PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT 

_______________________

Nos. 21-2596 and 21-2647

_______________________

TARA SCOTT; WILSON CARTER, individually and as 

Trustee of the Bailey

Middleton Carter 2009 Trust, the Mary Wilson Carter 2009 

Trust,

and the Wilson M. Carter 1988 Trust

Appellants in No. 21-2596

v.

VANTAGE CORPORATION; VANTAGE ADVISORY 

MANAGEMENT, LLC;

VF(X), LP; TRADELOGIX, LLC; BRIAN ASKEW; 

*GERALD FINEGOLD

BRIAN ASKEW,

 Appellant in No. 21-2647

*(Dismissed pursuant to Court’s order dated 11/8/2021)
2

_______________________

On Appeal from the United States District Court 

for the District of Delaware

District Court No. 1-17-cv-00448

Magistrate Judge: The Honorable Mary Pat Thynge

__________________________

Submitted Under Third Circuit L.A.R. 34.1(a)

December 15, 2022

Before: RESTREPO, McKEE, and SMITH, Circuit Judges

(Filed: April 5, 2023)

Thomas A. Uebler

McCollom D’Emilio Smith Uebler

2751 Centerville Road

Suite 401

Wilmington, DE 19808 

Craig H. Kuglar

Suite A102-353

931 Monroe Drive NE

Atlanta, GA 30308

 Counsel for Appellant/Cross-Appellee Brian Askew

S. Lawrence Polk 
3

Eversheds Sutherland

999 Peachtree Street, N.E. 

Suite 2300

Atlanta, GA 30309

 Counsel for Appellees/Cross-Appellants 

Tara Scott and Wilson Carter

__________________________

OPINION OF THE COURT

__________________________

SMITH, Circuit Judge.

We address here both an appeal and a cross-appeal, each 

requiring us to examine the interplay between the Private 

Securities Litigation Reform Act of 1995 (“PSLRA”)1and 

Federal Rule of Civil Procedure 11 (“Rule 11”). Plaintiffs Tara 

Scott and Wilson Carter (“Plaintiffs”) originally brought a 

lawsuit asserting federal securities claims against Defendants

Brian Askew, Gerald Finegold, and Vantage Corporation 

(“Vantage”).

2 The District Court eventually granted summary 

1 109 Stat. 737, codified as amended in scattered sections of 

U.S.C. Title 15. 

2 Plaintiffs brought federal securities claims against Askew, 

Finegold, and Vantage. The District Court determined that 

Plaintiffs violated Rule 11 in their claims against Finegold and 

awarded attorneys’ fees, which neither Finegold nor Plaintiffs
4

judgment for Askew and this Court affirmed. After that

affirmance, the District Court performed a PSLRA-mandated 

Rule 11 inquiry. The District Court determined that Plaintiffs 

violated Rule 11 but chose not to award Askew attorneys’ fees 

or to impose any other sanctions. In this appeal, Plaintiffs 

contend that the District Court erred in concluding that they

violated Rule 11. For his part, Askew contends that the District 

Court, after determining that Plaintiffs violated Rule 11, erred 

in failing to impose sanctions, and that those sanctions should 

have included attorneys’ fees. For the reasons stated below, we 

will affirm the District Court’s order insofar as it determined:

(1) that Plaintiffs violated Rule 11 in bringing their federal 

securities claims against Askew and (2) that Askew was not 

entitled to attorneys’ fees. The PSLRA, however, mandates the 

imposition of some form of sanctions when parties violate Rule 

11 in bringing federal securities claims. And because the 

District Court determined that Plaintiffs violated Rule 11 by 

asserting their claims against Askew, we will vacate the 

portion of the order declining to impose sanctions and will

remand this matter to the District Court with directions to issue 

some form of Rule 11 sanctions against Plaintiffs. 

I. BACKGROUND

We begin, as we must, with an overview of the PSLRA 

and Rule 11 provisions relevant to this appeal. We will then 

have contested. Vantage entered bankruptcy proceedings 

before the District Court conducted its Rule 11 analysis. 

Vantage and Finegold are not parties to this appeal.
5

outline the factual and procedural background of the 

underlying dispute before turning to the merits. 

A. Rule 11 and the PSLRA

The Supreme Court adopted the Federal Rules of Civil 

Procedure, including Rule 11, in 1937. Rule 11 has been 

amended at various times, but “[s]ince its original 

promulgation, Rule 11 has provided for the striking of 

pleadings and the imposition of disciplinary sanctions to check 

abuses in the signing of pleadings.” Fed. R. Civ. P. 11, advisory 

committee’s note to 1983 amendment. The 1983 Amendment 

to Rule 11 attempted to address ongoing issues with litigation 

“abuses” “by building upon and expanding the equitable 

doctrine permitting the court to award expenses, including 

attorney’s fees, to a litigant whose opponent acts in bad faith 

in instituting or conducting litigation.” Id.

Rule 11 imposes requirements on attorneys and parties 

regarding pleadings and other court filings. First, a filing must 

“not be[] presented for any improper purpose, such as to 

harass” another party. Fed. R. Civ. P. 11(b)(1). Second, the 

claims must be “warranted by existing law or by a nonfrivolous 

argument for extending” or modifying existing law. Fed. R. 

