In the
United States Court of Appeals For the Seventh Circuit ____________________ȱ No.ȱ15Ȭ2142ȱ NORTHERNȱILLINOISȱTELECOM,ȱINC.,ȱ Plaintiff,ȱ andȱ ȱ ROBERTȱG.ȱRIFFNER,ȱ RespondentȬAppellant,ȱ
v.ȱ
PNCȱBANK,ȱN.A.,ȱ DefendantȬAppellee.ȱ ____________________ȱ
AppealȱfromȱtheȱUnitedȱStatesȱDistrictȱCourtȱforȱtheȱ NorthernȱDistrictȱofȱIllinois,ȱEasternȱDivision.ȱ No.ȱ1:12ȬcvȬ02372ȱ—ȱJohnȱRobertȱBlakey,ȱJudge.ȱ ____________________ȱ
ARGUEDȱJANUARYȱ18,ȱ2017ȱ—ȱDECIDEDȱMARCHȱ10,ȱ2017ȱ ____________________ȱ
BeforeȱWOOD,ȱChiefȱJudge,ȱandȱPOSNERȱandȱHAMILTON,ȱCirȬ cuitȱJudges.ȱ HAMILTON,ȱCircuitȱJudge.ȱThisȱappealȱpivotsȱonȱtheȱproceȬ duralȱrequirementsȱofȱFederalȱRuleȱofȱCivilȱProcedureȱ11ȱforȱ seekingȱsanctionsȱagainstȱaȱpartyȱandȱitsȱattorneyȱforȱassertingȱ 2ȱ No.ȱ15Ȭ2142ȱ
aȱ frivolousȱ claimȱ orȱ defense.ȱ Ruleȱ 11(c)(2)ȱ requiresȱ aȱ partyȱ seekingȱRuleȱ11ȱsanctionsȱfirstȱtoȱserveȱaȱproposedȱmotionȱonȱ theȱopposingȱpartyȱandȱtoȱgiveȱthatȱpartyȱatȱleastȱ21ȱdaysȱtoȱ withdrawȱorȱcorrectȱtheȱoffendingȱmatter.ȱOnlyȱafterȱthatȱtimeȱ hasȱpassedȱmayȱtheȱmotionȱbeȱfiledȱwithȱtheȱcourt.ȱToȱmixȱnaȬ valȱ metaphors,ȱ theȱ partyȱ seekingȱ sanctionsȱ mustȱ firstȱ fireȱ aȱ warningȱshotȱthatȱgivesȱtheȱopponentȱtimeȱtoȱfindȱaȱsafeȱharȬ bor.ȱ Inȱthisȱcase,ȱtheȱpartyȱwhoȱsoughtȱsanctionsȱfailedȱtoȱcomȬ plyȱwithȱthatȱprocedure.ȱItȱargued,ȱhowever,ȱthatȱtwoȱlettersȱ itȱ sentȱ containingȱ bothȱ settlementȱ demandsȱ andȱ threatsȱ toȱ seekȱRuleȱ11ȱsanctionsȱifȱitsȱdemandsȱwereȱnotȱmetȱamountedȱ toȱ“substantialȱcompliance”ȱwithȱRuleȱ11(c)(2)ȱandȱthusȱpreȬ servedȱitsȱrightȱtoȱmoveȱforȱsanctionsȱafterȱtheȱdistrictȱcourtȱ grantedȱsummaryȱjudgmentȱinȱitsȱfavor.ȱTheȱdistrictȱcourtȱacȬ ceptedȱthatȱargumentȱandȱimposedȱsanctions.ȱNorthernȱIllinoisȱ Telecom,ȱInc.ȱv.ȱPNCȱBank,ȱNAȱ(NITELȱII),ȱNo.ȱ12ȱCȱ2372,ȱ2015ȱ WLȱ1943271,ȱatȱ*9ȱ(N.D.ȱIll.ȱApr.ȱ29,ȱ2015).ȱ Weȱ reverse.ȱ Whetherȱ “substantialȱ compliance”ȱ withȱ theȱ warningȬshot/safeȬharborȱ requirementȱ ofȱ Ruleȱ 11(c)(2)ȱ canȱ everȱbeȱ sufficientȱ isȱcontroversial.ȱWeȱareȱtheȱloneȱ circuitȱ toȱ sayȱyes.ȱCompareȱPenn,ȱLLCȱv.ȱProsperȱBusinessȱDev.ȱCorp.,ȱ773ȱ F.3dȱ 764,ȱ 768ȱ (6thȱ Cir.ȱ 2014)ȱ (eightȱ circuitsȱ rejectȱ substantialȱ complianceȱtheory),ȱwithȱNisenbaumȱv.ȱMilwaukeeȱCounty,ȱ333ȱ F.3dȱ 804,ȱ 808ȱ (7thȱ Cir.ȱ 2003)ȱ (substantialȱ complianceȱ withȱ warningȬshotȱrequirementȱwasȱsufficientȱtoȱallowȱsanctions).ȱ Evenȱ assumingȱ substantialȱ complianceȱ isȱ sufficient,ȱ theȱ deȬ fendant’sȱsettlementȱdemandsȱinȱthisȱcaseȱfellȱfarȱshortȱofȱsubȬ stantialȱcompliance.ȱWeȱthereforeȱreverseȱtheȱdistrictȱ court’sȱ awardȱofȱsanctions.ȱ ȱ ȱ No.ȱ15Ȭ2142ȱ 3
I.ȱ FactualȱandȱProceduralȱBackgroundȱ A.ȱ Plaintiff’sȱBreachȱofȱContractȱClaimȱ Inȱ 2007,ȱ aȱ companyȱ calledȱ Nexxtworksȱ contractedȱ withȱ twoȱ banksȱ inȱ theȱ Chicagoȱ areaȱ toȱ upgradeȱ communicationsȱ facilities.ȱNorthernȱIllinoisȱTelecom,ȱInc.ȱv.ȱPNCȱBank,ȱNAȱ(NITELȱ I),ȱNo.ȱ12ȱCȱ2372,ȱ2014ȱWLȱ4244069ȱ(N.D.ȱIll.ȱAug.ȱ27,ȱ2014).ȱ Nexxtworksȱ subcontractedȱ withȱ plaintiffȱ NITELȱ toȱ installȱ dataȱandȱtelephoneȱcableȱatȱfourȱbankȱbranches.ȱNITELȱperȬ formedȱtheȱwork,ȱbutȱNexxtworksȱdidȱnotȱpayȱNITELȱallȱthatȱ itȱthoughtȱitȱwasȱowed.ȱNexxtworksȱassertedȱthereȱhadȱbeenȱ qualityȱproblemsȱthatȱhadȱrequiredȱitȱtoȱhireȱotherȱsubcontracȬ torsȱtoȱredoȱorȱfinishȱNITEL’sȱwork.ȱInȱ2009,ȱbeforeȱtheirȱdisȬ puteȱwasȱresolved,ȱNexxtworksȱfiledȱforȱbankruptcyȱprotecȬ tionȱ inȱ Floridaȱ andȱ listedȱ NITEL’sȱ claimȱ asȱ aȱ disputedȱ debt.ȱ NITELȱfiledȱaȱproofȱofȱclaimȱforȱ$115,000,ȱbutȱtheȱbankruptcyȱ courtȱdisallowedȱitȱbecauseȱitȱwasȱfiledȱtooȱlate.ȱ Inȱ2012,ȱstillȱseekingȱpaymentȱforȱwhatȱitȱthoughtȱitȱwasȱ owed,ȱ NITELȱ filedȱ thisȱ breachȱ ofȱ contractȱ suitȱ inȱ anȱ Illinoisȱ stateȱ courtȱ againstȱ PNCȱ Bank,ȱ whichȱ byȱ thatȱ timeȱ hadȱ acȬ quiredȱbothȱofȱtheȱoriginalȱbanksȱinȱwhoseȱbranchesȱNITELȱ hadȱ installedȱ theȱ cables.ȱ NITELȱ soughtȱ damagesȱ ofȱ $81,300,ȱ plusȱ lateȱ fees,ȱ attorneyȱ fees,ȱ andȱ costs.ȱ Withȱ theȱ amountȱ inȱ controversyȱgreaterȱthanȱ$75,000,ȱPNCȱBankȱremovedȱtheȱcaseȱ toȱ federalȱ courtȱ basedȱ onȱ diversityȱ ofȱ citizenshipȱ underȱ 28ȱ U.S.C.ȱ§ȱ1332.ȱTheȱproblemȱforȱNITELȱwasȱthatȱitȱhadȱnoȱconȬ tractȱwithȱPNCȱBank,ȱwhichȱmovedȱforȱsummaryȱjudgmentȱ onȱthatȱbasis.ȱDistrictȱJudgeȱSt.ȱEveȱgrantedȱsummaryȱjudgȬ mentȱ forȱ PNCȱ Bank.ȱ NITELȱ I,ȱ 2014ȱ WLȱ 4244069.ȱ NITELȱ didȱ notȱappeal.ȱ ȱ ȱ 4ȱ No.ȱ15Ȭ2142ȱ
