amended complaint with prejudice. Minute Order, 4/30/04, Docket No. 17-1. In so doing, 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.¢., the parties’ failure to draw up a
complete contract. Jd 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. Jd. (“Indeed, the writings reveal an obvious disagreement about the contract’s essential terms
and conditions”). Medline filed its Rule 11 motion with the court on May 13, 2004, after dismissal
of the amended complaint.
Ill. Second Amended Complaint and Motion for Sanctions

The day after Medline filed its Rule 11 motion, Jolly sought leave to file a second amended
complaint. Jolly now seeks to change course yet again. Not surprisingly, Jolly no longer alleges that
the May 18" signed contract constitutes a valid, binding and enforceable contract between the
parties. Instead, Jolly alleges that the May 7" contract constitutes a valid, binding and enforceable
contract between the parties. 2nd Am. Compl. at § 17. In addition, Jolly submits an entirely new
contract dated August 25 as the parties’ valid, binding and enforceable modified contract
(hereinafter, “August 25" contract”). Jolly does not entirely abandon the July red-lined contract.
Instead, Jolly alternatively alleges that the July red-lined contract constitutes the valid, binding and
enforceable modified contract between the parties, Jd, In response, Medline moves for sanctions
pursuant to 28 U.S.C. § 1927.
IV. _ Pre-litigation Correspondence

In connection with its separate motions for sanctions, Medline submits two demand letters

it received from Jolly prior to the initiation of litigation. These demand letters recount a markedly


when an attorney has acted in an “objectively unreasonable manner” by engaging in a “serious and
studied disregard for the orderly process of justice,” or where a “claim [is] without a plausible legal
or factual basis and lacking in justification.” Pacific Dunlop Holdings, Inc. v. Barosh, 22 F.3d 113,
119(7" Cir. 1994) (citation omitted), An attorney’s objectively unreasonable intent may be inferred
from a total lack of factual or legal basis for the suit. Overnite Transportation Co. v. Chicago
Industrial Tire Co., 697 F.2d 789, 795 (7" Cir. 1983). Finally, § 1927 is interpreted by the Seventh
Circuit “to impose a continuing duty upon attorneys to dismiss claims that are no longer viable.”
Dahnke v. Teamsters Local 695, 906 F.2d 1192, n.6 (7" Cir. 1990).

As summarized, this court thoroughly reviewed the pleadings and correspondence relevant
to these proceedings. The record shows no plausible factual basis for Jolly’s breach of contract suit
against Medline. Instead, the record reveals Jolly has asserted multiple, contradictory versions of
events regarding the parties’ negotiations and at least four different contracts for the purpose of
bringing a baseless breach of contract claim. Nor can Rovell plausibly claim ignorance. The record
firmly establishes that Rovell continued to press this litigation, despite repeated warnings by
Medline’s counsel. Confronted with Medline’s original motion to dismiss, Rovell filed an amended
complaint that not only flatly contradicted the original complaint, but in bad faith sought relief on
the basis of the May 18" contract.’ Def. Rule 11 Mot. Ex. F. Medline’s subsequent Rule 11 warning
letter and motion had no effect. Instead, Rovell filed a response brief, arguing that the amended

complaint should not be dismissed. Even after this court dismissed the amended complaint with

'Rovell’s claim that the discrepancy is a mere issue of disputed fact between the parties is
| belied by the pre-litigation demand letter Jolly’s former counsel sent to Medline on October 16,
| 2003, describing the May 18" contract as erroneously signed by Malin in August 2003. Def.

Rule‘l1 Mot. Ex. F.


Pl. Mot. Reconsider at 2. Jolly argues that it “never contended that the March 4 proposal was a
contract [or] that a binding oral agreement had been reached by then with the terms reflected in that
proposal[.]” /d. This argument is improper; it directly contradicts Jolly’s response to the motion to
dismiss. Pl. Opp. Mem. at 3 (“By March 4, the parties had agreed to a distribution agreement... .
The parties intended, however, that this agreement was not to be binding until a contract was
drawn”). Jolly may not avail itself of a new legal theory as a matter of convenience. Caisse
Nationale de Credit Agricole, 90 F.3d at 1269.

