CQ International Co., Inc. v. Rochem International, Inc., US

Filing

OPINION issued by Sandra L. Lynch, Chief Appellate Judge; Juan R. Torruella, Appellate Judge and Michael Boudin, Appellate Judge. Published. [10-1838]

Case: 10-1838

Document: 00116269712

Page: 1

Date Filed: 10/03/2011

Entry ID: 5584455

United States Court of Appeals
For the First Circuit

No. 10-1838
CQ INTERNATIONAL CO., INC.,
Plaintiff, Appellee,
v.
ROCHEM INTERNATIONAL, INC., USA,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nancy Gertner, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Boudin, Circuit Judges.

Robert J. Wierenga, Kimberly K. Kefalas, Suzanne L. Wahl,
Miller, Canfield, Paddock and Stone, P.L.C., Joseph Francis Ryan,
and Lyne, Woodworth & Evarts LLP, on brief for appellant.
Herbert S. Cohen, on brief for appellee.

October 3, 2011

Case: 10-1838

Document: 00116269712

Page: 2

TORRUELLA, Circuit Judge.

Date Filed: 10/03/2011

Entry ID: 5584455

In this appeal from an order

in a diversity suit, Rochem International, Inc., USA ("Rochem")
challenges the district court's denial of its motion for sanctions
under Rule 11 of the Federal Rules of Civil Procedure ("Rule 11")
against CQ International Co., Inc. ("CQ").1

See CQ Int'l Co. v.

Rochem Int'l, Inc., USA, No. 08cv10142-NG, 2010 U.S. Dist. LEXIS
55372, 2010 WL 2292162 (D. Mass. June 7, 2010).

Specifically,

Rochem avers that, although the district court granted summary
judgment in its favor, the court's failure to impose sanctions on
CQ constituted an abuse of discretion in light of CQ's allegedly
frivolous lawsuit against Rochem and CQ's purportedly frivolous
arguments in opposing Rochem's motion for summary judgment.

For

the reasons stated below, we find that the district court did not
abuse its discretion in denying the imposition of sanctions on CQ
and thus affirm the appealed order.
I.

Factual Background

Although the facts and procedural history in this highly
contentious case are extensive, we provide a brief sketch of only
the events most relevant to this appeal.

1

Although Rochem moved for sanctions in the district court
pursuant to both Rule 11 and 28 U.S.C. § 1927, it only presses on
appeal for sanctions under Rule 11.
We limit our analysis
accordingly.
-2-

Case: 10-1838

Document: 00116269712

Page: 3

Date Filed: 10/03/2011

Entry ID: 5584455

CQ and Rochem are direct competitors in the business of
importing and distributing pharmaceutical ingredients manufactured
in China.
In
agreement

2000,

(the

CQ

entered

"CQ-Huizhou

into

an

Contract")

exclusive
with

distribution

Guangdong

Huizhou

Dongjiang Pharmaceutical Factory ("Huizhou Predecessor"), whereby
CQ acquired exclusive sales rights in the U.S. market for Huizhou
Predecessor's Clozapine2 drug and became Huizhou Predecessor's
exclusive agent in regulatory matters with the United States Food
and Drug Administration ("FDA") concerning this drug.

Under this

contract, CQ agreed to "buy Clozapine exclusively from [Huizhou
Predecessor],
manufacturer."

[and]

not

from

any

other

Chinese

or

foreign

By its terms, the CQ-Huizhou Contract became

effective immediately after it was signed by the parties in 2000,
had a duration of ten years, could not be cancelled without both
parties' written consent, and was "binding upon each party's
successors and assigns."
In April 2004, the Chinese government auctioned off a
majority of Huizhou Predecessor's assets. Although CQ participated
in the auction, it was unsuccessful in acquiring the assets of
Huizhou Predecessor, which were instead acquired by a Chinese

2

Clozapine is an antipsychotic medication used to treat the
symptoms
of
schizophrenia.
PubMed
Health,
Clozapine,
http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0000893/ (last revised
May 16, 2011).
-3-

Case: 10-1838

Document: 00116269712

Page: 4

Date Filed: 10/03/2011

Entry ID: 5584455

individual named Qiu Huazhou who continued Huizhou Predecessor's
business under the new name Huizhou Dongjiang Pharmaceutical Co.,
Ltd. ("Huizhou Successor").

