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Wells Fargo Bank, N.A. v. Younan Properties, Inc.

United States Court of Appeals, Seventh Circuit

December 5, 2013

WELLS FARGO BANK, N.A., Plaintiff-Appellee,
YOUNAN PROPERTIES, INC., et al., Defendants-Appellants.

Argued Oct. 28, 2013.

Page 466

David T. Audley, Attorney, Chapman & Cutler, Shannon Shin, Attorney, Jean Soh, Polsinelli PC, Chicago, IL, Amy Hatch, Attorney, Polsinelli Shughart, Kansas City, MO, for Plaintiff-Appellee.

Page 467

Arnold H. Landis, Attorney, Chicago, IL, for Defendants-Appellants.

Before POSNER, WILLIAMS, and HAMILTON, Circuit Judges.

POSNER, Circuit Judge.

In December 2011 Wells Fargo filed this diversity suit for breach of contract against Younan Properties, Sherry Younan, and Zaya Younan. The defendants moved for dismissal of the complaint on grounds of lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), lack of personal jurisdiction over Sherry Younan because of absence of personal jurisdiction (presumably owing to lack of minimum contacts) in the state in which she was sued (Illinois), Fed.R.Civ.P. 12(b)(2), and insufficient service of process on her. Fed.R.Civ.P. 12(b)(5). The district judge ruled that the opposing parties were not of diverse citizenship and therefore the court lacked subject matter jurisdiction. The judge gave Wells Fargo leave to file an amended complaint to cure that defect if it could. Instead of doing that, Wells Fargo moved in September 2012, nine months after filing its original complaint, to be allowed to dismiss its suit without prejudice.

Rule 41(a)(2) of the civil rules provides, with immaterial exceptions, that " an action may be dismissed at the's request only by court order, on terms that the court considers proper " (emphasis added). The defendants asked the district judge to condition voluntary dismissal on Wells Fargo's paying the legal expenses ($56,000 according to the defendants— we have rounded all dollar figures to the nearest thousand) that the defendants had incurred in preparing and filing motions to dismiss Wells Fargo's complaint on the alternative grounds that we mentioned. The judge agreed that the dismissal requested by Wells Fargo should be conditioned on its reimbursing the defendants for the $11,000 in legal expenses that they'd incurred in seeking dismissal on the ground of lack of diversity of citizenship (and hence of subject matter jurisdiction, there being no federal jurisdictional basis for the suit other than diversity). But he refused to condition dismissal on Wells Fargo's reimbursing the defendants for the other fees for which they were asking reimbursement. That refusal has precipitated this appeal. The defendants ask us to order Wells Fargo to pay them $56,000-$11,000 = $45,000. The $45,000 they seek includes an addition to the $11,000 they were awarded for the expense of litigating the issue of diversity. They want to re-itemize their legal bills to show they spent more than $11,000 on that issue. Too late; they should have done that in the district court. But that leaves the question whether they're entitled to any part of the $45,000 for the other expenses that they claim to have incurred in getting the suit dismissed.

Authorizing district judges to grant requests for voluntary dismissal " on terms that the [district] court considers proper" is terribly vague. It could be thought to give district courts unreviewable discretion, on the theory that a judge might " consider" anything to be proper. But that can't be right. We have to assume that implicitly the word " reasonably" intervenes between " court" and " considers." In a government of laws, judges are not permitted to make unreasonable rulings. " [D]iscretionary choices are not left to a court's ‘ inclination, but to its judgment; and its judgment is to be guided by sound legal principles.’ " Albemarle Paper Co. v. Moody, 422 U.S. 405, 416, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975), quoting United States v. Burr, 25 F. Cas. No. 14,692d, pp. 30, 35 (Cir.Ct.Va.1807) (Marshall, C.J.). " We must not invite the exercise of judicial impressionism. Discretion there may be, but ‘ methodized by analogy, disciplined by

Page 468

system.’ Cardozo, The Nature of the Judicial Process 139, 141 (1921). Discretion without a criterion for its exercise is authorization of arbitrariness." Brown v. Allen, 344 U.S. 443, 496, 73 S.Ct. 397, 97 L.Ed. 469 (1953), quoted in In re Oil Spill by Amoco Cadiz Off Coast of France on March 16, 1978, 954 F.2d 1279, 1334 (7th Cir.1992) (per curiam).

Many decisions recite and apply the principle that a Rule 41(a)(2) determination is subject to review for abuse of discretion. See, e.g., Colón Cabrera v. Esso Standard Oil Co. (Puerto Rico), Inc., 723 F.3d 82, 87-88 (1st Cir.2013); Heckethorn v. Sunan Corp., 992 F.2d 240, 241 (9th Cir.1993); McCants v. Ford Motor Co., 781 F.2d 855, 860-61 (11th Cir.1986); see also United States v. Criden, 648 F.2d 814, 817-18 (3d Cir.1981); Henry J. Friendly, " Indiscretion About Discretion," 31 Emory L.J. 747, 771-73 (1982). In the influential formula of Judge Calvert Magruder, a discretionary ruling by a lower court must be set aside if the reviewing court " has a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors," In re Josephson, 218 F.2d 174, 182 (1st Cir.1954), quoted in Finley v. Parvin/Dohrmann Co., 520 F.2d 386, 390 (2d Cir.1975) (Friendly, J.). That amounts to saying that the reviewing court must be highly confident that an error was committed. So the district judge in this case would be reversed had he conditioned voluntary dismissal of Wells Fargo's case on its CEO's wearing a dunce cap to signal contrition.

Normally a voluntary dismissal permitted under Rule 41(a)(2) is without prejudice, meaning that the plaintiff is free to refile his suit, for example in a state court if he sought dismissal because he either realized there was no federal jurisdiction or didn't think the issue of jurisdiction worth the time and expense of litigating over. A consequence of a voluntary dismissal on such a ground would be that the defendant's expenditures on contesting the existence of federal jurisdiction had been wasted, or largely so, because he had not killed the suit but had merely shifted it to another court. A judge who reasonably believed that the plaintiff had imposed a gratuitous expense on the defendant by filing in the wrong court and now wanted to dismiss without prejudice in the expectation of refiling in the right court would therefore be justified in conditioning voluntary dismissal on the plaintiff's reimbursing some or all of the defendant's expenditures in litigating the jurisdictional issue. The plaintiff could avoid this expense by asking that the dismissal be with prejudice, or, if the judge refused, by withdrawing his motion to dismiss. See, e.g., Marlow v. Winston & Strawn, 19 F.3d 300, 304-05 (7th Cir.1994); Andes v. Versant Corp., 788 F.2d 1033, 1037 (4th Cir.1986); 9 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2367, p. 551 (3d ed.2008). But if as in this case the case is dismissed without prejudice " the fee award should reimburse the defendant for expenses incurred in preparing work product that will not be useful in subsequent litigation of the same claim." Cauley v. Wilson, 754 F.2d 769, 772 (7th Cir.1985); see also Koch v. Hankins, 8 F.3d 650, 652 (9th Cir.1993); Kern v. TXO Production Corp., 738 F.2d 968, 972-73 (8th Cir.1984); McLaughlin v. Cheshire, 676 F.2d 855, 856-57 (D.C.Cir.1982) (per curiam); 9 Wright & Miller, supra, § 2366, pp. 526-37.

Wells Fargo does not contest the judge's conditioning dismissal without prejudice on reimbursement of the $11,000 spent by the defendants to prove lack of subject matter jurisdiction. ...

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