Category: Rule 11 Sanctions

Filing Complaint Without Authorization of Client Leads to Rule 11 Sanctions


In Edwards v. Wells Fargo Bank, 19-cv-14409 D. New Jersey January 5, 2003, the Court awarded Rule 11 sanctions against plaintiff’s counsel for failing to obtain the authorization of his client before filing the case. At a hearing the lawyer conceded that he lacked authorization to file the case. It is difficult for me to comprehend the court’s rulings. The pertinent parts of the ruling are quoted below:

WHEREAS, the Court held a hearing on the Order to Show Cause on July 7, 2021, with both Thomas and Edwards in attendance, (ECF No. 29), and where Thomas conceded on the Record that Edwards had not hired him to bring this case and that in fact Thomas had never met Edwards prior to the Order to Show Cause hearing on July 7, 2021, (ECF No. 38 at 23:22-23); and

WHEREAS, the Court noticed Thomas at both the hearing and in the Order issued on July 8, 2021 that the Court was contemplating sanctions under Rule 11 of the Federal Rules of Civil Procedure and the Rules of Professional Conduct and gave Thomas a second chance to Show Cause to the Court; and

WHEREAS, Thomas received two extensions and nearly two months of time to prepare his second response to the July 8, 2021 Order to Show Cause (ECF Nos. 30, 31, 32, 33, 34, 36, 37); and

WHEREAS, the Court found Thomas’ explanations as to why this case was brought under Edwards’ name were insufficient, (ECF No. 39); and

WHEREAS, the Court found that Thomas was not authorized by Edwards to bring this action, (ECF No. 39 at 34-35); and…

WHEREAS, the Court found that Thomas filed and pursued this lawsuit for improper purposes, violating Federal Rule of Civil Procedure 11(b)(1), (among other violations) (ECF No. 39 at 20-21)[2] (“the Court is unable to conceive of any proper basis Thomas could have had for filing this Complaint”) (emphasis in original); and

WHEREAS, with the Court finding a violation of Rule 11(b)(1), the case was brought improperly ab initio, without Edwards’ knowledge or consent;

No Rule 11 Sanctions Where Lawyers Had Reasonable Basis To Make Alter Ego Claim


In Jingdong Logistics United States Company v. Ready Acquisition, Inc, Case No. 5:22-cv-01018-ODW (SHKx), Central District of California, plaintiff alleged that Ready Acquisition was the alter ego of its two owners. The owners alleged that the allegations were baseless and sought Rule 11 sanctions. The court denied sanctions by reasoning that there was an adequate factual and legal basis for the alter ego claim.

Here, the Court finds that the alter ego allegations in Jingdong’s Complaint were neither factually nor legally baseless “at the time that the position [was] adopted,” that is, at the time Jingdong filed its Complaint. Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1538 (9th Cir. 1986). In reaching this conclusion, the Court “avoid[s] using the wisdom of hindsight,” limiting its inquiry to whether a reasonable basis for alter ego allegations existed at the time the Complaint was filed, regardless of what Jingdong learned or discovered after it filed the Complaint. Id. at 1537 (quoting Fed. R. Civ. P. 11 advisory committee’s note to 1983 amendment).

Prior to filing the Complaint, Jingdong’s attorneys investigated Ready Acquisition by sending a field agent to Ready Acquisition’s registered principal office address and to Lawrance’s personal address. (See Decl. Sijiu Ren ISO Opp’n (“Ren Decl.”) ¶¶ 3-5, ECF No. 22-1.) In so doing, Jingdong discovered that (1) Ready Acquisition’s office was occupied by new tenants, and that (2) packages addressed to Ready Acquisition were located on the front porch of Lawrance’s residence. (Id.; Decl. Greg Lawrance ISO Reply (“Lawrance Decl.”) ¶¶ 6-7, ECF No. 28.) Jingdong’s attorneys conducted additional research and determined that Ready Acquisition’s business status in the State of New Hampshire was “Not In Good Standing.” (Ren Decl. Ex. A (“Business Information Inquiry”), ECF No. 22-2; Ren Decl. ¶ 6.) These discoveries provided Jingdong’s counsel with a reasonable factual basis for including alter ego allegations against Lawrance and Gunter in Jingdong’s Complaint.

