Business Guides v. Chromatic Commun.
498 U.S. 533 (1991)

Annotate this Case

U.S. Supreme Court

Business Guides v. Chromatic Commun., 498 U.S. 533 (1991)

Business Guides, Inc. v. Chromatic Communications Enterprises, Inc.

No. 89-1500

Argued Nov. 26, 1990

Decided Feb. 26, 1991

498 U.S. 533

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

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

Page 498 U. S. 534

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, 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. 498 U. S. 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. 498 U. S. 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, 421 U. S. 247, 421 U. S. 258-259, 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. 498 U. S. 531-534.

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.,

Page 498 U. S. 535

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. 498 U. S. 554.

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

Page 498 U. S. 536

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.

Page 498 U. S. 537

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 directory was published. In this case, the company had compiled the master seed list after publication by looking for unintended typographical errors in the directory. To locate such errors, sales representative Victoria Burdick had compared the final version of the directory against initial questionnaires that had been submitted to Business Guides by businesses that wanted to be listed. When Burdick discovered a disparity between a questionnaire and the final directory, she included it on the seed list. She assumed, without investigating, that the information on the questionnaires was accurate. As it turned out, the questionnaires themselves sometimes contained transposed numbers or misspelled names, which other employees had corrected when proofreading the directory prior to publication. Consequently, many of the seeds appearing on the master list contained no false information. The presence of identical listings in a competitor's directory thus would not indicate copying, but rather accurate research.

Page 498 U. S. 538

The Magistrate accepted this explanation, but determined that sanctions were nonetheless appropriate. Id. at 48a. First, he found that Business Guides, in filing the initial TRO application, had "failed to conduct a proper inquiry, resulting in the presentation of unreasonable and false information to the court." Id. at 53a. The Magistrate did not recommend that Finley, Kumble be sanctioned for the initial application, however, as the firm had been led to believe that there was an urgent need to act quickly, and thus relied on the information provided by its sophisticated corporate client. Id. at 54a-55a. Next, the Magistrate recommended that both Business Guides and Finley, Kumble be sanctioned for having failed to inquire into the accuracy of the remaining seeds following Michael Lambe's discovery, based on only a few minutes of investigation, that 3 of the 10 were invalid. Id. at 55a-56a. Finally, the Magistrate recommended that both the law firm and its client be sanctioned for their conduct at the first two evidentiary hearings. Instead of investigating the cause of the errors in the seed list, Business Guides and Finley, Kumble had relied on a "coincidence" defense. Id. at 51a. The Magistrate determined that

"[n]o reasonable person would have been satisfied with these explanations. . . . Finley, Kumble and Business Guides did not need this court to point out the blatant errors in the logic of their representations."

Id. at 59a.

The District Court agreed with the Magistrate, stating:

"The standard of conduct under Rule 11 is one of objective reasonableness. Applying this standard to the circumstances of this case, it is clear that both Business Guides and Finley Kumble have violated the Rule."

119 F.R.D. 685, 688-689 (ND Cal.1988). The court reiterated the Magistrate's conclusion that: (1) Business Guides violated Rule 11 by filing the initial TRO application; (2) Business Guides and Finley, Kumble violated the Rule by failing to conduct a reasonable inquiry once they were put on notice of several inaccuracies; and (3) Business Guides and Finley, Kumble violated

Page 498 U. S. 539

the Rule in their arguments to the Magistrate at the first two evidentiary hearings. Id. at 689. Rather than impose sanctions at that time, the District Court unsealed the proceedings and invited Chromatic to file a motion requesting particular sanctions. Id. at 690.

Chromatic brought a motion for sanctions against both Business Guides and Finley, Kumble. It later moved to withdraw the motion with respect to Finley, Kumble, after learning that the law firm had recently dissolved and that all proceedings against the firm were stayed under § 362 of the Bankruptcy Code. 121 F.R.D. 402, 403 (ND Cal.1988). The District Court accepted this withdrawal and issued its ruling without prejudice to Chromatic's right to pursue sanctions against Finley, Kumble at a later date. Ibid.

Before ruling on the motion for sanctions against Business Guides, the District Court made additional fact findings. It observed that, of the 10 seeds that had originally been alleged to be present in Chromatic's directory, only one actually contained false information. Ibid. This seed was a wholly fictitious listing for a company that did not exist. Chromatic denied that it had copied this listing from Business Guides' directory; it offered an alternative explanation -- that Business Guides had "planted" the fake listing in Chromatic's directory. A Business Guides employee had requested a copy of Chromatic's directory, filled out a questionnaire providing information about the nonexistent company, and mailed this questionnaire to Chromatic, intending that the company publish the false listing in its directory. Id. at 403-404. Business Guides did not deny the truth of these charges, and the District Court found that petitioner's silence amounted to a "tacit admission." Id. at 404. In light of this finding, the court had no choice but to conclude that "Business Guides' entire lawsuit has no basis in fact. . . . [T]here was, and is, no evidence of copyright infringement." Ibid.

