From Sneller v. City of Bainbridge Island, 606 F.3d 636 (9th Cir. 2010):

This case arises from a land use dispute between the Snellers and the City over the Snellers' efforts to develop property which included a wetland. The Snellers brought suit in federal court against the City, several of its employees, and other defendants no longer parties to this appeal.

The City, alleging that certain claims were frivolous, requested that those claims be dropped and that the individual City employees be dismissed from the lawsuit. The City prepared a motion for sanctions under Rule 11 and 28 U.S.C. § 1927 and served the motion on the Snellers' attorney on August 1, 2008. The motion specifically requested that the Snellers drop their claim for violations of the Washington State Constitution, their claim of civil conspiracy, and all claims against the individual defendants. The City also moved for partial summary judgment on the Snellers' state constitutional law and civil conspiracy claims, as well as all claims against the individual defendants employed by the City.

Three days before the end of the safe harbor period, the Snellers filed a motion to amend their complaint and submitted a proposed Third Amended Complaint which omitted each of the claims referenced in Defendants' motion for sanctions. The Third Amended Complaint, however, added two new causes of action.

After the motion to amend was served on the Snellers and the 21-day safe-harbor period required by Rule 11, see Fed. R. Civ. P. 11(c)(2), had passed, the City filed the motion for sanctions with the district court. On September 22, 2008, the district court granted the City's motion for partial summary judgment, denied the Snellers' motion to amend their complaint, and granted the City's motion for sanctions. The court granted the sanction under both Rule 11 and § 1927 against the Snellers and their counsel of record.

On August 1, 2008, Defendants served the Snellers with a Rule 11 motion requesting that Plaintiffs dismiss their claims for violations of the Washington State Constitution, civil conspiracy, and all claims against the individual defendants. The Snellers responded eighteen days later with a Motion for Leave to Amend their complaint so as to satisfy these requests. The Snellers' proposed Third Amended Complaint omitted each of the claims referenced in Defendants' motion for sanctions. By filing the motion to amend within the 21-day safe harbor period, the Snellers withdrew all of the challenged claims as required by Rule 11. There is nothing more that the Snellers were required to do in terms of withdrawing the challenged claims. See Truesdell v. S. Cal. Permanente Med. Group, 293 F.3d 1146, 1153 (9th Cir. 2002) (noting that amendment of a complaint cures a Rule 11 defect). Although the dissent suggests that there were several other ways, besides a motion to amend, for the Snellers to withdraw their offending claims, the availability of those additional suggested methods, even if true, are irrelevant. All that Rule 11 required is that the Snellers withdrew their claims within the safe harbor period. As explained above, they did.

Defendants contend that the Snellers did not withdraw their challenged claims as required by Rule 11 because they did not dismiss their claims with prejudice under Rule 41(a)(1)(A)(ii), their proposed amendment to the complaint added new causes of action, and they failed completely to excise the names of one of the individual defendants from their Third Amended Complaint.

The Rule 11 safe harbor provision, by its plain language, does not require that a party drop its claims with prejudice. All that Rule 11 requires is that the offending pleading be withdrawn. Rule 11 also does not require that a party voluntarily dismiss its entire case under Rule 41(a)(1)(A)(ii) where the motion for sanctions references only some of the claims or parties set forth in a complaint. Filing a motion for leave to amend the complaint under Rule 15 thus constitutes effective withdrawal because it is the only procedure available under the rules to withdraw individual challenged claims. See Hells Canyon Pres. Council v. U.S. Forest Serv., 403 F.3d 683, 687-88 (9th Cir. 2005) (noting that Rule 15, rather than Rule 41, controls the situation where a plaintiff desires to eliminate some but not all of its claims).

[Footnote 3] It is possible, for example, that a party may later develop subsequent facts which would allow the party to reassert the claim in compliance with Rule 11's non-frivolousness requirement.

It is true that the Third Amended Complaint added two new causes of action. However, for Rule 11 purposes, it makes no difference that the proposed amended complaint may have included additional offending claims. The Rule 11 motion is directed only at the claims made in the Second Amended Complaint. Those yet-to-be-filed claims are not the subject of this Rule 11 motion. The proper procedure for challenging any newly-alleged offending claims, if the amended pleading is allowed, is to file a new Rule 11 motion. ***

Because the sanction cannot be upheld under Rule 11, we must next examine whether it can be affirmed on the alternative basis on which the district court expressly relied, 28 U.S.C. § 1927, to support the imposition of the sanction. The short answer is that it cannot. The sanction here was imposed jointly on counsel and the client, but § 1927 authorizes sanctions only upon counsel....