OCTOBER TERM, 1999
Syllabus
NELSON
v. ADAMS USA, INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL
CIRCUIT
No. 99-502. Argued March 27, 2000-Decided April 25, 2000
Ohio Cellular Products Corporation (OCP) sued respondent Adams
USA, Inc. (Adams), for patent infringement. The District Court
dismissed OCP's claim and ordered OCP to pay Adams' costs and
attorney fees. In awarding costs and fees, the court determined
that petitioner Nelson, president and sole shareholder of OCP, had
deceitfully withheld from the United States Patent and Trademark
Office prior art that rendered OCP's patents invalid, and that this
behavior constituted inequitable conduct chargeable to OCP. Fearing
that OCP might be unable to pay the fee, Adams moved under Rule 15
of the Federal Rules of Civil Procedure to amend its pleading to
add Nelson, personally, as a party from whom fees could be
collected. Adams also asked the court, under Rule 59(e), to amend
the judgment to make Nelson immediately liable for the fee award.
The District Court granted Adams' motion in full. In affirming the
judgment entered against Nelson, the Federal Circuit acknowledged
that it was "uncommon" to add a party after the entry of judgment.
Nevertheless, Nelson had not demonstrated prejudice, the Court of
Appeals concluded, because he made no showing that anything
different or additional would have been done to stave off the
judgment had he been a party, in his individual capacity, from the
outset. That court, over a vigorous dissent, was apparently
satisfied that the District Court's simultaneous allowance of the
pleading amendment and entry of judgment satisfied due process.
Held: The District Court erred in amending the judgment
immediately upon permitting amendment of the pleading. Due process,
as reflected in Rule 15 as well as Rule 12, required that Nelson be
given an opportunity to respond and contest his personal liability
for the fee award after he was made a party and before the entry of
judgment against him. Pp. 465-472.
(a) Nelson was never afforded a proper opportunity to respond to
the claim against him, but was adjudged liable the very first
moment his personal liability was legally at issue. The Federal
Circuit observed that as long as no undue prejudice is shown, due
process is met if Rule 15's requirements for amended pleadings are
met. But the requirements of Rule 15 were not met here, and due
process does not countenance such swift passage from pleading to
judgment in the
461
pleader's favor. Because the propriety of allowing a pleading
alteration depends not only on the state of affairs prior to
amendment but also on what happens afterwards, Rule 15 both conveys
the circumstances under which leave to amend shall be granted and
directs how the litigation will move forward following an
amendment. When a court grants leave to amend to add an adverse
party after the time for responding to the original pleading has
lapsed, Rule 15(a) gives the party so added "10 days after service
of the amended pleading" to plead in response. This opportunity to
respond, fundamental to due process, is the echo of the opportunity
to respond to original pleadings secured under Rule 12(a)(I). Thus,
Rule 15 assumes an amended pleading will be filed and anticipates
service of that pleading on the adverse party. Nelson was never
served with an amended pleading. Indeed, no such pleading was ever
actually composed and filed in court. Nor, after the amendment
joining Nelson, was he accorded time to state his defenses against
personal liability for costs and fees. Instead, judgment was
entered against him the moment permission to amend the pleading was
granted. Appeal after judgment, in the circumstances this case
presents, did not provide an adequate opportunity to defend against
the imposition of liability. Cf.
American Surety Co. v.
Baldwin, 287 U. S. 156. Nothing in the record indicates that
Nelson affirmatively relinquished his right to respond on the
merits of the case belatedly stated against him in his individual
capacity. That Nelson knew as soon as Adams moved to amend the
pleading and alter the judgment that he might ultimately be
subjected to personal liability does not mean that he in fact had a
fair chance, before alteration of the judgment, to respond and be
heard. Rule 15 and the due process for which it provides demand a
more reliable and orderly course. First, as Rule 15(a) indicates,
pleading in response to an amended complaint is a prerogative of
parties, and Nelson was not a party prior to the District Court's
ruling on Adams' motion to amend. Second, as Rule 15 further
prescribes, the clock on an added party's time to respond does not
start running until the new pleading naming that party is served,
just as the clock on an original party's time to respond does not
start running until the original pleading is served, see Rule
12(a)(I)(A). This is not to say that Rule 15 is itself a
constitutional requirement. Beyond doubt, however, a prospective
party cannot fairly be required to answer an amended pleading not
yet permitted, framed, and served. Pp. 465-468.
