Commercial Litigation and Arbitration

Amended Complaint Resets Rule 11 Clock — Judge’s Warning to Heed Rule 11 Does Not Trump Safe Harbor — Nor Does Ambiguous Judicial Request to Delay 2nd Sanctions Motion — No Sanctions for “Merely Frustrating Conduct” (Good Quote)

From Lawrence v. Richman Group of CT LLC, 620 F.3d 153 (2d Cir. 2010):

In an order dated March 4, 2005, the district court dismissed Lawrence's first amended complaint in this case, finding that it failed to plead a contract that was legal and enforceable. Nevertheless, based on counsel's representation that this defect could be cured by allegations of fact that would bring the contract claim within Rule 3040 of the National Association of Securities Dealers, the district court granted Lawrence leave to replead the complaint "subject to Rule 11." ***

Plaintiff filed a second amended complaint on March 21, 2005, and moved for the district court to reconsider its order of dismissal. The district court denied the motion on August 10, 2005***. [T]he district court observed that the amended pleading only reinforced the conclusion that plaintiff had been engaged in "gamesmanship" with the court.***

Appellees initially moved for Rule 11 sanctions in conjunction with their motion to dismiss Lawrence's first amended complaint. Soon after the district court dismissed that complaint, the magistrate judge (to whom the Rule 11 motion had been referred) determined that the sanctions motion should be denied "without prejudice to renew." *** In so ruling, the magistrate judge directed defendants to defer filing any renewed motion until the district court determined what, if any, of Lawrence's claims would proceed. Neither party filed objections with the district court.

On December 20, 2005 -- some nine months after Lawrence filed the second amended complaint and four months after the district court denied reconsideration of dismissal -- defendants renewed their motion for Rule 11 sanctions. On March 10, 2006, the magistrate judge recommended granting the motion and awarding monetary sanctions for the time expended by defense counsel on plaintiff's contract claim after the district court's March 2005 dismissal of the first amended complaint. *** Rejecting Lawrence's objections to this recommendation, the district court awarded Rule 11 sanctions on December 28, 2006, finding that, despite his representations to the court, Lawrence did not have a reasonable basis in law and fact to pursue his contract claim in an Article III proceeding "after the Court's March 2005 ruling." *** Lawrence unsuccessfully moved for reconsideration***.

There is no question in this case that appellees' initial sanctions motion, filed with respect to the first amended complaint, afforded Lawrence the twenty-one-day safe harbor mandated by Rule 11(b)(2). Nor is there any question that defendants' renewed Rule 11 motion was served only after the initial motion had been denied, the first amended complaint dismissed, and Lawrence's second amended complaint found inadequate to warrant reconsideration of the order of dismissal. Lawrence submits that because he was thus not afforded any notice of defect with respect to the second amended complaint, much less twenty-one days to correct or withdraw that filing before the renewed sanctions motion was presented to the district court, the sanctions award must be vacated. We agree. ***

Appellees do not challenge that, if Lawrence was sanctioned for filing the second amended complaint, plaintiffs were entitled to notice and twenty-one days to correct or withdraw that pleading. Rather, they assert that the subject of their renewed sanctions motion was not the second amended complaint but, rather, Lawrence's failure to withdraw pleadings and papers relating to the deficient first amended complaint, a filing for which they had already satisfied the safe harbor provision of Rule 11(c)(2). The record does not support this argument. ***

In rejecting Lawrence's safe harbor challenge to a sanctions award for filing the second amended complaint, the district court cited two reasons why it was unnecessary for Lawrence to be given notice of a defect in this pleading: (1) the defect in the second amended complaint was the same as in the first, i.e., Lawrence failed to allege a legal and enforceable contract; and (2) in granting leave to replead, the district court had explicitly told Lawrence what he would have to allege to state a colorable contract claim for commissions against the defendants named in the case. The district court further concluded that Lawrence could not complain that he was not given notice of appellees' intent to move for sanctions on the second amended complaint because the district court had told Lawrence, "after granting leave to amend," that a further pleading would "be subject to Rule 11." ***

The quoted language as to Rule 11, particularly when read in context, was plainly intended to warn Lawrence that the district court would not hesitate to impose sanctions if he filed further pleadings lacking a good faith basis in law and fact. But, as all pleadings are subject to Rule 11, we do not think the district court's emphasis of this fact can substitute for the notice and opportunity to correct or withdraw required by the rule. Similarly, while the record confirms that the district court clearly identified both what it perceived to be the defect in the first amended complaint and the minimum allegations necessary to cure the defect, that permits us only to sympathize with the court's frustration that Lawrence did not fulfill his representation to provide such allegations in the second amended complaint. It does not permit us to hold that these circumstances somehow allowed appellees to move for sanctions on the second amended complaint without satisfying the requirements of Rule 11(c)(2).

