United States District Court, District of South Dakota
Filed Jan, 1998
Formatting courtesy of The State Bar of South Dakota
and South Dakota Continuing Legal Education, Inc.
222 East Capitol Ave.
Pierre, SD 57501
THE CORNER POCKET OF SIOUX FALLS, INC.,
a South Dakota corporation, d/b/a the Pocket; Robert Remacle, d/b/a Ralph's Bar, County Seat and R&R Vending; G & T Gaming, Inc., a South Dakota Corporation; R.E.L. Trust, a South Dakota Business Trust, R.E.L. Trustee Corp., Trustee; and J. Clifford Foley, d/b/a Foley's Bar,
VIDEO LOTTERY TECHNOLOGIES, INC.,
a Delaware corporation; Music & Vending Association, a South Dakota Corporation; James Koehler and Tim Hofer, d/b/a Hub Music and Vending; Leo Freidel; Jerry Freidel; Kerry Freidel; Freidel's Music and Recreation, Inc., a South Dakota Corporation; Elroy G. Gruenewald; David A. Backlund; D & E Music & Vending, Inc., a South Dakota Corporation; Robert J. Correa; Hasvold Vending Company, a South Dakota Corporation; Dean Schroeder; Musivend Enterprises, Inc., a South Dakota Corporation; W.C. "Buzz" Oligmiller; Rushmore Amusement, Inc., a South Dakota Corporation; Manford Music & Vending, Inc., a South Dakota Corporation; Michael J. Trucano; and Automatic Vendors, Inc., a South Dakota Corporation,
[1998 DSD 3]
United States District Court
District of South Dakota-Northern Division
MEMORANDUM OPINION AND ORDER DENYING SANCTIONS
Opinion Filed Jan, 1998
Richard H. Battey, Chief Judge
I. PROCEDURAL HISTORY
[¶1] On November 6, 1996, this Court entered a memorandum opinion and judgment granting defendants' motion for summary judgment. See Corner Pocket v. Video Lottery Technologies, Inc., 979 FSupp 1269 (D.S.D. 1996), affirmed by, 123 F3d 1107 (8th Cir. 1997), petition for cert. filed, 66 USLW 3459 (Dec. 29, 1997). Pursuant to Federal Rule of Civil Procedure 11, on December 10, 1996, defendants in the above-entitled action filed a joint motion for sanctions and a brief in support of their motion. Dockets #410, #411. Defendants' motion and brief were dated December 9, 1996. Also on December 10, 1996, defendants filed their certificate of service certifying that plaintiffs had been served with defendants' motion for sanctions and defendants' memorandum in support of their motion. Defendants' certificate of service was dated December 9, 1997. Docket #412.
[¶2] On March 13, 1997, this Court issued an order for supplemental filings as to the issue of sanctions. The Court stated, "The Court has reviewed defendants' motion for sanctions, plaintiffs' response, and defendants' reply, together with all attachments. The Court concludes that it will award sanctions in an amount and for reasons set forth by the Court." The Court then ordered defendants to submit a statement itemizing the amount which defendants felt the Court should adopt as sanctions under Federal Rule of Civil Procedure 11 and ordered plaintiffs to respond. On May 5, 1997, plaintiffs filed a motion requesting this Court to reconsider its order granting sanctions. Docket #432. On May 22, 1997, this Court entered an order denying plaintiffs' motion for reconsideration. Docket #451. Defendants have filed their supplemental statement as to sanctions, plaintiffs filed their response, and defendants filed a reply.
[¶3] Upon additional consideration based upon the issues raised in the supplemental filings in this matter, this Court now finds that defendants failed to meet the mandatory "safe harbor" provision of Rule 11. As a result, this Court is precluded from permitting defendants to receive sanctions pursuant to Rule 11(c)(1)(A).(1) This Court retains jurisdiction to correct its previous order stating that it would award sanctions and now deny defendants' motion for sanctions. See Lu v. Chi, 86 F3d 1162, No. 94-56664, 1996 WL 287251 (9th Cir. Aug. 8, 1996) (unpublished) (court stated that since the district court did not recognize its error in granting Rule 11 sanctions until the issue was on appeal, the court did not still have jurisdiction to correct the error).
[¶4] In 1993, Rule 11 was amended. The 1993 amendments went into effect on December 1, 1993. The complaint in this case was filed on July 7, 1994. The 1993 amendments to Rule 11 apply in this case. Ridder v. City of Springfield, 109 F3d 288, 293 (6th Cir. 1997), cert. denied, S. Ct. , 1998 WL 6444 (Jan. 12, 1998); Fed. R. Civ. P. 11.