Jolly’s breach of contract claim cannot proceed because the March 4" proposal “was not to
be binding until a contract was drawn.” Am. Compl. 7. As Jolly admittedly rejected each contract
proffered by Medline, no final contract was ever drawn. Am. Compl. ff 10, 13. Jolly’s misguided
argument that the May 7" contract constituted the drawn contract is untenable. The May 7* contract
cannot constitute the drawn contract because Jolly requested it be modified. Am. Compl. 710. Nor
does Jolly’s disingenuous attempt to distinguish between essential and non-essential contract terms
change this result. PJ. Mot. Reconsider at 3 (“the modifications that Jolly requested to the written
agreements were not essential terms and the parties’ failure to agree on those does not defeat the
contract”). The price term — obviously essential to the parties’ contract - changes between the May
7* contract and the July red-lined contract. Compare Am, Compl. Ex. B (“Medline shall pay Jolly
. a royalty of $0.22 per box) with Am. Compl. Ex. D (“Medline shall pay Jolly . . . a royalty of
$0.25... per box).

Jolly’s statute of frauds argument also lacks merit. Jolly’s amended complaint failed to
identify writings sufficiently evidencing “the existence of a contract and its terms and conditions.”

Storm & Associates, Ltd. v. Cuculich, 700 N.E.2d 202, 209 (1* Dist. 1998). Contrary to Jolly’s


different version of the parties’ dealings than Jolly represented to the court. In one letter, Jolly
contended that

In May 2003, Medline made a formal license offer in the form of a signed contract

dated May 6, 2003. Jolly made a counterproposal in the form of its signed contract

dated June 24. Medline countered with a marked contract redraft dated July __.

Jolly accepted this offer by retyping the July __ draft, dating it August 28, 2003,

signing it and returning it to Medline.
Def. Rule 11 Mot. Ex. E. Incredibly, Jolly neglected to mention, let alone attach, the contract it
signed and dated August 28 (hereinafter, “August 28” signed contract”) in its original, amended, or
second amended complaint. Jd Ex. F. Not only is this the sixth contract Jolly has at some point
claimed to be legally enforceable, the August 28" signed contract differs in substantial respects from
the various contracts Jolly has advanced during proceedings before the court.

DISCUSSION

I Motion for Reconsideration

Motions for reconsideration serve the limited function of either correcting manifest errors
of law or presenting newly-discovered evidence. Calumet Lumber, Inc. v. Mid-America Industrial,
Inc., No 95 C 4875, 1996 WL 308243 at *1 (N.D. Ill. 1996). Motions for reconsideration do not
provide a vehicle for a party to introduce new evidence or legal theories that could have been
presented earlier. Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1269
(7 Cir. 1996).

Jolly ignores the standard governing its motion for reconsideration of this court’s order
dismissing the amended complaint with prejudice. Jolly contends the court erred in determining that

the parties’ purported oral agreement was not binding as a matter of law because Medline’s March

4 proposal was “not an impediment to the later formation of an oral contract on different terms.”


prescribe), the challenged paper, claim, defense, contention, allegation or denial is not withdrawn
or appropriately corrected." Fed, R. Civ. P, 11(c)(1)(A). This twenty-one day safe harbor period
allows a party to avoid the imposition of sanctions simply by withdrawing the offending submission.
Harding Univ. v. Consulting Services Group, L.P., 48 F.Supp.2d 765, 770 (N.D. Ill.1999). It is an
abuse of discretion for the court to impose sanctions pursuant to a Rule 11 motion without ensuring
compliance with the twenty-one day safe harbor period. Divane, Jr., et al. v. Krull Electric Co., Inc.,

200 F.3d 1020, 1025 (7th Cir. 1999).

Medline first informed Jolly of its intent to seek Rute 11 sanctions by letter on March 25,
2004, Medline's letter expressly warned Jolly that it would serve a Rule 11 motion if Jolly failed to
withdraw the amended complaint within seven days. The next day Medline filed a motion to dismiss
the amended complaint. Faced with Medline's warning letter and motion to dismiss, Jolly did not
withdraw. Instead, Medline served its Rule 11 motion on Jolly on April 15, and Jolly filed its
response to Medline's motion to dismiss on April 19. This court dismissed Jolly's amended complaint
with prejudice on April 30, six days before the expiration of the twenty-one day safe harbor period.
Therefore, Jolly did not receive the benefit of the full safe harbor period. Accordingly, Rule 11
sanctions cannot be imposed in this instance. Divane, Jr., et al., 200 F.3d at 1025 (failure to adhere

to twenty-one day safe harbor period constitutes abuse of discretion).

Ill. Section 1927 Sanctions

Medline also moves for sanctions pursuant to 28 U.S.C. § 1927. Section 1927 provides that
“any attorney ... 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.” A court has discretion to impose § 1927 sanctions

8


pemetts oeh |
- Hy

Minute Order Form (06/97)

United States District Court, Northern District of Illinois

vor Magen Judge Suzanne B. Conlon “Than Asied Judge

CASE NUMBER 03 € 9390 DATE 6/4/2004
CASE THE JOLLY GROUP, LTD. vs. MEDLINE INDUSTRIES, INC.
TITLE

[In the followingbox (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented]

MOTION:

DOCKET ENTRY:

ql) a Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due.

