CAN IV Packard Square, LLC v. Schubiner, 2023 U.S. App. LEXIS 30292 (6th Cir. Nov. 14, 2023) (unpublished):

ORDER

Craig Schubiner, a pro se New York resident, appeals the district court's order denying his post-judgment motion for sanctions against Can IV Packard Square, LLC ("Can IV") and its attorneys. This case has been referred to a panel of the court that, upon examination, unanimously agrees that oral argument is not needed. See Fed. R. App. P. 34(a). For the reasons that follow, we affirm.

I.

In 2014, Packard Square, LLC ("Packard Square") set out to develop a luxury apartment-retail complex in Ann Arbor, Michigan. To finance the project, Packard Square obtained a $53.78 million loan from Can IV, a private equity firm. Can IV secured that loan with a mortgage on the property and a promissory note. Additionally, Packard Square's sole member, Schubiner, executed a completion-cost guaranty that covered costs above and beyond the original budget.

Shortly after construction began, Packard Square defaulted by missing [*2]  certain construction milestones. Can IV subsequently foreclosed on the property and later purchased the property with a $75 million credit bid. See Can IV Packard Square, LLC v. Schubiner, No. 354186, 2021 WL 1711593, at *2 (Mich. Ct. App. Apr. 29, 2021) (per curiam), perm. app. denied, 970 N.W.2d 324 (Mich. 2022).

Construction on the project finished in February 2019. Two months later, Can IV sent Schubiner a demand letter for payment of a $20.09 million "Completion Cost Deficiency." When Schubiner refused to pay, Can IV filed this lawsuit in state court seeking to enforce the completion-cost guaranty. Schubiner removed the case to federal court based on diversity jurisdiction, see 28 U.S.C. §§ 1332, 1441(a), and the parties eventually filed dueling motions for summary judgment. For its part, Can IV argued that the clear and unambiguous terms of the completion-cost guaranty entitled it to $20.09 million in damages. Schubiner, on the other hand, argued that Can IV could not prove damages because it had fully recovered the construction costs from the foreclosure proceeds. The district court granted summary judgment to Can IV and awarded it damages in the amount of $20.09 million plus 16 percent interest.

On appeal, we concluded that this damages award amounted to impermissible double recovery and therefore reversed the district court's judgment [*3]  and remanded with instructions to enter summary judgment in Schubiner's favor. Can IV Packard Square, LLC v. Schubiner, No. 21-1717, 2022 WL 3335697, at *3-5 (6th Cir. Aug. 12, 2022).

On remand, the district court issued an amended judgment in favor of Schubiner. Thereafter, Schubiner moved for sanctions against Can IV and its attorneys, requesting costs and attorney's fees incurred in defending this action. He argued that imposing sanctions was appropriate under 28 U.S.C. § 1927 and Federal Rule of Civil Procedure 11. The district court denied Schubiner's motion for sanctions without a hearing.

Now Schubiner appeals and challenges the district court's denial of his sanctions motion.¹

II.

We review for abuse of discretion a district court's denial of sanctions under § 1927 and Rule 11. Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 395 (6th Cir. 2009) (citing Ridder v. City of Springfield, 109 F.3d 288, 293, 298 (6th Cir. 1997)). "A court abuses its discretion when it commits a clear error of judgment, such as applying the incorrect legal standard, misapplying the correct legal standard, or relying upon clearly erroneous findings of fact." Jones v. Ill. Cent. R.R. Co., 617 F.3d 843, 850 (6th Cir. 2010).

Section 1927. Section 1927 permits a court to order "[a]ny attorney or other person admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously . . . to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." By its terms, § 1927 imposes [*4]  personal liability on attorneys only and does not authorize imposition of sanctions on a represented party. Rentz, 556 F.3d at 396 n. 6. Sanctions are warranted under § 1927 "when an attorney objectively 'falls short of the obligations owed by a member of the bar to the court.' While subjective bad faith is not required, the attorney in question must at least knowingly disregard the risk of abusing the judicial system, not be merely negligent." Kidis v. Reid, 976 F.3d 708, 723 (6th Cir. 2020) (quoting Carter v. Hickory Healthcare Inc., 905 F.3d 963, 968 (6th Cir. 2018)).

Schubiner argues that Can IV's attorneys are subject to sanctions under § 1927 because they unreasonably and vexatiously multiplied the proceedings by filing a complaint that "was meritless from the start." But the Supreme Court has advised against this type of "post hoc reasoning," noting that a plaintiff "may have an entirely reasonable ground for bringing suit," even in cases where "the law or the facts appear questionable or unfavorable at the outset." Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421-22 (1978); see also Ridder, 109 F.3d at 290 ("[T]he mere finding that an attorney failed to undertake a reasonable inquiry into the basis for a claim does not automatically imply that the proceedings were intentionally or unreasonably multiplied.").

Sanctions:  (1) Section 1927 Sanctions Precluded by Denial of Summary Judgment on Claims Ultimately Found Meritless on Appeal; (2) Post-Judgment Rule 11 Motion Fails for Failure to Provide 21-Day Safe Harbor

In any event, Schubiner's characterization of Can IV's breach-of-contract claim as "meritless" is undermined [*5]  by the fact that the district court initially—albeit incorrectly—awarded summary judgment to Can IV. See In re Ruben, 825 F.2d 977, 988 (6th Cir. 1987) ("The denial of the [defendants'] motions for summary judgment precludes a sanction on the ground that the [plaintiff's] claims against them were legally insufficient."); cf. Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersysteme GmbH, 603 F.3d 943, 954 (Fed. Cir. 2010) (collecting cases for the proposition that, absent misrepresentation to the court,² a party is entitled to rely on a court's denial of summary judgment as an indication that the party's claims were objectively reasonable and suitable for resolution at trial). On this record, we cannot conclude that the district court abused its discretion in denying Schubiner's motion for sanctions under § 1927.

Rule 11. Schubiner also sought sanctions under Rule 11, which authorizes a court to impose sanctions against an attorney who files a pleading or motion that is frivolous or presented for an improper purpose. Fed. R. Civ. P. 11(b), (c). The district court denied Schubiner's request for Rule 11 sanctions because Schubiner failed to comply with Rule 11's mandatory "safe harbor" provision. See King v. Whitmer, 71 F.4th 511, 529 (6th Cir. 2023) ("A party may seek sanctions only after providing notice of the alleged [Rule 11] violations, which the opposing party then has 21 days to cure.") (citing Fed. R. Civ. P. 11(c)); see also Ridder, 109 F.3d at 297 ("[S]anctions under Rule 11 are [*6]  unavailable unless the motion for sanctions is served on the opposing party for the full twenty-one day 'safe harbor' period before it is filed with or presented to the court . . . ."). On appeal, Schubiner argues that Rule 11 supports imposing sanctions, but presents no argument that the district court erred when it concluded that he failed to comply with the "safe harbor" provision. He therefore has waived any such argument. See Geboy v. Brigano, 489 F.3d 752, 767 (6th Cir. 2007).

III.

For these reasons, we AFFIRM the district court's order.

¹ To the extent that Schubiner's brief raises arguments that were not presented in his motion for sanctions below—including his argument that the district court should have imposed sanctions using its inherent authority or under Federal Rule of Civil Procedure 37(c)(2)—those arguments are not properly before us. See Barner v. Pilkington N. Am., Inc., 399 F.3d 745, 749 (6th Cir. 2005).

² In its motion for summary judgment, Can IV stated that it purchased the property at the foreclosure sale and, in an affidavit attached thereto, stated it purchased the property using a $75 million credit bid.