Category: Sanctions For Frivolous Lawsuits

In Patent Infringement Lawsuit, Sanctions Claims Fall Flat

The case is Dynamic Applet Technologies, LLC v. Mattress Firm, Inc. 17-cv-860 (E.D. Texas March 26, 2019).  Dynamic sued Mattress Firm for patent infringement. Mattress Firm filed counterclaims. Both sides moved for sanctions. Mattress Firm argued that Dynamic’s patent infringement claims were frivolous and brought in bad faith and merited Rule 11 sanctions. Dynamic moved for sanctions against Mattress Firm.

The Court, noting that it had not issued any dispositive rulings on any motions, denied both sanctions motions. The court found that there were non-frivolous claims of patent infringement asserted in the complaint. The explanation follows:

With respect to Defendants’ Motion for Sanctions (Dkt. 90) and Plaintiff’s Responsive Motion for Sanctions (Dkt. 96), there is nothing before the Court to indicate that sanctions under Federal Rule of Civil Procedure 11 are justified here. Rule 11 is inappropriate if there is a good faith basis to assert even a single claim of a patent. View Eng’g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir. 2000) (“Rule 11 . . . must be interpreted to require the law firm to . . . apply the claims of each and every patent that is being brought into the lawsuit to an accused device and conclude that there is a reasonable basis for a finding of infringement of at least one claim of each patent so asserted.”). The Court finds that Plaintiff’s overall pre-suit inquiry was reasonable and its conduct does not cross the Rule 11 sanctions threshold whereby “no reasonable litigant could believe it would succeed” on the merits. Raylon, LLC v. Complus Data Innovations, Inc., 700 F.3d 1361, 1368 (Fed. Cir.2012); iLor, LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011). Applying the same standard to Plaintiff’s Responsive Motion for Sanctions (Dkt. 96), the Court finds that Defendants have likewise not violated Rule 11. The Court is not charged with determining which party’s position is correct, but rather, is charged with determining whether a motion crosses the threshold of frivolousness such that no reasonable litigant could believe it would succeed. See Raylon v. Complus Data, 700 F.3d at 1368. Accordingly, no sanctions will be awarded to either party at this time. If appropriate, the parties may refile a motion for sanctions after the Court rules on the pending dispositive motions.

In other words, one party would have to obtain dismissal of one of the other party’s claims before it could move for sanctions. The sanctions motions here may prove meritorious at a later date if the court actually finds that one of the claims is frivolous or unfounded.

Ed Clinton, Jr.

The Clinton Law Firm

No Sanctions Where Party is Two Days Late Producing Documents

Can you get Rule 37 sanctions when your opponent is two days late producing documents? Here, thankfully, the court answered “No.”

The case is captioned Tencero v. Oceaneering International, (E.D. Louisiana) (17-7438) (March 19, 2019). In the opinion, the district court denies a motion for Rule 37 sanctions. Plaintiff filed a personal injury case against the Defendant. He sought the production of documents. The defendant produced the documents two days late which forced the Plaintiff to review 1400 pages on the night before a deposition. To me, this does not sound like much of an outrage at all, and certainly not a motion for sanctions. However, the court took it seriously, but denied the motion.

There is no dispute that Oceaneering failed to comply with the court’s discovery order. The court finds that Oceaneering’s delay prejudiced Tercero, who was forced to review 1,400 new pages of documents on the day before the Walsh deposition when he should have had four days to do so. Oceaneering describes a misunderstanding as the reason for its delay, but this does not entirely excuse its failure to timely comply with the court’s order, especially in light of the Walsh deposition scheduled on February 27, 2019. While Oceaneering did ultimately comply, at the time plaintiff filed this motion, Oceaneering merely “hoped” to have the documents by February 26, 2019. The motion may have been necessary to ensure that Oceaneering’s document production was actually made on that date and not on the day of or following the Walsh deposition.