Civ. P. 11(b)(2). Third, “the factual contentions [must] have 

evidentiary support or . . . [be] likely [to] have evidentiary 

support after” discovery. Fed. R. Civ. P. 11(b)(3). Finally, 

before filing, the parties and their attorneys must undertake an 

“inquiry reasonable under the circumstances” to verify 

compliance with Rule 11’s requirements. Fed. R. Civ. P. 11(b). 

If a party violates Rule 11, a court “may impose an appropriate 

sanction on any attorney, law firm, or party that violated [Rule 
6

11] or is responsible for the violation.” Fed. R. Civ. P. 11(c)(1) 

(emphasis added). 

Congress passed the PSLRA in 1995, pursuing the

“twin goals” of “curb[ing] frivolous, lawyer-driven litigation, 

while preserving [] investors’ ability to recover on meritorious 

claims.’” Winer Fam. Tr. v. Queen, 503 F.3d 319, 326 (3d Cir. 

2007) (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 

U.S. 308, 322 (2007)). The statute was intended to accomplish 

these goals, in part, by “heighten[ing] the pleading 

requirements” for federal securities claims. Id. at 335. 

The PSLRA also modified how courts should apply 

Rule 11. First, it provides that for any private action bringing 

federal securities claims, “the court shall include in the record 

specific findings regarding compliance by each party and each 

attorney” with Rule 11(b)’s requirements. 15 U.S.C. § 78u4(c)(1). The text of Rule 11 lacks such a requirement. Second, 

if the court determines that any Rule 11 violations occurred in 

a federal securities action, the PSLRA instructs that the “court 

shall impose [Rule 11] sanctions.” Id. § 78u-4-(c)(2) (emphasis 

added). By contrast, in a non-PSLRA Rule 11 inquiry, a court 

“may” impose sanctions when parties violate the Rule. Finally, 

if the violation constitutes a “substantial failure of a[] 

complaint to comply” with Rule 11, the PSLRA creates “a 

presumption that the appropriate sanction . . . is an award to the 

opposing party of [] reasonable attorneys’ fees.” Id. § 78u4(c)(3)(A)(ii). This presumption regarding the appropriate 

sanction is absent from the application of Rule 11 in other 

contexts. Fed. R. Civ. P. 11(c)(4) (“A sanction imposed under 

this rule must be limited to what suffices to deter repetition of 
7

the conduct or comparable conduct by others similarly 

situated.”).

B. Factual Background

Askew formed Vantage Corporation (“Vantage”) in 

2014 to trade securities using his proprietary trading software.

He marketed Vantage stock and recruited investors, including 

Plaintiffs. Gerald Finegold was Vantage’s President and 

Director. Non-party Matthew Dwyer helped Askew to identify 

potential investors. In April 2015, Vantage filed a Securities 

and Exchange Commission (“SEC”) Form D to sell 

unregistered securities in a 2016 stock offering under SEC 

Rule 506(b).3 Plaintiffs purchased stock in that offering.

3Securities offerings under SEC Rule 506(b) are exempt from 

registration. But to proceed with an unregistered securities 

offering, an issuer must still meet certain requirements. First, 

an issuer cannot engage in general solicitation or advertising to 

market the securities. Second, securities may not be sold to 

more than 35 non-accredited investors. In general, SEC Rule 

501 defines “accredited investor” as an individual with a high 

net worth or salary, or an individual with extensive investment 

experience. See 17 C.F.R. § 230.501. Third, if non-accredited 

investors participate in the offering, the issuer must provide the 

non-accredited investors with certain disclosure documents 

about the potential investment. Finally, all non-accredited 

investors must have sufficient knowledge and experience to 

evaluate potential risks. See Accredited Investor, U.S. Sec. & 

Exch. Comm’n (last updated Nov. 1, 2022), 
8

Tara Scott, a widow, purchased $2,000,000 of Vantage 

stock between January 28, 2016, and March 2, 2016. The funds 

that she invested were life insurance benefits she received after 

her husband died. According to Scott, she purchased the stock

based on Askew’s oral representations that the investment was 

“no-risk,” that “70% of [her] investment would be placed in a 

segregated account,” that she would “receive back [her] initial 

investment within six months,” and that Vantage owned the 

proprietary trading software that was the basis of Vantage’s 

business model. JA 1431. Scott contends that none of those 

representations were true. Also in 2016, Carter invested 

$3,000,000 in Vantage. A portion of that investment was the 

purchase of Vantage securities for Carter’s minor daughter. In 

total, Vantage raised about $8 million from sixteen investors 

during its 2016 stock offering. 

Plaintiffs began to worry about Vantage’s financial 

condition shortly after they invested their funds. Specifically, 

Plaintiffs were concerned because Askew was not providing 

sufficient information to them concerning the status of their 

investments. They decided they would seek to recoup their 

initial investments in Vantage and part ways with the company. 

But Plaintiffs’ investments were illiquid, and they had no right, 

based on their stock agreements, to rescind those investments.

