Thomas & Associates, Inc. v. Tennessee American Contractors, Inc.

The issue on appeal is whether the trial court erred in imposing Tenn. R. Civ. P. 11 sanctions against the defendant and its attorneys for failing to dismiss the counterclaim filed against the plaintiff. Prior to the trial of the case, the plaintiff filed a Rule 11 motion for sanctions contending the filing of defendant’s counterclaim violated Rule 11. Thereafter, the case went to trial on the plaintiff’s complaint and defendant’s counterclaim. At the close of the proof, the defendant voluntarily dismissed its counterclaims. After the trial was concluded, the trial court held that the defendant and its attorneys violated Rule 11 because the evidence presented at trial revealed that the counterclaim had no basis in fact or law and they failed to dismiss the counterclaim when the motion for sanctions was filed. We have determined the trial court applied an incorrect legal standard by evaluating the issue with the wisdom of hindsight instead of examining the circumstances existing at the time the counterclaim was signed by the attorneys, and for imposing sanctions for failing to voluntarily dismiss the counterclaim, because Rule 11 does not impose a duty to review or reevaluate a pleading once filed or to take affirmative steps thereafter to dismiss a previously filed pleading. Therefore, we reverse the imposition of Rule 11 sanctions.