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This column highlights important sanctions decisions in the 18 months since this topic was last addressed in this space. [NLJ, June 23-30, 2003.] Unsafe Harbors. The safe harbor provision of Rule 11(c)(1)(A) requires that any Rule 11 motion be served at least 21 days before the motion is filed with the court, to afford the offender the opportunity to withdraw the challenged paper. Once judgment is rendered or an action dismissed, it is too late for a party to move for Rule 11 sanctions because it is impossible to comply with the safe harbor. See, e.g., Brickwood Contractors Inc. v. Datanet Eng’g Inc., 369 F.3d 385, 397-99 (4th Cir. 2004) (en banc). In expedited proceedings that are promptly dismissed or adjudicated, it may be impossible as a matter of fact for the injured party to comply with the 21-day requirement. What if a Rule 11 motion has been made but the case is dismissed or adjudicated prior to the expiration of the safe harbor-may the court act on the motion, even though 21 days have not in fact been afforded the target? The court in Joseph Giganti Veritas Media Group Inc. v. Gen-X Strategies Inc., 222 F.R.D. 299 (E.D. Va. 2004), imposed Rule 11 sanctions where the motion had been filed concurrently with a dismissal motion 20.5 days before the offending papers were dismissed. The court reasoned that, by not requesting any additional time at the argument on the dismissal motion (and, instead, vigorously urging the sanctionable positions), the offender had forfeited the remaining few hours of the 21-day period. Problems with absence of predismissal motion noted The absence of a predismissal motion raises problems illustrated by the 7th U.S. Circuit Court of Appeals in Methode Elecs. Inc. v. Adam Techs. Inc., 371 F.3d 923 (7th Cir. 2004), in which a complaint seeking emergency injunctive relief contained frivolous venue allegations. Three days after the action was filed, defense counsel sent a warning letter ostensibly “pursuant to Rule 11,” but no written Rule 11 motion was served, then or later. Two days later, the parties were before the court on the plaintiff’s motion for a temporary restraining order (TRO); the court indicated its displeasure with the venue allegations; and defense counsel orally moved for Rule 11 sanctions. The next day, the court issued a sua sponte order to show cause why Rule 11 sanctions were not appropriate. The plaintiff promptly dismissed the action without prejudice pursuant to Rule 41(a), precisely one week after filing it. Thereafter, the district court imposed a $10,000 fine payable to the court and $45,000 for the defendants’ attorney fees and expenses. The problem facing the 7th Circuit was that an award of attorney fees is not permitted when sanctions issue sua sponte. See Rule 11(C)(2). The Methode court observed that it “could” conclude that the defendant had “substantially complied” with Rule 11 by sending a letter alerting the plaintiff of the violation. The court declined to do so, however, and for good reason. Sending a letter does not comply with the motion requirement of the safe harbor. See, e.g., First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 527-528 (6th Cir. 2002); Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 789 (9th Cir. 2001). The Methode court also suggested that it “could determine that [the plaintiff] waived its right to a 21-day safe harbor” by proceeding with its TRO application in the face of the Rule 11 letter. This, too, the 7th Circuit properly declined to conclude. Rather than reflect any waiver of the protections of Rule 11, the plaintiff’s proceeding with an expedited motion could equally be deemed to reflect its embrace of the protections of the safe harbor-i.e., the plaintiff knew that it could proceed without risk of a timely Rule 11 motion. Ultimately, the 7th Circuit sustained the award of attorney fees pursuant to the inherent power of the court. Id. at 927-928. Sufficiently Due Process. Sustaining a Rule 11 sanction under the inherent power of the court, as in Methode, is problematic. The plaintiff in Methode was not on notice that it was defending against a potential inherent power sanction. This raises a due process concern because targets of sanctions motions are generally entitled to notice of both the conduct that is challenged and the sanctions power that is being invoked. Different sanctions powers raise different issues. See Joseph, Sanctions: The Federal Law of Litigation Abuse � 17(D)(1) (Supp. 2005). In affirming a Rule 11 sanction under the inherent power, however, Methode highlights a new wrinkle in due process analysis. The 7th Circuit joined two other circuits that find no due process problem in the issuance of inherent power sanctions, even though the offender was on notice only of possible Rule 11 sanctions, where the following criteria are satisfied: the offender is on notice of precisely what conduct is alleged to be sanctionable; that