[¶5] "The new language [of Rule 11] broadens the scope of attorney obligations but places greater constraints on the imposition of sanctions." Ridder v. Springfield, 109 F3d 288, 293 (6th Cir. 1997); Fed. R. Civ. P. 11 Advisory Committee Notes (1993 Amendments). Federal Rule of Civil Procedure 11(c)(1)(A) states, in pertinent part:
A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate [Rule 11(b)]. It shall be served as provided in Rule 5, but shall not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.
The 1993 Amendments to Rule 11 created a two step process. "[F]irst, serve the Rule 11 motion on the opposing party for a designated period (at least 21 days); and then file the motion with the court." Ridder, 109 F3d at 294. In this case, the defendants did not serve the plaintiffs at least 21 days prior to filing the motion with the Court. See Docket #410-412. Defendants' motion for sanctions was dated December 9, 1996, and was filed on December 10, 1996. See Docket #410. Defendants' certificate of service reveals that plaintiffs were served with the motion for sanctions on December 9, 1996. See Docket #412.
[¶6] Several courts have concluded that the 21-day "safe harbor" provision is mandatory. AeroTech, Inc. v. Estes, 110 F3d 1523, 1528 (10th Cir. 1997); Ridder, 109 F3d at 296; Karara v. Czopek, 89 F3d 850, No. 95-1361, 1996 WL 330260 (10th Cir. June 6, 1996) (unpublished); Elliott v. Tilton, 64 F3d 213, 216 (5th Cir. 1995). See also Morganroth & Morganroth v. DeLorean, 123 F3d 374, 384 (6th Cir. 1997) (court refused to consider merits to motion for sanctions because defendant did not comply with Rule 11's "safe harbor" provision); Truelove v. Heath, 86 F3d 1152, No. 95-3009, 1996 WL 271427 (4th Cir. May 22, 1996) (unpublished) (stating that sanctions should be denied if movant fails to serve other party 21 days before filing motion for sanctions with the court); Hadges v. Yonkers Racing Corp., 48 F3d 1320, 1328 (2d Cir. 1995) (reversed sanctions in part because Rule 11 mandates compliance with "safe harbor" provision); Kirk Capital Corp. v. Bailey, 16 F3d 1485, 1488-89 (8th Cir. 1994) (court discusses application of "safe harbor" provision of Rule 11); Thomas v. Treasury Management Ass'n, Inc., 158 F.R.D. 364, 369 (D. Md. 1994) (21-day "safe harbor" provision is "an absolute prerequisite" and failure to comply with provision precluded sanctions). This Court agrees with the persuasive case law which has determined that the "safe harbor" provision of Rule 11 is mandatory. Accordingly, this Court holds that defendants are barred from filing a motion for sanctions because they failed to comply with the mandatary "safe harbor" provision.
[¶7] Defendants respond to plaintiffs' argument that defendants violated the "safe harbor" provision of Rule 11 as follows:
Plaintiffs' assertion that they were never given any notice of Defendants' intent to seek attorney fees or sanctions is without merit. At least in regard to seven of the Defendants (D&E, Havold, Manford, Backlund, Gruenewald, Correa, Bruner) Plaintiffs were informed of the Defendants' position that, "The plaintiffs have commenced this litigation . . . without reasonable cause and have asserted false and groundless claims" and that attorney fees would be sought. See Answers, Docket Entry Nos. 12-18 (Answers) and 328 (Answer to amended complaint).
See Defendants' Reply at 7 n. 6 (Docket #471). The notice which defendants argue was sufficient does not meet the requirements of Rule 11. Arguably, even if the Court were to conclude that such notice was sufficient, Rule 11 as amended requires that a motion for sanctions be made separately. Johnson v. Waddell & Reed, Inc., 74 F3d 147, 151 (7th Cir. 1996) (citing Fed. R. Civ. P. 11(c)(1)(A)).
[¶8] Defendants also argue that the "safe harbor" provision was not meant to apply to "discovery traps because the victim does not know of the 'trap' until it is sprung." Defendants' Reply at 7 n.6. Defendants have not cited any case law which would support their conclusion that the "safe harbor" provision would not apply in this case. In addition, defendants knew of this "discovery trap" prior to filing their motion for sanctions in December of 1996 and prior to this Court's decision for summary judgment on the matter. Defendants state that "[t]he focus of this Rule 11 motion is Plaintiffs' failure to properly produce and inform the Defendants and the Court of the groundless allegations made by one Bill Welk, allegations upon which Plaintiffs apparently placed great reliance to form the basis for their lawsuit." Defendants' Memorandum of Law in Support of Motion for Summary Judgment (Defendants' Memorandum) at 1.