(b) Adams' arguments that Nelson waived his objections to the
swift process of the District Court are rejected. First, the
assertion that Nelson waived personal jurisdiction and
absence-of-service arguments is beside the point because Nelson's
winning argument is based neither on personal jurisdiction nor on
service of process. Second, the sub-
462
mission that Nelson waived the due process issues presented here
is unavailing because his counsel explained in the Federal Circuit
that the core of Nelson's argument was the fundamental unfairness
of imposing judgment without going through the litigation process
the Rules prescribe. Further, both the majority and the dissent
below understood that an issue before them concerned the process
due after Adams' postjudgment motion. Also rejected is Adams'
essential position that there was sufficient identity between
Nelson and OCP to bind Nelson, without further ado, to a judgment
already entered against OCP. Because Nelson, as president and sole
shareholder of OCP, had withheld prior art from the Patent Office,
had actual notice that Adams was seeking to collect a fee award
from OCP, was the "effective controller" of the litigation for OCP,
and had personally participated as a witness at the hearing on
whether OCP had engaged in inequitable conduct, the Federal Circuit
concluded that nothing different or additional would have been done
had Nelson been a party from the outset. Judicial predictions about
the outcome of hypothesized litigation cannot substitute for the
actual opportunity to defend that due process affords every party
against whom a claim is stated. The decision here does not insulate
Nelson from liability, but simply ensures him the right, afforded
by due process, to contest on the merits his personal liability for
fees originally sought and awarded solely against OCP.
Pp.469-472.
175 F.3d
1343, reversed and remanded.
GINSBURG, J., delivered the opinion for a unanimous Court.
Debra J. Dixon argued the cause for
petitioner. With her on the briefs was
James L. Deese.
Jack Allen Wheat argued the cause for respondents.
With him on the brief were Vance Armentrout Smith, Joel Thomas
Beres, and John William Scruton.
JUSTICE GINSBURG delivered the opinion of the Court. This
litigation began when Ohio Cellular Products Corporation (OCP) sued
respondent Adams USA, Inc. (Adams), claiming patent infringement.
The District Court eventually dismissed OCP's claim and ordered OCP
to pay Adams' costs and attorney fees. Adams feared that OCP might
be unable to pay the fee award and therefore sought a means to
recover from petitioner Nelson, president and sole share-
463
holder of OCP, in his individual capacity. In pursuit of that
objective, Adams moved under Rule 15 of the Federal Rules of Civil
Procedure to amend its pleading to add Nelson as a party; Adams
also asked the court, under Rule 59(e), to amend the fee award. The
District Court granted the motion in full, simultaneously making
Nelson a party and subjecting him to judgment. The Court of Appeals
affirmed. We hold that the District Court erred in amending the
judgment immediately upon permitting amendment of the pleading. Due
process, as reflected in Rule 15 as well as Rule 12, required that
Nelson be given an opportunity to respond and contest his personal
liability for the award after he was made a party and before the
entry of judgment against him.
I
OCP and its successor corporation held two patents relating to
the method of manufacturing a foamed padding used in athletic
equipment. In 1994, OCP sued Adams for infringement. Adams
maintained that the patents had been anticipated by prior art and
were therefore invalid under 35 U. S. C. § 102(b). The District
Court ruled in Adams' favor and dismissed the infringement
complaint.
Adams then moved for attorney fees and costs. The District Court
granted the motion on the ground that Nelson, who was at all
relevant times president and sole shareholder of OCP, had
deceitfully withheld the prior art from the United States Patent
and Trademark Office. This behavior, the District Court concluded,
constituted inequitable conduct chargeable to OCP. On January
20,1998, the District Court awarded Adams costs and fees in the
amount of $178,888.51 against OCP.
