Abuse of Discretion to Impose Sanctions for Unsupported Allegations That Were Not Filed in Bad Faith and Were Voluntarily Withdrawn, Albeit Not within 21-Day Safe Harbor Period

From In re Sony Corp. SXRD, 2011 U.S. App. LEXIS 19550 (2d Cir. Sept. 23, 2011):

We vacate the district court's sanctions order. We understand why the district court felt the need to impose sanctions; we agree, for example, that (1) the Meserole plaintiffs' counsel did not have evidentiary support for certain of the assertions in the second amended complaint, (2) they took a statement attributable to a former Sony employee out of context, thereby making it misleading in terms of time, and (3) they filed motion papers supporting the confidential source allegations even after defendants had served the Rule 11 motion. We agree with the district court that we expect counsel to do better.

Nonetheless, we conclude that the district court's order imposing sanctions against the Meserole plaintiffs' counsel should be vacated. Counsel did eventually withdraw the offending allegations (albeit after the safe-harbor period had expired), the district court found that counsel did not act in bad faith, and the district court's order to show cause did not give specific notice of the second basis for the imposition of sanctions (the delay in striking the contested allegations).

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