Opinion
Case No. 1:04-CV-401.
April 13, 2006
ORDER
This matter comes before the Court upon its own Order to Plaintiff National Union Fire Insurance Company of Pittsburgh ("National Union") to show cause why sanctions should not be issued (Doc. No. 12), National Union's Statement as to Why Sanctions are Unwarranted (Doc. No. 13-1), Defendant Charles M. Wilkins' Response to Plaintiff's Statement of Cause with Regard to Sanctions (Doc. No. 14-1), and National Union's Reply to Defendants Wilkins' Response to Plaintiff's Statement of Cause as to Why Sanctions are Unwarranted (Doc. No. 15-1). For the following reasons, pursuant to Rule 11 of the Federal Rules of Civil Procedure, the Court orders National Union to pay sanctions to the Court of $5,000.00.
The full history of this matter is recounted in this Court's Order dated January 6, 2005, granting the Defendant's motion to dismiss. In summary, National Union sought a declaratory judgment that the Estate of Scott Wilkins ("the Estate") could not claim underinsured motorist coverage under a policy issued to Scott's employer following Scott's death in an auto accident. After the Supreme Court of Ohio issued its decision in Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256 (Ohio 2003), the Estate realized that such coverage was not available and voluntarily dismissed its lawsuit against National Union then pending in the Butler County, Ohio Court of Common Pleas. Overturning theScott-Pontzer line of cases, Galatis clarified that a corporate insurance policy, absent specific language to the contrary, covers the corporation's employees only for accidents occurring within the course and scope of employment. Because Scott Wilkins was not working at the time he was killed, his Estate had no legal grounds to claim benefits from National Union, the insurer of Scott's employer.
Scott-Pontzer v. Liberty Mutual Fire Ins. Co., 710 N.E.2d 1116 (Ohio 1999).
Apparently unsatisfied that the law was wholly on its side, National Union went on what can only be described as a litigation spree, filing at least 68 identical declaratory judgment actions across Ohio, including the instant action against the Estate, seeking relief from claims already foreclosed by Galatis. On dismissing National Union's complaint for failure to present a justiciable controversy pursuant to the Estate's motion, the Court found that the lawsuit had "all the hallmarks of needless and wasteful litigation." The Court, however, did not grant a motion for sanctions filed by the Estate under Rule 11 because the motion failed to comply with the technical requirements of the rule. See Fed.R.Civ.P. 11(c)(1)(A) (requiring parties' motions for sanctions be filed separately from other motions). Because Rule 11 also allows courts to issue sanctions sua sponte, however, the Court ordered National Union to show cause why sanctions should not be imposed. See Fed.R.Civ.P. 11(c)(1)(B).
National Union now argues that it should not be sanctioned because (1) the action was not frivolous, but rather was justified by the existence of a justiciable controversy; (2) the case does not meet Rule 11 standards as its legal positions were reasonable at the time it filed its complaint; (3) the court's show-cause order violated the Rule 11 safe-harbor period; and (4) sanctions would serve no deterrent purpose since National Union voluntarily dismissed its remaining declaratory judgment actions. National Union's arguments are not well-taken. Most are simply wrong, factually and legally.
1. The declaratory judgment action was not justified as no justiciable controversy existed.
National Union's first argument that sanctions are not warranted because its claim was not frivolous need hardly be addressed. As the Court emphatically explained in the dismissal and show cause order: No justiciable controversy existed. That National Union stubbornly continues to insist otherwise goes to the very heart of the sanctions issue. The Estate has never disputed that Scott Wilkins was not in the course and scope of his employment when he was killed, or that its cause of action against National Union was extinguished by Galatis. In this regard, National Union mischaracterizes the relevance of Quickle v. Progressive Casualty Co., Cuyahoga App. No. 828, 2004-Ohio-4496 (Aug. 26, 2004), where the appellate court remanded the case for the trial court to determine whether the decedent's father was in the course and scope of his employment at the time of the fatal accident. Besides, as an intermediate appellate court decision, Quickle cannot and does not undermineGalatis. National Union inaccurately stating that the issue of whether Scott Wilkins was in the course and scope of his employment remains unresolved does not make it so. Continuing to insist that its unfounded lawsuit had merit also does not make it so.
2. Rule 11 prohibits continuing to advocate a position that becomes untenable, even if a litigant once believed in good faith that the position had merit.
