A Softer, Gentler Seventh Circuit Reconsiders “Substantial Compliance” under Rule 11

13 March 2017 Wisconsin Appellate Law Blog
Authors: Eric G. Pearson

Those who practice regularly before the U.S. Court of Appeals for the Seventh Circuit know that the court has not been reluctant to punish a misbehaving lawyer.

So the court’s recent decision in Riffner v. PNC Bank, No. 15-2142 (7th Cir. Mar. 10, 2017), might come as a bit of a surprise. Unlike (apparently) all the other circuits that have considered the issue, the Seventh Circuit has long allowed “substantial compliance” with Rule 11’s requirement that the party seeking sanctions serve, but not file, its motion and wait 21 days before filing, to give the offending party a chance to back down.

In this case, however, the court, in an opinion written by Judge David Hamilton (joined by Chief Judge Diane Wood), while expressly declining to reconsider adherence to the court’s position on “substantial compliance,” reversed the district court’s imposition of sanctions because the letters that the moving party sent did not substantially comply with the rule.

Judge Richard Posner dissented from the majority opinion and accused his colleagues of being “enamored” with “legal technicalities” or of being “reluctant to punish misbehaving lawyers.”

Riffner began as a breach-of-contract suit, but it was a flimsy one—so flimsy, in fact, that the defendant, PNC Bank, sent two letters to the plaintiff’s lawyer, demanding that the plaintiff withdraw the complaint and threatening to seek sanctions under Rule 11 if the plaintiff did not comply.

The first of these letters, dated July 31, 2012, provided in relevant part:

If I do not receive written confirmation [within five days], please be advised that PNC will be seeking sanctions under Rule 11 against NITEL and your firm . . . .”

The second letter, dated April 2, 2013, contained a similar threat, only it demanded a response within six days instead of five.

The majority traced the history of Rule 11, including the “explo[sion]” of its use in “the late 1980s” and the court’s own case law on substantial compliance. Nisenbaum v. Milwaukee County, 333 F.3d 804, 808 (7th Cir. 2003), for example, held that a party substantially complied with Rule 11 by sending a letter, as opposed to a formal motion, that explained the grounds for sanctions and offered the offending party more than 21 days to rectify the problem. Likewise, Matrix IV, Inc. v. American National Bank & Trust Co. of Chicago, 649 F.3d 539, 552-53 (7th Cir. 2011), held that a party’s letter, which explicitly asserted that it served as a “notice,” substantially complied with the rule.

Nevertheless, Riffner turned out differently. The court reversed the district court and decided that PNC’s letters did not amount to substantial compliance because they did not provide 21 days’ notice.

Though it specifically declined to reconsider Nisenbaum, the court left a clear indication that the days might be numbered for its substantial-compliance theory. The theory, it explained, “stands alone” and “is difficult to reconcile with the explicit requirements of the rule and the clear explanation from the Advisory Committee” (both of which suggest that the rule requires service of a formal motion). The court noted that all the other circuits to have considered the theory have rejected it, and footnote five of the majority opinion contained this warning: “Parties and district courts that rely on a theory of substantial compliance should understand that, at least in the present landscape, they are inviting possible en banc and/or Supreme Court review of the question.”

Judge Posner dissented. He thought it clear that PNC’s letters met the case-law requirements for substantial compliance, and he would have affirmed the district court.

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