Adams feared, however, that it would be unable to collect the
award. This was an altogether understandable concern; it stemmed
from a letter OCP's counsel had sent Adams warning that OCP would
be liquidated if exposed to a judgment for fees more than nominal
in amount. Adams there-
464
fore moved to amend its pleading to add Nelson, personally, as a
party from whom fees could be collected. In this postjudgment
endeavor, Adams reasoned that Nelson was the tlesh-and-blood party
behind OCP, the person whose conduct in withholding prior art
precipitated the fee award, and a person with funds sufficient to
satisfy that award. The District Court granted the motion.
Adams' motion, however, sought more than permission to amend the
pleading. I t sought simultaneously an amended judgment, subjecting
Nelson to liability as soon as he was made a party. See Record,
Doc. No. 126, p. 1 ("Defendants [i.
e., Adams] hereby move
the Court ... for an order granting Defendants leave to amend their
third party complaint to name Donald E. Nelson (Nelson) as a third
party defendant in his individual capacity, and amending the
judgment in this action to include Nelson as an additional party
against whom judgment is entered."). In presenting the motion,
Adams offered no reason why the judgment should be altered
immediately. See
id., at 7-8. The motion did contend that an
amendment to the judgment was "necessary to prevent manifest
injustice,"
id., at 8 (internal quotation marks omitted),
but it did not explain why Nelson, once joined as a party, should
not be permitted to state his side of that argument. The District
Court seems not to have paused over this question, for it allowed
the pleading amendment and altered the judgment at a single stroke.
Record, Doc. No. 131. The memorandum explaining the District
Court's decision addressed only the propriety of adding Nelson as a
party. It did not address the propriety of altering the judgment at
the very same time. Record, Doc. No. 130, at 3-7.
The Court of Appeals for the Federal Circuit affirmed the
amended judgment against Nelson.
Ohio Cellular Prods. Corp.
v.
Adams USA, Inc., 175 F.3d
1343 (1999). It was "uncommon," the appeals court acknowledged,
to add a party after the entry of judgment.
Id., at 1348.
The court con-
465
eluded, however, that Nelson had not been prejudiced by the post
judgment joinder. The Federal Circuit based that conelusion on
Nelson's failure to show that "anything different or additional
would have been done" to stave off the judgment had Nelson been a
party, in his individual capacity, from the outset of the
litigation.
Id., at 1351. The panel, over a vigorous dissent
by Judge Newman, was apparently satisfied that adding Nelson as a
party and simultaneously amending the judgment to obligate him
individually met due process requirements. See
id., at 1345,
1349, n. 5.
We granted certiorari, 528 U. S. 1018 (1999). In his request for
this Court's review, Nelson did not dispute the portion of the
District Court's order that granted Adams leave to amend its
pleading to add Nelson as a party against whom costs and fees were
sought. Pet. for Cert. 11. What he does challenge, and what is now
before us, is the portion of the District Court's order that
immediately adjudged Nelson personally liable the moment he was
made a party.
II A
The Federal Rules of Civil Procedure are designed to further the
due process of law that the Constitution guarantees. Cf. Fed. Rule
Civ. Proc. 1 (Rules "shall be construed and administered to secure
the just, speedy, and inexpensive determination of every action.").
Rule 15 sets out the requirements for amended and supplemental
pleadings. On that score, the Court of Appeals observed that as
long as no undue prejudice is shown, "due process requirements are
met if the requirements of Rule 15 are met." 175 F. 3d, at 1349, n.
5. But in the instant case, the requirements of Rule 15 were not
met. As Judge Newman recognized in her dissent below, due process
does not countenance such swift passage from pleading to judgment
in the pleader's favor. See
id., at 1352.
