Overview
In an opinion today, Judge Woods concluded that sanctions were appropriate as against a plaintiff, referred to as ITM, that brought a claim without evidentiary support, even though the claim was eventually dropped. ITM alleged that it incurred $350,000 in expenses advising the defendant about a certain corporate acquisition, but dropped the claim after discovery. That didn’t solve the problem, as Judge Woods explained:
ITM argues that it complied with its Rule 11 obligations by withdrawing the claim after discovery revealed that no evidentiary basis existed to support the allegations made in connection with the claim. However, the falsehoods and contradictions revealed in discovery that undermined the quantum meruit claim were not new revelations to ITM. . . . [W]hile ITM attempts to shield itself from sanctions under Rule 11 by claiming that it stipulated to withdraw the claim after learning that it was meritless through discovery, this is revisionism: ITM did not discover the falsehood of its allegations through discovery, instead, its falsehoods were discovered. [A] party cannot, without a good faith basis, assert a claim, fail to undertake a reasonable inquiry into whether an evidentiary basis exists to support the allegations, and—after discovery confirms the absence of such a basis—avoid Rule 11 sanctions by withdrawing the claim.