Lacking a contractual right to rescind, Plaintiffs decided

to threaten litigation and to report Vantage to the SEC as a way

of pressuring Askew and Vantage to return Plaintiffs’ initial 

https://www.sec.gov/education/capitalraising/buildingblocks/accredited-investor.
9

investments. In a November 2017 email to Scott and Plaintiffs’ 

counsel, after suit was filed, Carter noted that Plaintiffs’ 

“strategy was to file [] complaints to force a settlement.” JA 

147.4 Before filing suit, Plaintiffs engaged an independent 

accountant who reviewed some of Vantage’s financial 

documents. In a March 8, 2017 letter, the accountant concluded 

that he could not say “whether anything nefarious is going [] 

on” with Vantage, but that the “‘smell factor’ is definitely 

present.” SA 173. 

C. Procedural Background

On April 20, 2017, Plaintiffs sued Vantage, Askew, and 

Finegold (“Defendants”) in the U.S. District Court for the 

4 This is the full text of Carter’s November 2017 email, which 

he sent to Scott and their attorneys at Eversheds Sutherland:

All—I am told the SEC has completed their 

investigation and notified Vantage they are 

dropping their inquiries and the case.

I need some sort of signal or opinion that the 

course of action has merit. I find the situation of 

paying massive legal fees vs. defendants with no 

assets to be untenable.

The strategy was to file these complaints to force 

a settlement...I don’t foresee this outcome. 

[P]lease help me understand what our current 

strategy is? JA 2238. 
10

District of Delaware.5 Plaintiffs asserted ten counts in their 

Complaint, including three federal securities claims.

First, under 15 U.S.C. § 771, Plaintiffs alleged a federal 

securities law violation for the sale of unregistered and nonexempt securities (the “Unregistered Securities Claim”). In this 

claim, Plaintiffs alleged that Defendants did not meet 

registration exemption requirements, and that Vantage’s 

unregistered 2016 offering was therefore in violation of federal 

securities law. The crux of this claim was that Askew sold 

Vantage securities to allegedly unsophisticated and 

unaccredited investors without providing sufficient 

disclosures. 

Second, Plaintiffs alleged that Defendants violated 15 

U.S.C. § 771(a)(2) by making misrepresentations in 

connection with the issuance of a security (the 

“Misrepresentation Claim”). In this claim, Plaintiffs alleged 

that Askew made a host of misrepresentations while selling 

Vantage stock, such as misrepresenting Vantage’s resources. 

Third, Plaintiffs alleged Rule 10b-5 Securities Fraud 

(under 15 U.S.C. § 10b-5) (the “10b-5 Securities Fraud 

Claim”). In support of this claim, Plaintiffs alleged that Askew 

defrauded Plaintiffs with materially misleading statements 

5 On June 22, 2017, the parties consented to full adjudication 

by a magistrate judge. The case was referred to Magistrate 

Judge Mary Pat Thynge that same day. 
11

about Vantage and that Plaintiffs relied on Askew’s fraudulent 

statements in purchasing Vantage stock.6

1. The District Court’s adjudication of 

Plaintiffs’ federal securities claims

On June 17, 2019, the District Court granted summary 

judgment for Askew and Finegold on Plaintiffs’ federal 

securities law claims. Before that ruling, Vantage had entered 

bankruptcy proceedings in the United States Bankruptcy Court 

for the Northern District of Georgia. Plaintiffs’ claims against 

Vantage were therefore subject to an automatic stay.

As to the Unregistered Securities Claim, the District 

Court determined that the record did not support the theory 

Plaintiffs advanced. Plaintiffs had alleged that Askew and 

Vantage sold securities to unaccredited investors, namely 

Carter’s minor child and Dwyer (who was bankrupt at the time 

of his purchase). Because minors and bankrupt individuals are 

unlikely to qualify as accredited investors due to the income 

and investment-experience requirements, see supra note 3, 

Plaintiffs argued that Vantage was not exempt from 

registration. The Court determined that Dwyer, due to his 

bankruptcy, was likely unaccredited at the time of his purchase, 

and that Carter’s child was indeed a minor when Carter 

6 To succeed with a 10b-5 securities fraud claim, a plaintiff 

must show “loss causation” in addition to reliance. To do so, a 

plaintiff must demonstrate that an alleged material 

misrepresentation caused the economic loss that plaintiff 

suffered. McCabe v. Ernst & Young, LLP, 494 F.3d 418, 424–

26 (3d Cir. 2007).
12

purchased securities on her behalf. The Court concluded, 

however, that Askew reasonably believed that both investors 

were accredited at the time of their security purchases.

7

Plaintiffs also alleged that Vantage engaged in a broad 

solicitation campaign that was akin to a public offering. That, 

they claim, would also have rendered Vantage subject to 

registration. However, the Court determined that the record did 

not establish that a public offering had occurred. 

On Plaintiffs’ Misrepresentation Claim, the Court 

concluded that such claims do not apply to the private sale of 

securities. And because the Court determined that the record 

contained no evidence of a public offering, the Court granted 

summary judgment for Askew and Finegold. 

Finally, on Plaintiffs’ 10b-5 Securities Fraud Claim, the 

Court concluded that Plaintiffs failed to establish loss 

causation. In particular, the Court declared that “there was no 

support in the record for [P]laintiffs’ contention that 

defendants made ‘serial misrepresentations’ that caused them 

to purchase Vantage Corporation stock and [that caused] the 

value of the stock to plummet.” JA 14–15 (emphasis added). 