466
The propriety of allowing a pleading alteration depends not only
on the state of affairs prior to amendment but also on what happens
afterwards. Accordingly, Rule 15 both conveys the circumstances
under which leave to amend shall be granted and directs how the
litigation will move forward following an amendment. When a court
grants leave to amend to add an adverse party after the time for
responding to the original pleading has lapsed, the party so added
is given "10 days after service of the amended pleading" to plead
in response. Fed. Rule Civ. Proc. 15(a). This opportunity to
respond, fundamental to due process, is the echo of the opportunity
to respond to original pleadings secured by Rule 12. See Fed. Rule
Civ. Proc. 12(a)(1). Thus, Rule 15 assumes an amended pleading will
be filed and anticipates service of that pleading on the adverse
party.
Nelson was never served with an amended pleading. Indeed, no
such pleading was ever actually composed and filed in court. Nor,
after the amendment naming him as a party, was Nelson accorded 10
days to state his defenses against personal liability for costs and
fees. Instead, judgment was entered against him the moment
permission to amend the pleading was granted. Appeal after
judgment, in the circumstances this case presents, did not provide
an adequate opportunity to defend against the imposition of
liability. Cf.
American Surety Co. v.
Baldwin,
287 U. S. 156
(1932). Adams points to nothing in the record indicating that
Nelson affirmatively relinquished his right to respond on the
merits of the case belatedly stated against him in his individual
capacity. Accordingly, the proceedings did not comply with Rule 15,
and neither did they comport with due process. See,
e.
g., Mullane v.
Central Hanover Bank &
Trust Co.,
339 U. S.
306, 314 (1950) (" 'The fundamental requisite of due process of
law is the opportunity to be heard.''') (quoting
Grannis v.
Ordean, 234 U.
S. 385, 394 (1914)).
It is true that Nelson knew as soon as Adams moved to amend the
pleading and alter the judgment that he might ultimately be
subjected to personal liability. One could
467
ask, therefore, whether Nelson in fact had a fair chance, before
alteration of the judgment, to respond and be heard. Rule 15 and
the due process for which it provides, however, demand a more
reliable and orderly course. First, as the Rule indicates, pleading
in response to an amended complaint is a prerogative of parties,
see Fed. Rule Civ. Proc. 15(a), and Nelson was not a party prior to
the District Court's ruling on Adams' motion to amend. Second, as
Rule 15 further prescribes, the clock on an added party's time to
respond does not start running until the new pleading naming that
party is served, see
ibid., just as the clock on an original
party's time to respond does not start running until the original
pleading is served, see Fed. Rule Civ. Proc. 12(a)(1)(A). This is
not to say that Rule 15 is itself a constitutional requirement.
Beyond doubt, however, a prospective party cannot fairly be
required to answer an amended pleading not yet permitted, framed,
and served.1
In support of its holding that Nelson was not prejudiced when
added as a party and subjected to judgment, the Federal Circuit
relied on its prior decision in
Fromson v.
Citiplate,
Inc., 886 F.2d
1300 (1989). See 175 F. 3d, at 13491350, and n. 7. The reliance
is puzzling, for the circumstances in
Fromson were crucially
different from those presented here. The plaintiff in
Fromson prevailed on an infringement claim and subsequently
moved to hold the owners of the judgment-proof defendant
corporation individually liable. To that extent only,
Fromson resembles the
1 Even when an amendment relates back to the original date of
pleading under Rule 15(c), as Adams contends its amendment does,
the relation back cannot, consistently with due process, deny a
party all opportunity to be heard in response to the amendment. We
also note in this regard that the instant case does not fall under
Rule 15(c)(3), which deals with amendments that change the party or
the name of the party against whom claims are asserted. That
subsection applies only in cases involving "a mistake concerning
the identity of the proper party." Fed. Rule Civ. Proc.
15(c)(3)(B). Respondent Adams made no such mistake. It knew of
Nelson's role and existence and, until it moved to amend its
pleading, chose to assert its claim for costs and fees only against
OCP.
