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Keywords

contractbreach of contractdefendantjurisdictiondepositionappealtestimony

contractbreach of contractdefendantjurisdictionattorneypleacorporationcitizenship

Related Cases

Hendrix v. Naphtal, 971 F.2d 398, 23 Fed.R.Serv.3d 145

Facts

Mayer, Brown and Platt filed a complaint on behalf of a client alleging a breach of contract against California residents, claiming diversity jurisdiction based on the client's domicile in Florida. However, over a year later, the client testified that he was living in California at the time the complaint was filed and had sold his house in Florida. Following this deposition, the defendants moved to dismiss the action for lack of subject matter jurisdiction and for sanctions under Rule 11.

A partner in Mayer prepared and filed a complaint on behalf of a client asserting a breach of contract claim against a California resident and a California corporation (collectively, “defendants”). The complaint alleged that Mayer's client was domiciled in Florida and pleaded diversity jurisdiction.

Issue

Did the district court err in finding that the law firm's partner did not conduct a reasonable investigation of the client's domicile before filing the diversity action, and did it abuse its discretion in setting the amount of sanctions?

Rule

A district court would abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence. A reasonable investigation under Rule 11 requires more than blind reliance on a lay client's conclusion about domicile.

A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.

Analysis

The court found that the Mayer partner failed to conduct a reasonable investigation into the client's domicile, as evidenced by the client's deposition testimony that contradicted the claim of Florida domicile. The court noted that a basic interview should have revealed the client's actual residence in California. Furthermore, the partner's reliance on the client's lay understanding of domicile was insufficient to meet the standard of a reasonable inquiry under Rule 11.

The district court was not clearly erroneous in ultimately finding that the Mayer partner did not conduct a reasonable investigation of the client's domicile and that the client would have disclosed the sale of his Florida home and his physical presence in California if the partner had conducted a reasonable interview.

Conclusion

The Court of Appeals affirmed the district court's award of sanctions under Rule 11, concluding that the district court did not err in its findings or in the amount of sanctions imposed.

The district court's award of sanctions under Rule 11 is AFFIRMED.

Who won?

The defendants prevailed in the case because the court upheld the imposition of sanctions against Mayer for failing to conduct a reasonable investigation into the client's domicile.

The court said that because the client had at least three possible domiciles—Florida, California and New York—a reasonable attorney should have made “extra efforts to establish his actual citizenship.”

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