However, Medline’s counsel had to deal with the motion to reconsider and proposed second
amended complaint, even though no responsive filing was ultimately required. As Medline’s
counsel stated at oral argument before this court, every time a pleading was filed in this case, they
could not ignore it, but, instead, had to examine it, explain it to their client, and be prepared to
respond to it. This court concludes that two hours each for the motion to reconsider (and its
supporting memorandum) and the proposed second amended complaint is a reasonable time for those
activities. Therefore, the court recommends that Medline be awarded fees for four hours of its
attorneys’ time for dealing with Rovell’s filings after the April 30, 2004 Order.

On the other hand, the court does not recommend that additional amounts be granted to
Medline for the fees incurred in litigating its various sanctions motions. All of those documents
were filed after the court had dismissed the case with prejudice. In fact, the only briefs filed by
Medline after Jolly’s motion to reconsider were those relating to Medline’s own motions for
sanctions (e.g., Medline’s response to Jolly’s counsel’s motion to vacate the sanctions order and
Medline’s reply in support of its motion for sanctions.) [Dkt 31, 47.] As the District Judge stated
in her August 9, 2004 Order, Medline “initiated and vigorously pursued three sanctions motions;
attendant costs should have been foreseen.” (August 9, 2004 Order.)

Thus, this court respectfully recommends that Rovell be ordered personally to pay Medline
the attorney’s fees for four hours of the time spent by Medline’s lead attorney in this case, Dan J.

Hofmeister, Jr., at Hofmeister’s regular rate as of May 2004, Hofmeister shall advise Rovell in

Aug. 2, 2004 at 2. Although the motion to reconsider and proposed second amended complaint
may have been discussed at the August 2, 2004 argument, Medline was not required to spend any
“excess” time preparing to respond to those filings at the hearing.

-20-


been formed that satisfied the statute of frauds, both initially in the decision granting the motion to
dismiss the amended complaint and again in the decision on the motion for reconsideration. The
question here is whether sanctions pursuant to § 1927 should be imposed. For that purpose, the court
considers Rovell’s conduct in advancing legal arguments as divided into two time periods: Before
and after the District Judge’s decision to dismiss the amended complaint with prejudice. Until that
decision, Rovell’s theories, reflected in the first complaint and the amended complaint, had not been
judicially rejected. “[T]he line between strong advocacy and vexatious conduct is not always
bright.” R & B Group, Inc. v. BCI Burke Co., Inc., No. 96 C 2620, 1999 WL 754632 at *7 (N.D. Ill.
Sept. 9, 1999) (Pallmeyer, J.) (quoting Scenic View, Inc. v. Dubiel Prods., Inc.,No. 98 C 6641, 1999
WL 261833 at *5 (N.D. Ill. Apr. 14, 1999))., In this court’s view, sanctions under § 1927 should not
be imposed on Rovell so/e/y for advancing unsuccessful legal theories in the complaint and amended
complaint.® (Rovel]’s conduct other than advancing a legal position is discussed below.)

On the other hand, Rovell’s conduct after the district court’s April 30, 2004 order rejecting
those theories is a different matter. Rovell fails to explain how he could seriously have thought that
his motion to reconsider would be successful or that Jolly would be granted leave to file a second
amended complaint after the case had been dismissed with prejudice. Significantly, the district
court’s June 4, 2004 Opinion and Order specifically cited Rovell’s filing of the motion to reconsider
and for leave to file the second amended complaint as grounds for sanctions under § 1927. (June
4, 2004 Op. & Order at 10.) Rovell objected that he had not had an opportunity to be heard before

sanctions were imposed on him for that conduct. (PI.’s Counsel’s Mot. Vacate Sanctions Order at

® Whether Jolly’s amended complaint violated Rule 11 is now moot, since sanctions
under that Rule are unavailable, as discussed above.

-14-


requested that the court “deny defendant’s motion to dismiss or, in the alternative, permit plaintiff
leave to replead to add allegations concerning the additional writings identified here.” (/d.)

The District Judge granted Medline’s motion and dismissed the amended complaint with
prejudice, entering judgment against Jolly on April 30, 2004 (which was 15 days after Medline
served its Rule 11 motion). See April 30, 2004 Order. [Dkt 17, 18.] In doing so, the court found
the amended complaint legally defective because it alleged the existence of an unfulfilled condition
precedent to the formation of a binding contract, i.e., the parties’ failure to draw up a complete
contract. The court further determined that the writings on which Jolly relied for purposes of
satisfying the statute of frauds insufficiently evidenced the existence of a contract or its terms. (June
4, 2004 Op. & Order at 3-4.)

On May 13, 2004, Medline filed its motion for Rule 11 sanctions. {Dkt 20.] That same day,
it also filed a motion for sanctions pursuant to 28 U.S.C. § 1927. [Dkt 19.] In its § 1927 motion,

Medline requested attorneys’ fees and costs “in excess of $30,000.” (PI.’s § 1927 Mot. at 6.)