Lawrance and Gunter argue otherwise, pointing to facts and developments that occurred after Jingdong filed its Complaint, (Mot. 6-8), but these facts are not relevant to whether the Court should sanction Jingdong for allegations made in the Complaint. Fed. R. Civ. P. 11(b); Golden Eagle, 801 F.2d at 1538.

Lawrance and Gunter further argue that Jingdong is withholding $400,000 of Ready Acquisition’s inventory and thus contributing to the very insolvency Jingdong alleges supports alter ego liability. (Reply 5.) This argument is not well taken because there is no actual evidence of a causal link between Jingdong’s withholding of inventory and Ready Acquisition’s purported insolvency; and in any case, this attack on one component of Jingdong’s alter ego theory, even if successful, would not render the alter ego theory factually or legally baseless.

The court also held that the legal theory did not merit sanctions either.

Comment: Plaintiff did an extensive investigation of the facts before it brought the alter ego claim. That investigation and the facts that were discovered was a sufficient basis to bring an alter ego claim.

http://www.clintonlaw.net

That Will Cost You $50,000.


Trump v. Clinton is a purported RICO lawsuit filed by Trump attorneys against Hillary Clinton (who lost the 2016 Presidential Election) and a number of other defendants. It was dismissed with prejudice two months ago. One of the defendants, Charles Dolan, filed a motion for Rule 11 sanctions. The district court granted the motion with some stern words for Trump’s lawyers. Dolan was a mere volunteer for the Clinton campaign and did not have the roles that the complaint, and the amended complaint, alleged that he had.

The Court found that the allegations that Mr. Dolan was involved in a conspiracy to harm Donald Trump or his campaign were false and reckless. The court noted that the lawyers for Dolan sent a detailed warning letter to the attorneys for Trump explaining the various flaws with the Complaint. Instead of taking the letter seriously, the lawyers made a few cosmetic changes and filed an Amended Complaint. The court’s discussion of the Rule 11 warning letter is instructive:

The Warning Letter. 

On May 31, 2022, counsel for Mr. Dolan wrote the attorneys for Mr. Trump. They warned:

1.         That Mr. Dolan had no role in any conspiracy related to the Steele dossier.

2.         That Mr. Dolan was not a source for the allegations of sexual activity.

3.         That Mr. Dolan had not been in contact with any defendant other than Igor Danchenko, and that Mr. Dolan’s contacts with Mr. Danchenko involved business interests and help for a conference in Moscow.

4.         That Mr. Dolan had never been chairman of the DNC.

5.         That Ms. Clinton was on record through a spokesperson as stating she had no recollection of Mr. Dolan.

(DE 268-1).

The court then noted that the Amended Complaint did not make material changes to the allegations against Dolan. Dolan moved for sanctions. The explanation for the decision to grant sanctions is well-written.

Rule 11 sanctions are properly assessed (1) when a party files a pleading that has no reasonable factual basis; (2) when the party files a pleading that is based on a legal theory that has no reasonable chance of success and that cannot be advanced as a reasonable argument to change existing law; or (3) when the party files a pleading in bad faith for an improper purpose. Massengale v. Ray, 267 F.3d 1298, 1301 (11th Cir. 2001) (citing Worldwide Primates, Inc. v. McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996)).

Here, all three are true. In Section A of this Order, I explain why the Amended Complaint lacked a reasonable factual basis as to the allegations against Defendant Dolan. Then, in Section B, I explain why Plaintiff’s legal arguments contained no reasonable chance of success. I have already done so, at great length and in great detail, in my Order granting Defendants’ Motion to Dismiss. But I reiterate those fatal flaws here as relevant to the distinct Rule 11 inquiry. Finally, in Section C, I find that Plaintiff filed his pleadings for an improper purpose.

The order contains a lengthy discussion of the merits of the legal theories in the Complaint as additional bases for sanctions. The court ordered the lawyers for Trump to deposit $50,000 with the Court and pay Mr. Dolan’s legal fees in connection with the motion.

Comment: this is an example where the lawyer failed to conduct due diligence before making claims that were either false or baseless. Even after receiving a Rule 11 warning letter, the lawyers (at least according to the Court) failed to take any measures to correct the problems with the Complaint. Rule 11 requires due diligence and no lawyer should ever sign a pleading without doing that hard work. Don’t sign because the boss tells you to sign. Don’t sign to curry favor. Sign if the allegations are true and well-researched. In the end of the opinion, the Court indicated that other sanctions might be forthcoming.