The court then ruled on Chromatic's motion for sanctions. Citing "the rather remarkable circumstances of this case, and

Page 498 U. S. 540

the serious consequences of Business Guides' improper conduct," it dismissed the action with prejudice. Id. at 406. Additionally, it imposed $13,865.66 in sanctions against Business Guides, the amount of Chromatic's legal expenses and out-of-pocket costs. Id. at 405.

The Court of Appeals for the Ninth Circuit affirmed the District Court's holdings that Business Guides was subject to an objective standard of reasonable inquiry into the factual basis of papers submitted to the court, and that Business Guides had failed to conduct a reasonable inquiry before (1) signing the initial TRO application, and (2) submitting Michael Lambe's supplemental declaration. 892 F.2d 802, 811 (1989). The court relied on the plain language of Rule 11, which

"draws no distinction between the state of mind of attorneys and parties. . . . On the contrary, the rule, by requiring any 'signer' of a paper (attorney or party) to conduct a 'reasonable inquiry,' would appear to prescribe similar standards for attorneys and represented parties."

Id. at 809 (emphasis original). The Court of Appeals reversed, however, the District Court's holding that oral representations and testimony before the Magistrate violated Rule 11. Id. at 813. Because it reversed one of the three bases on which Business Guides had been sanctioned, the Court of Appeals vacated the order of sanctions and remanded to the District Court for reconsideration. Id. at 813-814. We granted certiorari to determine whether the Court of Appeals properly held Business Guides to an objective standard of reasonable inquiry. 497 U.S. 1002 (1990). Subsequently, the District Court issued an order reaffirming the dismissal and monetary sanctions. App. to Pet. for Cert. 1a-2a.

II

A

"We give the Federal Rules of Civil Procedure their plain meaning." Pavelic & LeFlore v. Marvel Entertainment Group,493 U. S. 120, 493 U. S. 123 (1989). As with a statute, our inquiry

Page 498 U. S. 541

is complete if we find the text of the Rule to be clear and unambiguous. Rule 11 provides in relevant part:

"The signature of an attorney or party constitutes a certificate by the signer that . . . to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well-grounded in fact. . . . If a pleading, motion, or other paper is signed in violation of this rule, the court . . . shall impose upon the person who signed it . . . an appropriate sanction."

(Emphasis added). Thus viewed, the meaning of the Rule seems plain: a party who signs a pleading or other paper without first conducting a reasonable inquiry shall be sanctioned. Business Guides argues, however, that the Rule's meaning is not so clear when one reads the full text. Accordingly, we reproduce below the full text of Rule 11, adding bracketed numbers before each sentence to clarify the discussion that follows:

"[1] Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated. [2] A party who is not represented by an attorney shall sign the party's pleading, motion, or other paper and state the party's address. [3] Except when otherwise specifically provided by rule or statute, pleadings need not be verified or accompanied by affidavit. [4] The rule in equity that the averments of an answer under oath must be overcome by the testimony of two witnesses or of one witness sustained by corroborating circumstances is abolished. [5] The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well-grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such

Page 498 U. S. 542

as to harass or to cause unnecessary delay or needless increase in the cost of litigation. [6] If a pleading, motion, or other paper is not signed, it shall be stricken unless it is signed promptly after the omission is called to the attention of the pleader or movant. [7] If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee."

We find nothing in the full text of the Rule that detracts from the plain meaning of the relevant portion quoted initially. Rule 11 is "aimed at curbing abuses of the judicial system." Cooter & Gell v. Hartmarx Corp.,496 U. S. 384, 496 U. S. 397 (1990). To this end, it sets up a means by which litigants certify to the court, by signature, that any papers filed are well-founded. The first three sentences of the Rule explain in what instances a signature is mandatory. Sentence [1] states that, where a party is represented by counsel, the party's attorney must sign any motion, pleading, or other paper filed with the court. Sentence [2] provides that, where a party is proceeding pro se, the unrepresented party must sign the documents. Sentence [3] acknowledges that, in some situations, represented parties are required by rule or statute to verify pleadings or sign affidavits. Sentence [4] explains that certification by signature replaces some older forms of oath and attestation.

The heart of Rule 11 is sentence [5], which explains in detail the message conveyed by the signing of a document. A signature certifies to the court that the signer has read the document, has conducted a reasonable inquiry into the facts and the law and is satisfied that the document is well-grounded in both, and is acting without any improper motive.