[¶9] Plaintiffs filed the affidavit of Bill Welk on August 15, 1996, as an appendix to plaintiffs' statement of disputed material facts. See Docket #377. Welk's affidavit was dated August 12, 1996. The affidavit of Welk spoke of an alleged "Goose Camp" meeting. Welk's affidavit stated that on or about May of 1989 defendant Jim Koehler told Welk that Koehler had met at the "Goose Camp" that morning and had met with members of Music and Vending Association of South Dakota (MVA) for the purpose of discussing territorial allocations. Corner Pocket, 979 FSupp at 1282. Defendants then investigated the time frame within which these allegations by Welk occurred. Id. If defendants' "focus" of its Rule 11 motion is the Welk affidavit, defendants knew by approximately the end of August 1996 or beginning of September 1996 that they did not believe the allegations of Welk were accurate based upon the time frame alleged by Welk. See Dockets #379, #380, #389; Corner Pocket, 979 FSupp at 1282. Defendants should have filed its motion for Rule 11 sanctions at this time.(2) This Court concludes that defendants knew of this "discovery trap" prior to its filing for sanctions in December of 1996, and defendants had an opportunity to comply with the "safe harbor" provision.(3) Defendants' arguments are not persuasive in convincing this Court that they should have not been required to comply with the "safe harbor" provision.
[¶10] Not only should defendants' motion for sanctions be barred because defendants failed to comply with the "safe harbor" provision of Rule 11, but defendants' motion for sanctions should also be barred because the motion was not timely. The Advisory Committee Notes to the 1993 Amendments state:
The revision leaves for resolution on a case-by-case basis, considering the particular circumstances involved, the question as to when a motion for violation of Rule 11 should be served and when, if filed, it should be decided. Ordinarily the motion should be served promptly after the inappropriate paper is filed, and, if delayed too long, may be viewed as untimely. In other circumstances, it should not be served until the other party has had a reasonable opportunity for discovery. Given the "safe harbor" provisions . . . a party cannot delay serving its Rule 11 motion until conclusion of the case (or judicial rejection of the offending contention).
Ridder, 109 F3d at 295 (emphasis added) (citing Fed. R. Civ. P. 11 Advisory Committee Notes (1993 Amendments)). In Ridder, the defendant argued that complying with the "safe harbor" provision would have been a "vain act." Id. at 296. However, the Sixth Circuit stated:
Rather than excusing [defendant's] noncompliance, we instead hold that [defendant] has given up the opportunity to receive an award of Rule 11 sanctions in this case by waiting to file the motion until after the entry of summary judgment.
Id. at 297. The Sixth Circuit then held:
In sum, adhering to the rule's explicit language and overall structure, we hold that sanctions under Rule 11 are unavailable unless the motion for sanctions is served on the opposing party for the full twenty-one day "safe harbor" period before it is filed with or presented to the court; this service and filing must occur prior to final judgment or judicial rejection of the offending contention. Quite clearly then, a party cannot wait until summary judgment to move for sanctions under Rule 11.
Id. Defendants in this case did not file their motion for sanctions until after this Court had ruled on the motion for summary judgment. Defendants' motion for sanctions was untimely; therefore, the defendants did not comply with the procedural requirements of Rule 11, and their motion for sanctions should be barred.
[¶11] Based upon the reasoning set forth above, this Court finds that the 21-day "safe harbor" provision of Rule 11 is mandatory and that as a result of defendants' failure to comply with the provision, defendants are not eligible for Rule 11 sanctions. The Court also finds that defendants' motion for sanctions was untimely. Defendants' failure to file its motion for sanctions prior to the Court's ruling on defendants' motion for summary judgment does not comport with the procedural requirements of Rule 11. In addition, this untimeliness jeopardized plaintiffs' right to the mandatory protection of the "safe harbor" provision. Therefore, even if application of the "safe harbor" provision would have been futile, defendants must comply with the provision prior to the Court's ruling on a pending motion for summary judgment.
[¶12] Accordingly, upon reconsideration, it is hereby
[¶13] ORDERED that defendants' motion for sanctions pursuant to Rule 11(c)(1)(A) is denied.
1. This Court recognizes that the "safe harbor" provision does not apply to Rule 11(c)(1)(B) which authorizes the Court to initiate sanctions. See Ridder v. City of Springfield, 109 F3d 288, 297 n.8 (6th Cir. 1997). However, this Court declines to award sanctions to defendants pursuant to Rule 11(c)(1)(B).
2. The Advisory Committee notes as to the 1993 amendment of Rule 11 state, "Ordinarily the motion should be served promptly after the inappropriate paper is filed, and, if delayed too long, may be viewed as untimely." See Fed. R. Civ. P. 11 Advisory Committee Notes (1993 Amendments).
3. This Court notes that pursuant to Rule 11(d), Rule 11(a) through (c) does not apply "to disclosures and discovery requests, responses, objections, and motions that are subject to the provisions of Rules 26 through 37." Fed. R. Civ. P. 11(d). Given the Court's conclusion, this Court need not determine if defendants sole reliance requesting sanctions could be categorized as fitting within Rule 11(d).