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Sussman by & Through Guilden v. Bank of Isr. - 56 F.3d 450 (2d Cir. 1995)

Rule:

Under the objective standard, in order to warrant an award of Fed. R. Civ. P. 11 sanctions on the basis that a complaint is not well grounded in fact or law, it must be patently clear that a claim has absolutely no chance of success.

Facts:

Plaintiffs Erwin Sussman and Ira Guilden, deceased, were founders, directors, and shareholders of North American Bank Ltd. ("NAB"), an Israeli bank. Defendant Bank of Israel ("BOI") insured deposits in Israeli banks. In 1985, after NAB collapsed after years of fraud, embezzlement, and mismanagement, BOI made payments to NAB depositors and obtained the appointment of an Israeli receiver ("Receiver") to liquidate NAB's remaining assets. In 1989, the Receiver commenced a civil action in Israel in the name of the State of Israel ("Israeli action"), naming as defendants Sussman, Guilden, and several other officers and directors of NAB. Thereafter, Sussman and Guilden retained appellant Nathan Lewin, an attorney, to investigate the circumstances underlying the Israeli action and to evaluate the prospects for further litigation against BOI and other Israeli officials involved in the events at NAB. In 1991, Lewin filed a complaint against BOI and others in federal district court in New York. On defendants' motion, the district court dismissed the complaint on the ground of forum non conveniens. Th court of appeals affirmed. Defendants then filed a motion in the district court seeking sanctions against Lewin pursuant to Fed. R. Civ. P. 11 and the court's inherent power on the ground that the complaint had been filed in part for an improper purpose. The district court granted the motion and imposed a $ 50,000 sanction against Lewin. Lewin appealed.

Issue:

Did the district court err in imposing sanctions against Lewin for filing a complaint for an improper purpose?

Answer:

Yes.

Conclusion:

The court of appeals reversed the district court's judgment imposing sanctions against Lewin. The court agreed with Lewin that the award of sanctions was an abuse of discretion. The court held that the New York complaint was nonfrivolous and was not filed for improper purpose; therefore, the imposition of sanctions was abuse of discretion. The court ruled, specifically, that the district court erred as a matter of law in concluding that: (1) it was improper for Lewin to file a nonfrivolous complaint in a new and proper forum partly as a means of enhancing his client's chances of obtaining the settlement of the Israeli action, and; (b) sanctions could be imposed for the filing of a complaint that not only was not found to be frivolous but also won for plaintiffs a measure of judicially imposed relief.

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