Justia › US Law › US Case Law › US Supreme Court › Volume 498 › Business Guides v. Chromatic Commun.
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.
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.
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.
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.
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 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.
"[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."
"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."
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 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.
"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.
"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."
as to harass or to cause unnecessary delay or needless increase in the cost of litigation.  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.  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  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  provides that, where a party is proceeding pro se, the unrepresented party must sign the documents. Sentence  acknowledges that, in some situations, represented parties are required by rule or statute to verify pleadings or sign affidavits. Sentence  explains that certification by signature replaces some older forms of oath and attestation.
The heart of Rule 11 is sentence , 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.
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 , , and , 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  dictates that, where a required signature is missing and the omission is not corrected promptly, the document will be stricken. Sentence  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  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 . 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.
"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.
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  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  refers specifically to "a party represented by an attorney," while sentence  applies to "[a] party who is not represented by an attorney" (emphasis added). Sentence , 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.
"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."
that their signature constitutes a certification as to the contents of the document."
Wright & Miller, § 1331, at 21.
"The expansion of the scope of the certification requirement to include non-attorney signers was accomplished by changing 'signature of an attorney' in the fifth sentence of the rule to 'signature of an attorney or party.'"
Id. at 21-22, n. 54 (emphasis added).
In addition to being the most natural reading, it is an eminently sensible one. The essence of Rule 11 is that signing is no longer a meaningless act; it denotes merit. A signature sends a message to the district court that this document is to be taken seriously. This case is illustrative. Business Guides sought a TRO on the strength of an initial application accompanied by five signed statements to the effect that Chromatic was pirating its directory. Because these documents were filed under seal, the District Court had to determine the credibility of the allegations without the benefit of hearing the other side's view. The court might plausibly have attached some incremental significance to the fact that Business Guides itself risked being sanctioned if the factual allegations contained in these signed statements proved to be baseless. Business Guides asks that we construe Rule 11 in a way that would render the signatures on these statements risk-free. Because this construction is at odds with the Rule's general admonition that signing denotes merit, we are loath to do so absent a compelling indication in the text that the Advisory Committee intended such a result. Because we find no such indication, compelling or otherwise, we conclude that the word "party" in sentence  means precisely what it appears to mean.
"the purpose of Rule 11 as a whole is to bring home to the individual signer his personal, nondelegable responsibility . . . to validate the truth and legal reasonableness of the papers filed."
493 U.S. at 493 U. S. 126. This is entirely consistent with our decision here that a represented party who signs his or her name bears a personal, nondelegable responsibility to certify the truth and reasonableness of the document. The dissent agrees that a party proceeding without the benefit of legal assistance bears this responsibility, but insists that a party represented by counsel -- even one whose signature is mandatory -- is absolved from any duty to vouch for the truth of papers he or she signs because he or she has delegated this responsibility to counsel. See post at 498 U. S. 556.
The dissent's dichotomy between represented and unrepresented parties is particularly troubling, given that it has no basis in the text of the Rule. Sentence  refers to "[t]he signature of an attorney or party" (emphasis added). We emphasized in Pavelic & LeFlore that this Court will not reject the natural reading of a rule or statute in favor of a less plausible reading, even one that seems to us to achieve a better result. 493 U.S. at 493 U. S. 126-127. Yet Justice KENNEDY proposes that we construe "party" to mean "unrepresented party" -- notwithstanding the Advisory Committee's ability, demonstrated only three sentences earlier, to distinguish between represented and unrepresented parties -- because he thinks it unwise to punish clients. See post at 498 U. S. 556-558.
The dissent also criticizes us for treating the signatures of Business Guides' president and director of research as signatures of the company. Justice KENNEDY suggests that this is "in square conflict" with our holding in Pavelic & LeFlore that "the person who signed'" was the individual attorney, not the law firm. Post, 498 U. S. 563. The dissent overlooks an important distinction. In Pavelic & LeFlore, we relied in part on Rule 11's unambiguous statement that papers must be signed by an attorney "in the attorney's individual name."
493 U.S. at 493 U. S. 125 (emphasis omitted). A corporate entity, of course, cannot itself sign anything; it can act only through its agents. It would be anomalous to determine that an individual who is represented by counsel falls within the scope of Rule 11, but that a corporate client does not, because it cannot itself sign a document. In any event, the question need not be resolved definitely here; Business Guides concedes that it did not raise this argument in the courts below. Brief for Petitioner 35, n. 38.
"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 as to harass or to cause unnecessary delay or needless increase in the cost of litigation."
As the Court of Appeals correctly observed: "[T]he rule draws no distinction between the state of mind of attorneys and parties." 892 F.2d at 809. Rather, it states unambiguously that any signer must conduct a "reasonable inquiry" or face sanctions.
acting on a clean slate; our task is not to decide what the rule should be, but rather to determine what it is. Once we conclude that Rule 11 speaks to the matter at issue, our inquiry is complete. See Pavelic & LeFlore, 493 U.S. at 493 U. S. 126. As originally drafted, Rule 11 set out a subjective standard, but the Advisory Committee determined that this standard was not working. See Cooter & Gell, 496 U.S. at 496 U. S. 392-393. Accordingly, the Committee deleted the subjective standard at the same time that it expanded the rule to cover parties. See 5A Wright & Miller, at 58-60, § 1335. That the Advisory Committee did not also amend Rule 56(g) hardly matters. Rather than fashion a standard specific to summary judgment proceedings, the Committee chose to amend Rule 11, thereby establishing a more stringent standard for all affidavits and other papers. Even if we were convinced that a subjective bad faith standard would more effectively promote the goals of Rule 11, we would not be free to implement this standard outside of the rulemaking process. "Our task is to apply the text, not to improve upon it." Pavelic & LeFlore, supra, 493 U.S. at 493 U. S. 126.
"This case illustrates well the dangers of a party's failure to act reasonably in commencing litigation. Here Business Guides, a sophisticated corporate entity, hired a large, powerful and nationally known law firm to file suit against a competitor for copyright infringement.
This competitor happened to be a one-man company operating out of a garage in California. Two years later, after extensive time and effort on the part of the court, the various counsel for Business Guides, as well as various counsel for Business Guides' counsel, it turns out there was no evidence of infringement. The entire lawsuit was a mistake. In the meantime, the objects of this lawsuit have spent thousands of dollars of attorney's fees and have suffered potentially irreparable damage to their business. This entire scenario could have been avoided if, prior to filing the suit, Business Guides simply had spent an hour, like the court's law clerk did, and checked the accuracy of the purported seeds."
Where a represented party appends its signature to a document that a reasonable inquiry into the facts would have revealed to be without merit, we see no reason why a District Court should be powerless to sanction the party in addition to, or instead of, the attorney. See Wright & Miller § 1336, at 104. A contrary rule would establish a safe harbor such that sanctions could not be imposed where an attorney, pressed to act quickly, reasonably relies on a client's careless misrepresentations.
