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New Life Homecare, Inc. v. Blue Cross of Northeastern Pennsylvania

February 20, 2008


The opinion of the court was delivered by: Judge Caputo


Presently before the Court is Defendants Blue Cross of North Eastern Pennsylvania, et al.'s Motion (Doc. 58) pursuant to Federal Rule of Civil Procedure 11 ("Rule 11") and 28 U.S.C. § 1927 to sanction Plaintiffs and their counsel, dismiss Plaintiff's First Amended Complaint with prejudice and award Defendants reasonable costs and attorneys' fees incurred in responding to Plaintiffs' First Amended Complaint and preparing their motion for sanctions. For the reasons that follow, Defendants' motion will be denied. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331.


The background of this case is discussed in detail in my Memorandum and Order of February 14, 2008 (Doc. 62), in which I granted in part and denied in part Defendants' Motion to Dismiss Plaintiffs' Amended Complaint. Briefly, Plaintiffs are New Life Homecare, Inc., ("New Life") and its employees. Defendants are Blue Cross of Northeastern Pennsylvania and Highmark Blue Shield (collectively, "Blue Cross"), which issued the group health insurance policy for New Life's employees, as well as First Priority Health, an HMO, and First Priority Life Insurance Company, Inc., which are subsidiaries of Blue Cross of Northeastern Pennsylvania. (See Mem. & Order, Doc. 62, at 2.) Plaintiffs brought this action under ERISA seeking, inter alia, to enforce the terms of a group insurance policy for calendar year 2007. (Id. at 3-6.) Defendants move to impose sanctions on Plaintiffs and their attorneys, arguing that agreements the parties made in a Partial Settlement Agreement and Release dated March 12, 2007 render Plaintiffs' claims in their Amended Complaint (Doc. 43) frivolous, baseless and for the improper purpose of burdening and harassing Defendants. (See Br. in Supp., Doc. 59, at 6.).


I. Sanctions Under Rule 11

Under Federal Rule of Civil Procedure 11, both attorneys and clients - even if the clients do not sign the challenged pleadings or motions - may be subject to sanctions.

E.g., United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1343-44 (2d Cir. 1991). The primary purpose of Rule 11 is to deter groundless proceedings and abusive litigation practices. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533, 553 (1991). Rule 11(b) of the Federal Rules of Civil Procedure provides, in relevant part:

(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery;

Fed. R. Civ. P. 11(b).

Sanctions under Rule 11 are "appropriate only if the filing of the complaint constituted abusive litigation or misuse of the court's process." Simmerman v. Corino, 27 F.3d 58, 62 (3d Cir. 1994) (internal quotation marks omitted). "[T]he mere failure of a compliant to withstand a motion for summary judgment or a motion to dismiss should not be thought to establish a rule violation." Id. A court should not impose Rule 11 sanctions so as to chill creativity or stifle enthusiasm or advocacy. Photocircuits Corp. v. Marathon Agents, Inc., 162 F.R.D. 449, 451 (E.D.N.Y. 1995) (citing Securities Indus. Ass'n v. Clarke, 898 F.2d 318, 322 (2d Cir. 1990)). However, attorneys should "stop, think, investigate and research before filing papers either to initiate a suit or to conduct the litigation." Gairardo v. Ethyl Corp., 835 F.2d 479, 482 (3d Cir. 1987). A court should test the signer's conduct by inquiring what was reasonable for the signer to believe at the time the pleading was submitted. Schering Corp. v. Vitarine Pharm., Inc., 889 F.2d 490, 496 (3d Cir. 1989); see also Note on Advisory Committee to Rule 11, 1983 Amendments. In gauging the reasonableness of an attorney's pre-filing inquiry, a court may consider such factors as: (1) the amount of time available to the signer for ...

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