Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-1_06-cv-00434/USCOURTS-alsd-1_06-cv-00434-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

ROBERT H. NEWTON, SR. et al., )

 )

Plaintiffs, )

 )

v. ) CIVIL ACTION 06-0434-WS-M

 )

AUTO-OWNERS INSURANCE )

COMPANY, etc., )

 )

Defendant. )

ORDER 

This matter is before the Court on the motion of plaintiff Robert H. Newton, Jr. to

dismiss this action. (Doc. 12). The defendant has filed a response and Newton a reply,

(Docs. 17, 19), and the motion is ripe for resolution. After carefully considering the

foregoing and other relevant material in the file, the Court concludes that the motion is

due to be granted.

What should have been a straightforward dispute over insurance coverage has

become, thanks to the parties’ maneuverings, unnecessarily complicated. Newton sued

George and Georgette Wright in state court for personal injuries. After a period of

litigation, the parties obtained a consent judgment in the amount of $5 million, to be

collected only from the Wrights’ insurer, defendant Auto-Owners Insurance Company

(“Auto-Owners”). Auto-Owners learned of the deal and filed a declaratory judgment

action in federal court (Civil Action No. 06-0370-WS-M), naming as defendants Newton

and the Wrights, plus Guy Wright and Wright Pre-Cast Concrete, Inc. The latter two

defendants were later eliminated as a result of an amended complaint that failed to name

them. 

Meanwhile, in state court Newton filed a motion to amend the complaint to add

Auto-Owners as a defendant and to re-align the Wrights as parties plaintiff. Along with

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the motion, Newton filed an amended complaint alleging a cause of action against AutoOwners under the direct action statute and another cause of action for garnishment. 

Process of garnishment then issued from the state court. After receiving process, AutoOwners timely removed the action to federal court. (Doc. 1).

In federal court, Auto-Owners moved to consolidate the two cases. (Doc. 4). 

Ruling was delayed due to Auto-Owner’s failure to serve Newton and two other

defendants in the declaratory judgment action. Newton eventually responded that this

action should be stayed pending resolution of the declaratory judgment action. (Doc. 9).

The Wrights pointed out that they have no interest in either lawsuit and requested

dismissal, (Doc. 8), and Auto-Owners acknowledged it has no objection to such a

dismissal. (Doc. 11). Newton then filed a counterclaim in the declaratory judgment

action under the direct action statute. The Court ultimately denied the motion to

consolidate, ruling that consolidation would not accomplish any purpose envisioned by

Rule 42. The Court stayed the declaratory judgment pending resolution of this action on

the grounds that it is the more inclusive, in that it raises all claims presented in the

declaratory judgment action, plus the garnishment claim. (Doc. 15). 

Newton asserts several grounds in support of his motion to dismiss this action, but

the Court need consider only whether he may exercise his unilateral right to dismiss under

Federal Rule of Civil Procedure 41(a)(2). Dismissal under that rule, “[u]nless otherwise

specified in the order, ... is without prejudice.” 

Auto-Owners does not contest Newton’s right to dismiss but insists that the

dismissal be with prejudice. With respect to the garnishment claim, Auto-Owners reasons

that Newton’s failure to timely controvert its answer in garnishment or to demand oral

examination defeats his right to pursue garnishment, such that Auto-Owners will be

prejudiced if Newton is allowed to pursue a second garnishment action. (Doc. 17 at 8-9). 

“In most cases a dismissal [without prejudice] should be granted unless the

defendant will suffer clear legal prejudice, other than the mere prospect of a subsequent

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lawsuit, as a result.” McCants v. Ford Motor Co., 781 F.2d 855, 856-57 (11th Cir. 1986)

(emphasis omitted). Binding precedent, holding that all manner of setbacks to the

defendant do not meet this standard, demonstrates that the range of legally significant

prejudice is quite narrow. See Pontenberg v. Boston Scientific Corp., 252 F.3d 1253, 1258-59

(11th Cir. 2001) (pendency of a motion for summary judgment); Durham v. Florida East Coast

Railway Co., 385 F.2d 366, 367-68 (5th Cir. 1967) (change of theory on the day of trial to one in

which contributory negligence is not a defense). Of particular interest is McCants, which

held that the defendant’s loss of the complete defense of the statute of limitations did not

constitute clear legal prejudice. 781 F.2d at 857-59. Auto-Owners — which fails to

acknowledge McCants or any other case interpreting Rule 41(a)(2) — has not explained

how any loss of a defense to a garnishment proceeding can be meaningfully distinguished

from the loss of the complete defense in McCants. 

With respect to the direct action claim, Auto-Owners articulates no discernible

basis for dismissal with prejudice, other than its desire to avoid litigation in state court. 

(Doc. 17 at 10-11). However, “the overwhelming majority of cases that have considered

the issue have held that the fact that a voluntary dismissal will destroy federal jurisdiction

is insufficient to constitute prejudice to a defendant.” Johnson v. Pharmacia & Upjohn Co.,

192 F.R.D. 226, 228 (W.D. Mich. 1999). Moreover, dismissal with prejudice would defeat

Newton’s pending direct action counterclaim in the declaratory judgment action, and the

Court can fathom no justification for such a punitive result. 

Dismissal under Rule 41(a)(2) is “upon such terms and conditions as the court

deems proper.” Failing dismissal with prejudice, Auto-Owners requests the Court to

condition dismissal without prejudice on Newton’s agreement that he will pursue relief

under the direct action or garnishment statutes only within the confines of the declaratory

judgment action. (Doc. 17 at 11, 13). Since a desire to avoid litigation in state court

does not constitute the requisite clear legal prejudice sufficient to defeat dismissal without 

prejudice, it would be strange indeed to allow the defendant to gain the same result by

imposing a condition that any future suit be brought in federal court. See American

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National Bank & Trust Co. v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991) (for this

reason, trial court did not abuse its discretion in not imposing such a condition). 

Moreover, Newton has represented to the Court that he intends to pursue his direct

action claim in the declaratory judgment action, (Doc. 19 at 11), and the Court relies on

this representation. Newton also has represented to the Court that he has no right to a writ

of garnishment before: (1) the question of coverage is decided favorably to him; and (2)

Auto-Owners then refuses within the statutory period to pay policy proceeds. (Id. at 9-

10). The Court relies on this representation, which ensures that no garnishment

proceedings will be instituted prematurely. Should they be initiated in state court, the

parties’ diversity presumably will once again allow removal to federal court. For all these

reasons, the Court declines to exercise its discretion to impose conditions on the

dismissal.

For the reasons set forth above, Newton’s motion to dismiss is granted. This

action is dismissed without prejudice. 

DONE and ORDERED this 16th day of January, 2007.

s/ WILLIAM H. STEELE

UNITED STATES DISTRICT JUDGE

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