Collison v. Wandrd, LLC

Background

Kyle Collison, a former WANDRD employee, filed the underlying action on March 25, 2024. He asserted claims under the Fair Labor Standards Act, New York Labor Law, federal health-insurance continuation law, and related New York provisions. The complaint alleged that Collison never received information about continuing his health insurance after his employment ended and that WANDRD had 20 or more employees during the relevant period.

Federal health-insurance continuation law generally requires a qualifying employer health plan to offer continued coverage and provide notice of the beneficiary’s rights. The law includes an exception for plans maintained by employers that normally employed fewer than 20 employees during the relevant period.

The sanctions motion

WANDRD, LLC and Austin Cope moved under Federal Rule of Civil Procedure 11(b)(3) for sanctions against Collison and his counsel. Rule 11(b)(3) requires a person presenting a court filing to certify that its factual allegations have evidentiary support or are likely to have such support after a reasonable opportunity for investigation or discovery.

Defendants challenged two allegations. First, they disputed the allegation that WANDRD had 20 or more employees. Second, they disputed the allegation that Collison never received information about continuing his health insurance. Defendants relied on an August 31, 2023 chat message stating that Collison could remain on WANDRD’s health and dental plans at specified monthly costs. They also relied on three payroll ledgers sent to Collison’s counsel after the complaint was filed, which purported to show fewer than 20 employees on four listed dates.

Court’s reasoning

Judge Liman explained that Rule 11 sanctions are reserved for allegations that are utterly lacking in support, and that doubts should be resolved in favor of the person who signed the filing. Rule 11 generally does not require a party to withdraw or amend a complaint merely because events or evidence arising after filing may undermine an allegation. However, a party may not continue advocating a factual contention after learning that it lacks support.

The court held that sanctions were not appropriate for the employee-count allegation. The allegation was made “upon information and belief,” meaning counsel represented that it was likely to have evidentiary support after a reasonable investigation. The court also noted that the complaint referred to “relevant times,” which could extend beyond the three payroll periods cited by Defendants, and that the statute concerned the number of employees WANDRD normally employed. The payroll records, sent after the complaint was filed, did not establish that the allegation was a direct falsehood. The court further noted that Collison had not yet affirmatively argued that WANDRD had more than 20 employees during the periods covered by those records.

The court also rejected sanctions based on the health-insurance allegation. Read in context, the allegation referred to information consistent with the notice required by federal law. The court explained that the required notice includes 14 separate items and that the chat message offering continued insurance did not demonstrate that Collison’s allegation was false.

Disposition

The court denied Defendants’ motion for sanctions under Rule 11 and directed the Clerk of Court to close the motion docket entry. The opinion addressed only the sanctions motion; it did not decide the merits of Collison’s underlying claims.