Sussman v. Bank of Israel
56 F.3d 450 · Court of Appeals for the Second Circuit · 1995
Facts
Erwin Sussman and the estate of Ira Guilden were founders, directors, and shareholders of North American Bank Ltd. (NAB), an Israeli bank. In 1985, NAB collapsed due to fraud and mismanagement by its senior managers in Israel. The Bank of Israel (BOI) appointed a Receiver, who, in 1989, sued Sussman and Guilden in Israel for negligence and breach of fiduciary duties, seeking over $100 million. Sussman and Guilden asserted third-party claims against BOI, alleging negligence, misrepresentation of NAB's financial condition, and concealment of a secret $10 million loan routed through Bank Hapoalim's New York office to manipulate stock prices. They retained attorney Nathan Lewin to investigate and evaluate further litigation. In May 1991, Lewin sent warning letters to Israeli officials, threatening to file a lawsuit in New York if the Israeli action was not settled, warning of negative publicity and economic damage to Israel. After Israeli officials refused to settle, Lewin filed the New York complaint on June 17, 1991, seeking $17 million in damages.
Procedural history
The United States District Court for the Southern District of New York dismissed the New York complaint on forum non conveniens grounds, but without prejudice to the merits and with conditions to ensure plaintiffs could pursue claims in Israel. This dismissal was affirmed by the Second Circuit. Following affirmance, defendants moved for sanctions against attorney Lewin. The District Court imposed a $50,000 sanction against Lewin under Rule 11 and its inherent power, finding an improper purpose. Lewin appealed the sanctions, and defendants cross-appealed for more severe sanctions, bringing the case to this court.
Issue
Can an attorney be sanctioned under Fed.R.Civ.P. 11 or the court's inherent power for filing a nonfrivolous complaint, which also resulted in some judicial relief for the client, if one of the attorney's purposes was to pressure a foreign government to settle a separate, pending action?
Holding
No, the imposition of sanctions against the attorney was an abuse of discretion. Sanctions cannot be properly imposed for filing a nonfrivolous complaint, even if a partial motive was to pressure a foreign government, especially when the filing led to some judicially imposed relief for the plaintiffs.
Rule
Under the pre-1993 Rule 11, an attorney's signature certifies that a filing is well-grounded in fact and law and not interposed for any improper purpose. The 'improper purpose' inquiry is objective, not subjective. For complaints initiating an action, an improper purpose cannot be found if the complaint is nonfrivolous; a party should not be penalized for seeking warranted judicial relief if the claims are nonfrivolous, even if one of multiple purposes was improper. Mere warnings of intent to assert nonfrivolous claims, with predictions of public reception, are not improper. A court's inherent power to sanction for bad-faith conduct is abused when sanctions are imposed for a complaint whose merits were not addressed and whose filing properly led to some relief for plaintiffs.
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