Plaintiffs appealed the District Court’s summary 

judgment order. On February 5, 2021, this Court affirmed the 

District Court’s grant of summary judgment. See Scott v. 

Vantage Corp., 845 F. App’x 170 (3d Cir. 2021).

7 See 17 C.F.R. § 230.501(a) (defining “accredited investor” to 

include persons “who the issuer reasonably believes” are 

accredited).
13

2. The District Court’s Rule 11 analysis 

Askew had filed a Rule 11 Motion on December 6, 

2019, but the District Court held it in abeyance until this 

Court’s February 5, 2021 ruling affirming summary judgment.8

After our Court affirmed, the District Court performed the Rule 

11 inquiry that the PSLRA mandates.

As to Finegold, the District Court concluded that 

Plaintiffs violated Rule 11 and awarded Finegold his attorneys’

fees.9 As we’ve noted in the margin, neither Plaintiffs nor 

Finegold appealed that aspect of the Court’s Rule 11 decision.

As to Askew, and central to our inquiry here, the District 

Court concluded that Plaintiffs violated Rule 11 but declined 

to impose sanctions. That Court first determined that Plaintiffs 

performed a reasonable inquiry before filing their Complaint, 

in part because Plaintiffs engaged an accountant who 

8

In our opinion affirming summary judgment, we noted that 

Askew “also appealed the District Court’s failure to decide” 

Askew’s Rule 11 motion. Scott, 845 F. App’x at 181 n.10. 

However, because “the District Court notified the parties it 

[would] rule on that motion,” we determined that portion of 

Askew’s appeal to be moot. Id. 

9 The District Court concluded that Plaintiffs’ claims against 

Finegold were tenuous, and that his only connection to 

Plaintiffs’ claims was his “mere status” as a control person. 

Moreover, Plaintiffs’ Complaint “failed to include any 

allegations of [Finegold’s] action or inaction,” and Plaintiffs 

“admitted they never spoke with Finegold before investing in 

Vantage.” JA 33–34.
14

concluded that the “smell factor” was present. JA 19–23; SA 

173. However, the Court held that Plaintiffs violated Rule 

11(b)(1) by filing for an improper purpose—forcing a 

settlement. In making that finding, the District Court relied 

heavily on the email in which Carter articulates a “strategy” 

designed “to force a settlement.” JA 23–24; see supra note 4.

The District Court also held that Plaintiffs violated Rule 

11 by bringing their Unregistered Securities and 

Misrepresentation Claims. For these claims, the Court 

concluded that Plaintiffs violated Rule 11’s requirement that 

factual contentions have, or likely will have, evidentiary 

support. Fed. R. Civ. P. 11(b)(3). The Court reasoned that 

Plaintiffs’ pre-filing investigation “should have revealed the 

lack of factual support for the allegation that the relevant 

Vantage Corporation offering was public.” JA 27. And on the 

allegation of sales to unaccredited investors, the Court noted 

that the Complaint failed to “identify[] any specific 

individuals,” and that “[o]nly with the benefit of hindsight and 

discovery did plaintiffs identify Dwyer and Carter’s minor 

daughter as potentially unaccredited investors.” JA 27. 

The District Court did not, however, find a violation of 

Rule 11 in Plaintiffs having brought the 10b-5 Securities Fraud 

Claim. In support of that claim, Plaintiffs alleged that Askew 

made a host of misrepresentations in connection with the sale 

of Vantage securities. Askew’s motion for summary judgment 

did not rebut these misrepresentations—he only argued that 

Plaintiffs failed to establish reliance and loss causation.

Plaintiffs therefore asserted that Askew “concede[d] . . . 

Plaintiffs had a reasonable basis to allege” that he made 
15

representations to them that “were false.” JA 28. The District 

Court agreed. It determined that Plaintiffs’ “communications 

with an accountant,” as well as Plaintiffs’ review of “financial 

documents showing [Vantage’s] ominous financial position,” 

“produced a reasonable basis to believe they had factual 

support for the securities fraud claims.” JA 29. 

And because the District Court considered the 10b-5 

Securities Fraud Claim to be the “heart of the complaint,” it

concluded that Plaintiffs’ Rule 11 violations against Askew 

were not “a substantial violation under the PSLRA.” JA 31. 

Accordingly, that Court declined to award Askew attorneys’

fees or to impose any other sanctions on Plaintiffs.

Both parties appealed. Askew appealed the District 

Court’s failure to impose sanctions, including attorneys’ fees. 

Plaintiffs appealed the Court’s determinations that Plaintiffs 

violated Rule 11. 

II. JURISDICTION AND STANDARD OF REVIEW 

The District Court had subject matter jurisdiction 

pursuant to 28 U.S.C. § 1331. We have appellate jurisdiction 

pursuant to 28 U.S.C. § 1291. 

