From Ledford v. Peeples, 568 F.3d 1258 (11th Cir. 2009):

In this case, two parties, X and Y, each owned a fifty percent interest in a limited liability company that manufactured and sold carpets. X provided the financing; Y ran the company and marketed its product. The parties had a buy-sell agreement that enabled either party to buy out the other at any time by offering to purchase the other's interest in the company at a set price. After receiving an offer, the offeree would have thirty days in which to accept the offer or elect to purchase the offeror's interest at the same set price.

Y offered to purchase X's interest for $3.5 million. X demanded to know whether Y would be borrowing the funds from Z, who earlier had expressed an interest in purchasing the company. Y said that neither Z nor anyone else would be providing the money. X asked Z if he was financing Y; Z said no.

X, unable to operate the factory and market its product without Y or someone with Y's expertise, had to sell and therefore accepted Y's offer. Prior to the date set for the closing, however, X told Y that it would not go forward with the closing unless Y represented that no third party was providing the funds to pay X. Y responded that it had no obligation to disclose the source of its funds and that X was bound by contract to transfer its interest to Y unconditionally. X tacitly agreed by appearing at the closing and transferring its interest to Y.

X subsequently learned that Z had provided the purchase price and, following the closing, had acquired the factory's assets and hired Y to run the business. After discovering Z's involvement, X took Y to court. In a complaint filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had financed the purchase of its interest, and moreover, that Y's failure to disclose Z's involvement fraudulently induced X to sell its interest to Y. X also brought suit against Z in federal district court, the case now before us, claiming that Z violated federal securities law, state securities law, and state common law by denying involvement in the transaction and causing X to sell its interest to Y.

X lost both cases on summary judgment. Both courts concluded that Y's alleged misrepresentation about Z's involvement in the buy-out did not cause X to sell its interest. Rather, X sold because it was in X's economic self-interest to do so. X needed Y's skills; had X purchased Y's interest, it would have had no one to run the carpet factory or to market its product. X therefore had no economically viable option but to sell.

After the district court granted Z summary judgment, Z moved the court to sanction X and its counsel under the Private Securities Litigation Reform Act ("PSLRA"), Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927, and the court's inherent power on the grounds that X neither produced, nor at any time had available, any evidence to support its allegation that Z's conduct caused it to sell its interest rather than buy Y's interest. The court denied Z's motion. X now appeals the district court's decision rejecting its claims. Z cross-appeals the court's denial of sanctions under the PSLRA. *** On Z's cross appeal, we conclude that Z is entitled to sanctions and therefore remand the case for their imposition.

***

X is DynaVision Group, LLC ("DynaVision") and its principal owners, Jimmy Ledford, Larry O'Dell, and Bryan Walker. Y is Brenda Smith, Robert Thomas, and Bryan Owenby. Z is Shelby Peeples.

***

In assessing counsel's compliance with Rule 11(b), the district court failed explicitly to recognize that each of the five plaintiffs had sought relief under section 20(a) and Rules 10b-5(a) and (b) and that Count One therefore presented a total of fifteen claims in all. Instead, the court bunched the fifteen claims together and considered them as a whole. This is precisely how plaintiffs' counsel handled the claims in drafting the complaint: They bunched the federal securities fraud claims together along with allegations that the Active Members, in failing to disclose their arrangements with Peeples, breached the fiduciary duties imposed on them by the Operating Agreement, O.C.G.A. § 14-11-305, and Georgia common law, and conspired with Peeples to defraud plaintiffs.

When faced with incomplete findings of fact, we ordinarily vacate the district court's decision and remand the case for further findings, unless the record has been developed in such a way that the material facts are clear. Here, the material facts are clear, and further findings are thus unnecessary. We therefore proceed to assess counsel's compliance with Rule 11(b) with respect to each plaintiff's claims. In doing so, we are mindful that a PSLRA sanctions proceeding, like a hearing held pursuant to Rule 11(c), is, in essence, a bench trial, except that, under the PSLRA, the district court has the burden of assessing counsel's performance on its own initiative. 15 U.S.C. § 78u-4(c)(1). That a party has or has not moved the court to impose sanctions pursuant to Rule 11 is of no moment.

***

Plaintiffs' attorneys argue that Section 9.1 of the Operating Agreement provided an adequate factual and legal basis for the Rule 10b-5(b) claim. They contend that if Peeples had admitted that he was loaning the Active Members the $ 3.5 million they needed to close, DynaVision's principals would have (1) concluded that the Active Members had pledged their interests as collateral for the loan and thereby breached Section 9.1 of the Operating Agreement, (2) rejected the Put and Call, and (3) obtained declaratory or injunctive relief barring the Active Members from enforcing the Put and Call. 139 This would have enabled DynaVision to maintain its fifty percent interest in what plaintiffs claimed to be a $ 10 million company.

Count One, however, did not allege that Peeples's misrepresentations kept DynaVision from going to court and obtaining declaratory or injunctive relief so that it could maintain the status quo ante. What plaintiffs' counsel seems to be saying, then, is that they could have presented a claim they did not bring and that, because the claim they did not bring had merit, they satisfied Rule 11(b)'s concerns. Such an argument could not serve as a justification for suing Peeples under the federal securities laws.

***

A reasonably competent attorney would have rejected the idea that Peeples was a controlling person and, for that reason alone, would not have filed the Count One section 20(a) claim against Peeples. Even if Peeples had been a controlling person, however, the Active Members never breached any fiduciary duty, and Peeples therefore could not be secondarily liable.

For the foregoing reasons, we conclude that a reasonably competent attorney would not have filed and prosecuted DynaVision's Count One claims because the attorney could not certify that the claims had the evidentiary support required by Rule11(b)(3), or the Count One claims of co-plaintiffs because the attorney could not certify that those claims had the evidentiary support required by Rule 11(b)(3) and were warranted by existing law. The district court was therefore required by the PSLRA to sanction plaintiffs' counsel ... and their law firm....

We now consider whether the district court should have sanctioned plaintiffs as well as their attorneys. A plaintiff is subject to monetary sanctions if the plaintiff misrepresented the facts alleged in the complaint. See Byrne v. Nezhat, 261 F.3d at 1117-18. In this case, we assume that what the individual plaintiffs and Paul Walker told plaintiffs' counsel prior to filing suit was essentially what they stated on deposition in state court and repeated on deposition in the district court.... These were straightforward, damaging admissions. The decision of these laymen to file suit and to continue on to the end here was made on the advice of counsel. That said, we find no basis for imposing monetary sanctions on plaintiffs.

The PSLRA presumes that "for substantial failure of any complaint to comply with any requirement of Rule 11(b) . . . [the appropriate sanction] is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred in the action." 15 U.S.C. § 78u-4(c)(3)(A)(ii). On receipt of our mandate, the district court shall determine the attorney's fees and expenses to Peeples incurred in defending the Count One claims.