In the action underlying this appeal,

CQ alleged that the CQ-Huizhou Contract survived this auction and
bound Huizhou Successor.

Rochem, however, argued to the contrary,

noting that certain alleged requirements for the assignment of the
CQ-Huizhou Contract were not met.

Specifically, Rochem noted that

the auction proposal required that the auction winner -- Qui
Huazhou -- pay Huizhou Predecessor a deposit of 2 million yuan RMB,
which amount was to be refunded by CQ to the auction winner "upon
execution . . . of a product distribution succession contract." It
is

undisputed

that

Qui

never

paid

the

deposit

to

Huizhou

Predecessor and that Huizhou Successor and CQ never executed a
"product distribution succession contract."

The district court

nevertheless found -- based on the language of the auction proposal
and CQ-Huizhou Contract, along with public policy considerations -that the CQ-Huizhou Contract survived the auction and became
binding on Huizhou Successor.
After the auction, CQ continued to purchase Clozapine
from

Huizhou

Successor

and

sold

it

to

Ivax

Pharmaceuticals

("Ivax"), a U.S. corporation and CQ's sole Clozapine customer.

CQ

alleges that, at some point in 2004, Ivax requested that CQ obtain

-4-

Case: 10-1838

Document: 00116269712

Page: 5

Date Filed: 10/03/2011

micronized3 Clozapine on its behalf.

Entry ID: 5584455

CQ, however, was unable to

obtain micronized Clozapine from Huizhou Successor, because the
latter did not have the capacity to provide micronized Clozapine
and was unwilling to invest in the necessary micronizing equipment
and facilities.
Subsequently, in February 2005, CQ entered into another
exclusive distribution agreement (the "CQ-SJ/YH Contract") with two
other Chinese pharmaceutical manufacturers, Wuhan Shiji Jingmao
Corp. ("SJ") and Wuhan Yanhuang Chemical Co., Ltd. ("YH"), whereby
CQ became "the exclusive distributor and spokesman in the American
market for the Clozapine manufactured by SJ and YH" and agreed to
"act as the exclusive agent for SJ and YH in matters relating to
the FDA" concerning the drug Clozapine.
inter

alia,

as

follows:

"CQ

shall

This contract provides,
have

Clozapine

produced

exclusively at the factories of SJ and YH; it cannot purchase
Clozapine from any other Chinese or foreign manufacturers."

The

CQ-SJ/YH Contract became effective in February 2005 and had a
duration of twenty years.

CQ maintains that it entered into this

contract because it believed that, unlike Huizhou Successor, SJ and
YH would be able to provide it with micronized Clozapine. However,
CQ has never purchased any Clozapine (micronized or non-micronized)
from SJ and YH under this contract.

3

"Micronized Clozapine" refers to Clozapine that has been finely
grounded with special equipment.
-5-

Case: 10-1838

Document: 00116269712

Page: 6

Date Filed: 10/03/2011

Entry ID: 5584455

CQ ordered Clozapine from Huizhou Successor for the last
time in May 2005.

Thereafter, from the fall of 2005 through the

spring of 2006, Huizhou Successor contacted CQ representatives via
telephone approximately five times to inquire whether CQ was
planning to purchase Clozapine.

Yet, no purchases of Clozapine

materialized.
Around April 2006, Rochem contacted Huizhou Successor to
explore the possibility of purchasing Clozapine from it, offering
Huizhou Successor a higher price for its Clozapine than CQ had
previously

paid.

In

addition,

Rochem

obtained

from

Huizhou

Successor a copy of the CQ-Huizhou Contract and investigated
whether such contract precluded Huizhou Successor from selling
Clozapine to Rochem. Rochem alleges that during this investigation
it learned that CQ had not purchased Clozapine in nearly a year,
that CQ owed Huizhou Successor money, and that CQ was not answering
Huizhou Successor's

e-mails or telephone calls.

Furthermore,

Rochem's President, Robyn Frisch, maintains that Qui Huazhou,
Huizhou Successor's owner, personally informed her that Huizhou
Successor was free to do business with Rochem.

