Commercial Litigation and Arbitration

Filing Complaint Barred by Statute of Limitations and Res Judicata (Affirmative Defenses) Violates Rule 11 Where Plaintiff Warned before Filing — Sanctions Usually Inapt for Appeals of Rule 11 Sanctions

From Huntsman v. Perry Local Schools Board of Educ., 2010 U.S. App. LEXIS 10948 (6th Cir. May 28, 2010) (Unpublished):

[T]he suit is clearly barred by res judicata and the statute of limitations, so the dismissal was not in error. Additionally, counsel for Defendants notified Attorney Shenise prior to the filing of the complaint in the district court that the claims were barred and that Defendants would seek sanctions if the case were filed. Therefore, we conclude that it was not reasonable for Attorney Shenise to file the complaint and to argue that the claims were "warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law." Fed. R. Civ. P. 11(b)(2).

It was not an abuse of discretion for the district court to impose sanctions on Attorney Shenise for filing this complaint which was so clearly barred by the statute of limitations and by res judicata. ***

Federal Rule of Appellate Procedure 38 ("Rule 38") allows for this Court to impose sanctions upon motion of the appellee for frivolous appeals. Similarly, 28 U.S.C. §§ 1912 and 1927 allow for sanctions to be imposed in federal courts against the attorney under both statutes, and against the litigant under § 1912. This Court has held that "sanctions under [Rule 38 are] appropriate when an appeal is 'wholly without merit' and when the appellant's 'arguments essentially had no reasonable expectation of altering the district court's judgment based on law or fact.'" B & H Med., L.L.C. v. ABP Admin., Inc., 526 F.3d 257, 270 (6th Cir. 2008) (quoting Wilton Corp. v. Ashland Castings Corp., 188 F.3d 670, 677 (6th Cir. 1999)). "We will usually impose Rule 38 and § 1927 sanctions only where there was some improper purpose, such as harassment or delay, behind the appeal." Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1212 (6th Cir. 1997). ***

The only timely appeal at issue in this case is the appeal of the sanctions against Attorney Shenise. The appeal is not frivolous on its face, since it simply seeks relief based on a colorable, though unconvincing, argument that Attorney Shenise's conduct was reasonable under the circumstances. Appellate sanctions are typically not appropriate for the appeal of the Rule 11 sanctions imposed by the district court, and this appeal is no exception.

However, Attorney Shenise filed notice of appeal for both orders entered by the district court, and both appellants filed briefs on appeal separately, requiring Defendants to litigate both Huntsman's [the client’s] untimeliness and to defend the imposition of sanctions at the district court below. The appeal of the motion to dismiss was frivolous both because it was untimely, as discussed above, and because it continued litigation that was based on arguments that the district court properly sanctioned. However, once Attorney Shenise moved to withdraw as counsel in the appeal of the motion to dismiss, he ceased to be part of the frivolous appeal pursued by Huntsman and so should only be sanctioned for the time during which he was involved in the appeal.

Defendants also seek to sanction Huntsman for pursuing his appeal of the motion to dismiss. Although it is clear that Huntsman was on notice of the frivolous nature of his claims in this case based on the district court's dismissal and its grant of Rule 11 sanctions, the equities of the situation weigh in favor of not sanctioning Huntsman. Despite Huntsman evidently refusing to dismiss this appeal at the conclusion of mediation efforts, and thereafter Attorney Shenise withdrawing as counsel, this Court is inclined to deny the motion for appellate sanctions because of the relative lack of sophistication of a pro se litigant like Huntsman. Also, we note that most of the cases in which appellate sanctions are awarded against a litigant appear to be in situations where the appellant was a corporation, and more likely to be able to afford such fees. See, e.g., B & H Med., 526 F.3d at 271-72; Wilton Corp., 188 F.3d at 677-78.

Sanctioning Attorney Shenise for filing a notice of appeal of the order dismissing Huntsman's complaint in an untimely manner for a claim that he clearly knew was frivolous is appropriate. Although this Court may have support in the caselaw to sanction Huntsman as well, the equities of the situation weigh in favor of sanctioning only the attorney. Similarly, the appeal of the award of sanctions by the district court does not rise to the level of sanctionable conduct. Therefore, only single costs related to the appeal of the motion to dismiss accrued from the time of filing the notice of appeal, January 5, 2009, to the time Attorney Shenise filed a motion to withdraw as counsel for Huntsman's appeal of the motion to dismiss, April 6, 2009, are imposed, and only Attorney Shenise is required to pay those costs.

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