Of course, represented parties may often be less able to investigate the legal basis for a paper or pleading. But this is not invariably the case. Many corporate clients, for example, have in-house counsel who are fully competent to make the necessary inquiry. Other party litigants may have a great deal of practical litigation experience. Indeed, Business Guides itself is no stranger to the courts; it is a sophisticated corporate entity that has been prosecuting copyright infringement actions since 1948. App. 105-106. The most that can be said is that the legal inquiry that can reasonably be expected from a party may vary from case to case. Put another way, "what is objectively reasonable for a client may differ from what is objectively reasonable for an attorney."
"We fail to see why represented parties should be given the benefit of a subjective bad faith standard whereas pro se litigants, who do not enjoy the aid of counsel, are held to a higher objective standard."
Giving the text its plain meaning, we hold that it imposes on any party who signs a pleading, motion, or other paper -- whether the party's signature is required by the Rule or is provided voluntarily -- an affirmative duty to conduct a reasonable inquiry into the facts and the law before filing, and that the applicable standard is one of reasonableness under the circumstances.
of malicious prosecution, thereby encroaching upon various state law causes of action.
"only if the Advisory Committee, this Court, and Congress erred in their prima facie judgment that the Rule . . . transgresses neither the terms of the Enabling Act nor constitutional restrictions."
Hanna v. Plumer, 380 U. S. 460, 380 U. S. 471 (1965).
"Rules which incidentally affect litigants' substantive rights do not violate this provision if reasonably necessary to maintain the integrity of that system of rules."
"It is now clear that the central purpose of Rule 11 is to deter baseless filings in District Court, and thus, consistent with the Rule Enabling Act's grant of authority, streamline the administration and procedure of the federal courts."
496 U.S. at 496 U. S. 393.
on the Court's statement in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240, 421 U. S. 247 (1975), that, in the absence of legislative guidance, courts do not have the power "to reallocate the burdens of litigation" by awarding costs to the losing party in a civil rights suit; they have only the power to sanction a party for bad faith. See id. at 421 U. S. 258-259. The initial difficulty with this argument is that Alyeska dealt with the courts' inherent powers, not the Rules Enabling Act. Rule 11 sanctions do not constitute the kind of fee-shifting at issue in Alyeska. Rule 11 sanctions are not tied to the outcome of litigation; the relevant inquiry is whether a specific filing was, if not successful, at least well-founded. Nor do sanctions shift the entire cost of litigation; they shift only the cost of a discrete event. Finally, the Rule calls only for "an appropriate sanction" -- attorney's fees are not mandated. As we explained in Cooter & Gell: "Rule 11 is not a fee-shifting statute. . . . A movant under Rule 11 has no entitlement to fees or any other sanction.'" 496 U.S. at 496 U. S. 409, quoting American Judicature Society, Rule 11 in Transition, The Report of the Third Circuit Task Force on Federal Rule of Civil Procedure 11, p. 49 (Burbank, reporter 1989).
plight," the court was "not persuaded that such compensation is within the purview of Rule 11." 121 F.R.D. at 406. In the event that a District Court misapplies the Rule in a particular case, the error can be corrected on appeal.
"But misapplications do not themselves provide a basis for concluding that Rule 11 was the result of . . . distinct errors in prima facie judgment during the development and promulgation of the rule."
Wright & Miller § 1332, at 40.
* Given the posture of this case, we have no occasion to consider whether the information contained in such a directory would actually be copyrightable. See Feist Publications, Inc. v. Rural Telephone Serv. Co., cert. granted, post, p. 808 (1990).
Justice KENNEDY, with whom Justice MARSHALL and Justice STEVENS join, and with whom Justice SCALIA joins as to Parts I, III, and IV, dissenting.
The purpose of Federal Rule of Civil Procedure 11 is to control the practice of attorneys, or those who act as their own attorneys, in the conduct of litigation in the federal courts. Extending judicial power far beyond that boundary, the Court, relying only on its rulemaking authority, now holds that citizens who seek the aid of the federal courts may risk money damages or other sanctions if they do not satisfy some objective standard of care in the preparation or litigation of a case. This holding is an extraordinary departure from settled principles governing liability for misuse of the courts, just as it departs from the structure of the Rule itself.
The result is all the less defensible in that the sanctions will apply quite often to those so uninformed that they sign a paper without necessity. Where the rules or circumstances require a verified complaint or affidavit, the majority's construction of Rule 11 affords no avenue of escape from this most troubling and chilling liability.
In my view, the text of the Rule does not support this extension of federal judicial authority. Under a proper construction of Rule 11, I should think it an abuse of discretion to sanction a represented litigant who acts in good faith, but errs as to the facts.
"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. . . ."
Fed.Rule Civ.Proc. 11 (emphasis added). From this it reasons: Business Guides is a party; agents of Business Guides signed papers submitted on the company's behalf; therefore, Business Guides assumed a duty of reasonable inquiry.
"in a paragraph beginning with a requirement of individual signature, and then proceeding to discuss the import and consequences of signature, . . . references to the signer in the later portions must reasonably be thought to connote the individual signer mentioned at the outset."
As we concluded in Pavelic & LeFlore, I would again hold the drafters of Rule 11 intended to bind those whose signatures are provided for in the Rule itself. The disjunction between represented parties and those whose signatures are significant for purposes of the Rule is borne out by the Rule's last sentence, which provides for sanctions upon "the person who signed [the paper], a represented party, or both." Fed. Rule Civ.Proc. 11. In my view, this sentence contemplates that the represented party and the person who signs will be different persons.
of the Bill, and the responsibility and guaranty of counsel, that upon the instructions given to him, and the case laid before him, there is good ground for the suit in the manner in which it is framed."
But it did not apply the certification requirements to unrepresented parties until 1983.
The 1983 amendments made substantial changes in Rule 11, expanding the duties imposed by the certification provisions, extending the certification requirements to unrepresented parties, and establishing that sanctions could, at least in some circumstances, be imposed on represented parties. But in light of the history of Rule 11's certification provisions as a set of duties imposed on counsel, I see no reason to believe that the Rule as amended attaches any particular significance to the signature of a represented party. It is more plausible that the language relied upon by the majority was designed to bring the signatures of unrepresented parties, already required by the Rule, within the certification provisions. This ensures that every pleading, motion, or other paper filed in federal court bears at least one signature constituting a Rule 11 certification. Applying the certification requirements to those who appear on their own behalf preserves the Rule's well-understood object of imposing obligations on those who practice before the court. A pro se litigant in essence stands in the place of an attorney. By its uncritical extension of the Rule's certification provisions to represented parties, the majority's reading severs the certification requirements from their purpose and origin.