CQ, on the other

hand, contests the thoroughness of this investigation and its
conclusion that Huizhou Successor was not precluded from selling
Clozapine to Rochem.
Although Rochem and Huizhou Successor were unable to
agree on an exclusive distribution agreement, Rochem purchased

-6-

Case: 10-1838

Document: 00116269712

Page: 7

Date Filed: 10/03/2011

Entry ID: 5584455

Clozapine from Huizhou Successor on three occasions in 2006, with
the last of these purchases occurring in August 2006.
turn, sold this Clozapine to Ivax.

Rochem, in

Rochem made its last sale to

Ivax in December 2006.
CQ alleges that, prior to filing its complaint in the
action underlying this appeal, it was informed by an employee of
Huizhou Successor, Mr. Fang Zhigang, that Huizhou Successor had met
with Rochem and provided the latter with a copy of the CQ-Huizhou
Contract.

According to CQ, Mr. Zhigang also informed it that

Rochem had purchased Clozapine from Huizhou Successor for sale to
Ivax.

CQ

maintains

that

it

later

confirmed

--

through

conversations with the President of Ivax, Mr. Don Marchione -- that
Rochem had purchased Clozapine from Huizhou Successor for sale to
Ivax.
II.

Procedural History

In January 2008, CQ filed a complaint in the district
court against Rochem seeking damages for the latter's purported
intentional tortious interference with the CQ-Huizhou Contract.
The complaint also included various other derivative claims that
were dependent on the tortious interference claim and could not
survive if such claim failed.
In June 2008, Rochem moved to dismiss the case for
failure to state a claim upon which relief could be granted,
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

-7-

Case: 10-1838

Document: 00116269712

Page: 8

Date Filed: 10/03/2011

Entry ID: 5584455

After opposition by CQ, the district court denied dismissal, ruling
that

CQ

had

alleged

sufficient

facts

to

state

a

claim

for

intentional interference with performance of contract.
Thereafter, in September 2009, after the close of a
prolonged and highly litigious discovery period, the district court
attempted to foster settlement discussions by ordering CQ to make
a written settlement offer by October 16, 2009.

Although CQ

complied, it demanded $675,000, the full amount of the damages
claimed in its amended initial disclosures.

Rochem responded by

rejecting this offer and making a counter-offer demanding that CQ
pay Rochem $444,444.44 in order to settle the case and avoid
Rochem's filing of a motion for sanctions and a suit for malicious
prosecution.

The district court noted, after being apprised of

this matter by CQ, that the peculiar amount in Rochem's offer was
due to the fact that the number four is considered an unlucky
number in Chinese culture because it is homophonous with the
Chinese word for death.

The district court opined that, while

Rochem's counter-offer was not a death threat, its attorneys had
acted improperly. The court, however, declined to impose sanctions
on Rochem's attorneys.
In October 2009, Rochem moved for summary judgment on all
claims, pursuant to Rule 56(c) of the Federal Rules of Civil
Procedure. After the parties filed various responsive motions, the
district court scheduled a hearing for January 20, 2010 regarding

-8-

Case: 10-1838

Document: 00116269712

Rochem's

summary

Page: 9

judgment

motion

Date Filed: 10/03/2011

and

requested

Entry ID: 5584455

supplementary

briefing on various aspects of the CQ-SJ/YH Contract and its effect
on CQ's claim that Rochem tortiously interfered with the CQ-Huizhou
Contract.

Both

parties

filed

supplemental

memoranda.

CQ's

memorandum, which CQ filed on the eve of the hearing (i.e.,
January 19, 2010), was accompanied by additional declarations from
its President, Joan Chen, and its Chinese advisor, Chen Hongyi.
These

supplemental

declarations

attempted,

inter

alia,

to

substantiate a claim first made by CQ in its earlier opposition to
summary judgment: specifically, that the CQ-Huizhou Contract only
involved non-micronized Clozapine, whereas the CQ-SJ/YH Contract
solely contemplated micronized Clozapine.

Rochem moved to strike

these additional declarations as untimely.
Thereafter,

on

January

20,

2010,

Rochem

moved

for

sanctions against CQ under Rule 11 and 28 U.S.C. § 1927 and CQ
responded by requesting that the district court instead sanction
Rochem.
Finally, on June 7, 2010, the district court granted
summary judgment in favor of Rochem, concluding that, although the
CQ-Huizhou

Contract

survived

the

auction

and

bound

Huizhou

Successor, CQ breached said contract by entering into the CQ-SJ/YH
Contract,

which

the

court

considered

incompatible

obligations under the CQ-Huizhou Contract.
that

CQ's

breach

of

the

CQ-Huizhou

-9-

with

CQ's

The court determined

Contract

caused

Huizhou

Case: 10-1838

Document: 00116269712

Page: 10

Date Filed: 10/03/2011

Entry ID: 5584455

Successor to be discharged from its obligation to sell Clozapine
exclusively to CQ.