Note: my apologies for the formatting issues that made the original post impossible to read.

Ed Clinton, Jr.

Trump v. Clinton – A Fertile Ground For Sanctions Motions


The Southern District of Florida recently dismissed Trump v. Clinton 2:22-cv-14102 (Middlebrooks, J.) which alleged a smorgasbord of grievances against various defendants who plaintiff claimed had attempted to rid the 2016 Presidential Election against him. Defendant Charles Halliday, Jr. filed the first of an expected dozen or so Rule 11 motions against the lawyers for the former President. The motion alleges sloppy work by Trump’s lawyers.

“Defendant Charles Halliday Dolan, Jr has been dragged into this lawsuit via speculation, rumor and innuendo.Large and small matters are falsely and cavalierly presented in Plaintiff’s pleadings; any one of these false statements is grounds for sanction.

The original complaint falsely presented Mr. Dolan as a former Chairman of the DNC. Complaint, ¶96.Undersigned counsel sent a Rule 11 letter to Plaintiff’s counsel noting, among other things, that statement was false.See Exhibit A. The Amended Complaint now describes

Mr. Dolan as the former Chairman of a “national democratic political organization.” Amended Complaint, ¶96. Thatdoes not fix the problem, as Mr. Dolan was never the Chairman of any such organization. Mr. Dolan’s resume is available online and could have been easily checked.

The new, Amended Complaint further complicates its prior error by now identifying Mr. Dolan for the first timeas a citizen and resident of New York, Amended Complaint, ¶20. This is a new allegation that is not true at all, andagain could have been easily checked. Mr. Dolan lives and has lived for most of his adult life in Virginia. Mr. Dolan already submitted a declaration identifying himself as an Arlington, Virginia resident.Mr. Dolan is alleged to be the ultimate source of a rumor that Mr. Trump engaged in salacious sexual activity at a Moscow hotel.This is also not true, and there is no basis for this rumor….

There was no factual basis to allege that Mr. Dolan was ever Chairman of the DNC, or former Chairman of any national democratic political organization, and no basis to allege he has ever been a resident of New York. There apparently was not a scintilla of due diligence on the part of the plaintiff’s attorneys. These false statements alone merit sanction, especially since undersigned counsel warned Plaintiff’s counsel of a potential Rule 11 motion via letter. These false facts are indicative of a lack of reasonable diligence generally.”

Comment: I take no position on whether the motion has merit, but will keep readers updated on the results of this (and other expected sanctions motions) in this case.

Ed Clinton, Jr.

A Nasty Letter Isn’t A Sanctions Motion


Rule 11 has a safe harbor that allows the opposing party to withdraw an offending pleading within 21 days after he is served with the motion for sanctions. Many sanctions motions are denied because the party seeking sanctions writes a letter to the opponent, but does not actually serve a motion for sanctions. This court discussed this common problem and denied the motion for sanctions.

“Rule 11(b) provides that by presenting a pleading to a court, an attorney certifies that, after conducting a reasonable inquiry, evidentiary support exists for the factual allegations pled in the complaint. Fed. R. Civ. P. 11(b)(3). If a party believes that it has been served with a complaint for which no reasonable inquiry had been conducted, or for which no evidentiary support existed, then he may move for sanctions pursuant to Rule 11(c). Fed. R. Civ. P. 11(c)(1). The movant may not, however, file the motion for sanctions with the court unless the motion has been served on the non-moving party at least twenty-one (21) days prior to filing, and the non-moving party has not withdrawn or otherwise corrected the challenged writing within the twenty-one-day period. Fed. R. Civ. P. 11(c)(2). Compliance with the “21-day safe harbor” rule is a condition precedent to sanctions. RMC Publ’ns, Inc. v. Doe, No. 3:07-cv-3170-JFA, 2008 WL 11472127, at *3 (D.S.C. Feb. 5, 2008) (citing Brickwood Contractors, Inc. v. Datanet Eng., Inc., 369 F.3d 385, 393 (4th Cir. 2004)).

