Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd.

• Citation: 82 Fed.R.Serv.3d 1031,682 F.3d 170
• Decision Date: 13 June 2012
• Docket Number: Docket Nos. 10–4931–cv(L), 11–16–cv(XAP).
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Parties: STAR MARK MANAGEMENT, INC., A New York Corporation, Great Mark Corporation, A New York Corporation, Jimmy Zhan, Individually and on Behalf of Star Mark Management, Inc. and Great Mark Corporation, aka Yi Q. Zhan, Plaintiffs, Law Offices of Bing Li, LLC, Bing Li, Appellants–Cross–Appellees, v. KOON CHUN HING KEE SOY & SAUCE FACTORY, LTD., A Company Organized under the Laws of Hong Kong, Defendant–Appellee–Cross–Appellant.

682 F.3d 170

82 Fed.R.Serv.3d 1031

STAR MARK MANAGEMENT, INC., A New York Corporation, Great Mark Corporation, A New York Corporation, Jimmy Zhan, Individually and on Behalf of Star Mark Management, Inc. and Great Mark Corporation, aka Yi Q. Zhan, Plaintiffs,Law Offices of Bing Li, LLC, Bing Li, Appellants–Cross–Appellees,

v.KOON CHUN HING KEE SOY & SAUCE FACTORY, LTD., A Company Organized under the Laws of Hong Kong, Defendant–Appellee–Cross–Appellant.

Docket Nos. 10–4931–cv(L), 11–16–cv(XAP).

United States Court of Appeals, Second Circuit.

Argued: Feb. 10, 2012.

Decided: June 13, 2012.

Daniel P. Levitt, Esq., Scarsdale, NY, (Bing Li, Law Offices of Bing Li, LLC, New York, New York, on the brief), for Appellants.

Joseph Thomas Roccanova, Yuen Roccanova Seltzer & Sverd P.C., New York, NY, for Appellee.

Before: KATZMANN, CHIN, Circuit Judges, and ROSENTHAL, District Judge.¹

PER CURIAM:

In this case, the district court (Matsumoto, J.) imposed sanctions of $10,000 in fees and costs pursuant to Fed.R.Civ.P. 11 against plaintiffs (collectively, “Star Mark”) and their attorneys, Bing Li, Esq., and his firm, Law Offices of Bing Li, LLC (together, “Li”), in favor of defendant Koon Chun Hing Kee Soy & Sauce Factory, Ltd. (“Koon Chun”). Li appeals, contending that the district court erred in its application of Rule 11. Koon Chun cross-appeals, contending that the district court should have awarded substantially more than $10,000. Koon Chun also moves to sanction Li for filing a purportedly frivolous appeal. We affirm. We also deny the motion for additional sanctions.

BACKGROUND

In 2004, Koon Chun sued Star Mark in the Eastern District of New York for trademark infringement based on Star Mark's sale of counterfeit versions of Koon Chun's hoisin sauce, a sweet and spicy sauce used in Chinese cuisine both as an ingredient in cooking and as a condiment. The district court (Bianco, J.) granted partial summary judgment to Koon Chun, finding Star Mark liable for trademark and trade dress infringement. See Koon Chun Hing Kee Soy & Sauce Factory, Ltd. v. Star Mark Mgmt., Inc., No. 04–CV–2293 (JFB)(SMG), 2007 WL 74304, at **8–11 (E.D.N.Y. Jan. 8, 2007). The parties proceeded to litigate the issues of willfulness and damages.

At a status conference in May 2007, Star Mark—represented by Li—asked for leave to amend its answer and add counterclaims seeking, inter alia, cancellation of Koon Chun's mark on the theory that Koon Chun's use of the word “hoisin”—which translates to “seafood”—was deceptive because the sauce did not contain seafood. The magistrate judge (Gold, J.) ² expressed skepticism about the proposed claims. He said that while he had no authority to prohibit Star Mark from filing a motion for leave to amend, he would consider imposing sanctions if the motion were made and he deemed sanctions appropriate. Star Mark elected not to file its motion and instead asserted the claims in a new lawsuit, this action below. Again, Li represented Star Mark.

The remaining claims in the first lawsuit were tried. The magistrate judge found that the Star Mark infringement was willful and awarded damages and costs. We affirmed. See Koon Chun Hing Kee Soy & Sauce Factory, Ltd. v. Star Mark Mgmt., Inc., 409 Fed.Appx. 389 (2d Cir.2010).

In the meantime, the parties proceeded with the litigation of this action. On January 9, 2008, Koon Chun's counsel sent Li a letter requesting that Star Mark withdraw the complaint and threatening to file a Rule 11 motion. Attached to the letter was a proposed Rule 11 notice of motion, which listed six grounds for Koon Chun's assertion that the lawsuit was frivolous. Although the notice of motion referred to a memorandum of law and two affidavits, no such documents were attached to the notice of motion. The letter, however, contained citations to legal authorities.

