FRCP 11 Sanctions

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7^th Circuit court of Appeals

Case Name: Northern Illinois Telecom, Inc et al v. PNC Bank, N.A.

Case No.: 15-2142

Officials: WOOD, Chief Judge, and POSNER and HAMILTON, CirȬ cuit Judges.

Focus: FRCP 11  Sanctions

This appeal pivots on the procedural requirements of Federal Rule of Civil Procedure 11 for seeking sanctions against a party and its attorney for asserting frivolous claim or defense. Rule 11(c)(2) requires a party seeking Rule 11 sanctions first to serve a proposed motion on the opposing party and to give that party at least 21 days to withdraw or correct the offending matter. Only after that time has passed may the motion be filed with the court. To mix naval metaphors, the party seeking sanctions must first fire a warning shot that gives the opponent time to find a safe harbor. In this case, the party who sought sanctions failed to comply with that procedure. It argued, however, that two letters it sent containing both settlement demands and threats to seek Rule 11 sanctions if its demands were not met amounted to “substantial compliance” with Rule 11(c)(2) and thus preserved its right to move for sanctions after the district court granted summary judgment in its favor. The district court accepted that argument and imposed sanctions. Northern Illinois Telecom, Inc. v. PNC Bank, NA (NITEL II), No. 12 C 2372, 2015 WL 1943271, at *9 (N.D. Ill. Apr. 29, 2015). We reverse. Whether “substantial compliance” with the warning shot/safe harbor requirement of Rule 11(c)(2) can ever be sufficient is controversial. We are the lone circuit to say yes. Compare Penn, LLC v. Prosper Business Dev. Corp., 773 F.3d 764, 768 (6th Cir. 2014) (eight circuits reject substantial compliance theory), with Nisenbaum v. Milwaukee County, 333 F.3d 804, 808 (7th Cir. 2003) (substantial compliance with warning shot requirement was sufficient to allow sanctions). Even assuming substantial compliance is sufficient, the defendant’s settlement demands in this case fell far short of substantial compliance. We therefore reverse the district court’s award of sanctions.

Reversed and Remanded

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.