B.ȱ DistrictȱCourtȱRuleȱ11ȱSanctionsȱOrderȱandȱAwardȱ Theȱ presentȱ appealȱ stemsȱ fromȱ theȱ districtȱ court’sȱ postȬ judgmentȱawardȱofȱRuleȱ11ȱsanctionsȱagainstȱbothȱNITELȱandȱ itsȱ lawyer,ȱ appellantȱ Riffner.ȱ Beforeȱ discoveryȱ beganȱ andȱ againȱbeforeȱPNCȱBankȱmovedȱforȱsummaryȱjudgment,ȱPNCȱ Bank’sȱ lawyerȱ sentȱ lettersȱ toȱ Riffnerȱ assertingȱ thatȱ NITEL’sȱ breachȱofȱcontractȱclaimȱwasȱfrivolous.ȱBothȱlettersȱproposedȱ toȱ settleȱ theȱ caseȱ byȱ havingȱ NITELȱ dismissȱ itsȱ suitȱ andȱ payȱ PNCȱBankȱitsȱattorneyȱfees.ȱBothȱlettersȱconcludedȱbyȱthreatȬ eningȱtoȱseekȱRuleȱ11ȱsanctionsȱifȱNITELȱdidȱnotȱagreeȱtoȱtheȱ demandsȱwithinȱaȱfewȱdays.ȱRiffnerȱdidȱnotȱrespondȱtoȱthoseȱ letters.ȱTwoȱmonthsȱafterȱfinalȱjudgment,ȱPNCȱBankȱmovedȱ forȱsanctionsȱunderȱRuleȱ11.ȱTheȱcaseȱwasȱreassignedȱtoȱDisȬ trictȱJudgeȱBlakey.ȱ JudgeȱBlakeyȱawardedȱsanctionsȱagainstȱNITELȱandȱRiffȬ ner,ȱjointlyȱandȱseverally,ȱforȱ$84,325.ȱTheȱjudgeȱheldȱthatȱtheȱ contractȱ claimȱ wasȱ frivolousȱ andȱ assertedȱ inȱ badȱ faith.ȱ Theȱ courtȱfoundȱ“clearȱevidenceȱthat,ȱinȱfact,ȱNITELȱknewȱNexxtȬ worksȱ(andȱnotȱPNC)ȱwasȱcontractuallyȱobligatedȱtoȱpayȱforȱ theȱworkȱNITELȱdidȱatȱtheȱbranches,ȱandȱevenȱaȱcursoryȱinȬ vestigationȱwouldȱhaveȱshownȱthatȱtheȱNexxtworksȱemailȱandȱ theȱworkȱordersȱcouldȱnotȱsupportȱaȱbreachȱofȱcontractȱclaim.”ȱ NITELȱ andȱ Riffnerȱ bothȱ appealedȱ theȱ sanctionsȱ order,ȱ butȱ NITELȱwasȱlaterȱdismissedȱasȱanȱappellant.ȱWeȱhaveȱbeforeȱusȱ onlyȱRiffner’sȱappeal.ȱ II.ȱ Analysisȱ Weȱreviewȱaȱdistrictȱcourt’sȱgrantȱofȱRuleȱ11ȱsanctionsȱforȱ abuseȱofȱdiscretion.ȱCooterȱ&ȱGellȱv.ȱHartmarxȱCorp.,ȱ496ȱU.S.ȱ 384,ȱ409ȱ(1990);ȱMarsȱSteelȱCorp.ȱv.ȱContinentalȱBank,ȱN.A.,ȱ880ȱ F.2dȱ928,ȱ933ȱ(7thȱCir.ȱ1989)ȱ(enȱbanc).ȱAnȱabuseȱofȱdiscretionȱ No.ȱ15Ȭ2142ȱ 5
mayȱbeȱestablishedȱifȱtheȱdistrictȱcourtȱbasedȱitsȱdecisionȱonȱ anȱerroneousȱviewȱofȱtheȱlawȱorȱaȱclearlyȱerroneousȱevaluationȱ ofȱ evidence.ȱ Gastineauȱ v.ȱ Wright,ȱ 592ȱ F.3dȱ 747,ȱ 748ȱ (7thȱ Cir.ȱ 2010).ȱ Riffnerȱraisesȱbothȱsubstantiveȱandȱproceduralȱobjectionsȱ toȱtheȱdistrictȱcourt’sȱawardȱofȱsanctions.ȱTheȱsubstantiveȱarȬ gumentsȱ areȱ notȱ persuasive,ȱ andȱ Riffner’sȱ attemptȱ toȱ walkȱ awayȱfromȱhisȱandȱNITEL’sȱearlierȱrelianceȱonȱworkȱordersȱtoȱ proveȱitȱhadȱcontractsȱwithȱtheȱbanksȱisȱflatlyȱcontradictedȱbyȱ theȱrecord.1ȱTheȱdistrictȱcourtȱdidȱnotȱabuseȱitsȱdiscretionȱinȱ findingȱthatȱtheȱbreachȱofȱcontractȱclaimȱthatȱRiffnerȱpursuedȱ againstȱPNCȱBankȱonȱbehalfȱofȱNITELȱwasȱobjectivelyȱbaseȬ lessȱbecauseȱNITELȱneverȱhadȱaȱcontractȱwithȱPNCȱBank.ȱ Theȱproblemȱwithȱtheȱsanctionsȱawardȱisȱprocedural.ȱPNCȱ BankȱsimplyȱfailedȱtoȱfollowȱtheȱrequirementsȱofȱRuleȱ11.ȱToȱ explain,ȱweȱstartȱwithȱaȱwordȱaboutȱtheȱroleȱofȱRuleȱ11ȱinȱfedȬ eralȱcivilȱlitigationȱandȱthenȱexamineȱtheȱamendmentsȱthatȱledȱ toȱtheȱwarningȬshot/safeȬharborȱrequirement.ȱ Inȱcivilȱcasesȱwithinȱourȱjurisdiction,ȱfederalȱcourtsȱexerȬ ciseȱconsiderableȱdiscretionȱandȱgreatȱpower.ȱTheȱproperȱexȬ erciseȱofȱthatȱpowerȱcanȱbeȱessentialȱinȱpreservingȱtheȱruleȱofȱ lawȱ andȱ theȱ rightsȱ andȱ libertiesȱ ofȱ theȱ Americanȱ people,ȱ inȱ casesȱlargeȱandȱsmall,ȱlandmarkȱandȱmundane.ȱWhenȱaȱplainȬ tiffȱinvokesȱthoseȱpowersȱinȱaȱcivilȱcase,ȱitȱputsȱmachineryȱinȱ gearȱthatȱcanȱbeȱpowerful,ȱintimidating,ȱandȱoftenȱexpensive.ȱ
ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 1ȱInȱitsȱresponseȱtoȱPNCȱBank’sȱmotionȱforȱsummaryȱjudgment,ȱNITEL,ȱ
throughȱRiffner,ȱsaid:ȱ“NITEL’sȱallegationsȱagainstȱMidAmericaȱandȱNaȬ tionalȱCityȱareȱbasedȱonȱpurportedȱworkȱordersȱforȱeachȱofȱtheȱBranches,”ȱ andȱthatȱ“theȱWorkȱOrderȱactedȱasȱaȱcontractȱforȱtheȱworkȱdone.”ȱ 6ȱ No.ȱ15Ȭ2142ȱ
Thoseȱpowersȱandȱmachineryȱcanȱbeȱabusedȱbyȱlitigants.ȱFedȬ eralȱRuleȱofȱCivilȱProcedureȱ11ȱseeksȱtoȱensureȱthatȱthoseȱpowȬ ersȱ andȱ machineryȱ areȱ engagedȱ onlyȱ toȱ addressȱ claimsȱ andȱ defensesȱthatȱhaveȱaȱreasonableȱbasisȱinȱfactȱandȱlawȱandȱthatȱ areȱassertedȱonlyȱforȱaȱproperȱpurpose.ȱBecauseȱRuleȱ11ȱcanȱ affectȱsoȱpowerfullyȱtheȱabilityȱofȱpartiesȱtoȱseekȱtheȱprotecȬ tionȱ ofȱ theȱ federalȱ courts,ȱ theȱ detailsȱ ofȱ itsȱ provisionsȱ haveȱ longȱbeenȱcontroversial.ȱ Inȱ theȱ currentȱ versionȱ ofȱ theȱ rule,ȱ theȱ substantiveȱ proviȬ sionsȱareȱinȱsubsectionȱ(b):ȱ (b)ȱRepresentationsȱtoȱtheȱCourt.ȱByȱpresentingȱ toȱtheȱcourtȱaȱpleading,ȱwrittenȱmotion,ȱorȱotherȱ paper—whetherȱ byȱ signing,ȱ filing,ȱ submitting,ȱ orȱlaterȱadvocatingȱit—anȱattorneyȱorȱunrepreȬ sentedȱpartyȱcertifiesȱthatȱtoȱtheȱbestȱofȱtheȱperȬ son’sȱ knowledge,ȱ information,ȱ andȱ belief,ȱ formedȱ afterȱ anȱ inquiryȱ reasonableȱ underȱ theȱ circumstances:ȱ (1)ȱ itȱ isȱ notȱ beingȱ presentedȱ forȱ anyȱ improperȱ purpose,ȱ suchȱ asȱ toȱ harass,ȱ causeȱ unnecessaryȱ delay,ȱ orȱ needlesslyȱ increaseȱ theȱ costȱ ofȱ litigaȬ tion;ȱ (2)ȱtheȱclaims,ȱdefenses,ȱandȱotherȱlegalȱcontenȬ tionsȱareȱwarrantedȱbyȱexistingȱlawȱorȱbyȱaȱnonȬ frivolousȱ argumentȱ forȱ extending,ȱ modifying,ȱ orȱreversingȱexistingȱlawȱorȱforȱestablishingȱnewȱ law;ȱ (3)ȱtheȱfactualȱcontentionsȱhaveȱevidentiaryȱsupȬ portȱ or,ȱ ifȱ specificallyȱ soȱ identified,ȱ willȱ likelyȱ No.ȱ15Ȭ2142ȱ 7
haveȱevidentiaryȱsupportȱafterȱaȱreasonableȱopȬ portunityȱforȱfurtherȱinvestigationȱorȱdiscovery;ȱ andȱ (4)ȱ theȱ denialsȱ ofȱ factualȱ contentionsȱ areȱ warȬ rantedȱonȱtheȱevidenceȱor,ȱifȱspecificallyȱsoȱidenȬ tified,ȱareȱreasonablyȱbasedȱonȱbeliefȱorȱaȱlackȱofȱ information.ȱ Subsectionȱ(c)ȱthenȱauthorizesȱdistrictȱcourtsȱtoȱimposeȱsancȬ tions,ȱ includingȱ monetaryȱ sanctions,ȱ againstȱ parties,ȱ attorȬ neys,ȱandȱlawȱfirmsȱwhoȱviolateȱtheȱsubstantiveȱstandardsȱofȱ subsectionȱ(b),ȱasȱRiffnerȱandȱNITELȱdidȱinȱthisȱcase.ȱSubsecȬ tionȱ(c)ȱprovides:ȱ (c)ȱSanctions.ȱ (1)ȱInȱGeneral.ȱIf,ȱafterȱnoticeȱandȱaȱreasonableȱopȬ portunityȱ toȱ respond,ȱ theȱ courtȱ determinesȱ thatȱ Ruleȱ11(b)ȱhasȱbeenȱviolated,ȱtheȱcourtȱmayȱimposeȱ anȱappropriateȱsanctionȱonȱanyȱattorney,ȱlawȱfirm,ȱ orȱpartyȱthatȱviolatedȱtheȱruleȱorȱisȱresponsibleȱforȱ theȱ violation.ȱAbsentȱexceptionalȱcircumstances,ȱaȱ lawȱfirmȱmustȱbeȱheldȱjointlyȱresponsibleȱforȱaȱvioȬ lationȱ committedȱ byȱ itsȱ partner,ȱ associate,ȱ orȱ emȬ ployee.ȱ (2)ȱ Motionȱ forȱ Sanctions.ȱ Aȱ motionȱ forȱ sanctionsȱ mustȱ beȱ madeȱ separatelyȱ fromȱ anyȱ otherȱ motionȱ andȱmustȱdescribeȱtheȱspecificȱconductȱ thatȱ allegȬ edlyȱ violatesȱ Ruleȱ 11(b).ȱ Theȱ motionȱ mustȱ beȱ servedȱ underȱRuleȱ5,ȱbutȱitȱmustȱnotȱbeȱfiledȱorȱbeȱpresentedȱtoȱ theȱcourtȱifȱtheȱchallengedȱpaper,ȱclaim,ȱdefense,ȱcontenȬ tion,ȱorȱdenialȱisȱwithdrawnȱorȱappropriatelyȱcorrectedȱ withinȱ21ȱdaysȱafterȱserviceȱorȱwithinȱanotherȱtimeȱtheȱ 8ȱ No.ȱ15Ȭ2142ȱ
courtȱsets.ȱIfȱwarranted,ȱtheȱcourtȱmayȱawardȱtoȱtheȱ prevailingȱpartyȱtheȱreasonableȱexpenses,ȱincludingȱ attorney’sȱfees,ȱincurredȱforȱtheȱmotion.ȱ (3)ȱ Onȱ theȱ Court’sȱ Initiative.ȱ Onȱ itsȱ own,ȱ theȱ courtȱ mayȱorderȱanȱattorney,ȱlawȱfirm,ȱorȱpartyȱtoȱshowȱ causeȱwhyȱconductȱspecificallyȱdescribedȱinȱtheȱorȬ derȱhasȱnotȱviolatedȱRuleȱ11(b).ȱ (4)ȱNatureȱofȱaȱSanction.ȱAȱsanctionȱimposedȱunderȱ thisȱruleȱmustȱbeȱlimitedȱtoȱwhatȱsufficesȱtoȱdeterȱ repetitionȱofȱtheȱconductȱorȱcomparableȱconductȱbyȱ othersȱsimilarlyȱsituated.