Nonetheless, the court finds no evidence of willfulness in Oceaneering’s delayed production of documents. Additionally, although Tercero’s counsel represents that he had a lot of work to do the day before the deposition, he has not identified any specific documents that he was unable to identify from the mass of 1,400 pages until after the deposition. At this time, then, it does not appear necessary to order a second deposition of Walsh. The court notes that the borrowed servant issue was being developed at this late date, and on an expedited basis, as a result of plaintiff’s actions, not Oceaneering’s. Accordingly, the severe sanctions proposed by Tercero (prohibiting Oceaneering’s witnesses from testifying or deeming Tercero the borrowed servant of Oceaneering) are not appropriate here.

FDCPA Claim Fails – But Rule 11 Sanctions Denied

In a recent decision, Duarte v. Midland Funding, LLC, 17 C 5061, Judge Ellis of the Northern District of Illinois dismissed an FDCPA (Fair Debt Collection Practices Act) case against Midland Funding. Midland sought sanctions, which were also denied.

The FDCPA claim was dismissed on the ground that Midland did not send a communication in connection with the collection of a debt. Midland wrote to Duarte, but after she disputed the debt, Midland ceased writing to her. The court concluded that the final letter from Midland was not an attempt to collect a debt and the court then granted summary judgment for Midland.

Midland’s sanctions motion was also denied. The court explained:

Specifically, MF and MCM argue that Duarte and her attorneys violated Rule 11(b)(1) and (b)(2). Rule 11(b)(1) requires counsel to determine that the case “is not being presented 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). Rule 11(b)(2) requires counsel to certify that the claims “are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or establishing new law.” Fed. R. Civ. P. 11(b)(2).

“An attorney takes a frivolous position if he fails to make a reasonable inquiry into facts. . . or takes a position unwarranted by existing law or a good faith argument for its modification.” Rush v. McDonald’s Corp., 966 F.2d 1104, 1122 n.67 (7th Cir. 1992) (citation omitted). Although the Court has found that no reasonable trier of fact could find for Duarte on her FDCPA claim and that Duarte has abandoned her ICAA claim, the Court does not find sanctions under Rule 11(b)(2) appropriate in this case. See Cartwright v. Cooney, 788 F. Supp. 2d 744, 755 (N.D. Ill. 2011) (“[E]ven when a court has ruled that a party has been `wrong on the law,’ sanctions against that party do not flow inevitably.”). The merits of Duarte’s FDCPA claim are not as clear cut as MF and MCM would lead the Court to believe. See Zelner v. ATG Credit, LLC, No. 17 C 8007, 2019 WL 556737 (N.D. Ill. Feb. 12, 2019) (in a case involving the same plaintiff’s counsel, refusing to impose sanctions after granting summary judgment to the defendant because the Court could not conclude plaintiff’s claim was frivolous). Duarte’s counsel had a reasonable basis for bringing and continuing to pursue the FDCPA claim, with certain issues surrounding that claim apparently undecided or subject to conflicting interpretations by courts across the country. And, although Duarte appears to acknowledge she has no viable ICAA claim by failing to respond to MF and MCM’s arguments on the merits of that claim, as noted above with respect to the ICAA claim, courts in this district have disagreed as to whether the ICAA provides a private right of action.