468
instant case. Notably unlike Adams, however, the plaintiff in
Fromson had moved
before trial to add the individual
owners as parties, because it suspected from the start that the
defendant corporation might not be able to pay. The District Court
denied that motion in reliance on the defendant corporation's false
assurances that it was solvent. See 886 F. 2d, at 1301, 1304.
Having been informed before trial that the plaintiffs sought to sue
them in their individual capacities, and having acted deliberately
to derail such a suit, the owners of the defendant corporation in
Fromson could hardly assert that another's mistake or choice
of whom to sue had compromised their ability to defend. Their
problem, the Federal Circuit aptly observed in its
Fromson
opinion, was "a bed of their own making."
Id., at 1304.
Here, in contrast, Adams never sought to sue Nelson individually
until after judgment was entered against OCP. Nor is there any
indication that Adams initially sought relief solely against OCP
because of some false assurance regarding OCP's solvency.
To summarize, Nelson was never afforded a proper opportunity to
respond to the claim against him. Instead, he was adjudged liable
the very first moment his personal liability was legally at issue.
Procedure of this style has been questioned even in systems, real
and imaginary, less concerned than ours with the right to due
process.2
2 A well-known work offers this example: "'Herald, read the
accusation!' said the King.
On this the White Rabbit blew three blasts on the trumpet, and
then unrolled the parchment scroll, and read as follows:
'The Queen of Hearts, she made some tarts,
All on a summer day:
The Knave of Hearts, he stole those tarts, And took them quite
away!'
'Consider your verdict,' the King said to the jury.
'Not yet, not yet!' the Rabbit interrupted. 'There's a great
deal to come before that!'" L. Carroll, Alice in Wonderland and
Through the Looking Glass 108 (Messner 1982) (emphasis in
original).
469
B
Adams strongly urges, however, that Nelson waived his objections
to the swift process of the District Court. Adams first maintains
that Nelson waived arguments based on personal jurisdiction and the
absence of service of process by failing to raise them promptly
after being added as a party. Brief for Respondents 32-41. Nelson's
winning argument, however, is based neither on personal
jurisdiction nor on service of process. It rests on his right to
have time and opportunity to respond to the claim once Adams gained
leave to sue Nelson in his individual capacity, and thereby to
reach beyond OCP's corporate till into Nelson's personal pocket.
Waiver of arguments based on personal jurisdiction and service of
process is therefore beside the point.3
In a similar vein, and this time coming closer to the
dispositive issue, Adams submits that the Federal Circuit "did not
address the 'due process' issues now sought to be presented, ...
because these issues were never raised by Petitioner" before that
court.
Id., at 47 (emphasis deleted). It is indeed the
general rule that issues must be raised in lower courts in order to
be preserved as potential grounds of decision in higher courts. But
this principle does not demand the incantation of particular words;
rather, it requires that the lower court be fairly put on notice as
to the substance of the issue. See,
e. g., Beech Aircraft
Corp. v.
Rainey, 488 U. S. 153, 174-175
(1988). And the general rule
3 We note that a waiver of service of process does not waive a
party's right to time in which to respond to the substance of
charges that, absent the waiver, would have been included in a
served document. It would make little sense to penalize a party's
waiver of process, which can help streamline litigation, by barring
such a party from stating its side of the case. Indeed, such waiver
can sometimes extend a party's time to respond. See Fed. Rule Civ.
Proc. 12(a)(1)(B) (rather than having to respond within 20 days of
service, a party waiving service may respond at any time within 60
days of the request for waiver).
470
does not prevent us from declaring what due process requires in
this case, for that matter was fairly before the Court of
Appeals.
In response to questioning from the appellate bench, Nelson's
counsel explained that the core of his client's argument was the
fundamental unfairness of imposing judgment without going through
the process of litigation our rules of civil procedure prescribe.4
Both the majority and the dissent in the Federal Circuit understood
that an issue before them concerned the process due after Adams'
post judgment motion. See 175 F. 3d, at 1349, n. 5 (majority
opinion);
id., at 1352 (Newman, J., dissenting). Our
resolution of the case as a matter of due process therefore rests
on a ground considered and passed upon by the court below.
