The opinion of the court was delivered by: Garaufis, District Judge
Scientific Components Corporation d/b/a MINI-CIRCUITS LABORATORY ("Mini-Circuits" or "Defendant") brings this motion against Sirenza Microdevices, Inc. ("Sirenza" or "Plaintiff") pursuant to Rule 11 of the Federal Rule of Civil Procedure ("Rule 11"). Mini-Circuits alleges that Sirenza's attorneys should be sanctioned for filing and litigating counterclaims without conducting a reasonable inquiry into their basis and without evidentiary support. (Pl.'s Br. at 1.)Sirenza argues that its lawyers' actions are not sanctionable because each of the counterclaims was supported by acceptable reasoning and sufficient evidence. (Def.'s Br. at 2.)For the reasons set forth below, Mini-Circuits' motion is DENIED.
Sirenza is a corporation that designs and manufactures electronic components, including radio frequency amplifiers. (Ocampo Decl. dated Dec. 14, 2005 (Brown Decl. Ex. N) (hereinafter, "2005 Ocampo Decl.") ¶ 3.) In 1995, after extensive discussions, Sirenza agreed to manufacture for Mini-Circuits, and Mini-Circuits agreed to purchase from Sirenza, amplifiers according to Mini-Circuits' comprehensive performance specifications. (Id. ¶¶ 6, 7.) Between 1996 and 2002, Sirenza sold more than 20 million amplifiers to Mini-Circuits, which Mini-Circuits subsequently resold under its own name. (Id. ¶¶ 8, 9.)
On October 10, 2002, Mini-Circuits attempted to return more than 610,000 amplifiers, valued in excess of $1,000,000, to Sirenza due to low frequency oscillation. (Id. ¶ 11.) By this time, Mini-Circuits had begun to design and manufacture its own amplifiers. (Id. ¶ 15.) Sirenza declined to accept their return, stating that the low frequency oscillation was not required by the comprehensive performance specifications. (Def.'s Br. at 5.)
In January 2003, Mini-Circuits commenced this litigation, accusing Sirenza of breaching an express warranty. On July 25, 2003, Sirenza filed an answer denying wrongdoing and counterclaims based on Mini-Circuit's alleged misuse of proprietary information. The counterclaims were (1) misappropriation of trade secrets; (2) unfair competition; (3) breach of a fiduciary duty; (4) breach of the covenant of good faith and fair dealing; and (5) tortious interference with contract. (Brown Decl. Ex. P, Answer and Countercl.)
Six days after Sirenza filed counterclaims, Mini-Circuits' attorneys expressed to Sirenza's attorneys that Mini-Circuits believed the counterclaims lacked merit and would seek sanctions if they were not withdrawn. (Mini-Circuits' Ltr. to Sirenza dated July 31, 2003 (annexed to Pl.'s Br.).) Sirenza refused to withdraw its counterclaims. On January 27, 2006, after the completion of discovery, each of the counterclaims was dismissed on summary judgment. Scientific Components Corp. v. Sirenza Microdevices, Slip Copy, 2006 WL 2524187 (E.D.N.Y. 2006).
This motion for sanctions was filed in November 2006. It relates only to the counterclaims for misappropriation of trade secrets and breach of fiduciary duty.
A. Legal Standard for Rule 11 Sanctions
Rule 11 provides that a court may impose sanctions when (1) a pleading "is presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation"; (2) "the claims, defenses, and other legal contentions therein are [not] warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law"; (3) the allegations and other factual contentions [lack] evidentiary support or, if specifically so identified, are [not] likely to have evidentiary support after a reasonable opportunity for further investigation or discovery"; or (4) "the denials of factual contentions are [not] warranted on the evidence or, if specifically so identified, are [not] reasonably based on a lack of information or belief." Fed. R. Civ. P. 11(b), (c).
Rule 11 was enacted in order to "deter baseless filings in district court and thus . . . streamline the administration and procedure of the federal courts." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990). The rule "explicitly and unambiguously imposes an affirmative duty on each attorney to conduct a reasonable inquiry into the viability of a pleading before it is signed." Eastway Construction Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir. 1985). The rule is violated when "it appears that a pleading has been interposed for any improper purpose." Greenberg v. Chrust, 297 F. Supp. 2d 699, 703 (S.D.N.Y. 2004).
If a factual allegation in a complaint, motion or other paper filed with the court has no evidentiary support, sanctions are appropriate unless the paper includes a specific disclaimer that additional investigation is necessary. O'Brien v. Alexander, 101 F.3d 1479, 1489 (2d Cir. 1996). Rule 11 sanctions are not appropriate, however, if evidentiary support is merely weak and the claim is unlikely to prevail, as opposed to being "utterly lacking in support." Id. at 1489.
A party defending a Rule 11 motion can escape sanctions even if it did not present enough evidence to successfully defend a summary judgment motion. See, e.g., Rubinberg v. Hydroponic Fabrications, Inc., 775 F. Supp. 56, 65 (E.D.N.Y. 1991); Hochberg v. Howlett, No. 92 Civ. 1822 (RPP), 1993 WL 33367, at *2 (S.D.N.Y. Feb. 4, 1993) (summary judgment alone is not a ground for Rule 11 sanctions; the claim must be "destined to fail" and made in bad faith). The court must distinguish between a claim that is merely "weak" and one that is clearly lacking in merit. See Gambello v. Time Warner Communications, Inc., 186 F. Supp. 2d 209, 229 (E.D.N.Y. 2002) ("Sanctions may not be imposed unless an allegation is utterly lacking in support, but, if it is clear that there is no chance of success and no reasonable argument to extend, modify or reverse the law as it stands, sanctions are ...