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

498 U.S. 533 (1991)

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Nature of the Case

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Facts

Business Guides, Inc. (P) published a business directory, and used intentional mistakes to claim copyright infringement in competitors' directories. If the same mistake appeared in a competitor's directory, P would sue for copyright infringement. P filed an action in 1986 against Chromatic Communications Enterprises, Inc. (D). An application for a TRO was signed by an official of P and the attorneys for P signed the complaint. The TRO alleged that ten of the intentional mistakes had been found in a directory published by D. Three days before the TRO hearing the judge’s law clerk called P’s attorney and asked for the names. The law firm for the first time then asked P for them. P replied and retracted three of the names and prepared supplemental affidavits. After careful investigation, it was determined that none of the intentional mistakes appeared in D's directory. The law clerk had investigated and found that 9 of the 10 seeds contained no incorrect information. The court denied the TRO and stayed further proceedings to determine if sanctions were appropriate against P and its attorney. The suit was meritless. At the next hearing, P claimed that there was an honest mistake from the use of an incorrect master. Even so, the judge still found sanctions appropriate; P failed to conduct a proper inquiry, P and the law firm failed again to conduct a proper inquiry after three seeds were found to be wrong, and both parties were unreasonable by offering coincidence as their defense in the two prior hearings. D brought a motion for sanctions against P. The court imposed sanctions on P under Fed. R. Civ. P. 11 under an objective reasonableness test. The judge found sanctions were appropriate because P failed to conduct a proper inquiry before filing the initial TRO, both P and the attorney failed to investigate after 3 of the seeds were determined to be incorrect, and both P and the attorney were unreasonable for offering coincidence as their defenses. D got sanctions of $13,865, and the action was dismissed with prejudice. The Ninth Circuit affirmed.