Star Mark did not withdraw the complaint. Koon Chun moved for judgment on the pleadings dismissing the complaint pursuant to Fed.R.Civ.P. 12(c) and for sanctions under 28 U.S.C. § 1927 and Rule 11. The new notice of motion listed four grounds for Koon Chun's assertion that the lawsuit was frivolous. Three of these grounds were among the six listed in Koon Chun's earlier notice of motion, attached to the letter sent to Li. The fourth ground—no evidence of fraud—was part of the request for sanctions under § 1927. In a thorough and carefully-considered memorandum and order filed September 8, 2009, the district court (Matsumoto, J.) granted both motions. Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., No. 07–CV–3208 (KAM)(SMG), 2009 WL 2922851 (E.D.N.Y. Sept. 8, 2009). The district court granted the motion for sanctions under Rule 11, not under § 1927. Id. at *15.

The district court referred the issue of the amount of fees and costs to the magistrate judge, who recommended an award against Star Mark and Li of $105,037.02 in fees and costs. In an order filed September 30, 2010, the district court accepted and adopted the magistrate judge's recommendations, but reduced the award to a total of $10,000 for fees and costs “based upon the showing of financial hardship by plaintiffs and their attorney.” Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., No. 07–CV–3208 (KAM)(SMG), 2010 WL 3924674, at *6 (E.D.N.Y. Sept. 30, 2010). Koon Chun moved for reconsideration, and the district court denied the motion by order entered November 23, 2010.

These cross-appeals followed.

DISCUSSION

We discuss (1) Li's appeal from the district court's imposition of sanctions, (2) Koon Chun's cross-appeal as to the amount of the sanctions awarded, and (3) Koon Chun's motion to sanction Li for filing a purportedly frivolous appeal.

I. The Appeal

In his appeal, Li raises two principal issues: (a) whether the service of an informal warning letter with a notice of Rule 11 motion, as opposed to a formal motion, satisfies the safe harbor requirement of Fed.R.Civ.P. 11(c)(2); and (b) whether the district court abused its discretion in concluding that plaintiffs' claims were frivolous.

We review an award of Rule 11 sanctions for abuse of discretion. Lawrence v. Richman Grp. of CT LLC, 620 F.3d 153, 156 (2d Cir.2010) (per curiam). “An ‘abuse of discretion’ occurs when a district court ‘base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence, or render[s] a decision that cannot be located within the range of permissible decisions.’ ” Kiobel v. Millson, 592 F.3d 78, 81 (2d Cir.2010) (quoting Sims v. Blot, 534 F.3d 117, 132 (2d Cir.2008)) (alterations in original).

A. The Safe Harbor Provision

Rule 11 provides, in pertinent part:

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.

Fed.R.Civ.P. 11(c)(2).

The advisory committee note explains:

To stress the seriousness of a motion for sanctions and to define precisely the conduct claimed to violate the rule, the revision provides that the “safe harbor” period begins to run only upon service of the motion. In most cases, however, counsel should be expected to give informal notice to the other party, whether in person or by a telephone call or letter, of a potential violation before proceeding to prepare and serve a Rule 11 motion.

Id. advisory committee's notes to 1993 Amendments (emphasis added).

Rule 11 and principles of due process require that “the subject of a sanctions motion be informed of: (1) the source of authority for the sanctions being considered; and (2) the specific conduct or omission for which the sanctions are being considered so that the subject of the sanctions motion can prepare a defense.” Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 334 (2d Cir.1999). “Indeed, only conduct explicitly referred to in the instrument providing notice is sanctionable.” Id. (citation omitted); accord Storey v. Cello Holdings, L.L.C., 347 F.3d 370, 389 (2d Cir.2003).

The safe-harbor provision is a strict procedural requirement. Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 142 n. 4 (2d Cir.2002); see also Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1327–29 (2d Cir.1995). An informal warning in the form of a letter without service of a separate Rule 11 motion is not sufficient to trigger the 21–day safe harbor period. L.B. Foster Co. v. Am. Piles, Inc., 138 F.3d 81, 89–90 (2d Cir.1998) (request for sanctions in letter without separate service of motion did not comply with Rule 11's requirement that sanctions motion be made separately); Gal v. Viacom Int'l, Inc., 403 F.Supp.2d 294, 309 (S.D.N.Y.2005) (“[T]he plain language of the rule states explicitly that service of the motion itself is required to begin the safe harbor clock—the rule says nothing about the use of letters.”); accord Roth v. Green, 466 F.3d 1179, 1191–93 (10th Cir.2006); Gordon v. Unifund CCR Partners, 345 F.3d 1028, 1029–30 (8th Cir.2003); Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 789 (9th Cir.2001). But see Nisenbaum v. Milwaukee Cnty., 333 F.3d 804, 808 (7th Cir.2003) (party's “letter” or “demand” sent to opposing counsel constituted substantial compliance with safe harbor provision).

Here, however, Koon Chun did more than send a Rule 11 letter—it attached to its letter a copy of its notice of motion for sanctions. After waiting the requisite 21 days, Koon Chun filed its sanctions motion—which included as grounds for Rule 11 sanctions several of those listed in the earlier notice—with the district court. Li nonetheless argues that Koon Chun failed to comply with the procedural requirements of Rule 11(c)(2) because it failed to serve a “formal fully supported motion,” Appellant's Br. at 21, i.e., without...