In arguing that this case does not meet Rule 11 standards for imposing sanctions, National Union misstates both Rule 11 itself and supporting case law. The Court hopes that National Union is not being purposefully misleading, but the cases it cites simply do not stand for the propositions presented. Instead, National Union's statements that "[t]he crucial date for determining whether to impose Civ. R. 11 sanctions is the date the complaint was filed" and that "whether Civ. R. 11 sanctions are warranted must be confined to factual developments occurring before the filing of the complaint" are just plain wrong. The cases that National Union claims support these inaccuracies in fact do not construe Rule 11 at all. One is a case seeking a declaratory judgment on a patent and the other is an order of dismissal for lack of subject matter jurisdiction. Neither case is from a jurisdiction binding on this Court.
Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988) ("A test often useful in evaluating complaints for declaratory judgments in patent cases . . . however stated, is objective and is applied to the facts existing when the complaint is filed." (emphasis added)).
Wilson Sporting Goods Co. v. Nicklaus Golf Equipment Co., LLC, No. 03-C-1520, 2004 WL 783069, at *3 (N.D. Ill. Jan. 8, 2004) ("Because the crucial date for determining whether a federal court has jurisdiction is the date the complaint was filed, we must confine our analysis to factual developments occurring before the filing of the complaint. . . ." (citation omitted) (emphasis added)).
Another case cited by National Union bears the wrong decision date, 1999 instead of 1990. This was perhaps an innocent mistake, but the typo makes it appear that the case was decided after the 1993 Amendments to Rule 11. This mistake is important because the 1993 Amendments to Rule 11 added "later advocating" an meritless position to sanctionable conduct. According to the Advisory Committee Notes, the addition was intended to "emphasize the duty of candor by subjecting litigants to potential sanctions for insisting on a position after it is no longer tenable. . . ." Indeed, contrary to National Union's misstatements, "a litigant's obligations . . . are not measured solely as of the time they are filed with or submitted to the court, but include reaffirming to the court and advocating positions contained in those pleadings and motions after learning that they cease to have any merit." Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendments) (emphasis added). See also Runfola Assoc. v. Spectrum Reporting II, 88 F.3d 368, 373-74 (6th Cir. 1996) (affirming sanctions imposed for failure to abandon claims after it had become clear that claims were without support); Ridder v. City of Springfield, 109 F.3d 288, 293 (6th Cir. 1997) ("[L]itigants may be sanctioned under the amended rule for continuing to insist upon a position that is no longer tenable.") But even before the text of Rule 11 was amended to include the "later advocating" language, the Sixth Circuit had already held that "reasonable inquiry under Rule 11 is not a one-time obligation" and instead imposes on litigants a "continuing responsibility to review and reevaluate [their] pleadings and where appropriate modify them to conform to Rule 11." Herron v. Jupiter Transp. Co., 858 F.2d 332, 335-36 (6th Cir. 1988).
West Coast Theater Corp. v. City of Portland, 897 F.2d 1519 (9th Cir. 1990).
Also contrary to National Union's arguments, subjective bad faith is not required for a court to sua sponte issue sanctions. The plain language of the rule allows sanctions to be imposed, either by motion or court initiative, whenever conduct is not "reasonable under the circumstances." Fed.R.Civ.P. 11(b). "A good faith belief in the merits of a case is insufficient to avoid sanctions." Tahfs v. Proctor, 316 F.3d 584, 594 (6th Cir. 2003). Regardless of whether National Union believed in the merits of its claim when it filed the action against the Estate, the meritlessness of this lawsuit should have become apparent after at least five such suits were dismissed by other courts. It was simply not reasonable for National Union to have continued to advocate its unsupportable position after courts across Ohio repeatedly dismissed identical declaratory judgment actions. Those dismissals should have signaled to National Union, as it signals to the Court, that the meritlessness of National Union's argument was established and that its actions were frivolous and potentially sanctionable. Instead of dismissing its remaining actions — as the Estate did just eight days after Galatis rendered meritless its claim against National Union — National Union continued to advocate this untenable position not twice or three times, but many more times after it knew or should have known that its position lacked merit. Despite being clearly on notice from these other dismissals and this Court's order declaring National Union's suit "needless and wasteful" and "completely unfounded," National Union even now continues to advocate its obviously untenable legal arguments. Rather than accepting responsibility for poor legal judgment, National Union's response to the show cause order persists to claim that its position did and still does have merit.