We review a district court’s Rule 11 determinations for 

abuse of discretion. Doering v. Union Cnty. Bd. of Chosen 

Freeholders, 857 F.2d 191, 195 (3d Cir. 1988). Deference to a 

district court can be especially important in the Rule 11 context 

because the district court is “[f]amiliar with the issues and 

litigants” and “is better situated than the court of appeals to 

marshal the pertinent facts and apply the fact-dependent legal 
16

standard mandated by Rule 11.” Cooter & Gell v. Hartmarx 

Corp., 496 U.S. 384, 402 (1990). An open question for this 

Court, however, is whether the interplay between the PSLRA 

and Rule 11 affects in any way our abuse of discretion review. 

While the PSLRA mandates and modifies the Rule 11 inquiry,

the considerations supporting abuse of discretion review 

remain unchanged—the inquiry is still heavily fact-dependent 

and requires familiarity with the issues and litigants. Thus, a 

district court will always be “better situated than the court of 

appeals” to apply the rule. Id. We therefore join the Fourth 

Circuit in holding that review of a district court’s PSLRAmandated Rule 11 inquiry is, as with other Rule 11 

determinations, subject to the deferential abuse of discretion

standard. Morris v. Wachovia Sec., Inc., 448 F.3d 268, 277 (4th 

Cir. 2006) (“Nothing in the [PSLRA’s] sanctions provision 

changes [abuse of discretion] review.”). Of course, “this 

standard [does] not preclude [an] appellate court’s correction 

of a district court’s legal errors,” Cooter & Gell, 496 U.S. at 

402, including a failure to adhere to any of the PSLRA’s Rule 

11 requirements. 

III. DISCUSSION 

We proceed now in multiple steps. First, we will affirm 

the District Court’s order insofar as it finds Rule 11 violations, 

including its determination that Plaintiffs’ Unregistered 

Securities and Misrepresentation Claims violated Rule 11 

while their 10b-5 Securities Fraud Claim did not. Second, we 

will affirm the District Court’s order insofar as it determined 

that Plaintiffs’ Complaint did not constitute a “substantial 

failure” to comply with Rule 11. Finally, because the PSLRA 
17

requires that some form of sanctions be imposed when a party

violates Rule 11, we will vacate the portion of the District 

Court’s order that declined to impose sanctions. 

A. The District Court Did Not Abuse Its Discretion 

in Finding that Plaintiffs Violated Rule 11

A district court abuses its discretion when it renders a 

decision that is “contrary to reason or without a reasonable 

basis in law and fact.” Simmerman v. Corino, 27 F.3d 58, 62 

(3d Cir. 1994). In applying the abuse of discretion standard, we 

do not ask whether “we would make the same precise 

determinations” that we are reviewing. Id. Instead, our inquiry 

is whether the district court “based its ruling on an erroneous 

view of the law or on a clearly erroneous assessment of the 

evidence.” Cooter & Gell, 496 U.S. at 405. Applying that

deferential standard, we hold that the District Court did not 

abuse its discretion in finding a Rule 11 violation. 

1. Filing for an improper purpose—Rule 11(b)(1)

First, the District Court did not abuse its discretion in 

finding that Plaintiffs filed for an improper purpose. Plaintiffs 

are correct that settlements pervade civil litigation and that

filing a complaint with a hopeful eye towards eventual 

settlement is not, by itself, a Rule 11 violation. Indeed, we have 

recognized a “strong presumption in favor of voluntary 

settlement[s]” because they “promote the amicable resolution 

of disputes,” further “the conservation of judicial resources,” 

and help parties “avoid[] the costs and risks of a lengthy and 

complex trial.” Ehrheart v. Verizon Wireless, 609 F.3d 590, 

594–95 (3d Cir. 2010). Considering the strong policy favoring
18

settlements, and given that “Rule 11 targets abuse,” Mary Ann 

Pensiero, Inc. v. Lingle, 847 F.2d 90, 94 (3d Cir. 1988)

(internal quotation marks omitted), we caution district courts 

to be wary of finding a Rule 11 violation when a plaintiff files 

a lawsuit alleging colorable claims yet has the ultimate goal of 

settling those claims.

Here, however, Plaintiffs did not simply have an eye 

toward settlement. They expressly stated that their “strategy 

was to file these complaints to force a settlement.” JA 15. The 

District Court also noted (1) “Carter’s testimony admitting he 

sought the return of [his Vantage investment] to make a 

separate real estate transaction,” and (2) testimony from Scott 

“indicating she did not even know whether her [Vantage] 

investment had declined in value at the time she filed suit.” JA 

23 n.108. Finally, in evaluating Plaintiffs’ federal securities 

claims, the District Court determined that two out of the three 

claims lacked factual support in violation of Rule 11(b)(3). 

In light of the intent expressed in Carter’s email and the 

other record evidence the District Court considered, and 

especially considering the District Court’s findings on the 

factual deficiency of Plaintiffs’ federal securities claims, we 

cannot conclude that the District Court applied a “clearly 

erroneous assessment of the evidence” in determining that 

Plaintiffs filed for an improper purpose. Cooter & Gell, 496 

U.S. at 405. While it is a close call, we are ultimately mindful 

that ascertaining a party’s purpose goes to the heart of a district 

court’s superior position to “marshal the pertinent facts and 

apply the fact-dependent legal standard mandated by Rule 11.”

Id. at 402. Accordingly, because the District Court did not base 
19

its finding solely on Plaintiffs’ express desire to settle the case, 

we conclude that the District Court did not abuse its discretion 

in finding that Plaintiffs violated Rule 11(b)(1).

