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Commercial Litigation and Arbitration

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D.C. Circuit Declines to Decide whether Sua Sponte Sanctions May Issue Only in Circumstances “Akin to Contempt” — Lingering Circuit Split

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From Lucas v. Duncan, 574 F.3d 772 (D.C. Cir. 2009):

Although both Karl and the Department of Education agree that this court should review the magistrate judge's order for abuse of discretion with particular care, ... they disagree as to the substantive standard that the judge should himself have applied. Karl notes that Rule 11(c)(2), which governs Rule 11 sanctions initiated upon a party's motion, contains a "safe harbor" provision that permits the filer to avoid sanctions by withdrawing or correcting the challenged pleading within 21 days. Rule 11(c)(3), which governs sanctions imposed on the court's own initiative, does not contain such a provision. In light of this difference, and citing language in the Advisory Committee notes, Karl argues that only actions "akin to a contempt of court" should be subject to the sua sponte imposition of Rule 11 sanctions.

[Footnote 2] See FED. R. CIV. P. 11, Advisory Comm. Notes (1993) ("Since show cause orders will ordinarily be issued only in situations that are akin to a contempt of court, the rule does not provide a 'safe harbor' to a litigant for withdrawing a claim, defense, etc., after a show cause order has been issued on the court's own initiative.").

Citing the language of the rule itself, which does not distinguish between sanctions imposed after motion or sua sponte, the Department argues that the standard under which an attorney's actions must be measured is in all cases "an objective standard of reasonableness under the circumstances." Appellee's Br. 6 (citing Bus. Guides v. Chromatic Commc'ns Enters., Inc., 498 U.S. 533, 551 (1991)). That is the standard the magistrate judge applied. See Lucas, 408 F. Supp. 2d at 11 ("Rule 11 requires . . . a determination as to whether, judged by the standard of a reasonable party or lawyer, the party or lawyer offended one of the rule's provisions. . . . Rule 11 . . . is based upon an objective evaluation of the lawyer's conduct.").

Both sides have support for their positions in the case law.

[Footnote 4] Compare cases adopting the "akin to contempt" standard, e.g., Kaplan, 331 F.3d at 1256; In re Pennie & Edmonds LLP, 323 F.3d 86, 90 (2d Cir. 2003), with cases applying an objective reasonableness standard, e.g., Jenkins v. Methodist Hosps. of Dallas, 478 F.3d 255, 264 (5th Cir. 2007); Young, 404 F.3d at 39.

We need not enter this debate, however, because the sanctions order requires reversal regardless of which standard applies. As discussed below, the determination that the eleven statements violated Rule 11 was premised on two legal errors. And a trial court "necessarily abuse[s] its discretion if it base[s] its ruling on an erroneous view of the law." Cooter & Gell, 496 U.S. at 405.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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