Cc Motion to Reconsider Dismissal and Proposed Second Amended Complaint

On May 14, 2004, the day after Medline filed its motions for sanctions pursuant to Rule 11
and § 1927, Jolly filed a motion to reconsider the court’s order dismissing the case, and sought leave
to file a second amended complaint. [Dkt 21.] That motion was signed by Jolly’s counsel, Rovell.
(id. at 5.) In the proposed second amended complaint, Jolly no longer alleged that the May 18"
contract constituted a valid, binding and enforceable contract. Instead, Jolly alleged that the May
7" contract constituted a valid, binding, and enforceable contract between the parties. In addition,

Jolly submitted an entirely new contract, dated August 25, as the parties’ valid, binding and

5.


writing of that amount within three business days following the service of this report and
recommendation.

The court also believes that an additional, nominal sanction should be imposed against Rovell
for wasting the District Judge’s time and resources by his unreasonable and vexatious filing of the
motion to reconsider and proposed second amended complaint. In the end, it was the District Judge
(and thus the taxpayers) who bore the brunt of Rovell’s conduct, as the District Judge had to review
the motion in light of the previous pleadings that were replete with the type of problems discussed
above, and had to address, in a written opinion, the meritless character of Rovell’s motion and
proposed second amended complaint. The District Judge found, among other things, that at least one
argument in the motion to reconsider was “disingenuous,” and that the proposed second amended
complaint failed to cure at least two of the prior complaints’ defects. See June 4, 2004 Op. & Order
at 6, 7. See also id. at 4, 5-7. “While § 1927 does not authorize a sanction in the nature of a share
of the court’s overhead . .. ,an order directing nominal reimbursement of the cost to the government
is appropriate.” Novelty Textile Mills, Inc. v. Stern, 136 F.R.D. 63, 78 (S.D.N.Y. 1991) (citations
omitted). In Novelty Textile Mills, the court awarded $250.00 to the government as a sanction under
§ 1927. Id. See also Vandeventer v. Wabash Natl. Corp., 893 F. Supp. 827, 859-60 (N.D. Ind. 1995)
(ordering attorneys to pay $500.00 to the Clerk of Court as a nominal sanction under § 1927 where
“the Court and the taxpayers have been the true casualties”); Royal Maccabees Life Ins. Co. v.
Malachinski, No. 96 C 6135, 2001 WL 290308 at *14, 15 (N.D. II. March 20, 2001) (Guzman, J.)
(directing defendant’s counsel to pay $300.00 to the Clerk of Court under § 1927 to compensate the
court, where attorneys “repeatedly and needlessly wasted the Court’s time”).

Thus, this court also respectfully recommends that Rovell be ordered personally to pay

-21-


in this case, Dan J. Hofmeister, Jr., at Hofmeister’s regular rate as of May 2004. Hofmeister shall
advise Rovell in writing of that amount within three business days following the service of this
report and recommendation.

Specific written objections to this report and recommendation may be served and filed within
10 business days from the date that this order is served. Fed. R. Civ. P. 72(b). Failure to file
objections with the district court within the specified time will result in a waiver of the right to
appeal all findings, factual and legal, made by this court in the report and recommendation.

Lorentzen v. Anderson Pest Control, 64 F.3d 327, 330 (7th Cir. 1995).

Geraldine Soat Brown
United States Magistrate Judge

January 31, 2005

-23-


be required to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred

pursuant to § 1927.

Cc Recommendation of Sanctions to be Imposed

The next issue is whaf costs, expenses, and attorneys’ fees were reasonably incurred as a
result of Rovell’s sanctionable actions. Under § 1927, Medline may only be awarded the “excess”
costs, expenses, and attorneys’ fees incurred because of unreasonable and vexatious conduct.
“Excess” costs, expenses, and attorneys’ fees have been described by the Seventh Circuit as those
that otherwise would not have been incurred. Pacific Dunlop Holdings, 22 F.3d at 120. See also
2125, Ine. v. Village of Melrose Park, No. 00 C 0680, 2003 WL 22317569 at *2, 4 (N.D. Ill. Oct.
8, 2003) (Darrah, J.) (ordering plaintiff's attorneys to pay fees that defendant incurred in connection
with frivolous motion to reconsider dismissal and notice of appeal to the Seventh Circuit which was
voluntarily dismissed one month later); Benet, 1995 WL 562087 at *4 (declining to award fees under
§ 1927 for defendants’ filing of responsive pleadings that did not cause defendants to incur excess
fees, but awarding sanctions against plaintiff's attorney for fees incurred by defendants for having
to respond to frivolous motion for reconsideration).

Fortunately for Rovell, Medline’s “excess” costs were limited because Jolly’s lawsuit did not
progress very far. Medline filed only two substantive documents: The motion to dismiss the original
complaint, which was superceded by the amended complaint, and the motion to dismiss the amended
complaint, which was granted resulting in the dismissal of the case with prejudice. As discussed
above, the District Judge’s prompt order dismissing the amended complaint saved Jolly from

exposure to Rule 11 sanctions. At that point, Jolly could have pursued an appeal from that order,

-18-


the exercise of the court’s inherent power to control the proceedings before it.” /d. at 927. Although
the Seventh Circuit noted that there were a number of possible arguments why sanctions under Rule
11 might be justifiable, it did not decide on that basis. Jd. Observing that “[e]vents often move too
fast to allow strict compliance with [Rule 11],” the Seventh Circuit concluded that the court may rely
on its inherent authority to impose sanctions for abuse of the judicial system. Id.