Page 498 U. S. 543

See 5A C. Wright & A. Miller, Federal Practice and Procedure § 1335, pp. 57-58 (2d ed. 1990) (hereinafter Wright & Miller). This sentence, by its terms, governs any signature of "an attorney or party," thereby making it applicable not only to signatures required by sentences [1], [2], and [3], but also to signatures that are not required, but nevertheless present.

"The certification requirement now mandates that all signers consider their behavior in terms of the duty they owe to the court system to conserve its resources and avoid unnecessary proceedings."

Id. at 21, § 1331 (emphasis added). The final two sentences describe the means by which the Rule is enforced. Sentence [6] dictates that, where a required signature is missing and the omission is not corrected promptly, the document will be stricken. Sentence [7] requires that sanctions be imposed where a signature is present but fails to satisfy the certification standard.

Business Guides proposes an alternative interpretation of the text. As mentioned, sentence [1] indicates that a party who is represented by counsel is not itself required to sign most papers or pleadings; generally, only the signature of the attorney is mandated. Business Guides concludes from this that a represented party may, if it wishes, sign a document, but that this signature need not comply with the certification standard described in sentence [5]. Because a client's signature is not normally required by Rule 11, the occasional presence of one cannot run afoul of the Rule. In short, Business Guides maintains that a represented party is free to sign frivolous or vexatious documents with impunity, because its signature on a document carries with it no additional risk of sanctions.

This reading is inconsistent with both the language and the purpose of Rule 11. As an initial matter, it is not relevant that represented parties rarely sign filed documents, because Business Guides did sign in this case. Indeed, it was required to do so. Rule 65(b) of the Federal Rules of Civil Procedure provides specifically that a TRO application must be

Page 498 U. S. 544

accompanied by an affidavit or verified complaint that sets forth the facts. A TRO application is thus one of the situations provided for in sentence [3], where a party's verification or signed affidavit is mandatory. Even if Business Guides had not been required to sign the TRO application, but did so voluntarily, the language of Rule 11 would still require that the signature satisfy the certification requirement. Sentence [1] may not require a represented party to sign papers and pleadings, but neither does it prohibit a represented party from attesting to the merit of documents filed on its behalf. "When a party is represented by counsel, it is unnecessary, but not improper, for the represented party to sign as well." Wright & Miller § 1333, at 47. Accordingly, sentence [5] declares that the signature of a party conveys precisely the same message as that of an attorney:

"The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that . . . it is well-grounded in fact and is warranted by existing law."

(Emphasis added). It seems plain that the voluntary signature of a represented party, no less than the mandatory signature of an attorney, is capable of violating the Rule.

The only way that Business Guides can avoid having to satisfy the certification standard is if we read "attorney or party" as used in sentence [5] to mean "attorney or unrepresented party." Only then would the signature of a represented party fall outside the scope of the Rule. We decline to adopt this unnatural reading, as there is no indication that this is what the Advisory Committee intended. Just the opposite is true. Prior to its amendment in 1983, sentence [5] referred solely to "[t]he signature of an attorney" on a "pleading." The 1983 amendments deliberately expanded the coverage of the Rule. Wright & Miller § 1331, at 21. Sentence [5] was amended to refer broadly to "[t]he signature of an attorney or party" on a "pleading, motion, or other paper" (emphasis added). Represented parties, despite having counsel,

Page 498 U. S. 545

routinely sign certain papers -- declarations, affidavits, and the like -- during the course of litigation. Business Guides, for example, submitted to the District Court no fewer than five signed papers in support of its TRO application. The amended language of sentence [5] leaves little room for doubt that the signatures of the "party" on these "other papers" must satisfy the certification requirement.

Had the Advisory Committee intended to limit the application of the certification standard to parties proceeding pro se, they would surely have said so. Elsewhere in the text, the Committee demonstrated its ability to distinguish between represented and unrepresented parties. Sentence [1] refers specifically to "a party represented by an attorney," while sentence [2] applies to "[a] party who is not represented by an attorney" (emphasis added). Sentence [5], however, draws no such distinction; it lumps together the two types of parties. By using the more expansive term "party," the Committee called for more expansive coverage. The natural reading of this language is that any party who signs a document, whether or not the party was required to do so, is subject to the certification standard of Rule 11.

Leading scholars are in accord. Professors James Wm. Moore and Jo Desha Lucas, authors of Moore's Federal Practice, state:

"The current Rule places an affirmative duty on the attorney or party to investigate the facts and the law prior to the subscription and submission of any pleading, motion or paper. . . . The rule applies to attorneys, parties represented by attorneys, and parties who appear pro se."

2A J. Moore & J. Lucas, Moore's Federal Practice

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