From Erchonia Corp. v. Bissoon, 2011 U.S. App. LEXIS 9719 (2d Cir. May 11, 2011):

Appellees move this Court for sanctions pursuant to Federal Rule of Appellate Procedure 38 arguing principally that Appellant's appeal was frivolous for the same reasons the underlying lawsuit was frivolous — "Erchonia had . . . virtually no physical evidence of its purported use of 'lipolaser' as a trademark." ***

We have held that sanctions under Federal Rule of Appellate Procedure 38 may be imposed when one party proceeds with an argument "'totally lacking in merit, framed with no relevant supporting law, conclusory in nature, and utterly unsupported by the evidence.'" United States v. Potamkin Cadillac Corp., 689 F.2d 379, 381 (2d Cir. 1982). We have also held that in cases where there is a "clear showing of bad faith," Rule 38 sanctions may issue. See In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 119 (2d Cir. 2000).

In the context of sanctions issued under Federal Rule of Civil Procedure 11, which governs sanctions issued by the district court, we have held that "[t]he fact that a legal theory is a long-shot does not necessarily mean it is sanctionable." Fishoff v. Coty Inc., 634 F.3d 647, 654 (2d Cir. 2011). That principle is instructive here. Although we found Appellant's claims to be meritless, they were not entirely baseless. ***

Further, we note that Appellees have effectively asked this Court to sanction Appellant on the ground that the initial action filed was frivolous. That is, in large part, Appellees' motion for sanctions is based upon the fact that "[t]he District Court already found bad faith," and "the baselessness of Erchonia's claims has been plain from the start." However, that an action may have been frivolous when initially filed, does not automatically mean that an appeal from a dismissal of that action will be frivolous. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 407 (1990) (Federal Rule of Civil Procedure 11 and Federal Rule of Appellate Procedure 38 "are better read together as allowing expenses incurred on appeal to be shifted onto appellants only when those expenses are caused by a frivolous appeal, and not merely because a Rule 11 sanction upheld on appeal can ultimately be traced to a baseless filing in district court.").

Finally, Appellees ask us to infer bad faith on the part of Appellant's filing based in part on facts well-beyond the scope of this case and beyond the record before us. In particular, Appellees reference a Texas lawsuit that Appelles' allege Erchonia was "reckless" in pursuing. Appellees also reference a separate appeal in this Circuit (No. 10-3245), which was taken from the district court's award of fees in the underlying case. Appellees argue that the fact that the separate appeal was dismissed as time-barred indicates that the current appeal before us (No. 09-2858) was undertaken in bad faith. However, we note that the fact that a party may have filed one time-barred appeal is not necessarily probative of bad faith in a separate appeal, especially where, as here, the case before us (09-2858) was filed before the time-barred appeal (10-3245), the two appeals were never consolidated, and this Court issued no sanctions in connection with the time-barred appeal.