Defendant’s Sanctions Motion Falls Flat Where Defendant’s Allegations of Wrongful Conduct Were “Frivolous.”

It is common to see Rule 11 sanctions motions filed in litigation. Defendants often file motions for sanctions. Here, the motion for sanctions was poorly prepared and did not meet the basic requirements to shift the burden to the Plaintiff to respond. The result: sanctions denied.

The legal standard:

By filing a Rule 11 motion for sanctions based on non-frivolous allegations, a party successfully makes a prima facie showing of sanctionable conduct. Vandeventer v. Wabash Nat’l Corp., 893 F. Supp. 827, 840 (N.D. Ind. 1995) (citing Shrock v. Altru Nurses Registry, 810 F.2d 658 (7th Cir. 1987). Once the prima facie showing is made, “the burden of proof shifts to the non-movant to show it made a reasonable pre-suit inquiry into its claim.” Digeo, Inc. v. Audible, Inc., 505 F3d 1362, 1368 (Fed. Cir. 2007). Thus, the burden of reasonable investigations falls on the proponent of a proposition, not the opponent. Vandeventer, 893 F. Supp. at 840. Here, the burden shifts to Plaintiffs to show that they reasonably investigated their claims against Defendants before filing their complaint now that Defendants have filed the instant motion for sanctions.

Assessing the reasonableness of a party’s pre-filing inquiry requires the court to ascertain whether “the party or his counsel [objectively] should have known that his position is groundless.” Cuna Mut. Ins. Soc’y v. Office & Prof’l Emps. Int’l Union, Local 39, 443 F.3d 556, 560 (7th Cir. 2006) (citations omitted). Plaintiffs are not required to have sufficient information to prevail on a motion for summary judgment, a motion to dismiss for failure to state a claim, or at trial to comply with Rule 11. Vista Mfg., Inc. v. Trac-4, Inc., 131 F.R.D. 134, 138 (N.D. Ind. 1990)(citation omitted). A plaintiff’s pre-filing inquiry must only be reasonable under the circumstances, which vary from case to case. Id. Therefore, the court must consider all the circumstances of a case before awarding Rule 11 sanctions. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401 (1990). Moreover, Rule 11 sanctions are a rarity. District judges must “reflect seriously, and consider fully, before imposing (or denying) sanctions.” II Ltd. v. English, 217 Fed. App’x 527, 529 (7th Cir. 2007) (citing Mars Steel Corp. v. Cont’l Bank N.A., 880 F.2d 928, 936 (7th Cir. 1989)).

Here, neither party made a showing concerning the pre-filing investigation of the plaintiff.

The court noted that the allegations of sanctionable conduct were conclusory and “frivolous.”

In a footnote, Defendants also assert with confidence, but no factual or legal support, that their discovery responses to Plaintiffs have established that the marks at issue in this case have not been used such that Plaintiffs’ trademark infringement and unfair competition claims are now “patently frivolous.” [DE 63 at 9 n.4]. Defendants then seem to want the Court to extrapolate from their unsupported conclusion on the merits of this case that Plaintiffs’ refusal to dismiss those claims is evidence of Rule 11 sanctionable conduct. Similarly, Defendants argue that Plaintiffs’ production of FIT’s incorporation documents does not establish use of the mark in commerce making Plaintiffs’ refusal to dismiss the infringement and unfair competition claims sanctionable conduct showing lack of reasonable pre-complaint inquiry.

Once again, this is a quite a stretch to make at this early stage of litigation before discovery has closed, before any motions for summary judgment have been filed or considered, and before trial. Even assuming for the sake of argument that Defendants’ confidence is justified, Defendants have more persuasively suggested that Plaintiffs’ claims may lack substantive merit than they have shown that Plaintiffs’ pre-complaint inquiry into their claims was unreasonable under Rule 11 standards. As a result, the Court finds Defendants’ allegations of Rule 11 sanctionable misconduct to be unreasonable, and therefore, frivolous making them insufficient to establish a prima facie case of sanctionable conduct.

via AARON, MacGREGOR & ASSOCIATES, LLC v. ZHEIJIANG JINFEI KAIDA WHEELS CO., LTD., Dist. Court, ND Indiana 2017 – Google Scholar

Court Awards 9,000,000 for filing and refusing to drop hundreds of frivolous lawsuits

This is a decision awarding in excess of $9,000,000 in sanctions against two law firms that filed 1250 frivolous “Engle Progeny” product liability actions. Engle Progeny cases are injury lawsuits against tobacco companies. The sanctions were awarded pursuant to Rule 11 and 28 U.S.C. Section 1927.

