### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 13

‐ 1365

W ELLS F ARGO B ANK

, N.A.,

Plaintiff

‐ Appellee

,

v.

Y OUNAN P ROPERTIES

, I NC

., et al

., Defendants

‐ Appellants

.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11 C 8701

— Charles P. Kocoras

, Judge

.

____________________

A RGUED O CTOBER 28, 2013

— D ECIDED D ECEMBER 5, 2013

____________________

Before P OSNER

, W ILLIAMS

, and H AMILTON

, Circuit Judges

.

P OSNER

, Circuit Judge

. In December 2011 Wells Fargo filed

this diversity suit for breach of contract against Younan

Properties, Sherry Younan, and Zaya Younan. The defen

‐

dants 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 (Il

‐2 No. 13

‐ 1365

linois), 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 citizen

‐ ship and therefore the court lacked subject matter jurisdic

‐

tion. 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 af

‐

ter 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

plaintiff’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 theNo. 13

‐ 1365 3

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 judg

‐

ment; and its judgment is to be guided by sound legal prin

‐ ciples.’” Albemarle Paper Co. v. Moody

, 422 U.S. 405, 416

(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 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 (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 cu

‐

riam).

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.4 No. 13

‐ 1365

(Puerto Rico), Inc.

, 723 F.3d 82, 87–88 (1st Cir. 2013); Hecke

‐

thorn 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 Dis

‐

cretion,” 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 Jo

‐ sephson

, 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 courtNo. 13

‐ 1365 5

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. Unsatisfied, the defendants ask for

reimbursement of the expenses they incurred in

demonstrating insufficient service of process on her. (They

dropped the Rule 12(b)(2) ground for dismissing her from

the suit—lack of minimum contacts.) The judge thought

$45,000 too much for that limited legal work. The defendants

made no effort to justify to him their extravagant

‐ seeming

request, which included more than $9,000 for two briefs each

of which was just half a page long and merely incorporated

by reference another lawyer’s brief.6 No. 13

‐ 1365

An additional reason the defendants are not entitled to

reimbursement for their expenses in trying to demonstrate

absence of sufficient service on Sherry Younan is that the de

‐

fense of insufficient service is deemed waived unless raised

in a timely fashion, such as in a responsive pleading. Fed. R.

Civ. P. 12(h)(1)(B)(ii). The defendants’ answer to Wells

Fargo’s complaint (an answer is of course a responsive

pleading) was filed on March 8, 2012, and contained no chal

‐ lenge to service. Not until July 9—four months after the de

‐

fendants had filed their answer and nearly three months af

‐

ter Wells Fargo had filed a motion for summary judgment—

did Sherry Younan, through new counsel, claim she’d never

been served. That was too late. In re State Exchange Finance

Co.

, 896 F.2d 1104, 1106 (7th Cir. 1990); 5C Charles A. Wright

& Arthur R. Miller, Federal Practice and Procedure § 1391, p.

501 (3d ed. 2004).

For completeness we address the possible bearing on this

case of the family resemblance between Rule 41(a)(2) and 28

U.S.C. § 1447(c), which provides that when a party removes

a case to federal district court and the court determines that

there is no federal jurisdiction “the case shall be remanded”

and the remand order “may require payment of just costs

and any actual expenses, including attorney fees, incurred as

a result of the removal.” The Supreme Court has held that

such payment may be required “only where the removing

party lacked an objectively reasonable basis for seeking re

‐

moval.” Martin v. Franklin Capital Corp

., 546 U.S. 132, 141

(2005). If the same standard applies to requiring payment of

expenses wasted by a defendant because the plaintiff is vol

‐ untarily dismissing his complaint, the defendants wouldn’t

be entitled even to the $11,000 the district judge awarded

them, because they don’t argue that the plaintiff lacked aNo. 13

‐ 1365 7

reasonable basis for invoking federal jurisdiction. They

couldn’t argue that with a straight face; a recent decision by

the Supreme Court indicates that Wells Fargo is almost cer

‐ tainly a citizen of South Dakota, Wachovia Bank v. Schmidt

,

546 U.S. 303, 307–09, 318 (2006), in which event there is com

‐ plete diversity.

But Wells Fargo rightly does not argue for the section

1447(c) standard (“objective reasonableness”). Rule 41(a)(2)

is worded very differently from section 1447(c). It does not

mention attorney’s

‐ fee shifting, or indeed direct the district

court to do anything at all. It merely authorizes the court to

allow a voluntary dismissal upon such terms as the court

thinks proper. We interpret this to mean that we can reverse

the district court’s order only if the terms strike us as unrea

‐

sonable. With the plaintiff asking the court for a chance to

bring the same suit against the same defendants in a differ

‐

ent court, it is reasonable to require the plaintiff to compen

‐

sate the defendants for any wasted motion forced upon them

by the plaintiff’s having chosen the wrong court. So the

$11,000 award to the defendants is secure. But they are enti

‐

tled to no more.

There is one loose end to tie up. At the oral argument of

the appeal we asked the lawyers what the present state of

the legal dispute between Wells Fargo and the defendants is

and learned that Wells Fargo had refiled its suit in a state

court in California. We were also told that Sherry Younan’s

conjoined issues of minimum contacts and sufficiency of

service had evaporated because she was properly served in

California and as a California resident she can’t contest per

‐

sonal jurisdiction there. But all is not resolved. The contract

on which Wells Fargo is suing has a forum selection clause8 No. 13

‐ 1365

which provides that a suit to enforce the contract can be

brought only in a state or federal court in Illinois. The de

‐

fendants have moved to dismiss Wells Fargo’s refiled Cali

‐

fornia suit on that ground. And Sherry Younan has told the

California court that if it dismisses the suit and Wells Fargo

refiles in Illinois (necessarily in a state court, our district

court having ruled that there is no federal subject matter ju

‐

risdiction in Illinois over the suit and Wells Fargo not having

appealed that ruling, though the ruling may well be incor

‐

rect in light of the Wachovia Bank decision), the Illinois state

court will have personal jurisdiction over her. Although that

is contrary to what she told the district judge in the present

case, she contests the applicability of the forum selection

clause to her. She argues that her signature on the contract

that Wells Fargo is suing on—the contract that contains the

clause—was forged. If so, the expenses she has incurred in

contesting personal jurisdiction were not wasted; she can use

their fruits to oppose personal jurisdiction in Illinois should

the suit return to this state pursuant to that clause. If her sig

‐

nature wasn’t forged—if she’s lying in contending that it

was—the expenses that she incurred in fighting personal ju

‐

risdiction here were wasted—but only because of her lie. To

put this another way, her challenge to personal jurisdiction

is either reusable in the new litigation (if her signature was

forged), or fraudulent if she lied about her signature being

forged.

But in mentioning these complications we are straying

beyond the appeal, which challenges the adequacy of the fee

award on unconvincing grounds. The judgment is

A FFIRMED

.