Commercial Litigation and Arbitration

Rule 11 and § 1927 Sanctions Reversed Because Appellate Court Finds Position Deemed “Frivolous” by District Court to be “Substantial” and Potentially Meritorious

Leveski v. ITT Educ. Servs., Inc., 2013 U.S. App. LEXIS 13722 (7th Cir. July 8, 2013):

Given our finding that Leveski's allegations are sufficiently distinguishable from Graves--not to mention our finding that she has direct and independent knowledge of her allegations--our sanctions analysis becomes quite easy. The district judge sanctioned Matusheski personally under 28 U.S.C. § 1927 and sanctioned the Law Offices of Timothy J. Matusheski, Plews Shadley, and Motley Rice under Fed. R. Civ. P. 11. Although these sanctions were granted under two different rules, they were all granted for the same reason: the district judge concluded that Leveski's counsel had continued to pursue a "frivolous" case despite "unmistakably clear warnings that [they were] playing with fire by pushing the case forward." (Dkt. 318, 23.)

As indicated above, we disagree with this conclusion. Our lengthy discussion of Leveski's case has shown that Leveski's case appears to be substantial, not frivolous. Even disregarding the fact that Leveski's allegations cover a later time period than the Graves allegations, Leveski has still provided the district court with at least two ways in which her allegations substantially differ from the Graves allegations: (1) Graves alleged an outright scheme to violate the HEA incentive compensation ban, in which ITT did not even attempt to feign compliance, and (2) Graves was solely concerned with the ITT recruitment office and had nothing to say about the ITT financial aid office. Moreover, through her affidavit and deposition testimony, Leveski has provided the district court with numerous pieces of evidence both supporting her allegations and demonstrating that her knowledge is direct and independent.

At this stage of the litigation, we think that Leveski has produced more than enough to overcome the 31 U.S.C. § 3730(e)(4) jurisdictional bar. We do not know whether Leveski will ultimately prevail, nor do we state any opinion as to whether Leveski should ultimately prevail. But we do believe that Leveski should be allowed to litigate her case on the merits, and thus, sanctions for bringing a frivolous lawsuit are inappropriate.

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