The first award was of Rule 11 sanctions for 588 complaints filed for litigants who were deceased. The explanation:

The complaints filed in the 588 Actions were objectively frivolous. As the Eleventh Circuit observed, “any lawyer worth his salt knows [that] a dead person cannot maintain a personal injury claim.” In re Engle Cases, 767 F.3d at 1086-87. The complaints listing the 588 Pre-Deceased Plaintiffs alleged only a personal injury action— using the present or future tense in referring to the “Smoking Plaintiffs,” and asserting that they “have and will suffer” as a result of their disease. (E.g., Edwin Moody et al. v. R.J. Reynolds Tobacco Co., Case No. 3:08-cv-155-J-32HTS, Doc. 2, Complaint at ¶ 1.10). Nowhere did the complaints suggest that the smoker had died, and nowhere did they assert an alternative wrongful death or survival action. To the contrary, the concluding allegation in each complaint stated that each plaintiff’s injuries “are permanent and continuing and as such will be suffered into the future.” (E.g., id. at ¶ 11.1). These allegations were demonstrably false.

The complaints in the 588 Actions were also frivolous because Counsel lacked authorization to file or maintain them. “Perhaps the most basic factual contentions implicit in a complaint are that the plaintiff consents to the filing of suit and prays for the relief requested.” In re Deep Vein Thrombosis, No. MDL-04-1606 VRW, 2008 WL 2568269, at *1 (N.D. Cal. Jun. 24, 2008). The dead plaintiffs obviously could not have authorized Counsel to bring lawsuits on their behalf. Nor did Counsel have authorization from the Pre-Deceased Plaintiffs’ estates or their survivors because Counsel pled the complaints as personal injury actions on behalf of the Pre-Deceased Plaintiffs themselves. Therefore, “the most basic factual contention implicit” in the 588 personal injury complaints, i.e., that the plaintiff authorized and prayed for the relief requested, was untrue.

The court also awarded Section 1927 Sanctions for claims from nonsmokers and plaintiffs who did not live in Florida.

In the cases discussed below, the Court determines that Counsel multiplied the proceedings unreasonably and vexatiously by maintaining frivolous complaints in bad faith. Between 2011 and 2013, the Court learned that Counsel had filed dozens of Frivolous Actions (in addition to the 588 Actions). Counsel brought these Frivolous Actions without authorization or on behalf of non-smokers, people who never lived in Florida, and plaintiffs with previously adjudicated claims. The fatal defects in these actions surfaced not through voluntary disclosures from Counsel, but through alerts from Defendants, the hard work of the Temporary Special Master, and from the returned Court Questionnaires. Before the Court Questionnaire process, Counsel vigorously opposed any suggestion that someone should interview or question the plaintiffs. Counsel’s intransigence forced the Court to order Wilner to mail the Court Questionnaires to 2,661 plaintiffs and to have the Temporary Special Master review the results. The questionnaire process was time-consuming but necessary. It accomplished what Counsel would not: the identification of hundreds of frivolous cases, and the segregation of viable from non-viable claims.

In some of these cases, Counsel knew or must have known that a fundamental defect existed. As to others, Counsel acted with reckless indifference. Counsel insisted on maintaining cases without having bothered to obtain the plaintiff’s authorization, without having any basis for asserting that the plaintiff was even a smoker, and without knowing whether the alleged smoker ever lived in Florida (as required by Engle III). Moreover, Counsel’s resistance to the questionnaires and false assurances appeared calculated to prevent the discovery of such frivolous cases. At the very least, counsel’s behavior “grossly deviate[d] from reasonable conduct.” Amlong, 500 F.3d at 1240.

Counsel’s actions demonstrated a pattern of obfuscation and deception, which frustrated the Court’s efforts to rid the Engle Docket of frivolous cases and to promptly and fairly resolve the cases that had merit. Counsel’s maintenance of frivolous suits forced the Court to expend valuable resources—in terms of time, money, and manpower—to cope with the swollen Engle Docket. It also delayed the resolution of meritorious claims. As a result, sanctions are appropriate for the “excess costs” and “expenses . . . incurred because of [counsel’s] conduct.” 28 U.S.C. § 1927.