conduct involves bad faith (a sine qua non of inherent power sanctions but not of Rule 11 sanctions); and Rule 11 does not apply to that conduct. In addition to Methode, 371 F.3d at 927-28, see Miller v. Cardinale (In re DeVille), 361 F.3d 539, 549 (9th Cir. 2004) (Bankruptcy Rule 9011); Fellheimer, Eichen & Braverman v. Charter Technologies, 57 F.3d 1215, 1225 (3d Cir. 1995). Conflicting Messages: Leave to Amend With Warnings. The grant of leave to replead may create an ambiguity in a district court warning as to the potential sanctionability of the repleading of a dismissed claim. In Anderson v. Smithfield Foods Inc., 353 F.3d 912 (11th Cir. 2003), the 11th Circuit reversed a $128,000 sanction awarded for the filing of a second amended Racketeer Influenced and Corrupt Organization Act (RICO) complaint because the law in the area was unclear and “the district court’s order dismissing the claims in the First Amended Complaint did not give such a clear warning not to refile under RICO that only an unreasonable lawyer would have repleaded RICO claims.” The district court had warned the plaintiffs that, in the court’s view, “RICO is not the proper remedy for Plaintiffs to vindicate their rights,” which were primarily environmental and health in orientation. The 11th Circuit stressed, however, that “the order also points out the pleading defects in the Plaintiffs’ RICO claims and gives the Plaintiffs leave to file a Second Amended Complaint. This approach created an ambiguity. Based on this ambiguity, a reasonable lawyer could interpret the order as inviting better-pleaded RICO claims.” Ill-Motivated Meritorious Positions. The 5th Circuit upheld an improper-purpose sanction even though it assumed (but did not really seem convinced) that the underlying position was not frivolous, in Whitehead v. Food Max of Miss. Inc., 332 F.3d 796, 805 (5th Cir. 2003) (en banc). In affirming the improper purpose sanction, the 5th Circuit held: “It is true that, generally, district courts do not sanction attorneys who make nonfrivolous representations. A district court may do so, however, where it is objectively ascertainable that an attorney submitted a paper to the court for an improper purpose . . . .To conclude otherwise would render the improper purpose portion of the opinion superfluous.” Whitehead was the product of a divided court, and can be read as being at odds with the jurisprudence of other circuits, which appear generally reluctant to approve improper-purpose sanctions where the underlying position is not frivolous. See, e.g., Storey v. Cello Holdings LLC, 347 F.3d 370, 393 (2d Cir. 2003) (reversing improper-purpose sanction after finding factual and legal contentions to be nonfrivolous: “Without objectively unreasonable statements, economic disparity and a greater litigiousness do not alone amount to improper purpose”); Reed v. Great Lakes Cos., 330 F.3d 931, 936-37 (7th Cir. 2003) (reversing improper-purpose sanctions where the underlying claim was not found to be frivolous and, therefore, the determination of improper purpose was, in the circumstances, speculative). Sound reasons for not imposing sanctions The 2d and 7th circuits’ reluctance to impose improper-purpose sanctions for asserting nonfrivolous positions is sound. Rarely do plaintiffs sue because they feel warmly toward the defendants. However, these cases are perhaps less disparate than they appear. As suggested above, the 5th Circuit in Whitehead did not seem to believe that the sanctioned counsel’s legal position really was nonfrivolous. In contrast, the 2d Circuit in Storey concluded that the factual and legal positions before it were not frivolous, and the 7th Circuit in Reed intimated that there may have been other, extenuating circumstances for the peculiar behavior of the plaintiff before it. All of these decisions are consistent with the general proposition that courts should be, and are, circumspect about imposing improper-purpose sanctions for presentation of a nonfrivolous position. This reflects the strong judicial predisposition to decide matters on the merits and avoid needless excursions into the subjective states of litigants or their counsel. Adverse Inference Instructions-Electronic Discovery. Several courts, having found spoliation of electronic discovery, have fashioned adverse inference instructions for use at trial. See, e.g., Zubulake v. UBS Warburg LLC, 2004 U.S. Dist. Lexis 13574, at *61-*62 (S.D.N.Y. July 20, 2004); Network Computing Servs. v. Cisco Sys. Inc., 2004 U.S. Dist. Lexis 26610, at *29-*30 (D.S.C. Aug. 3, 2004); Mosaid Technologies Inc. v. Samsung Electronics Co., 2004 U.S. Dist. Lexis 25286, at *4-*5, *19 (D.N.J. Dec. 7, 2004). All of these are sobering, and worth bearing in mind (in much the same way as a Cotton Mather sermon). Gregory P. Joseph of Gregory P. Joseph Law Offices in New York, is a fellow of the American College of Trial Lawyers.

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