had a right to challenge this Court’s subject-matter jurisdiction at any time, the Court will not impose sanctions on Plaintiff for exercising this right. The Court holds that Plaintiff’s filing of the Motion to Vacate was reasonable under the circumstances of this case.

Accordingly, Plaintiff’s conduct does not warrant Rule 11 sanctions.

Edward X. Clinton, Jr.

http://www.clintonlaw.net

Can you file a Rule 11 Motion After Judgment Is Entered?


Rule 11 contains a number of procedural requirements. You must serve the motion for sanctions 21 days before you file it to give the other party an opportunity to withdraw the pleading. One question that has received different answers is whether ot not you can file a motion for sanctions after final judgment is entered.

The case, Blue Heron Commercial Group, Inc. v. Lee Webber, 18-cv-467 (MD Florida June 20, 2019) holds that the motion for sanctions must be filed before final judgment is entered. It is noteworthy that the defendants obtained summary judgment against Blue Heron before they filed the sanctions motion.

As to the timeliness of a Rule 11 motion, the Eleventh Circuit has analyzed Rule 9011 of the Federal Rules of Bankruptcy Procedure, which is “substantially identical” to Rule 11, and “agree[d] with the Second, Fourth, and Sixth Circuits that the service and filing of a motion for sanctions must occur prior to final judgment or judicial rejection of the offending motion.” In re Walker, 532 F.3d 1304, 1309 (11th Cir. 2008)(emphasis added)(quotation and citation omitted). The Eleventh Circuit in Walker thus affirmed the bankruptcy court’s denial of a motion for sanctions because the “motion for sanctions was filed after the offending motion had been denied.” Id.

Here, although it is undisputed that Defendants complied with Rule 11’s safe harbor provision, the Court finds that Defendants’ Motion for Sanctions is due to be denied because Defendants filed the motion after the Court granted summary judgment, entered final judgment, and disposed of Blue Heron’s alleged frivolous pleading. Id. Defendants, however, contend that Walker is inapplicable under the instant facts because, unlike this case, the movant in Walker sought sanctions prior to the conclusion of the 21-day safe harbor provision. The Court does not find that distinction to be determinative in this case because, although the court discussed the safe harbor provision in its analysis, the Eleventh Circuit in Walker did not ultimately base its ruling on the movant’s failure to satisfy the safe harbor provision. Walker, 532 F.3d at 1309. Rather, as discussed above, the court affirmed the bankruptcy court’s denial of sanctions because the “motion for sanctions was filed after the offending motion had been denied.” Id.

The Seventh Circuit follows a different rule, allowing a motion for sanctions to be filed after judgment.

The Blue Heron court also declined to award sanctions under its inherent powers on the ground that the arguments raised by Blue Heron were not frivolous.

The issue as to whether you must file a sanctions motion before judgment is entered is an unsettled question of law. The rules in one circuit may differ from the rules in another circuit. Someday the Supreme Court may resolve this conflict.

Ed Clinton, Jr.

http://www.clintonlaw.net

Rule 11 Motion Denied As Premature


The facts in D’Ottavio v. Slack Technologies, 18-cv-9082 (D. New Jersey April 15, 2019) are disputed. The plaintiff sued alleging that the Defendant’s website sent him unsolicited text messages. Defendant denied these allegations and filed a counterclaim which alleged that plaintiff deliberately caused the text messages to be sent to himself. Plaintiff denied the allegations in the counterclaim. Defendant then moved for Rule 11 sanctions arguing that the denials violated Rule 11 and were without factual basis.

Because no discovery had been taken and the facts were in dispute, the court denied the Rule 11 sanctions motion. The reasoingin:

Plaintiff’s counsel objects to Slack’s arguments. Counsel relates that on July 26, 2018, the parties participated in a Rule 16 initial conference before the Magistrate Judge, and at that conference, Slack’s counsel advised the Magistrate Judge that it wished to take a forensic examination of Plaintiff’s electronic devices to back up its claims that Plaintiff used these devices to repeatedly send himself text messages using Slack’s messaging platform. The Magistrate Judge then ordered the parties to confer as to a forensic examination protocol. The parties submitted a stipulation agreeing to the protocol which was then so-ordered by the magistrate judge on August 13, 2018. The Court then ordered that Slack was to conduct the forensic examination of Plaintiff’s computers and cell phones by no later than September 10, 2018. To date, however, counsel states that Slack has not taken a forensic examination of Plaintiff’s electronic devices.

Plaintiff’s counsel argues that Slack’s motion for sanctions must be denied because it lacks any proof that Plaintiff actually did what Slack says he did. Counsel argues that Slack is seeking sanctions against counsel and Plaintiff for filing an answer that has not been found to be false or frivolous. Counsel contends that Slack could have obtained the forensic examination it demanded, but instead when Plaintiff filed a denial to the counterclaims, Slack tried to bully Plaintiff into withdrawing his response by threatening him and his counsel with sanctions….

In support of its motion for sanctions, Slack takes the position that its proof as to Plaintiff’s conduct — and the conduct of Plaintiff’s counsel — is unrebutted and unrebuttable. The Court cannot credit Slack’s position at this stage in the case.

