United States District Court, D. New Jersey
WILLIAM J. MARTINI, U.S.D.J.
Anil Patel and Manish Patel brought this civil rights action
under 42 U.S.C. § 1983 against Defendants Narendra
Lakhani, Darshan Lakhani, Sonali Mody, Lakhani Associates
(the “Lakhani Defendants”), Rabinowitz, Lubetkin
& Tully, LLC, and Jonathan I. Rabinowitz, (the
“Rabinowitz Defendants”), and Cole Schotz, P.C.
The Lakhani Defendants and the Rabinowitz Defendants each
move separately for sanctions against Plaintiffs pursuant to
Fed.R.Civ.P. 11(b), 28 U.S.C. § 1927, and the
Court's inherent powers. For reasons that follow, both
motions are DENIED.
2011, the Patels and Lakhanis have been embroiled in
litigation in New Jersey Superior Court over several joint
hotel ventures. The Lakhanis subsequently obtained a judgment
against the Patels for $9.8 million, which they are still
attempting to collect. In October 2016, the Superior Court
denied the Patels' motion to stay collection and
appointed Defendant Jonathan I. Rabinowitz as Receiver. Mr.
Rabinowitz was represented in Superior Court by his law firm,
Defendant Rabinowitz, Lubetkin & Tully, LLC.
16, 2017, the Patels brought this instant federal action
under 42 U.S.C. § 1983, claiming that the Lakhanis
“improperly used the judgment to invoke the compulsory
powers of New Jersey to seize valuable and substantial
property from the Patels through execution activities that
fail to comport with minimum constitutional due process
requirements.” Pls.' Resp. Lakhanis' Rule 11
Mot, 2. Defendants, believing the complaint to be frivolous,
notified the Patels that they planned to move the Court for
sanctions unless the complaint was withdrawn within the
21-day “safe harbor” period under Rule 11. The
Patels waited until the last day of the safe harbor period
before withdrawing the complaint voluntarily without
prejudice, a maneuver which Defendants insist was intended to
maximize the Defendants' legal expenses by causing them
to prepare a Rule 11 motion and a motion to dismiss.
See Lakhanis' Rule 11 Mot. 1. Patels counsel
withdrew from their representation of the Patels in this
action and in the pending state court proceedings. Soon after
withdrawing the complaint, the Patels sent a letter to
Defendants indicating that they would refile the complaint
once they could reach a viable financial arrangement with new
counsel. The Lakhani Defendants filed their motion for
sanctions against the Patels on September 28, 2017. ECF No.
7. The Rabinowitz Defendants filed a similar motion for
sanctions on October 13, 2017. ECF No. 9.
Court retains jurisdiction over the motions for sanctions
notwithstanding that no complaint is pending. E.g.,
Brice v. Bauer, 689 Fed.Appx. 122 (3d Cir. 2017).
For the purposes of this motion there is no need to analyze
the two motions separately. Both sets of Defendants ask for
sanctions under Rule 11, 28 U.S.C. § 1927, and the
Court's “inherent powers.” The Court now
addresses each type of sanction.
Rule 11 Sanctions
“requires an attorney who signs a complaint to certify
both that it is not interposed for improper purposes, such as
delay or harassment, and that there is a reasonable basis in
law and fact for the claim.” Balthazar v. Atl. City
Med. Ctr., 279 F.Supp.2d 574, 593 (D.N.J. 2003) (quoting
Napier v. Thirty or More Unidentified Federal Agents,
Employees or Officers, 855 F.2d 1080, 1090)(3d Cir.
1988)). The purpose of Rule 11 is “to discourage
pleadings that are frivolous, legally unreasonable, or
without factual foundation, even though the paper was not
filed in subjective bad faith.” Napier, 855
F.2d at 1090-91 (citations omitted). When applying Rule 11,
“the Court looks objectively to whether the imposition
of sanctions would be ‘reasonable under the
circumstances.'” Keith v. Itoyama, 2006 WL
3069481, *20 (D.N.J. Oct. 27, 2006) (citing Martin v.