There is no dispute that Defendant failed to serve the motion for sanctions and memorandum prior to filing it with the Court. Instead, Defendant sent a letter to Plaintiff’s counsel on December 15, 2021, discussing the purported flaws in Plaintiff’s claims and demanding that she dismiss her claims with prejudice or Defendant “intends to file . . . a Rule 11 motion for sanctions…”. (Doc. No. 10-6, pp. 1, 6). Defendant argues that this letter satisfied the Rule 11 the safe harbor requirements. The Court disagrees. The Fourth Circuit has stated:

The requirements of the rule are straightforward: The party seeking sanctions must serve the Rule 11 motion on the opposing party at least twenty-one days before filing the motion with the district court, and sanctions may be sought only if the challenged pleading is not withdrawn or corrected within twenty-one days after service of the motion.

Brickwood, 369 F.3d at 389 (emphasis added); see also Hamlin v. TD Bank, No. 1:13-CV-00200-MR-DSC, 2014 WL 3101942, at *3, n.2 (W.D.N.C. July 4, 2014) (“The motion for sanctions must be served on the offending party at least twenty-one days before filing and must describe in detail the alleged offending conduct. Therefore, counsel’s letter threatening to file a motion for Rule 11 sanctions in the event that the motion to dismiss was granted was not sufficient to trigger the safe harbor provision of Rule 11(c)(2).”).”

McFee v. Carolina Pad, LLC, 3:21-cv-633-GCM (W.D. North Carolina February 15, 2022).

So the procedure is simple: prepare a motion for sanctions and serve it on the other party and wait 21 days before filing it with the court.

Ed Clinton, Jr.

Federal Judge Sanctions Lin Wood, Sidney Powell and other lawyers


In King v. Whitmer, No. 20-13134, Judge Linda Parker issued a 110 page opinion sanctioned several lawyers who filed the complaint and the amended complaint under Rule 11, the Court’s inherent authority and 28 U.S.C. §1927. This opinion is very significant and it may cause changes in the way election law is practiced in the future. The Court found that the allegations in the Complaint lacked a good faith basis in law and fact and that the lawyers vexatiously multiplied the proceedings. The court used every possible ground to support the sanctions award and made credibility findings.

A link to the opinion is here: https://www.michigan.gov/documents/ag/172_opinion__order_King_733786_7.pdf

At the time these lawsuits were brought, they appeared to me to be reckless and risky. It is one thing to allege that a voter was disenfranchised. It is another thing all together to allege that the entire election was a fraud.

Major League Baseball Wins Sanctions Against Supplement Maker


In DNA Sports Performance Lab, Inc. v. Major League Baseball, No. C20-00546 (N.D. California October 27, 2020), the district court awarded Rule 11 sanctions against DNA Sports for filing what it described as a “baseless” complaint against Major League Baseball. DNA markets certain supplements which have been banned by Major League Baseball and its players’ union. The district court found that the complaint was baseless and awarded Rule 11 sanctions. This plaintiff in the case, in my opinion, has pursued this type of litigation against Major League Baseball and its union. long after it was clear that the litigation was without merit and without basis in fact.

This is the description of the prior history of lawsuit between DNA Sports and Major League Baseball

“As detailed in the league’s motion for sanctions, DNA Sports and its attorneys have pursued the league, well before the instant suit, for the past nine years (Dkt. No. 42 at 4-5). Our tale begins with an October 2012 shakedown letter. Following two league investigations into DNA Sports’ former business venture, DNA Sports sent the letter accusing the league of character defamation, alleged $30,000,000 in damages, and threatened to sue unless the league promptly paid $6,000,000. DNA Sports, though, conceded that its products contained a banned substance under the Joint Drug Prevention and Treatment Program (Dkt. 42-2, Exh. A at 3).

In 2013, the league launched another investigation into the illegal sale of performance-enhancing drugs to players. Investigators targeted “anti-aging” clinics in Florida, including DNA Sports (Dkt. No. 19 at 5; Compl. ¶¶ 19-20).

In February 2014, DNA Sports sued the league in Florida state court, challenging the league’s investigation as unfair and discriminatory. But plaintiff missed several case management conferences and failed to perfect service until October, resulting in a November 2014 dismissal for failure to prosecute. Nix and DNA Sports Performance Lab, Inc. v. Major League Baseball, etc., et al., No. 3D14-2967, 2015 WL 1930327 (Fla. 3d Dist. Ct. App. Apr. 27, 2015).