In addition, the court concluded that CQ was

not harmed by Rochem's purchases from Huizhou Successor because CQ
could not have purchased Clozapine from Huizhou Successor without
breaching the CQ-SJ/YH Contract.

In reaching its decision, the

district court ruled that CQ's additional declarations (from Joan
Chen and Chen Hongyi) were stricken from the record as untimely,
pursuant to Federal Rule of Civil Procedure 56(e)(2) and Local Rule
7.1(b)(2). See Fed. R. Civ. P. 56(e)(2); LR, D. Mass. 7.1(b)(2)
("Affidavits and other documents setting forth or evidencing facts
on

which

the

opposition

is

based

shall

be

filed

with

the

opposition."). The court, however, made clear that its conclusions
would not have changed even if the additional declarations had been
admitted as evidence.

Additionally, the court declined to impose

sanctions on either party, concluding that "CQ's claims, although
belatedly and insufficiently developed, were not frivolous."

CQ

Int'l Co., 2010 WL 2292162, at *17.
Rochem

now

appeals

the

district

court's

denial

of

sanctions against CQ.4
III.

Standard of Review

We review for abuse of discretion all aspects of the
district court's determination on Rochem's motion for sanctions

4

CQ did not appeal the district court's summary judgment against
it.
-10-

Case: 10-1838

Document: 00116269712

under Rule 11.

Page: 11

Date Filed: 10/03/2011

Entry ID: 5584455

See Nyer v. Winterthur Int'l, 290 F.3d 456, 460

(1st Cir. 2002); Lichtenstein v. Consol. Servs. Grp., Inc., 173
F.3d 17, 22 (1st Cir. 1999); see also Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405 (1990) ("[A]n appellate court should apply
an abuse-of-discretion standard in reviewing all aspects of a
district court's Rule 11 determination."). "A district court would
necessarily abuse its discretion if it based its ruling on an
erroneous view of the law or on a clearly erroneous assessment of
the evidence."

Cooter & Gell, 496 U.S. at 405. Furthermore, while

we afford a district court considerable latitude in reviewing its
positive actions to impose sanctions, we accord "extraordinary
deference" when, as here, it has decided to deny sanctions.
Lichtenstein, 173 F.3d at 22 (quoting Salois v. Dime Sav. Bank of
N.Y., 128 F.3d 20, 28 (1st Cir. 1997)); Anderson v. Boston Sch.
Comm., 105 F.3d 762, 768 (1st Cir. 1997). "This zone of discretion
is predicated on the understanding that trial courts are in the
best position to evaluate the intricacies of a case and to reach
conclusions about the motives of the parties and their counsel."
Lichtenstein, 173 F.3d at 22-23.
IV.
Rochem

challenges

Discussion
the

district

sanctions against CQ on two grounds.

court's

denial

of

First, Rochem asserts that

the district court clearly erred in determining that CQ's claims
were

not

frivolous.

To

this

effect,

-11-

Rochem

argues

that

CQ

Case: 10-1838

Document: 00116269712

Page: 12

Date Filed: 10/03/2011

Entry ID: 5584455

presented frivolous arguments and declarations in its opposition to
summary

judgment

regarding

the

compliance with FDA regulations.

SJ/YH

Contract

and

Rochem's

In addition, Rochem argues that

CQ failed to reasonably investigate its claims and knew prior to
filing suit that its claims were not well grounded in fact.
Second,

Rochem

alleges

that

the

district

court

abused

its

discretion by failing to adequately lay out its rationale for
rejecting Rochem's motion for sanctions under Rule 11.
For
consideration

the
the

reasons

stated

"extraordinary

below

deference"

and

taking

accorded

to

into
the

district court in denying sanctions, we find that CQ's claims were
not so patently frivolous that sanctions necessarily should have
been imposed.

See id. at 22-23.

In addition, we find that the

district court sufficiently provided its rationale for denying
sanctions.
A.

We further discuss these findings in order.

