In the NC Business Court’s first Opinion of the new year, Judge Bledsoe denied Defendants’ Motion for Rule 11 Sanctions in Kure Corp. v. Peterson, 2017 NCBC 1. The decision holds a few lessons about the operation of Rule 11 of the NC Rules of Civil Procedure.
You Can’t Avoid A Rule
This month, for the second time in the last two months, Judge McGuire of the NC Business Court entered Rule 11 sanctions against a party whose attorney relied on inaccurate information from the client in making claims against the opposing party.
This month’s decision was in NC Bioremediation, LLC v. Sea Winds, LLC, 2015 NCBC
North Carolina law says that "one judge may not modify, overrule, or change the judgment of another Superior Court judge previously made in the same action." In a Business Court decision last week, Phillips and Jordan, Inc. v. Bostic, the Court granted a motion for Rule 11 sanctions on a fraud claim that another Superior Court Judge had refused to dismiss on a 12(b)(6) motion. It did so over the objection of the Plaintiff that the grant of the sanctions motion would be an overruling of the first Judge’s Order on the motion to dismiss.
The procedural facts are quirky. A group of defendants (the "Bostic Defendants") had made and lost a motion to dismiss a fraud claim before the case was designated to the Business Court. After the designation, another defendant moved to dismiss the same fraud claim made in an amended complaint. That dismissal motion was granted by the Business Court on Rule 9(b) grounds.
Judge Diaz referenced in his Order facts showing the Plaintiff had not relied on the statements it claimed were misrepresentations. He said, however, that he wouldn’t consider these facts as to the fraud claim against the Bostic Defendants because that would be "a backdoor attempt . . . to re-litigate the legal sufficiency of the fraud . . . claims in the face of a prior court order denying their Rule 12(b)(6) motion to dismiss."
He nevertheless admonished Plaintiff and its counsel to "consider carefully their obligations under Rule 11 of the North Carolina Rules of Civil Procedure before . . . pursuing the fraud claim against the remaining Defendants." Plaintiff didn’t take that advice, and in August 2009 the Bostic Defendants filed their motion for sanctions. Judge Diaz "again suggested to Plaintiff’s counsel that they consider the merits of the claim alleging fraud" after the motion was fully briefed. This time, the Plaintiff took the Court’s advice and dismissed its fraud claim.
Judge Diaz went ahead and granted the motion for sanctions. He applied a standard of objective reasonableness, and said that "a legal position violates Rule 11 if it "has absolutely no chance of success under the existing precedent." He found that total lack of potential success to be present because the basis of the fraud claim was that the Plaintiff had been deprived of information necessary to make a lien claim against a construction project, but Plaintiff had in fact been able to make this very claim. The Court ruled that the claimed misrepresentation "did not deceive Plaintiff."
The Order doesn’t address why this wasn’t an end run around the principle that one Superior Court Judge can’t overrule another. The Bostic Defendants addressed this in their opening Brief. Their position was:Continue Reading One Superior Court Judge Can’t Overrule Another, Right?
The Court had warned Plaintiff and his counsel in an Order granting a Motion to Dismiss to "consider carefully their obligations under Rule 11 of the North Carolina Rules of Civil Procedure before continuing to pursue a common law fraud claim" against the "Bostic Defendants".
The Court’s Order had dismissed the fraud claim against one
The Court denied a motion for sanctions because of the moving party’s failure to comply with the meet and confer requirements of Business Court Rule 18.6(a). The Court held that "[t]his reason alone is sufficient for the Court to deny the Motion."
This case involves sanctions under Rule 26(g) of the North Carolina Rules of Civil Procedure, which provides that an attorney’s signature on a discovery response is a certification that it is "consistent with the rules," and "not interposed for any improper purpose," and "not unreasonable or unduly burdensome or expensive."
The Court determined that sanctions
The Fourth Circuit today, in the case of In re Bees, reversed the trial court’s imposition of sanctions based on an attorney’s oral statements during a motion hearing. The Court held that Rule 11 does not extend to oral statements except in very limited circumstances.
The court said:
"Rule 11 . . .
The North Carolina Business Court delivered a significant opinion on discovery sanctions today in Azalea Garden Board & Care, Inc. v. Vanhoy, 2009 NCBC 9 (N.C. Super. Ct. March 26, 2009). If you are litigating in the Business Court, you’d better read this one, which emphasizes the duty of lawyers to cooperate with one
This is an opinion from Judge Diaz before he joined the Business Court, in which he denied a Motion for Sanctions.
The basis for the Motion was that Plaintiff should not have taken the position that North Carolina law applied to the covenant not to compete at issue. The Defendant worked for Plaintiff in North
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It was a busy opinion day today in the North Carolina Court of Appeals: there were 44 published opinions, three of which I’m commenting about briefly below. The three involve a range of issues, including arbitrator immunity, Rule 11 sanctions, and an technical point about subpoenas in state tax refund litigation and also work product privilege.
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