The Formal Notice Requirement Behind Rule 11 Sanctions: Why an Informal Threat Should Not Be Treated as a Binding Promise

Author: Collin L. Ryan, Associate Member, University of Cincinnati Law Review

Talk is cheap, put your money where your mouth is, et cetera—all idioms that reflect a common underlying theme that in order for one’s statements to be taken seriously, one must take a formal action threatening stern consequences. Anything less, and others will think the statements insignificant. In a recent decision from the Sixth Circuit Court of Appeals in Penn LLC v. Prosper Bus. Dev. Corp., the court found that the same theme applies to civil procedure—that for purposes of Rule 11 sanctions, an informal warning letter is insufficient, and formal service of a motion is required.[1] While other circuit courts have reached similar conclusions,[2] the Seventh Circuit disagrees, holding that strict compliance with the formalities of the sanctions process is not required.[3] However, in consideration of the court’s textual arguments, policy rationale, and practical implications, the reasoning of the Sixth Circuit is more persuasive, and other jurisdictions should not follow the Seventh Circuit’s interpretation of Rule 11.

Rule 11 of the Federal Rules of Civil Procedure

Under Rule 11 of the Federal Rules of Civil Procedure, a “court may impose an appropriate sanction on an attorney, law firm, or party that violated the rule . . . .” [4] Examples of Rule 11 violations include presenting the court with frivolous arguments, causing an unwarranted delay, or unnecessarily increasing the cost of litigation.[5] For a court to impose sanctions under Rule 11, the party seeking sanctions must serve the other party with a “Motion for Sanctions” that identifies the party’s particular rule-violating conduct.[6] Further, the rule requires the motion to be served to the opposing party in accordance with the Federal Rules, “but it must not be filed or presented to the court if the challenged [matter] . . . is withdrawn or appropriately corrected within 21 days after service . . . .”[7] By requiring parties to notify the other side that they will file a motion for sanctions with the court unless the other party withdraws or corrects the matter, the rule provides a party facing potential sanctions with what is referred to as a “safe-harbor.”[8] This safe harbor provision provides a party the opportunity to timely rescind a court filing so that it “will not be subject to sanctions . . . unless . . . it refuses to withdraw that position . . . .”[9]

A Difference in Application of the Rule

In Penn, plaintiff Penn filed a complaint against defendant Prosper that included Prosper’s legal counsel as a named defendant.[10] Defendant’s counsel then served plaintiff’s counsel with a letter threatening Rule 11 sanctions if the allegedly frivolous complaint was not withdrawn.[11] Plaintiff’s counsel rejected the letter and did not withdraw the complaint.[12] When the district court dismissed the actions against defendant’s counsel, defendant’s counsel sought to impose sanctions.[13] Defendant’s counsel argued that the initial “letter satisfied the rule because it put [plaintiff’s counsel] on notice that its refusal to withdraw the complaint would result in a motion for sanctions.”[14] After the district court denied the defendant’s motion for Rule 11 sanctions against plaintiff’s counsel, the Sixth Circuit accepted the case for review in order to “clarify the law” in regard to “the question of whether a warning letter satisfies Rule 11’s safe-harbor provision”—a question the district court described as “somewhat unsettled.”[15]

The Sixth Circuit’s Interpretation: Formal Motion Required

The Sixth Circuit in Penn affirmed the district court’s denial of the defendant’s sanctions motion, holding that the informal letter threatening sanctions did not satisfy Rule 11’s safe-harbor provision.[16] While its holding is in accordance with most circuit courts,[17] the court’s rationale focused on the textual language of Rule 11 and the policy implications of its application.[18] Focusing on the rule’s language, the court gave great deference to the rule’s use of the word “motion” in regard to the safe-harbor provision.[19] The court stated, “[w]e have no doubt that the word ‘motion’ [by definition] excludes warning letters, and our reading of the rule’s plain language finds support in the Advisory Committee’s Notes.”[20]

Second, the court considered the policy implications that would result if notice via an informal letter could suffice for Rule 11 sanctions. The reason for the rule’s safe-harbor provision, the court reiterated, was “to reduce Rule 11’s volume, formalize appropriate due process considerations of sanctions litigation, and diminish the rule’s chilling effect.”[21] And such a “passive reading” of the rule that allowed “litigants to substitute warning letters . . . for a motion timely served . . . undermines these goals.”[22] While a motion that is properly served to the opposing party “unambiguously alerts the recipient . . . a letter [merely] prompts the recipient to guess at his opponent’s seriousness.”[23] The Sixth Circuit concluded that both the rule’s text and the “pragmatic realities” that follow “require such strict adherence to the rule’s outlined procedure.”[24]

