FCOA LLC v. FOREMOST TITLE & ESCROW SERVICES LLC

Filing 38

ORDER denying 30 Defendant's Motion for Sanctions. Signed by Magistrate Judge Edwin G. Torres on 1/30/2018. (js02)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 17-Civ-23971-WILLIAMS/TORRES
FCOA, LLC,
Plaintiff,
v.
FOREMOST TITLE &
ESCROW SERVICES, LLC.
Defendant.
________________________________/
ORDER DENYING DEFENDANT’S MOTION FOR SANCTIONS
This matter is before the Court on Foremost Title & Escrow Services, LLC’s
(“Defendant”) motion for sanctions against FCOA, LLC (“Plaintiff”).

[D.E. 30].

Plaintiff responded to Defendant’s motion on January 12, 2018 [D.E. 33] to which
Defendant replied on January 29, 2018.
is now ripe for disposition.

[D.E. 37]. Therefore, Defendant’s motion

After careful consideration of the motion, response, and

relevant authority, and for the reasons discussed below, Defendants’ motion is
DENIED.
I.

BACKGROUND

Prior to filing this case, Plaintiff sent Defendant a demand letter on December
15, 2016 claiming (1) that Defendant was infringing on Plaintiff’s trademarks, (2)
that Defendant’s use of the term “foremost” in its name was likely to cause confusion
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or mistake, and (3) that Defendant was threatening to dilute the distinctive quality
of Plaintiff’s trademarks.

Plaintiff demanded that Defendant cancel its Florida

trademark registration and remove the term “foremost” from its name.

After

conducting research into Plaintiff’s business activities, Defendant determined that
Plaintiff’s business – comprised of underwriting and issuing insurance policies – was
in no way similar to Defendant’s business activities, which are comprised of
conducting real estate closings in Miami-Dade County.
Defendant rejected Plaintiff’s demand, both verbally through telephone
conversations and in writing. In the written response, Defendant explained that
Plaintiff’s assertions were both frivolous and false.

Plaintiff’s former counsel

allegedly told Defendant that she would advise her client that no further action
would be necessary. After not hearing from Plaintiff, Defendant invested time and
money developing a website to promote its services, optimized the website in order to
create public awareness in Defendant’s specific market, joined and attended trade
associations, met with prospective clients, introduced itself to realtors, and expended
financial resources and human capital in these efforts.
Thereafter, Plaintiff, through new counsel, filed this action on October 4, 2017
alleging (1) trademark infringement under 15 U.S.C. §§ 1114 and 1116, (2) unfair
competition and false designation of origin under 15 U.S.C. § 1125(a), (3) dilution
under 15 U.S.C. § 1125(c), (4) common law unfair competition, and (5) antidilution
under section 495.151, Florida Statutes. [D.E. 1]. Plaintiff then filed a motion for
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preliminary injunction on October 9, 2017 [D.E. 5]. Plaintiff’s complaint alleges
that Defendant provides insurance and financial services that are highly similar to
the services provided by Plaintiff and that Defendant must be enjoined from
continuing its unlawful activities.
II.
A.

ANALYSIS

Rule 11 Sanctions Standard

“Rule 11 is intended to deter claims with no factual or legal basis at all;
creative claims, coupled even with ambiguous or inconsequential facts, may merit
dismissal, but not punishment.”
(emphasis in original).

Davis v. Carl, 9106 F.2d 533, 538 (11th Cir. 1990)

Rule 11 sanctions are proper “(1) when a party files a

pleading that has no reasonable factual basis; (2) when the party files a pleading
that is based on legal theory that has no reasonable chance of success and that
cannot be advanced as a reasonable argument to change existing law; or (3) when
the party files a pleading in bad faith for an improper purpose.”

Worldwide

Primates, Inc. v. McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996) (quoting Jones v.
International Riding Helmets, Ltd., 49 F.3d 692, 694 (11th Cir. 1995)).

