Northern Illinois Telecom, Inc. v. PNC Bank, N.A.
850 F.3d 880
| 7th Cir. | 2017Background
- NITEL sued PNC Bank for breach of contract seeking >$75,000; PNC removed to federal court and won summary judgment because NITEL had no contract with PNC.
- Before discovery and again before summary judgment, PNC’s counsel sent letters to NITEL’s lawyer (Riffner) combining settlement offers with threats to seek Rule 11 sanctions if demands were not met.
- PNC never served a formal Rule 11 motion and did not give the 21-day safe-harbor period required by Rule 11(c)(2) before filing its motion for sanctions after judgment.
- The district court found NITEL’s claim frivolous and imposed $84,325 in Rule 11 sanctions jointly and severally against NITEL and Riffner, treating PNC’s pre-suit letters as “substantial compliance” with Rule 11(c)(2).
- The Seventh Circuit majority held the sanction award must be reversed because PNC did not satisfy Rule 11(c)(2); even under this Circuit’s “substantial compliance” precedent, PNC’s letters did not provide the 21-day safe-harbor.
- Judge Posner dissented, arguing the letters amounted to substantial compliance and that sanctions should be affirmed because Riffner ignored two detailed warnings and continued a frivolous suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether pre-motion warning letters that threaten Rule 11 sanctions satisfy Rule 11(c)(2)’s service-and-21-day safe-harbor requirement | Letters that explained defects and threatened sanctions constituted adequate notice and preserved PNC’s right to move for sanctions (substantial compliance) | Rule 11(c)(2) requires formal service of a separate motion and a 21-day period; settlement-threat letters are insufficient | Reversed sanctions: PNC’s letters did not satisfy Rule 11(c)(2); even under Nisenbaum’s substantial-compliance doctrine, the letters failed to provide the 21-day safe-harbor |
| Whether NITEL’s breach-of-contract claim was frivolous | NITEL argued work orders supported contractual claims against PNC | PNC argued NITEL had no contract with PNC and thus the claim was objectively baseless | The court agreed the claim was objectively baseless but vacated sanctions because of Rule 11(c)(2) procedural defect |
| Whether the Seventh Circuit should abandon its substantial-compliance approach to Rule 11(c)(2) | N/A (not argued to overrule) | N/A (panel declined to overturn precedent) | Court declined to revisit the doctrine but applied it strictly, finding no substantial compliance here |
| Whether district court abused discretion in imposing sanctions (procedural review) | District court’s factual findings on frivolousness were supported | Riffner argued procedural failure under Rule 11(c)(2) required reversal | Reversed for procedural noncompliance despite sanctionable conduct on the merits |
Key Cases Cited
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (U.S. 1990) (standard of abuse of discretion review for Rule 11 sanctions)
- Nisenbaum v. Milwaukee County, 333 F.3d 804 (7th Cir. 2003) (Seventh Circuit recognized "substantial compliance" with Rule 11(c)(2))
- Methode Electronics, Inc. v. Adam Technologies, Inc., 371 F.3d 923 (7th Cir. 2004) (discussed substantial compliance doctrine)
- Matrix IV, Inc. v. American Nat'l Bank & Trust Co. of Chicago, 649 F.3d 539 (7th Cir. 2011) (treated warning letters as substantial compliance in prior discussion)
- Penn, LLC v. Prosper Business Dev. Corp., 773 F.3d 764 (6th Cir. 2014) (rejects substantial-compliance doctrine; illustrates circuit split)
- Barber v. Miller, 146 F.3d 707 (9th Cir. 1998) (warning letters are not motions; Rule requires service of a motion to trigger safe-harbor)