CQ's claims were not patently frivolous
Rule 11 permits a court to impose sanctions on a party or

lawyer for advocating a frivolous position, pursuing an unfounded
claim,

or

filing

a

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

lawsuit

for

some

improper

purpose.

See

We have noted, however, that this Rule "is

not a strict liability provision, and a showing of at least
culpable carelessness is required before a violation of the Rule
can be found."

Citibank Global Mkts., Inc. v. Santana, 573 F.3d

17, 32 (1st Cir. 2009) (alteration omitted) (citations and internal

-12-

Case: 10-1838

Document: 00116269712

quotation marks omitted).

Page: 13

Date Filed: 10/03/2011

Entry ID: 5584455

In addition, it is clear that "[t]he

mere fact that a claim ultimately proves unavailing, without more,
cannot support the imposition of Rule 11 sanctions."

Protective

Life Ins. Co. v. Dignity Viatical Settlement Partners, L.P., 171
F.3d 52, 58 (1st Cir. 1999).
In the present case, Rochem avers that CQ violated
Rule 11 by (1) presenting frivolous arguments in its opposition to
summary

judgment

concerning

the

SJ/YH

Contract

and

Rochem's

compliance with FDA regulations, and (2) failing to conduct a
reasonable inquiry into the law and facts underlying its tortious
interference claim prior to filing the complaint. We address these
arguments seriatim.
1.

CQ's opposition to summary judgment

Rochem maintains that the district court clearly erred in
determining that CQ's claim -- that Rochem tortiously interfered
with the CQ-Huizhou Contract -- was not frivolous, particularly in
light of the district court's conclusions on summary judgment
regarding the merits of this claim.

As previously mentioned, the

district court concluded that CQ breached the CQ-Huizhou Contract
by entering into an inconsistent distribution agreement with SJ and
YH (i.e, the CQ-SJ/YH Contract) before Rochem made the challenged
purchases, and that CQ was not harmed by Rochem's purchases because
CQ could not have purchased Clozapine from Huizhou Successor
without breaching the CQ-SJ/YH Contract.

-13-

Significantly, these

Case: 10-1838

Document: 00116269712

Page: 14

Date Filed: 10/03/2011

Entry ID: 5584455

conclusions were premised on the district court's finding that -contrary to CQ's contention -- both the CQ-Huizhou Contract and the
CQ-SJ/YH Contract embraced all forms of Clozapine (micronized and
non-micronized) and were therefore inconsistent.
Thus, whether or not CQ's tortious interference claim was
frivolous depends in large part on the reasonableness of its
contention -- first presented in its opposition to summary judgment
--

that

the

Clozapine,

CQ-Huizhou

whereas

the

micronized Clozapine.

Contract

involved

only

non-micronized

CQ-SJ/YH

Contract

contemplated

solely

CQ pointed to various pieces of extrinsic

evidence in support of this distinction, despite the fact that the
contracts' apparently unambiguous language made no such limitation.
For example, Rochem presented evidence suggesting that (1) both
Huizhou Predecessor and Huizhou Successor lacked the capacity to
manufacture micronized Clozapine and never acquired the necessary
micronizing equipment, (2) the only Clozapine that CQ purchased
from either Huizhou Predecessor or Huizhou Successor was the nonmicronized variety, and (3) CQ only contracted with SJ and YH after
Ivax

requested

micronized

Successor could not produce.
that

both

the

CQ-Huizhou

Clozapine,

which

CQ

knew

Huizhou

In addition, CQ argued that the fact
Contract

and

the

CQ-SJ/YH

Contract

included only one price term demonstrated that the contracts did
not cover both micronized and non-micronized Clozapine because

-14-

Case: 10-1838

Document: 00116269712

Page: 15

Date Filed: 10/03/2011

Entry ID: 5584455

micronized Clozapine was more desirable and demanded a higher
price.
The district court noted that CQ's argument presented
"interesting questions regarding the weight that a court should
afford to extrinsic evidence when interpreting a contractual term
that appears unambiguous on its face."
2292162,

at

*11.

After

considering

CQ Int'l Co., 2010 WL
the

extrinsic

evidence

presented by CQ,5 the district court concluded that this evidence
was "not sufficient to create a genuine issue as to the meaning of
the term 'Clozapine' in the two contracts," id. at *15, and made
clear that its conclusion would not have changed even if the court
had considered the stricken additional declarations (from Joan Chen
and Chen Hongyi) submitted by CQ on the eve of the summary judgment
hearing.6

The court therefore granted summary judgment in favor of

Rochem, but found that CQ's claims were not frivolous.

