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December 14, 2012 Articles

A Young Lawyer's Guide to Rule 11 Sanctions, Part II

A motion has been filed. Now what?

By Melissa L. Stuart

Although no one expects to be sanctioned, it is important to understand the process. The first article in this two-part series dealt with the prefiling investigations necessary to meet the due diligence standards to avoid sanctions under Federal Rule of Civil Procedure 11. SeeA Young Lawyer’s Guide to Rule 11 Sanctions,” Trial Practice, Vol. 26, Issue 2 (Spring 2012). But what happens after filing? Part two of this series addresses procedural requirements and offers recommendations on what to do if opposing counsel threatens sanctions.

Notice from Opposing Party of Intent to Seek Sanctions

Regardless of the stage of litigation, the requirement in Rule 11 to provide notice of a motion for sanctions is mandatory. Rule 11(c)(1) provides that “[i]f, after notice and an opportunity to respond, the court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction.” In most cases, the district court may not consider a motion for sanctions that fails to comply with Rule 11(c)(1), although a court may consider sanctions sought under alternative grounds, such as 28 U.S.C. § 1927 or the court’s inherent power.

The party seeking sanctions must send to the offending party a copy of the motion it plans to file describing the party’s specific objections and reasons for seeking sanctions. Even if there are apparent defects in the plaintiff’s filings, the defendant must comply with the notice requirement. See Castro v. Mitchell, 727 F. Supp. 2d 302, 305 (S.D.N.Y. 2010) (finding a motion for sanctions that defendant included in his motion for summary judgment to be in violation of Rule 11’s notice requirements; denying the motion despite the apparent defects in plaintiff’s complaint). Threats or informal notice of the intent to seek sanctions are not sufficient. See, e.g., id. at 308 (finding statements made at pretrial conference by opposing counsel saying he would seek sanctions against plaintiffs were insufficient to meet Rule 11’s notice requirement); Matsumaru v. Sato, 521 F. Supp. 2d 1013, 1015 (D. Ariz. 2007) (holding that informal notice does not satisfy Rule 11’s strict requirement that a motion be served on the opposing party); Certain Underwriters at Lloyd’s London v. Rauw, No. C 05-2377, 2007 WL 2729117, at *5 (N.D. Cal. Sept.18, 2007) (“[N]otice of intent [to file for Rule 11 sanctions] in the form of letters or telephone conversations, under Ninth Circuit jurisprudence, does not satisfy the procedural requirements of Rule 11’s ‘safe harbor’ provisions.”); Woods v. Truckee Meadows Water Auth., No. 3:06-CV-0189, 2007 WL 2264509, at *3 (D. Nev. Aug. 6, 2007) (holding that six-page letter containing a thorough analysis of the facts and law, in substance a Rule 11 motion for sanctions, failed to comply with Rule 11’s strict procedural notice requirements).

A party should serve the Rule 11 motion promptly after the inappropriate paper is filed with the court. If filing is delayed too long, the court may consider the motion untimely. Fed. R. Civ. P. 11 ACN (1993). Furthermore, a party may not seek Rule 11 sanctions after a cause is dismissed, because such timing does not give the offending party the opportunity to withdraw or correct the defective paper and thereby escape sanctions, as provided in Rule 11(c)(2). Matsumaru, 521 F. Supp. 2d at1016 (holding that a motion for sanctions violates the safe harbor provision if it is filed after the complaint has been dismissed).

Therefore, counsel who seeks attorney fees must adhere to the strict notice requirements under Rule 11. A court may award attorney fees and costs only upon a party’s motion. Fed. R. Civ. P. 11(c)(4). Thus, a sanction imposed sua sponte would be limited to “nonmonetary directives” or “an order to pay a penalty into court.” Castro, 727 F. Supp. 2d at 309. A party could also move that the court strike the challenged claims as an additional sanction. See MetLife Bank, N.A. v. Badostain, No. 1:10-CV-118-CWD, 2010 WL 5559693 (D. Idaho Dec. 30, 2010) (motion for sanctions requesting that the trial court strike the claims altogether because the claims had “absolutely no evidentiary support”); Wartsila NSD N. Am., Inc. v. Hill Int’l, Inc., 315 F. Supp. 2d 623, 624 (D.N.J. 2004) (motion for sanctions requesting that the court strike claims against the defendant that were based on “completely false” allegations brought by plaintiffs with knowledge of their falsity).

