Where hearsay and speculation form the sole basis for a complaint, summary judgment and sanctions against counsel will be the result, according to a recent decision of the Third Circuit. In Brubaker Kitchens, Inc. v. Brown, 2008 WL 2123327 (3d Cir. 2008), the Court granted defendants summary judgment and sanctioned plaintiff’s counsel because non-competition allegations against a defendant lacked reasonable foundation.
Brubaker Kitchens manufactures custom cabinetry. In 2005, both the general manager and plant manager of Brubaker resigned from their positions to form a competing cabinet company. During their time at Brubaker, the two managers had become friendly with defendant Mark Schibanoff, one of the principals of Kitchen Consultants, a sales and marketing company that had done work with Brubaker. On highly tenuous hearsay and speculation, Brubaker’s president suspected that Schibanoff had been inappropriately involved with the formation of the managers’ competing company. Regardless, however, Brubaker brought a series of claims again Schibanoff, including tortious interference claims, in response to which defendant filed a motion for summary judgment and a request for sanctions under Rule 11. The District Court granted summary judgment in favor of Schibanoff on all claims and also imposed direct sanctions against Brubaker’s counsel for submitting the frivolous claims.
The Third Circuit upheld the judgment of the District Court, agreeing that Brubaker had failed to substantiate its allegations with sufficient factual support to satisfy the essential elements of the claims against Schibanoff. Since the only significant evidence of Schibanoff’s involvement with the competing company was an informal dinner discussion and a single innocuous reference letter, the claims were deemed frivolous.
Although the Third Circuit unanimously affirmed the grant of summary judgment in favor of Schibanoff, Judges Jordan and Sloviter were split regarding the standard of review on the issue of sanctions. Judge Jordan, writing for the majority, found that the District Court did not abuse its discretion in imposing sanctions against Brubaker’s counsel where its lawsuit consisted solely of a “vague belief based on bad feelings and a stray comment that the accused was ‘involved,’” while Judge Sloviter believed the District Court incorrectly had relied on an earlier version of Rule 11 that stated the imposition of sanctions was mandatory rather than discretionary and had abused its discretion in this instance.
This case serves as a reminder to employers that they must have concrete evidence of improper competition and cannot rely simply on guesswork in bringing claims of tortious interference. In addition, counsel should also exercise careful judgment when deciding whether or not to proceed with a case, as the courts will not hesitate to impose sanctions if they believe claims lack a factual basis.