"If the duty imposed by the rule is violated, the court should have the discretion to impose sanctions on either the attorney, the party the signing attorney represents, or both, or on an unrepresented party who signed the pleading, and the new rule so provides."
"[e]ven though it is the attorney whose signature violates the rule, it may be appropriate under the circumstances of the case to impose a sanction on the client."
Consider as well the portion of the Notes indicating that "[a]mended Rule 11 continues to apply to anyone who signs a pleading, motion, or other paper." Ibid. (emphasis added). Since Rule 11 did not impose any duties on a represented party who signed papers prior to 1983, it is difficult to fathom what this passage means if the 1983 amendments had the effect attributed to them by the majority. The passage makes sense only if it means that Rule 11 continues to apply to anyone whose signature is provided for in the Rule itself.
With little support for its views in the text of Rule 11 or the Advisory Committee's Notes, the majority turns to the works of scholars. Even here, though, the passages quoted from the treatise authored by Professors Wright and Miller do not seem to me unambiguous endorsements of the majority's position. They speak of Rule 11's expansion to "all signers, not just attorneys" or "non-attorney signers." Ante at 498 U. S. 545-546 (quoting 5A C. Wright & A. Miller, Federal Practice and Procedure § 1331, pp. 21-22, and n. 54 (2d ed. 1990)). But "signer" is a term of art in Rule 11, and, under a proper interpretation, it applies to those whose signatures the Rule itself requires. In any event, these snippets from a multivolume treatise do not reflect studied consideration of the precise question before the Court, whether a represented party's signature comes within the Rule 11 certification requirements. The only explicit reference I find in that treatise to the signature of a represented party is the statement that such signatures are "unnecessary, but not improper." 5A Wright & Miller, supra, § 1333, at 47. This falls far short of the majority's position.
can imagine no plausible reason for leaving it to the discretion of a represented party whether to assume Rule 11 certification duties and the concomitant risk of sanctions. The majority's suggestion that a represented party's signature might induce a court to give greater credence to a submitted paper, ante at 498 U. S. 546, provides little justification for construing Rule 11 to become a trap for the unwary. Rule 11 already requires a represented party's attorney to sign, and few courts will be swayed by the fact that a pleading bears two Rule 11 signatures rather than one.
The majority errs in suggesting that Rule 11's third sentence, coupled with Rule 65(b), "required" the signature of Business Guides. Ante at 498 U. S. 543. Rule 65(b) requires that applications for temporary restraining orders be verified or supported by affidavit. Since, as I explain below, infra, at 498 U. S. 562, affidavits are not "papers" within the meaning of the Rule, and are often signed by individual witnesses and not parties, the rules did not require Business Guides to sign here.
parties were mentioned for the first time. Wrongful verification already subjects one to potential prosecution for perjury, 18 U.S.C. §§ 1621, 1623, and it is not clear why Rule 11 would impose additional duties on represented parties in those few instances where verification is necessary. Further, if the drafters of Rule 11 had intended to subject a verifying party to the duties imposed on a Rule 11 signer, a plain statement to that effect in the text of the Rule would have accomplished that result without the odd consequences of the majority's analysis.
The majority's holding that affidavits are included among the "pleadings, motions, or other papers" covered by Rule 11 will doubtless be the portion of its opinion having the greatest impact, and will come as a surprise to many members of the bar. An affidavit submitted in support of a represented party's position will now have to be signed by at least one attorney, or else must be stricken pursuant to Rule 11's sixth sentence. I would construe the "papers" covered by Rule 11 to be those which, like pleadings or motions, invoke the power of the court, as distinct from supporting affidavits alleging factual matters as in this case or under Federal Rule of Civil Procedure 56. Pursuant to Rule 11, one who signs a paper certifies that it "is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law." Since it would be meaningless to make such a certification with respect to an evidentiary document, I do not believe affidavits come within the intended scope of the Rule. As the majority all but admits, ante at 498 U. S. 549, its holding renders superfluous Rule 56(g), which imposes sanctions for summary judgment affidavits submitted in bad faith, since any affidavit submitted in bad faith will also fail the Rule 11 certification standards.
"It is as strange to think that the phrase 'person who signed' in the last sentence refers to the partnership represented by the signing attorney, as it would be to think that the earlier phrase 'the signer has read the pleading' refers to a reading not necessarily by the individual signer, but by someone in the partnership."
Id. at 493 U. S. 124. It is just as strange, I submit, to assert that here a corporation is the "person who signed," and that the corporation thereby represented that it "ha[d] read the pleading."
In Pavelic & LeFlore, moreover, we rejected an appeal to "long and firmly established legal principles of partnership and agency:'"
"We are not dealing here . . . with common law liability, but with a Rule that strikingly departs from normal common law assumptions such as that of delegability. The signing attorney cannot leave it to some trusted subordinate, or to one of his partners, to satisfy himself that the filed paper is factually and legally responsible; by signing, he represents not merely the fact that it is so, but also the fact that he personally has applied his own judgment."
assumed a duty, perhaps delegable to other agents, to comply with the Rule 11 certification requirements. Either the Court was wrong last Term or it is wrong now. The duties imposed by Rule 11 either apply to corporate entities or they do not. The better resolution would be to hold that the signatures of represented parties, including corporations and partnerships, have no significance for Rule 11 purposes.
"disciplinary powers which English and American courts (the former primarily through the Inns of Court) have for centuries possessed over members of the bar, incident to their broader responsibility for keeping the administration of justice and the standards of professional conduct unsullied."
Cohen v. Hurley, 366 U. S. 117, 366 U. S. 123-124 (1961). An attorney acts not only as a client's representative, but also as an officer of the court, and has a duty to serve both masters. Likewise, applying this duty of reasonable inquiry to pro se litigants, as amended Rule 11 does, can be viewed as a corollary to the courts' power to control the conduct of attorneys. Requiring pro se litigants to make the Rule 11 certification ensures that, in each case, at least one person has taken responsibility for inquiry into the relevant facts and law.
and need not always track the inherent authority of the federal courts. See Sibbach v. Wilson & Co., 312 U. S. 1 (1941). At the same time, the farther our rules depart from our traditional practices, the more troubling becomes the question of our rulemaking authority.
In the Rules Enabling Act, Congress has delegated to this Court authority to prescribe "general rules of practice and procedure," 28 U.S.C. § 2072(a), which may not "abridge, enlarge or modify any substantive right," § 2072(b). The grant of authority to regulate procedure and the denial of authority to alter substantive rights expresses proper concern for federalism and separation of powers. See 19 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4509 (1982). Congress desired the courts to regulate "practice and procedure," an area where we have expertise and some degree of inherent authority. But Congress wanted the definition of substantive rights left to itself in cases where federal law applies, or to the States where state substantive law governs.
