Until last Friday, the question of whether an informal warning letter satisfied Rule 11’s safe harbor provision was unsettled in the Sixth Circuit.   In Penn, LLC, et al. v. Prosper Business Development Corporation, et al. (6th Cir. Case No. 14-3108) (PDF), the Sixth Circuit panel followed the Second, Fifth, Eighth, Ninth, and Tenth Circuits in holding that an informal warning in the form of a letter without service of a separate Rule 11 motion does not trigger the 21-day safe harbor period provision under the rule.  The lone Circuit espousing a contrary position is the Seventh Circuit.

The 21-day safe harbor provision in Rule 11(c)(2) of the Federal Rules of Civil Procedures states in relevant part:

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but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. . . .

After plaintiffs sued defendants and defendant’s law firm in Penn, the defendant law firm served plaintiffs’ firm with a letter on December 6, 2010 that purported to satisfy “the obligations of . . . Fed. R. Civ. P. 11” and threatened to seek sanctions “if the captioned matter [was] not dismissed before the first answer date of December 20, 2010.”  Plaintiffs’ law firm rejected the allegations of impropriety and stood by its complaint.  On May 27, 2011, the district court granted the defendant law firm’s motion to dismiss all the claims against it.  Nearly two weeks later, on June 8, 2011, the defendant law firm served plaintiffs’ law firm with a proposed motion for Rule 11 sanctions.  The plaintiffs’ firm opposed the motion by arguing, among other things, that the defendant law firm’s service of a copy of the motion post-dismissal failed to comply with Rule 11’s safe harbor provision, thus making sanctions unavailable.  The defendant law firm countered that its December 6, 2010 letter satisfied the rule.  The district court ended up denying the motion on the merits by holding that the allegations in the complaint were not so deficient to necessitate sanctions.  The district court bypassed the Rule 11 safe harbor issue, calling it “somewhat unsettled.”

On appeal, the Sixth Circuit affirmed by holding that the defendant law firm’s December 6, 2011 letter failed to satisfy Rule 11’s safe harbor provision.  In an opinion written by Judge Cook, the panel made clear that Rule 11 “specifically requires formal service of a motion.”  The panel also highlighted policy grounds that supported its decision, noting that Rule 11’s safe harbor provision was designed “to reduce Rule 11’s volume, formalize appropriate due process considerations of sanctions litigation, and diminish the rule’s chilling effect.”  The panel stated that “[p]ermitting litigants to substitute warning letters, or other types of informal notice, for a motion timely served pursuant to Rule 5 undermines these goals.”  The panel observed that “[w]hereas a properly served motion unambiguously alerts the recipient that he must withdraw his contention within twenty-one days or defend it against the arguments raised in that motion, a letter prompts the recipient to guess at his opponent’s seriousness.”

Penn is a good case illustrating how the Sixth Circuit is free to affirm a judgment on any basis supported by the record.  While the district court in this case had denied the defendant firm’s Rule 11 motion on the merits, the Sixth Circuit affirmed on an alternative procedural ground, which was much narrower and based solely on the application of legal propositions to the undisputed facts.  

Notably, the panel also declined to follow three of the Sixth Circuit’s unpublished decisions establishing that a warning letter satisfies Rule 11’s safe harbor provisions.  The panel stated that “these unpublished decisions neither bind us nor persuade us to forsake the benefit to bench and bar afforded by requiring strict compliance with Rule 11’s clear text.”

The bottom line is that there finally is clarity in the Sixth Circuit on Rule 11’s safe harbor.