Twenty-One-Day Safe Harbor

Defendants are prohibited from filing the motion for sanctions until 21 days after the plaintiff has been served. If, during this period, the alleged violation is corrected (i.e., by withdrawing or correcting a claim or by dismissing a party), the motion should not be filed with the court. Fed. R. Civ. P. 11 ACN (1993) (“timely withdrawal of a contention will protect a party against a motion for sanctions.”). There is no mandatory safe harbor when Rule 11 is pursued sua sponte. Fed. R. Civ. P. 11(c)(1)(B).

A Rule 11 motion that is not in compliance with the mandatory safe harbor, like a motion that does not comply with the strict notice requirements, is subject to denial on that basis alone, even if the plaintiff’s filings are in fact deficient. Libaire v. Kaplan, 2008 WL 794973, at *15 (E.D.N.Y. Mar. 24, 2008) (“Notwithstanding [plaintiff’s violation of Rule 11], defendants are not entitled to sanctions under Rule 11 due to their failure to comply with the safe harbor provision. . . .”). Regardless of the stage of proceedings, the non-moving party must be given 21 days to withdraw or correct the challenged paper. See Bowler v. U.S. I.N.S., 901 F. Supp. 597 (S.D.N.Y. 1995) (declining to impose sanctions against attorney who was not given 21 days to withdraw or correct the challenged paper).

Subsequent filings, even those done to correct previously deficient filings, can also be subject to Rule 11 if the defendant finds the subsequent filings to be lacking either a reasonable inquiry or basis in fact. However, new notice of the deficiencies and a new 21-day safe harbor are required.

Opportunity to Respond

Before imposing sanctions, the court must give the party against whom sanctions are sought an opportunity to respond as to why sanctions would be inappropriate. Fed. R. Civ. P. 11(c)(1) ACN (1993); see also, Veillon v. Exploration Servs., Inc., 876 F.2d 1197 (5th Cir. 1989). The opportunity to be heard, though, does not entail an elaborate or formal hearing; simply giving the accused party a chance to respond through the submission of a brief is usually all that due process requires. Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018, 1027 (5th Cir. 1994); Veillon, 876 F.2d at 1202.

Several arguments could be raised in a challenge to a Rule 11 motion. A few arguments are presented below.

Challenge the Process
Successfully challenging the process by which the defendant served the plaintiff can lead to the denial of sanctions even if the plaintiff’s filing is defective. See Rubio ex rel. Z.R. v. Turner Unified Sch. Dist., 475 F. Supp. 2d 1092 (D. Kan. 2007) (declining to award sanctions against plaintiff because defendant requesting sanctions did not file its motion for Rule 11 sanctions as a separate motion and provided no evidence that it complied with the rule’s “safe harbor” provision). This would be an appropriate challenge if the defendant is not specific enough in describing the alleged defects or jumps the gun and files the motion for sanctions before the end of the safe harbor period.

Challenge the Timing
The Fifth Circuit noted that “[i]n the same manner that a failure to mitigate expenses may result in a corresponding reduction in the amount of attorney’s fees and costs awarded, so also may a failure to provide prompt notice of an alleged violation to the court and the offending party reduce the ultimate award.” Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 879 (5th Cir. 1988). Challenging the timing of the defendant’s notice of Rule 11 sanctions would be appropriate if the defendant did not serve the plaintiff soon after discovering the alleged defects. If a successful challenge to the timeliness of service does not lead to outright denial of the claim, then at the very least, it should reduce the amount of attorney fees imposed.