3) oO Answer brief to motion due___. Reply to answer briefdue__.

(4) Oo Ruling/Hearing on set for at

(5) oO Status hearing[held/continued to] [set for/re-set for] on setfor_____—at

(6) Oo Pretrial conference[held/continued to] [set for/re-set for]on__—ssetfor__—Ssat__—.
(7) im) Trial[set for/re-set for]on__at

(8) Qa [Bench/Jury trial] [Hearing] held/continued to__at

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)

COFRCP4(m) ClLocal Rule 41.1. OFRCP41(a\(1) © FRCP41(a\(2).

(10) i || [Other docket entry] Plaintiff's motion to reconsider dismissal [21-1] and for leave to file second

| amended complaint [21-2] is denied. Defendant’s Rule 11 motion for sanctions [20-1] is denied.
,  Defendant’s motion for sanctions pursuant to 28 U.S.C. § 1927 [19-1] is granted. Determination of
reasonable costs, expenses, and attorneys’ fees due to the conduct of Jolly’s counsel is referred to the
assigned magistrate judge for a report and recommendation. ENTER MEMORANDUM OPINION AND

' ORDER. y BO, d,
ay, a

[For further detail see order attached to the original minute order.]

| No notices required, advised in open court,
i |

No notices required.

7 || Notices mailed by judge's staff
| Notifi¢d counsel by telephone.

Docketing to mail notices.
Mail AO 450 form.

09 {aiN1sia “sn
2un yaa

Copy tp judge/magistrate judge.
| i
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prejudice, Rovell continued to litigate, filing the motion for reconsideration and leave to file the
second amended complaint currently before the court, Rovell has wasted both the parties’ and this
court’s resources, Viewed in light of the parties’ pre-litigation correspondence, Rovell’s conduct
is egregious. Def. Rule 11 Mot. Ex. E (“Jolly accepted this offer by retyping the July __ draft,
dating it August 28, 2003, signing it and returning it to Medline”) (emphasis added). Overnite
Transportation Co., 697 F.2d at 795 (objectively unreasonable intent may be inferred from lack of
factual basis). Medline is entitled to an award of excess costs, expenses, and attorneys’ fees it
reasonably incurred due to Rovell’s multiplication of these proceedings.
CONCLUSION

Jolly’s pursuit of this litigation is at an end. Although Rule 11 sanctions are inappropriate
due to the unexhausted twenty-one day safe harbor period, the egregiousness of Rovell’s conduct in
manipulating the facts and asserting contradictory positions to enable continuation of this frivolous
lawsuit warrants sanctions under 28 U.S.C. § 1927. Determination of reasonable costs, expenses,
and attorneys’ fees due to Rovell’s conduct is referred to the assigned magistrate judge for a report

and recommendation.

June 4, 2004 ENTER:

13. Ornberne
Suzanne B. Conlon

United States District Judge

10


position, the amended complaint and exhibits did not merely reveal disagreement about non-essential
contractual terms. Instead, Jolly pointed to three substantially different draft contracts. None of
these drafts illuminated any final agreement regarding essential contractual terms. Ifanything, these
drafts pinpointed continued disputes between Jolly and Medline during negotiations. Medline, for
example, did not include the minimum royalty payment of $250,000 in the August 25" contract,
despite purportedly agreeing to the payment in the July red-lined contract. Compare Am. Compl.
Ex. F (no minimum royalty payment) with Ex. D ($250,000 minimum royalty payment); Am. Compl.
4 12 (“Medline sent Jolly by e-mail a redlined version of a Jolly draft, incorporating the
modifications that had been agreed to by both of the parties”). Absent a writing showing the
existence of a contract, any purported oral agreement must fail as unenforceable under the statute
of frauds. Jolly’s proposed second amended complaint cures neither of these defects. See, 2nd Am.
Compl. {7 (“The [March 4°] proposal was to have ‘no legal bearing until we draw up a contract’”);
{ 10 (“Jolly requested some modifications”); J 13 (“Although Jolly requested that the contract be
modified by the addition of certain other clarifying terms . . . those proposed modifications were not
accepted by Medline”); 2nd Am. Compl. Ex. B-1 (“Please take a look at this contract and give me
your thoughts”); Ex. F (‘Attached is the contract that we agreed upon, correct? . . . Richard called
me and stated that it wasn’t”). Accordingly, the court denies Jolly’s motion for leave to file the
second amended complaint as futile. Indiana Funeral Directors Ins. Trust v. Trustmark Ins. Corp.,
347 F.3d 652, 654 (7 Cir. 2003) (leave to amend may be denied due to futility of amendment).

