Commercial Litigation and Arbitration

Inherent Power Sanctions for Hit-and-Run Abuse (Filing, then Withdrawing Claim) Protected from Sanction under Rule 11 by the 21-Day Safe Harbor

From Peer v. Lewis, 2010 U.S. App. LEXIS 10296 (11th Cir. May 20, 2010):

This case arises from yet another contentious Florida election. Initially, Jim Naugle, the incumbent mayor, and Lewis were the only candidates in the City of Fort Lauderdale's 2006 mayoral race, which, according to Lewis, increased Lewis' chance of success in the election. Peer entered the mayoral race on January 10, 2006.

A. Lewis' State Court Complaint

On January 17, 2006, Lewis filed a state court claim challenging Peer's Fort Lauderdale residency and seeking to have Peer disqualified as a candidate. In paragraph 19 ("¶ 19") of his state court complaint, Lewis stated, "What is more, an October 15, 2005, credit report by TransUnion, one of the three major credit bureaus, reported that Defendant's [Peer's] current address is '18 Charter Drive, Wilmington, North Carolina 28403.'"

On February 1, 2006, the state court held a hearing on Lewis' complaint and dismissed the complaint for ineffective service of process. At this time, Lewis was represented by Robert Malove, and Peer was represented by Rosenbaum. After the state court hearing, there was a "heated discussion" in the hallway of the courthouse, and Malove and his law clerk told Rosenbaum and Peer that ¶ 19 of Lewis' complaint was inaccurate because Peer's address was obtained from a Westlaw People Finder report, and not Peer's credit report. Later that same day, Malove amended Lewis' state court complaint to delete ¶ 19's reference to any credit report and served the amended complaint on Peer. Sometime on February 1 or February 2, 2006, Peer met with Rosenbaum to discuss Lewis' amended state court complaint and determine whether to bring a claim under the Fair Credit Reporting Act. On February 2, 2006, Peer obtained a copy of his credit report and faxed this report to Rosenbaum. Peer's credit report showed that Lewis never accessed it. ***

B. Peer's FCRA Claim in Federal Court

The next day, February 3, 2006, Peer, with Rosenbaum acting as his attorney, filed suit against Lewis in federal court for a violation of the Fair Credit Reporting Act. Rosenbaum prepared and filed Peer's complaint based on ¶P 19 of Lewis' state court complaint and "suspicious activity" on Peer's credit report. Lewis counterclaimed for abuse of process. ***

1. Rosenbaum's Conduct

At the time [plaintiff’s counsel] Rosenbaum filed [plaintiff] Peer's complaint in federal court on February 3, 2006, Rosenbaum knew the following facts: (1) on February 1, 2006, Lewis' counsel told Rosenbaum that ¶ 19 in the state court complaint was inaccurate because Peer's address was obtained from a Westlaw People Finder report, and not Peer's credit report; (2) on February 1, 2006, Lewis amended his state court complaint to delete ¶ 19's reference to any credit report and served Peer with this amended complaint; (3) on February 2, 2006, Peer obtained a copy of his credit report and faxed this report to Rosenbaum; (4) Peer's credit report showed that Lewis never accessed it; and (5) Peer, the client, testified that on February 1 or February 2, 2006, he met with Rosenbaum to discuss Lewis' amended state court complaint and whether to bring an FCRA claim in federal court. Peer's claim against Lewis was filed by Rosenbaum on February 3, 2006.

When an attorney signs and files a pleading, the attorney is certifying that every requirement in Rule 11(b) is satisfied; a violation of any one of these requirements is sufficient to support a motion for sanctions. Fed. R. Civ. P. 11(b)-(c). Based upon a review of "the entire record and the parties' submissions related to the Rule 11 motion for sanctions," the district court found that

at the time the complaint was filed counsel had some good faith basis to believe that the claim was not objectively frivolous. Although his claim was based on a misunderstanding of fact and had little chance of success from the outset, Plaintiff's counsel advanced a tenable or plausible legal position, based on his client's belief, that was not completely and utterly baseless.


This finding was clearly erroneous. The five facts cited above are all of the facts in the record relating to Rosenbaum's entry into this case. Rosenbaum knew Lewis amended his state court complaint to delete ¶ 19's reference to a TransUnion credit report before Rosenbaum filed Peer's suit in federal court. Moreover, neither the Miami Herald nor the Sun-Sentinel Digest newspaper article relied upon by Rosenbaum to justify his filing the FCRA [Fair Credit Reporting Act] claim (1) states that Lewis obtained Peer's credit report, (2) states that Lewis was concealing the identity of an individual who did obtain the report, or (3) was published before Peer filed his complaint in federal court. *** Finally, Rosenbaum's claim of "suspicious" activity on Peer's credit report was unsubstantiated speculation.

Peer's FCRA claim was thus objectively frivolous at the time of filing because there were no facts to support Peer's contention that Lewis accessed his credit report, nor was there any chance that discovery would uncover evidentiary support where Rosenbaum already possessed Peer's credit report. Furthermore, these same facts show not only that Rosenbaum should have been aware that Peer's claim was frivolous, but that Rosenbaum was aware that Peer's claim was frivolous.

