Summary of Business v. Chromatic Comm Enterprises
498 U S 533 
Pleading: Ethical Principles as Limitations
Relevant Facts: Pl, Business, a subsidiary of a leading publisher of trade magazines, publishes directories for 18 specialized areas of retail trade. To combat and protect its directories from unauthorized copying, Pl inserts bits of false information, usually transposed #s, and false addresses. Business filed an action through counsel Finley against Df Chromatic for allegedly using 10 listings of “seed," information within its directory. When the D. Ct law clerk called Finley requesting specifically what was incorrect about each listing, the ct was informed that Pl was retracting 3 of the claims. The clerk then spent an hour calling all 10 and only 1 was incorrect information. Pl and counsel prepared a supplemental affidavit to support the 7 remaining claims. After the ct denied TRO and addressed the sanctions Pl claimed ‘coincidence."
Legal Issue(s): Whether Rule 11 Sanctions should be imposed against Business and counsel Finley for bringing a meritless or bad faith action?
Court’s Holding: Yes
Procedure: Tr ct hearing on motion for TRO; Denied, proceedings stayed and referred to Magistrate for possible sanctions. Sanctions recommended and ordered, claims dismissed with prejudice.
Law or Rule(s): If, after notice and reasonable opportunity to respond, the ct determines that a party or attorney has made misrepresentations to the ct, the ct may, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated the rule or are responsible for the violation.
Court Rationale: The Magistrate accepted Pl’s explanation/argument, but determined that sanctions were appropriate. 1 – Business in filing it application for TRO failed to conduct a proper inquiry; 2 – Both Pl and counsel failed to inquire into the accuracy of the remaining seeds following the supplemental affidavit; 3 – Instead of investigating the cause of the errors Pl and counsel relied on “coincidence" as a defense; 4 – No reasonable person would have been satisfied with these explanations.
The Ct agreed and stated “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 Pl and counsel have violated the Rule."
Plaintiff’s Argument: In compiling Pl’s master seed list, Pl had departed from its normal methodology and used a questionnaire that unknowningly contained corrected information.
Defendant’s Argument: The allegations and factual assertions made by the Pl have no evidentiary support, and the Pl could have determined such after reasonable opportunity for further investigation or discovery.