Beneath Adams' technical and ultimately unavailing arguments
about waiver, its essential position in the litigation is reflected
in the Federal Circuit's decision: There was sufficient identity
between Nelson and OCP to bind Nelson, without further ado, to a
judgment already entered against OCP. Nelson was president and sole
shareholder of OCP. See
id., at 1346. It was Nelson who
withheld prior art from the Patent Office. See
id., at 1349.
He had actual notice that Adams was seeking to collect a fee award
from OCP, because he was the "effective controller" of the
litigation for OCP and personally participated as a witness at the
hearing on whether OCP had engaged in inequitable conduct. See
ibid.
The Federal Circuit did not conclude that these factors would
have justified imposing liability on Nelson by piercing
4 Nelson's counsel stated his position as follows: "[I]t's
legally wrong to subject the individual, nonserved, nonsued,
nonlitigated-against person to liability for that judgment. Because
there are rules. The rules say if you want a judgment against
somebody, you sue them, you litigate against them, you get a
judgment against them." Tape of Oral Arg. in No. 98-1448
(CA
Fed. Feb. 3, 1999).
471
OCP's corporate veil, see
id., at 1349, n. 6, and Adams,
for its part, has disavowed reliance on a veil-piercing theory, see
Record, Doc. No. 129, at 3 (stating, before the District Court,
that "Adams does not request that the Court 'disregard the
corporate form' "); Tape of Oral Arg. in No. 98-1448
(CA
Fed. Feb. 3, 1999) (expressly stating that this case does not
concern piercing the corporate veil). One-person corporations are
authorized by law and should not lightly be labeled sham. See,
e. g., Gregory v.
Helvering, 293 U. S. 465, 469 (1935)
(finding corporation a sham not because it was owned entirely by
one person, but because it had "no business or corporate purpose");
Kirno Hill Corp. v.
Holt, 618 F.2d
982, 985
(CA2 1980) (a corporation's veil may not be
pierced merely because it has only one owner). Indeed, where
patents are concerned, the one-person corporation may be an
altogether appropriate means to permit innovation without exposing
inventors to possibly ruinous consequences. The legitimacy of OCP
as a corporation, in short, is not at issue in this case.
Instead, the Federal Circuit reasoned that nothing much turned
on whether the party opposing Adams' claim for costs and fees was
OCP or Nelson. "[N]o basis has been advanced," the panel majority
concluded, "to believe anything different or additional would have
been done to defend against the allegation of inequitable conduct
had Nelson individually already been added as a party or had he
been a party from the outset." 175 F. 3d, at 1351. We neither
dispute nor endorse the substance of this speculation. We say
instead that judicial predictions about the outcome of hypothesized
litigation cannot substitute for the actual opportunity to defend
that due process affords every party against whom a claim is
stated. As Judge Newman wrote in dissent: "The law, at its most
fundamental, does not render judgment simply because a person might
have been found liable had he been charged."
Id., at
1354.
472
Our decision surely does not insulate Nelson from liability.
As counsel twice represented at oral argument, see Tr. of Oral
Arg. 9, 19-20, Nelson seeks only the right to contest on the merits
his personal liability for fees originally sought and awarded
solely against OCP. That right, we hold, is just what due process
affords him.5
***
For the reasons stated, the judgment of the Court of Appeals is
reversed, and the case is remanded for further proceedings
consistent with this opinion.
It is so ordered.
5 Once the amended pleading is served and Nelson's response is
submitted, it will be open to Adams to urge, as Adams prematurely
does here, Brief for Respondents 22-28, that issue preclusion
(collateral estoppel) bars Nelson from contesting findings made
during the litigation between OCP and Adams. See Restatement
(Second) of Judgments § 39 (1980). We venture no opinion here about
the possible success of such an argument, made at the proper
time.
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