United States Court of Appeals
For the First Circuit
No. 99-1432
JOHN DOE,
Plaintiff, Appellee,
v.
UROHEALTH SYSTEMS, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary M. Lisi, U.S. District Judge]
Before
Boudin, Stahl, and Lipez,
Circuit Judges
Brooks R. Magratten, with whom Benjamin V. White and Vetter
& White, were on brief for appellant.
Albert R. Romano, with whom Romano & Spinella, was on brief
for appellee.
June 26, 2000
STAHL, Circuit Judge. Defendant-appellant Urohealth
Systems, Inc. (“Urohealth”) appeals the district court's order,
entered pursuant to Fed. R. Civ. P. 41(a)(2), granting
plaintiff-appellee John Doe's motion to dismiss voluntarily and
without prejudice this diversity suit. We reverse and remand.
I.
In the late summer of 1995, John Doe sought treatment
for impotence and consulted a urologist, Dr. Jacques Susset, who
recommended the surgical implantation of a penile prosthesis.
Doe met with another urologist, Dr. Alan Podis, who suggested
that implantation of the Dura-II semirigid penile prosthesis
would be appropriate. Doe agreed with the recommendation and
the Dura-II was implanted by Podis in February 1996.
The Dura-II originally was designed and manufactured
by the Dacomed Corporation (“Dacomed”), which Urohealth acquired
as a wholly owned subsidiary in 1995. After the acquisition,
Urohealth manufactured and sold the Dura-II to physicians and
hospitals. It is unclear whether the actual Dura-II installed
in Doe was manufactured before or after Urohealth's acquisition
of Dacomed, but Urohealth has eschewed this as a defense.
About two months after the surgery, Doe began to have
problems with the device. On August 6, 1997, plaintiff filed in
federal district court a complaint against Urohealth for strict
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liability, negligence, and breach of warranty. His complaint
alleged that the Dura-II implant caused him pain, made noises,
and would not operate properly.
Although the parties commenced discovery before the
establishment of a discovery schedule, the district court
eventually set May 1, 1998, as the last day for Doe to make
expert disclosures; scheduled discovery to close on June 15,
1998; and set June 25, 1998, as the last day for the parties to
file dispositive motions. At the onset of the discovery
process, Doe requested many documents, and Urohealth propounded
interrogatories about Doe's experts. In response, Doe
identified four experts who would testify. When Urohealth
deposed them, none proffered an opinion about whether the
Dura-II was defective or unreasonably dangerous. In fact, it
turned out that none of them had agreed to serve as an expert
on Doe's behalf.
On May 4, Doe identified three new experts, but failed
to disclose their opinions or the grounds on which they would
base their opinions. On June 23, 1998, Urohealth moved for
summary judgment. That same day, the magistrate judge assigned
to supervise discovery extended the close of discovery to
September 1, 1998, and adjusted all other deadlines accordingly.
Urohealth objected to this extension of the discovery deadline,
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but on July 29, 1998, the district court affirmed that order.
In doing so, the court reprimanded Doe for his dilatory conduct
while attempting to secure an expert. Eventually, on August 28,
1998, Doe furnished the resume and report of his newly named
expert, Edward N. Reese, Ph.D., which prompted Urohealth to
supplement its pending summary judgment motion in order to
address Reese and his opinion.
Meantime, at 5:45 p.m. on August 27, 1998, the day
before naming Reese as his expert, Doe noticed depositions,
which were to take place in Providence, Rhode Island, of several
of Urohealth's California-based employees. The deposition
notices prescribed September 1, 1998, as the date for these
depositions. In response, Urohealth sought and received a
protective order striking the deposition notices, and the
district court reprimanded Doe for his “absolutely
inappropriate” discovery request. The next day, Doe filed
sixty-five requests for production from Urohealth, prompting
another motion for a protective order. The district court
referred this matter to the magistrate judge, who granted the
motion and noted that “to wait until the very last minute to
file something like this is a total abuse of discovery.”
On December 8, 1998, the magistrate judge heard
argument regarding Urohealth's motion for summary judgment, and
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two days later, ordered Urohealth to raise any objections it
might have to Reese's proposed testimony in a motion in limine.
