Plaintiffs filed a complaint, which named a bank and various Israeli officials as Defendants, in federal district court in New York. The complaint was dismissed, without prejudice, on forum non conveniens grounds. The court imposed sanctions against Plaitniffs’ counsel on the ground that the complaint had been filed, in part, for an improper purpose. Plaintiffs’ attorney appealed.
An objective standard of reasonableness applies to the imposition of sanctions.
The receiver for an Israeli bank filed an action against Plaintiffs (shareholders, directors, founders of an Israeli bank) in Israel. Plaintiffs subsequently filed a complaint in federal district court in New York, naming various Israeli officials and the bank as Defendants. After Plaintiffs’ complaint was dismissed, without prejudice, on forum non conveniens grounds, Defendants moved for sanctions against Plaintiffs’ attorney. The court imposed sanctions in the amount of $50,000 on the ground that the complaint had been filed, in part, for an improper purpose. Plaintiffs’ attorney appealed, arguing that the purpose was not improper, and that the sanctions were improper because the claims asserted in Plaintiffs’ complaint were not frivolous.
Were sanctions properly imposed against Plaintiffs’ attorney?
No. The Court of Appeals reversed the district court’s order to the extent of its imposition of the sanctions. The Plaintiffs’ complaint was not filed for an improper purpose, and the district court abused its discretion to the extent that it used its inherent power to impose sanctions.
The claims asserted in the complaint and the selection of New York as the forum were not frivolous. In the context of imposing sanctions, a determination of improper purpose must be supported by a determination of frivolousness when a complaint is at issue. Also, the court’s use of its inherent power to impose sanctions in this case was an abuse of discretion.