## Facts

- In trademark litigation, defendants submitted a sample label and printer’s invoice to support a claimed 1993 first-use date for the challenged label.
- Evidence later showed the documents were false, including a bar code and an area code that did not exist in 1993; defendants then disclaimed reliance on them.
- After a preliminary injunction, Pennie & Edmonds LLP (P&E) appeared for defendants and questioned two defendants, who insisted the earlier documents were genuine and not intended to mislead the court.
- P&E later filed an affidavit from a defendant (Scotto) describing the label’s history; the affidavit was later found false at trial.
- After trial, the district court initiated a Rule 11 proceeding on its own motion against P&E (as a firm), not against individual lawyers.
- The district court found P&E acted in subjective good faith but that permitting the false affidavit was objectively unreasonable under Rule 11(b)(3), and imposed a monetary sanction.
- P&E appealed, arguing that a post-trial, court-initiated Rule 11 sanction—where there is no chance to withdraw the filing—requires proof of subjective bad faith.

## Issues

1. What mens rea standard applies when a court initiates Rule 11 sanctions sua sponte after trial for permitting submission of a false affidavit, where the lawyer had no chance to withdraw or correct the submission under Rule 11’s safe-harbor procedure?
2. Whether a Rule 11 sanction may be sustained on a finding of objective unreasonableness when the district court found the sanctioned firm acted in subjective good faith.

## Decision

- The Second Circuit vacated the sanctions order.
- It held that when a court initiates Rule 11 sanctions sua sponte after the matter has concluded, and the lawyer lacks the safe-harbor opportunity to withdraw or correct the challenged paper, Rule 11 sanctions require subjective bad faith.
- Because the district court accepted that P&E acted in subjective good faith, the required bad-faith standard was not met and the sanction could not stand.

## Legal Principles

- Rule 11’s safe-harbor procedure applies to party-initiated sanctions motions, requiring service and a 21-day period to withdraw or correct before filing the sanctions motion.
- Court-initiated Rule 11 proceedings proceed by order to show cause and provide no pre-sanction opportunity to withdraw or correct the challenged filing.
- In the Second Circuit, when Rule 11 sanctions are imposed sua sponte after the proceeding has ended and the safe-harbor mechanism was unavailable, the liability standard is subjective bad faith rather than objective unreasonableness.
- A sanction cannot be imposed under that post-trial sua sponte standard where the district court finds the lawyer acted in subjective good faith.

## Conclusion

The Second Circuit set aside a monetary sanction against a law firm because post-trial, court-initiated Rule 11 sanctions—without an opportunity to withdraw or correct the challenged submission—require proof of subjective bad faith, which the district court did not find.


In re Pennie & Edmonds LLP, 323 F.3d 86 (2d Cir. 2003)