Commercial Litigation and Arbitration

Sanctions — Not Chilling Creativity vs. Acquiescing in Misconduct

Three cases:

From Colliton v. Donnelly, 2009 U.S. Dist. LEXIS 26072 (S.D.N.Y. Mar. 27, 2009):

The Supreme Court has noted that Rule 11 "must be read in light of concerns that it will . . . chill vigorous advocacy." Cooter & Gell v. Hartmarx Corp. , 496 U.S. 384, 393, 110 S. Ct. 2447 (1990). Therefore, "[w] divining the point at which an argument turns from merely losing to losing and sanctionable" courts must "resolve all doubts in favor of the signer of the pleading." Rodick v. City of Schenectady, 1 F.3d 1341, 1350 (2d Cir. 1993). "Sanctions under Rule 11 are inappropriate when there are different interpretations of the law or when contrary controlling authority is not obvious." 2 James Wm. Moore et al., Moore's Federal Practice, § 11.11 (3d ed. 2008). Moreover, "the principal objective of the imposition of Rule 11 sanctions is not compensation of the victimized party but rather the deterrence of baseless findings and the curbing of abuses." Caisse Nationale de Credit Agricole-CNCA v. Valcorp, Inc., 28 F.3d 259, 266 (2d Cir. 1994) (quoting Healey v. Chelsea Res., Ltd., 947 F.2d 611, 626 (2d Cir. 1991)).

If a court determines that Rule 11 has been violated, it may impose sanctions on attorneys, law firms, or parties. See Fed. R. Civ. P. 11(c). "The court has significant discretion in determining what sanctions, if any, should be imposed for a violation, subject to the principle that the sanctions should not be more severe than reasonably necessary to deter repetition by the offending person or comparable conduct by similarly situated persons." Rule 11 Advisory Committee Note. If warranted, courts may impose a fine or penalty paid to the court, an award of reasonable expenses and attorney's fees incurred as a result of misconduct, an order precluding certain evidence, or dismissal of the case. See Abdelhamid v. Altria Group, Inc., 515 F. Supp. 2d 384, 392 (S.D.N.Y. 2007) (citing Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse § 16(b)(3) (3d ed. 2000)).

From Hartshorn v. Throop Borough, 2009 U.S. Dist. LEXIS 22372 (M.D.Pa. Mar. 19, 2009):

A court should not impose Rule 11 sanctions so as to chill creativity or stifle enthusiasm or advocacy. Photocircuits Corp. v. Marathon Agents, Inc., 162 F.R.D. 449, 451 (E.D.N.Y. 1995) (citing Securities Indus. Ass'n v. Clarke, 898 F.2d 318, 322 (2d Cir. 1990)). However, attorneys should "stop, think, investigate and research before filing papers either to initiate a suit or to conduct the litigation." Gaiardo v. Ethyl Corp.5 F.2d 479, 482 (3d Cir. 1987).

From Followell v. Mills, 2009 U.S. App. LEXIS 5930 (6th Cir. Mar. 18, 2009):

We understand that sanctions should not be employed to "chill an attorney's enthusiasm or creativity in pursuing factual or legal theories." Tahfs, 316 F.3d at 595 (quoting McGhee v. Sanilac County, 934 F.2d 89, 92 (6th Cir. 1991)). However, the allegations in Followell's pleadings go beyond the pale of zealous advocacy. See Red Carpet Studios, 465 F.3d at 646 (sanctions may be employed to punish aggressive tactics that far exceed zealous advocacy). Mills rightly contends that these allegations are scandalous and recklessly made. They impugn Mills's integrity and reputation and cast the judicial process itself into disrepute.... The fact that Followell is not presently able to identify substantial factual support for her suspicions and accusations strongly suggests her attorney did not conduct the sort of reasonable pre-filing inquiry that is prerequisite to the assertion of such serious, even libelous allegations against an officer of the court. Further, Followell's counsel's conduct appears to be all the more blameworthy in that he reasserted the most egregious allegations in the second amended complaint even after the lack of factual support for them had been exposed by the bankruptcy court in proceedings attacking the first amended complaint.

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