McCarthy v. Minnesota Lawyers Mutual Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

DEBRA MCCARTHY, et al., : Civil No. 3:23-CV-450

:

Plaintiffs, : (Judge Mariani)

:

v. : (Magistrate Judge Carlson)

:

MINNESOTA LAWYERS :

MUTUAL INS. CO. and :

RAUL JAUREGUI, :

:

Defendants. :

MEMORANDUM OPINION

I. Statement of Facts and of the Case

This case, which comes before us for consideration of a motion for Rule 11

sanctions, (Doc. 24), began as a state court declaratory judgment action which

sought a judgment regarding the scope of Attorney Raul Jauregui’s insurance

coverage under a policy issued by Minnesota Lawyers Mutual Insurance Company.

(Doc. 1-1). This state court litigation, in turn, was inspired by a prior federal lawsuit

brought by the same plaintiffs against Jauregui and another defendant arising out of

claims of litigation misconduct which played out against the backdrop of a highly

charged, emotionally divisive issue: sexual violence on a college campus. McCarthy,

et al., v. Boye, et al., Civil No. 3:21-CV-1759. In this prior federal lawsuit, we have

filed a Report and Recommendation, recommending that the defendants’ motions to

dismiss be granted, in part, and denied, in part. McCarthy, et al., v. Boye, et al., Civil

No. 3:21-CV-1759 (Doc. 43). That Report and Recommendation remains pending

before the district court.

In the meanwhile, the plaintiffs filed this lawsuit in state court on February

13, 2013, as part of an apparent effort to determine the scope of Minnesota Lawyers’

insurance coverage in this separate federal case. Minnesota Lawyers then promptly

removed this case to federal court, (Doc. 1), and the plaintiffs have filed a motion to

remand, (Doc. 5), which argues that removal was improvident and inappropriate.

We have filed a Report and Recommendation recommending that this case be

remanded to state court. (Doc. 28). That Report and Recommendation is also

pending before the district court.

We now turn to a non-dispositive motion which remains pending in this case,

a Rule 11 sanctions motion filed by Attorney Jauregui against plaintiffs’ counsel.

(Doc. 24). While this sanctions motion is filed in the declaratory judgment action,

the substance of the motion actually appears to relate to the prior lawsuit involving

claims of litigation misconduct in the course of Title IX proceedings at Kings

College. McCarthy, et al., v. Boye, et al., Civil No. 3:21-CV-1759. As to this

underlying lawsuit, which forms the gravamen of this sanctions motion, Defendant

Jauregui insists: (1) that plaintiffs’ counsel knew that his claims had no basis in fact;

(2) that plaintiffs’ counsel also knew that there were no legal grounds for a claim of

abuse of process; and (3) that plaintiffs’ counsel filed these claims in the underlying

case with the real objective of allowing these plaintiffs and their counsel to further

smear Mr. Jauregui’s reputation online. (Id.) Thus, the gist of the sanctions motion

in this litigation entails a collateral attack upon the merits and motives of the

plaintiffs’ and their counsel in the underlying tort case.

Viewed in this light, for the reasons set forth below, this motion will be denied

without prejudice.

III. Discussion

Several basic guiding principles inform our resolution of the instant sanctions

motion. By its terms, Rule 11 imposes an obligation upon litigants to refrain from

frivolous and vexatious litigation, and specifically provides that:

By presenting to the court a pleading, written motion, or other paper--

whether by signing, filing, submitting, or later advocating it--an

attorney or unrepresented party certifies 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,

cause unnecessary delay, or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by

existing law or by a nonfrivolous 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; and

(4) the denials of factual contentions are warranted on the evidence or,

if specifically so identified, are reasonably based on belief or a lack of

information.

Fed. R. Civ. P. 11(b). Having imposed this duty of forthrightness, candor, and good

faith upon litigants, Rule 11(c) then provides for sanctions against parties who

indulge in baseless and frivolous litigation, stating that:

(c) Sanctions.

(1) In General. If, after notice and a reasonable opportunity to respond,

the court determines that Rule 11(b) has been violated, the court may

impose an appropriate sanction on any attorney, law firm, or party that

violated the rule or is responsible for the violation. Absent exceptional

circumstances, a law firm must be held jointly responsible for a

violation committed by its partner, associate, or employee.

(2) Motion for Sanctions. A motion for sanctions must be made

separately from any other motion and must describe the specific

conduct that allegedly violates Rule 11(b). The motion must be served

under Rule 5, but it must not be filed or be presented to the court if the

challenged paper, claim, defense, contention, or denial is withdrawn or

appropriately corrected within 21 days after service or within another

time the court sets. If warranted, the court may award to the prevailing

party the reasonable expenses, including attorney's fees, incurred for

the motion.

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(4) Nature of a Sanction. A sanction imposed under this rule must be

limited to what suffices to deter repetition of the conduct or comparable

conduct by others similarly situated. The sanction may include

nonmonetary directives; an order to pay a penalty into court; or, if

imposed on motion and warranted for effective deterrence, an order

directing payment to the movant of part or all of the reasonable

attorney's fees and other expenses directly resulting from the violation.

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

In determining whether to impose Rule 11 sanctions in a given case, we are

cautioned that:

The standard developed by courts for imposition

of sanctions under Rule 11 is stringent because such sanctions 1) are

“in derogation of the general American policy of encouraging resort to

the courts for peaceful resolution of disputes,” Eastway Construction

Corp. v. City of New York, 637 F.Supp. 558, 564 (E.D.N.Y.

