Rector v. Approved Federal Savings Bank
265 F.3d 248 (4th Cir. 2001)

  • Rector was the administrator of a trust.  After he got into a disagreement about a deal in which he woudl sell the trust’s interests in another bank to Approved Federal, he sued Approved Federal for a whopping $80 billion for conspiracy, RICO, and bank fraud.
    • The purchase price of the trusts interest in the bank was only $3 million, so $80 billion was a ridiculous amount to sue for.
  • The Trial Court dismissed Rector’s complaint.  However, they allowed him to file an amended complaint.
    • Rector filed an amended complaint seeking “an infinite amount of money” in damages.
  • The Trial Court again dismissed Rector’s complaint.
  • Approved Federal filed a motion for sanction under Federal Rule 11 for filing frivolous lawsuits.  They claimed that they served notice of the motion on Rector in a timely fashion, but Rector claimed he did not receive the motion until months later.
    • Federal Rule 11 required that notices be served within 21 days (the safe harbor provision).
      • This provision was included in Federal Rule 11 in order to provide protection to litigants who self-regulate by withdrawing bad filings within a 21 day period.
    • Approved Federal was unable to show evidence that they had served Rector.
    • Federal Rule 11 deals with frivolous claims.
  • Rector did not state in his pleading that the motion for sanction failed to comply with the safe harbor provision of Federal Rule 11.
  • The Trial Court approved Approved Federal’s motion for sanction, and awarded them $33k in attorney’s costs.  Rector appealed.
  • The Appellate Court overturned and remanded to the Trial Court to apply Federal Rule 11 correctly.
  • The Trial Court once again found for Approved Federal.  Rector appealed again.
    • The Trial Court felt that it had applied the Federal Rule 11 standards correctly.
  • The Appellate Court affirmed the decision.
    • The Appellate Court held that the purpose of Federal Rule 11 was not to avoid the consequences of filing a frivolous lawsuit because the other party improperly filed a motion to dismiss.
    • In order to assert the safe harbor provision, Rector needed to file a motion asserting the provision as a defense.  He did not do this, so the possibility of raising the defense is waived.