In July 2016, following the league’s rejection of another letter, this time demanding $40,000,000, DNA Sports sued the Office of the Commissioner of Baseball and several league employees in the Southern District of New York challenging the same league investigation, alleging tortious interference with prospective economic advantage (Dkt. 42-2, Exh. D). After a pre-motion conference to discuss the league’s intent to file motions for dismissal under Rule 12(b)(1) and for sanctions, DNA Sports voluntarily dismissed that action in November 2016. Nix and DNA Sports Performance Lab, Inc. v. Office of Comm’r of Baseball, No. 16-CV-5604 (S.D.N.Y. July 14, 2016).

In late November 2016, less than a month after the dismissal, DNA Sports sued the league, the commissioner, and several league employees in New York state court for hacking DNA Sports’ social media accounts, tortious interference with economic advantage, and defamation of Nix — all in the course of the league investigation. Defendants removed to federal district court based on the hacking claim. Rather than move to remand or amend its complaint to satisfy federal pleading standards, DNA Sports voluntarily dismissed its federal hacking claim and proceeded with the state suit. The New York state court then dismissed the complaint in June 2018 as res judicata under FRCP 41’s two-dismissal rule, barred by statute of limitations issues, and for failure to state a claim. In December 2018, the state court denied DNA Sports’ motion to reargue the dismissal as frivolous and imposed attorney’s fees against DNA Sports and its counsel — fees which remained outstanding as of briefing here. Nix and DNA Sports Performance Lab, Inc. v. Major League Baseball, et al., No. 159953/2016, 2018 WL 2739433 (N.Y. Sup. Ct. June 7, 2018).

In April 2018, while litigating the third action, Neiman Nix — acting pro se — sued Kobre & Kim LLP and three attorneys (the league’s counsel), several MLB coaches and general managers, and over a dozen MLB clubs in Florida state court, alleging RICO, trade secret, and computer abuse violations. In December 2018, Mr. Nix voluntarily dismissed claims against the majority of the baseball clubs as well as Kobre & Kim and its lawyers. The action currently remains pending, however, against two remaining clubs and league personnel. Nix v. Luhnow, et al., No. 2018CA003920 (15th Fla. Cir. Ct., Palm Beach Cnty.).

In January 2019, DNA Sports sued the Office of the Commissioner of Baseball, current and former MLB commissioners, and several MLB employees in Florida state court for unlawful hacking and computer abuse violations in the course of the 2013 MLB investigation. After DNA Sports amended its complaint in response to a motion to dismiss, the court dismissed the claims against the commissioners but allowed DNA Sports to proceed with the remaining claims. Though that case pertained to the leagues’ alleged hacking of DNA Sports’ social media accounts during the 2013 investigation, DNA Sports sought discovery on the league’s stance and communications regarding IGF-1. Neiman Nix and DNA Sports Performance Lab, Inc. v. Major League Baseball, et al., No. 2019CA002611 (11th Fla. Cir. Ct., Miami-Dade Cnty.).

In March 2018, DNA Sports also sued ESPN, the Associated Press, and USA Today in the Southern District of Florida in March 2018, alleging that each had defamed plaintiffs by publishing or republishing a statement from the league that DNA Sports’ July 2016 tortious interference lawsuit “admit[ed] Nix and his company used bioidentical insulin-like growth factor (IGF-1), which is derived from elk antlers and is on baseball’s list of banned substances.” Nix and DNA Sports Performance Lab, Inc. v. ESPN, Inc., et al., No. 1:18-CV-22208-UU, 2018 WL 8802885, at *1-2 (S.D. Fla. Aug. 30, 2018). Plaintiff called the statement defamatory because it did not differentiate between natural and synthetic IGF-1, giving readers the impression that DNA Sports had engaged in illegal or legal-but-banned drug sales. The Southern District of Florida, however, held that the statement at issue was substantially correct and the omission did not render the report untrue, thus it was not defamatory. The district court dismissed the complaint with prejudice in August 2018. The Eleventh Circuit affirmed, ruling that league regulations banned all forms of IGF-1 — whether synthetic or natural. Nix and DNA Sports Performance Lab, Inc. v. ESPN, Inc., et al., 772 Fed. Appx. 807, 814 (11th Cir. 2019).

