The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge
MEMORANDUM OPINION AND ORDER
This Court's September 25, 2012 Findings of Fact and Conclusions of Law ("Findings and Conclusions," Dkt. 116) culminated in the dismissal of this action for lack of personal jurisdiction. What still remains is the motion of Philos & D, Don-Hee Park and Jaehee Park (collectively "Philos & D") for sanctions against plaintiff Philos Technologies, Inc. ("Philos Tech") and each of Philos Tech's attorneys (collectively the "Attorneys"). For the reasons stated hereafter, Philos & D's motion is granted as against Philos Tech but denied as applied to the Attorneys.
Philos & D's first claimed source of sanctions--Fed. R. Civ. P. ("Rule") 11(b)--requires attorneys to certify that any given submission to the court (1) was not submitted for an improper purpose, (2) is supported by existing law or a non-frivolous argument for extending or altering existing law and (3) relies on factual contentions that have evidentiary support. Included in those dictates is the obligation of attorneys to conduct an objectively reasonable investigation into the underlying facts or law of a given submission to insure that those characteristics are satisfied (Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993)). If a submission fails to meet those standards, a court is permitted to sanction the attorney who filed that submission (Rule 11(c)(1)).
All of that said, there is no need to update old pleadings and submissions if they were not sanctionable at the time they were filed. Instead courts must look only to the potential liability for what the lawyers knew or reasonably should have known at the time of the submission (Pantry Queen Foods, Inc. v. Lifschultz Fast Freight, Inc., 809 F.2d 451, 454 (7th Cir. 1987)). As more is discovered, however, a party or attorney cannot continue to advocate a claim that lacks a legal or factual basis (Fabriko Acquisition Corp. v. Prokos, 536 F.3d 605, 610 (7th Cir. 2008)). If a sanction is warranted, it must be limited to what is necessary to deter future Rule 11 violations (Rule 11(c)(4)).
Philos & D also requests sanctions under 28 U.S.C. §1927 ("Section 1927"), which provides district courts with the discretion to hold an attorney--though not a party--liable for the attorney's fees and expenses of the opposing party if that attorney "multiplies the proceedings in any case unreasonably and vexatiously." For the purposes of Section 1927, an attorney multiplies proceedings "vexatiously" if he or she acts with subjective or objective bad faith (Dal Pozzo v. Basic Mach. Co., 463 F.3d 609, 614 (7th Cir. 2006)). Objective bad faith need not be predicated on a finding of malice or ill will--instead reckless indifference to the law will suffice (id.). As Dal Pozzo, 463 F.3d at 614 (internal quotation marks and citation omitted) teaches, that standard is met by "pursu[ing] a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound." Alternatively, if an objectively colorable basis for an attorney's conduct does exist, his or her actions can still be considered vexatious and unreasonable through a showing of subjective bad faith (id.). As with Rule 11, Section 1927 requires attorneys to dismiss claims that are no longer viable (Jolly Group, Ltd. v. Medline Indus., Inc., 435 F.3d 717, 720 (7th Cir. 2006)). Background
Here the detailed Findings and Conclusions*fn1 provide a rich source of all the information needed to decide the current dispute. What follows in this section instead is an abbreviated version of the facts relevant to the present motion. S. Ko--J. Ko's son and the sole shareholder in and President of Illinois company Philos Tech--was not present at the signing of the Agreements, nor was Philos Tech a party to those Agreements (F. ¶11). Nonetheless S. Ko brought suit on behalf of Philos Tech against Philos & D and the Parks in this Northern District of Illinois in December 2008. In Philos Tech's Complaint S. Ko alleged that it was Philos Tech and not PLS Tech that entered into a joint venture with the Parks on December 20, 2007 (Dkt. 1 ¶15). Indeed, the Complaint did not even mention the existence of PLS Tech, nor did it mention the Agreements (see generally Dkt. 1). Attorney David Lesht filed the Complaint, and he was assisted by Panasarn Aim Jirut (Dkt. 1). Both attorneys claim that they were unaware of the existence of the Agreements when they filed the Complaint.