I. Rule 11 Sanctions

Under Rule 11, a motion for sanctions "shall not be filed with or presented to the court

unless, within twenty-one days after the service of the motion (or such period as the court may

7


Am. Compl. at {{ 9-10. Jolly simply alleged that Medline’s vice president Don Malin signed the
May 7" contract on May 18 (hereinafter, “May 18" signed contract”). Am. Compl. at { 9.
According to Jolly, the May 18" signed contract constituted a valid, binding and enforceable
contract. Id. at $17. Jolly also proffered the July red-lined contract as a valid, binding, enforceable
modified contract to which the parties’ thereafter agreed. Jd. at {] 12, 17. The amended complaint
contained no reference to the final contract identified in Jolly’s original complaint. Jd. at 13.
Instead, Jolly merely alleged that it requested, but Medline rejected, additional modifications to the
July red-lined contract. /d. at 13.

Upon receipt of the amended complaint, Medline’s counsel sent a letter to Jolly’s counsel
Michael J. Rovell (“Rovell”) on March 25. Def. Rule 11 Mot. Ex. H. Medline’s counsel pointed
out factual inconsistencies between Jolly’s original and amended complaints and warned that a Rule
11 motion would be served in the event Jolly did not withdraw the amended complaint within seven
days. Id. 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.” Jd. Medline’s counsel 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",
obviously after the parties exchanged the July red-lined contract. Jd. 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 red-lined contracts. Jd.

On March 26, Medline filed a motion to dismiss, While this court considered the motion,

Medline served a Rule 11 Motion on Jolly on April 15. Two weeks later, the court dismissed the


Compl. at {J 13, 17. Over the course of these proceedings, Jolly has proffered no less than four
different versions of the so-called final contract to which the parties allegedly agreed,
1, Original Complaint

In the original complaint, Jolly alleged Medline forwarded a contract on May 7 (hereinafter,
“May 7" contract”) that “reflected the essential terms of the parties’ agreement,” but that a revised
contract followed the next day (hereinafter, “May 8" contract”). Compl. at {{ 9-10. The May 7”
and May 8" contracts substantially differed in numerous respects. Compare Compl. Ex. B with Ex.
C. In response, Medline purportedly sent Jolly a red-lined version of the May 8" contract
(hereinafter, “July red-lined contract”); the parties orally agreed on the terms. Jd. at Jf 12-13. Jolly
then re-typed the July red-lined contract and sent the final contract (hereinafter, “final contract”) to
Medline for signature. Id. at { 13. Among other things, the final contract differs from the July red-
lined 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. Jd, Ex. E. Jolly did not allege that
Medline signed either the July red-lined contract or the final contract. Jd.

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

IL Amended Complaint and Rule 11

Jolly changed its tack in the amended complaint. Jolly again alleged that Medline sent it the

May 7" contract “reflect[ing] the essential elements of the parties’ oral agreement.” Am. Compl.

at 9. However, Jolly eliminated reference to the May 8" contract. Compare Compl. at J 10 with


0
IN THE UNITED STATES DISTRICT COURT pocker®
FOR THE NORTHERN DISTRICT OF ILLINOIS oe a
EASTERN DIVISION wn

THE JOLLY GROUP, LTD.,
Plaintiff, No. 03 C 9390
v. Suzanne B. Conlon, Judge

MEDLINE INDUSTRIES, INC.,

we www err www

Defendant.
ME IRANDU!} Jid IN. ie)

In this diversity action, Jolly Group, Ltd. (“Jolly”) sued Medline Industries, Inc. (“Medline”)
for breach of contract. Jolly moves for reconsideration of the court’s order dismissing its amended
complaint with prejudice and for leave to file a second amended complaint. In separate motions,
Medline moves for sanctions pursuant to Fed. R. Civ. P. 11 and 28 U.S.C. § 1927.

BACKGROUND

In February 2003, Jolly and Medline representatives met to discuss Medline’s possible
licensing and marketing of Jolly’s patented bandages. Compl. at { 6; Am. Compl. at { 6; 2nd Am.
Compl. at { 6. On March 4, Medline proposed that it market and manufacture the bandages in
exchange for a royalty of $.20 per box sold. Jd. at { 6-7. Medline’s proposal stated it had “no legal
bearing until we draw up a contract.” Jd. During the next three months, the parties discussed
contractual terms. /d. at { 8. Medline maintains the parties’ negotiations ultimately failed and no
contract resulted. See, e.g., Def. Mot. Dismiss Compl. at 1. Conversely, Jolly contends the parties

entered into a valid, binding and enforceable contract subsequently repudiated by Medline. See,e.g.,

ay,