Challenge the Substance
Courts maintain a high bar for establishing a Rule 11 violation given judicial concern for encouraging zealous advocacy. See, e.g., E. Gluck Corp. v. Rothenhaus, 252 F.R.D. 175, 179 (S.D.N.Y. 2008). Thus, if the plaintiff can show that the inquiry was reasonable and the complaint was supported by facts, then the plaintiff can avoid sanctions. Any prefiling activity other than interviewing clients should be trumpeted, and any subsequent investigations should be highlighted. However, if the defendant can show that the plaintiff ignored defects or knowingly made the allegations anyway, sanctions may be imposed.

Challenge the Sanctions Sought
Rule 11 sanctions are not favored. See Pannonia Farms, Inc. v. USA Cable, 426 F.3d 650, 652 (2d Cir.2005) (quoting Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 334 (2d Cir.1999)) (“Although the imposition of sanctions is within the province of the district court, ‘any such decision [should be] made with restraint and discretion.’”); Teamsters Local Union No. 430 v. Cement Express Inc., 841 F.2d 66, 68 (3d Cir.1988) (“The imposition of Rule 11 sanctions is properly reserved for exceptional circumstances.”); Operating Eng’rs Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988) (“Rule 11 is an extraordinary remedy, one to be exercised with extreme caution.”); Louis Vuitton Malletier v. Dooney & Bourke, Inc., No. 04 Civ. 5316, 2006 WL 2807213, at *6 (S.D.N.Y. Sept. 28, 2006) (“Sanctions should always be a (very) last resort.”) (citation omitted).

When sanctions are appropriate, however, the district courts have broad discretion to determine what sanctions to apply. As guidance, the Fifth Circuit has said:

    What is “appropriate” may be a warm friendly discussion on the record, a hard-nosed reprimand in open court, compulsory legal education, monetary sanctions, or other measures appropriate to the circumstances. Whatever the ultimate sanction imposed, the district court should utilize the sanction that furthers the purposes of Rule 11 and is the least severe sanction adequate to such purpose.

Thomas, 836 F.2d at 878.

The Fifth Circuit recognized that, according to the express language of Rule 11, “if the award is the reimbursement of an opponent’s expenses, those expenses must be both caused by the violation and reasonable.” Id. The “reasonableness” of the attorney fees requested requires inquiry by the court regarding the extent to which the moving party’s expenses and fees could have been avoided or were self-imposed. Id. at 879 (noting that the hours and funds expended should correlate to the merit of the claims).  “If a litigant fails to [mitigate], the district court may exercise its discretion and either reduce the award accordingly, or in some instances, decline to award any expenses.” Id.

An award of attorney fees should not exceed the expenses and attorney fees for the services “directly and unavoidably caused by the violation of the certification requirement.” Fed. R. Civ. P. 11 ACN (1993). If, for example, “a wholly unsupportable count were included in a multi-count complaint or counterclaim for the purpose of needlessly increasing the cost of litigation to an impecunious adversary, any award of expenses should be limited to those directly caused by inclusion of the improper count, and not those resulting from the filing of the complaint or answer itself.” Id.

Appeal the Decision to Award Sanctions
The courts of appeals review a trial court’s decision to impose sanctions for an abuse of discretion. Corpus Christi Taxpayer’s Ass’n v. City of Corpus Christi, 858 F.2d 973 (5th Cir. 1988). However, “because Rule 11 sanctions have significant impact beyond merits of individual cases and can affect reputation and creativity of counsel, abuse of discretion standard does not mean that Court of Appeals gives complete deference to district court’s decision.” Bilharz v. First Interstate Bank of Wis., 98 F.3d 985 (7th Cir. 1996).

Navigating the Rule 11 requirements is a complex process, but it is essential for every litigator to fully understand how Rule 11 works to avoid sanctions and effectively advocate each client’s case.

Keywords: litigation, trial practice, Rule 11, sanctions, safe harbor

Melissa Stuart is an associate at Cohen & Malad, LLP in Indianapolis, Indiana.

Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).