The Court also does not find sanctions appropriate under Rule 11(b)(1). MF and MCM claim Duarte and her counsel filed this case for an improper purpose and to harass MF and MCM. “Improper purpose means something other than [the] mere assertion of frivolous or unfounded legal arguments or contentions.” Logan v. Serv. Emps. Int’l Union Local 73, No. 14-CV-10256, 2016 WL 5807932, at *2 (N.D. Ill. Oct. 5, 2016) (alteration in original) (citation omitted) (internal quotation marks omitted). MF and MCM argue that Duarte’s counsel engineered this lawsuit by drafting a letter, or having Duarte draft a letter, that placed MCM in an impossible situation, potentially liable for an FDCPA violation regardless of what actions it took in response. The Court is aware of Duarte’s counsel filing numerous suits against MF, MCM, and other debt collectors based on various alleged FDCPA violations, including based on responses to letters similar to that Duarte sent. In one similar case, the court sanctioned counsel for, among other things, engaging “in a scheme to force settlements from debt collectors by abusing the FDCPA.” Tejero v. Portfolio Recovery Assocs. LLC, No. AU-16-CV-767-SS, 2018 WL 1612856, at *4 (W.D. Tex. Apr. 2, 2018). Although the conduct described in Tejero provides cause for concern, the Court cannot on this record conclude that Duarte filed her case solely to force a settlement or harass MF and MCM. An animating purpose behind the suit may have been to obtain damages and attorneys’ fees, but “it is not improper to file a non-frivolous claim in the hope of getting paid.” Vollmer v. Selden, 350 F.3d 656, 660 (7th Cir. 2003). Otherwise, sanctions would be appropriate in every case raising a claim that allows for recovery of attorneys’ fees. The Court does not condone the actions of Duarte and her counsel, and it expects counsel to be more judicious in its pursuit of new FDCPA claims in the future. But it does not find sanctions under Rule 11(b)(1) appropriate here. See Edwards v. Equifax Info. Servs., LLC, No. 1:17-cv-03096-RLM-MPB, 2018 WL 1748132, at *5 (S.D. Ind. Mar. 13, 2018) (declining to impose sanctions under § 1927 for bad faith litigation but noting that “the Court is not unsympathetic to the challenges BHC’s litigation strategy has presented to Experian in fairly and efficiently defending allegations raised against it” and that “[c]ontinued use of these tactics by BHC against Experian may very well result in a different conclusion in the future”), report and recommendation adopted, 2018 WL 1745965 (S.D. Ind. Apr. 11, 2018).

Safe Harbor Defeats Sanctions Motion

This is a district court case, Saffold v. EL Hollingsworth & Co., E.D. Michigan February 19, 2019. The court denied the plaintiff’s motion for Rule 11 sanctions because she did not comply with the safe harbor provision.

First, Plaintiff’s motion for sanctions must be denied because she did not serve Defendant with a copy of her motion 21-days prior to its filing as required under the mandatory safe-harbor provision of Rule 11(c)(2) which provides:

A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. If warranted, the court may award to the prevailing party the reasonable expenses, including attorney’s fees, incurred for the motion.Fed. R. Civ. P. 11(c)(2). See Penn, LLC v. Prosper Bus. Dev. Corp., 773 F.3d 764, 766-67 (6th Cir. 2014) (“[f]ailure to comply with the safe-harbor provision precludes imposing sanctions on the party’s motion”). Plaintiff sent Defendant two draft versions of her motion, but never served the actual motion she eventually filed with the court. Also, the draft motions she provided did not include any of the sixteen exhibits she filed with the court. Having failed to comply with the strictures of Rule 11(c)(2), Plaintiff’s motion for sanctions must be denied.

The court also found no substantive violation of Rule 11.

The case is Saffold v. E.L. Hollingsworth, 17-cv-14008, E. D. Michigan February 19, 2019.

Ed Clinton, Jr.

See Also

Procedural Default Defeats Sanctions Motion

Maybe On Second Thought Don’t Remove That Case To Federal Court

Anyone who has practiced litigation law for more than ten years will run into this situation. Your client has been sued in state court. After your first court appearance, you get a bad feeling that things are not going to go well in that case. You get a great idea – “Hey we can remove this case to federal court!” There are a few pitfalls with that great idea and the case captioned Jackson County Bank v. Mathew R. DuSablon, (7th Circuit. 2/6/19) could be a refresher course in bad removal.

The Jackson County Bank sued its former employee, DuSablon, in Indiana state court. After his motion to dismiss was denied, DuSablon tried to remove the case to federal court.

The way removal works is that you file a petition to remove the case. If the federal judge believes that there is jurisdiction, you are ok. If she decides there is no jurisdiction, you can end up paying the legal fees of your opponent.

In the DuSablon case, the district judge remanded the case to state court for want of jurisdiction and untimely removal and ordered DuSablon to pay costs and fees for wrongful removal. In this case, the bill amounted to $9,035.61 under 28 U.S.C. §1447(c).

DuSablon then appealed to the Seventh Circuit. Unfortunately for him, remand orders cannot be appealed. The court did hear the appeal of the sanctions award.  Because there were only state law claims raised in the case, there was no basis to remove the case. There was “no federal question.” Removal was untimely as well. The district judge viewed the removal petition as a litigation stunt to delay the resolution of the state case.

