Commercial Litigation and Arbitration

While Rule 11 Does Not Impose a Continuing Duty to Update, Correct or Withdraw a Pleading, It Does Bar Continued Prosecution After a Claim Becomes Meritless (Here, Settlement Agreement Entered)

Fuerst v. Fuerst, 832 F. Supp. 2d 210 (E.D.N.Y. 2011):

As an initial matter, the Defendant's contention that sanctions are warranted relies on the presumption that the Settlement effectuated a release of the Plaintiff's claims. A review of the Settlement supports this presumption. The Settlement explicitly provides that the parties agree to release and discharge "any and all . . . causes or causes of action, [and] suits . . . in law or in equity which each of them had, now has or hereafter can, shall or may have, by reason of any matter from the beginning of the world to the execution of this Stipulation" and, subject to certain exceptions not applicable here, "all causes of action, claims rights and demands whatsoever, in law or in equity, known or unknown, past, present or future, which either of the parties hereto ever had, or now or hereafter may have, against the other . . . arising out of the marital relationship". (Settlement at 34-35.) There is no indication that these provisions, which explicitly applied to then existing actions and claims, were not applicable to the instant action, which was pending at the time the Settlement was signed. The Plaintiff's attorney fails to cite any authority or argument for why the Plaintiff's claims against the Defendant are not subject to this agreement, or why these provisions should not be enforced. Accordingly, the Court finds that the Plaintiff released all his claims asserted in the complaint when he signed the Settlement, and therefore there was no legal or factual basis to assert those claims after September 1, 2010.

"It is well established that 'Rule 11 does not impose a continuing obligation on the presenter to update, correct or withdraw any pleading, written motion or other paper which, when presented, satisfies the requirements of the Rule.'" Carlton Group, Ltd. v. Tobin, No. 02-CV-5065, 2003 U.S. Dist. LEXIS 13332, 2003 WL 21782650, at *6 (S.D.N.Y. July 31, 2003) (quoting Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse 125 (3d ed. 2000)); see also Stiefvater Real Estate, Inc. v. Hinsdale, 812 F.2d 805, 809 (2d Cir. 1987) ("[R]ule 11 deals exclusively with 'the certification flowing from the signature to a pleading, motion, or other paper in a law suit', and imposes no continuing duty on the parties or their attorneys.") (quoting Oliveri v. Thompson, 803 F.2d 1265, 1274 (2d Cir. 1986)). Accordingly, there is "no obligation to update a pleading, motion or other paper based on new information provided that the document met the requirements of Rule 11 when signed." Curley v. Brignoli Curley & Roberts, Assocs., 128 F.R.D. 613, 616 (S.D.N.Y.1989). Thus, because the Plaintiff filed the complaint before the Settlement was signed, the Plaintiff did not violate Rule 11 by not immediately withdrawing the complaint.

Nevertheless, "Rule 11 sanctions are appropriate where an attorney or party declines to withdraw a claim 'upon an express request by his or her adversary after learning that [the claim] was groundless.'" Carlton Group, 2003 U.S. Dist. LEXIS 13332, 2003 WL 21782650, at *7 (quoting Calloway v. Marvel Entm't Group, 854 F.2d 1452, 1472 (2d Cir. 1988), rev'd. in part on other grounds, 493 U.S. 120, 110 S. Ct. 456, 107 L. Ed. 2d 438 (1989)); see also O'Malley v. New York City Transit Auth., 896 F.2d 704, 709 (2d Cir. 1990) ("[C]ontinuing to press an obviously meritless lawsuit does tend to indicate bad faith and further supports the imposition of a rule 11 sanction.").

The Settlement that serves as the basis for this motion was signed on September 1, 2010. On September 2, 2010, the Defendant's attorney sent a letter to the Plaintiff's attorney asking if the Plaintiff intended to withdraw the complaint in light of the settlement. This inquiry does not constitute a demand. However, on December 28, 2010, in accordance with the safe harbor provision of Rule 11(c)(2), the Defendant served a copy of the sanctions motion on the Plaintiff's attorney. Under this rule, the Plaintiff had 21 days to withdraw his complaint without consequences. See Fed. R. Civ. P. 11(c)(2). After the Plaintiff failed to withdraw the complaint, on January 24, 2011, the Defendant filed the instant motion for sanctions. The Plaintiff's withdrawal of the complaint on February 11, 2011, approximately 45 days after receiving the demand, does not afford the Plaintiff's attorney the protection of the safe harbor provision. There is no dispute that the Plaintiff's attorney was aware of the contents of the Settlement, and was aware that the Plaintiff signed the Settlement on September 1, 2010. Thus, it was incumbent on the Plaintiff to withdraw the complaint upon receipt of the Defendant's demand on December 28, 2010 because there was no longer any viable basis for asserting the claims.

The excuse offered by the Plaintiff's attorney for her failure to withdraw the complaint upon the execution of the Settlement is unavailing. In her affidavit opposing the motion for sanctions, the Plaintiff's attorney states that she did not immediately withdraw the complaint following the execution of the Settlement because the Defendant had backed out of a previous stipulation of settlement during the divorce proceeding, and therefore the Plaintiff was hesitant to dismiss the complaint until he had a final judgment of divorce. (Seligman Aff., ¶ 53.) According to the Plaintiff's attorney, if the Defendant did not want to incur costs litigating the action after the Settlement was filed, she could have "sent [the Plaintiff's attorney] a stipulation extending her time to answer until she had served [the Plaintiff's attorney] the judgment of divorce". (Amended Affidavit of Delice Seligman dated May 10, 2011, ¶ 4.)

However, this excuse does not change the fact that, as of September 1, 2010, there was a signed Settlement agreement binding on both parties, discharging the claims in the complaint. It was incumbent upon the Plaintiff to withdraw the complaint upon receipt of a demand to do so. Regardless of whether the Plaintiff's concern about the Defendant's compliance with the Settlement was well-founded, permitting the Defendant and the Court to expend resources in a litigation that essentially was the Plaintiff's backup plan was an abuse of the legal system. Accordingly, the Court grants the Defendant's motion to sanction the Plaintiff's attorney for her failure to withdraw the complaint following the Defendant's December 28, 2010 demand.

With respect to the amount of sanctions, a court has "broad discretion in tailoring appropriate and reasonable sanctions under rule 11". O'Malley, 896 F.2d at 709; Lawrence v. Wilder Richman Sec. Corp., 417 F. App'x 11, 15 (2d Cir. 2010). The Defendant requests that the Court sanction the Plaintiff's attorney by requiring her to pay the Defendant's attorney's fees and costs associated with opposing the complaint, including the filing of the answer, counterclaim complaint, motion to dismiss and motion for sanctions. However, because the Court declines to award sanctions based on the Plaintiff's initial filing of the complaint, and because the Defendant's counterclaim complaint was filed despite the absence of this Court's subject matter jurisdiction, the Court finds that the proposed sanction is not warranted.

Here, the sanctionable conduct that the Court seeks to deter is the maintenance and continuation of a lawsuit rendered meritless by events subsequent to its commencement, despite a demand of withdrawal. Pursuant to Rule 11(c)(2), if a party fails to withdraw the challenged document within 21 days of being served with a motion for sanctions, "the court may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion". Fed. R. Civ. P. 11(c). Accordingly, the Court finds that the appropriate sanction is for the Plaintiff's attorney to pay the attorney's fees and costs incurred by the Defendant in bringing and defending its motion for sanctions. The Defendant is directed to submit within 10 days of the date of this order, records reflecting the hours expended by her attorney and the costs incurred in filing and defending the motion for sanctions.

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