Antitrust Law Daily Wrap Up, RICO—D.N.J.: Motion for sanctions after unsuccessful RICO claim denied, (Aug 16, 2013)

By Edward L. Puzzo, J.D.

Sanctions were not appropriate against homeowners whose allegations of a fraudulent mortgage foreclosure scheme under RICO were barred by the Noerr-Pennington doctrine, the federal district court in Camden, New Jersey has ruled (Charles Giles v. Phelan, Hallinan & Schmieg, L.L.P., August 14, 2013, Simandle, J.).

This litigation arose out of earlier litigation wherein the court dismissed a homeowner’s proposed class action alleging a scheme by banks to prosecute fraudulent mortgage foreclosure lawsuits. In the earlier litigation, the court had ruled that the New Jersey litigation privilege did not apply to RICO claims; that the RICO statute of limitations, res judicata, collateral estoppel, and the entire controversy doctrine did not bar the action; that the Noerr-Pennington doctrine barred the action, but even if it did not, the RICO claim was dismissed with prejudice because plaintiffs did not show that defendants’ actions were the proximate cause of their injuries.

Sanctions sought. In this action, both sides in the earlier action sought Federal Rule 11 sanctions against each other.

Rule 11 sanctions are discretionary, and appropriate only where a claim or motion is patently unmeritorious or frivolous, the court explained. It does not normally follow an adverse ruling, and is not to be used as a general fee-shifting device. Sanctions are not intended to chill creative and vigorous advocacy.

The defendants argued that the plaintiffs' claims were obviously without merit. In response, the Court noted that the ruling in the earlier litigation was that the Noerr-Pennington doctrine barred plaintiffs’ RICO claims, but prior case law did not dictate that outcome so definitely that plaintiffs’ bringing of this lawsuit could be considered objectively baseless. Plaintiffs presented creative and cogent arguments, stated the court, and their arguments were not plainly and resolutely meritless. Similarly, the holding in the earlier litigation that plaintiffs had failed to allege that defendants’ actions were the proximate cause of their injuries was not so obvious that the lawsuit could be considered litigation abuse.

The court also rejected plaintiffs' assertion that defendants' motion for sanctions was itself in bad faith or litigation abuse. It was not unreasonable for the defendants to argue that their burdens in defending this case were needlessly increased by plaintiffs’ repeated failures to file short, plain statements of their claims, which required numerous amended complaints.

Thus the cross-motions for sanctions were both denied.

The case is Civil Action No. 11-6239 (JBS/KMW).

Attorneys: John G. Narkin for Charles Giles. Kenneth S. Goodkind (Flaster/Greenberg, P.C.) for Phelan, Hallinan & Schmieg, L.L.P.

Companies: Phelan, Hallinan & Schmieg, L.L.P.

Cases: RICO NewJerseyNews