1st Circuit lifts sanctions against Lawrence attorney

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A Lawrence attorney should not have been subjected to Rule 11 sanctions based on his alleged assertion of frivolous claims in a state-court complaint later removed to federal court, a panel of the 1st U.S. Circuit Court of Appeals has ruled.

The panel’s decision reverses an order by U.S. District Court Judge William G. Young making attorney Michael M. McArdle jointly and severally liable with a client for an award of $10,000 in attorneys‘ fees and $32 in costs.

In reversing the lower court’s imposition of sanctions against McArdle, Circuit Judge Sandra L. Lynch observed that sanctions under Federal Rule of Civil Procedure 11 are available only for misconduct in “presenting to the court a pleading, written motion, or other paper — whether by signing, filing, submitting, or later advocating it.”

“McArdle did not ‘present[]’the complaint to the district court through the act of removal, because removal was initiated by the defendants,” Lynch wrote for the panel. “Once in federal court, he did not take any action to ‘present[]’ the allegations in the complaint to the district court.”

In the underlying case, McArdle represented Lynnfield attorney Nicholas L. Triantos in a foreclosure action brought by Deutsche Bank. In February 2017, Triantos sued Deutsche Bank National Trust Company and other mortgage lenders and servicers in Massachusetts Superior Court, alleging various claims arising out of the foreclosure of his property.

In the state court action, Triantos also sued the law firm that had conducted the foreclosure sale, Guaetta & Benson, and three of the North Chelmsford firm’s partners. Against the law firm defendants, Triantos alleged violations of the Fair Debt Collection Practices Act and the Racketeer Influenced and Corrupt Organizations Act.

G&B responding by sending McArdle a “safe harbor” letter pursuant to Rule 11, questioning the merits of the claims against the law firm defendants and demanding that McArdle either provide a legal basis for those claims or dismiss them. The law firm further warned McArdle that, if he did not do so, G&B would pursue relief against both him and Triantos.

The bank removed the case to federal court and at that point McArdle withdrew as Triantos’ counsel. Triantos proceeded with his case pro se, later filing an amended complaint.

In September 2017, Judge Young dismissed Triantos’ amended complaint for failure to state a claim. The G&B defendants subsequently moved for Rule 11 sanctions against McArdle, counsel on the state-court complaint.

However, the sanctions motion was never served on McArdle, who never filed an appearance in the federal case.
After the 1st Circuit affirmed the dismissal of the Triantos amended complaint, G&B renewed its motion for sanctions.

In September 2021, Judge Young conducted a hearing on the motion for sanctions at which McArdle did not appear.
Based on representations of G&B’s attorneys at the hearing, Young granted the motion for sanctions. The judge found that the claims against G&B in the amended complaint were “clearly without merit” and that an award of attorneys’ fees and costs as a sanction was appropriate.

As later recognized by the 1st Circuit panel on review, the sanctions order was based on Judge Young’s misunderstanding that McArdle had signed and filed the amended complaint in federal court and that McArdle had been properly served.

McArdle learned of the sanctions order several months later. The attorney appealed from the denial of his Rule 60(b) motion for relief from judgment.

The panel found that McArdle was entitled to relief on two separate grounds, one being that he never received proper service of G&B motion for sanctions.

Judge Lynch further wrote that there was simply no basis for sanctioning McArdle for the allegations in the amended complaint filed by Triantos in federal court. In this regard, the panel rejected G&B’s argument that the original complaint McArdle filed in state court was the “operative pleading” when the case reached federal court.

“While G&B is correct that the state court complaint removed to federal court by the defendants was briefly the operative pleading in federal court, there is no ‘operative pleading’ exception to Rule 11’s ‘presenting’ requirement,” Lynch wrote

The 16-page decision is Triantos v. Guaetta & Benson, LLC, et al., Lawyer Weekly No. 01-231-22.