Category: Sanctions For Frivolous Lawsuits

Procedural Default Defeats Sanctions Motion


If you wish to move for Rule 11 sanctions, you must take the time to (a) give the other party 21 days to withdraw the offending paper or pleading; and (b) file the motion for sanctions as a separate motion. Failure to do that risks defeat.

This is the case King v. Wang S.D. New York 2018. King argued that Wang had presented frivolous legal theories in an amended pleading. The court never reached those arguments because King did not comply with the procedural requirements of Rule 11. The explanation for the ruling:

This Court declines to discuss the merits of the Kings’ arguments for sanctions because it finds that the Kings have failed to comply with Rule 11’s strict procedural requirements. Specifically, they failed to make their motion “separately from any other motion.” Fed. R. Civ. P. 11(c). Rather, they tacked their motion for sanctions onto their motion to strike the Amended TPC. See Bower, 2015 WL 10437758, at *3 (denying a motion for sanctions where the defendants’ “purported Rule 11 motion consist[ed] of a single, conclusory sentenced” added to the end of a brief); see also Williamson, 542 F.3d at 51 (affirming district court’s decision to deny request for sanctions pursuant to Rule 11 because the defendants failed to “make a separate motion for sanctions”).

The Kings also failed to comply with Rule 11(c)’s safe harbor provision. The parties do not dispute that the Second Circuit held in Lawrence v. Richman Grp. of CT LLC, 620 F.3d 153, 158 (2d Cir. 2010), that “the filing of an amended pleading resets the clock for compliance with the safe harbor requirements of Rule 11(c)(2) before a party aggrieved by the new filing can present a sanctions motion based on that pleading to the district court.” The parties dispute, however, whether Lawrence applies when a party has unilaterally amended its pleading, as opposed to when a party was granted leave to replead and then filed a new complaint, as was the case in Lawrence.

This Court finds that the rule in Lawrence applies to “all pleadings” and, therefore, applies even when a party has exercised its right to amend its pleading as a matter of course.[1] Lawrence, 620 F.3d at 157. Other courts in this district have applied Lawrence to pleadings amended as a matter of course under Federal Rule of Civil Procedure 15(a). See e.g., Rates Tech. Inc. v. Broadvox Holding Co., LLC, No. 13 CIV. 0152 SAS, 2014 WL 46538, at *5 (S.D.N.Y. Jan. 6, 2014) (holding that defendants were required to serve a new sanctions motion after plaintiffs, who had amended their complaint as a matter of course, filed a new complaint). This Court, like the district court in Lawrence, may be faced with “relentless motion practice”; however, as cautioned by the Second Circuit, that does not give this Court — or the Kings — the ability to “negate the safe harbor requirements of Rule 11(c)(2).” Lawrence, 620 F.3d 160.

Because the Kings have failed to meet the procedural requirements of Rule 11(c)(2) Court is barred from granting “any award of sanctions” and this motion is denied. Targum v. Citrin Cooperman & Co., LLP, No. 12 CIV. 6909 SAS, 2013 WL 6087400, at *9 (S.D.N.Y. Nov. 19, 2013).

Another Sad Adventure in Diversity Jurisdiction Leads To An Award of Attorney Fees


This is an unpublished case Zausa v. Zausa v. Pellin, 18-1896 (7th Circuit 2018). The case is noteworthy because the plaintiff’s counsel believed he could cure a diversity jurisdiction problem by filing the same case in another state. When that failed, he tried again before a second district judge. The second district judge awarded sanctions to the defendant for having to deal with the same meritless jurisdictional arguments twice.

Diversity jurisdiction requires that plaintiff and defendant be citizens of different states. Here, they were both citizens of Illinois. There could never be diversity of citizenship because the parties were from the same state. It would not matter if the case was filed in Illinois or Alaska – there was no diversity of citizenship.

Here, the lawyer made things worse by refiling a dismissed lawsuit before another federal judge. The first attempt to file the lawsuit was dismissed because there was no diversity of citizenship. The plaintiff’s lawyer then made a second such attempt by refiling the same case in another district.  The court set forth the procedural history of the case as follows:

Terri Zausa obtained a multi-million-dollar judgment against Jack in Illinois state court before this became a federal case. Jack has not been able to pay. Jack’s former business partner, Michael Pellin, allegedly owes him roughly $1.8 million for Jack’s share of their business, which Pellin purchased in 1990. In recent years, Pellin has not met the schedule of payments he owes Jack. Although Jack and Pellin executed a release from the purchase agreement in 2004, Terri says that there was no consideration given for the release, which was solely “for tax purpose[s].” And Pellin purportedly continued to make payments to Jack until 2010. Terri now attempts to collect directly from Pellin to satisfy Jack’s debt to her.

