Commercial Litigation and Arbitration

Recidivism and Fraudulent Joinder as Factors in Deciding Whether Sanctions Are Appropriate

Dunbar v. Wells Fargo Bank, N.A., 2013 U.S. App. LEXIS 5080 (8th Cir. Mar. 14, 2013):

The Wells Fargo parties filed a motion for sanctions under Rule 11 and 28 U.S.C. § 1927, as well as under the district court's inherent authority to sanction attorneys for acting in bad faith or abusing the judicial process. The district court awarded attorneys' fees under Rule 11(c) and, therefore, did not reach either of the alternate grounds for sanctioning Butler. "We review the district court's determinations concerning Rule 11 under the abuse-of-discretion standard." Clark v. United Parcel Serv., Inc., 460 F.3d 1004, 1008 (8th Cir. 2006).

Butler argues that our partial reversal in Murphy means sanctions are inappropriate. We disagree. Murphy held that the majority of the claims Butler filed--in a complaint virtually identical to the one in this case--were blatantly premised on the "show-me-the-note" theory. Murphy, 699 F.3d at 1033. Butler's duplication of these claims is all the more egregious when viewed in context. Just one week before Butler filed the Murphy complaint, this court recognized the Minnesota Supreme Court's rejection (two years earlier) of the "show-me-the-note" theory in a case that Butler himself argued before us. Stein, 662 F.3d at 978-80; see also Reed v. Great Lakes Cos., 330 F.3d 931, 936 (7th Cir. 2003) ("[I]n deciding whether to sanction such a litigant [a judge] can take into account a history of frivolous litigation."). As this court recently noted in Karnatcheva, when also reviewing a substantially similar complaint filed by Butler, even the quiet-title claims divorced from the "show-me-the-note" theory were but a flimsy construction of "labels and conclusions." Karnatcheva, 704 F.3d at 548. Furthermore, Butler's now trite attempts to avoid federal court by engaging in fraudulent joinder in order to then challenge federal subject matter jurisdiction are unacceptable. The district court was well within its discretion to impose sanctions under Rule 11. See Welk v. GMAC Mortg., LLC, 850 F. Supp. 2d 976, 999-1005 (D. Minn. 2012) (discussing bases for imposing sanctions on Butler under Rule 11); see also Butler v. Bank of America, N.A., 690 F.3d 959, 962-63 n.3 (8th Cir. 2012).

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