The Seventh Circuit held that “the district court did not abuse its discretion in determining that DuSable lacked an objectively reasonable basis to remove the case to federal court.” Alas, the court also allowed the Bank to file a fee petition for its fees on appeal.

In conclusion, “Ouch.”

Ed Clinton, Jr.

The Clinton Law Firm, LLC

Two Claims Dismissed But District Court Denies Rule 11 Sanctions Motion

The case is a patent case. The defendant successfully moved to dismiss two of the counts of the complaint and then sought sanctions on those two counts on the ground that the allegations were frivolous. The district court was unimpressed with the sanctions motion and denied it.

Aardvark also contends that the ‘823 and ‘675 patents are invalid, and that Bobcar’s assertion of infringement claims as to these patents was frivolous. (Dkt. No. 67 at 12-16; Dkt. No. 80 at 2-6.) As to these two patents, there is a stronger case that there is no reasonable basis for Bobcar’s assertion of validity. However, the Court need not ultimately decide whether these patents are invalid for anticipation, or whether Bobcar’s claims for their infringement violated Rule 11, because in any event, the Court would deny sanctions. See Perez, 373 F.3d at 326(affirming district court that had declined “to decide definitively whether there had been a [Rule 11] violation because even if there had been, the court would exercise its discretion to deny sanctions”).

Looking to the relevant factors, the Court determines that the “extreme measure” of Rule 11 sanctions is not warranted here. Fleming v. Hymes-Esposito, No. 12 Civ. 1154, 2013 WL 1285431, at *11 (S.D.N.Y. Mar. 29, 2013).[4] Bobcar’s claims of infringement as to the two design patents at issue—’823 and ‘675—constituted only one third of its patent infringement claims, and did not implicate the Second Amended Complaint’s Lanham Act and unfair competition counts. (See SAC ¶¶ 96-97, 106-131.) Any impropriety in the assertion of the challenged claims thus did not “infect[] the entire pleading.” Cont’l Cas. Co., 2017 WL 1901969, at *7 (quoting Ho Myung Moolsan Co., 665 F. Supp. 2d at 265).

Furthermore, the assertion of infringement as to two relatively simple design patents could not have independently added great time and expense to a litigation involving a third, more involved design patent (‘353), three utility patents, and trade dress and unfair competition claims. See id. (listing the “effect [a Rule 11(b) violation] had on the litigation process in time or expense” as a relevant factor (quoting Ho Myung Moolsan Co., 665 F. Supp. 2d at 265)). And indeed, the fact that Bobcar’s arguments in favor of the validity of one of the three challenged design patents were not frivolous “militates strongly against imposing sanctions” here. Fleming, 2013 WL 1285431, at *11.

“[I]t is well settled that the imposition of sanctions is reserved for `extreme cases.'” Tantaros, 2018 WL 1662779, at *3 (quoting Sorenson v. Wolfson, 170 F. Supp. 3d 622, 626 (S.D.N.Y. 2016)). The Court concludes that this action is not such an “extreme case.”

Comment: the case stands for the proposition that to obtain sanctions you have to show some rather serious conduct. The fact that one count in a complaint was weak is not enough for a sanctions motion.

Bobcar Media, LLC. v. Aardvark Event Logistics, Inc., 16-cv-885 (S.D.N.Y.) February 4, 2019.

Bobcar Media v. Aardvark

Ed Clinton, Jr.

Nonsense Argument Draws Rule To Show Cause Why Attorney Should Not Be Sanctioned.

In a lawsuit involving the death of a detainee in federal custody, the plaintiff claimed that the Defendant, a health care company, violated a provision of the West Virginia Constitution. The problem was that the provision relates to state education, not health care.  The court ordered plaintiff’s counsel to show cause why he should not be sanctioned for alleging this nonsense argument in a medical care tort lawsuit.

As recently discussed by this court—in this case—in a published opinion— Article XII, Section 1 of the West Virginia Constitution reads as follows:

“The Legislature shall provide, by general law, for a thorough and efficient system of free schools.”

W. Va. Const. Art. XII, § 1. Remarkably, the plaintiff alleged a violation of this constitutional provision for a second time in the Amended Complaint. “To assert that this constitutional provision applies to disputed medical treatment and the death of a federal detainee is [still] nonsense.” Knouse, 333 F. Supp. 3d at 592.