Terri’s first crack at collecting from Pellin began when attorney Salem represented her in filing an enforcement action in the Northern District of Illinois. Judge St. Eve dismissed Terri’s claims against Pellin with prejudice for lack of standing because Terri was not a party to Jack and Pellin’s agreements. Since Terri, the original creditor, and Jack, the original debtor, were not completely diverse, Judge St. Eve dismissed the case without prejudice for lack of subject-matter jurisdiction.

[Plaintiff’s attorney Maurice J.] Salem then brought another lawsuit against Jack on Terri’s behalf, this time in the Northern District of Indiana. The complaint also named Pellin as “Third-Party Respondent.” Contrary to Judge St. Eve’s conclusion, Salem stated that federal jurisdiction existed “by reason of complete diversity of citizenship” because Terri and Jack Zausa are Illinois residents and Pellin is an Indiana resident.

Pellin moved to dismiss the complaint for lack of subject-matter jurisdiction. He pointed to the previous litigation in front of Judge St. Eve and her explanation that complete diversity did not exist because, although Terri was attempting to discover Indiana-citizen Pellin’s assets, her ex-husband (an Illinois citizen) was the judgment debtor.

The jurisdictional theory Salem presented to Judge Moody was:

[I]n Indiana, there is complete diversity jurisdiction because neither Defendant Jack Zausa, nor Plaintiff Terri Zausa are domiciled in Indiana. In other words, Pellin, the only citizen of Indiana is the party of interest that does not share the state of Indiana with any other party. Compared to Illinois where Defendant Jack Zausa, another party of interest, shares the state with Plaintiff. However, the issue is not whether there is complete diversity jurisdiction in Illinois, because we are not in Illinois, the issue is whether there is complete diversity jurisdiction in Indiana.

(Emphasis in original). Unpersuaded, Judge Moody granted Pellin’s motion to dismiss, citing Terri’s (Salem’s) attempt to establish federal jurisdiction “with a skewed logic that is nearly impossible to follow.” He also noted that Terri, as plaintiff, could not sue Pellin as a “Third-Party Respondent.” Because Judge St. Eve had already explained the substantial defects in Terri’s lawsuit, and Salem then maintained the absurd approach to jurisdiction, Judge Moody ordered Salem to show cause why he should not be sanctioned under Federal Rule of Civil Procedure 11(b)(1) or (2). He also cautioned the plaintiff to refrain from asserting any more baseless jurisdictional theories.

In response to the show-cause order, Salem reiterated his incorrect understanding of diversity jurisdiction. He argued “as long as the parties with interest are not in the same state, then complete diversity jurisdiction exists.” Judge Moody concluded that there was no credible explanation for Salem’s conduct and granted all parties leave to move for attorney’s fees. Salem moved for reconsideration and asserted yet again that diversity jurisdiction existed. This time he attempted to explain in greater detail that moving the case to federal court in Indiana had solved the jurisdictional problem.

After the motion for reconsideration was denied, Pellin petitioned for reimbursement of the attorney fees that he had incurred. Salem opposed the motion by maintaining—for the fourth time—that diversity jurisdiction existed. He also asked Judge Moody to defer the issue of sanctions to the Northern District of Illinois, where he had filed a third lawsuit against Pellin that apparently was moving forward.

Judge Moody rejected Salem’s arguments, and in bold-face type declared one final time: “[C]omplete diversity means that no plaintiff may be from the same state as any defendant.” The judge ordered Salem to pay all of Pellin’s attorney’s fees. Judge Moody reasoned that sanctions were proper under either Rule 11(b)(1) or (2). He found that Salem filed the complaint with either “an unreasonable lack of legal basis” or “an intent to harass” Pellin and increase his litigation costs. Judge Moody also declined to defer the issue of sanctions to the Northern District of Illinois because that court would have no jurisdiction to rule on sanctionable conduct occurring in this case. Salem filed a motion for reconsideration, insisting Terri was not really suing “defendant” Jack, so it did not matter that the two of them were domiciled in the same state. Judge Moody denied the motion because it presented nothing new, and he renounced any further efforts “on this frivolous matter.”

Salem now appeals the district court’s order awarding attorney fees against him and the order denying his second motion for reconsideration.

Essentially, the court faulted Salem for not understanding the basics of diversity jurisdiction. The Court of Appeals for the Seventh Circuit affirmed the sanctions award against Salem because he raised the same frivolous arguments time and again before two separate federal judges.