The court awarded a total of $9,164,404.12 against the two law firms that maintained the frivolous lawsuits.

Source: IN RE ENGLE CASES, Dist. Court, MD Florida 2017 – Google Scholar

Defendant Waited Too Long To File Rule 11 Motion

This case discusses a Rule 11 issue in the context of Bankruptcy Rule 9011. Plaintiff brought an adversary action against Discover Bank and its lawyer, Stephen Bruce, alleging that they violated the automatic stay by maintaining a garnishment over certain funds. The Defendants moved to dismiss the complaint, but their motion was denied. They then answered and served discovery requests. Eventually, the Defendants obtained summary judgment. At the conclusion of the case the Defendants moved for sanctions under Rule 9011. The court’s explanation:

The Sanction Motion was filed by Bruce on August 11, 2017, eighteen-and-a-half (18 ½) months after the filing of the Complaint, seventeen (17) months after the first safe harbor letter, sixteen (16) months after filing the Motion to Dismiss, nine (9) months after the second safe Harbor letter and the filing of the Motion for Summary Judgment and four-and-a-half (4 ½) months after the entry of the judgment in Bruce’s favor. If Bruce truly believed that the Law Firm’s conduct was so abusive and vexatious to warrant service of the safe harbor letters, and this Court has no reason to believe that Bruce wasn’t sincere in that belief, he should have pursued that motion by filing it shortly after the expiration of the twenty-one (21) day safe harbor in either February and/or November 2016. Instead, Bruce elected to wait and spend additional time and money in the discovery process and summary judgment process. The Court doesn’t know the reason for the delay, and the pleadings and oral argument did not enlighten the Court. It may have been because Bruce felt confident of the outcome and wanted to establish a precedent rather than cutting the litigation off at an early stage. “Suffice it to say that [Discover and Bruce] would be better served by reexamining their own litigation tactics rather than condemning plaintiff’s counsel for her litigation tactics.” Thompson v. United Transportation Union, 167 F.Supp.2d at 1260. The Court finds that Bruce’s Motion was not timely filed and can be denied on that basis alone, so is not necessary for the Court to decide the sanction motion on its merits. Accordingly,

IT IS ORDERED that Defendant Stephen L. Bruce Esq.’s Motion for Sanctions [Doc 90] is hereby DENIED.

In Re Waldrop

Losing Your Case Is Not Enough To Be Sanctioned Under Section 1927

This case illustrates an obvious principle – winning is not enough to obtain Section 1927 sanctions. Even getting a complaint dismissed is not enough to get Section 1927 sanctions.

The plaintiff brought a consumer fraud claim and lost. As the court put it, that was not enough to merit sanctions:

Here, the Court disagrees with defendant’s assessment that plaintiffs’ conduct in this litigation amounted to bad faith or that plaintiffs pursued vexatious and frivolous claims. The Court in this instance disagreed with plaintiffs on whether plaintiffs stated viable claims under the ICFA and the MMP. Simply bringing a losing case does not warrant a fee award to the prevailing defendant. Despite the unsuccessfulness of plaintiffs’ lawsuit, the Court cannot find that it was brought in bad faith or that plaintiffs pursued vexatious or frivolous claims. Thus, the Court finds that an award of attorney’s fees is not warranted under the circumstances of this case.

Source: Haywood v. MASSAGE ENVY FRANCHISING, LLC, Dist. Court, SD Illinois 2017 – Google Scholar


Plaintiff Fails To Recognize Complaint Is Time-Barred – Section 1927 Sanctions Awarded

Source: Carter v. HICKORY HEALTHCARE INC., Dist. Court, ND Ohio 2017 – Google Scholar

The plaintiff filed a case under the Americans With Disabilities Act, 42 USC Section 12101. The case was time-barred because the complaint was filed more than 90 days after the right to sue letter was received. The court awarded Section 1927 sanctions because Plaintiff’s counsel persisted long after it was clear that the case was time-barred.

This is a second decision of the court that explains the rationale for the sanctions.