“By presenting to the court a pleading . . . —whether by signing, filing, submitting, or later advocating it—an attorney . . . certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the claims, defenses, and other legal contentions are 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). “On its own, the court may order an attorney, law firm, or party to show cause why conduct specifically described in the order has not violated Rule 11(b). Fed. R. Civ. P. 11(c)(3). Consequently, the court ORDERS the plaintiff’s counsel who signed the Amended Complaint to show cause as to why pleading violations of Article XII, Section 1 of the West Virginia Constitution, in two separate pleadings in this litigation, does not violate Rule 11(b).

Knouse v. Primecare Medical of West Virginia 18 cv 1014 (S.D. West Virginia) (January 17, 2019.

An Unusual Decision – Misstatements In A Rule 37 Sanctions Motion Not Subject to Sanctions

The case is Lee v. Horton, 2-17-cv-2766 (Western District of Tennessee December 4, 2018). What makes this opinion unusual and worth reading is that the court concluded that certain misstatements in a motion for sanctions were not themselves subject to sanctions. Lee was injured in an accident. She sued Horton, a truck driver, and Kroger. Lee filed a motion to sanctions under Rule 37 in which she alleged that Kroger had destroyed the electronic logs of the Kroger truck. Lee’s motion for Rule 37 sanctions was denied. Lee’s counsel apparently clarified the factual allegations in a court hearing and admitted that some of them were, in fact, inaccurate.

The defendants then filed their own Rule 11 motion alleging that Lee had made numerous false statements in the Motion for Rule 37 sanctions. That motion was denied by the Magistrate Judge. The Defendants then appealed to the District Judge who adopted the Magistrate’s findings. No sanctions were issued.

The District Court agreed that Rule 11 did not apply:

The Magistrate Judge found that Lee’s statements were made in a Rule 37(e) motion for spoliation sanctions and were therefore outside the scope of Rule 11. See Fed. R. Civ. Pro. 11(d). (Supplemental Report and Recommendation, ECF No. 104 at 1382-84.) Rule 11 “does not apply to . . . motions under Rules 26 through 37.” Fed. R. Civ. Pro. 11(d). Defendants have not objected to this finding, and the Court therefore reviews it for clear error. Fed. R. Civ. P. 72(b) advisory committee notes.

Defendants have argued that “Plaintiff’s original Motion for Sanctions is nothing more than a defamatory narrative seeking a summary judgment as to compensatory and punitive damages.” (ECF No. 49-1 at 573.) The Court does not agree. Lee’s Motion explicitly seeks relief for alleged spoliation. (P.’s Mot. Sanctions, ECF No. 34 at 282 (“Lee prays for the following: (a) Sanctions against Kroger and Horton, jointly and severally, for intentional destruction of material evidence.”).) While Lee also asked for “summary judgment” as a sanction, (P.’s Mot. Sanctions, ECF No. 34 at 282) Rule 37(e)(2)(c) establishes default judgment as a possible penalty for intentional spoliation. The Court concurs with the Magistrate Judge’s finding that Lee’s statements were contained in a motion for sanctions brought pursuant to Rule 37(e), rather than Rule 56. The Court finds that Lee’s Motion for Sanctions is therefore outside the scope of Rule 11. Fed. R. Civ. Pro. 11(d).

In their Reply in support of their Motion, Defendants have also argued that “the crux of Defendants’ Motion for Sanctions is targeting Plaintiff’s counsel’s misrepresentations and conduct unrelated to any underlying discovery dispute.” (ECF No. 49-1 at 573-74.) The Court notes that Defendants’ original Motion for Sanctions, by its plain text, does seek sanctions for conduct related to an underlying discovery dispute. “Plaintiff’s Motion for Sanctions makes numerous factual contentions that have zero evidentiary support.” (Id. at 495.) “Plaintiff’s Motion for Sanctions makes numerous legal contentions in direct contrast to the authority provided.” (Id. at 497.) “Plaintiff’s Motion for Sanctions is presented to harass, cause unnecessary delay, and to needlessly increase the cost of litigation.” (Id. at 498.) Almost all of the specific statements cited by Defendants as inaccuracies were made in the Motion for Sanctions. (See generally Id., see also P.’s Mot Sanctions ECF No. 34.) The Court concurs with the Magistrate Judge that Defendants’ Motion for Sanctions is outside the scope of Rule 11(b). (Supplemental Report and Recommendation, ECF No. 104 at 1384.)