Urohealth so moved on January 11, 1999. On January 26, 1999,
Doe filed in Rhode Island Superior Court a complaint against
Dacomed, Podis, Miriam Hospital, and Imagyn Technologies, Inc.1
Doe's state court action made the same substantive claims
against Urohealth as did his federal action, but added Dacomed
as a defendant as well. Subsequently, Doe moved in federal
court for dismissal without prejudice of his federal action,
pursuant to Rule 41(a)(2). Urohealth objected on the grounds
that it would be prejudiced by a Rule 41(a)(2) dismissal, but
the district court granted Doe's motion on March 23, 1999.
Urohealth appeals.
1Urohealth changed its name to “Imagyn Medical Technologies,
Inc.” in 1997. Doe inaccurately named it “Imagyn Technologies,
Inc.” in his state court complaint. For simplicity, we will
continue to refer to this company as Urohealth.
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II.
Rule 41(a)(2) provides that “an action shall not be
dismissed at the plaintiff's instance save upon order of the
court and upon such terms and conditions as the court deems
proper. . . . Unless otherwise specified in the order, a
dismissal under this paragraph is without prejudice.” Its
purpose is to permit the plaintiff, with approval of the court,
see Grover v. Eli Lilly & Co., 33 F.3d 716, 718 (6th Cir. 1994)
(noting that judicial approval is required “to protect the
nonmovant from unfair treatment”), voluntarily to dismiss an
action as long as “no other party will be prejudiced,” Puerto
Rico Maritime Shipping Auth. v. Leith, 668 F.2d 46, 50 (1st Cir.
1981) (internal quotation marks and citation omitted). The
district court is responsible under the rule for exercising its
discretion to ensure that such prejudice will not occur. See
Alamance Indus., Inc. v. Filene's, 291 F.2d 142, 146 (1st Cir.
1961).
In deciding whether to grant a Rule 41(a)(2) motion,
courts typically look to “the defendant's effort and expense of
preparation for trial, excessive delay and lack of diligence on
the part of the plaintiff in prosecuting the action,
insufficient explanation for the need to take a dismissal, and
the fact that a motion for summary judgment has been filed by
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the defendant.” Pace v. Southern Express Co., 409 F.2d 331, 334
(7th Cir. 1969); accord Grover, 33 F.3d at 718. But, courts
need not analyze each factor or limit their consideration to
these factors. See Tyco Labs., Inc. v. Koppers Co., 627 F.2d
54, 56 (7th Cir. 1980) (“The enumeration of the factors to be
considered in Pace is not equivalent to a mandate that each and
every such factor be resolved in favor of the moving party
before dismissal is appropriate. It is rather simply a guide
for the trial judge, in whom the discretion ultimately rests.”);
see also Kern v. TXO Prod. Corp., 738 F.2d 968, 971 (8th Cir.
1984) (“The very concept of discretion presupposes a zone of
choice within which the trial courts may go either way [in
granting or denying the motion].”).
We review for abuse of discretion the district court's
decision to grant a Rule 41(a)(2) motion. See Puerto Rico
Maritime, 668 F.2d at 49; Alamance, 291 F.2d at 146. “[A]n
abuse of discretion is found only where the defendant would
suffer 'plain legal prejudice' as a result of a dismissal
without prejudice, as opposed to facing the mere prospect of a
second lawsuit.” Grover, 33 F.3d at 718 (quoting Cone v. West
Virginia Pulp & Paper Co., 330 U.S. 212, 217 (1947)).
In its order granting Doe's motion, the district court
first referenced the four factors enumerated in Pace. The court
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began by stating that Urohealth was “probably home on three” of
the Pace factors.2 By the time Doe filed his motion to dismiss,
Urohealth had invested considerable resources, financial and
otherwise, in defending Doe's federal action. Urohealth had
produced numerous documents and deposed several of Doe's
purported experts. And, Urohealth had to file several
protective orders because of Doe's dilatory discovery tactics.3
Doe also was less than diligent in his prosecution of this case.
As Urohealth notes in its brief, Doe “conducted no discovery,
[and did nothing] to advance his case for that matter, from
October 8, 1997 to August 27, 1998.” The district court twice
reprimanded Doe for his failure to meet discovery deadlines and
for his discovery abuses. Finally, Urohealth had filed a motion
for summary judgment, which was pending when the court dismissed
the action.
2We agree with the district court's initial assessment of
the Pace factors, notwithstanding its less specific comments
later in its opinion.