ȱTheȱsanctionȱmayȱincludeȱ nonmonetaryȱdirectives;ȱanȱorderȱtoȱpayȱaȱpenaltyȱ intoȱcourt;ȱor,ȱifȱimposedȱonȱmotionȱandȱwarrantedȱ forȱeffectiveȱdeterrence,ȱanȱorderȱdirectingȱpaymentȱ toȱtheȱmovantȱofȱpartȱorȱallȱofȱtheȱreasonableȱattorȬ ney’sȱ feesȱ andȱ otherȱ expensesȱ directlyȱ resultingȱ fromȱtheȱviolation.ȱ (5)ȱ Limitationsȱ onȱ Monetaryȱ Sanctions.ȱ Theȱ courtȱ mustȱnotȱimposeȱaȱmonetaryȱsanction:ȱ (A)ȱ againstȱ aȱ representedȱ partyȱ forȱ violatingȱ Ruleȱ 11(b)(2);ȱorȱ (B)ȱonȱitsȱown,ȱunlessȱitȱissuedȱtheȱshowȬcauseȱorȬ derȱunderȱRuleȱ11(c)(3)ȱbeforeȱvoluntaryȱdismissalȱ orȱsettlementȱofȱtheȱclaimsȱmadeȱbyȱorȱagainstȱtheȱ partyȱ thatȱ is,ȱ orȱ whoseȱ attorneysȱ are,ȱ toȱ beȱ sancȬ tioned.ȱ (6)ȱRequirementsȱforȱanȱOrder.ȱAnȱorderȱimposingȱaȱ sanctionȱmustȱdescribeȱtheȱsanctionedȱconductȱandȱ explainȱtheȱbasisȱforȱtheȱsanction.ȱ No.ȱ15Ȭ2142ȱ 9
OurȱfocusȱhereȱisȱonȱtheȱproceduralȱrequirementsȱinȱRuleȱ 11(c)(2)ȱforȱaȱparty’sȱmotionȱforȱsanctions.ȱBeforeȱfilingȱaȱmoȬ tionȱforȱsanctions,ȱaȱpartyȱmustȱfirstȱserveȱtheȱmotionȱonȱtheȱ challengedȱ party,ȱ andȱ theȱ motionȱ mayȱ notȱ beȱ filedȱ withȱ theȱ courtȱforȱ21ȱdays.ȱThatȱgivesȱtheȱchallengedȱpartyȱthatȱtimeȱtoȱ withdrawȱ orȱ correctȱ theȱ challengedȱ claim,ȱ defense,ȱ contenȬ tion,ȱorȱdenial.ȱThisȱcombinationȱofȱaȱwarningȱshotȱandȱaȱsafeȱ harborȱwasȱaȱcriticalȱchangeȱadoptedȱinȱtheȱ1993ȱamendmentsȱ toȱRuleȱ11.ȱAȱlittleȱhistoryȱexplainsȱitsȱimportance.ȱ Asȱ adoptedȱ inȱ theȱ originalȱ Federalȱ Rulesȱ ofȱ Civilȱ ProceȬ dureȱinȱ1938,ȱRuleȱ11ȱrequiredȱattorneysȱtoȱsignȱallȱpleadingsȱ andȱtreatedȱtheȱsignatureȱasȱaȱcertificateȱthatȱtheȱlawyerȱhadȱ readȱ theȱ pleadingȱ andȱ that,ȱ toȱ theȱ bestȱ ofȱ theȱ lawyer’sȱ knowledge,ȱinformation,ȱandȱbelief,ȱthereȱwasȱgoodȱgroundȱ toȱ supportȱ itȱ andȱ itȱ wasȱ notȱ interposedȱ forȱ delay.ȱ Whileȱ theȱ ruleȱ authorizedȱ sanctions,ȱ itȱ didȱ soȱ inȱ onlyȱ thisȱ vagueȱ lanȬ guage:ȱ“Forȱaȱwilfulȱviolationȱofȱthisȱruleȱanȱattorneyȱmayȱbeȱ subjectedȱtoȱappropriateȱdisciplinaryȱaction.”ȱFed.ȱR.ȱCiv.ȱP.ȱ 11ȱ(1938),ȱasȱpromulgatedȱatȱ308ȱU.S.ȱ645,ȱ676ȱ(1938).ȱTheȱfoȬ cusȱonȱtheȱattorney’sȱsubjectiveȱknowledgeȱandȱtheȱrequireȬ mentȱofȱwillfulȱviolationȱmeantȱthatȱsanctionsȱwereȱveryȱrareȱ beforeȱtheȱruleȱwasȱamendedȱinȱ1983.ȱGeorgeneȱM.ȱVairo,ȱRuleȱ 11:ȱAȱCriticalȱAnalysis,ȱ118ȱF.R.D.ȱ189,ȱ190–92,ȱ205ȱ(1988).ȱ Growingȱ impatienceȱ withȱ lawsuitsȱ andȱ litigationȱ tacticsȱ perceivedȱasȱfrivolousȱ ledȱ toȱtheȱmostȱcontroversialȱamendȬ mentȱtoȱtheȱFederalȱRulesȱofȱCivilȱProcedureȱsinceȱtheirȱadopȬ tion,ȱtheȱ1983ȱamendmentȱtoȱRuleȱ11.ȱId.ȱatȱ190.ȱTheȱprincipalȱ changesȱ wereȱ toȱ adoptȱ anȱ objectiveȱ standardȱ ofȱ reasonableȬ ness,ȱtoȱimposeȱonȱcounselȱaȱpreȬfilingȱdutyȱofȱinquiry,ȱandȱtoȱ addȱ languageȱ thatȱ theȱ courtȱ “shallȱ impose”ȱ sanctionsȱ whenȱ theȱruleȱwasȱviolated.ȱFed.ȱR.ȱCiv.ȱP.ȱ11ȱadvisoryȱcommittee’sȱ 10ȱ No.ȱ15Ȭ2142ȱ
noteȱtoȱ1983ȱamendment.ȱTheȱamendmentȱleftȱnoȱroomȱforȱanȱ “emptyȱhead,ȱpureȱheart”ȱdefense.ȱ Theȱ newlyȱ amendedȱ Ruleȱ 11ȱ quicklyȱ becameȱ aȱ favoriteȱ weaponȱinȱlitigators’ȱbriefcases,ȱoftenȱusedȱandȱevenȱmoreȱofȬ tenȱbrandishedȱtoȱthreaten.ȱItsȱuseȱexplodedȱinȱtheȱlateȱ1980s.ȱ Oneȱcommentatorȱwroteȱinȱ1988ȱthatȱRuleȱ11ȱhadȱbecomeȱ“theȱ cottageȱindustryȱofȱtheȱlitigationȱbar.”ȱVairo,ȱ118ȱF.R.D.ȱatȱ199.ȱ Asȱitȱturnedȱout,ȱtheȱ1983ȱamendmentsȱhadȱbeenȱanȱoverȬcorȬ rection.ȱTheȱnewȱproblemsȱledȱtoȱtheȱ1993ȱamendmentsȱatȱtheȱ heartȱ ofȱ thisȱ appeal.2ȱ Oneȱ unintendedȱ consequenceȱ ofȱ theȱ threatȱofȱRuleȱ11ȱsanctionsȱwasȱthatȱ“partiesȱwereȱsometimesȱ reluctantȱ toȱ abandonȱ aȱ questionableȱ contentionȱ lestȱ thatȱ beȱ viewedȱasȱevidenceȱofȱaȱviolation.”ȱFed.ȱR.ȱCiv.ȱP.ȱ11ȱadvisoryȱ committee’sȱnoteȱtoȱ1993ȱamendment.3ȱ
ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 2ȱForȱdetailedȱaccountsȱofȱtheȱproblemsȱencounteredȱafterȱtheȱ1983ȱamendȬ
