Brickwood Contractors, Inc. v. Datanet Engineering, Inc.

Rehearing en banc granted by order filed 7/30/03;
published opinion filed 7/7/03 is vacated.
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
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BRICKWOOD CONTRACTORS,
INCORPORATED,
Plaintiff-Appellant,
v. No. 00-2324
DATANET ENGINEERING,
INCORPORATED; JOHN V. CIGNATTA,
Defendants-Appellees.
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BRICKWOOD CONTRACTORS,
INCORPORATED,
Plaintiff-Appellee,
v. No. 00-2325
DATANET ENGINEERING,
INCORPORATED; JOHN V. CIGNATTA,
Defendants-Appellants.
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Appeals from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-98-1265-AMD)
Argued: May 10, 2001
Decided: July 7, 2003
Before WIDENER, WILKINSON, and MICHAEL, Circuit Judges.
____________________________________________________________
Reversed by published opinion. Judge Widener wrote the opinion, in
which Judge Wilkinson and Judge Michael concurred.
COUNSEL
ARGUED: James Joseph Tansey, Washington, D.C., for Appellant.
Brandon Mitchell Gladstone, LEE & MCSHANE, P.C., Washington,
D.C., for Appellees. ON BRIEF: James F. Lee, Jr., LEE &
MCSHANE, P.C., Washington, D.C.; Edward J. Pesce, EDWARD J.
PESCE, P.A., Ellicott City, Maryland, for Appellees.
____________________________________________________________
OPINION
WIDENER, Circuit Judge:
Brickwood Contractors, Inc. (Brickwood) appeals from an order of
the district court imposing $15,000 in monetary sanctions against
Brickwood pursuant to Fed. R. Civ. P. 11. We reverse.
I.
Brickwood contracted with Charles County, Maryland to repair,
clean and restore a water storage tank. Datanet Engineering, Inc.
wrote a letter to and on behalf of K&K Painting, an unsuccessful bid-
der on the project, which was protesting the award, to Charles
County. The bid protest letter stated that Brickwood's engineering
work under the contract did not comply with applicable legal stan-
dards. This letter was written by Datanet's president, John Cignatta.
The original dispute arose from Brickwood's action against Datanet
and Cignatta for defamation and tortious interference with business
relationship for statements made in this letter. On May 10, 1999, the
district court granted Datanet's and Cignatta's motion for summary
judgment on these two claims. On May 28, 1999, Brickwood
appealed. On May 25, 1999, Datanet and Cignatta had filed a Rule 11
motion requesting monetary sanctions and served this motion on
Brickwood the same day. In this motion, Datanet and Cignatta
claimed Brickwood frivolously filed a lawsuit, failed to reevaluate its
case throughout discovery and filed a meritless response to defen-
dants' motion for summary judgment. Brickwood filed its opposition
to this motion and contested those charges. It did not at that time
defend on account of the violation of Rule 11. The district court held
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the motion in abeyance pending the conclusion of appellate review.
In an unpublished opinion on March 21, 2000, this court affirmed the
district court's order granting Datanet and Cignatta summary judg-
ment. On September 5, 2000, the district court ordered Rule 11 sanc-
tions against Brickwood in the amount of $15,000. This appeal
followed. Brickwood contends that the sanctions are both unwar-
ranted and untimely in violation of the safe harbor provision of Rule
11. Datanet cross-appeals the sanction amount.
II.
Jurisdiction is proper in this case under 28 U.S.C. § 1291 as an
appeal from the district court's final judgment. We review the district
court's determination of Rule 11 sanctions under an abuse-of-
discretion standard. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
405 (1990). A district court "necessarily abuses its discretion in
imposing sanctions if it bases its ruling on an erroneous view of the
law or a clearly erroneous assessment of the evidence." Cooter, 496
U.S. at 405.
III.
Rule 11 was revised in 1993 to address the shortcomings of the
1983 amendment, (Part b), the "revision broadens the scope of [attor-
neys' obligation to the court], but places greater constraints on the
imposition of sanctions and should reduce the number of motions for
sanctions presented to the court." Fed. R. Civ. P. 11; Adv. Comm.
Notes, 1993 Amend. Rule 11(c)(1)(A) provides the constraining force
of the 1993 amendment. It reads:
A motion for sanctions under this rule shall be made sep-
arately from other motions or requests . . . . It shall be
served as provided in Rule 5, but shall not be filed with or
presented to the court unless, within 21 days after service of
the motion (or such other period as the court may prescribe),
the challenged paper, claim, defense, contention, allegation,
or denial is not withdrawn or appropriately corrected.
