Salameno v. Rawlings

Background

Theresa Salameno and Lawrence Salameno originally sued Brittany Rawlings, SmartBoss, Inc., and FashionBoss, LLC, asserting breach of contract and fraud and seeking an accounting. After Lawrence Salameno died, his estate was substituted as a plaintiff. The defendants previously moved to dismiss the claims and for sanctions under Rule 11. In a March 22, 2021 order, the court dismissed the fraud and accounting claims, dismissed part of the breach-of-contract claim, and denied the earlier sanctions motion without prejudice. The plaintiffs later voluntarily dismissed their remaining breach-of-contract claim.

The defendants then moved for sanctions against the plaintiffs under Federal Rule of Civil Procedure 11 and against plaintiffs’ counsel, Benjamin Allee of Yankwitt LLP, under 28 U.S.C. § 1927 and the court’s inherent authority. They sought attorney-fee compensation for defending the lawsuit and for removing internet references to the litigation. The plaintiffs asked for Rule 11 sanctions against the defendants, arguing that the defendants’ sanctions motion was frivolous.

Legal standards

Rule 11 permits sanctions for papers filed for an improper purpose or without a reasonable factual or legal basis. The court explained that sanctions are generally reserved for especially serious cases, including claims that plainly have no chance of success. A party or lawyer may rely on allegations made on information and belief when the allegations are likely to gain evidentiary support through investigation or discovery.

Section 1927 allows sanctions only against an attorney who unreasonably and vexatiously multiplies the proceedings. The court must find clear evidence that the attorney’s claims were entirely without legal support and were brought in bad faith. The court also has inherent authority to impose attorney fees in narrowly defined circumstances involving bad-faith conduct, but it must use that authority cautiously and consistently with due process.

Defendants’ sanctions motion

The defendants argued that the plaintiffs’ breach-of-contract claim lacked merit and factual support. The court rejected that argument because the claim had survived the earlier motion to dismiss. In that earlier ruling, the court found that the plaintiffs had adequately alleged that the defendants breached the SmartBoss Contract and had cited contractual provisions creating the alleged obligations.

The defendants also argued that the plaintiffs’ fraud allegations lacked an objectively reasonable factual basis. The court noted that it had previously found that the plaintiffs adequately identified the allegedly fraudulent statements, the speaker, and, in most instances, where and when the statements were made. Although the court had found that the allegations did not establish that Rawlings knew the representations were false when she made them, the allegations still had some factual basis and therefore did not warrant Rule 11 sanctions.

The court also rejected the argument that the plaintiffs and their counsel failed to investigate before filing suit. The record showed that plaintiffs’ counsel requested documents, proposed a confidentiality agreement, asked defense counsel for revisions, and offered to delay filing so the documents could be reviewed. The court therefore found that counsel had made the inquiry required by Rule 11. It also found that the defendants had not shown that counsel litigated vexatiously or unreasonably under Section 1927, and it declined to use its inherent authority to impose sanctions.

The court denied the defendants’ motion for sanctions.

Plaintiffs’ sanctions request

The plaintiffs requested Rule 11 sanctions in their opposition brief rather than by filing a separate motion. The court held that Rule 11 requires a sanctions motion to be made separately from other motions. The court also found that the plaintiffs had not complied with Rule 11’s safe-harbor requirement, which generally requires giving the opposing party at least 21 days to withdraw or correct the challenged filing before presenting the sanctions motion to the court.

The court therefore denied the plaintiffs’ request for sanctions as procedurally improper.

Disposition

Judge Gardephe ordered that the defendants’ sanctions motion and the plaintiffs’ request for sanctions were both denied. The clerk was directed to terminate the motions and close the case.