3 The district court suggested that because the discovery
from the federal case would apply in the state case, the fact
that Urohealth had considerable discovery expenditures did not
weigh against granting Doe's motion. We disagree. Much of
Urohealth's effort and expense, such as its efforts to respond
to Doe's dilatory and sometimes abusive discovery practices and
to weed through Doe's experts, will not benefit it in the state
case because those issues will not resurface there.
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The district court then indicated that, even though the
Pace factors favored Urohealth, it did not believe that
Urohealth would “truly suffer legal prejudice” if it dismissed
the federal lawsuit without prejudice because Urohealth still
would have to litigate these claims on behalf of Dacomed in the
state suit. Urohealth argued that if the district court denied
Doe's Rule 41(a)(2) motion and granted Urohealth summary
judgment, the judgment would have preclusive effect for both
Urohealth and Dacomed; thus, Urohealth could avoid relitigating
the case in state court. The district court disagreed,
reasoning that even if summary judgment would preclude
relitigation for Urohealth in the state case, Dacomed, which “is
a separate entity, albeit wholly owned by Urohealth,” would not
be protected by res judicata because it was not a defendant in
the federal case.
We think the district court erred in its assumption
that Dacomed would not be entitled to assert a res judicata
defense if Urohealth had garnered judgment in the federal
action. An evaluation of the res judicata effects normally would
not be part of the Rule 41(a)(2) analysis, but this case is
unusual because of the relationship of the two entities. To the
extent the district court permissibly considered the potential
prejudice stemming from Urohealth's having to litigate on behalf
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of Dacomed in the state case, 4 we find an abuse of discretion
because the court erred in finding no privity between the
companies.
As a general matter, res judicata bars “parties to an
original action and those in privity with such parties” from
relitigating “all the issues that were tried or might have been
tried in the original suit.” Providence Teachers Union v.
McGovern, 319 A.2d 358, 361 (R.I. 1974).5 Because there is
little doubt that judgment for Urohealth in the federal suit
would have had preclusive effect with regard to Doe's claims
against Urohealth in the state case, see Eigabri v. Lekas, 681
4We do not decide today whether it was proper for the
district court to consider in its Rule 41(a)(2) determination
the effect dismissal without prejudice for Urohealth in the
federal case would have on Dacomed in the state case. Because
we conclude that the district court's conclusion about whether
Dacomed could use res judicata as a defense in the state case
was erroneous, we simply will assume without deciding that the
district court properly considered the effects on Dacomed.
5 As a general rule, "[f]ederal law determines the effects
under the rules of res judicata of a judgment of a federal
court." 2 Restatement (Second) of Judgments § 87. Some courts
have held that the federal law of preclusion should incorporate
state law with respect to questions of privity--the central
issue here. See, e.g., Lowell Staats Mining Co. v. Philadelphia
Elec. Co., 878 F.2d 1271, 1274 (10th Cir. 1989); see also, e.g.,
2 Restatement, supra, §87 cmt. b; 18 Charles Alan Wright et al.,
Federal Practice & Procedure § 4472, at 737-78 & n.37.5 (1981 &
Supp. 2000). We need not decide this question, as we are
confident that the privity analysis here would be the same
whether governed by state or federal law.
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A.2d 271, 280 (R.I. 1996), the appropriateness of the dismissal
turns on whether Dacomed and Urohealth are in privity.
We believe that Urohealth and Dacomed are in privity
for several reasons. “Under the concept of privity, a non-party
may be bound by a prior judgment if that party substantially
controlled or [is] represented by a party to the original
action.” Commercial Union Ins. Co. v. Pelchat, 727 A.2d 676,
680 (R.I. 1999). Someone in privity with a party may also claim
the preclusive benefit of the prior action. See, e.g., Pan Am.
Match Inc. v. Sears, Roebuck & Co., 454 F.2d 871, 874 (1st Cir.
1972). In this case, the parent and subsidiary are in privity
because Urohealth always has taken legal responsibility for the
product and Dacomed's actions and stands ready to defend Dacomed
in the state case. Moreover, in determining whether two parties
are in privity, courts often look to the commonality of their
interest in the matter. See Commercial Union Ins., 727 A.2d at
680. In this case, Urohealth's and Dacomed's interests are
identical. See Aunyx Corp. v. Cannon U.S.A., Inc., 978 F.2d 3,
7 (1st Cir. 1992) (“The identity of parties requirement was also
satisfied, even though ABM was not a party to the [prior]
proceedings. [ABM's sister company] had adequate interest in
litigating ABM's interests before the [prior court].”); cf. id.
