Diamonds.Net LLC v. Idex Online, Ltd.

254 F.R.D. 475, 2008 U.S. Dist. LEXIS 108239, 2008 WL 5428083
CourtDistrict Court, S.D. New York
DecidedDecember 22, 2008
DocketNo. 1:04-cv-06626-RJH
StatusPublished
Cited by3 cases

This text of 254 F.R.D. 475 (Diamonds.Net LLC v. Idex Online, Ltd.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Diamonds.Net LLC v. Idex Online, Ltd., 254 F.R.D. 475, 2008 U.S. Dist. LEXIS 108239, 2008 WL 5428083 (S.D.N.Y. 2008).

Opinion

MEMORANDUM ORDER

RICHARD J. HOLWELL, District Judge:

Defendants Idex Online, Ltd., Idex Online Israel, Ltd., and Idex Online S.A. (collectively “Idex”) move for sanctions against plaintiffs Diamonds.net LLC, Internet Diamond Exchange, LLC, Martin Rapaport, and Ra-paport USA (collectively “Rapaport”). The motion originates in Rapaport’s filing and later withdrawal of a claim for patent infringement, which is allegedly frivolous. Because Idex has not complied with the procedural requirements of Federal Rule of Civil Procedure 11, its motion must be denied.

As described in an accompanying opinion, the parties to this litigation operate rival websites for buying and selling diamonds. (See Mem. Op. & Order, Diamonds.net LLC et al. v. Idex Online Ltd. et al., No. 04 Civ. 6626(RJH), 2008 WL 5328219, at *1 (S.D.N.Y. Dec. 18, 2008).) One aspect of the litigation involves U.S. Patent No. 5,950,178 (the “Borgato” patent), which is directed at a “data processing system and method for facilitating transactions in precious stones such as diamonds.”

On August 29 and August 30, 2005, Idex sent letters to Rapaport warning it not to sue Idex for infringement of the Borgato patent. (See Ex. A to Defs.’ Resp. to Pis.’ Mot. to Dismiss Tenth Claim for Patent Infringement and Defs.’ Cross-Mot. for Rule 11 Sanctions (Oct. 17, 2007) (“Defs.’ Mem.”).) Both letters stated:

This letter constitutes notice under Fed. R.Civ.P. 11 that there is no good faith basis for your patent infringement Count [Ten] and that all Defendants in the captioned action request and demand that Plaintiffs drop and dismiss the patent infringement count within the time frame specified in Rule 11. Otherwise, Defendants will file a Rule 11 motion and re[476]*476serve their right to seek attorneys fees and costs for defense [of] this action. (Id.)

Undeterred, Rapaport on September 15, 2005 filed a proposed “Fifth Amended and Supplemented Complaint.” It alleged that Idex was infringing the Borgato patent by “listing, selling, offering for sale, and facilitating the sale of diamonds.” (See Fifth Amended Compl. 1111132-42.) On September 29, 2006, the Court allowed the amendment to the complaint.

After discovery, Rapaport stipulated to the dismissal of its infringement claim, and on December 19, 2007, the Court entered an order dismissing the claim. Before that order was entered, Idex filed a motion arguing that the claim should be dismissed with prejudice (Rapaport originally argued that dismissal without prejudice was enough) and requesting sanctions.

In the sanctions motion, Idex contends that Rapaport failed to conduct an adequate pre-filing investigation of whether Idex’s website infringed the Borgato patent, as required by Federal Circuit caselaw. (See Defs.’ Mem. 7-12.) Specifically, Idex contends that (1) the discovery record contains no evidence that Rapaport analyzed whether Idex’s website practices the claims of the Borgato patent (see id. at 10-12), and (2) there is no basis on which a registered U.S. patent attorney could conclude that Idex’s website infringes the Borgato patent (see id. at 13-16). Rapaport responded to the motion by filing a declaration in which its patent counsel, Lawrence Hersh, describes how he came to believe that Idex’s website infringes the Borgato patent. (See Deck of Lawrence Hersh (Nov. 7, 2007).) Idex says that Hersh’s declaration “is so lacking in objective information that it proves up an inadequate pre-filing investigation.” (Defs.’ Reply in Supp. of Defs.’ Cross-Mot. for Rule 11 Sanctions, at 20 (Dec. 3, 2007).)

The parties’ back-and-forth is inconclusive; but it is beside the point, since Idex did not comply with Rule ll’s procedural requirements. The Rule requires that (1) a motion for sanctions “be made separately from any other motion,” and (2) the motion be served on the opposing party twenty-one days before it is filed with the Court. Fed. R.Civ.P. 11(c)(2) (emphases added).1 “[I]f the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets,” the motion for sanctions “must not be filed or be presented to the court.” Id.

These requirements underscore “the seriousness of a motion for sanctions” and serve to “define precisely the conduct claimed to violate the rule.” Fed.R.Civ.P. 11 Advisory Committee Notes, 1993 Amendment, 28 U.S.C.A. Rule 11, at 14 (2008). Failure to observe them is fatal to a party-initiated motion for sanctions. E.g., Roth v. Green, 466 F.3d 1179, 1191-93 (10th Cir.2006); Gordon v. Unifund CCR Partners, 345 F.3d 1028, 1030 (8th Cir.2003); Martens v. Thomann, 273 F.3d 159, 178-79 (2d Cir.2001); Ridder v. City of Springfield, 109 F.3d 288, 297 (6th Cir.1997); Johnson v. Waddell & Reed, Inc., 74 F.3d 147, 150-51 (7th Cir. 1996); Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1328 (2d Cir.1995); Gal v. Viacom Int'l Inc., 403 F.Supp.2d 294, 309 (S.D.N.Y. 2005) (Haight, J.).

Neither requirement was observed here. Idex presented its motion for sanctions in a document that also contained a filing labeled “Response to Plaintiffs’ Motion to Dismiss its Tenth Claim for Patent Infringement.” And Idex’s only attempt to serve the “motion” on Rapaport came in its August 2005 letters. This is not enough. As one Judge of this Court observed: “the plain language of the Rule expressly requires the serving of a formal motion, and with good reason, for by serving such a motion a movant itself certifies to its own compliance with Rule 11 in bringing such a motion and thus places its adversary on notice that the matter may not be viewed as simply part of the paper skirmishing among adversaries that too often characterizes litigation in this uncivil age.” Lancaster v. Zufle, 170 F.R.D. 7, 7 (S.D.N.Y. 1996) (Rakoff, J.).

Idex does not suggest that it filed its sanctions motion “separately.” But it claims, cit[477]*477ing Jeffreys v. Rossi, 275 F.Supp.2d 463 (S.D.N.Y.2003) (Schiendlin, J.), and Nisenb-aum v. Milwaukee County, 333 F.3d 804 (7th Cir.2003), that its letters satisfied Rule ll(c)(2)’s safe harbor provision. In Jeffreys, the court said in a footnote that “a detañed letter outlining [an] anticipated motion” satisfied the Rule. Id. at 480 n. 27. But the statement is dictum (the court went on to hold that sanctions were not warranted), and therefore unpersuasive. See generally Pierre N. Leval,

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254 F.R.D. 475, 2008 U.S. Dist. LEXIS 108239, 2008 WL 5428083, Counsel Stack Legal Research, https://law.counselstack.com/opinion/diamondsnet-llc-v-idex-online-ltd-nysd-2008.