1986), modified and remanded, 821 F.2d 121 (2d Cir.), cert. denied 484

U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987); 2) tend to “spawn

satellite litigation counter-productive to efficient disposition of

cases,” Gaiardo, 835 F.2d at 482; and 3) “increase tensions among the

litigating bar and between [the] bench and [the] bar.” Eastway

Construction Corp., 637 F.Supp. at 564. This Court and others have

interpreted its language to prescribe sanctions, including fees, only in

the “exceptional circumstance”, Gaiardo, 835 F.2d at 483, where a

claim or motion is patently unmeritorious or frivolous. See, e.g., Lieb

v. Topstone Industries, Inc., 788 F.2d 151, 157 (3d Cir. 1986)

(“Rule 11 therefore is intended to discourage pleadings that are

‘frivolous, legally unreasonable, or without factual foundation, even

though the paper was not filed in subjective bad faith.’”)

(quoting Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir.

1986)); Oliveri v. Thompson, 803 F.2d 1265, 1275 (2d Cir. 1986)

(“[R]ule 11 is violated only when it is ‘patently clear that a claim has

absolutely no chance of success.’”) (quoting Eastway Construction

Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985)), cert.

denied sub nom. County of Suffolk v. Graseck, 480 U.S. 918, 107 S.Ct.

1373, 94 L.Ed.2d 689 (1987).

Doering v. Union Cty. Bd. of Chosen Freeholders, 857 F.2d 191, 194 (3d Cir. 1988).

Consistent with this stringent view of Rule 11 sanctions, it is also clear that:

Rule 11 sanctions are based on “ ‘an objective standard of

reasonableness under the circumstances.’ ” Id. at 453 n. 3 (quoting

Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 94 (3d Cir.1988)). Bad

faith is not required. Id.; Jones, 899 F.2d at 1358.” Martin v. Brown, 63

F.3d 1252, 1264 (3d Cir.1995). Furthermore, it is well-settled under

Rule 11 that: “Sanctions are to be applied only ‘in the “exceptional

circumstance” where a claim or motion is patently unmeritorious or

frivolous.’ Doering v. Union County Bd. of Chosen Freeholders, 857

F.2d 191, 194 (3d Cir.1988) (citation omitted). Rule 11's ‘primary

purpose is not “wholesale fee shifting but [rather] correction of

litigation abuse .’ ” Id. (alteration in original) (citation omitted). It ‘must

not be used as an automatic penalty against an attorney or party

advocating the losing side of a dispute,’ and it ‘should not be applied to

adventuresome, though responsible, lawyering which advocates

creative legal theories.’ Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d

90, 94 (3d Cir.1988) (citation omitted).” Ario v. Underwriting

Members of Syndicate 53 at Lloyds for 1998 Year of Account, 618 F.3d

277, 297 (3d Cir.2010).

United States v. Bogart, No. 4:12-CV-347, 2014 WL 7466598, at *2 (M.D. Pa. Dec.

8, 2014). “Moreover, the guiding purpose in fixing Rule 11 sanctions is fashioning

a sanction adequate to deter undesirable future conduct.” DiPaolo v. Moran, 407

F.3d 140, 146 (3d Cir. 2005). Therefore, when considering a sanctions motion, it is

clear that “the main purpose of Rule 11 is to deter, not to compensate.” Zuk v. E.

Pennsylvania Psychiatric Inst. of the Med. Coll. of Pennsylvania, 103 F.3d 294, 301

(3d Cir. 1996). Further, ‘[t]he language of Rule 11 evidences the critical role of

judicial discretion’ in making sanctions determination. DiPaolo, 407 F.3d at 145.

This discretion extends both to the decision to impose sanctions, and the

determination of what an appropriate sanction may be. Id.

Judged against these exacting benchmarks, we find at this juncture that this

case does not at present the type of exceptional circumstances that warrant

imposition of sanctions. At the outset, we note a procedural oddity here. Defendant

Jauregui seeks sanctions in this insurance coverage declaratory judgment action, but

the sanctions he seeks arise out of alleged litigation misconduct in a prior separate

case. Thus, under the guise of a sanctions motion in this lawsuit, we are invited

essentially to opine upon the merits and motives of parties in a separate lawsuit.

We will decline this invitation since it is both procedurally inappropriate and

premature. The sanctions motion is procedurally inappropriate since, in our

judgment, it is filed in the wrong case. It is also premature since the motion is

premised upon allegations regarding the merits and motives of parties in this separate

lawsuit which simply have not yet been sustained, since the district court is actively

considering a Report and Recommendation in this separate lawsuit which concludes

that a number of these allegations have sufficient facial merit to proceed forward.

Simply put, caselaw construing Rule 11 sanctions is marked by a single

overarching principle; namely, when in doubt, one should decline to sanction parties.

Given the procedurally and substantively dubious nature of this sanctions motion at

present, we will deny this motion without prejudice to renewal by Defendant

Jauregui in the proper case at the proper time, if the evidence supports a claim of

sanctionable misconduct.

An appropriate order follows.

/s/ Martin C. Carlson

Martin C. Carlson

United States Magistrate Judge

DATED: July 19, 2022.

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

DEBRA MCCARTHY, et al., : Civil No. 3:23-CV-450

:

Plaintiffs, : (Judge Mariani)

:

v. : (Magistrate Judge Carlson)

:

MINNESOTA LAWYERS :

MUTUAL INS. CO. and :

RAUL JAUREGUI, :

:

Defendants. :

ORDER

AND NOW, this 19th day of July 2023, in accordance with the accompanying

Memorandum, IT IS ORDERED that Defendant Jauregui’s motion for sanctions

(Doc. 24), is DENIED without prejudice to renewal by Defendant Jauregui in the

proper case at the proper time if the evidence supports a claim of sanctionable

misconduct.

/s/ Martin C. Carlson

Martin C. Carlson

United States Magistrate Judge