The Ohio Court of Appeals decision cited by National Union as supplemental authority does not impact the reasonableness of its actions. Not only was Indiana Insurance Co. v. Forsmark, 826 N.E.2d 915 (Ohio Ct.App. 2005), decided four months after this Court's dismissal and show cause order, but also it construes the Ohio, not federal, Declaratory Judgment Act. Furthermore, this Court is not bound by a state intermediate appellate court decision.
Indeed, National Union indicates that it dismissed its other pending declaratory judgment actions not with any sort of mea culpa or recognition of its legal flaw, but only because multiple show cause orders were issued. Its stubbornness in refusing to accept the reality of these lawsuits' groundlessness is truly astounding.
National Union also argues that other courts' failures to issue sanctions indicates that its actions were reasonable. Not so. First, National Union misstates the reasons these other courts did not issue sanctions. While two decisions issued by the same judge within a week of each other found National Union's actions "not completely devoid of merit," others either did not sua sponte raise the reasonableness of National Union's actions or denied motions for sanctions for failure to comply with Rule 11's technical requirements. Regardless, all of these decisions were before National Union was effectively put on notice that its declaratory judgment actions were without merit. Simply because other courts have not previously levied sanctions against National Union does not mean that they are not now warranted here. Perhaps National Union could be excused for continuing to advocate an unsupportable position after the first two, three, or four times — but the line must be drawn somewhere.
3. Rule 11 does not require a 21-day safe harbor for court-initiated sanctions.
National Union argues that sanctions cannot be issued because it was not afforded a 21-day "safe harbor" period. Again, National Union is incorrect. The Court is not required to provide a safe harbor when it raises the issue of sanctions sua sponte.See Ridder v. City of Springfield, 109 F.3d 288, 297 n. 8 (6th Cir. 1997) ("There is no corresponding `safe harbor' period for court-initiated sanctions."). Instead, Rule 11 only requires the Court to grant "notice and a reasonable opportunity to respond" and to issue "an order describing the specific conduct that appears to violate [Rule 11] and directing an attorney, law firm, or party to show cause why it has not violated [Rule 11]." Fed R. Civ. P. 11(c)(1)(B). The Court's order dated January 6, 2005, complies with these requirements. Besides, the purpose of the safe harbor when the issue of sanctions is raised by a party's motion is to allow "the offending party [to] avoid sanctions altogether by withdrawing or correcting the challenged document or position after receiving notice of the allegedly violative conduct." Ridder, 109 F.3d at 294 (citing Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendments)). In this case, National Union should have been on such notice as of November 30, 2004, by which time at least five of its identical declaratory judgment actions were dismissed by other courts, and within ample time for National Union to have withdrawn its action against the Estate to avoid sanctions in this case.
4. Issuing sanctions against National Union serves Rule 11's purpose of deterrence.
National Union argues that issuing sanctions would not serve Rule 11's purpose of deterrence because it has already voluntarily dismissed or settled its other lawsuits. Indeed, "Rule 11's ultimate goal [is] deterrence." Ridder, 109 F.3d at 294 (citing Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendments)). While National Union finally is correct in its reading of Rule 11 and its case law, it nevertheless misses the point that deterrence is directed not just at the offending party but also at future putative litigants. See Divane v. Krull, 200 F.3d 1020, 1025 (7th Cir. 1999) (upholding sanctions as a means of "deterring further frivolous [conduct] by the same litigants or . . . future litigants"). To hold otherwise would signal to other potential plaintiffs that they too can file dozens of meritless actions, clogging courts' dockets and wasting judicial resources, with little or no consequences — effectively eviscerating Rule 11.
Accordingly, National Union has not shown cause why it should not be sanctioned pursuant to Rule 11 for its meritless and harassing action against the Estate. National Union violated Rule 11(b) by unreasonably continuing to advocate an untenable legal position long after it should have known its position lacked support. A family that already tragically lost its son and then judicially lost a cause of action should not have had to relive those events because of a frivolous and meritless lawsuit. Unfortunately, Rule 11 does not permit the Court to order that National Union pay the Estate's attorney's fees in connection with this matter. See Nuwesra v. Merrill Lynch, Fenner Smith, Inc., 174 F.3d 87, 94 (2nd Cir. 1999) (Rule 11(c)(1)(B) sanctions must be paid to the court, not the opposing party). Nevertheless, sanctions against National Union are still warranted in this matter.
Accordingly, Plaintiff National Union Fire Insurance Company of Pittsburgh, PA is SANCTIONED in the amount of $5,000.00, which shall be paid to the Court within thirty (30) days of the date of this order.
IT IS SO ORDERED.