Antitrust Law Daily Wrap Up, RICO—6th Cir.: Firm fails to comply with safe-harbor provision, misses boat on attorney fees, (Dec 16, 2014)

By Greg Hammond, J.D.

A sanction-threatening letter was not formal notice of a motion for Federal Rule of Civil Procedure 11 sanctions, the U.S. Court of Appeals in Cincinnati determined. Consequently, a law firm successfully defending a business development corporation from RICO and common law claims did not comply with the safe-harbor provision of Rule 11, and was therefore denied attorney fees (Penn, LLC v. Prosper Business Development Corp., December 12, 2014, Cook, D.).

Plaintiff attorneys, Plunkett & Cooney, P.C. (P&C), filed a complaint against a business development corporation, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), fraud, conversion, unjust enrichment, and breach of fiduciary duty in connection with the management of a joint venture. Defendant attorneys, James E. Arnold & Associates (A&A), sent P&C a warning letter, threatening to seek sanctions if the matter was not dismissed. Twelve days after the case was dismissed by the court, A&A sent P&C a proposed motion for Rule 11 sanctions, seeking $36,788.14 in attorney fees. However, the lower court denied the motion on the merits, finding the allegations deficient, but not so deficient as to necessitate sanctions. A&A appealed.

The safe-harbor provision of Rule 11 states, “A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets.”

Despite the lower court’s decision to deny the motion on the merits, the appellate court affirmed on the alternative ground that A&A failed to comply with Rule 11’s safe-harbor provision. Specifically, the court noted that: (1) A&A served the Rule 11 motion 12 days after the district court dismissed the claims, depriving it of the safe-harbor period’s protection and foreclosing the firm’s sanctions motion; and (2) the warning letter was not formal service of the motion.

The case number is 14-3108.

Attorneys: James E. Arnold (James E. Arnold & Associates, LPA) for Prosper Business Development Corp. Josephine A. DeLorenzo (Plunkett Cooney, P.C.) for Penn, LLC.

Companies: Prosper Business Development Corp.; Penn, LLC; Plunkett & Cooney, P.C.; James E. Arnold & Associates

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