Business Guides, Inc v. Chromatic Communications Enterprises, Inc

• Decision Date: 26 February 1991
• Docket Number: No. 89-1500,89-1500
• Citation: 111 S.Ct. 922,498 U.S. 533,112 L.Ed.2d 1140
• Parties: BUSINESS GUIDES, INC., Petitioner, v. CHROMATIC COMMUNICATIONS ENTERPRISES, INC. and Michael Shipp
• Court: U.S. Supreme Court

498 U.S. 533

111 S.Ct. 922

112 L.Ed.2d 1140

BUSINESS GUIDES, INC., Petitioner,

v CHROMATIC COMMUNICATIONS ENTERPRISES, INC. and Michael Shipp.

No. 89-1500.

Argued Nov. 26, 1990.

Decided Feb. 26, 1991.

Syllabus

Federal Rule of Civil Procedure 11 provides, in relevant part, that "[t]he signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper" and "to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact," and that a court shall impose an appropriate sanction "upon the person who signed " a pleading, motion, or other paper in violation of the Rule. (Emphasis added). After finding that there was no basis in fact for the copyright infringement action and request for a temporary restraining order (TRO) filed by petitioner, through its counsel, against respondents, the District Court imposed Rule 11 monetary sanctions against petitioner on the ground that it had failed to make a reasonable inquiry before its president signed the initial TRO application and its research director signed a supplemental affidavit. The Court of Appeals affirmed.

Held:

1. Rule 11 applies to represented parties. The Rule's relevant portion unambiguously states that a party who signs a pleading or other paper without first conducting a reasonable inquiry shall be sanctioned, and there is nothing in the Rule's full text that detracts from this plain meaning. The reading urged by petitioner—that since the Rule does not require a represented party to sign most pleadings, a party who chooses to sign need not comply with the certification procedure—is inconsistent with the Rule's language and purpose. That a represented party may not be required to sign a pleading does not prohibit that party from attesting to the merit of a document filed on its behalf, and the signature of "an attorney or party " conveys the same message of certification. Thus, whether it is required or voluntary, a represented party's signature is capable of violating the Rule. A represented party's signature would fall outside the Rule's scope only if the phrase "attorney or party" were given the unnatural reading "attorney or unrepresented party." Had the Advisory Committee responsible for the Rule intended to limit the certification requirement's application to pro se parties, it would have expressly distinguished between represented and unrepresented parties, which it did elsewhere in the Rule, rather than lumping the two types together. Including all parties is also an eminently sensible reading of the Rule, since the Rule's essence is that signing denotes merit. Pavelic & LeFlore v. Marvel Entertainment Group, 493 U.S. 120, 110 S.Ct. 456, 107 L.Ed.2d 438, which held that the Rule contemplates sanctions against an attorney signer rather than the law firm of which he or she is a member, is entirely consistent with the result here that a represented party who signs his or her name bears a personal, nondelegable responsibility to certify the document's truth and reasonableness. The issue whether the signatures of petitioner's agents can be treated as its signature need not be resolved here, since it was not raised below. Pp. 540-548.

2. The certification standard for a party is an objective one of reasonableness under the circumstances. The Rule speaks of attorneys and parties in a single breath and unambiguously states that the signer must conduct a "reasonable inquiry" or face sanctions. In amending the Rule in 1983, the Advisory Committee specifically deleted the existing subjective standard and replaced it with an objective one at the same time that it amended the Rule to cover parties. There is no public policy reason not to hold represented parties to a reasonable inquiry standard. The client is often better positioned to investigate the facts supporting a pleading or paper, and the fact that a represented party is less able to investigate the legal basis for a paper or pleading means only that what is objectively reasonable for a client may differ from what is objectively reasonable for an attorney. Pp. 548-551.

3. The imposition of sanctions against a represented party that did not act in bad faith does not violate the Rules Enabling Act. Rule 11 is not a fee-shifting statute. The sanctions are not designed to reallocate the burdens of litigation, since they are tied not to the litigation's outcome, but to the issue whether a specific filing was well founded; they shift only the cost of a discrete event rather than the litigation's entire cost; and the Rule calls only for an appropriate sanction but does not mandate attorney's fees. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 258-259, 95 S.Ct. 1612, 1616, 1622, 44 L.Ed.2d 141, distinguished. Also without merit is petitioner's argument that the Rule creates a federal common law of malicious prosecution. The Rule's objective is not to reward parties who are victimized by litigation; it is to deter baseless filings and curb abuses. While the Rule may confer a benefit on other litigants, the Rules Enabling Act is not violated by incidental effects on substantive rights where the Rule is reasonably necessary to maintain the integrity of the federal practice and procedure system. Pp. 551-554.