The instant action descends from the March 2018 suit. After the Eleventh Circuit’s decision, DNA Sports began to investigate the presence of natural IGF-1 in animal-derived protein products. Specifically, DNA Sports “consulted with several experts” about whether whey-protein products endorsed by the league would contain natural IGF-1 (allegedly, they would) (Reich Decl., Dkt. No. 31-1 at ¶¶ 9-10). DNA Sports did not test these products for IGF-1 but instead relied on what it and its experts deemed “common sense” (id. at ¶ 11; Opp. Br., Dkt. No. 46 at ¶ 6).

In June 2019, DNA Sports’ current attorney, Lance Reich, contacted the league’s general counsel inquiring about “the unfair competition and conduct by [the league] in maligning [DNA Sports] in public for selling products containing natural IGF-1” while the league and the union endorsed and profited “from the sale of other nutritional products that contain[ed] natural IGF-1.” As DNA Sports admits, Reich demanded that the league “cease its sponsorship and partnerships with all companies and entities that sell natural protein products that contain natural IGF-1,” and “publicly announce that all nutritional supplement products that contain natural IGF-1 are banned performance-enhancing substances,” or face a new suit (Reich Decl., Dkt. 31-1 at ¶ 12 & Exh. A). The league refused.”

The reasoning:

“

This order finds DNA Sports’ complaint baseless. That, along with finding Reich failed to conduct an adequate investigation, supports Rule 11 sanctions. And, such baselessness in addition to bad faith supports inherent authority sanction of DNA Sports itself.

First, this order finds DNA Sports’ complaint baseless. A prior order found glaring holes in the allegations against the union (Dkt. No. 53). Exhausted of defamation and other tort claims, plaintiffs sought relief under inapplicable statutes. To allege Lanham Act violations, plaintiffs must show that defendants made a false statement of fact in a commercial advertisement about its own or another’s product, that the statement actually and materially deceived its audience, and that plaintiff has been or is likely to be injured as a result of the false statement in the form of diverted sales or loss of goodwill. Southland Sod Farms v. Stover Seed Co. Eyeglasses, 108 F.3d 1134, 1139 (9th Cir. 1997). False advertising claims brought under state law require showing that defendants participated in or had control over the untrue or misleading advertisements. In re First Alliance Mortg. Co., 471 F.3d 977, 995-96 (9th Cir. 2006). Yet, DNA Sports admit that their products contain naturally-occurring IGF-1. They concede that the league and the union have banned IGF-1 in its natural and synthetic forms under their Joint Drug Prevention and Treatment Program. And they acknowledge that NSF International, an independent product-testing organization, certifies products as “safe for sport” after testing for banned substances enumerated in the drug program (Compl. at ¶¶ 8, 18, 29). So, DNA Sports brought false advertising and unfair competition claims, contesting the “certified for sport” declaration on several products that allegedly contained IGF-1, without ensuring they sued the right defendants (i.e., that defendants made, caused, or induced the allegedly false statement), showing requisite harm (i.e., that plaintiffs suffered injuries like diverted sales or loss of goodwill), or requesting appropriate relief (i.e., courts cannot enjoin action that has already ceased on its own accord) (Dkt. No. 53). Such baselessness supports an inference of improper motive. See Townsend, 929 F.2d at 1365.

The league’s prior motion for sanctions would have been granted for similar reasons. The majority of DNA Sports’ complaint rehashed prior suits against the league and relied on conclusory statements to baselessly allege Lanham Act, false advertising, and unfair competition claims. The complaint recapitulated the misdeeds of the league’s investigations that inspired DNA Sports’ February 2015, July 2016, November 2016, and January 2019 suits which were all settled by prior rulings (Compl. at ¶¶ 15, 19-20). It then invoked the press release that was the subject of the March 2018 suit to maintain that though it is true DNA Sports’ supplements contain banned IGF-1, the league publicly maligned plaintiffs and “essentially bann[ed] [them] from ever working again in any” league-related capacity (Id. at ¶ 24). This after admitting that DNA Sports never sold its supplements to league players on account of a non-competition agreement (Id. at ¶ 18). Finally, DNA Sports alleges that league players and coaches consume products with IGF-1 and have never been disciplined and several league-endorsed products that compete with DNA Sports contain IGF-1. All this lending itself to false advertising and unfair competition.