Rule 11 does not, after all, authorize sanctions for merely frustrating conduct. It authorizes sanctions only for the filing of a document with the court that fails to satisfy the rule's certification requirements. Moreover, Rule 11(c)(2) conditions the filing of a sanctions motion on the offending party being given notice and a twenty-one-day opportunity to correct or withdraw the document. By thus encouraging correction or withdrawal of defective filings, Rule 11's safe harbor provision seeks to reduce, if not eliminate, the unnecessary expenditure of judicial time and adversary resources. See, e.g., Perpetual Secs., Inc. v. Tang, 290 F.3d 132, 141 (2d Cir. 2002). For this reason, we conclude that where, as here, a defective complaint is dismissed and a party is granted leave to replead, the filing of an amended pleading resets the clock for compliance with the safe harbor requirements of Rule 11(c)(2) before a party aggrieved by the new filing can present a sanctions motion based on that pleading to the district court.

After Lawrence filed his second amended complaint, defendants did not provide him with notice of defect and an opportunity to correct or withdraw that filing before moving for sanctions. Indeed, they did not serve their renewed sanctions motion with the district court until after the second amended complaint was effectively dismissed by the district court's determination that, as a matter of law, it did not support reconsideration of the earlier ruling dismissing Lawrence's contract claim. In these circumstances, sanctions could not be awarded under Rule 11(c)(2). See In re Pennie & Edmonds LLP, 323 F.3d at 89; see also Roth v. Green, 466 F.3d 1179, 1193 (10th Cir. 2006) (reversing sanctions award where Rule 11 motion filed after complaint's dismissal); Brickwood Contractors, Inc. v. Datanet Eng'g, Inc., 369 F.3d 385, 389-90 (4th Cir. 2004) (reversing sanctions award where Rule 11 motion filed after summary judgment granted); Tompkins v. Cyr, 202 F.3d 770, 788 (5th Cir. 2000) (holding sanctions properly denied where Rule 11 motion filed after trial's conclusion); Barber v. Miller, 146 F.3d 707, 710-11 (9th Cir. 1998) (reversing sanctions award where Rule 11 motion filed after complaint's dismissal); Ridder v. City of Springfield, 109 F.3d 288, 297 (6th Cir. 1997); 3 Fed. R. Civ. P. 11 Advisory Committee Note to 1993 Amendments ("Given the 'safe harbor' provisions . . ., a party cannot delay serving its Rule 11 motion until after conclusion of the case (or judicial rejection of the offending contention).").

Appellees argue that they delayed filing for sanctions in this case on instructions of the magistrate judge, who directed that they should renew their Rule 11 motion only when it was "clear which claims actually will remain in this lawsuit." *** In a case such as this, presenting almost relentless motion practice, a court may understandably wish to establish a sensible schedule for presenting issues. Further, parties may reasonably be expected to follow a court's scheduling orders. Nevertheless, the magistrate judge never indicated that its scheduling directive with respect to the filing of a Rule 11 motion was intended to negate the safe harbor requirements of Rule 11(c)(2). To the extent that ambiguity in that directive created competing obligations for appellees under the scheduling directive and under Rule 11(c)(2), the proper course was not to ignore the rule's safe harbor requirements, but to alert Lawrence and the court to any perceived defect in the second amended complaint and to seek clarification and agreement as to the schedule for formal filing of the sanctions motion. See generally Fruit of the Loom, Inc. v. Am. Mktg. Enters., Inc., 192 F.3d 73, 75 (2d Cir. 1999) (holding that district courts generally are not authorized to craft practices in conflict with federal rules).

Share this article:


Recent Posts