Medline suggests that the District Judge’s decision to deny Rule 11 sanctions should be
reconsidered because, like Methode, this is a case where “events simply moved too quickly to permit
technical compliance with the safe harbor provision in Rule 11.” (Def.’s Reply at 4-5.) However,
the Seventh Circuit’s opinion in Methode does not undermine the District Judge’s decision to deny
Rule 11 sanctions here because Jolly did not have the benefit of the full safe harbor period. On the
contrary, the district court’s decision is consistent with Seventh Circuit authority. See, e.g., Divane,
Jr., etal. y. Krull Elec. Co., Inc., 200 F.3d 1020, 1025-26 (7th Cir. 1999) (stating that “[a] court that
imposes sanctions by motion without adhering to this twenty-one day safe harbor has abused its
discretion” and “the twenty-one day safe harbor is not merely an empty formality”).

The basis on which the Seventh Circuit affirmed the imposition of sanctions in Methode, the
court’s own “inherent power to control the proceedings before it,” was available to the District Judge
in this case. See Methode, 371 F.3d at 927 (citing Chambers v. NASCO, Inc., 501 U.S. 32, 49
(1991)). The District Judge chose not to exercise that inherent authority in this case, but rather to

proceed under 28 U.S.C. § 1927. See June 4, 2004 Op. & Order at 8-10. This court sees no reason

3 In Divane, the Seventh Circuit affirmed the imposition of Rule 11 sanctions although
the motion for sanctions was filed after the judgment had been entered, because the motion had
been served (although not filed) more than twenty-one days prior to the entry of judgment. 200
F.3d at 1026.

-10-


On August 9, 2004, after a hearing was held on Rovell’s motion to vacate the court’s
sanctions order, the District Judge entered an order vacating certain portions of her June 4, 2004
Memorandum Opinion and Order, specifically, the Rule 11 Sanctions portion, the § 1927 Sanctions
portion, and the Conclusion portion (pages 7-10). (August 9, 2004 Order.) The District Judge
explained that although Rovell had received adequate notice that Medline would seek sanctions and
the factual basis for its sanctions motions, a briefing schedule should have been set to allow Rovell
the opportunity to respond to the motions for sanctions. (August 9, 2004 Order.) The District Judge
then referred Medline’s motion for Rule 11 sanctions, motion for sanctions pursuant to 28 U.S.C.
§ 1927, and supplemental request for sanctions pursuant to 28 U.S.C. § 1927 to this court for a report

and recommendation. (August 9, 2004 Order.)

IL Proceedings before this Court

Ata hearing before this court on August 25, 2004, Rovell stated that Jolly would dismiss its
appeal to the Seventh Circuit if Medline would withdraw its current motions for sanctions. (August
25, 2004 Order.) [Dkt 42.] This court gave Medline one week to consider Jolly’s proposal, and set
a briefing schedule on the motions in the event Medline would not agree. (/d.) Medline ultimately
did not agree; thus, on September 22, 2004, Rovell submitted a response to Medline’s motions for
sanctions, and, on October 12, 2004, Medline filed its reply to Rovell’s response. [Dkt 46, 47.] In
its reply, Medline stated that it is “entitled to an award of sanctions under Section 1927 for all of the
costs and expenses it incurred in this case from the outset.” (Def.’s Reply at 19.) On October 25,
2004, Rovell filed a motion for oral argument or, in the alternative, for leave to file a sur-reply. [Dkt

48.] This court granted Rovell’s motion insofar as it requested oral argument, and an oral argument

-7-


enforceable modified contract (the “August 25" contract”). The proposed second amended
complaint alternatively alleged that the July redlined contract constituted the valid, binding and

enforceable modified contract between the parties. (June 4, 2004 Op. & Order at 4.)

D. The Orders Regarding Sanctions

The District Judge issued an order on May 25, 2004, taking all of the motions under
advisement. (May 25, 2004 Order.) [Dkt 22.] Medline did not file a response to Jolly’s motion to
reconsider. Jolly did not file a response to Medline’s motions for sanctions, nor request an extension
of time in which to do so. (August 9, 2004 Order.) On June 4, 2004, the District Judge denied
Jolly’s motion to reconsider and for leave to file a second amended complaint, denied Medline’s
Rule 11 motion for sanctions, and granted Medline’s motion for sanctions pursuant to 28 U.S.C. §
1927 against Rovell personally. (June 4, 2004 Op. & Order at 10.) The court held that Medline was
entitled to an award of “excess costs, expenses, and attorneys’ fees it reasonably incurred due to
Rovell’s multiplication of these proceedings.” (/d.)

On June 18, 2004, Rovell filed a motion to vacate the sanctions order, claiming that he was
denied due process because he had not been given an opportunity to respond before the order was
entered, (PI.’s Counsel’s Mot. Vacate Sanctions Order at 7-9.) [Dkt 26.] Medline filed a response
to Rovell’s motion in which it argued, among other things, that the court should “expand its order
further” and “grant additional sanctions under Section 1927 as Rovell continues to perpetuate this
frivolous action.” (Def.’s Resp. PI.’s Counsel’s Mot. Vacate Sanctions Order at 12, 13.) [Dkt 31,]
While Rovell’s motion to vacate the sanctions order was pending, Jolly filed an appeal to the

Seventh Circuit from the dismissal of its suit. [Dkt 29, 30.]