Federal

Rules of Civil Procedure 11(b)(1) and 11(b)(3) state:
By presenting to the court a pleading, written motion, or other
paperCwhether by signing, filing, submitting, or later advocating itCan
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 . . . (3) the factual contentions have
evidentiary support or, if specifically so identified, will likely have
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evidentiary support after a reasonable opportunity for further
investigation or discovery . . . . Fed. R. Civ. Pro. 11(b)(1), 11(b)(3).
Additionally, Federal Rule of Civil Procedure 11(c)(1) states the following:
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. Fed. R. Civ. Pro. 11(c)(1).
“In this circuit, a court confronted with a motion for Rule 11 sanctions first
determines whether the party’s claims are objectively frivolousCin view of the facts
or lawCand then, if they are, whether the person who signed the pleadings should
have been aware that they were frivolous; that is, whether he would’ve been aware
had he made a reasonable inquiry.

If the attorney failed to make a reasonable

inquiry, then the court must impose sanctions despite the attorney=s good faith belief
that the claims were sound.

The reasonableness of the inquiry >may depend on

such factors as how much time for investigation was available to the signer; whether
he had to rely on a client for information as to the facts underlying the [violative
document]; . . . or whether he depended on forwarding counsel or another member of
the bar.”

Worldwide Primates, Inc., 87 F.3d at 695 (quoting Mike Ousley

Productions, Inc. v. WJBF-TV, 952 F.2d 380, 382 (11th Cir. 1992)); see also Byrne v.
Nezhat, 261 F.3d 1075, 1105 (11th Cir. 2001).

AAlthough sanctions are warranted

when the claimant exhibits a >deliberate indifference to obvious facts,= they are not
warranted when the claimant=s evidence is merely weak but appears sufficient, after
a reasonable inquiry, to support a claim under existing law.@ Baker v. Adelman,
158 F.3d 516, 524 (11th Cir. 1998) (citations omitted).
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B.

Rule 11 Sanctions

The gist of Defendant’s motion is that this entire case violates Rule 11 because
there is no likelihood of consumer confusion between the parties’ marks. Defendant
argues that Plaintiff continues to allege erroneous and frivolous assertions in its
motion for preliminary injunction in that the parties’ logos and business are nearly
identical and confusingly similar. Defendant also claims that Plaintiff brought this
suit in bad faith, without any reasonable factual basis to do so, and premised upon a
legal theory with no reasonable chance of success. Defendant argues that there is
nothing to suggest that there is any likelihood of consumer confusion and that an
adequate pre-suit investigation would have uncovered this fact. Because Plaintiff
has willfully abused the judicial process by conduct tantamount to bad faith
sufficient to impose sanctions under Rule 11, Defendant concludes that it should be
entitled to an award of attorneys’ fees and costs in order – including the costs of filing
its motion for sanctions – to be put back in the position it was in prior to Plaintiff’s
misconduct.
Defendant’s motion is unpersuasive for at least two independent reasons.
First, the motion represents an improper attempt to convert a disagreement over the
factual allegations and legal arguments in Plaintiff’s complaint into a sanctions
dispute. Defendant’s motion is merely an attempt to seek disposition on the merits
of this case via Rule 11. Yet, a Rule 11 motion is not an avenue to seek judgment on
the merits of a case. Instead, its purpose is to determine whether an attorney has
abused the judicial process. See Bigford v. BESM, Inc., 2012 WL 12886184, at *2
(S.D. Fla. Oct. 12, 2012) (“‘Rule 11 should not be used to raise issues as to the legal
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sufficiency of a claim or defense that more appropriately can be disposed of by a
motion to dismiss, a motion for judgment on the pleadings, a motion for summary
judgment, or a trial on the merits.”’) (quoting In re New Motor Vehicles Canadian
Export Antitrust Litigation, 244 F.R.D. 70, 74 (D. Me. 2007) (denying Rule 11 motion
without prejudice to its renewal “if and when [Defendant] obtains summary
judgment”) (citations omitted)); see also Safe-Strap Co., Inc. v. Koala Corp., 270 F.
Supp. 2d 407, 417-21 (S.D.N.Y. 2003) (discussing that Rule 11 sanctions are not a
substitute for motions for summary judgment).
As the plain language of Rule 11 indicates, “an attorney . . . certifies that to the
best of the person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances” that a court document “is not being presented
for an improper purpose”, “the claims, defenses, and other legal contentions are
warranted by existing law,” and the “factual contentions have evidentiary support . .
. .” Fed. R. Civ. Pro. 11(b).