In my view, the majority's reading of Rule 11 raises troubling concerns with respect to both separation of powers and federalism. At the federal level, the new duty discovered by the majority in the text of the Rule is one that should be created, if at all, by Congress. In Alyeska Pipeline Co. v. Wilderness Society, 421 U. S. 240 (1975), while confirming the authority of the courts to award attorney's fees against a party conducting vexatious or bad-faith litigation, we reversed an award of attorney's fees made on the theory that the prevailing party had acted as a "private attorney general." We reaffirmed the American Rule that litigants in most circumstances must bear their own costs, and noted that Congress had itself provided for fee awards under various statutes when it thought fee-shifting necessary to encourage certain types of claims. We held that "it [was] not for us to invade the legislature's province by redistributing litigation costs in the manner" proposed in that case. Id. at 421 U. S. 271.
As interpreted by the majority, Rule 11 "redistribut[es] litigation costs" much like the fee-shifting theory rejected in Alyeska Pipeline. The majority's distinction between an "appropriate sanction" under Rule 11 based on a "discrete event" and the fee-shifting at issue in Alyeska Pipeline, ante at 498 U. S. 553, breaks down in a case like this one where the "discrete event" was the filing of the lawsuit and the "appropriate sanction" was the payment of respondents' attorney's fees coupled with dismissal of the suit. Any mechanism for redistributing costs, even the inherent sanctioning authority of the federal courts, has the potential to affect decisions concerning whether and where to file suit. But the risk of deterring a meritorious suit is slight where sanctions are only available for bad-faith or frivolous claims. On the other hand, when a party's prefiling conduct is subject to evaluation for objective reasonableness by the court, the risk of filing suit changes, and there arises a real risk of deterring meritorious claims. Under the majority's holding in this case, the deterrent effect will arise most often where the rules require verification of complaints. See supra, at 498 U. S. 562. In particular, one may expect reticence to seek temporary restraining orders, since the time pressures inherent in such situations create an acute risk of sanctions for unreasonable prefiling inquiry.
U.S. 827, 494 U. S. 835 (1990) ("[T]he allocation of the costs accruing from litigation is a matter for the legislature, not the courts").
Our potential incursion into matters reserved to the States also counsels against adoption of the majority's rule. Just as the various statutory fee-shifting mechanisms reflect policy choices by Congress regarding the extent to which certain types of litigation should be encouraged or discouraged, state tort law reflects comparable state policies. As interpreted by the majority, Rule 11 places on those represented parties who sign papers subject to the Rule duties far exceeding those imposed by state tort law. In general, States permitting recovery for malicious prosecution or abuse of process require the plaintiff to prove malice or improper purpose as a necessary element. W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on Law of Torts §§ 120-121 (5th ed. 1984); 1 F. Harper, F. James, & O. Gray, The Law of Torts § 4.8 (2d ed. 1986); Restatement (Second) of Torts § 676 (1977). As interpreted by the majority, Rule 11 creates a new tort of "negligent prosecution" or "accidental abuse of process," applicable to any represented party ignorant enough to sign a pleading or other Rule 11 paper. Cf. Response to a Practitioner's Commentary on the Actual Use of Amended Rule 11, 54 Ford.L.Rev. 28, 29-30 (1985) (remarks of Judge Charles Sifton); Brief for Petitioner 40.
though the majority would seem to suggest it, I should not have thought that, before a person or entity seeks the aid of the federal courts, it ought to know the contents of the Federal Rules of Civil Procedure, rules that, at least until now, were the domain of lawyers and not the community as a whole.
limitation, and the concern it reflects for the integrity of state substantive policies, is relevant to determining the scope of the Civil Rules").
Under my analysis, an attorney must violate Rule 11 before a represented party can be sanctioned. Regardless of the standard of conduct applicable to represented parties, I would reverse because it has not been shown on this record that an attorney signed a paper in violation of the Rule. A Finley, Kumble attorney did sign the original complaint and application for a temporary restraining order. However, the District Court did not find that Finley, Kumble lawyers had violated the Rule at the time the complaint was submitted.
The District Court did conclude that Finley, Kumble attorneys failed to conduct a reasonable inquiry prior to submission of the Lambe declaration. The Lambe declaration was not itself signed by an attorney, however, and, under my analysis of the Rule, could not serve as a basis for sanctions. See also supra at 498 U. S. 562. Indeed, Mr. Lambe's signature was not even the signature of a party. Certainly, a corporation only acts through its agents; that does not mean that all actions by a corporation's agents are actions on behalf of the corporation. Unlike the signature of the company's president verifying the complaint, Mr. Lambe's signature was on his own behalf, and did not in any way purport to bind the corporation.
Even were I to find an attorney violation, I would view it as an abuse of discretion to sanction a represented party if the party has acted in good faith. I recognize that an objective standard does, and should, govern the conduct of the attorney. With respect to a represented party, though, I would reverse the decision below for having applied a standard of objective reasonableness rather than some subjective bad faith standard.
Just as patience is requisite in the temperament of the individual judge, so it must be an attribute of the judicial system as a whole. Our annoyance at spurious and frivolous claims, and our real concern with burdened dockets, must not drive us to adopt interpretations of the rules that make honest claimants fear to petition the courts. We may be justified in imposing penalties on attorneys for negligence or mistakes in good faith; but it is quite a different matter, and the exercise of a much greater and more questionable authority, for us to impose that primary liability on citizens in general. These concerns underscore my objections to the majority's holding. With respect, I dissent.
"Every bill shall contain the signature of counsel annexed to it, which shall be considered as an affirmation on his part, that upon the instructions given to him and the case laid before him, there is good ground for the suit, in the manner in which it is framed."
Rules of Practice for the Courts of Equity of the United States, 1 How. xxxix, xlviii (1842).
"Every bill or other pleading shall be signed individually by one or more solicitors of record, and such signatures shall be considered as a certificate by each solicitor that he has read the pleading so signed by him; that upon the instructions laid before him regarding the case there is good ground for the same; that no scandalous matter is inserted in the pleading; and that it is not interposed for delay."
Rules of Practice for the Courts of Equity of the United States, 226 U.S. 627, 655 (1912).
"Every pleading of a party represented by an attorney shall be signed by at least one attorney of record in his individual name, whose address shall be stated. A party who is not represented by an attorney shall sign his pleading and state his address. Except when otherwise specifically provided by rule or statute, pleadings need not be verified or accompanied by affidavit. 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. The signature of an attorney constitutes a certificate by him that he has read the pleading; that to the best of his knowledge, information, and belief there is good ground to support it; and that it is not interposed for delay. If a pleading is not signed or is signed with intent to defeat the purpose of this rule, it may be stricken as sham and false and the action may proceed as though the pleading had not been served. For a wilfull violation of this rule an attorney may be subjected to appropriate disciplinary action. Similarly [sic] action may be taken if scandalous or indecent matter is inserted."