PLS Tech Korea ("PLS Tech") is a South Korean company, founded by Jong Ho Philos Ko ("J. Ko"), that specializes in heat treatment technology (F. ¶1). On December 20, 2007 Don-Hee and Jaehee Park (referred to singularly by their first names and collectively as "the Parks") entered into two written agreements (the "Agreements") with PLS Tech to establish a company--Philos & D--to manufacture and sell knives and shears using a particular type of surface treatment technology (F. ¶¶3-6). Their first agreement ("Joint Venture Agreement") established the joint venture between the Parks and PLS Tech, while the second agreement ("Equipment Agreement") explained that PLS Tech would provide Philos & D with the surface treatment equipment ("Equipment")(F. ¶6). Notably the Equipment Agreement contained an integration clause specifying that it could be modified only in writing (F. ¶7). Fully eight months later (on August 18, 2008) J. Ko sent Philos & D a letter on behalf of PLS Tech unilaterally purporting to cancel both the Joint Venture Agreement and the Equipment Agreement (F. ¶17*fn2 ).
Instead of appearing to defend against Philos Tech's suit, the Parks (and by extension Philos & D) sent a February 13, 2009 letter to the court*fn3 disclaiming the existence of personal jurisdiction in this District to hear the case (Dkt. 11). In that letter the Parks informed the court of the existence of the Agreements and asserted that they had no agreement at all with Philos Tech (id.). Shortly after the Parks' letter was sent, attorneys Thomas Vickers and Jeffrey Moran joined in prosecuting S. Ko's case (Dkt. 13-14).
Because the Parks refused to appear, Philos Tech filed a motion for default judgment, which was granted by Judge Hibbler based on S. Ko's allegations (Dkt. 25). Philos & D responded by filing a motion to vacate the default judgment, arguing a lack of personal jurisdiction, in response to which Philos Tech argued for the first time that the Agreements had been rescinded orally--and contemporaneously with their execution!!--in favor of an agreement between Philos Tech and Philos & D (Dkt. 39 at 8-9). Judge Hibbler denied Philos & D's motion to vacate the judgment as untimely, but our Court of Appeals then reversed that ruling, holding that Philos & D's method of challenging personal jurisdiction was acceptable (see generally Philos Tech. v. Philos & D, 645 F.3d 851 (7th Cir. 2011)). Rather than passing upon the factual issues tied to personal jurisdiction in the first instance, the Court of Appeals remanded the case to the District Court to do so (id. at 859).
When the case returned to the District Court, Philos & D resubmitted its motion to vacate, and it also sent the Attorneys a Rule 11 letter, warning them that Philos & D would seek sanctions if Philos Tech did not withdraw the Complaint (D. Mem. Ex. 5). Philos & D asserted that the bases for sanctions were the "material misrepresentations and omissions" contained in the Complaint and readvanced through later pleadings, which falsely supported personal jurisdiction in this District (id.). In response Philos Tech insisted that the Agreements were provisional in nature, that the controlling agreement was between Philos & D and Philos Tech and that Philos Tech had a "textbook" conversion claim (D. Mem. Ex. 6). Accordingly Philos Tech refused to drop the Complaint (id.).
After the case was transferred to this Court, it held an evidentiary hearing to determine whether this District Court had personal jurisdiction over Philos & D. During that hearing this Court found S. Ko's testimony to be incredible and found that the purported "oral rescission" of the Agreements never took place (F. ¶¶12-16, 30). Instead this Court found that Philos Tech merely helped to carry out PLS Tech's contractual obligations under the Agreements by providing the Equipment described in the Equipment Agreement (id. at ¶8 n.4). As for Philos Tech's evidence suggesting that it had a joint venture with the Parks, including Philos & D's Articles of Incorporation and business plan, this Court found that such documents instead implemented the relevant actors' scam to receive South Korean benefits for assertedly having a foreign investor (id. ¶¶33-39).
Finally this Court determined that even if S. Ko's story had been true (as it was not), two facts would still prevent recovery. First, the Equipment Agreement expressly precluded any oral modification (a preclusion that would of course bar a purported oral rescission)(F. ¶7). Second, even if the Agreements could have been rescinded orally, the best that S. Ko could hope for would be a breach of contract claim, not a claim for conversion--and this District Court would not have personal jurisdiction over the defendants for such a simple contract claim
In light of all the Findings and Conclusions, this Court
granted Philos & D's motion to vacate and dismissed the action for lack of personal jurisdiction. Shortly thereafter Philos & D filed the present ...