The explanation:

Salem’s contentions are better viewed as restatements of his consistently confused theory of diversity jurisdiction, rather than “new” arguments. And, waiver aside, Salem’s arguments are frivolous and sanctionable, just as Judge Moody concluded. No matter how Salem phrases it, his core assertion is that federal subject-matter jurisdiction over a given case exists or does not depending on the state in which the federal court sits. He habitually misunderstands the tenets of diversity jurisdiction and confuses jurisdiction with venue.[3] He was so told, by both Judge St. Eve and Judge Moody, yet in this appeal he persisted with this faulty assertion.

This persistence in asserting frivolous arguments warrants sanctions against an attorney. A district court may sanction a lawyer who submits frivolous legal arguments not warranted “by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.” FED. R. CIV. P. 11(b)(2); see Berwick Grain Co., Inc. v. Ill. Dep’t of Agric., 217 F.3d 502, 504 (7th Cir. 2000). A “frivolous” argument is one that is baseless or made without a reasonable inquiry into the facts and law. Berwick Grain Co., Inc., 217 F.3d at 504. A district judge may also sanction a lawyer or party who presents a pleading to the court “for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” FED. R. CIV. P. 11(b)(1). Consistently asserting a theory—as attorney Salem did here—directly contrary to federal statute (28 U.S.C. § 1332) as interpreted by all federal case law is frivolous.

The Seventh Circuit affirmed the sanctions award. The lesson here is an old one – you have to know the law. In federal court it is especially important to understand the procedural and jurisdictional rules.

Sanctions Awarded For Frivolous Counterclaim


This is an appeal from a decision sanctioning a lawyer and his client for filing a frivolous counterclaim in a foreclosure case. After the lender sued, the defendant, Gates, brought a counterclaim for rescission.  A rescission claim argues that the entire transaction should be canceled and the parties put back in their original places. Because the time limit for the rescission action had run, there was no basis for a rescission claim.  The claim was frivolous. The Ninth Circuit affirmed the sanctions award.

The district court did not abuse its discretion by awarding attorney’s fees in the amount of $17,474.50, jointly and severally, as a sanction against Gates and his attorney. See Christian v. Mattel, Inc., 286 F.3d 1118, 1126-28 (9th Cir. 2002)(setting forth standard of review and describing grounds for Rule 11 sanctions); see also Riverhead Sav. Bank v. Nat’l Mortg. Equity Corp., 893 F.2d 1109, 1113 (9th Cir. 1990) (concluding that jurisdiction to hear an appeal exists where a sanctions award was imposed jointly and severally on the defendants and their non-party counsel). Contrary to Gates’s contention, there are no nonfrivolous arguments to support his theory that the Supreme Court’s decision in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), revived his time-barred claim for rescission. See Fed. R. Civ. P. 11(b) & advisory committee’s note to 1993 amendment (arguments for modification or reversal of existing law do not violate Rule 11(b)(2) if they are nonfrivolous under an objective standard).

In his opening brief, Gates fails to challenge the district court’s determination under Rule 11 that he brought his counterclaim for an improper purpose, and he has therefore waived any such challenge. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[O]n appeal, arguments not raised by a party in its opening brief are deemed waived.”); Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994) (“We will not manufacture arguments for an appellant. . . .”).

The case is LPP Mortgage Ltd. v. David W. Gates, 17-55355 (unpublished).

Plaintiff files Amended Complaint to remove some claims – Sanctions Motion Is Denied


via Bernard v. ILLINOIS CENTRAL RAILROAD COMPANY, Dist. Court, WD Tennessee 2018 – Google Scholar

This is a wrongful termination case where the plaintiff initially filed time-barred EEOC claims. The claims were time-barred because they were not filed within 90 days of the issuance of the right to sue letter.

After the Defendant moved to dismiss those claims, the plaintiff promptly filed an amended complaint removing those claims. Therefore, Rule 11 and Section 1927 sanctions were denied:

The filings reveal that Illinois Central and Bernard conferred numerous times regarding the issues surrounding Bernard’s initial complaint. There is no indication that Bernard’s conduct was objectively unreasonable such that sanctions would be appropriate under either Rule 11 or 28 U.S.C. § 1927. Based on the parties’ discussions and Bernard’s January 3, 2018, supplementation of his Complaint with the Right to Sue letter, Illinois Central should have been aware that Bernard was not intending to pursue any claims except those arising from the 2015 EEOC Charge. It further appears that counsel were conferring during and around the holidays and various days of inclement weather which impacted business. And, it appears during this time that there was some dispute as to which attorney would be appearing on behalf of Bernard. While counsel for Bernard could have been more prompt in amending his pleadings or more clear in responding to Illinois Central’s concerns, the court declines to find that such conduct was objectively unreasonable given the circumstances.