ments,ȱseeȱtheȱfollowingȱsourcesȱcitedȱbyȱtheȱAdvisoryȱCommitteeȱinȱ1993:ȱ NewȱYorkȱStateȱBarȱCommitteeȱonȱFederalȱCourts,ȱSanctionsȱandȱAttorneys’ȱ Feesȱ(1987);ȱThomasȱWillging,ȱTheȱRuleȱ11ȱSanctioningȱProcessȱ(1989);ȱAmerȬ icanȱJudicatureȱSociety,ȱReportȱofȱtheȱThirdȱCircuitȱTaskȱForceȱonȱFederalȱRuleȱ ofȱCivilȱProcedureȱ11ȱ(StephenȱBurbankȱed.,ȱ1989);ȱElizabethȱWigginsȱetȱal.,ȱ FederalȱJudicialȱCenter,ȱReportȱonȱRuleȱ11ȱ(1991).ȱTheȱ1993ȱcommitteeȱalsoȱ citedȱ threeȱ bookȬlengthȱ analysesȱ ofȱ theȱ caseȱ law:ȱ Gregoryȱ Joseph,ȱ SancȬ tions:ȱTheȱFederalȱLawȱofȱLitigationȱAbuseȱ(1989);ȱJeroldȱSolovy,ȱTheȱFederalȱ LawȱofȱSanctionsȱ(1991);ȱGeorgeneȱVairo,ȱRuleȱ11ȱSanctions:ȱCaseȱLaw,ȱPerȬ spectivesȱ andȱ Preventiveȱ Measuresȱ (1991).ȱ Aȱ recentȱ searchȱ ofȱ Westlawȱ showedȱthatȱRuleȱ11ȱwasȱcitedȱinȱonlyȱfiveȱappellateȱdecisionsȱinȱ1978,ȱbutȱ inȱ236ȱappellateȱdecisionsȱinȱ1988.ȱForȱdistrictȱcourts,ȱtheȱcomparableȱfigȬ uresȱareȱ19ȱinȱ1978ȱandȱ615ȱinȱ1988.ȱ 3ȱForȱaȱbroaderȱreviewȱofȱtheȱcriticismsȱandȱprocessȱthatȱledȱtoȱadoptionȱofȱ
theȱ1993ȱamendments,ȱseeȱCarlȱTobias,ȱTheȱ1993ȱRevisionȱtoȱFederalȱRuleȱ11,ȱ 70ȱInd.ȱL.J.ȱ171,ȱ174–88ȱ(1994)ȱ No.ȱ15Ȭ2142ȱ 11
Theȱ1993ȱamendmentsȱpreservedȱtheȱobjectiveȱstandardȱofȱ reasonablenessȱ andȱ theȱ enhancedȱ dutyȱ ofȱ preȬfilingȱ inquiryȱ intoȱtheȱlawȱandȱfacts.ȱTheȱamendmentsȱsought,ȱhowever,ȱtoȱ constrainȱtheȱimpositionȱofȱsanctionsȱandȱtoȱ“reduceȱtheȱnumȬ berȱofȱmotionsȱforȱsanctionsȱpresentedȱtoȱtheȱcourt.”ȱId.ȱTheȱ 1993ȱamendmentsȱwereȱnumerous.ȱTheyȱincludedȱnewȱproceȬ duralȱrequirementsȱtoȱenhanceȱdueȱprocessȱandȱfairȱuseȱofȱtheȱ rule,ȱandȱtheyȱremovedȱtheȱ“shallȱimpose”ȱlanguageȱtoȱrestoreȱ trialȱ judges’ȱ discretionȱ inȱ decidingȱ whetherȱ toȱ imposeȱ sancȬ tionsȱatȱall.ȱ OneȱofȱtheȱmostȱimportantȱchangesȱwasȱtoȱaddȱtheȱproviȬ sionȱatȱissueȱinȱthisȱappeal,ȱtheȱwarningȬshot/safeȬharborȱproȬ cedureȱinȱRuleȱ11(c)(2).ȱTheȱAdvisoryȱCommitteeȱexplained:ȱ Theȱ ruleȱ providesȱ thatȱ requestsȱ forȱ sanctionsȱ mustȱ beȱ madeȱ asȱ aȱ separateȱ motion,ȱ i.e.,ȱ notȱ simplyȱincludedȱasȱanȱadditionalȱprayerȱforȱreȬ liefȱcontainedȱinȱanotherȱmotion.ȱTheȱmotionȱforȱ sanctionsȱ isȱ not,ȱ however,ȱ toȱ beȱ filedȱ untilȱ atȱ leastȱ21ȱdaysȱ(orȱsuchȱotherȱperiodȱasȱtheȱcourtȱ mayȱ set)ȱ afterȱ beingȱ served.ȱ If,ȱ duringȱ thisȱ peȬ riod,ȱ theȱ allegedȱ violationȱ isȱ corrected,ȱ asȱ byȱ withdrawingȱ (whetherȱ formallyȱ orȱ informally)ȱ someȱ allegationȱ orȱ contention,ȱ theȱ motionȱ shouldȱnotȱbeȱfiledȱwithȱtheȱcourt.ȱTheseȱproviȬ sionsȱareȱintendedȱtoȱprovideȱaȱtypeȱofȱ“safeȱharbor”ȱ againstȱmotionsȱunderȱRuleȱ11ȱinȱthatȱaȱpartyȱwillȱ notȱ beȱ subjectȱ toȱ sanctionsȱ onȱ theȱ basisȱ ofȱ anotherȱ party’sȱmotionȱunless,ȱafterȱreceivingȱtheȱmotion,ȱitȱ refusesȱtoȱwithdrawȱthatȱpositionȱorȱtoȱacknowledgeȱ candidlyȱthatȱitȱdoesȱnotȱcurrentlyȱhaveȱevidenceȱtoȱ supportȱ aȱ specifiedȱ allegation.ȱ Underȱ theȱ formerȱ 12ȱ No.ȱ15Ȭ2142ȱ
rule,ȱpartiesȱwereȱsometimesȱreluctantȱtoȱabanȬ donȱ aȱ questionableȱ contentionȱ lestȱ thatȱ beȱ viewedȱasȱevidenceȱofȱaȱviolationȱofȱRuleȱ11;ȱunȬ derȱtheȱrevision,ȱtheȱtimelyȱwithdrawalȱofȱaȱconȬ tentionȱwillȱprotectȱaȱpartyȱagainstȱaȱmotionȱforȱ sanctions.ȱ Toȱ stressȱ theȱ seriousnessȱ ofȱ aȱ motionȱ forȱ sanctionsȱ andȱtoȱdefineȱpreciselyȱtheȱconductȱclaimedȱtoȱviolateȱ theȱrule,ȱtheȱrevisionȱprovidesȱthatȱtheȱ“safeȱharbor”ȱ periodȱbeginsȱtoȱrunȱonlyȱuponȱserviceȱofȱtheȱmotion.ȱ Inȱ mostȱ cases,ȱ however,ȱ counselȱ shouldȱ beȱ exȬ pectedȱtoȱgiveȱinformalȱnoticeȱtoȱtheȱotherȱparty,ȱ whetherȱinȱpersonȱorȱbyȱaȱtelephoneȱcallȱorȱletȬ ter,ȱofȱaȱpotentialȱviolationȱbeforeȱproceedingȱtoȱ prepareȱandȱserveȱaȱRuleȱ11ȱmotion.ȱ Id.ȱ(emphasisȱadded).ȱAȱletterȱmayȱthusȱwarnȱaboutȱimpendȬ ingȱserviceȱofȱtheȱmotion,ȱbutȱaȱletterȱisȱnotȱaȱsubstituteȱforȱaȱ motion.ȱ Toȱreturnȱtoȱtheȱcaseȱatȱhand,ȱPNCȱBankȱsimplyȱdidȱnotȱ complyȱ withȱ thisȱ warningȬshot/safeȬharborȱ requirement.ȱ Itȱ didȱ notȱ prepareȱ andȱ serveȱ aȱ Ruleȱ 11ȱ motionȱ onȱ NITELȱ andȱ Riffner,ȱnorȱdidȱitȱallowȱ21ȱdaysȱforȱthemȱtoȱwithdrawȱNITEL’sȱ claims.