The Seventh Circuit’s Interpretation: Informality Is Sufficient

In contrast to the majority approach, the Seventh Circuit has a different interpretation of Rule 11.[25] In the case of Nisenbaum v. Milwaukee County, the court appeared to relax the strictness of Rule 11’s procedural requirements, suggesting that the sending of a “letter” rather than a “motion” is just a technical noncompliance that does not bar to Rule 11 sanctions per se.[26] And because the defendants alerted the plaintiff in their letter that sanctions would be sought and gave the plaintiff over 21 days to withdraw or correct the contested issue, “Defendants complied substantially with [the rule] and [were] entitled to a decision on the merits of their request for sanctions under Rule 11.”[27] For the Seventh Circuit, so long as counsel gives notice to the other party that he or she will pursue sanctions, regardless of whether the notice is in the form of a motion, letter, or demand, Rule 11’s safe-harbor provision has been met and the other party can be subjected to sanctions.[28]

Why Formality in Process Should Be Required

As the Sixth Circuit observed, the Seventh Circuit’s “decision declines to address any of the textual or policy concerns [previously mentioned].” Rule 11 expressly uses the word “motion” in reference to sanctions;“[t]he motion must be served” to the other party 21 days before being filed in court.[29] Furthermore, the Advisory Committee’s Notes suggest giving “informal notice to the other party, whether in person or by telephone call or letter, of a potential violation before proceeding to prepare and serve [the other party with] a Rule 11 motion”[30] as a “professional courtesy.”[31] The plain statutory language of the rule explicitly indicates that, for the court to consider imposing Rule 11 sanctions, official notice must have been given to the other side in the form of a motion for sanctions, and this does not include merely a letter demanding the other party withdraw its position.

Even more significant are the practical and policy implications of requiring formal service in the form a motion. As the Sixth Circuit stated, a letter only “prompts the recipient to guess at the opponent’s seriousness.”[32] A formal and properly served motion, on the other hand, “unambiguously alerts the recipient” of the sending party’s intentions.[33] This difference in perception is crucial. If a letter stating a party will pursue sanctions was sufficient to trigger the safe-harbor provision of Rule 11, all parties would send such a letter in every suit, and the party receiving the letter threatening sanctions would face a difficult situation: either acquiesce to the unsubstantiated, and perhaps phony threat; or dismiss the letter and proceed with the uncertainty that the party may, or may not, actually pursue sanctions. However, if the required procedure is a properly served formal motion for sanctions that details all of the party’s rule-violating conduct, then the receiving party knows unequivocally that the threat is real, that the opposing party will pursue Rule 11 sanctions, and that the recipient must be prepared to justify its conduct in court.

The distinction between the two procedures is similar to that of a gambler at a casino. An individual cannot simply walk up to a roulette table and bet $100 on red without placing chips on the table. The formal act of placing money on the table is what creates the bet because it clearly indicates to the croupier that a bet is in play. Similarly, it is the formal act of properly serving a party with a motion for sanctions that triggers the safe-harbor provision because the act clearly notifies the party receiving the motion that sanctions are “on the table.”

The Seventh Circuit’s interpretation of Rule 11 subjects parties to sanctions without requiring the opposing party to make any formal action that notifies the other of dire consequences. This goes against both the plain language of Rule 11 and the practical motives behind the rule’s purpose. Such interpretation, therefore, should not be followed by other jurisdictions, and formal notice via a properly served motion for sanctions should be required under Rule 11.

[1] Penn, LLC v. Prosper Bus. Dev. Corp., 773 F.3d 764 (6th Cir. 2014).

[2] See e.g., Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., 682 F.3d 170, 175-176 (2d Cir. 2012).

[3] See generally Nisenbaum v. Milwaukee County, 333 F.3d 804 (7th Cir. 2003).

[4] Fed. R. Civ. P. Rule 11(c)(1).

[5] Fed. R. Civ. P. Rule 11(b)(1)-(b)(4)

[6] Fed. R. Civ. P. Rule 11(b)(2) (emphasis omitted).

[7] Id.

[8] Id. at Notes of Advisory Committee on Rules—1993 Amendment; see e.g., Penn, 773 F.3d at 766.

[9] Id. at Notes of Advisory Committee on Rules—1993 Amendment.

[10] Penn, 773 F.3d at 764.

[11] Id. at 765.

[12] Id.

[13] Id.

[14] Id. at 766.

[15] Id at 765-66.

[16] Id. 767, 769.

[17] See id. at 768 (In citing the Second, Third, Fifth, Eighth, Ninth, and Tenth Circuit, the Sixth Circuit stated, “The majority of our sister circuits to address this issue adopt the same position”).

[18] See id. at 767.

[19] See id.

[20] Id.

[21] Id. (quoting Ridder v. City of Springfield, 109 F.3d 288, 294 (6th Cir. 1997)).

[22] Id.

[23] Id. at 767-68.

[24] Id. (quoting Ridder, 109 F.3d at 297).

[25] See Nisenbaum v. Milwaukee County, 333 F.3d 804, 808 (7th Cir. 2003).

[26] Id. at 808.

[27] Id. (emphasis added).

[28] See id.

[29] Fed. R. Civ. P. 11(c)(2)

[30] Fed. R. Civ. P. 11, Advisory Committee Notes (1993 Amendments) (emphasis added).

[31] Penn, 773 F.3d at 767.

[32] Id. at 768.

[33] Id. at 767.

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