Opinion ID: 564413
Heading Depth: 2
Heading Rank: 1

Heading: Reasonableness of the Sec. 17(a) and 12(2) Claims

Text: 13 The standard for determining whether conduct is sanctionable under Rule 11 is reasonableness under the circumstances. Donaldson v. Clark, 819 F.2d 1551, 1556 (11th Cir.1987) (en banc). Rule 11 was not intended to chill innovative theories and vigorous advocacy that bring about vital and positive changes in the law [,] Donaldson, 819 F.2d at 1561, [b]ut when parties attempt to pursue civil litigation with legal theories apparently foreclosed by statute and precedent, they must do so with candor toward the court and a sense of whether their argument is appropriate and reasonable. U.S. v. Milam, 855 F.2d 739, 744 (11th Cir.1988). We agree with the district court that the plaintiffs failed to meet this standard of reasonableness and candor and affirm the district court's holding that the plaintiffs are subject to sanctions.
14 This court held in Currie v. Cayman Resources Corp., 835 F.2d 780, 784-85 (11th Cir.1988) that there is no private right of action under Sec. 17(a). We decided Currie on January 12, 1988, more than six months before the plaintiffs filed their response in the district court to Acadia's motion to dismiss the Sec. 17(a) claim, and that response did not cite or otherwise discuss our decision in Currie. Rather than bringing this controlling, adverse precedent to the district court's attention, the plaintiffs represented to the court that there was a split of authority among the district courts on this question and thus that the court was free to adopt the reasoning of those courts that had held that there is a private right of action under Sec. 17(a). 15 The plaintiffs give two justifications for their failure to bring our decision in Currie to the district court's attention, neither of which is sufficient to discharge their obligations under Rule 11. First, they contend that they were making the sort of good faith argument for the reversal or modification of existing law that Rule 11 permits, but the district court held, and we agree, that they made no argument, let alone a good faith argument that this court's decision in Currie should be modified or reversed (emphasis in original); they did not refer to it at all. 16 Second, the plaintiffs say that because they cited district court opinions, including the district court opinion in Currie, that were contrary to their position, their failure to bring this court's decision in Currie to the district court's attention was at most a minor oversight that is not subject to sanctions. This argument is specious, because it is based on a misunderstanding of the relationship between this court and district courts in this circuit. A district court is not bound by another district court's decision, or even an opinion by another judge of the same district court, but a district court in this circuit is bound by this court's decisions. Thus, when the plaintiffs represented to the district court that only other district courts had addressed the question of a private right of action under Sec. 17(a) after this court had provided a clear answer to that question, they misled the district court. See DeSisto College, Inc. v. Line, 888 F.2d 755, 761 (11th Cir.1989) ([Counsel's] insistence on maintaining a legal stance untenable with our law demonstrates either an ignorance of our law, and thus inadequate research, or some intent to mislead the trial court as to the present state of this Circuit's precedent, and thus bad faith). The plaintiffs' filing of the Sec. 17(a) claim was unreasonable, and the district court correctly determined that they were subject to Rule 11 sanctions.
17 The district court dismissed the plaintiffs' Sec. 12(2) claim because that section, read in combination with Sec. 3(a)(2) of the Securities Act of 1933, 15 U.S.C. Sec. 77c(a)(2), provides a specific exemption for any security issued or guaranteed by a bank. 3 Plaintiffs contend that they based their Sec. 12(2) claim on dicta by this court's predecessor 4 in Lehigh Valley Trust Co. v. Central National Bank of Jacksonville, 409 F.2d 989, 993 (5th Cir.1969), in which the court stated [t]hat Congress made no express general exemption for banks under the fraud provisions ... indicates that Congress did not intend any such exemption. We agree with the district court that Lehigh Valley provides no support for the plaintiffs' position that Acadia was subject to Sec. 12(2), because that case involved a Rule 10(b)(5) action arising from a bank's fraudulent sale of loan participation agreements, and neither the court's holding nor its dicta are relevant to a case involving a bank's sale of its own stock. The plaintiffs' decision to proceed on a theory that was specifically precluded by the statute and unsupported by case law was unreasonable.