There are relatively few Chancery decisions on Rule 11 compared with more common corporate and commercial litigation issues that are the subject of Chancery opinions, and a recent letter decision provides insights into why there are not more rulings on Rule 11. In POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., Civil Action No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020), in which a motion for leave to amend under Rule 15 was granted without awarding fees, while distinguishing both the Lillis and Franklin Balance cases, the court explained that Rule 11 should not be casually raised, but that in any event a requirement for invoking it is to provide separate written notice and an opportunity to cure, as opposed to including it as part of a motion addressing other issues as well.
The Court explained that:
FuelCell has invoked Court of Chancery Rule 11 casually and repeatedly in this matter. 21 The Court may only determine if Rule 11(b) was violated “after notice and a reasonable opportunity to respond,” and a litigant may only initiate those proceedings by “[a] motion for sanctions . . . made separately from other motions or requests.” 22 Under that plain language, if FuelCell seeks sanctions for conduct it believes violates Rule 11, it must do so in an independent motion, not in argument opposing unconditional leave to amend. And, in my view, it is distracting, detrimental to the famed collegiality of the Delaware bar, and counterproductive to the “just, speedy and inexpensive determination” of judicial proceedings to summon Rule 11 in rhetoric. 23
22 Ct. Ch. R. 11(c); id. 11(c)(1)(A); see Crumplar v. Superior Ct. ex rel. New Castle Cnty., 56 A.3d 1000, 1005 (Del. 2012) (noting Superior Court Rule 11’s identical language “provides a trial judge with authority to impose an ‘appropriate sanction’ on attorneys who violate Rule 11(b), but only after notice and a reasonable opportunity to respond”). “[F]or this Court to address directly an alleged violation of the Rules, that violation must involve prejudice to the fairness of the proceeding itself. Furthermore, such a finding must be supported by clear and convincing evidence.” OptimisCorp. v. Waite, 2015 WL 5147038, at *6 (Del. Ch. Aug. 26, 2015) (citation and internal quotation marks omitted). 23 Ct. Ch. R. 1; see Coughlin v. S. Canaan Cellular Invs., LLC, 2012 WL 2903924, at *2 (Del. Ch. July 6, 2012) (“‘[L]awyers should think twice, three times, four times, perhaps more before seeking Rule 11 sanctions or moving for fees under the bad faith exception. These types of motions are inflammatory.’ An unwarranted motion for fee shifting under the bad faith exception can itself justify a finding of bad faith and fee shifting.” (quoting Katzman v. Comprehensive Care Corp., C.A. No. 5892–VCL, at 13 (Del. Ch. Dec. 28, 2010) (TRANSCRIPT)).