6-


or simply dropped the matter. But, instead, Rovell filed Jolly’s motion to reconsider and for leave
to file the second amended complaint.

Although Medline claims that its “excess” costs reach all the way back to the original filing
of the lawsuit, in recognition of the punitive nature of § 1927, this court recommends that Medline
be awarded costs incurred because of Rovell’s conduct after the District Judge’s April 30, 2004 order
dismissing the case with prejudice, specifically, those resulting from Rovell’s filing of the motion
to reconsider and for leave to file the second amended complaint. That conduct cannot be excused
as vigorous advocacy. Persisting in the district court in the face of the April 30, 2004 Order was
literally “multipl[ing] the proceedings. .. unreasonably and vexatiously.” Neither the District Judge
nor Medline should have been put to the task of trying to wade through yet another pleading that
referred to yet another set of exhibits and alleged three alternative “valid” and “enforceable”
contracts. ([Proposed] Second Am. Compl.417.)

Once again, the District Judge’s prompt action saved Jolly from further exposure, because
the District Judge denied the motion to reconsider and for leave to file a second amended complaint
before Medline filed a response. In fact, a briefing schedule was never even set on the motion. See
May 25, 2004 Order [dkt 22]; August 9, 2004 Order at 2. Medline’s counsel was not, apparently,
required to appear in court at any time between Rovell’s filing of the motion to reconsider and the

district court’s decision on that motion. See dkt 21, 22, 23.8

8 Medline’s counsel stated at oral argument before this court that the parties spent time
with respect to the motion to reconsider and proposed second amended complaint during oral
argument before the District Judge on August 2, 2004. However, the August 2, 2004 argument
appears to have been set solely to address Rovell’s motion to vacate the sanctions order, not the
motion to reconsider or proposed second amended complaint, which had been denied more than
a month earlier. Not only does the docket support that fact (see dkt 34, 37), but the District
Judge stated at the hearing that the parties were there to argue Rovell’s motion to vacate. See Tr.

-19-


Jolly argues that Medline’s Rule 11 motion should be denied because that motion violated
the 21-day “safe harbor” provision set forth in Rule 11(c)(1)(A). (PI.’s Resp. at 3.) Fed. R. Civ. P.
11(c)(1)(A) provides that a motion for sanctions “shall not be filed with or presented to the court
unless, within 21 days after service of the motion . . . , the challenged paper . . . is not withdrawn or
appropriately corrected.” Jolly observes that Medline’s Rule 11 motion was dated April 13, 2004
(and served on April 15, 2004), and the District Judge dismissed the amended complaint on April
30, 2004. (P1.’s Resp. at 3; June 4, 2004 Op. & Order at 3, 8.) Although Medline filed its Rule 11
motion for sanctions on May 13, 2004, more than twenty-one days after serving the motion, by that
date the case had been dismissed with prejudice. See Def.’s Rule 11 Mot.; April 30, 2004 Order.
Jolly argues that the District Judge recognized that fact when, in her June 4, 2004 Opinion, she stated
that Jolly “did not receive the benefit of the full safe harbor period.” (P1.’s Resp. at 3) (citing June
4, 2004 Op. & Order at 7-8.)

In support of its Rule 11 motion, Medline points to Methode Elec., Inc. v. Adam Tech., Inc.,
371 F.3d 923 (7th Cir. 2004), a case decided by the Seventh Circuit after the District Judge’s order
denying Medline’s motion for Rule 11 sanctions. (Def.’s Reply at 3-5.) In Methode, the district
court entered substantial sanctions, including attorneys’ fees, against a plaintiff. 371 F.3d at 925.
The defendant had made an oral motion for Rule 11 sanctions, but two days later the plaintiff
voluntarily dismissed the case. Id. at 925. However, by then the district court had issued a rule to
show cause why the plaintiff should not be sanctioned. Jd. Subsequently, the district court entered
sanctions. /d. at 924-25, On appeal, the Seventh Circuit affirmed the imposition of sanctions, but

not on the basis of Rule 11. /d. at 927-28. Instead, the court found that “this was a proper case for

Complaint” in support of its motion for § 1927 sanctions. (Def.’s § 1927 Mot. at 3.)

-9-


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
THE JOLLY GROUP, LTD., )
Plaintiff, ) Cause No. 03 C 9390
)
v. ) Judge Suzanne B. Conlon
) Magistrate Judge Geraldine Soat Brown
MEDLINE INDUSTRIES, INC., )
Defendant. y

To: Honorable Suzanne B. Conlon,
United States District Judge

REPORT AND RECOMMENDATION

Geraldine Soat Brown, United States Magistrate Judge

This case comes to be heard on a Motion for Rule 11 Sanctions [dkt 20], a Motion for
Sanctions Pursuant to 28 U.S.C. § 1927 [dkt 19], and a supplemental request for sanctions pursuant
to 28 U.S.C. § 1927 [dkt 31] filed by defendant Medline Industries, Inc. The District Judge referred
the motions to this court for a report and recommendation. [Dkt 38.] For the following reasons, this
court respectfully recommends that Medline’s Motion for Rule 11 Sanctions be DENIED, Medline’s
Motion for Sanctions Pursuant to 28 U.S.C. § 1927 be GRANTED as discussed herein, and

Medline’s supplemental request for sanctions pursuant to 28 U.S.C. § 1927 be DENIED.