Brown, 63 F.3d 1252, 1264 (3d Cir. 1995)). A party
served with a Rule 11 motion has a 21-day “safe
harbor” period during which to withdraw the contested
paper claim or paper; if withdrawal does not occur, the
moving party may file for sanctions with the court.
Lakhani and Rabinowitz Defendants allege that the Patels and
their counsel filed a frivolous lawsuit, then waited until
the final day of Rule 11's 21-day safe harbor period to
withdrawal, before immediately threatening to refile the same
frivolous claim. “As a purely technical matter, ”
the Rabinowitz Defendants concede, “Plaintiffs complied
with the letter of Rule 11 by withdrawing their frivolous
complaint within the safe harbor period.” Rabinowitz
Reply Br. 3. Defendants argue nonetheless that this
conduct-which they allege was intended to maximize
Defendants' legal expenses-undermines the
“spirit” and “purpose” of Rule 11.
See Lakhani Br. 4-5. According to both groups of
Defendants, the Patels' threat to refile the complaint
was alone sufficient to trigger sanctions. Lakhani Reply 2.
Court finds that Rule 11 sanctions are unavailable in light
of the Patels' voluntary withdrawal of the complaint.
See Hockley by Hockley v. Shan Enter. Ltd.
P'ship, 19 F.Supp.2d 235, 240 (D.N.J. 1998) (citing
Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendment) at
89 (West 1998)) (“The court can impose sanctions only
if, after twenty-one days, the non-moving party has not
withdrawn the offending petition or acknowledge[d] candidly
that it does not currently have evidence to support a
specified allegation.'”). To impose sanctions here
under Rule 11 would undermine the purpose of the safe harbor
provision, which is to curb apprehension that withdrawal may
be viewed as evidence of a violation. See Fed. R.
Civ. P. 11 Advisory Committee Notes (“Under the former
rule, parties were sometimes reluctant to abandon a
questionable contention lest that be viewed as evidence of a
violation of Rule 11.”). In any event, the rule is
clear: “If the pleading is withdrawn in timely fashion,
the matter is at an end and sanctions become unavailable; a
‘safe harbor' is provided.” Thomas v.
Treasury Mgmt. Ass'n, Inc., 158 F.R.D. 364, 366 (D.
Md. 1994). See Fed. R. Civ. P. 11 advisory
committee's note (“If, during this period, the
alleged violation is corrected, as by withdrawing . . . some
allegation or contention, the motion should not be filed with
Defendants provide no past examples of sanctions imposed for
threatening to refile a complaint that has been voluntarily
dismissed without prejudice. Indeed, even a successful Rule
11 motion does not preclude the sanctioned party from
refiling its complaint. See Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 396 (1990). That does make
defendants answerable to a unending sequence of abortive
litigation. Rather, the threat of successive
withdraw-and-refiling is met by Rule 41(a)(1), which provides
that voluntary dismissal counts as a final adjudication if
“the plaintiff previously dismissed any federal- or
state-court action based on or including the same claim . . .
.” Fed.R.Civ.P. 41(a)(1)(B). See Cooter &
Gell, 496 U.S. at 397 (citations omitted) (“Rule
41(a)(1) was intended to eliminate the annoying of a
defendant by being summoned into court in successive actions
and then, if no settlement is arrived at, requiring him to
permit the action to be dismissed and another one commenced
at leisure.”). Defendants' Rule 11 motions are
Attorney Sanctions under 28 U.S.C. § 1927
28 U.S.C. § 1927, an attorney “who so multiplies
the proceedings in any case unreasonably and vexatiously may
be required by the court to satisfy personally the excess
costs, expenses, and attorneys' fees reasonably incurred
because of such conduct.” Section 1927 sanctions are
intended “to deter an attorney from intentionally and
unnecessarily delaying judicial proceedings . . . .”
LaSalle Nat. Bank v. First Connecticut Holding Grp.,
LLC., 287 F.3d 279, 288 (3d Cir. 2002). Because §
1927 “necessarily ‘carries with it the potential
for abuse . . . the statute should be ...