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Dempsey v. Nathan

United States District Court, N.D. Illinois, Eastern Division

October 11, 2016

RICHARD NATHAN, et al., Defendants.


          Mary M. Rowland, Magistrate Judge

         City of Rolling Meadows and Anthony Peluso (City Defendants) move for sanctions against Plaintiff Gregory Dempsey (Plaintiff) following the District Court's grant of summary judgment in favor of the City Defendants. The City Defendants seek reimbursement for all of their fees and costs incurred since the beginning of this litigation. For the reasons stated below, the Court recommends that the motion for sanctions [151] be GRANTED IN PART.

         A. Background and Procedural History

         This case arises from a business dispute between Plaintiff and Richard Nathan and RTC Industries Inc. (RTC Defendants). During that dispute, Mr. Nathan filed a citizen's complaint accusing Plaintiff of removing an original freelance agreement from RTC. (See Dkt. 144). After Detective Peluso (Peluso) conducted a month-long investigation into other missing property, including flag stem axles, he signed a criminal complaint on behalf of Mr. Nathan and arrested Plaintiff. Id.; Dkt. 100.

         Plaintiff filed an eleven-count complaint against the City Defendants and the RTC Defendants, alleging violations of 42 U.S.C. § 1983, including false arrest, and state law tort claims. On September 30, 2014, the District Judge dismissed the illegal search and seizure claims against the City Defendants because Plaintiff failed to show that he had a legitimate interest in the property seized and dismissed the false arrest claim against the City finding Plaintiff failed to state a Monell claim. (Dkt. 41). The false arrest claim against Peluso survived based on Plaintiff's allegation that Peluso knew the charges against Plaintiff were false.

         On June 7, 2016, the District Judge granted the City Defendants' motion for summary judgment. (Dkt. 144). The City Defendants now seek sanctions, arguing that Plaintiff's claims were frivolous and designed to harass them.[1] (Dkt. 151). The City Defendants attach to their motion a March 27, 2014 letter to Plaintiff, written pursuant to Federal Rule of Civil Procedure 11, warning that Plaintiff's claims violate Rule 11(b)(1) and (3) and that the City Defendants would seek sanctions if Plaintiff did not voluntarily dismiss all claims against them. (Dkt. 151-1, Exh. A).

         B. The City Defendants' Letter Meets Rule 11's Procedural Requirements

         Plaintiff argues that the City Defendants' letter does not comply with Rule 11 because it is “not a draft of the Motion to Compel.”[2] (Dkt. 162, at 2). This argument is unpersuasive. A party may send a Rule 11 letter instead of serving a motion for sanctions. Matrix IV, Inc. v. Am. Nat'l Bank & Tr. Co., 649 F.3d 539, 552 (7th Cir. 2011) (“we have held that a letter informing the opposing party of the intent to seek sanctions and the basis for the imposition of sufficient for Rule 11 purposes”). Plaintiff was on notice of the City Defendants' intention to seek sanctions at least as early as March 27, 2014, when they sent their Rule 11 letter. The letter stated the City Defendants' intent to seek sanctions if Plaintiff did not dismiss them from the lawsuit because of the lack of evidentiary and legal support for Plaintiff's claims. Defendants' letter is sufficient under Rule 11.

         C. Sanctions Are Warranted Under Rule 11(b)(3)

         Plaintiff's false arrest theory was that the RTC Defendants gave Peluso false in-formation-that Plaintiff had taken RTC property without authority-and Peluso knew the information was false when he arrested Plaintiff. (Dkt. 1-1, Compl. ¶¶31, 45-50).[3] On summary judgment Plaintiff produced no evidence that Peluso knew the information was false. Instead, Plaintiff argued that: (1) Peluso knew that the first complaint was the “result of a recent breakdown in business relations” (Dkt. 113 at 2); (2) Plaintiff had permission to take the property (Id., Dempsey Decl. ¶9); and (3) Peluso should have investigated further. Id. at 3.

         The District Court found no evidence “suggest[ing] that Detective Peluso had reason to believe RTC's complaint was ‘fishy'.” (Dkt. 144 at 12, n. 6). The citizen's complaint filed by the RTC Defendants alone established probable cause. Id. at 12. Peluso's alleged awareness of a “recent breakdown in business relations” did not show that he knew the information in the complaint was false. Id. at 12, n. 6. Importantly, Plaintiff never informed Peluso that he had permission to take the property, so Plaintiff's explanation, in response to Defendants' summary judgment motion, for why he took the property was not relevant to determining whether Peluso had probable cause. Id. at 13, n. 9. Finally, once Peluso had probable cause based on the complaint Mr. Nathan signed, Peluso had no further obligation to investigate. Id. at 12-13.

         As predicted in the City Defendants Rule 11 letter, Plaintiff had no evidence to support his false arrest claim. The District Court's ruling on the motions to dismiss should have served as further warning. That ruling was clear that the only way Plaintiff's false arrest claim could succeed was if Plaintiff had some evidence that Peluso knew the charges were false. (Dkt. 41 at 11). Despite have no such evidence, even by the time of summary judgment, Plaintiff tried to gloss over his lack of evidentiary support by making irrelevant arguments.

         In opposing sanctions, Plaintiff asserts that Peluso's investigation was faulty, and the City Defendants violated their own policies regarding the handling of evidence. (Dkt. 162). He relies on the fact that the state court judge in his criminal case was “incredulous” with the States' presentation of evidence. Plaintiff misses the point. The District Court found that there was no genuine issue of fact whether: (1) Peluso had probable cause to arrest Plaintiff based on Mr. Nathan's complaint; or (2) Peluso knew the information contained in the criminal complaint was false. The fact that the State did not meet its burden of proof in Plaintiff's criminal case has no bearing on Plaintiff's ability to meet his burden of proof in this case.

         Under Rule 11, a court may impose sanctions on an attorney or party who maintains a claim that is “unwarranted by existing law or has no reasonable basis in fact, and that applies to claims presented to the court ‘whether by signing, filing submitting, or later advocating it.'” Fabriko Acquisition Corp. v. Prokos, 536 F.3d 605, 610 (7th Cir. 2008). The decision to impose sanctions, and the amount and form of ...

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