“serious and studied disregard for the orderly process of justice,” or by pursuing a claim that is
“without a plausible legal or factual basis and lacking in justification.” Jd. at 119 (citation omitted).
An attorney’s objectively unreasonable intent may be inferred from a total lack of factual or legal
basis for the suit. Benet v. Schwartz, No. 93 C 7295, 1995 WL 562087 at *3 (N.D. Ill. Sept. 21,
1995) (Conlon, J.) (citing Overnite Transp. Co. v. Chicago Indus. Tire Co., 697 F.2d 789, 795 (7th
Cir. 1983)). See also Dahnke v. Teamsters Local 695, 906 F.2d 1192, 1201 n. 6 (7th Cir. 1990)
(superseded on other grounds) (stating that § 1927 imposes “a continuing duty upon attorneys to
dismiss claims that are no longer viable”). However, where the alleged misconduct is the filing and
arguing of a claim, it is not sufficient that the claim be found meritless; the claim must be without
plausible legal or factual basis and lacking in justification. Knorr Brake, 738 F.2d at 226-27. “In
sum, an attorney’s actions must generally be ‘so completely without merit as to require the
conclusion that they must have been undertaken for some improper purpose.” Fahey v. Creo
Prods., Inc., No. 96 C 5709, 1998 WL 474114 at *4 (N.D. Ill. Aug. 4, 1998) (Castillo, J.) (citing

Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986)).

B. Discussion

Medline argues that sanctions pursuant to § 1927 should be imposed because “there was no
plausible legal or factual basis for Jolly’s breach of contract claim.” (Def.’s § 1927 Mot. at 4y
Medline argues that because, as the amended complaint admits, the parties agreed that their

negotiations had “no legal bearing until we draw up a contract” and Jolly rejected each of the

5 Medline also expressly incorporated its arguments made in its motion for Rule 11
sanctions, which are discussed herein. (Def.’s § 1927 Mot. at 2.)

-12-


to change that result. Thus, this court respectfully recommends that Medline’s motion for Rule 11

sanctions be denied.‘

Il. Medline’s Motion for Sanctions Pursuant to 28 U.S.C. § 1927

A. Section 1927 Sanctions

In the section of the June 4, 2004 Opinion and Order that was subsequently vacated, the
District Judge, finding that Jolly had asserted multiple, contradictory versions of events and at least
four different contracts, entered sanctions against Rovell personally pursuant to 28 U.S.C. § 1927,
which provides:

Any attorney or other person admitted to conduct cases in any court of the United

States or any Territory thereof who so multiplies the proceedings in any case

unreasonably and vexatiously may be required by the court to satisfy personally the

excess costs, expenses, and attorneys’ fees reasonably incurred because of such

conduct.

Section 1927 is a punitive provision and therefore must be strictly construed. Knorr Brake
Corp. v. Harbil, Inc., 738 F.2d 223, 226 (7th Cir. 1984) Section 1927 sanctions should only be
awarded when an attorney “unreasonably and vexatiously” multiplies the proceedings. Pacific
Dunlop Holdings, Inc. v. Barosh, 22 F.3d 113, 120 (7th Cir. 1994), Vexatious conduct involves
either subjective or objective bad faith. Pacific Dunlop Holdings, 22 F.3d at 120. “[E]xtremely

negligent conduct, like reckless and indifferent conduct” can demonstrate objective bad faith. /d.

An attorney acts in an “objectively unreasonable manner” for purposes of § 1927 by engaging ina

* In light of this recommendation, Jolly’s additional arguments why Medline’s Rule 11
motion should be denied (i.e., that the district court had no jurisdiction to vacate or reconsider the
denial of Medline’s Rule 11 motion, that Medline is not correct in claiming that Jolly violated
Rule 11(b)(3), and that Jolly’s claim was supported by existing law) need not be addressed.

-11-


was held on this matter on November 23, 2004. [Dkt 49, 50.]

Discussion
I. Medline’s Motion For Rule 11 Sanctions

Medline’s motion for Rule 11 sanctions is based on two grounds: (1) that Jolly violated Rule
11(b)(3) because there was no foundation for the factual allegations in the amended complaint; and
(2) that Jolly violated Rule 11(b)(2) because the legal theory for breach of contract in the amended
complaint was untenable. (Def.’s Rule 11 Mot. at 8-14.) Medline seeks sanctions against both Jolly
and its attorneys. (Jd. at 15.)

In response, Jolly and Rovell argue that Medline’s motion should be denied because: (1)
Medline’s Rule 11 motion was denied on June 4, 2004 and the district court had no jurisdiction to
vacate or reconsider the denial because Medline did not move the court to reconsider or appeal that
order; (2) Medline’s Rule 11 motion violated the twenty-one day safe harbor provision of Rule 11;
(3) Medline’s claim that Jolly violated Rule 11(b)(3) is unfounded as it is based on an inadvertent
attachment of a June agreement and a misreading of the handwritten date “8-18,” both of which were
allegedly corrected; and (4) Medline’s claim that Jolly violated Rule 1 1(6)(2) is incorrect as Jolly’s

claim was supported by existing law. (PI.’s Resp. at 2-15.)°

? Jolly also argues that its “response is limited to those matters raised in the motion and
no conduct other than that set forth in the motions should be considered as a basis for awarding
sanctions.” (PI.’s Resp. at 1.) By this statement, Jolly is presumably referring to Medline’s
current discussion of Jolly’s motion to reconsider and proposed second amended complaint,
which were filed the day after Medline filed its motions for sanctions. However, the proposed
second amended complaint was addressed by Medline in its motion for sanctions. Jolly’s
opposition to Medline’s motion to dismiss alternatively requested that the court “permit plaintiff
leave to replead to add allegations concerning the additional writings identified here.” (PI.’s
Opp’n at 8.) Medline cited the fact that “Jolly also sought leave to file a Second Amended

-8-


$450.00 to the Clerk of the Court as a nominal sanction pursuant to § 1927 for his waste of the

district court’s time and resources.

