Wednesday, May 26, 2004

Rule 11 sanctions reversed where party failed to observe safe-harbor requirement

The en banc Fourth Circuit explained several new points of law and procedure today in Brickwood Contractors, Inc. v. Datanet Engineering, Inc., Nos. 00-2324 and 002325 (May 26, 2004) (PDF) regarding Rule 11.

Point 1: The 21-day safe-harbor provisions of Rule 11(c)(1)(A) are mandatory, "inflexible claim-processing rules," but are not "jurisdictional." In making this distinction, the court is taking a cue from the Supreme Court's opinion in Kontrick v. Ryan, 124 S. Ct. 906 (2004), that "[c]larity would be facilitated if courts and litigants used the label ‘jurisdictional’ not for claim-processing rules, but only for prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) falling within a court’s adjudicatory authority." Id. at 915. (In the future, we are likely to see more rules previously labeled "jurisdictional" switched to "inflexible claim-processing rules.")

Point 2: Although the safe-harbor provisions are mandatory, they do not implicate the district court's subject-matter jurisdiction and thus may be forfeited if not timely raised. In other words, unlike a truly jurisdictional issue, the safe-harbor issue can be waived.

Point 3: However, given the important purposes served by Rule 11(c)(1)(A) and the mandatory nature of its language, in most cases involving failure to comply with the safe-harbor provisions, a proper application of the plain error (Olano-Taylor) standards will lead to correction of the error.

That's exactly what happened in this case. The sanctioned party did not raise the failure to comply with the safe-harbor provisions until the appeal, but the court corrected the error and reversed the sanctions anyway.

Point 4: Because Rule 11 requires that the party submitting the challenged pleading be given an opportunity to withdraw the pleading, sanctions cannot be sought after summary judgment has been granted.

This was yet another defect present in this case. Get those Rule 11 motions in with your motion for summary judgment (after you comply with the 21-day safe-harbor provision, of course.)

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