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at 7-8 (noting that companies who had represented themselves as
alter egos are in privity).
A further factor supporting determination of privity
here is that the companies are parent and wholly owned
subsidiary. This factor has been stressed in a number of cases,
including a decision of our own addressed to Rhode Island Law.
See, e.g., Hart Steel Co. v. Railroad Supply Co., 244 U.S. 294,
298 (1917); Acton Co. v. Bachman Foods, Inc., 668 F.2d 76, 78
(1st Cir. 1982); Pan Am. Match, 454 F.2d at 874; Capraro v.
Tilcon Gammino, Inc., 751 F.2d 56, 57 (1st Cir. 1985) (Rhode
Island law). We do not suggest that the parent-subsidiary
relationship automatically establishes privity, but given the
relationship of the companies in this case coupled with their
joint involvement with the product in question, we have little
doubt that a Rhode Island court would treat a merits judgment in
favor of Urohealth as resolving an identical claim against its
wholly owned subsidiary.
Accordingly, we disagree with the district court's
legal conclusion that the lawsuit against the subsidiary could
be maintained in state court if the motion for summary judgment
were granted in favor of the parent on the merits. We, in some
measure, are making a prediction because we do not know how a
Rhode Island court would review the matter. An assessment of
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the legal rules that would be applied by a Rhode Island court,
however, presents a clear-cut legal issue on which no special
deference is due to the district court. See Salve Regina
College v. Russell, 499 U.S. 225, 238-39 (1991).
Because the district court's main stated reason for
dismissing without prejudice was based on a legal error, the
matter must be remanded for further proceedings. This result
does not necessarily preclude the possibility that for some
other reason the district court could dismiss the case without
ruling on the summary judgment motion, but given the record, it
is somewhat difficult to discern what that reason might be. As
matters now stand, the defendant has made a significant
investment of time and money in the case, a motion for summary
judgment apparently is ripe for decision, and judgment in favor
of Urohealth would avoid what may be otherwise years of
litigation in state court against its subsidiary on an identical
claim.
While the reason given by the district court is
inadequate, it is far from clear from the case law what reason
adequately would justify dismissal at the present stage.
Although the courts talk about "legal prejudice," the governing
Federal Rule of Civil Procedure lays down no specific test, see
Fed. R. Civ. P. 41(a)(2), and the precedents could be read as
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saying that everything depends on the particular circumstances
and that a range of factors could be taken into account. See
generally 9 Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedure § 2364, at 290-96 (2d ed. 1995). One can
imagine a situation in which even though the plaintiff chose to
bring the case in federal court, peculiarities such as very
difficult issues of state law, for example, might make
resolution in the state court more appropriate, at least to the
extent of permitting the plaintiff voluntarily to dismiss its
federal case and pursue a state remedy. Cf. Kern, 738 F.2d at
971. We do not say that this is such a case, but merely offer
that as an illustrative example.
At the same time, it is very difficult to imagine in
the circumstances of this case a no-prejudice dismissal at
plaintiff's behest that would not involve payment by the
plaintiff of the defendant's attorney's fees and other expenses
of litigation in federal court to date. We do not suggest that
payment of attorney's fees and costs automatically would justify
a dismissal. But if there were other valid justifications for
dismissal, payment of attorney's fees and other expenses might
in some measure ameliorate the prejudice to the defendants of
the plaintiff's abortive federal court litigation.
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On remand, the plaintiff is free to offer any other
reasons it may have to justify a voluntarily dismissal, assuming
it wishes to pursue its motion. We appreciate that any decision
by the district court on such motion, if unaffected by error on
a matter of law, is entitled to considerable deference. We do
think that a plaintiff cannot conduct a serious product
liability claim in a federal court, provoke over a year's worth
of discovery and motion practice, allow the case to reach the
stage at which the defendant filed a full-scale summary judgment
motion, and then when matters seemed to be going badly for
plaintiff simply dismiss its case and begin all over again in a
state court in what is essentially an identical proceeding.
III.
The judgment dismissing the plaintiff's complaint
without prejudice is reversed and the matter remanded for
further proceedings consistent with this opinion. Reversed and
remanded.
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John Doe v. Urohealth Systems, Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2000-06-26
Citations: 216 F.3d 157
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