Rule 11, however, does not permit the imposition of sanctions against Rosenbaum because Lewis' motion was untimely. Proceedings under Rule 11 can be initiated either by motion of a party or sua sponte by the court. Here, Lewis' July 9, 2007, Rule 11 motion asked the district court to impose sanctions against Rosenbaum on the court's own initiative. By definition, a court responding to a motion is not acting sua sponte. Therefore, the Court will analyze Lewis' motion as a motion for sanctions under Rule 11(c)(2).

The advisory committee note on the 1993 amendments to Rule 11 states that "[o]rdinarily the motion should be served promptly after the inappropriate paper is filed, and, if delayed too long, may be viewed as untimely. . . . Given the 'safe harbor' provisions . . . [in Rule 11(c)(2)], a party cannot delay serving its Rule 11 motion until conclusion of the case (or judicial rejection of the offending contention)." Fed. R. Civ. P. 11 advisory committee note of 1993. The rationale for this rule is simple: "if the court disposes of the offending contention within the 21-day safe-harbor period after service, it becomes impossible under the provision of Rule 11(c)(2) to file the motion or otherwise present it to the court." 2 James Wm. Moore et al., Moore's Federal Practice § 11.22[1][c] (3d ed. 2010).

Here, although Lewis knew the claim was frivolous from the outset, Lewis finally had convincing proof that Rosenbaum knowingly filed a frivolous claim when Peer produced his credit report at his deposition on July 25, 2006. At this point, Lewis had all the pertinent information and should have moved for sanctions. But Lewis did not do this. Instead, Lewis filed a timely Rule 11 motion for sanctions against Roderman and Greenbaum on October 10, 2006, and then waited nine months to file a motion for sanctions against Rosenbaum.

Lewis filed his motion for sanctions against Rosenbaum on July 9, 2007, thirteen days after the district court struck Peer's complaint as a sanction for Greenbaum's and Peer's misconduct. Lewis' motion for Rule 11 sanctions was thus untimely because the district court had already rejected the offensive pleading at the time Lewis moved for sanctions. Therefore, the Court must affirm the judgment of the district court regarding Rosenbaum's conduct under Rule 11. ***

C. The Court's Inherent Power


Generally, if appropriate sanctions can be imposed under provisions such as Rule 11, courts should not exercise their inherent power. ***

In this case, Rosenbaum knowingly filed a baseless claim and then withdrew from the case before opposing counsel had the opportunity to discover that Rosenbaum had Peer's credit report (showing no access) before Rosenbaum filed the FCRA claim. While the filing of a meritless claim is normally the purview of Rule 11, Rule 11 cannot be extended to Rosenbaum's conduct without vitiating the intent of Rule 11(c)(2)'s safe harbor provision. The purpose of Rule 11(c)(2)'s safe harbor provision is to allow an attorney who violates Rule 11 to correct the alleged violation within twenty-one days without being subject to sanctions. Fed. R. Civ. P. 11 advisory committee note of 1993. This provision assumes that the attorney who filed the offensive pleading is still in the case. When the attorney who violated Rule 11 withdraws from the case prior to opposing counsel obtaining clear evidence of the violation, a party cannot move for sanctions under Rule 11 because the offending attorney no longer has the authority to correct or withdraw the challenged pleading. Therefore, Rule 11 does not allow parties to protect themselves from "hit and run" abuse of the judicial process.

Thus, as Lewis' only recourse for Rosenbaum's misconduct, the Court must determine whether the district court abused its discretion by denying Lewis' motion for sanctions under the court's inherent power. ***

"The key to unlocking a court's inherent power is a finding of bad faith."***

The district court's holding that there was insufficient evidence to show Rosenbaum knowingly acted in bad faith was clearly erroneous. The facts supporting our conclusion are set forth in the section discussing Rule 11 sanctions. Therefore, the Court finds that there is overwhelming evidence that Rosenbaum knowingly pursued a frivolous claim, and thus acted in bad faith.

Furthermore, the district court's statement that its ability to function was adequately protected by sanctions on others misses the point. The district court struck Peer's complaint and answer to Lewis' counterclaim as a discovery sanction for Greenbaum's failure to comply with the court's orders. Lewis' success on his abuse of process counterclaim redressed Peer's misconduct for pursuing a frivolous claim for "primarily political" purposes. But nothing in the record indicates the district court thoroughly analyzed Rosenbaum's conduct to determine whether that conduct merited the imposition of sanctions.

D. Remedy

The question then becomes, which court should determine whether and, perhaps, what sanctions should be imposed for what we consider to be Rosenbaum's bad faith conduct. In this regard, we recognize two things: this appellate court does have the authority to impose sanctions itself based upon the bad faith findings that we have explained; on the other hand, district courts have broad discretion to determine whether to impose sanctions and the nature or amount of those sanctions. Unlike an appellate court which reviews a cold, written record, a district court often has experience with a case which is developed over time and is based upon numerous interactions with the parties and attorneys. ***

In deference to the district court's discretion, we will remand this case to the district court to determine whether to impose sanctions on Rosenbaum and, if so, the extent of those sanctions. In making these decisions, however, the district court, contrary to its earlier findings, starts with our finding that Rosenbaum acted in bad faith when he knowingly filed a frivolous complaint. In addition, the district court should keep in mind that attorneys are the filter upon which courts rely to maintain the integrity of, and trust in, our judicial process. Most parties do not know what legal ethics apply or what facts give rise to a legitimate claim. Neither sanctions nor a judgment against the client absolve the lawyer.

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