III. Medline’s Supplemental Request For Sanctions Pursuant to 28 U.S.C. § 1927

In its response to Rovell’s motion to vacate the sanctions order before the district court,
Medline argued that the district court should “expand its order further by explicitly sanctioning
Rovell again for prolonging this frivolous action.” (Def.’s Resp. Pl.’s Counsel’s Mot. Vacate
Sanctions Order at 12.) The District Judge referred Medline’s request for supplemental sanctions
to this court for a report and recommendation, as well. (August 9, 2004 Order.)

This court respectfully recommends that supplemental sanctions pursuant to § 1927 be
denied. Although Medline complains about the added costs that it had to incur as a result of Rovell’s
motion to vacate the sanctions order, the District Judge viewed the motion to vacate as having some
merit, because the motion was granted. This court is recommending that some sanctions be awarded
against Rovell, but the sanctions under § 1927 are limited to the “excess” costs resulting from his
conduct. The requested supplemental sanctions do not fall into that category.

Conclusion

For the foregoing reasons, this court respectfully recommends that Medline’s Motion for
Rule 11 Sanctions be denied; that Medline’s request for supplemental sanctions pursuant to 28
U.S.C. § 1927 be denied; and that Medline’s Motion for Sanctions Pursuant to 28 U.S.C. § 1927 be
granted as follows: first, that attorney Michael J. Rovell be ordered to pay $450.00 to the Clerk of
the Court as a nominal sanction pursuant to § 1927; and second, that attorney Michael J. Rovell be

ordered to pay Medline attorney’s fees for four hours of the time spent by Medline’s lead attorney

-22-



12.) The amended complaint contained no reference to the so-called “final contract” identified in
Jolly’s original complaint. Instead, Jolly alleged that it requested, but Medline rejected, additional
modifications to the July redlined contract. (Am. Compl. {| 13; June 4, 2004 Op. & Order at 2-3.)

Upon receipt of the amended complaint, Medline’s counsel sent a letter to Jolly’s counsel,
Michael J. Rovell (“Rovell”), on March 25, 2004. (Def.’s Rule 11 Mot., Ex. H.) Medline’s counsel
pointed out factual inconsistencies between Jolly’s original and amended complaints and warned that
aRule 11 motion would be served in the event Jolly did not withdraw the amended complaint within
seven days. (/d.) Medline’s counsel challenged the “sequence of events” laid out in the amended
complaint, noting that Jolly sought “to enforce an entirely different contract than the ‘final contract’
attached to its original complaint.” Medline’s counsel also pointed out that the May 18" signed
contract that Jolly relied on as a valid, binding and enforceable contract was actually signed on
August 18", after the parties had exchanged the July redlined contract. Additionally, Medline’s
counsel argued that Jolly’s amended complaint was legally defective under Illinois’ “mirror image
rule” governing contract actions because Jolly repeatedly requested modifications to the proposed
contracts, including the May 7" and the July redlined contracts. (June 4, 2004 Op. & Order at 3.)

The following day, March 26, 2004, Medline filed a motion to dismiss Jolly’s amended
complaint. [Dkt 12.] While the district court was considering the motion, Medline served (but did
not file) its Rule 11 Motion on Jolly on April 15. (June 4, 2004 Op. & Order at 3.) Jolly did not
withdraw its amended complaint, but instead filed an opposition to Medline’s motion to dismiss.
[Dkt 16.] In its opposition, Jolly asserted, among other things, that it would seek leave to amend its
complaint again to include certain exhibits if the court believed such exhibits were necessary to

satisfy the statute of frauds. (P1.’s Opp’n at 8.) At the conclusion of its opposition brief, Jolly

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7.) However, given the opportunity to respond following the referral to this court, Rovell fails to
address in any way the District Judge’s criticism of the motion to reconsider and for leave to file the
second amended complaint. See Pl.’s Resp. at 15-21.

Indeed, to the extent that Rovell discusses that motion, the discussion reveals that, in fact,
he had no hope of succeeding on it, and was only trying to create a better record for purposes of
appeal than the record he had put before the District Judge. See Pl.’s Resp. at 17: “On May 14, 2004,
Jolly sought leave to amend the Amended Complaint to perfect its appellate record.” That is not a
proper purpose for a motion for reconsideration. As the District Judge stated, “Motions for
reconsideration do not provide a vehicle for a party to introduce new evidence or legal theories that
could have been presented earlier.” (June 4, 2004 Op. & Order at 5) (citations omitted). Rovell’s
filing of the motion to reconsider and for leave to file a second amended complaint was clearly
vexatious and unreasonable, needlessly prolonging the litigation.