5

The district court found that Massachusetts' codification of the
Uniform Commercial Code allowed the court to consider the extrinsic
evidence, which it found could potentially fit as extrinsic
evidence of the parties' "course of dealing" or "course of
performance."
See Mass. Gen. Laws Ann. ch. 106, § 2-202(a).
Rochem has not alleged that the district court erred as a matter of
law in considering this extrinsic evidence for purposes of
interpreting an apparently unambiguous contract term. Accordingly,
we assume without deciding that no error was made in this regard.

6

In reaching its decision, the district court noted that, even if
the stricken additional declarations had been admitted, CQ's
tortious interference claim failed, inter alia, because CQ had
presented no admissible evidence that SJ and YH's corporate leaders
understood the term "Clozapine" in the CQ-SJ/YH Contract to refer
only to micronized Clozapine.
-15-

Case: 10-1838

Document: 00116269712

Page: 16

Date Filed: 10/03/2011

Entry ID: 5584455

After examining the evidence in the record under the
abuse

of

discretion

standard

of

review,

especially

the

aforementioned evidence presented by CQ concerning the meaning of
the term "Clozapine" in the contracts, we conclude that CQ's
contentions in opposing summary judgment, although unpersuasive,
were not so patently frivolous that sanctions necessarily should
have been imposed.

CQ presented sufficient evidence for us to

conclude that the district court did not abuse its discretion in
denying the imposition of sanctions.

The mere fact that CQ's

arguments

necessarily

proved

imposition

of

unavailing

Rule

11

does

not

sanctions.

See

Additive

mandate

the

Controls

&

Measurement Sys., Inc. v. Flowdata, Inc., 96 F.3d 1390, 1398 (Fed.
Cir. 1996) ("In virtually every case, an appellate court finds one
party's arguments and authorities unpersuasive, but that is not
remotely

sufficient

sanctionable.").

to

make

the

losing

party's

conduct

Having found no legal error or clear factual

error, we accord extraordinary deference to the district court's
decision not to impose sanctions.

See Lichtenstein, 173 F.3d at

22-23.
Rochem, however, also contends that CQ violated Rule 11
by

presenting

in

its

opposition

to

summary

judgment

certain

allegedly irrelevant and factually unsupported accusations that
Rochem violated FDA regulations.
reference

to

CQ's

allegations

-16-

In particular, Rochem makes
that

Rochem

deliberately

Case: 10-1838

Document: 00116269712

Page: 17

Date Filed: 10/03/2011

Entry ID: 5584455

misrepresented the specifications of the Clozapine it sold to Ivax
by providing the latter with altered certificates of analysis.

CQ

first presented these allegations in its opposition to summary
judgment in an alternate attempt to establish one of the four
elements

required

to

prove

its

tortious

interference

claim

(specifically, that defendant Rochem's alleged interference with
the CQ-Huizhou Contract, "in addition to being intentional, was
improper in motives or means").7

The district court did not

address these allegations in its opinion because, as an initial
matter, it found that CQ failed to prove another required element
(i.e., that it "was harmed by [Rochem]'s actions").

In other

words, because the district court found that CQ was not harmed by
Rochem's actions, the court expressly declined to "reach the issue
of whether, assuming that CQ was not already in breach of its
contract

with

Huizhou

Successor,

Rochem

intentionally

and

improperly induced Huizhou Successor [through improper means] to
break the contract."

CQ Int'l Co., 2010 WL 2292162, at *9.

Thus,

the district court did not -- and was not required to -- ascertain
the reasonableness of CQ's legal and factual contentions concerning

7

To prevail on a claim of tortious interference with a contract
under Massachusetts law, a plaintiff must establish that "(1) he
had a contract with a third party; (2) the defendant knowingly
induced the third party to break that contract; (3) the defendant's
interference, in addition to being intentional, was improper in
motive or means; and (4) the plaintiff was harmed by the
defendant's
actions."
G.S. Enters., Inc. v. Falmouth Marine,
Inc., 571 N.E.2d 1363, 1369 (Mass. 1991).
-17-

Case: 10-1838

Document: 00116269712

Page: 18

Date Filed: 10/03/2011

Entry ID: 5584455

the "improper means" prong of its tortious interference claim
(including CQ's allegations that Rochem violated FDA regulations).
Rochem nevertheless invites us to analyze for the first time on
appeal (or to remand to the district court for further analysis)
the reasonableness of CQ's allegations -- that Rochem violated FDA
regulations -- and conclude that they were frivolous. As discussed
below, we decline to embark on such a slippery slope.
Certainly, Rule 11 should be used in appropriate cases to
further its central purpose: deter baseless filings.