Fed.Rule Civ.Proc. 11, 28 U.S.C.App. (1982 ed.).
See Advisory Committee's Notes on Fed.Rule Civ.Proc. 11, 28 U.S.C.App. p. 575 ("The new language is intended to reduce the reluctance of courts to impose sanctions by emphasizing the responsibilities of the attorney and reenforcing those obligations by the imposition of sanctions") (emphasis added; citation omitted).
It might be argued that the attorney's signature on the original filings created a continuing duty to conduct reasonable inquiry and to amend or withdraw the pleadings as new facts came to light. Compare Thomas v. Capital Security Serv., Inc., 836 F.2d 866 (CA5 1988) (en banc), with Herron v. Jupiter Transp. Co., 858 F.2d 332, 335-336 (CA6 1988). See Burbank, The Transformation of American Civil Procedure: The Example of Rule 11, 37 U.Pa.L.Rev. 1925, 1930, n. 27 (1989). However, I would be unwilling to adopt such a construction of the Rule in a case such as this, where the issue has not been briefed.


This blog post is intended to identify the most material aspects of the proposed regulations the IRS has introduced to implement the BBA partnership audit rules, and provide guidance on what actions a partnership should consider taking at this time.
The proposed regulations (REG-136118-15) consists of a 157-page preamble and 120 pages of regulations; this blog post seeks only to highlight the regulations, rather than provide a comprehensive summary.
As discussed in a previous blog post, Congress enacted the Bipartisan Budget Act (the “BBA”) in 2015, which completely revamped the way partnerships (including LLCs taxed as partnerships) will be audited, beginning January 1, 2018. Since the introduction of the BBA, tax professionals have discovered a vast number of problems with the new audit regime and the administrative strain it will place on partnerships.
In response to the BBA, on December 6, 2016, Congress introduced the Technical Corrections Act of 2016 (the “TCA”) to address a number of these concerns, which are summarized here.). The TCA expired on January 3, 2017, but is expected to be re-introduced.
On January 18, 2017, the IRS published proposed BBA regulations, but the regulations were frozen by the Trump administration. The regulations have since been re-issued on June 18, 2017, and are summarized in this blog post.
Replacing the “Tax Matters Partner,” the proposed regulations require a partnership to have a “Partnership Representative” to act on the partnership’s behalf. The Partnership Representative may be an individual or an entity, but must have a substantial presence in the U.S. and have the capacity to act.
If a partnership designates an entity as Partnership Representative, the partnership must identify an individual to act on the entity’s behalf. The Partnership Representative is designated on the partnership’s return filed for the taxable year. The designation must be made every year, as a designation for one year is not effective for any other year. If no Partnership Representative is designated, the IRS may select any person to serve as Partnership Representative.
A Partnership Representative shall serve until the earlier of resignation, revocation, or until the IRS determines a designation is not in effect. The designation may not be changed by the partnership until the IRS issues a notice of administrative proceeding (unless the partnership files an administrative adjustment request as discussed later in this memo).
However, the regulations do appear to allow a partnership to appoint a new partnership representative upon the resignation of the current partnership representative, therefore a partnership may seek authority to compel the representative to resign, thus allowing the partnership the power to replace the partnership representative at any time.
The Partnership Representative has very broad powers, including the sole authority to bind the partnership and all the partners in any action with the IRS, including agreeing to settlements, agreeing to a notice of final partnership adjustment, making a push-through election (as discussed later in this post), and agreeing to extend the period for adjustments. This authority may not be limited by state law or by any agreement between the partners (e.g. a partnership or operating agreement).
Certain partnerships may elect out of the new audit regime and continue to be governed by the current TEFRA procedures which provide for audits at the partner-level (as described in an earlier post). The proposed regulations provide clarity with respect to partnerships that may elect out of the new audit regime. Only an eligible partnership may elect out of the BBA audit regime. An eligible partnership is a partnership that (i) has 100 or fewer partners, and (ii) all partners are eligible partners.
(i) 100 or Fewer Partners - a partnership has 100 or fewer partners if it is required to furnish 100 or fewer statements (i.e. Schedule K-1’s) during the year. For purposes of determining eligibility to elect out, also included in the 100-statement limit are any statements furnished by any partner that is an S-corporation to its shareholders.
(ii) Eligible Partners - an “eligible partner” is any person who is an individual, C corporation, S corporation, estate of a deceased partner, or an eligible foreign entity. Eligible partners do not include partnerships, trusts, disregarded entities, estates that are not estates of a deceased partner, and foreign entities that are not eligible foreign entities.
A partnership may only elect out on a timely filed partnership return (including extensions). Therefore, a partnership may not elect out for the taxable year if a return is filed after the due date.
Second, a partnership electing out must provide the IRS with the names, TINs, and federal tax classifications of all partners and, if any partner is an S corporation, the same information for all shareholders of such S corporation.
Lastly, the partnership must notify each of its partners within 30 days that the partnership has made the election. The preamble to the proposed regulations state that the IRS intends to carefully review partnership elections, so a partnership must be sure to strictly comply with the requirements set forth in the regulations.
The BBA rules and regulations substantially change the payment of any tax liabilities resulting from an audit. If after a proceeding the IRS determines partnership adjustments that ultimately result in an imputed underpayment of tax, the general rule is that the partnership must pay the imputed underpayment in the year of adjustment. An imputed underpayment is calculated by multiplying the total netted partnership adjustments by the highest rate of federal income tax in effect for the reviewed year, and is adjusted by any changes in the partnership’s credits. If the partnership disagrees with the determination of an imputed underpayment, the partnership may request modification of the amount, as discussed later in this section.
Amended Returns: if a reviewed year partner (or indirect partner) files one or more amended returns that take into account the relevant portion of the partnership adjustment, and concurrently makes any resulting payment arising from the amended return.
Tax-Exempt Partners: based on the tax-exempt status of any of its partners.
Rate Modification: by requesting and demonstrating that a lower tax rate would apply to all or portions of the total netted partnership adjustment allocable to a C corporation or an individual.
After being assessed an adjustment, a partnership may elect to “push-out” the adjustment to its reviewed year partners rather than paying the imputed underpayment at the partnership level. Upon making a valid push-out election, the reviewed year partners become liable, on a pro rata basis, for any tax, penalties, and interest after taking into account their share of the partnership adjustments. A partnership has 45 days from the final partnership adjustment to make the push-out election. The election must be signed by the Partnership Representative and filed with the IRS. A push-out election binds all reviewed year partners.