Other conduct by Rovell evidences the “extremely negligent[,]. . . reckless and indifferent
conduct” that demonstrates bad faith and justifies sanctions under § 1927. See Pacific Dunlop
Holdings, 22 F.3d at 120. Rovell’s deplorable sloppiness in assembling Jolly’s pleadings, combined
with his disingenuous explanations, make working through the claims and arguments a nightmare.
For example, Rovell now admits that his office attached the wrong document (the “June document”)
as Exhibit E to the original complaint. (P1.’s Resp. at 4.) That is not a minor error; in the original
complaint, Exhibit E is called the “final contract.” (Compl. 413.) Rovell asserts, in a declaration
attached to his response, that his attachment of the undated June document as Exhibit E to the
original complaint was simply a “collating mistake” caused by his poor eyesight (diabetic

retinopathy), and that he had actually intended to attach the August 28 contract instead. (PI.’s Resp.

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acknowledged [that fact] and subsequently sought to amend the complaint to delete the allegations
concerning the date that agreement was signed.” (PI.’s Resp. at 18.) Not so. Jolly’s Opposition to
Medline’s motion to dismiss the amended complaint continued to assert that the proper date of that
document (Exhibit C to the amended complaint) “appears to be ‘5-18-03,’” and that the date of May
18, 2003 “makes sense.” (PI.’s Opp’n at 4 n. 1.) Indeed, Jolly’s Opposition dismissed Medline’s
“conten[tion] that the handwritten date is actually ‘8-1 8-03" and spun a multi-paragraph argument
that Medline was wrong. (/d.) Rovell did not move to delete the allegation about the “5-18-03"
contract until the motion to dismiss the amended complaint was granted.

Compounding that transgression, Rovell now blames an associate attorney in his office for
the error. (Rovell Decl. ff] 16, 17.) According to Rovell, his associate misread the date on the
document and he “reasonably” relied on the associate’s representation. (PI.’s Resp. at 9.) Rovell
cannot duck the blame so readily. A supervisory attorney has responsibility for the actions of the
attorney he supervises. See, e.g., L.R. 83.55.1. In addition, Rovell signed the amended complaint,
including the allegations about the “5-18-03" contract.

Finally, as discussed above, following the District Judge’s decision dismissing the case with
prejudice, Rovell filed the motion to reconsider and for leave to file the second amended complaint,
not with the hope of demonstrating any reason why the District Judge should change her decision,
but to correct his own mistakes, including the “5-18-03" mistake, before appeal. See Pl.’s Resp., Ex.
1, Tr. Aug. 2, 2004 at 18 (Mr. Rovell: “[B]ecause if we were going to the Court of Appeals to appeal
your Honor’s ruling, I didn’t want to go up on a record in which I had reason to believe that an
allegation that was set forth in the complaint was incorrect.”) Accordingly, the court concludes that

Rovell unreasonably and vexatiously multiplied the proceedings in this case and therefore should

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contract on May 7" (the “May 7" contract”) that “reflected the essential terms of the parties’
agreement,” but that a revised contract followed the next day (the “May 8" contract”). The May 7”
and May 8" contracts differed in numerous respects. In response, Medline purportedly sent Jolly a
redlined version of the May 8" contract (the “July redlined contract”); the parties orally agreed on
the terms. Jolly then re-typed the July redlined contract and sent the final contract (“final contract”)
to Medline for signature. Among other things, the final contract differed from the July redlined
contract insofar as it required Medline to pay an annual minimum royalty payment of $250,000 and
to purchase $5 million in products liability insurance. Jolly did not allege that Medline signed either
the July redlined contract or the final contract. (June 4, 2004 Op. & Order at 1-2.)

Upon receipt of Jolly’s complaint, Medline moved to dismiss. [Dkt 4.] Medline argued that
Jolly’s complaint failed to allege the existence of a valid contract and that the statute of frauds barred
enforcement of the purported oral contract. Jolly did not respond. Instead, J olly filed an amended

complaint. [Dkt 10.] (June 4, 2004 Op. & Order at 2.)

B. Jolly’s Amended Complaint and Medline’s Motions for Sanctions

In its amended complaint, Jolly alleged that Medline sent it the May 7 contract “reflect[ing]
the essential elements of the parties’ oral agreement.” (Am. Compl. 19.) However, Jolly eliminated
reference to the May 8" contract. Jolly simply alleged that Medline’s vice president, Don Malin,
signed the May 7" contract on May 18, 2003 (the “May 18" signed contract”). According to Jolly,
the May 18" signed contract constituted a valid, binding and enforceable contract. Jolly also alleged
that thereafter Medline sent “a redlined version of a Jolly draft” (presumably the July redlined

contract), which Jolly alleges was “a modified agreement accepted by the parties.” (Am. Compl. §

3.


