In PT Pukuafu Indah, et al. v. Newmont Mining Corp. (6th Cir. Nos. 09-02117/2570, 10-1477/1837) (PDF), the Sixth Circuit reversed a hefty Rule 11 sanction determination, including an award of over $107,000 in attorneys fees and an injunction permanently enjoining the plaintiffs from filing lawsuits against the defendants in any federal or state court.

In the matter below, the plaintiffs brought suit in the Eastern District of Michigan against the SEC, the Export-Import Bank and various other entities, alleging that they failed to take certain enforcement actions against Newmont Mining Corporation (“Newmont”).  During the previous 10 years, the plaintiffs had filed several lawsuits against Newmont in federal and state courts based upon or related to their belief that they have ownership interest in several mines in Indonesia.  Each of their earlier lawsuits had been dismissed as lacking in merit, and other courts had imposed sanctions upon the plaintiffs.  In the matter below, in which the plaintiffs filed an initial complaint and then subsequently filed first and second amended complaints, the district court dismissed for lack of personal jurisdiction over Newmont.  Plaintiffs sought to file a Third Amended Complaint, and Newmont filed a motion for sanctions under Rule 11, arguing that the attempted Third Amended Complaint was sanctionable conduct and seeking attorneys fees for defending against the entire lawsuit brought by plaintiffs.  The district court denied leave for plaintiffs to file the Third Amended Complaint, dismissed all of the plaintiffs’ claims, and granted Newmont’s Rule 11 motion, requiring plaintiffs and their counsel to pay Newmont over $107,000 in attorneys fees and costs.  In addition, the court enjoined plaintiffs from “filing any lawsuits against Defendants in this or any federal or state court related to the subject matter of this lawsuit.”

Writing for a unanimous panel that included Judges Cole and Rogers, Judge Moore affirmed the district court’s denial of leave for the Third Amended Complaint as well as dismissal of all of the plaintiffs’ claims, but the Court reversed the Rule 11 sanctions and injunction.  Under plain error review (which the Court applied because the plaintiffs had not raised the issue of identification below), the Court began by observing, first, that “identification of the specific conduct that is allegedly sanctionable is critical to a finding of a Rule 11 violation” and, second, that “a district court may not impose a sanction until the violator has had ‘notice and a reasonable opportunity to respond'” (quoting Rule 11(c)(1)).  The district court clearly found the attempted filing of the Third Amended Complaint sanctionable, but the Court noted language showing that the district court also believed that the lawsuit in toto was sanctionable for failure of the plaintiffs and their counsel to make “an inquiry reasonable under the circumstances” as to whether the lawsuit should properly have been filed.  The fact that the district court’s findings went beyond conduct identified in Newmont’s motion was “especially problematic,” the Court found, because it did not give plaintiffs adequate notice of the “specific conduct that is said to constitute a Rule 11 violation.”  Moreover, the Court was troubled by the lack of proper notice particularly because of the “great severity of the sanctions awarded.”  Finding that the district court committed plain error, the Court reversed the sanctions order and remanded for the lower court to “consider anew” Newmont’s Rule 11 motion.

The Court’s ruling demonstrates the strong nexus that must exist in a Rule 11 determination between the specific conduct alleged to be sanctionable and the actual basis upon which the sanctions award is premised.  The case is also remarkable for the use of “plain error” review, upon which basis the Court provided relief to a party that had failed below to raise the key issue upon which the propriety of the sanctions determination ultimately turned.