To make a valid push-out election, the partnership must furnish statements to the reviewed year partners within 60 days after the final partnership adjustment and file the statements electronically with the IRS. These statements identify each partner’s share of the adjustments and are in addition to, and are filed and furnished separate from, any other statements issued to partners (i.e. Schedule K-1’s), and the adjustments should not be taken into account on any Schedule K-1.
A partner that is furnished a statement resulting from a push-out election may elect to pay a safe harbor amount shown on the statement in lieu of paying the additional reporting year tax. The safe harbor is intended to provide a simplified method for the reviewed year partner to take into account the partner’s share of adjustments, and represents a reasonable alternative to approximate the tax that would have been due in the reviewed year. The safe harbor provides a straightforward option for partners that decide that the complexity and cost of calculating the correct, exact amounts due is not worth the effort. The calculation of the safe harbor amount is beyond the scope of this memo.
The TCA provided that partners who are themselves a flow-through entity could further push-out any adjustments described in this Section. However, the IRS has identified a number of administrative pitfalls with this option, and therefore, in the proposed regulations, has merely added a placeholder for the issue, with substantive regulations to follow.
The proposed regulations lastly provide that partnerships may self-report adjustments by filing an administrative adjustment request (“AAR”). A partnership may file an AAR with respect to one or more items of income, gain, loss, deduction, or credit, and any distributive share of such items.
Existing partnerships should consider several actions in response to the new partnership audit regime and the proposed regulations. As a threshold matter, partnerships must determine prior to the due date of their 2018 tax returns whether or not to elect out of the new audit regime, if eligible (keeping in mind that this election does not carry over, and must be made separately for each subsequent year).
If a partnership is not eligible to elect out, or chooses not to elect out, the partnership should review its governing documents prior to December 31, 2017, to determine if it should amend its governing documents to account for the new audit regime.
At the very least, the partnership must determine how it will appoint and remove a partnership representative, and specify the authority and notice obligations of the partnership representative, as well as provide for any indemnity to the partnership representative. The partnership should also identify its recourse if the partnership representative acts beyond its authority or as directed by the partnership.
Partnerships subject to the new audit regime must also determine whether the partnership or the partners will directly bear the tax consequences of an adjustment, including whether the partnership will be responsible for such costs (with current year partners bearing such costs indirectly), or whether the partnership will push-out adjustments, require partners to file amended returns in response to adjustments, or require partners to contribute to the partnership a pro rata share of an adjustment taken at the partnership level. The partnership should also require cooperation by the partners in seeking any modification of an adjustment and in complying with the BBA.
Lastly, the BBA will impact transactions involving partnership interests. In a purchase or sale of partnership interests, the transacting parties should include provisions addressing the new audit regime, as an acquiring partner could become directly or indirectly liable for an underpayment that occurred during a year prior to becoming a partner.
1 Prop. Reg. § 301.6223-1.
2 Prop. Reg. § 301.6223-1(b)(2)-(4).
4 Prop. Reg. § 301.6223-1(c).
6 Prop. Reg. § 301.6223-1(f)(1).
7 Prop. Reg. § 301.6223-1(e)(2).
8 Prop. Reg. § 301.6223-2.
9 Prop. Reg. § 301.6223-2(c)(1).
10 Prop. Reg. § 301.6221(b)-1(b).
12 Prop. Reg. § 301.6221(b)-1(b)(2).
13 Prop. Reg. § 301.6221(b)-1(b)(2)(ii).
14 Prop. Reg. § 301.6221(b)-1(b)(3)(i).
15 Prop. Reg. § 301.6221(b)-1(b)(3)(ii).
16 Prop. Reg. § 301.6221(b)-1(c)(1).
17 Prop. Reg. § 301.6221(b)-1(c)(3).
18 Prop. Reg. § 301.6225-1(a).
19 Prop. Reg. § 301.6225-1(c)(1).
20 Prop. Reg. § 301.6225-2.
21 Prop. Reg. § 301.6225-2(d)(2)(i).
22 Prop. Reg. § 301.6225-2(d)(3).
23 Prop. Reg. § 301.6225-2(c)(4).
24 Prop. Reg. § 301.6226-1.
25 Prop. Reg. § 301.6226-1(b)(1).
26 Prop. Reg. § 301.6226-1(c)(3).
27 Prop. Reg. § 301.6226-1(c)(4)(i).
28 Prop. Reg. § 301.6226-1(c).
29 Prop. Reg. § 301.6226-3(c).
30 Prop. Reg. § 301.6227-1(a).


text:
WILENTZ v. SOVEREIGN CAMP, W.O.W.
The question is whether we have jurisdiction to consider the merits of this appeal taken under 266 of the Judicial Code, 28 U.S.C.A. 380, directly to this Court from the decree of a district court of three judges.
Appellants, members of the Municipal Finance Commission, and the other appellants, members of the Board of Assessors of the Borough of Runnemede, a New Jersey municipal corporation, and its Tax Collector, were joined [306 U.S. 573, 576] as defendants. Decision on an application for an interlocutory injunction, presented to the district court of three judges assembled pursuant to 266 of the Judicial Code, and also on a motion of appellants to remit the case to a single district judge, was reserved, and the court, after hearing, rendered its final decree sustaining appellants' contention that the challenged statute was unconstitutional and granting relief by injunction against all the appellants. The case comes here on appeal under 238 and 266 of the Judicial Code. 28 U.S.C. 345, 380, 28 U.S.C.A. 345, 380.
Appellants press here the objection made below that the case is not one for a court of three judges as prescribed by 266 of the Judicial Code, and that consequently this Court is without jurisdiction to pass on the merits of the appeal taken directly from the district court, a contention which requires our consideration of the nature of the cause of action and of the relief sought and awarded. See Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., 292 U.S. 386 , 54 S.Ct. 732. [306 U.S. 573, 577] The bill of complaint states that appellee, a fraternal benefit life insurance association, organized under the laws of Nebraska, purchased on June 1, 1930, school bonds issued by the Board of Education of the Borough of Runnemede, which is coterminous with the school district of Runnemede; that default having occurred in the payment of principal and interest on the bonds remaining unpaid, appellee brought suit upon them in a federal court and on December 5, 1935, recovered a judgment against the Board of Education in the sum of $21,776.21, execution upon which was returned unsatisfied; and that appellee then began in the federal district court for New Jersey a suit for mandamus, which is still pending undecided, to compel the proper officers of the Borough to assess and collect taxes for payment of appellee's judgment.