2. Alleging claims without factual support—Rule 

11(b)(3)

a. The Unregistered Securities and 

Misrepresentation Claims

Second, the District Court did not abuse its discretion in 

determining that Plaintiffs’ Unregistered Securities and 

Misrepresentation Claims lacked factual support in violation of 

Rule 11(b)(3). In assessing compliance with Rule 11, courts 

“must apply an objective standard of reasonableness,” 

assessing a party’s or attorneys’ conduct based on “what was 

reasonable to believe at the time [the complaint] was 

submitted.” Lingle, 847 F.2d at 94. In other words, courts 

should avoid “the wisdom of hindsight” when conducting Rule 

11 inquiries. Id. Here, the District Court did not abuse its 

discretion in either stating the law or weighing the relevant 

facts. 

In setting forth the Unregistered Securities Claim, 

Plaintiffs alleged that Askew “made general solicitations to 

obtain investor funding, including, upon information and 

belief, soliciting and/or selling to unaccredited investors.” JA 

215. But as the District Court observed, Plaintiffs made general 

allegations about unaccredited investors “without identifying 

any specific individuals.” JA 27. Plaintiffs now identify Dwyer 

and Carter’s minor daughter as potentially unaccredited 

investors, but “Dwyer’s name is completely absent” from the 
20

Complaint, and Carter had his minor daughter “sign a 

document indicating she was accredited.” JA 27. Accordingly, 

the District Court found that it was “[o]nly with the benefit of 

hindsight” that Plaintiffs identified Dwyer and Carter’s minor 

daughter as potentially unaccredited investors. JA 27.

In performing its Rule 11 inquiry, the District Court 

applied the proper, forward-looking legal framework. And we

see no basis to conclude that its assessment of the relevant facts 

was clearly erroneous. We therefore conclude that the District 

Court did not abuse its discretion in finding that Plaintiffs 

violated Rule 11(b)(3) in bringing the Unregistered Securities 

Claim. 

We reach the same conclusion as to Plaintiffs’ 

Misrepresentation Claim. First, the District Court correctly 

concluded that such claims do not apply to the private sale of 

securities. Gustafson v. Alloyd Co., 513 U.S. 561, 578 (1995) 

(“The intent of Congress and the design of the statute require 

that § 12(2) [15 U.S.C. § 771(a)(2)] liability be limited to 

public offerings.”). The Court then marshalled the relevant 

facts, finding that “the documentation [Askew provided] 

[P]laintiffs as prospective investors clearly identified the 

offering was private and for accredited investors only.” JA 27. 

The Court also determined that Plaintiffs’ pre-filing 

investigation “should have revealed the lack of factual support 

for the allegation that the relevant Vantage [] offering was 

public.” JA 27. Thus, similar to the Unregistered Securities 

Claim, the District Court’s discussion of both the legal 

framework and relevant facts indicates neither an “erroneous 

view of the law,” nor a “clearly erroneous assessment of the” 
21

facts. Cooter & Gell, 496 U.S. at 405. We will, therefore,

affirm the District Court’s conclusion that Plaintiffs’ 

Misrepresentation Claim violated Rule 11(b)(3).

We are mindful of Plaintiffs’ reference in their appellate 

briefing to “observed conduct of” Askew that supported a 

“reasonable basis to believe” that he engaged in a public 

offering. Appellee’s Br. 25. Plaintiffs point to Scott’s March 

12, 2019 declaration, stating that in July 2016 while in Aspen, 

Colorado, Scott observed “Mr. Askew approach two strangers 

in a bar and solicit them to invest in Vantage Corporation.” JA 

1435. But the term “public offering” does not have a formulaic 

definition. Instead, the existence of a public offering turns on 

whether a “security holder can demonstrate that the sales were 

made to individuals or entities that did not require the 

registration protections of the Securities Act.” Berckeley Inv. 

Grp., Ltd. v. Colkitt, 455 F.3d 195, 215 (3d Cir. 2006); Sec. & 

Exch. Comm’n v. Ralston Purina Co., 346 U.S. 119, 125 

(1953) (“An offering to those who are shown to be able to fend 

for themselves is a transaction ‘not involving any public 

offering.’” (quoting 15 U.S.C. § 77d)). Considering the lack of 

precision in the definition of “public offering,” it is debatable 

whether Scott’s one-off observation can support a reasonable 

basis to believe that Askew publicly offered Vantage 

securities. We cannot, therefore, conclude that the District 

Court based its Rule 11 decision on a clearly erroneous 

assessment of the facts in concluding that Plaintiffs’ 

Misrepresentation Claim violated Rule 11(b)(3). 
22

b. The 10b-5 Securities Fraud Claim

Finally, the District Court did not err in determining that 

Plaintiffs’ 10b-5 Securities Fraud Claim did not violate Rule 

11. First, the District Court properly articulated the elements of 

a 10b-5 claim.10 Second, the District Court reasonably applied 

the relevant facts, emphasizing Plaintiffs’ pre-filing discussion 

with an accountant and Plaintiffs’ review of documents 

showing Vantage’s “ominous financial position.” JA 29. The 

District Court also noted Plaintiffs’ observation that Askew 

failed to rebut Plaintiffs’ contention that he made false 

representations—instead, Askew focused on Plaintiffs’ failure 

to establish reliance and loss causation. While it is true that the 

District Court summarily dismissed the 10b-5 Securities Fraud 

Claim, courts must ensure that Rule 11 “not be used as an 

automatic penalty against an attorney or a party advocating the 

losing side of a dispute.” Gaiardo v. Ethyl Corp., 835 F.2d 479, 

482 (3d Cir. 1987). Because the District Court did not clearly 

err in its assessment of the facts, we conclude that there was no

abuse of discretion in that Court’s determination that Plaintiffs 

had a reasonable basis to allege securities fraud.