ȱTheȱdistrictȱcourtȱconcludedȱthatȱPNCȱBank’sȱtwoȱsetȬ tlementȱoffersȱwithȱRuleȱ11ȱthreatsȱtoȱRiffnerȱwereȱsufficientȱ warningȱshotsȱunderȱRuleȱ11(c)(2)ȱonȱtheȱtheoryȱthatȱtheyȱsubȬ stantiallyȱcompliedȱwithȱtheȱrule.ȱNITELȱII,ȱ2015ȱWLȱ1943271,ȱ atȱ *4.ȱ Toȱ supportȱ theȱ substantialȱ complianceȱ approach,ȱ theȱ courtȱ citedȱourȱdecisionsȱinȱMethodeȱElectronics,ȱ Inc.ȱv.ȱ Adamȱ Technologies,ȱInc.,ȱ371ȱF.3dȱ923,ȱ927ȱ(7thȱCir.ȱ2004)ȱ(dicta),ȱandȱ MatrixȱIV,ȱInc.ȱv.ȱAmericanȱNationalȱBankȱ&ȱTrustȱCo.ȱofȱChicago,ȱ 649ȱF.3dȱ539,ȱ552–53ȱ(7thȱCir.ȱ2011).ȱ No.ȱ15Ȭ2142ȱ 13
Ourȱ lineȱ ofȱ casesȱ onȱ “substantialȱ compliance”ȱ withȱ theȱ warningȬshotȱrequirementȱbeganȱwithȱNisenbaumȱv.ȱMilwaukeeȱ County,ȱ333ȱF.3dȱ804,ȱ808ȱ(7thȱCir.ȱ2003),ȱwhereȱweȱconcludedȱ thatȱwhereȱtheȱfailureȱtoȱsatisfyȱtheȱwarningȬshotȱrequirementȱ wasȱonlyȱ“technical,”ȱtheȱmovingȱparty’sȱsubstantialȱcompliȬ anceȱwithȱtheȱwarningȬshotȱrequirementȱentitledȱitȱ“toȱaȱdeciȬ sionȱonȱtheȱmerits.”ȱInȱNisenbaum,ȱweȱheldȱthatȱthereȱwasȱsubȬ stantialȱcomplianceȱwithȱRuleȱ11ȱbecauseȱtheȱdefendantsȱsentȱ aȱ letter—ratherȱ thanȱ aȱ motion—thatȱ explainedȱ theȱ groundsȱ forȱsanctionsȱandȱprovidedȱmoreȱthanȱ21ȱdaysȱtoȱremedyȱtheȱ problem.ȱInsistingȱonȱaȱformalȱmotionȱseemedȱundulyȱformalȬ istic.ȱ InȱMatrixȱIV,ȱtheȱmovingȱpartyȱsimilarlyȱsentȱaȱletterȱthatȱ explainedȱtheȱgroundsȱforȱtheȱsanctionsȱandȱinformedȱtheȱopȬ posingȱpartyȱitȱwouldȱseekȱRuleȱ11ȱsanctionsȱifȱtheȱclaimȱwereȱ notȱdismissedȱvoluntarily.ȱ649ȱF.3dȱatȱ552.ȱTheȱletterȱexplicitlyȱ assertedȱthatȱitȱservedȱ“asȱnotice”ȱofȱtheȱparty’sȱintentionȱtoȱ seekȱ sanctionsȱ atȱ theȱ closeȱ ofȱ theȱ case.ȱ Weȱ foundȱ thatȱ thisȱ warningȱ alsoȱ amountedȱ toȱ substantialȱ complianceȱ withȱ theȱ warningȬshotȱrequirement,ȱthoughȱweȱultimatelyȱdecidedȱtheȱ caseȱonȱotherȱgrounds,ȱfindingȱthatȱtheȱsanctionsȱwereȱunwarȬ rantedȱonȱtheȱmerits.ȱId.ȱatȱ553.ȱ Thereȱareȱbothȱlegalȱandȱfactualȱproblemsȱwithȱthisȱtheoryȱ ofȱ“substantialȱcompliance”ȱtoȱsaveȱtheȱsanctionsȱorderȱinȱthisȱ case.ȱTheȱlegalȱproblemȱisȱthatȱtheȱsubstantialȱcomplianceȱtheȬ oryȱweȱadoptedȱinȱNisenbaumȱstandsȱaloneȱandȱisȱdifficultȱtoȱ reconcileȱwithȱtheȱexplicitȱrequirementsȱofȱtheȱRuleȱandȱtheȱ clearȱexplanationȱfromȱtheȱAdvisoryȱCommittee.ȱNoȱotherȱcirȬ cuitȱhasȱadoptedȱthisȱapproach.ȱSeeȱPenn,ȱLLCȱv.ȱProsperȱBusiȬ nessȱDev.ȱCorp.,ȱ773ȱF.3dȱ764,ȱ767–68ȱ(6thȱCir.ȱ2014)ȱȱ(reviewingȱ circuitȱsplit:ȱSecond,ȱThird,ȱFourth,ȱFifth,ȱSixth,ȱEighth,ȱNinth,ȱ 14ȱ No.ȱ15Ȭ2142ȱ
andȱ Tenthȱ Circuitsȱ haveȱ rejectedȱ “substantialȱ compliance,”ȱ andȱonlyȱSeventhȱCircuitȱhasȱadoptedȱit).ȱOurȱcolleaguesȱinȱ otherȱcircuitsȱhaveȱbeenȱhighlyȱcriticalȱofȱtheȱterseȱtreatmentȱ ofȱtheȱissueȱinȱNisenbaum.ȱE.g.,ȱCadleȱCo.ȱv.ȱPrattȱ(InȱreȱPratt),ȱ 524ȱ F.3dȱ 580,ȱ 587–88ȱ (5thȱ Cir.ȱ 2008)ȱ (Nisenbaumȱ didȱ notȱ adȬ dressȱ languageȱ ofȱ Ruleȱ 11,ȱ Advisoryȱ Committeeȱ notes,ȱ orȱ otherȱRuleȱ11ȱjurisprudence);ȱRothȱv.ȱGreen,ȱ466ȱF.3dȱ1179,ȱ1193ȱ (10thȱCir.ȱ2006)ȱ(same).ȱAsȱtheȱNinthȱCircuitȱexplainedȱinȱBarȬ berȱv.ȱMiller,ȱ“warningsȱwereȱnotȱmotions”ȱandȱ“theȱRuleȱreȬ quiresȱserviceȱofȱaȱmotion.”ȱ146ȱF.3dȱ707,ȱ710ȱ(9thȱCir.ȱ1998).ȱ Theȱ 1993ȱ amendmentȱ “deliberatelyȱ imposed”ȱ theȱ requireȬ mentȱofȱservice.ȱId.ȱ“ItȱwouldȱthereforeȱwrenchȱbothȱtheȱlanȬ guageȱandȱpurposeȱofȱtheȱamendmentȱtoȱtheȱRuleȱtoȱpermitȱ anȱinformalȱwarningȱtoȱsubstituteȱforȱserviceȱofȱaȱmotion.”ȱId.4ȱ TheȱAdvisoryȱCommitteeȱnotesȱwarnȱagainstȱtreatingȱanyȬ thingȱlessȱthanȱformalȱserviceȱofȱaȱmotionȱasȱsufficientȱtoȱcomȬ plyȱ withȱ theȱ warningȬshot/safeȬharborȱ requirement:ȱ “Toȱ stressȱtheȱseriousnessȱofȱaȱmotionȱforȱsanctionsȱandȱtoȱdefineȱ preciselyȱtheȱconductȱclaimedȱtoȱviolateȱtheȱrule,ȱtheȱrevisionȱ providesȱthatȱtheȱ‘safeȱharbor’ȱperiodȱbeginsȱtoȱrunȱonlyȱuponȱ serviceȱofȱtheȱmotion.ȱInȱmostȱcases,ȱhowever,ȱcounselȱshouldȱ
ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 4ȱAccord,ȱStarȱMarkȱManagement,ȱInc.ȱv.ȱKoonȱChunȱHingȱKeeȱSoyȱ&ȱSauceȱ
Factory,ȱLTD,ȱ682ȱF.3dȱ170,ȱ175–76ȱ(2dȱCir.ȱ2012)ȱ(warningȱletterȱnotȱsuffiȬ cient;ȱ ruleȱ requiresȱ serviceȱ ofȱ motionȱ toȱ triggerȱ safeȬharborȱ provision);ȱ Ettingerȱ &ȱ Assocs.,ȱ LLCȱ v.ȱ Millerȱ (Inȱ reȱ Miller),ȱ 730ȱ F.3dȱ 198,ȱ 204ȱ (3dȱ Cir.ȱ 2013)ȱ(emphasizingȱimportanceȱofȱtheȱsafeȬharborȱprovisionȱinȱanalogousȱ bankruptcyȱcontext);ȱBrickwoodȱContractors,ȱInc.ȱv.ȱDatanetȱEngineering,ȱInc.,ȱ 369ȱF.3dȱ385,ȱ389ȱ(4thȱCir.ȱ2004)ȱ(Ruleȱ11ȱ“thusȱestablishesȱconditionsȱprecȬ edentȱtoȱtheȱimpositionȱofȱsanctionsȱunderȱtheȱrule.ȱIfȱthoseȱconditionsȱareȱ notȱsatisfied,ȱtheȱRuleȱ11ȱmotionȱforȱsanctionsȱmayȱnotȱbeȱfiledȱwithȱtheȱ districtȱcourt.”);ȱGordonȱv.ȱUnifundȱCCRȱPartners,ȱ345ȱF.3dȱ1028,ȱ1030ȱ(8thȱ Cir.ȱ2003)ȱ(same).ȱȱ No.ȱ15Ȭ2142ȱ 15
beȱexpectedȱtoȱgiveȱinformalȱnoticeȱtoȱtheȱotherȱparty,ȱwhetherȱ inȱpersonȱorȱbyȱaȱtelephoneȱcallȱorȱletter,ȱofȱaȱpotentialȱviolaȬ tionȱ beforeȱ proceedingȱ toȱ prepareȱ andȱ serveȱ aȱ Ruleȱ 11ȱ moȬ tion.”ȱByȱtreatingȱaȱmereȱwarningȱletterȱasȱsufficient,ȱaȱstandȬ ardȱofȱsubstantialȱcomplianceȱleavesȱtheȱrecipientȱunclearȱasȱ toȱbothȱwhetherȱtheȱopposingȱpartyȱisȱseriousȱandȱwhenȱtheȱ 21ȬdayȱsafeȬharborȱclockȱstartsȱtoȱrun.ȱ Despiteȱtheȱcriticism,ȱthough,ȱNisenbaumȱremainsȱcontrolȬ lingȱcircuitȱlawȱonȱthisȱpoint.ȱWeȱneedȱnotȱrevisitȱhereȱwhetherȱ substantialȱcomplianceȱcanȱeverȱsatisfyȱtheȱwarningȬshotȱreȬ quirementȱofȱRuleȱ11(c)(2).ȱPNCȱBank’sȱwarningȬshotȱlettersȱ fellȱfarȱshortȱofȱevenȱtheȱgenerousȱtargetȱofȱsubstantialȱcomȬ pliance.5ȱ OnȱJulyȱ31,ȱ2012,ȱbeforeȱdiscoveryȱbegan,ȱPNCȱBank’sȱlawȬ yerȱsentȱaȱletterȱtoȱRiffnerȱofferingȱtoȱsettleȱtheȱcase.ȱTheȱletterȱ explainedȱtheȱdefectsȱinȱtheȱbreachȱofȱcontractȱclaim.ȱWeȱasȬ sumeȱ theȱ explanationȱ ofȱ thoseȱ defectsȱ wasȱ sufficient.ȱ Theȱ problemsȱinȱtermsȱofȱsubstantialȱcomplianceȱwereȱthatȱtheȱletȬ terȱdemandedȱdismissalȱofȱtheȱsuitȱwithinȱeightȱdays,ȱasȱwellȱ asȱpaymentȱtoȱPNCȱBankȱofȱ$9,195ȱforȱitsȱfeesȱandȱcosts.ȱTheȱ letterȱ alsoȱ demandedȱ withinȱ fiveȱ daysȱ aȱ writtenȱ responseȱ agreeingȱtoȱtheȱdemand.ȱTheȱletterȱconcluded:ȱ“IfȱIȱdoȱnotȱreȬ ceiveȱwrittenȱconfirmationȱbyȱthatȱdate,ȱpleaseȱbeȱadvisedȱthatȱ PNCȱwillȱbeȱseekingȱsanctionsȱunderȱFederalȱRuleȱ11ȱagainstȱ NITELȱandȱyourȱfirmȱ…ȱ.”ȱ
ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 5ȱItȱshouldȱnotȱbeȱdifficultȱforȱaȱpartyȱwhoȱisȱseriousȱaboutȱseekingȱRuleȱ11ȱ
sanctionsȱtoȱcomplyȱwithȱRuleȱ11(c)(2).ȱPartiesȱandȱdistrictȱcourtsȱthatȱrelyȱ onȱaȱtheoryȱofȱsubstantialȱcomplianceȱshouldȱunderstandȱthat,ȱatȱleastȱinȱ theȱpresentȱlandscape,ȱtheyȱareȱinvitingȱpossibleȱenȱbancȱand/orȱSupremeȱ Courtȱreviewȱofȱtheȱquestion.ȱ 16ȱ No.ȱ15Ȭ2142ȱ
OnȱAprilȱ2,ȱ2013,ȱshortlyȱafterȱtheȱcloseȱofȱdiscoveryȱandȱ beforeȱ movingȱ forȱ summaryȱ judgment,ȱ PNCȱ Bank’sȱ lawyerȱ sentȱaȱsecondȱsettlementȱoffer.ȱItȱagainȱreviewedȱtheȱseriousȱ problemsȱwithȱNITEL’sȱcaseȱandȱexplainedȱwhyȱtheȱsuitȱwasȱ frivolous.ȱThisȱletterȱproposedȱdifferentȱsettlementȱterms,ȱdeȬ mandingȱ thatȱ NITELȱ dismissȱ theȱ complaintȱ withȱ prejudiceȱ andȱpayȱPNCȱBankȱ$24,000.ȱTheȱletterȱdemandedȱwrittenȱacȬ ceptanceȱwithinȱsixȱdays.ȱTheȱsettlementȱproposalȱconcludedȱ muchȱasȱtheȱearlierȱletterȱhad:ȱ“IfȱIȱdoȱnotȱreceiveȱwrittenȱconȬ firmationȱbyȱthatȱdate,ȱpleaseȱbeȱadvisedȱthatȱPNCȱwillȱseekȱ sanctionsȱunderȱFederalȱRuleȱ11ȱagainstȱyourȱfirmȱandȱNITEL,ȱ forȱallȱfeesȱandȱcostsȱincurredȱbyȱtheȱbankȱinȱdefendingȱyourȱ client’sȱbaselessȱandȱpatentlyȱfalseȱcomplaint.”ȱȱ TheȱRuleȱ11ȱthreatsȱdidȱnotȱtransformȱPNCȱBank’sȱsettleȬ mentȱoffersȱintoȱcommunicationsȱthatȱsubstantiallyȱcompliedȱ withȱ theȱ Ruleȱ 11(c)(2)ȱ warningȬshot/safeȬharborȱ requireȬ ments.