The bill of complaint further alleges that appellee's contract, acquired by the purchase of the bonds, has been impaired in violation of the contract clause of the Constitution (Art. 1, 10, U.S.C.A.Const.) by the later enactment of c. 195, and 17 of c. 258, New Jersey Laws of 1935, R.S.1937, 52:27-46, 52:27-62, which extended the stay provisions of the State Municipal Finance Commission Act ( 351, 352, 354, Municipal Finance Commission Act, as amended by 8, 9, c. 330, New Jersey Laws of 1933, c. 191, New Jersey Laws of 1935, R.S.1937, 52:27-32.1, 52:27-33, 52: 27-33.2) to a school district whenever the Commission shall function in a municipality which is coterminous with the school district. In that event 17 stays suits and proceedings for recovery on school bonds of the municipality and stays execution on judgments in such suits, except that the Supreme Court or one of its justices is given discretionary power on application, prescribed by the statute, to authorize the suit to proceed, or execution to issue, under conditions calculated to secure equality of treatment of all creditors.
Section 103 of the Municipal Finance Act, R.S.1937, 52:27-3, provides that upon petition of a municipality showing that it 'is not in a position to meet its obligations when due', a justice of the Supreme Court is authorized to make an order to that effect, whereupon the 'commission shall function' in that municipality 'with all the powers and duties conferred by this chapter'. It is alleged in the bill of complaint, and was found below, that a justice of the Supreme Court had determined that the Borough of Runnemede was unable to meet its obligations and that the Commission, pursuant to the statute, then commenced to function and has since functioned in the Borough and in its coterminous school district.
As a further impairment of appellee's contract the bill of complaint alleges that in 1930, when the school district bonds were issued, the statutes of New Jersey provided [306 U.S. 573, 578] that taxes levied on property within the state should be paid only in lawful money of the United States, but that 6 of c. 330 of the New Jersey Laws of 1933, R.S.1937, 52:27-26, authorizes the governing body of a municipality in which the Commission is functioning to compromise and adjust delinquent taxes due the municipality, except claims for taxes in excess of $500, which may not be so compromised without the written assent of the Commission; that acting under these provisions the Commission has given its written assent to compromises previously authorized by the Runnemede Borough Council, whereby bonds were received in payment of taxes due the Borough in excess of $500, thus impairing the security and obligation of appellee's bonds.
The bill of complaint prays a judicial declaration that appellee's right to compel a levy and collection of taxes for the satisfaction of its judgment is governed by 35 of the Execution Act of New Jersey, 2 Comp. Stat. of New Jersey, p. 2256, and 237 of the School Law of New Jersey, 4 Comp.Stat. of New Jersey, p. 4804, R.S.1937, 2:26-85, in force in 1930, when the school bonds were issued; that the statutes assailed, c. 330, New Jersey Laws of 1933, cc. 195 and 258, New Jersey Laws of 1935, all as amended and supplemented, be declared unconstitutional and void as infringing the contract clause; that the Commission be enjoined from functioning in the Borough of Runnemede and from assenting to the compromise of delinquent taxes of the Borough for any sum less than the full amount due, and that appellant Tax Collector be enjoined from carrying into effect any such compromise; that appellants, the Borough's Assessors and its Tax Collector, be enjoined from assessing and collecting taxes for the year 1936 without including in them the amount of appellee's judgment.
The trial court sustained the allegations of the bill by its findings and granted the relief prayed, except that it declined to enjoin any action by the Assessors and Col- [306 U.S. 573, 579] lector with respect to the assessment and collection of 1936 taxes. In enjoining the Commission from functioning in the Borough the court directed that its decree should be 'without prejudice to any of the powers or duties of the Municipal Finance Commission under the Municipal Finance Commission Act except as the stays therein contained affect the right of the complainant to enforce its judgment.' The decree in its practical operation thus enjoined no action by the Commission and amounted to no more than a declaration that the stay provisions of the challenged statute were invalid and unenforceable.
By 266 of the Judicial Code, a suit in which application is made and pressed for an interlocutory injunction 'restraining the enforcement, operation, or execution of any statute of a State by restraining the action of any officer of such State in the enforcement or execution of such statute, or in the enforcement or execution of an order made by an administrative board or commission' is required to be heard by a court of three judges constituted as the section prescribes. The section also declares that 'a direct appeal to the Supreme Court may be taken from a final decree granting or denying a permanent injunction in such suit.' Our jurisdiction to hear the appeal on the merits, which is now challenged, turns upon the question whether the present is 'such suit'.
The reasons for the adoption of the extraordinary procedure prescribed by 266 of the Judicial Code in the class of cases defined by it, and the rule that it may be invoked only when the suit is one to restrain state officers, have often been pointed out. Ex parte Collins, 277 U.S. 565 , 48 S.Ct. 585; Ex parte Public National Bank, 278 U.S. 101 , 49 S.Ct. 43; Stratton v. St. Louis Southwestern Ry. Co., 282 U.S. 10 , 51 S.Ct. 8; Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra. This requirement is one of substance, not of form, and it is not satisfied by joining, as nominal parties defendant [306 U.S. 573, 580] state officers whose action is not the effective means of the enforcement or execution of the challenged statute. See Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra, 292 U.S. page 391, 54 S.Ct. page 734.
By its terms 266 embraces only those cases in which an interlocutory injunction is sought to prevent the operation of a state statute 'by restraining the action' of a state officer 'in the enforcement or execution of such statute'. Here it appears on the face of the bill of complaint, and from the findings, that the statutes assailed as unconstitutional are those prescribing a stay of suit or execution against any municipality and its coterminous school district in which the commission is functioning, and also the statute which permits a compromise of delinquent taxes by such a municipality and school district. The only state officers against whom an junction is sought are the members of the Commission. But they are clothed with no authority to enforce the challenged statutes and have taken no steps to enforce them. The stays prescribed by the statute become effective with respect to any particular municipality by virtue of other statutory provisions whenever the state Supreme Court finds that the municipality is unable to meet its obligations. The order of the Supreme Court promulgating its finding is the decisive action which calls the stay provisions into operation, and when that action is taken the statute becomes self-executing. The Commission is thus without power to grant or withhold a stay, and as the form of the decree, already noted, shows, there is no occasion to enjoin action by the Commission as the means of preventing operation of the stay provisions.
The Commission is similarly without authority to enforce the provisions of the Act of 1933, authorizing the compromise of delinquent taxes. Its written assent, prerequisite to execution of a compromise which the Commission cannot command, is not an order within the [306 U.S. 573, 581] meaning of 266. Great Northern Railway Co. v. United States, 277 U.S. 172 , 48 S.Ct. 466. The Borough Council, whose members are not state officers and are not parties to the present suit, is the exclusive agency for arranging the compromise. The effective agent for carrying the statute into execution is appellant Borough Tax Collector, who is not a state officer. The functions which the Council and the Collector perform, affecting the collection of taxes for payment of the local school district bonds, are not state, but local functions, and a suit for an injunction restraining such action by local officers is not within 266. Ex parte Collins, supra; Ex Parte Public National Bank of New York, supra; cf. Spielman Motor Sales Co. v. Dodge, 295 U.S. 89 , 55 S. Ct. 678.