Defamation Claim Dismissed – But Plaintiff’s Lawyers Escape Sanctions


This is a fairly typical situation in litigation. The plaintiff, Redmonds Enterprise, Inc. sued CSX Transportation, Inc. for defamation and other related tort claims. The case grew out of a vandalism incident at a CSX rail yard. Redmonds alleged that a CSX employee sent an email that defamed Redmonds by blaming Redmonds for the vandalism.  During discovery, it became apparent that the author of the email, Rick Omer, was not a CSX employee and there was apparently no evidence that he existed at all.  Furthermore, there was no evidence that anyone at CSX sent a defamatory email to anyone about Redmonds. The court granted summary judgment in favor of CSX and dismissed the case.

CSX moved for sanctions pursuant to Rule 11 and Section 1927. The district judge denied the sanctions motion. This is the key paragraph of the opinion:

While it is a close question, it is not clear that sanctions are warranted under either Rule 11 or § 1927, although the dilatory conduct of Redmonds’ non-local counsel, Mr. Jenkins, was irresponsible, to say the least. CSX argues that sanctions should be imposed because Redmonds refused to dismiss the case after the Orner email was not uncovered during discovery. But, there is no evidence to suggest Redmonds did not have a colorable basis for filing its complaint initially. Redmonds had experienced a decline in business, and had been told this decline was attributable to a defamatory email from a CSX employee. Refusal to dismiss the complaint after discovery is not a basis for Rule 11 sanctions. See Brubaker, 943 F.2d at 1381Simpson, 900 F.2d at 36-37. After conducting discovery, Redmonds moved to amend its complaint to reflect new evidence uncovered during discovery. Although untimely and ultimately unsuccessful, filing this motion was not entirely baseless, nor an unreasonable multiplication of this proceeding under § 1927. The conduct of Redmonds’ counsel was not as “unreasonable[] and vexatious[]” as the attorney in Salvin, who continued proceedings after his own client’s deposition revealed that there was no basis to her claims, and indeed supported his opposition to the motion for summary judgment with an affidavit in which his client contradicted her own deposition testimony. See Salvin v. American Nat. Ins. Co.,281 Fed.Appx. 222, 225-26 (4th Cir. 2016).[5] The delay in seeking leave to amend after it became clear the Orner email could not be found was irresponsible and, as explained above, was sufficient reason to deny the motion to amend. But the court cannot say it amounted to the bad faith that is required to support sanctions under § 1927. The motion for sanctions will be denied.

This is a very typical situation in a plaintiff’s case. The plaintiff believes he or she was wronged but the lawyer is unable to prove the allegations. The lawyer had a good faith basis for filing the case but the case was ultimately dismissed for a lack of proof.

Redmonds Enterprise, Inc. v. CSX Transportation D. Maryland

Defend Trade Secrets Act – Wikipedia


The Defend Trade Secrets Act, 18 USC § 1836, was enacted in 2016. It is important because it provides federal jurisdiction for disputes over trade secrets. This allows the plaintiff (usually a company claiming that its trade secrets were stolen by the defendant) to bring its claims in federal court.

The elements for a successful claim under the DTSA are:  (1) the existence of a trade secret that relates to a product or service used in, or intended for use in, interstate or foreign commerce; (2) the acquisition of the trade secret, or the use or disclosure of the trade secret without consent; and (3) the person acquiring, using, or disclosing the trade secret knew or had reason to know that the trade secret was acquired by improper means.” Arctic Energy Servs., LLC v. Neal, No. 18-cv-00108-PAB-KLM, 2018 WL 1010939, at *2 (D. Colo. Feb. 22, 2018) (citing 18 U.S.C. §1836(b)(1); 18 U.S.C. § 1839. The DTSA defines “trade secret” broadly to include “all forms and types of financial, business, scientific, technical, economic, or engineering information” so long as “the owner thereof has taken reasonable measures to keep such information secret” and “the information derives independent economic value, actual or potential, from not being generally known to,” or ascertainable by, another person. 18 U.S.C. § 1839(3). See Lowenbro Inspection v. Sommerfield, 18 CV 01943 (D. Colo. August 2018).

via Defend Trade Secrets Act – Wikipedia

Failure to Observe 21-day Safe Harbor Dooms Sanctions Motion to Defeat


A defendant who obtained dismissal of the claims against her on the ground that the diversity amount was not met. The plaintiff sued the Defendant for failing to return his dog to him. (The dog eventually ended up in a shelter in Canada).

Because the defendant did not serve her Rule 11 Sanctions motion and give the plaintiff 21 days to drop her from the case, the sanctions motion was denied.

via Barringer v. Whitworth, Dist. Court, ED Michigan 2018 – Google Scholar