Slack has asserted counterclaims against Plaintiff alleging that Plaintiff fraudulently manufactured his TCPA claim by sending thousands of text messages to himself. Plaintiff has filed an answer to Slack’s counterclaims denying that allegation. Slack’s claims are pending, still in dispute, and they will proceed to discovery. Slack may view Plaintiff’s denials to be disingenuous and unsupported by the facts, but the procedural posture of the case precludes the Court from applying what is essentially a summary judgment standard to Slack’s motion for sanctions, which, if Slack’s position were credited, would ultimately result in a judgment in Slack’s favor prior to discovery.[5]

Consequently, the Court will deny without prejudice Slack’s motion for sanctions, reserving Slack’s right to reassert its motion at the appropriate time after discovery on its counterclaims.

In sum, the sanctions motion was premature. Should defendant prove that the answer to the counterclaim contained false denials, defendant can reassert the sanctions motion.

Edward X. Clinton, Jr.

 

Fifth Circuit Upholds Denial of Rule 11 Sanctions – despite false allegations in Complaint


The case is titled, Mr. Mudbug Incorporated v. Bloomin’ Brands, Inc., (5th Cir. 18-30626). Mr. Mudbug sued Bloomin and its claims were dismissed. The underlying dispute was a claim by Mr. Mudbug that Bloomin had breached the parties’ food supply contract. The district court dismissed the claims. Bloomin then moved for Rule 11 sanctions on the ground that some of the allegations in the complaint were false and that the lawyer who signed the complaint had not done a sufficient investigation of the matter. The district court denied the motion for sanctions and the Fifth Circuit affirmed. Its reasoning:

BBI’s Rule 11 motion was based on the theory that some factual assertions in MMI’s complaint had no evidentiary support and were wholly false. The district court did not definitively determine if MMI had violated Rule 11. Instead, it denied the motion because even if MMI had violated Rule 11, it thought that the dismissal of MMI’s claims was already sufficient to deter future misconduct. BBI now argues that dismissing frivolous claims with no evidentiary support—a result that is already accomplished on the merits—is not an adequate deterrent and therefore does not fulfill the purposes of Rule 11.

BBI’s position has some logic to it. But we cannot say that the district court abused its discretion by denying the Rule 11 motion on the grounds that dismissal was a sufficient sanction. While we have noted that dismissal is “better grounded, not on misconduct [under Rule 11], but on the merits under Rules 12, 41, 55, and 56,” we have also held in the same case that “district courts may theoretically still dismiss baseless claims or defenses as sanctions” under Rule 11. Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 878 (5th Cir. 1988) (en banc). As we have never outlawed dismissal as an appropriate sanction under Rule 11, the district court’s denial of BBI’s Rule 11 motion was not based on an erroneous view of the law and was consequently not an abuse of discretion. BBI may feel that further sanctions are justified, but the district court found otherwise. Its decision is entitled to deference.

Federal Court Sanctions Attorney For Time-Barred Lawsuit


The case is Doe v. Albuquerque Public Schools, 18 cv 85 (D. New Mexico April 3, 2019). Plaintiff claimed that she was raped by one of the defendants when she was a student. The rape claim was alleged under 42 USC Section 1983. Unfortunately for the plaintiff the her claims were time-barred and the court entered judgment for the defendants.

Because the Defendant did not comply with the Rule 11 safe harbor (giving 21 days to the other side to withdraw the pleading), the Rule 11 motion was denied.

The court, however, elected to award sections pursuant to 28 U.S.C. §1927 because it should have been clear to the lawyer for plaintiff that the claims were time-barred. The court explained its ruling in this passage of the opinion:

The Court agrees with Defendant’s counsel that Plaintiff’s counsel failed to stop, think and investigate before filing the complaint, and the Court finds that sanctions under 28 U.S.C. §1927 are appropriate in order to deter such a cavalier approach to litigation. The Court is guided in particular by the heinous nature of the alleged acts, and acknowledges the damaging effect such acts can have on victims in general.

The complaint in this case alleges horrendous acts of sexual abuse perpetrated by Defendant upon the Plaintiff which occurred approximately twenty years ago but allegedly were only discovered by Plaintiff in 2014 through therapy. While the Court is mindful of the damage that can be done to victims of sexual abuse, the Court also acknowledges that there are occasions when defendants are falsely accused in these types of cases. Under these circumstances, Plaintiff’s counsel was obliged to exercise vigilance and thoroughness before filing a complaint of this nature, but instead, counsel forged ahead without caution or care and filed a complaint on behalf of an anonymous Plaintiff accusing Defendant Beems of terrible conduct that supposedly happened many years ago but surfaced for the first time in 2018 when the complaint was filed as a public document.

In bringing these federal claims and in failing to adequately examine the claims before filing the case, counsel for Plaintiff has shown an indifference to the law that saddled the opposing party, Mr. Beems, with unproven allegations that may follow him for years. This is not to say that Plaintiff’s claims were frivolous, but they do not need to be frivolous to warrant sanctions under §1927. See Mark Ind., Ltd. v. Sea Captain’s Choice, Inc., 50 F.3d at 732. Unmindful of the possible consequences, Plaintiff’s counsel proceeded to include federal claims in the complaint without seriously examining them to see whether they were viable even on threshold timeliness issues. In doing so and in continuing to pursue these claims, Plaintiff’s counsel’s zealousness in representing his client gave way to recklessness, which in turn led to conduct that is proscribed by §1927.

Ed Clinton, Jr.

The Clinton Law Firm

Sanctions Awarded For Frivolous Counterclaim