Instead of relying on a Rule 11 motion to dispose of this

case, Defendant should have filed a dispositive motion – such as a motion to dismiss
– rather than answering Plaintiff’s complaint.

Because Defendant relies on the

wrong type of motion for the relief sought, Defendant’s motion must be DENIED.
Second, Defendant’s motion must be denied because it is premature at this
stage of the litigation.

As the Eleventh Circuit has found, Rule 11 sanctions are

ordinarily not determined until the end of a case:
Although the timing of sanctions rests in the discretion of the trial
judge, it is anticipated that in the case of pleadings the sanctions issue
under Rule 11 normally will be determined at the end of the litigation,
and in the case of motions at the time when the motion is decided or
shortly thereafter.
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Donaldson v. Clark, 819 F.2d 1551, 1555 (11th Cir. 1987) (quotation marks and
citation omitted).

The Eleventh Circuit’s position is consistent with the Rules

Advisory Committee which “anticipated that in the case of pleadings the sanctions
issue under Rule 11 normally will be determined at the end of the litigation. . .
.”

Fed. R. Civ. P. 11 (Advisory Committee Notes, 1983 Amendment); see

also Lichtenstein v. Consolidated Serv. Group, Inc., 173 F.3d 17, 23 (1st Cir.
1999) (emphasizing that “[c]ourts should, and often do, defer consideration of certain
kinds of sanctions motions until the end of [the litigation] to gain a full sense of the
case and to avoid unnecessary delay of disposition of the case on the merits. This is
a sensible practice where [as here] the thrust of the sanctions motion is that
institution of the case itself was improper”); Hallwood Realty Partners, L.P. v.
Gotham Partners, L.P., 2000 WL 528633, at *1 (S.D.N.Y. May 2, 2000) (denying Rule
11 motion without prejudice “to renewal at conclusion of litigation”); Wright and
Miller, Federal Practice and Procedure: Civil 3d § 1337.1 (2004) (stating that when
“the challenged conduct is the institution of the action itself . . . the question whether
there has been a Rule 11 violation generally is not decided until after the litigation is
completed, in order to avoid delaying the disposition of the merits of the case”).
Given the facts of this case, we see no reason to deviate from the preferred
practice described above. If Defendant wishes to pursue its motion for sanctions,
Plaintiff must – at the very least – be given an opportunity to conduct discovery into
the facts alleged in its complaint. Defendant’s motion is also premature because
Rule 11 contemplates a two-step, objective inquiry. See Baker, 158 F.3d at 524.
“Applying that test is not feasible at this stage of the litigation, as it is not possible to
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determine on this record if the allegations” in the complaint “are objectively frivolous
in view of the law and facts, whether Plaintiff and its counsel should have been
aware that the allegations were frivolous after making a reasonable inquiry, and
whether [Plaintiff’s complaint] is baseless.” KB Home v. Smith, 2014 WL 12621583,
at *2 (M.D. Fla. May 7, 2014). Because Rule 11 sanctions should ordinarily be
reserved at the end of a case, Defendant’s motion must be DENIED. See, e.g.,
Baker, 158 F.3d at 523 (“Although the timing of sanctions rests in the district judge’s
discretion, Rule 11 sanctions ‘normally will be determined at the end of litigation.’”).
III.

CONCLUSION

For the foregoing reasons, it is hereby ORDERED AND ADJUDGED that
Defendant’s motion for sanctions [D.E. 30] is DENIED.
DONE AND ORDERED in Chambers at Miami, Florida, this 30th day of
January, 2018.

/s/ Edwin G. Torres
EDWIN G. TORRES
United States Magistrate Judge

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