10 The elements are: “(1) a material misrepresentation (or 

omission); (2) scienter . . . ; (3) a connection with the purchase 

or sale of a security; (4) reliance . . . ; (5) economic loss; and 

(6) ‘loss causation.’” McCabe v. Ernst & Young, LLP, 494 F.3d 

418, 424 (3d Cir. 2007) (quoting Dura Pharms., Inc. v. Broudo, 

544 U.S. 336, 341–42 (2005) (emphasis omitted)). 
23

B. Rule 11 Sanctions 

1. The District Court did not abuse its 

discretion in declining to award Askew 

attorneys’ fees.

As discussed above, the PSLRA creates a presumption 

in favor of awarding attorneys’ fees when a complaint 

constitutes a “substantial failure” to comply with Rule 11. 15 

U.S.C. § 78u-4(c)(3)(A)(ii). The PSLRA does not, however,

define “substantial failure,” nor has this Court yet expounded 

on the meaning or reach of the term. Given the lack of statutory 

or Third Circuit guidance, the District Court adopted the 

Second Circuit’s approach in Gurary v. Nu-Tech Bio-Med, 

Inc., 303 F.3d 212 (2d Cir. 2002). There, the Second Circuit 

articulated a two-step test for assessing whether a complaint 

containing multiple counts constituted a substantial failure. 

First, a court must determine whether the pleading of one or 

more causes of action violated Rule 11. Id. at 223. Assuming, 

as the District Court determined here, that some of the claims 

violated Rule 11 while others did not, a court should proceed 

to step two.11 In step two, a court analyzes all the claims 

collectively and assesses whether the claims that do not violate 

Rule 11 “are of a quality sufficient to make the suit as a whole 

nonabusive.” Id. If so, the complaint is not a substantial failure, 

and the presumption in favor of attorneys’ fees does not arise. 

11 While it is likely that a complaint lacking even a single claim 

for which there was a reasonable basis would constitute a 

“substantial failure,” that issue is not before us. 
24

The Fourth Circuit reasoned similarly in Morris v. 

Wachovia Securities, Inc., adopting a somewhat modified 

version of Gurary’s two-part test. 448 F.3d at 278–79. 

Specifically, the Fourth Circuit altered the language of step two

and held that it “requires an inquiry into whether the 

complaint’s Rule 11(b) violations make the complaint as a 

whole ‘essentially,’ ‘without material qualification,’ ‘in the 

main,’ or ‘materially’ frivolous.” Wachovia, 448 F.3d at 278–

79 (quoting Gurary, 303 F.3d at 228 (Walker, C.J., 

concurring)). 

While we have doubts that any difference in the 

language used by the Second and Fourth Circuits meaningfully 

alters the inquiry required of a court, the Fourth Circuit’s 

approach is more closely tied to the definition of “substantial.” 

See Black’s Law Dictionary 1428–29 (6th ed. 1990) (defining 

“[s]ubstantially” as “[e]ssentially,” “without material 

qualification,” “in the main,” “in substance,” or “materially”); 

Pierce v. Underwood, 487 U.S. 552, 565 (1988) (defining 

“substantially justified” as “justified in substance or in the 

main”). And in general, the two-step framework strikes us as a 

sensible balance of the PSLRA’s “twin goals” of “curb[ing] 

frivolous, lawyer-driven litigation” while also “preserving [] 

investors’ ability to recover on meritorious claims.” Queen, 

503 F.3d at 326 (quoting Tellabs, 551 U.S. at 322)). We 

therefore adopt a streamlined version of the Fourth Circuit’s 

approach to assessing whether a complaint substantially 

violates Rule 11. If a court determines that some claims violate 

Rule 11 and others do not, the court should examine the claims 

collectively to assess whether the Rule 11 violations render the 

complaint, as a whole, frivolous.
25

Applying this framework, we conclude that the District 

Court did not abuse its discretion in determining that Plaintiffs’ 

Complaint was not a substantial Rule 11 violation. First, the 

District Court applied a proper legal framework. In assessing 

whether there was a “substantial failure,” the District Court 

asserted that it must determine whether the Rule 11 violations 

it found “were sufficiently substantial to make the complaint 

as a whole frivolous.” JA 30 (emphasis omitted). This closely 

tracks the legal framework we articulated above. So the 

District Court did not abuse its discretion in describing the 

legal standard because it did not articulate an erroneous view 

of the law. 