Fed. R. Civ. P. 11(c)(1)(A). The Advisory Committee Notes state the
purpose and effect of the amendment which is to "provide a type of
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``safe harbor' against motions under Rule 11 in that a party will not
be subject to sanctions on the basis of another party's motion unless,
after receiving the motion, it refuses to withdraw that position or to
acknowledge candidly that it does not currently have evidence to sup-
port a specified allegation." Fed. R. Civ. P. 11; Adv. Comm. Notes,
1993 Amend. The Advisory Committee Notes explain the rationale
for the amendment: "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; under the revision, the timely
withdrawal of a contention will protect a party against a motion for
sanctions." Fed. R. Civ. P. 11; Adv. Comm. Notes, 1993 Amend.
The effect of the amendment is two-fold. First, it requires a party
desiring the imposition of sanctions to give a timely 21-day notice
before both the conclusion of the case and the filing of the sanctions
motion in court. Second, "a party cannot delay serving its Rule 11
motion until conclusion of the case (or judicial rejection of the
offending contention)." Fed. R. Civ. P. 11; Adv. Comm. Notes, 1993
Amend.
The rule, as amended, has been literally construed by every other
circuit which has considered the same. They typically state that the
rule is mandatory or that compliance is an absolute prerequisite. See
Hadges v. Kunstler, 48 F.3d 1320, 1327-29 (2nd Cir. 1995); Elliot v.
Tilton, 64 F.3d 213, 216 (5th Cir. 1995); Ridder v. City of Springfield,
109 F.3d 288, 291-92 (6th Cir. 1997), cert. denied, 522 U.S. 1046(1998); Barber v. Miller, 146 F.3d 707 (9th Cir. 1997), cert. denied,
522 U.S. 1046 (1998); Hutchinson v. Pfeil, 208 F.3d 1180 (10th Cir.
2000), cert. denied, 530 U.S. 1205.
In this circuit, however, two cases have considered about the same
problem we have here. In Kirby v. Allegheny Beverage Corp., 811
F.2d 253 (4th Cir. 1987), a plaintiff had filed a complaint in the cir-
cuit court of Washington County, Maryland, consisting of five claims,
which was removed to the district court, which held that one count of
the complaint was preempted by § 301 of the Labor Management
Relations Act. As to the other four claims, the district court entered
its order of Rule 11 sanctions in the amount of $1,000. The plaintiff
against whom sanctions had been awarded, neither in the district court
nor in this court raised as a defense to the imposition of sanctions, the
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fact that the complaint was filed in a state court and was removed to
the district court at the instance of the defendants. Nevertheless, we
decided that Rule 11 sanctions may not be imposed on an attorney for
merely signing and filing a state court complaint which is subse-
quently removed to federal court. While that reason for our decision
was not raised as a defense, either in the district court or in this court
on appeal, we held that such "does not preclude this Court from con-
sidering it sua sponte in order to ``reach the correct result.'" Kirby,
811 F.2d at 256 n.2. Thus, in a case on all fours with the case at hand
as to the availability of a Rule 11 defense, and even more favorable
to the position of Brickwood here because it has contested in this
appeal the Rule 11 violation, we chose to consider the Rule 11 viola-
tion and gave relief.
In the case of Rector v. Approved Federal Savings Bank, 265 F.3d
248 (4th Cir. 2001), a set of circumstances similar to those present
here prevailed, but Part (c)(1)(A) was added to the rule in 1997.
There, although the motion for sanctions was filed after the case was
dismissed, a district court had awarded sanctions under Rule 11 which
had been defended in that court but not on the Rule 11 safe harbor
violation. The case of the Rule 11 sanction had been once appealed
and on appeal to us was remanded in an unpublished per curiam deci-
sion. In that first appeal the Rule 11 safe harbor violation was also not
depended upon. In the appeal at hand in Rector, however, the party
subject to sanctions had argued the Rule 11 safe harbor violation. We
held that the failure to depend upon the Rule 11 violation of the safe
harbor provision in the district court constituted a waiver of the
defense. Notably, Rector did not mention Kirby, although it came to
what is apparently a different result. Since overruling by implication
is not favored, see Agostini v. Felton, 521 U.S. 203, 237 (1997), we
try to give effect both to our decision in Rector as well as our decision
in Kirby. Kirby depended on Washington Gaslight Co. v. Virginia
Electric and Power Co., 438 F.2d 248 at 250-251 (4th Cir. 1971),
which stated: "Indeed, if deemed necessary to reach the correct result,
an appellate court may sua sponte consider points not presented to the
district court and not even raised on appeal by any party." 438 F.2d
248, 251.
In the case at hand, the motion for sanctions was made after the
case had terminated, service of the motion and its filing were accom-
5
plished without giving the 21-day notice required by the rule, and
there was simply no compliance with the safe harbor provision of
Rule 11.
On that account, we follow the decision in Kirby and reverse the
order of the district court appealed from.
REVERSED*
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*The cross-appeal of Datanet and Cignatta is moot and is dismissed
for that reason.
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