Factual Background

L Proceedings before the District Judge

The District Judge dismissed the underlying lawsuit because the plaintiff Jolly Group, Inc.
(“Jolly”) had failed, after numerous attempts, to state a claim against defendant Medline Industries,
Inc. (“Medline”). (April 30, 2004 Order [dkt 17]; June 4, 2004 Memorandum Opinion and Order
at 7, 9-10 [dkt 23]). The various pleadings are relevant to the present motions because the shifting
positions taken by Jolly are the basis for Medline’s request for sanctions. The following summary
is taken from the findings set forth in the Background and Discussion - Motion for Reconsideration
sections of the District Judge’s June 4, 2004 Memorandum Opinion and Order (pages 1-7).' In
summary, Jolly contended that the parties entered into a valid, binding and enforceable contract that
was subsequently repudiated by Medline, while Medline maintained that the parties’ negotiations

ultimately failed and no contract resulted. (June 4, 2004 Op. & Order at 1-2.)

A. Jolly’s Original Complaint

Jolly filed its original complaint on December 29, 2003. [Dkt 1.] In the original complaint,
Jolly alleged that in February 2003, Jolly and Medline representatives met to discuss Medline’s
possible licensing and marketing of Jolly’s patented bandages. On March 4, 2003 Medline proposed
that it market and manufacture the bandages in exchange for a royalty of $.20 per box sold.
Medline’s proposal stated that it had “no legal bearing until we draw up a contract.” During the next

three months, the parties discussed contractual terms. Jolly alleged that Medline forwarded a

‘ The District Judge specifically did not vacate those findings, although other parts of
that Opinion and Order were vacated. See August 9, 2004 Order. [Dkt 38.]

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proposed contracts drafted by Medline, “[a]ny reasonable attorney would have known . . . that
Jolly’s breach of contract claim against Medline was untenable.” (Def.’s § 1927 Mot. at 5.) Medline
further asserts that Jolly’s amended complaint simply “changed, deleted and distorted troublesome
facts and documents attached to its original Complaint.” (Def.’s § 1927 Mot. at 5.) Medline points
out that Jolly identified no less than three documents as the parties’ “final contract.” (Def.’s Rule 11
Mot. at 8-9.) Medline speculates that Jolly was in “hope of extracting a settlement from Medline.”
(Def.’s § 1927 Mot. at 5.) Medline concludes that Jolly’s attorneys’ “refusal to voluntarily dismiss
their untenable breach of contract claim, their disregard of Medline’s multiple warnings that Jolly’s
conduct was sanctionable, and their decision to oppose Medline’s Motion to Dismiss the Amended
Complaint warrant sanctions under Section 1927.” (Def.’s § 1927 Mot. at 6.)

Asto the legal positions he advanced, Rovell argues that Jolly’s breach of contract claim did
not change because Jolly’s claim “always has been based on an oral contract,” pointing to paragraph
9 of the original complaint, which was modified in the amended complaint to characterize the
contract as oral, and to Jolly’s opposition to Medline’s motion to dismiss, which argued that “the oral
agreement [] became enforceable by the writing submitted by Medline.” (P1.’s Resp. at 16) (citing
Jolly Opp’n Mot. Dismiss at 1, 2, 4, 8.) Rovell asserts that he viewed Medline’s statement that its
March 4 proposal was to have “no legal bearing until we draw up a contract,” as applying only to the
March 4 proposal, and not to all subsequent writings. (P!.’s Resp. at 14.) Rovell also offers an
explanation as to how, in his view, there was an enforceable contract in this case and the lawsuit was
therefore not intentionally baseless and frivolous. See Pl.’s Resp. at 13-14.

The purpose of the present report and recommendation is not to re-litigate issues previously

determined by the District Judge, who squarely rejected Rovell’s legal arguments that a contract had

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at 5-6, 19; Ex. 2, Declaration of Michael J. Rovell {| 5-8, 11.)7 However, nothing that
straightforward was expressed to the District Judge at the time; Rovell made no effort to correct his
mistake for the court or opposing counsel.

The June document then disappeared from the amended complaint, but no “August 28
contract” is alleged in the amended complaint. Instead, the amended complaint alleges that “[a}
valid, binding and enforceable contract was entered into by the parties on or about May 18, 2003 (see
Exhibit C), and a valid, binding and enforceable modified contract was thereafter entered (see
Exhibit D).” (Am. Compl. 4 17.) Neither Exhibit C nor Exhibit D is the “August 28 contract.”

Rovell now states that when he “realized that [Jolly’s] claim pursuant to the August 28
expression of the oral agreement was not enforceable because of the statute of frauds, [he] dropped
the claim.” (Pl.’s Resp. at 18; see also Pl.’s Resp. at 7; Rovell Decl. § 13.) However, Jolly’s
Opposition to Medline’s motion to dismiss the amended complaint did not explain the mistake
regarding the June document, nor did it state (as Rovell does now) that Jolly originally pleaded the
purported “August 28" contract, but on reflection decided to drop it. On the contrary, Jolly’s
Opposition denied that Jolly ever claimed that the “August 28" contract was binding, stating, “As
plaintiff is not relying and never did rely on that agreement, it was superfluous to the original
complaint, similarly not needed for the Amended Complaint, and therefore was not attached to the
Amended Complaint.” (Pi.’s Opp’n at 5 n. 2) (emphasis added.)

Likewise, Rovell now claims that “when Medline pointed out that the handwritten date of

‘5-18°[for the purported May 18" contract] was really ‘8-18,’ [August 18", Jolly immediately

7 The “August 28 contract” refers to the document that Jolly’s president signed on
August 28, 2003 and returned to Medline. See June 4, 2004 Op. & Order at 5, referring to Def.’s
Rule 11 Mot., Ex. E.

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