A divided federal appeals panel has tossed an $84,000 sanctions order against an attorney, finding a federal judge abused discretion in imposing the sanctions in a breach of contract suit brought by a telecommunications vendor against PNC Bank.
Chief Judge Diane Wood and Judges Richard Posner and David Hamilton heard arguments Jan. 18 and issued their 2-1 decision March 10, with Posner dissenting.
At issue is a 2012 breach of contract suit Northern Illinois Telecom filed against PNC Bank, and whether it can be deemed frivolous. But the relevant facts go back to 2007, when telecom vendor Nexxtworks signed a contract to upgrade communications facilities for two Chicago area banks — both of which PNC bank since acquired — then subcontracted with Northern Illinois Telecom (NITEL) to install data and phone cables at four branch locations. NITEL did the work and said Nexxtworks did not pay what it owed; Nexxtworks said it was forced to hire other subcontractors to finish work NITEL failed to complete adequately. But before that dispute could be resolved, Nexxtworks filed for bankruptcy protection in Florida and listed NITEL’s claim as a disputed debt.
In the 2012 breach of contract suit, NITEL sought $81,300 in damages, as well as late fees, legal fees and court costs. PNC moved the case to federal court, but as NITEL had no contract with PNC, the bank moved for summary judgment, which federal Judge Amy J. St. Eve granted; NITEL did not appeal.
Before final judgment, PNC’s lawyer sent letters to NITEL’s lawyer, Robert G. Riffner, of the Riffner Firm, of Schaumburg, who is now an appellant-defendant, saying NITEL’s breach claim was frivolous and asking NITEL to dismiss its claim and pay PNC’s legal fees or face Rule 11 sanctions. Two months after final judgment, PNC moved for the sanctions. The case was assigned to Judge Robert Blakey, who awarded sections against NITEL and Riffner, jointly and severally, for $84,325. NITEL and Riffner appealed Blakey’s sanctions order, but NITEL was later dismissed as an appellant.
Riffner’s appeal argued Blakey abused discretion in imposing the sanctions. Wood and Hamilton said Riffner’s “substantive arguments are not persuasive” and noted his “attempt to walk away from his and NITEL’s earlier reliance on work orders to prove it had contracts with the banks is flatly contradicted by the record.” However, the judges accepted Riffner’s procedural argument, noting “PNC Bank simply failed to follow the requirements of Rule 11.”
Specifically, PNC did not comply with a 1993 Rule 11 requirement to file its motion for sanctions with NITEL and Riffner at least 21 days before filing with the court, a window intended to give the party being served time to withdraw or correct its motion. Blakey determined the two letters that threatened Rule 11 sanctions satisfied the 21-day requirement, but Wood and Hamilton disagreed, stipulating that PNC’s letter with a threat of Rule 11 sanctions were not worded strongly enough to legally constitute a filed motion.
Posner dissented. He not only wrote that “Riffner’s irresponsible conduct” of the breach claim “was clearly sanctionable,” but also determined PNC’s letter qualified as substantial compliance with Rule 11 regulations, a concept his fellow judges, Wood and Hamilton, “enamored as they appear to be of legal technicalities, or reluctant to punish misbehaving lawyers, miss.”
After PNC’s first letter, not only did Riffner refuse to withdraw the suit, but, “boorishly, he didn’t even respond to the letter,” Posner wrote. Nor did he reply to a second letter, “thus repeating his earlier rudeness. … Although PNC did not serve a formal Rule 11 motion on Riffner prior to filing the motion with the court, PNC’s letters were the equivalent of Rule 11 motions, and gave Riffner two opportunities to abandon or at least curtail his frivolous lawsuit without having to pay sanctions. Instead he signaled by his failure to answer either letter that he was persisting in his frivolous suit - that he really was a boor.”
PNC was represented in the action by attorneys with the firm of Crowley & Lamb P.C., of Chicago.