BNB Hana Bank National Association v. Red Mansion LLC

Filing 38

MEMORANDUM (Order to follow as separate docket entry)Signed by Honorable A. Richard Caputo on 12/29/15. (ep)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
BNB HANA BANK NATIONAL
ASSOCIATION, a national banking
association,

CIVIL ACTION NO. 3:14-CV-01664
(JUDGE CAPUTO)

Plaintiff,
v.
RED MANSION LLC d/b/a/ NAOMI
VILLAGE RESORT,
Defendant.
MEMORANDUM
Presently before the Court is Plaintiff BNB Hana Bank National Association’s (“BNB”)
Motion for Sanctions Against Defendant Red Mansion LLC d/b/a Naomi Village Resort
(“Red Mansion”) and Defendant’s Counsel. (Doc. 34.) BNB requests that sanctions be
imposed against Red Mansion and their counsel pursuant to Rule 11 of the Federal Rules
of Civil Procedure. Because I find that the imposition of sanctions is unwarranted and
unnecessary in this case, BNB’s motion for sanctions will be denied.
I. Background
On August 26, 2014, Plaintiff BNB, a national banking association, initiated this
mortgage foreclosure action by filing a Complaint against Defendant Red Mansion (Doc.
1), which was subsequently amended on September 10, 2014 (Doc. 6). BNB alleges
that Red Mansion defaulted on its loan obligations on a piece of property to Plaintiff.
On November 26, 2014, Plaintiff filed a motion asking for authorization to file an
Affidavit of Service based on proper service of Defendant pursuant to Fed. R. Civ. P. 4.
(Doc. 10.) Plaintiff requested attorneys’ fees and expenses incurred by Defendant’s
failure to waive service, as well as those incurred in filing the motion. (Id.). On
December 17, 2014, I granted Plaintiff’s motion, deeming that service was proper on
Defendant. (Doc. 11.) However, I denied Plaintiff’s request for attorneys’ fees and
expenses because Plaintiff had not demonstrated that the sole member of Red Mansion,

LLC, who had been out of the country, had failed to sign and return the waiver of service
request “without good cause.”
On January 7, 2015, BNB filed a Request for Entry of Default by Defendant Red
Mansion pursuant to Fed. R. Civ. P. 55(a), as the time within which Defendant could
respond to the Complaint had expired. (Doc. 14.) On January 8, the Clerk of Court
entered a Default as to Red Mansion for failure to answer, plead, or otherwise respond
to the Complaint. (Doc. 15.) On January 9, BNB filed an Application for Entry of Default
Judgment in its favor against Red Mansion (Doc. 16), which the Clerk of Court entered
on January 13, 2015 (Doc. 17). The mortgaged property was scheduled for sale by the
United States Marshal on July 16, 2015. (See Doc. 34-15, at 2.)
However, on January 27, 2015, Defendant Red Mansion filed a motion to vacate
the default judgment under Fed. R. Civ. P. 60(b). (Doc. 23.) The motion was fully
briefed by both parties and on August 12, 2015, I granted Defendant’s motion, finding
that Plaintiff would not be prejudiced if the default judgment were vacated and that
Defendant had a meritorious defense in the underlying action. (See Docs. 30 & 31.)
On November 3, 2015, Plaintiff BNB filed the instant motion for sanctions against
Defendant Red Mansion and its attorney, after having provided Red Mansion’s counsel
with the required twenty-one (21) days safe harbor notice and an additional ten (10)
days to provide counsel further opportunity to confer with his client and review the public
records. (Doc. 34.) Plaintiff argues that Defendant’s Answer (Doc. 33) is “replete with
frivolous assertions of law and fact,” and therefore violates Rule 11. (Doc. 34-15, at 4.)
On November 17, 2015, Defendant filed a brief in opposition to Plaintiff’s motion for
sanctions (Doc. 36) and on November 23, 2015, Plaintiff filed its reply (Doc. 37). The
motion is now fully briefed and ripe for disposition.
II. Discussion
Rule 11(b) of the Federal Rules of Civil Procedure provides:
By presenting to the court a pleading, written motion, or other paper--whether
by signing, filing, submitting, or later advocating it--an attorney or
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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;
(2) the claims, defenses, and other legal contentions are warranted by existing
law or by a nonfrivolous argument for extending, modifying, or reversing
existing law or for establishing new law;
(3) the factual contentions have evidentiary support or, if specifically so
identified, will likely have evidentiary support after a reasonable opportunity for
further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on belief or a lack of
information.
Fed. R. Civ. P. 11(b). If after notice and a reasonable opportunity to respond, a 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. P. 11(c)(1) (emphasis added). The sanction imposed, however,
“must be limited to what suffices to deter repetition of the conduct or comparable conduct
by others similarly situated.” Fed. R. Civ. P. 11(c)(4). Sanctions may “include nonmonetary
directives; an order to pay a penalty into court; or, if imposed on motion and warranted for
effective deterrence, an order directing payment to the movant of part or all of the
reasonable attorney's fees and other expenses directly resulting from the violation.” Id.
In evaluating a Rule 11 motion for sanctions, a district court must determine whether
the attorney's conduct was objectively reasonable under the circumstances. See Ario v.
Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, 618 F.3d
277, 297 (3d Cir. 2010). Sanctions under Rule 11 are to be applied only in the “exceptional
circumstance” where a claim or motion is “patently unmeritorious or frivolous.” Doering v.
Union Cnty. Bd. of Chosen Freeholders, 857 F.2d 191, 194 (3d Cir. 1988). Moreover, “the
imposition of sanctions for a Rule 11 violation is discretionary rather than mandatory.”
Grider v. Keystone Health Plan Cent., Inc., 580 F.3d 119, 146 n.28 (3d Cir. 2009) (citation
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omitted).
A court should not impose Rule 11 sanctions so as to chill creativity or stifle
enthusiasm or advocacy. New Life Homecare, Inc. v. Blue Cross of Ne. Pa., No. 3:06-CV2485, 2008 WL 534472, at *2 (M.D. Pa. Feb. 20, 2008). However, attorneys should “Stop,
Think, Investigate and Research” before filing papers. Gairardo v. Ethyl Corp., 835 F.2d
479, 482 (3d Cir. 1987). A court should test the signer’s conduct by inquiring what was
reasonable for the signer to believe at the time the pleading was filed. Schering Corp. v.
Vitarine Pharm., Inc., 889 F.2d 490, 496 (3d Cir. 1989). In gauging the reasonableness of
an attorney’s pre-filing inquiry, the Advisory Committee Notes to Rule 11 suggest
consideration of four (4) factors: (1) the amount of time available to the signer for
conducting the factual and legal investigation; (2) the necessity of relying on a client for the
underlying factual information; (3) the plausibility of the legal position advocated; and (4)
whether the case was referred to the signer by another member of the Bar. Mary Ann
Pensiero, Inc. v. Lingle, 847 F.2d 90, 95 (3d Cir. 1988).
Here, Plaintiff argues that Defendant’s dilatory tactics and frivolous assertions merit
an award of sanctions.