See 5A

Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 1334, at 542 (3d ed. 2004) ("[T]he purpose of Rule 11
is to deter, not to compensate or to punish, although the three
purposes obviously overlap and in many situations all will be
served by a particular sanction.").

However, we must not lose

sight of the fact that a related goal of Rule 11 is to "streamline
the administration and procedure of the federal courts."
Gell, 496 U.S. at 393.
district

court

to

Cooter &

This tool and the sanctions it allows a

impose

are

intended

to

facilitate

case

management, not to increase caseload by requiring a district court
to analyze the reasonableness of legal and factual contentions that
it would otherwise not have to ascertain.

We will not invite full-

scale satellite litigation in the area of sanctions, nor will we
require district courts to spend valuable judicial resources in
punctiliously analyzing the reasonableness of each and every legal

-18-

Case: 10-1838

Document: 00116269712

Page: 19

Date Filed: 10/03/2011

Entry ID: 5584455

and factual contention made by a party where, as here, such
analysis is not necessary to resolve the merits of the central
claim in dispute.

Accordingly, we find that the district court's

decision not to address the reasonableness of Rochem's argument -that CQ frivolously accused Rochem of violating FDA regulations -and to deny sanctions on this ground did not constitute an abuse of
discretion.
2.

CQ's inquiry prior to filing the complaint

Rochem also argues that CQ should be sanctioned under
Rule 11 for allegedly failing to conduct a reasonable inquiry into
the law and facts underlying its tortious interference claim prior
to filing the complaint.

As explained below, Rochem's argument is

unavailing.
"Whether a litigant breaches his or her duty [under
Rule 11] to conduct a reasonable inquiry into the facts and the law
depends on the objective reasonableness of the litigant's conduct
under the totality of the circumstances."

Lichtenstein, 173 F.3d

at 23 (internal quotation marks omitted).

The factors that may be

examined by a court include "the complexity of the subject matter,
the party's familiarity with it, the time available for inquiry,
and

the

ease

information."
Cir. 1992).

(or

difficulty)

of

access

to

the

requisite

Navarro-Ayala v. Núñez, 968 F.2d 1421, 1425 (1st
It is not necessary, however, "that an investigation

into the facts be carried to the point of absolute certainty."

-19-

Case: 10-1838

Document: 00116269712

Page: 20

Date Filed: 10/03/2011

Entry ID: 5584455

Dubois v. U.S. Dep't. of Agric., 270 F.3d 77, 82 (1st Cir. 2001).
Rather, it is sufficient if a factual contention "will likely have
evidentiary support after a reasonable opportunity for further
investigation or discovery."

Fed. R. Civ. P. 11(b)(3).

As discussed in the preceding section, CQ's legal and
factual contentions at the summary judgment stage, after the
benefit of the discovery period, were not necessarily sanctionable
and the district court did not abuse its considerable discretion by
denying Rochem's request that sanctions be imposed on CQ for the
latter's contentions in opposing summary judgment.

Our analysis,

however, does not end there, since we have recognized that "a party
who brings a suit without conducting a reasonable inquiry and based
on nothing more than a prayer that helpful facts will somehow
emerge,

and

who

carelessness,

through

is

sheer

fortuity

nevertheless

is

vulnerable

rewarded
to

for

his

sanctions."

Lichtenstein, 173 F.3d at 23 (citing Garr v. U.S. Healthcare, Inc.,
22 F.3d 1274, 1279 (3d Cir. 1994)).

Thus, Rochem's claim that CQ

did not perform an appropriate inquiry under Rule 11 prior to
filing its complaint "must be viewed from the appropriate vantage
point"

(i.e.,

the

time

of

filing

the

complaint).

Id.