Patient’s Truth in Lending Claim Against Surgeon Was Frivolous – Rule 11 Sanctions Awarded

The plaintiff entered into an agreement with the defendant for one of its doctors to repair a torn ACL in his knee. The agreement provided that the plaintiff would pay installment payments until the balance due was satisfied.

After the surgery, the plaintiff filed a Truth in Lending claim against the Defendant surgery practice. The Court found several bases under which Rule 11 sanctions were appropriate. First, the court noted that the plaintiff alleged that he paid some of the installment payments from his bank account. This allegation was false. The court notes:

As discussed in more detail below, Plaintiff’s counsel had no grounds to make these allegations, when simple investigation would have revealed that Defendant never received any further payment from Plaintiff because Plaintiff did not have sufficient funds in his bank account. Nonetheless, Plaintiff’s counsel brought Plaintiff’s claims not only on behalf of Plaintiff, but also alleged that Plaintiff could serve as an adequate representative of “a class of similarly-situated individuals” who suffered supposed injuries because “Defendant used these very same tactics on tens of other consumers . . . .” (Id. ¶¶ 5, 44).

The court held telephone conference with the lawyers and the plaintiff’s lawyer made further admissions detrimental to the case. The court found these admissions revealed that the case had no merit and that plaintiff’s counsel had not done any investigation to determine whether TILA applied.

Again the court explains:

These statements by Plaintiff’s counsel: (1) contradicted the factual allegations that Plaintiff had made further payments; (2) confirmed the allegation in paragraph 22 of the Complaint, cited above, that Plaintiff did not provide “written authorization” for any further payment; and (3) supports the Court’s conclusion that there was no “written agreement,” and that the arrangement between Plaintiff and Defendant was not an “extension of credit,” as required by law.

The statements by Plaintiff’s counsel above indicated that counsel may have secured Plaintiff’s financial records of his financial transactions with the Defendant, as had been ordered on October 28, 2016. Nonetheless, as further discussed below, later events showed that Plaintiff’s counsel had not done this.

On December 22, 2016, the Court dismissed the Complaint with prejudice[5] and sua sponte instituted Rule 11 proceedings to determine whether sanctions should be imposed against Plaintiff and/or his counsel. (ECF 23). In its Order, the Court stated its conclusion that “Plaintiff’s counsel filed this lawsuit without any regard to the requirements of the statute or the implementing regulations . . . [T]he lack of a finance charge or written agreement precludes any claims under TILA, as a matter of law.” 2016 WL 7411527.

Even at the time of the sanctions hearing, plaintiff’s counsel had not obtained the financial records necessary to prove up the claim.

The court found that plaintiff’s counsel had not done any investigation of the claim and concluded:

The Court finds that Plaintiff’s counsel violated Rule 11. There was no reasonable or suitable investigation by Plaintiff’s counsel as required under the standards of Rule 11. Under statutory language, regulations, and precedential opinions of the Third Circuit and other courts, there was no reasonable or legal basis to allege a “written agreement” or “extension of credit” under TILA and Regulation Z, individually or as a class action, particularly if a reasonable investigation had been conducted. Several complaint allegations were false, because of the failure to investigate.

Comment: this is a classic sanctions case in which the plaintiff’s attorney failed to conduct any investigation to determine if the claims had merit.

Source: WOLFINGTON v. RECONSTRUCTIVE ORTHOPAEDIC ASSOCIATES II, PC, Dist. Court, ED Pennsylvania 2017 – Google Scholar

Federal Attack on Foreclosure Judgment Merits Rule 11 Sanctions 

A district judge in the Northern District of Illinois has awarded sanctions to several banks who were sued in a federal case arising out of a state court foreclosure judgment. Plaintiff lost the state case and the state court entered a judgment of foreclosure in favor of banks who held mortgage liens on the property.

Because the state court issued a final judgment adverse to plaintiffs, plaintiffs’ counsel violated Rule 11 by filing a federal action to stop the foreclosure. Plaintiffs should have known their legal position was frivolous because federal courts in such cases, abstain from proceeding under the Rooker-Feldman doctrine. Plaintiffs’ counsel was sanctioned in the amount of $20,000.

Source: MOMO ENTERPRISES, LLC v. BANCO POPULAR OF NORTH AMERICA, Dist. Court, ND Illinois 2017 – Google Scholar