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

Business Guides, Inc. (Business Guides) (plaintiff) was a publisher of trade magazines and directories. In order to prevent other businesses from copying its directories, Business Guides planted false information, known as seeds, in its directories. If Business Guides found those seeds in the directories of other publishers, Business Guides would assume the other publisher had copied its directories. Business Guides filed a lawsuit in federal district court against Chromatic Communications Enterprises, Inc. (Chromatic) (defendant), alleging copyright infringement, conversion, and unfair competition. Business Guides, through its attorney, requested that a temporary restraining order (TRO) be entered, and in doing so, Business Guides executives signed an affidavit stating that they had identified seeds in Chromatic’s directories. The trial court denied the request for a TRO after failing to find seeds in Chromatic’s directories. The trial court issued sanctions under Rule 11 of the Federal Rules of Civil Procedure against the Business Guides for failure to check its information before submitting a request for a TRO. The trial court did not sanction Business Guides’ attorney because it was necessary for the attorney to rely on representations made by Business Guides executives in order to seek an immediate TRO. Business Guides appealed, arguing that imposing sanctions against a party that did not act in bad faith violated the Rules Enabling Act and that Rule 11 exceeded the authority of the United States Supreme Court by authorizing fee shifting not approved by Congress and by creating a tort of malicious prosecution.