Published on:

A Federal Judge in Florida Can Make the Other Side Pay You Sanctions, Even if the Court Lacked Jurisdiction Over the Dispute, 11th Circuit Says

Obviously, one hopes not to be confronted with an opposing party or attorney who engages in harassing, dilatory, or knowingly dishonest conduct during litigation. This, unfortunately, will happen from time to time. The key is to recognize that you can, with the aid of a skilled South Florida commercial litigation attorney, take the appropriate action and get the sanctions award you deserve.

That you may have known. A recent federal case points out something you probably didn’t know, which is that, even if the court lacked jurisdiction over the underlying case, you can still get that sanctions award.

That case involved a construction project gone awry. A real estate broker sought to turn a campground in the Keys into a luxury housing community. One of the investors was a restaurateur with whom the broker had partnered before. However, the project did not get off the ground. The property underwent foreclosure, and both men lost their investments.

The restaurateur, along with other investors, sued for fraud and breach of fiduciary duty. The case started in state court but eventually moved to federal court.

Subsequently, though, the trial judge concluded that diversity jurisdiction was not present and, therefore, the federal courts lacked subject matter jurisdiction over the dispute. (Federal court diversity jurisdiction doesn’t exist when the amount in dispute is less than $75,000 or when any of the plaintiffs and any of the defendants share a common state of citizenship.)

Before the court made that jurisdiction ruling, though, the broker made a motion for sanctions. In federal court, there are several bases upon which the judge can sanction a party for misconduct and order that party pays an opposing party a particular sum. Rule 11, for example, authorizes sanctions when a party makes an argument that is frivolous, that is knowingly factual unsound, that is knowingly wrong on the law, or is intended to harass, cause delay or “needlessly increase the cost of litigation.”

The broker’s argument was that the investors made in a motion an argument that was factually untrue and that the investors knew or should have known was false. If the judge agrees, that could be a valid basis for Rule 11 sanctions.

Courts can address collateral issues even in the absence of jurisdiction

The question in this circumstance became: can a judge award Rule 11 sanctions to a party in a case where the court lacked subject matter jurisdiction? The 11th Circuit Court of Appeals said it can. Sanctions are something that the law calls a “collateral issue.” Collateral issues include things that are not directly connected to deciding the merits of the underlying dispute. This can be things like Rule 11 sanctions, contempt of court sanctions, and awards of costs and awards of attorneys’ fees. That’s because a court, in deciding these issues, looks only at things that are unrelated to the underlying dispute over which there is no jurisdiction.

When a court decides that a party made an argument that was knowingly false or intended to delay the case’s resolution or intended to harass, the court is not making any kind of “assessment of the … legal merits” of the underlying dispute. As a result, the judge can decide the motion and award Rule 11 sanctions without violating anyone’s constitutional rights.

Commercial litigation can involve many things. It may involve depositions, settlement negotiations and making arguments at trial. If the other side engages in misconduct, then it may also involve the need to seek sanctions from that party. Whatever actions your breach of fiduciary duty case needs, be sure you have the right attorney for a successful outcome. Look to the knowledgeable South Florida commercial litigation attorneys at Stok Kon + Braverman to be that kind of help for your business.

Contact us online or by calling (954) 237-1777 to schedule your consultation.

Contact Information