(See Doc. 34-15.)

Specifically, Plaintiff points out that (1)

Defendant’s Answer violates Rule 11 because it contains different defenses than the Motion
to Vacate the Judgment; (2) Paragraph 12 of Defendant’s Answer violates Rule 11 by
alleging facts that do not exist regarding Plaintiff’s purported failure to provide Defendant
with written Notice of Breach and asserts a legal defense negated by the statute that
Defendant’s counsel cites; (3) Defendant’s Answer asserts that there is no jurisdiction over
this matter without citing any legal authority; (4) Defendant’s Answer makes several
references to MERS (Mortgage Electronic Registration Systems, Inc.), even though there
is nothing in the case that involves MERS; (5) Defendant’s Answer includes duplicitous
defenses based on a failure to mitigate damages, which have no legal or factual basis; and

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(6) Paragraph 31 of Defendant’s Answer “makes absolutely no sense whatsoever” and “is
an absolute jumble of words.”1 Plaintiff also characterizes Defendant’s conduct throughout
this litigation as “dilatory” and highlights other instances of “frivolous assertions” made by
Defendant, such as Defendant’s previous assertion that venue was improper because
Monroe County is not within the Middle District of Pennsylvania.
I decline to impose sanctions against Red Mansion and its counsel. Although it does
appear that some of Defendant’s assertions could have been more thoroughly investigated
and developed, I do not find this to be the “exceptional circumstance” where sanctions are
warranted, and I do not find that Defendant’s claims have been “patently unmeritorious or
frivolous” enough to justify sanctions. Doering v. Union Cnty. Bd. of Chosen Freeholders,
857 F.2d 191, 194 (3d Cir. 1988). Further, I am confident that Red Mansion’s counsel is
cognizant of his obligations under Rule 11 and will investigate the basis for his assertions
more thoroughly in the future.

For example, Defendant’s counsel, Attorney Andrew

Katsock, has since acknowledged that his assertion that Monroe County was not in the
Middle District of Pennsylvania was a “good-faith mistake” on his part because he was
confused with the fact that Monroe County is considered to be in the Eastern District of
Pennsylvania by the Pennsylvania state appellate courts. (Doc. 36, at 12.) After discovery
of his mistake, Attorney Katsock has not persisted with this contention. Therefore, I do not
find that sanctions are warranted.

1

Paragraph 31 of Defendant’s Answer reads as follows:
The acts of Plaintiff, alone and in concert with MERS and/or BNB Bank National
Association, lack standing to prosecute this matter based upon the Uniform
Commercial Code: Negotiable Instruments along with Assignments and Transfers
of Mortgages under Pennsylvania law, the Pennsylvania Rules of Civil Procedure
and Federal law and procedure. The Defendant alleges that there have been
improper assignments of the mortgage or transfers of the note.
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III. Conclusion
For the above stated reasons, Plaintiff BNB Hana Bank National Association’s
motion for sanctions will be denied.
An appropriate order follows.

December 29, 2015
Date

/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge

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