On April 20, 2015, in Universitas Education, LLC v. Nova Group, Inc., the US Court of Appeals for the Second Circuit held that the district court abused its discretion in imposing Federal Rule of Civil Procedure (FRCP) 11 sanctions where the sanctions were essentially used for enforcing or collecting damages (Nos. 13-4154 and 14-4698, (2d Cir. April 20, 2015)).

In a case involving the pay out of life insurance proceeds, defendant Nova Group, Inc. (Nova) appealed an FRCP 11 ruling against it by the US District Court for the Southern District of New York. As a sanction for frivolous motion practice designed to impede the plaintiff's ability to collect the judgment, the district court had ordered Nova to deposit $30,181,880.30 with the Clerk of the Court to satisfy the judgment outstanding against it. The court further ruled that any amount of this deposit that exceeded the outstanding judgment would be paid to the general sanction fund of the court.

On appeal, Nova did not contest that it had violated FRCP 11, but instead focused on the sanction requiring it to deposit the full amount of the judgment with the district court. The Second Circuit vacated the order. The appellate court noted that FRCP 11(c)(4) provides that sanctions must be "limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated." The court held that the district court abused its discretion in imposing sanctions because the sanctions were used as a means to enforce or collect damages on the plaintiff's behalf, noting that the district court cannot become a de facto collection agency. The court reiterated that a sanction aimed at deterring Nova's persistent and abusive litigation conduct was appropriate and necessary and remanded for a sanction that comported with FRCP 11 and its decision.