Nevertheless, we find that the district court did not abuse its
discretion in rejecting Rochem's argument on this point.
CQ was first notified of Rochem's Clozapine purchases by
an employee of Huizhou Successor, Mr. Fang Zhigang, who informed

-20-

Case: 10-1838

Document: 00116269712

Page: 21

Date Filed: 10/03/2011

Entry ID: 5584455

CQ, inter alia, that Rochem had (1) obtained a copy of the CQHuizhou

Contract

in

a

meeting

with

Huizhou

Successor,

(2) subsequently purchased Clozapine from Huizhou Successor, and
(3)

sold

the

Clozapine

to

Ivax.

CQ

then

confirmed

through

conversations with the President of Ivax, Mr. Don Marchione, that
Mr. Marchione had met with Rochem -- after being contacted by
Rochem on various occasions -- and had agreed to purchase the
Clozapine on behalf of Ivax.

Thus, CQ had reason to believe that

Rochem knew about the CQ-Huizhou Contract and had induced Huizhou
Successor to break it.

CQ also had reason to believe that the

alleged interference was improper in motive, since CQ and Rochem
had a prior history of animosity.8

Moreover, obtaining further

corroborating information may have been difficult for CQ, since
most of the relevant facts in this case allegedly occurred in
China.
In view of these circumstances, we conclude that the
district court did not abuse its broad discretion when it rejected
Rochem's allegation -- that CQ violated its duty to conduct a
reasonable inquiry into the facts and the law prior to filing suit
-- and thus denied the imposition of sanctions on this ground.

The

fact that the case developed differently than what CQ foresaw at
the time of filing suit, in light of the district court's finding

8

As noted by the district court, CQ and Rochem had previously
sparred over Rochem's marketing of the drug paclitaxel to the U.S.
company Protraga, Inc.
-21-

Case: 10-1838

Document: 00116269712

Page: 22

Date Filed: 10/03/2011

Entry ID: 5584455

that CQ had breached the CQ-Huizhou Contract, does not change our
conclusion.9
B. The district court sufficiently explained its rationale for
denying the imposition of sanctions
We now turn to Rochem's fallback argument, the one it
described in its reply brief as "the most important point" in its
appeal, namely, that the district court abused its discretion by
failing to adequately address Rochem's arguments and by stating in
a conclusory fashion that CQ's claims were not frivolous.

As

explained below, we are unpersuaded.
As

an

initial

matter,

we

disagree

with

Rochem's

proposition that the district court made conclusory statements
regarding the reasonableness of CQ's claims.

Rather, the district

court expressly analyzed the reasonableness of CQ's claims in a
thorough thirty-five page memorandum and order, which opined, inter
alia, that CQ's claims raised "interesting questions," CQ Int'l
Co., 2010 WL 2292162, at *11, and that sanctions were denied
because

such

"claims,

although

belatedly

developed, were not frivolous," id. at *17.
have never

required

more

than

that

the

and

insufficiently

Furthermore, "[w]e

court's

rationale

be

apparent from the face of the record and supported by the facts."

9

As previously mentioned, CQ's contention regarding the limited
scope of the two contracts (i.e., that the CQ-Huizhou Contract
covered only non-micronized Clozapine, whereas the CQ-SJ/YH
Contract solely contemplated micronized Clozapine) was not so
patently frivolous that sanctions necessarily should have been
imposed.
-22-

Case: 10-1838

Document: 00116269712

Page: 23

Date Filed: 10/03/2011

Entry ID: 5584455

Lichtenstein, 173 F.3d at 24; see also Anderson, 105 F.3d at 769
(noting that, although the rationale for a denial of a motion for
sanctions under Rule 11 "should be unambiguously communicated, the
lack of explicit findings is not fatal where the record itself,
evidence or colloquy, clearly indicates one or more sufficient
supporting reasons").
Thus, it is unnecessary for us to dwell on Rochem's
contention (i.e., that the district court abused its discretion by
failing

to

adequately

address

Rochem's

arguments).

As

made

exceedingly clear from our previous analysis of Rochem's arguments
in this appeal, the record in this case was sufficient to permit
appellate review under the abuse of discretion standard.
was needed.

No more

Accordingly, the district court did not abuse its

discretion in denying sanctions.
V.

Conclusion

For the reasons stated, we affirm the district court's
denial of sanctions against CQ.
Affirmed.

-23-