Rule 11 Sanctions Not to Deter Cases of First Impression (Good Quote) — Position Not Frivolous Even If Only (Non-Controlling) Circuit Decision Is to Contrary — Loss on Summary Judgment ≠ Sanctionable

Rule 11 Sanctions Not to Deter Cases of First Impression (Good Quote) — Position Not Frivolous Even If Only Circuit to Decide Issue Came Out Other Way — Loss on Summary Judgment ≠ Sanctionable

 Lewis v. Hiday & Ricke, P.A., 2019 U.S. Dist. LEXIS 180817 (S.D. Fla. Oct. 15, 2019) (Report and Recommendation):

REPORT AND RECOMMENDATION

THIS CAUSE is before the Court on Defendants' respective Verified Motions for Sanctions (DE [78] and [79]). Defendants Hiday & Ricke, P.A. ("HR") and Dodge Enterprises, Inc. ("Dodge") (collectively, "Defendants") seek an award of attorney's fees and costs pursuant to Rule 11, Federal Rules of Civil Procedure, as sanctions against Donovan E. Lewis' ("Plaintiff") attorney, Donald A. Yarbrough ("Yarbrough"). The motions were referred to the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636 and the Magistrate Rules of the Local Rules of the United States District Court for the Southern District of Florida. The motions are fully briefed and, therefore, ripe for review. For the reasons below, the undersigned RECOMMENDS that Defendants' Motions (DE [78] and [79]) [*2]  be DENIED.

I. BACKGROUND

In his Complaint (DE [13]), Plaintiff alleged that Defendants violated the Fair Debt Collection Practices Act ("FDCPA") by communicating directly with a consumer known to be represented by counsel. 15 U.S.C.A. § 1692c(a)(2). Plaintiff alleged that four envelopes sent by Defendants to Plaintiff in care of his attorney violated the FDCPA because the envelopes were addressed directly to Plaintiff. Defendants answered, maintaining that although the envelopes were addressed to Plaintiff, the four envelopes were sent to attorney Yarbrough at Yarbrough's business address, and therefore, did not violate the FDCPA. On a subsequently filed motion for summary judgment, this Court found the facts of this case indistinguishable from Bravo v. Midland Credit Mgmt., Inc. and ruled that a letter addressed to a consumer but sent to the consumer's attorney at his attorney's address is not a violation of the FDCPA. Bravo, 812 F.3d 599, 602 (7th Cir. 2016). The court, therefore, entered summary judgment for Defendants (DE [75]).

While the case was pending (and before the motion for summary judgment was filed), Defendants served Yarbrough copies of their respective Motions for Sanctions, pursuant to the safe harbor provision of Rule 11, Fed. R. Civ. P. 11(c)(2). Yarbrough, [*3]  however, did not withdraw the Complaint. One week after this Court entered the Final Judgment (DE [76]), Defendants filed their Motions for Sanctions.

II. MOTIONS FOR SANCTIONS

Every attorney who submits a pleading to the court certifies, among other things, "that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument . . . for establishing new law." Rule 11(b), Fed. R. Civ. P. Violations of Rule 11(b) are judged objectively. Baker v. Alderman, 158 F.3d 516, 524 (11th Cir. 1998). The objective standard has been articulated as "reasonableness under the circumstances" and "what was reasonable to believe at the time the pleading was submitted." Id.

Proceeding upon Rule 11, Defendants now seek to recover in the form of sanctions the fees and costs they incurred in defending this action. Defendants argue that given attorney Yarbrough's extensive experience with FDCPA claims, he should have known that there was no controlling legal authority to support the relief he sought in the Complaint and, thus, the Complaint violated Rule 11. In response, attorney Yarbrough argues that there is no controlling Eleventh Circuit [*4]  precedent that would have defeated his claims. He further argues that he relied in good faith upon the FTC guidelines that prohibit a debt collector from sending an "in care of" letter to another party, unless the consumer lives at, or accepts mail at, the other party's address. See Statements of General Policy or Interpretation Staff Commentary On the Fair Debt Collection Practices Act, 53 Fed. Reg. 50097. Attorney Yarbrough predicated the Complaint on the theory that Defendants violated the FTC guidelines and the FDCPA because Plaintiff never authorized his attorney to accept or open Plaintiff's mail at the attorney's address and, therefore, the letters were effectively sent directly to Plaintiff.

Defendants cite this Court's rejection of attorney Yarbrough's argument and the entry of summary judgment as proof that Plaintiff's claim was not warranted by existing law or by a nonfrivolous argument for establishing new law. Yet, "[t]he grant of summary judgment, in and of itself, does not mean that an action is frivolous or warrants the imposition of sanctions." Baker, 158 F.3d at 524; see also Southern Atl. Cos., LLC v. School Bd. of Orange Cty., Fla., 699 Fed. Appx. 842, 851 (11th Cir. 2017) (reversing award of attorneys' fees in part because the plaintiffs had established a prima facie case of discrimination despite losing at summary judgment). Here, attorney Yarbrough relied upon FTC guidelines that prohibit creditors from [*5]  sending letters in care of third parties. The letters sent by Defendants did violate those guidelines. And the only appellate decision on the issue emanated from another circuit and, therefore, was not binding. See Bravo, 812 F.3d at 602. The Eleventh Circuit had never ruled on the issue. Without controlling precedential authority to the contrary, the undersigned cannot conclude that the Complaint ran afoul of Rule 11.

Furthermore, Rule 11 sanctions are not warranted to deter cases of first impression. See Baker, 158 F.3d at 524 ("[T]he purpose of Rule 11 is to deter frivolous lawsuits and not to deter novel legal arguments or cases of first impression"). Therefore, even though this Court rejected Plaintiff's arguments and entered summary judgment for Defendants, it was not unreasonable for attorney Yarbrough to base his legal theory on the FTC guidelines, absent any binding legal authority to the contrary at the time he filed the Complaint.

III. CONCLUSION

For the foregoing discussion, therefore, the undersigned respectfully RECOMMENDS that Defendants' Verified Motions for Sanctions (DE [78] and [79]) be DENIED.

The parties will have fourteen (14) days from the date of being served with a copy of this Report and Recommendation within which to file [*6]  written objections, if any, with the Honorable Rodolfo A. Ruiz, United States District Judge. Failure to file objections timely shall bar the parties from a de novo determination by the District Judge of an issue covered in the Report and shall bar the parties from attacking on appeal unobjected-to factual and legal conclusions contained in this Report except upon grounds of plain error if necessary in the interest of justice. See 28 U.S.C. § 636(b)(1); Thomas v. Arn, 474 U.S. 140, 149, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985); Henley v. Johnson, 885 F.2d 790, 794 (1989); 11th Cir. R. 3-1 (2016).

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