892 F.2d 802 (CA9 1989), affirmed.

O'CONNOR, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, and SOUTER, JJ., joined. KENNEDY, J filed a dissenting opinion, in which MARSHALL and STEVENS, JJ., joined, and in Parts I, III, and IV of which SCALIA, J., joined, post, p. ---.

Stephen V. Bomse, San Francisco, Cal., for petitioner.

Neil L. Shapiro, San Francisco, Cal., for respondents.

Justice O'CONNOR delivered the opinion of the Court.

In this case we decide whether Rule 11 of the Federal Rules of Civil Procedure imposes an objective standard of reasonable inquiry on represented parties who sign pleadings, motions, or other papers.

I

Business Guides, Inc., a subsidiary of a leading publisher of trade magazines and journals, publishes directories for 18 specialized areas of retail trade. In an effort to protect its directories against copying, Business Guides deliberately plants in them bits of false information, known as "seeds." Some seeds consist of minor alterations in otherwise accurate listings transposed numbers in an address or zip code, or a misspelled name while others take the form of wholly fictitious listings describing nonexistent businesses. Business Guides considers the presence of seeds in a competitor's directory to be evidence of copyright infringement.^*

On October 31, 1986, Business Guides, through its counsel Finley, Kumble, Wagner, Heine, Unterberg, Manley, Myerson, and Casey (Finley, Kumble), filed an action in the United States District Court for the Northern District of California against Chromatic Communications Enterprises, Inc., claiming copyright infringement, conversion, and unfair competition, and seeking a temporary restraining order (TRO). The TRO application was signed by a Finley, Kumble attorney and by Business Guides' president on behalf of the corporation. Business Guides submitted under seal affidavits in support of the application. These affidavits charged Chromatic with copying, as evidenced by the presence of 10 seeds in Chromatic's directory. One affidavit, that of sales representative Victoria Burdick, identified the 10 listings in Business Guides' directory that had allegedly been copied, but did not pinpoint the seed in each listing.

A hearing on the TRO was scheduled for November 7, 1986. Three days before the hearing, the District Judge's law clerk phoned Finley, Kumble and asked it to specify what was incorrect about each listing. Finley, Kumble relayed this request to Business Guides' Director of Research, Michael Lambe. This was apparently the first time the law firm asked its client for details about the 10 seeds. Based on Lambe's response, Finley, Kumble informed the court that Business Guides was retracting its claims of copying as to three of the seeds. The District Court considered this suspicious and so conducted its own investigation into the allegations of copying. The District Judge's law clerk spent one hour telephoning the businesses named in the "seeded" listings, only to discover that 9 of the 10 listings contained no incorrect information.

Unaware of the District Court's discovery, Finley, Kumble prepared a supplemental affidavit of Michael Lambe, identifying seven listings in Chromatic's directory and explaining precisely what part of each listing supposedly contained seeded information. Lambe signed this affidavit on the morning of the November 7 hearing. Before doing so, however, Lambe crossed out reference to a fourth seed that he had determined did not in fact reflect any incorrect information but which Finley, Kumble had not retracted. At the hearing, the District Court, based on its discovery that 9 of the original 10 listings contained no incorrect information, denied the application for a TRO. More importantly, the judge stayed further proceedings and referred the matter to a Magistrate to determine whether Rule 11 sanctions should be imposed. The Magistrate conducted two evidentiary hearings, at which he instructed Business Guides and Finley, Kumble to explain why 9 of its 10 charges of copying were meritless. Both claimed it was a coincidence. Doubting the good faith of these representations, the Magistrate recommended that both the law firm and the client be sanctioned. See App. to Pet. for Cert. 64a-75a.

Later, claiming to have uncovered the true source of the errors, the parties asked for and received a third hearing. Business Guides explained that in compiling its "master seed list," it had departed from its normal methodology. Usually, letters and numbers were transposed deliberately and recorded on the seed list before the...