Even though the written assent of the Commission, without which there can be no compromise of tax claims in excess of $500, be said to be action in 'execution' of the statute, we think this case is not one for a court of three judges, because the injunction sought against the Commission is but incidental to the sole purpose of the suit to prevent the performance by local officers of a local function. The members of the Commission are not necessary parties to the suit, and there is no occasion for relief against them in addition to that sought against the Collector. The Commission, in the performance of its statutory duty, acts only to approve the exercise by local officers of an authority conferred on them as such. A suit to restrain the latter from carrying into execution a state statute by performance of the local function which it authorizes is not to be brought within the purview of 266 by the expedient of adding as nominal parties state officers whose presence is not necessary to prevent the operation of the challenged statute and whose only action is the approval of that of local officers to be taken under it. In such circumstances their presence in the suit generates no interest which it is the purpose of 266 to [306 U.S. 573, 582] protect and must be regarded as colorable only for the purpose of securing the advantages of proceeding before a court of three judges, as was the presence of the state officers in Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra, where it was held that there was no appeal under 266.
The extraordinary procedure before a court of three judges, designed for a specific class of cases sharply defined by the statute, cannot properly be extended to cases in which there is no substantial basis for relief by injunction restraining the action of state officers in enforcing or carrying into effect a challenged state statute of general application. Ex parte Collins, supra; Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra, 292 U.S. page 391, 54 S.Ct. page 734. Here the issue is not one of jurisdiction of the district court as a federal court, see Ex parte Poresky, 290 U.S. 30, 31 , 54 S.Ct. 3, 4; Healy v. Ratta, 292 U.S. 263 , 54 S.Ct. 700, but is whether a final hearing by three judges is prescribed by the section and hence whether this Court has jurisdiction to hear the appeal. Smith v. Wilson, 273 U.S. 388 , 47 S.Ct. 385. As the case was not one for which a court of three judges is prescribed by 266, no appeal lies to this Court and it is without jurisdiction to hear the merits of the appeal.
In the exercise of its appellate jurisdiction, this Court has authority to give such directions as may be appropriate to enforce the limitations of 266, and may frame its mandate in such manner as will save to appellants their appropriate remedy by appeal to the proper court. Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra; Gully v. Interstate Natural Gas Co., 292 U.S. 16 , 54 S.Ct. 565. But as is indicated by the briefs, appellants have already taken an appeal from the decree below to the Court of Appeals for the Third Circuit, and it thus appears that their remedy will be preserved by dismissing the appeal to this Court without more.
The appeal will be dismissed with costs to appellants. See Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S. 379 , [306 U.S. 573, 583] 387, 4 S.Ct. 510, 514; Oklahoma Gas & Electric Co. v. Oklahoma Packing Co., supra.

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Clerk of the district court; fees; enumerated.
(1) In addition to the judges' retirement fund fee provided in section 24-703 and the fees provided in section 33-106.03 and except as otherwise provided by law, the fees of the clerk of the district court shall be as follows: There shall be a docket fee of forty-two dollars for each civil and criminal case except (a) a case commenced by filing a transcript of judgment as hereinafter provided, (b) proceedings under the Nebraska Workers' Compensation Act and the Employment Security Law, when provision is made for the fees that may be charged, and (c) a criminal case appealed to the district court from any court inferior thereto as hereinafter provided. There shall be a docket fee of twenty-five dollars for each case commenced by filing a transcript of judgment from another court in this state for the purpose of obtaining a lien. There shall be a docket fee of twenty-seven dollars for each criminal case appealed to the district court from any court inferior thereto.
(2) In all cases, other than those appealed from an inferior court or original filings which are within jurisdictional limits of an inferior court and when a jury is demanded in district court, the docket fee shall cover all fees of the clerk, except that the clerk shall be paid for each copy or transcript ordered of any pleading, record, or other document and that the clerk shall be entitled to a fee of fifteen dollars for a records management fee which will be taxed as costs of the case.
(3) In all civil cases, except habeas corpus cases in which a poverty affidavit is filed and approved by the court, and for all other services, the docket fee or other fee shall be paid by the party filing the case or requesting the service at the time the case is filed or the service requested.
(4) For any other service which may be rendered or performed by the clerk but which is not required in the discharge of his or her official duties, the fee shall be the same as that of a notary public but in no case less than one dollar.
Laws 2018, LB193, § 70.
This section does not require the clerk of the district court to account to the county for any naturalization fees collected by him. State ex rel. Douglas County v. Smith, 102 Neb. 82, 165 N.W. 896 (1917).
It is the duty of the clerk of the district court to collect in advance all fees provided by the statute for any service required of him. State v. Several Parcels of Land, 82 Neb. 51, 117 N.W. 450 (1908).
It is the duty of a clerk of the district court to require payment in advance or security for the payment of all fees for his services, and the sureties on his official bond are liable for all fees remaining uncollected at the expiration of his term. Boettcher v. Lancaster County, 74 Neb. 148, 103 N.W. 1075 (1905).
A clerk of the district court who makes certified transcripts of his records is entitled to fees for both the transcript and the certificate. The word certificate as used in this section refers to the act of certification as distinguished from the paper and its contents upon which the certificate is placed. Sheibley v. Hurley, 74 Neb. 31, 103 N.W. 1082 (1905).
A clerk of the district court is not entitled to fees for attaching a separate certificate and seal to each paper and journal entry of which he makes a copy where at the end of the transcript a general certificate is made which includes the same matters covered by the other certificates. Lydick v. Palmquist, 31 Neb. 300, 47 N.W. 918 (1891).
Interest on money paid in to clerk of district court by bidders at tax foreclosure sale is not a perquisite of the office. Bordy v. Smith, 150 Neb. 272, 34 N.W.2d 331 (1948).
Interest received by a county treasurer on deposit of public money is a perquisite within the meaning of this section. Scotts Bluff County v. McHenry, 130 Neb. 717, 266 N.W. 586 (1936).
Court costs are the property of such persons for whose benefit they are primarily allowed and taxed, and attorney's fees allowed as costs actually belong to the attorney although awarded to the client. Solomon v. A. W. Farney, Inc., 136 Neb. 338, 286 N.W. 254 (1939).
A fee bill issued under this section is valid where a judgment for costs has been recovered and the costs have been taxed by the clerk of the district court and itemized upon the fee book prior to the issuance of a fee bill. Citizens National Bank v. Gregg, 53 Neb. 760, 74 N.W. 273 (1898).