Second, the District Court correctly applied the facts to 

the legal framework. It was reasonable for the District Court to 

conclude that the “gravamen” of Plaintiffs’ Complaint against 

Askew was that he made misrepresentations about Vantage 

that tricked Plaintiffs into making an investment that was much 

riskier than Askew represented. See JA 31; JA 127, Compl.

¶ 29 (“Plaintiffs made these investments and purchased 

Vantage Corporation stock as a result of direct 

misrepresentations and omissions made to them by Askew.”).

Therefore, it was also reasonable to conclude that the 10b-5 

Securities Fraud Claim was the “heart” of the Complaint. Id.

And finally, where, as here, a district court reasonably 

determines that the “heart” of a complaint did not violate Rule 

11, it is a proper exercise of discretion to conclude that the 

complaint did not substantially violate Rule 11. Accordingly, 

we agree with the District Court that Plaintiffs’ Rule 11 

violations did not constitute a substantial failure. The PSLRA’s 

attorney fee presumption is thus inapplicable here. 
26

2. The District Court abused its discretion in 

declining to impose any sanctions.

Finally, we address whether the District Court abused 

its discretion in declining to impose sanctions after finding 

Rule 11 violations. Because the text of the PSLRA makes the 

imposition of sanctions mandatory after a court determines that 

a party violated Rule 11, we conclude that the District Court 

abused its discretion in declining to impose any form of 

sanctions. 

In interpreting a statute, “[w]e begin, as always, with the 

text of the law.” United States v. Ashurov, 726 F.3d 395, 398 

(3d Cir. 2013). When a “statute’s language is plain, the sole 

function of the courts is to enforce it according to its terms.” 

Doe I v. Scalia, 58 F.4th 708, 715 (3d Cir. 2023) (internal 

quotation marks omitted). Here, because the text of the PSLRA

is plain, 15 U.S.C. § 78u-4-(c)(2), our inquiry begins and ends 

with that plain meaning.

The PSLRA provides that a court “shall” impose 

sanctions when it finds that a party has violated Rule 11. Id.

The word “shall” is “mandatory” and “normally creates an 

obligation impervious to judicial discretion.” Lexecon Inc. v. 

Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 

(1998). For example, before Rule 11 was amended in 1993, it 

dictated that a court “shall impose” an “appropriate sanction” 

against a party who violated the rule. Langer v. Monarch Life 

Ins. Co., 966 F.2d 786, 810 (3d Cir. 1992) (quoting Rule 11 

before its 1993 amendment). We construed that language to
27

mean that “[s]anctions for violating Rule 11 [were]

mandatory,” and further held that a district court “abuse[s] its 

discretion by failing to award sanctions.” Id. at 810–11.

Further, our sister circuits that have construed the PSLRA’s 

use of “shall” have all concluded that it mandates sanctions

when a court determines that Rule 11 has been violated. See 

Morris v. Wachovia Sec., Inc., 448 F.3d 268, 276 (4th Cir. 

2006) (“Because the [PSLRA’s] sanctions ‘instruction comes 

in terms of the mandatory “shall,”’ . . . the district court must 

impose sanctions for each violation found.” (quoting Lexecon, 

523 U.S. at 35)); Thompson v. RelationServe Media, Inc., 610 

F.3d 628, 636 (11th Cir. 2010) (“[T]he PSLRA’s provisions

eliminate a district court’s discretion . . . in determining 

whether to impose sanctions following a finding of a Rule 

11(b) violation.”); Citibank Glob. Markets, Inc. v. Rodriguez 

Santana, 573 F.3d 17, 32 (1st Cir. 2009) (same); Simon 

DeBartolo Grp., L.P. v. Richard E. Jacobs Grp., Inc., 186 F.3d 

157, 178 (2d Cir. 1999) (“Under the PSLRA [] the district court 

was required to impose sanctions.”). Accordingly, pursuant to 

the plain meaning of “shall,” a district court must impose Rule 

11 sanctions when it finds Rule 11 violations in proceedings 

governed by the PSLRA. The District Court’s decision to forgo 

sanctions was an abuse of discretion, so we will vacate the 

District Court’s order insofar as it determined that sanctions 

against Plaintiffs were not required. 

On remand, the District Court is instructed to impose, 

in its discretion, some form of sanction against Plaintiffs in 

accordance with Rule 11. We take no position on what a proper 

sanction would be here, acknowledging as we must that the 

District Court is better situated to make that determination. We
28

do note that the available options run the gamut from an award 

of attorneys’ fees—as Askew initially requested—to “a written 

order admonishing by name the individual lawyers responsible 

for the Rule 11(b) violations that the district court identified in 

[Plaintiffs’] complaint[].” Wachovia, 448 F.3d at 285 (where 

plaintiffs had engaged in insubstantial violation of Rule 11, 

vacating denial of sanctions and remanding with instructions

to name and admonish the lawyers responsible for the 

violation).

IV. CONCLUSION

While we will affirm most of the District Court’s Rule 

11 order, the PSLRA’s text requires that some sanction be 

imposed where, as here, a party violates Rule 11. Although we 

will not declare what is an appropriate sanction, we will vacate 

and remand this case to the District Court to impose such Rule 

11 sanctions as that Court considers, in the exercise of its 

discretion, to be appropriate.