Even if the Rule 11(d) exception for discovery-related “motions” does not include the factual and legal contentions contained within those motions, the Magistrate Judge concluded that Lee’s representations during an August 21, 2018 hearing clarified any previous inaccuracies. (Supp. Report and Recommendation, ECF No. 104 at 1384-85.) Defendants have not objected to the Magistrate Judge’s conclusion regarding the hearing. The Magistrate Judge determined that additional deterrence was unnecessary when viewing Lee’s conduct as a whole. (Supp. Report and Recommendation, ECF No. 104 at 1384-85.) The Court has broad powers to impose sanctions, so long as they are “limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated.” Fed. R. Civ. Pro. 11(c)(4). The Court finds that it was not clearly erroneous for the Magistrate Judge to conclude based on subsequent clarifications that Lee’s conduct does not warrant sanctions.

28 U.S.C. 1927 did not apply either.

The Magistrate Judge previously found that Lee’s allegation that Defendants falsified trip sheets lacked evidentiary support. (ECF No. 61 at 694; Def.’s Obj. Report and Recommendation, ECF No. 93 at 1070.) Defendants specifically object that advancing a contention for which there is no evidence should be sanctionable under 28 U.S.C. § 1927. (Def.’s Obj. Report and Recommendation, ECF No. 93 at 1070.) The Court notes that Lee’s allegation of falsification does not appear in her Motion for Sanctions or her Reply. (See ECF Nos. 34, 37.) Neither the Magistrate Judge nor Defendants provide a specific citation for where this allegation was made in any filing. (See ECF No. 61 at 694; Def.’s Obj. Report and Recommendation, ECF No. 93 at 1070.) The record instead suggests that this argument was made in oral argument before the Magistrate Judge on August 21, 2018. (See ECF No. 46.) To be clear, a lawyer should not make statements in Court that lack evidentiary support. On a review of the record, however, the Court considers this argument to be a last-ditch effort that was dismissed out of hand rather than a multiplication of proceedings. While certainly indicative of a lack of care or knowledge, the Court does not find that this rises to a sanctionable level under 28 U.S.C. § 1927, given its limited impact.

The Court next considers whether the legal arguments contained within Lee’s Motion for Sanctions are sanctionable under 28 U.S.C. § 1927. Having reviewed the cases and federal regulations at issue, the Court finds that, while Lee’s arguments were incorrect, such misreadings are attributable to incompetence or negligence. The Court also notes that Defendants’ claim that such misrepresentations are “continuous” appears to be incorrect. Defendants only cite one motion in support of this argument, (Defs.’ Mot. Sanctions, ECF No. 40 at 497-98) and do not object to the Magistrate Judge’s finding that Lee’s counsel made significant clarifications at a subsequent hearing. (Supplemental Report and Recommendation, ECF No. 104 at 1385.) Court concurs with the Magistrate Judge that Lee’s legal arguments were wrong, but not frivolous. (See generally id. (finding under Rule 11 that “Lee’s counsel’s misinterpretation of . . . various legal arguments, while ultimately rejected by the court, do not amount to conduct that would be sanctionable.”) Given that the Defendants have not objected to the Magistrate Judge’s finding that the legal arguments in question were not sanctionable under Rule 11, and the fact that Lee’s counsel clarified Lee’s position at a subsequent motion hearing, the Court finds that these legal arguments are also not sanctionable under 28 U.S.C. §1927.

Conclusion: Lee’s lawyer was lucky here because he made misstatements on the record in an effort to obtain Rule 37 sanctions. Those statements were not accurate and, in my opinion, Lee’s lawyer was fortunate to escape some form of sanctions for this behavior. Apparently, his decision to admit he was wrong at oral argument before the Magistrate Judge saved him from sanctions.

Ed Clinton, Jr.

The Clinton Law Firm

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.