Recall that these claims require, among others, both a false statement and harm, such as lost goodwill or diverted sales. See Southland, 108 F.3d at 1139; First Alliance, 471 F.3d at 995-96. Yet DNA Sports’ complaint failed to show how the targeted products (the league-licensed Gatorade “Recover” whey protein bars, Cytosport Muscle Milk protein shakes, and Eyepromise nutritional supplements) compete with DNA Sports’ own products, which cost hundreds of dollars more and contain a banned substance. Further, plaintiffs failed to show how the use of the logo or the press release — the alleged commercial speech here — diverted sales from DNA Sports to these specific products and how this speech was false. Without these elements, their allegations against the league are baseless.

Second, given the obvious pitfalls in DNA Sports’ complaint, this order finds Attorney Reich failed to reasonably investigate these claims. To assess whether an attorney has conducted an adequate pre-filing investigation, courts must consider factual questions regarding the nature of the inquiry and must determine whether the legal issues raised were warranted. Cooter & Gell, 496 U.S. at 399. DNA Sports and Attorney Reich alleged that they “consulted with several experts” about whether whey-protein products endorsed by the league would contain natural IGF-1 (allegedly, they would) (Reich Decl. at ¶¶ 9-10). DNA Sports did not test these products for IGF-1 but instead relied on what it and its experts deemed “common sense” to determine that all these certified for sport products contained IGF-1 (id.at ¶ 11; Opp. Br. at ¶ 6). Beyond this, a cursory investigation into Lanham Act, false advertising, and unfair competition claims would have revealed the commercial speaker, material-deception, and injury elements which could have saved DNA Sports’ complaint or at least, saved the league and the union the trouble of motion practice. Attorney Reich failed in this regard.

Third, this order finds DNA Sports filed its complaint to harass the league and the union. DNA Sports’ history of litigation demonstrates both that this suit is brought in bad faith to vex and that dismissal alone will not dissuade DNA Sports from trying again. Though this is only the first suit against the union, it is the sixth suit arising out of the same original circumstances against the league. As detailed in the prior order, prior dismissals and sanctions have not tempered DNA Sports’ vendetta against the league. It has repeatedly dismissed its cases against the league and companies, either voluntarily or in response to court orders. Yet, true to its reliable pattern, after dismissal, DNA Sports has simply developed a different theory in a different court based on the same facts and continued its pursuit of the league. In 2018, after several these dismissals, a New York state court imposed monetary sanctions on DNA Sports and its previous counsel for frivolous and harassing conduct against the league. Nix and DNA Sports Performance Lab, Inc. v. Major League Baseball, et al., No. 159953/2016, 2018 WL 2739433 (N.Y. Sup. Ct. June 7, 2018). As DNA Sports’ litigation history demonstrates, however, these sanctions have not fazed DNA Sports. Rather, it has continued to sue the league, affiliated entities, and now the union, this despite outstanding monetary sanctions for troublesome lawyering. Considering this prior misconduct, dismissal alone will not deter DNA Sports from filing further baseless and harassing suits.

Indeed DNA Sports and Attorney Reich refuse to dismiss outstanding cases against the league, proving that DNA Sports does not intend to change its course of conduct. After the August 1 order, the league offered to withdraw its motion for sanctions “if Plaintiffs [would] dismiss with prejudice all outstanding litigation against the MLB defendants and agree to bring no further litigation against the MLB defendants” (Dkt. No. 60 at 14). Although plaintiffs dismissed the instant action with prejudice, DNA Sports still has outstanding litigation against some of the league’s clubs and commissioner. These remain intact despite the league’s offer to withdraw their sanctions motion entirely.

Given DNA Sports’ persistence, it may be that no amount of sanctions will deter it from continuing its crusade. The requested amount of fees, however, will at least compensate the union and the league for the harm done here. As this is the sixth case against the league (at least), a full award is appropriate. Though this is the first suit against the union, a full award is justified because it is part of an entrenched campaign of harassment.”

Comment: as a lawyer you have a duty to investigate allegations before you sign your name to a pleading. Please take the time to give every allegation a thorough review to determine if you have evidence to prove that it is true. If your first complaint alleging a novel theory flops, don’t keep refiling the litigation in other courts. That will only lead to discipline. If you are being pressured to make allegations you don’t believe are supported by solid evidence, walk away from the representation. You have a duty to the court system to make well-founded and factually based allegations.

Ed Clinton, Jr.

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 818; Wehle 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