ȱEvenȱifȱweȱtreatȱtheȱcriticismsȱofȱNITEL’sȱcaseȱandȱlitiȬ gationȱtacticsȱasȱcontainingȱtheȱequivalentȱofȱaȱRuleȱ11ȱmotion,ȱ theȱlettersȱsimplyȱdidȱnotȱofferȱNITELȱorȱRiffnerȱtheȱ21Ȭdayȱ safeȱharborȱthatȱwasȱofferedȱinȱNisenbaumȱorȱMatrixȱIV.ȱSubȬ stantialȱcomplianceȱrequiresȱtheȱopportunityȱtoȱwithdrawȱorȱ correctȱtheȱchallengedȱpleadingȱwithinȱ21ȱdaysȱwithoutȱimpoȬ sitionȱofȱsanctions.ȱNeitherȱPNCȱBankȱletterȱofferedȱthatȱopȬ portunity.ȱPNCȱBankȱwasȱentitled,ȱifȱitȱchose,ȱtoȱhuffȱandȱpuffȱ aboutȱRuleȱ11ȱinȱitsȱsettlementȱdemandsȱforȱdismissalȱofȱbaseȬ lessȱclaims.ȱButȱitsȱposturingȱdidȱnotȱamountȱevenȱtoȱsubstanȬ tialȱcomplianceȱwithȱtheȱwarningȬshot/safeȬharborȱprovision,ȱ letȱaloneȱtoȱtheȱactualȱcomplianceȱthatȱotherȱcircuitsȱdemand.ȱ Theȱ districtȱ court’sȱ awardȱ ofȱ sanctionsȱ againstȱ Riffnerȱ isȱ REVERSED.ȱ No.ȱ15Ȭ2142ȱ 17ȱ
POSNER,ȱ Circuitȱ Judge,ȱ dissenting.ȱ Federalȱ Ruleȱ ofȱ Civilȱ Procedureȱ 11(c)(2),ȱ captionedȱ “Motionȱ forȱ Sanctions,”ȱ proȬ vides,ȱ soȱ farȱ asȱ bearsȱ onȱ thisȱ case,ȱ thatȱ suchȱ “aȱ motionȱ …ȱ mustȱ notȱ beȱ filedȱ orȱ beȱ presentedȱ toȱ theȱ courtȱ ifȱ theȱ chalȬ lengedȱ paper,ȱ claim,ȱ defense,ȱ contention,ȱ orȱ denialȱ isȱ withȬ drawnȱ orȱ appropriatelyȱ correctedȱ withinȱ 21ȱ daysȱ afterȱ serȬ viceȱ …ȱ .”ȱ Ourȱ courtȱ hasȱ heldȱ thatȱ “substantialȱ compliance”ȱ withȱ theȱ ruleȱ isȱ sufficient.ȱ Nisenbaumȱ v.ȱ Milwaukeeȱ County,ȱ 333ȱ F.3dȱ 804,ȱ 808ȱ (7thȱ Cir.ȱ 2003);ȱ Methodeȱ Electronics,ȱ Inc.ȱ v.ȱ AdamȱTechnologies,ȱInc.,ȱ371ȱF.3dȱ923,ȱ927ȱ(7thȱCir.ȱ2004);ȱMaȬ trixȱIV,ȱInc.ȱv.ȱAmericanȱNationalȱBankȱ&ȱTrustȱCo.ȱofȱChicago,ȱ 649ȱF.3dȱ539,ȱ552–53ȱ(7thȱCir.ȱ2011).ȱAndȱthisȱcaseȱisȱaȱgoodȱ exampleȱ ofȱ substantialȱ compliance,ȱ asȱ theȱ districtȱ judgeȱ foundȱ andȱ myȱ colleaguesȱ onȱ thisȱ panel,ȱ enamoredȱ asȱ theyȱ appearȱ toȱ beȱ ofȱ legalȱ technicalities,ȱ orȱ reluctantȱ toȱ punishȱ misbehavingȱlawyers,ȱmiss.ȱ Lawyerȱ Riffner,ȱ representingȱ NITEL,ȱ filedȱ thisȱ suitȱ onȱ NITEL’sȱ behalfȱ againstȱ PNCȱ Bank,ȱ N.A.,ȱ theȱ appellee,ȱ inȱ Februaryȱ 2012.ȱ Theȱ districtȱ judgeȱ correctlyȱ deemedȱ theȱ suitȱ frivolous.ȱ Riffner’sȱ irresponsibleȱ conductȱ ofȱ itȱ wasȱ clearlyȱ sanctionable.ȱPNCȱ sentȱRiffnerȱaȱletterȱinȱJulyȱ2012ȱ explainȬ ingȱinȱdetailȱtheȱlegalȱandȱfactualȱproblemsȱwithȱhisȱlawsuit,ȱ demandingȱwithdrawalȱofȱNITEL’sȱcomplaint,ȱandȱadvisingȱ Riffnerȱ thatȱ ifȱ itȱ wasn’tȱ withdrawnȱ PNCȱ wouldȱ seekȱ sancȬ tionsȱagainstȱhimȱunderȱRuleȱ11.ȱThisȱplacedȱRiffnerȱonȱnoȬ ticeȱ thatȱ ifȱ hisȱ suitȱ againstȱ PNCȱ wasȱ indeedȱ frivolous,ȱ asȱ itȱ was,ȱ he’dȱ betterȱ withdrawȱ itȱ orȱ faceȱ Ruleȱ 11ȱ sanctions.ȱ Heȱ didn’tȱ withdrawȱ theȱ complaint—boorishly,ȱ heȱ didn’tȱ evenȱ respondȱtoȱtheȱletter.ȱ Afterȱ conductingȱ furtherȱ discovery,ȱ whichȱ yieldedȱ addiȬ tionalȱ evidenceȱ ofȱ theȱ frivolousnessȱ ofȱ NITEL’sȱ suit,ȱ PNCȱ 18ȱ No.ȱ15Ȭ2142ȱ
sentȱ Riffnerȱ aȱ second,ȱ similarȱ letterȱ inȱ Aprilȱ 2013ȱ outliningȱ theȱevidenceȱofȱitsȱfrivolousnessȱinȱdetailȱandȱthreateningȱtoȱ fileȱ aȱ Ruleȱ 11ȱ motionȱ forȱ sanctionsȱ againstȱ himȱ ifȱ heȱ didn’tȱ dismissȱ theȱ suit.ȱ Notȱ onlyȱ didȱ heȱ notȱ dismissȱ theȱ suit,ȱ orȱ withdrawȱanyȱofȱtheȱchargesȱmadeȱinȱit;ȱheȱdidn’tȱevenȱreplyȱ toȱ theȱ letter,ȱ thusȱ repeatingȱ hisȱ earlierȱ rudeness.ȱ Althoughȱ PNCȱdidȱnotȱserveȱaȱformalȱRuleȱ11ȱmotionȱonȱRiffnerȱpriorȱ toȱ filingȱ theȱ motionȱ withȱ theȱ court,ȱ PNC’sȱ lettersȱ wereȱ theȱ equivalentȱofȱRuleȱ11ȱmotions,ȱandȱgaveȱRiffnerȱtwoȱopporȬ tunitiesȱ toȱ abandonȱ orȱ atȱ leastȱ curtailȱ hisȱ frivolousȱ lawsuitȱ withoutȱhavingȱtoȱpayȱsanctions.ȱInsteadȱheȱsignaledȱbyȱhisȱ failureȱ toȱ answerȱ eitherȱ letterȱ thatȱ heȱ wasȱ persistingȱ inȱ hisȱ frivolousȱsuit—thatȱheȱreallyȱwasȱaȱboor.ȱ BecauseȱPNC’sȱlettersȱconstitutedȱsubstantialȱcomplianceȱ withȱRuleȱ11(c)(2),ȱasȱpermittedȱbyȱtheȱcasesȱinȱthisȱcourtȱthatȱ Iȱ citedȱ earlierȱ andȱ thatȱ theȱ majorityȱ opinionȱ doesȱ notȱ chalȬ lenge,ȱweȱshouldȱaffirmȱtheȱdistrictȱcourt.ȱ