Opinion ID: 769408
Heading Depth: 3
Heading Rank: 2

Heading: Permissibility of the District Court's Conditions

Text: 18 The terms and conditions imposed by the district court on the dismissal of the original action resulted in the dismissal of the refiled action. For this reason, we can consider the permissibility of those terms and conditions when we review the appropriateness of the district court's second dismissal. In conducting that review, we must consider whether the district court's conditions on the Duffys' voluntary dismissal constituted an abuse of discretion. See DWG Corp. v. Granada Invs., Inc., 962 F.2d 1201, 1202 (6th Cir. 1992). If they did not, then the district court was entitled to dismiss the Duffys' refiled action, even if that second dismissal operated as a dismissal with prejudice. See Stern v. Inter-Mountain Tel. Co., 226 F.2d 409, 409-10 (6th Cir. 1955); 9 Wright & Miller, supra, § 2366, at 316-17. If those conditions were an abuse of discretion, however, then the district court's orders imposing those conditions, as well as its order dismissing the refiled action due to the Duffys' failure to meet those conditions, must be reversed.
19 The Duffys do not contest the district court's ability to require reimbursement of Ford's attorney fees and costs, nordo they contest the amount of those fees and costs. They argue only that the district court abused its discretion in requiring the Duffys rather than their trial counsel to pay. The Duffys contend that their former counsel, the Thomases, should have to pay Ford's costs because the Thomases' incompetence necessitated the voluntary dismissal. We hold that it was an abuse of discretion for the court not to consider the Duffys' responsibility for Ford's wasted costs in assessing costs against the Duffys rather than their counsel. Furthermore, we hold that the district court abused its discretion in failing prior to the entry of the January 24, 1997, dismissal order to give the Duffys notice of the approximate amount of costs for which they would be responsible upon refiling and to afford them an opportunity to withdraw their motion. Therefore, we vacate the district court's order of dismissal and its order requiring the Duffys to pay Ford's costs before refiling, and we remand for reconsideration in light of this holding. 20 In Herring v. City of Whitehall, 804 F.2d 464 (8th Cir. 1986), the Court of Appeals for the Eighth Circuit held that it was an abuse of discretion for the district court to require the plaintiffs to pay attorney fees before they could refile their case without considering whether they were responsible for the defendants' wasted costs. In that case, the district court had granted the plaintiffs' motion for a voluntary dismissal due to their counsel's unpreparedness, on the condition that the plaintiffs' counsel pay the defendants' fees and costs if the plaintiffs refiled, but if the plaintiffs retained new counsel -- which they did -- the plaintiffs would be responsible for the costs. See id. at 466. While noting that there may be some due process concerns associated with assessing costs directly against the attorney rather than the client, see id., and acknowledging that clients are generally held responsible for the acts of their attorneys, who are their freely selected agent[s], id. at 467 (quoting Link v. Wabash R.R., 370 U.S. 626, 633-34 (1962)), the court of appeals nonetheless found an abuse of discretion. The court noted that if the attorney was to blame for the neglectful prosecution of the lawsuit, the attorney should bear the sanctions. See id. The court therefore ordered the district court to consider on remand the relative culpability of the attorney and the plaintiffs when determining how the defendants' costs should be allocated. See id. at 468 & n.7. 4 21 We find it useful to analogize the instant case to those cases dealing with Rule 41(b) involuntary dismissals. The district court's actions in the instant case, as in the case of an involuntary dismissal with prejudice, have brought about the severe result of depriving the plaintiffs of a day in court to resolve their claims on the merits. See Coleman v. American Red Cross, 23 F.3d 1091, 1095 (6th Cir. 1994). Therefore, while recognizing that the Duffys freely chose their counsel and are consequently responsible for most of the decisions made by that counsel, we nonetheless believe that in this particular case, where the Duffys were not necessarily even aware of the choices faced by their counsel and were given insufficient notice of the possibleconsequences of those choices, the Thomases rather than their clients should be required to pay if the Thomases are to blame for Ford's wasted costs. See id. 22 There is evidence in this case that the Duffys' counsel were primarily to blame for the necessity of requesting a voluntary dismissal, and, as discussed above, the Duffys claim that the dismissal of the first action was equivalent to a dismissal with prejudice, because they are unable to pay Ford's costs. The concern at the heart of Herring and Coleman -- that innocent plaintiffs should not be forced lightly to bear the costs created by their incompetent counsel, especially not if the cost ultimately they bear is losing their day in court -- is therefore applicable to the Duffys' case. However, we reject the Duffys' appellate counsel's suggestion, at oral argument, that the district court has made a specific finding that the Duffys' trial counsel were incompetent. Although the district court did mention the Thomases' ineptness in one of its orders, due process appears to require that the Thomases have notice and an opportunity to be heard before the district court could require them to pay Ford's fees. See, e.g., Herring, 804 F.2d at 468. 5 23 We also hold that it was an abuse of discretion for the district court to wait until June of 1998 to determine the costs for which the Duffys would be responsible. At the time that the Duffys moved voluntarily to dismiss the action, they should have been informed of the specific conditions that would be placed on their dismissal and given the opportunity to withdraw the motion if they found those conditions to be too onerous. See Marlow v. Winston & Strawn, 19 F.3d 300, 305 (7th Cir. 1994) (A court should not label something as a term and condition yet not afford the affected party an opportunity to consider his options before making his decision.); Lau v. Glendora Unified Sch. Dist., 792 F.2d 929, 930 (9th Cir. 1986); cf. GAF Corp. v. Transamerica Ins. Co., 665 F.2d 364, 368 (D.C. Cir. 1981); Scholl, 327 F.2d at 700 (There was no requirement that the appellant agree to the entry of this order. It was an alternative available to appellant in lieu of proceeding with the trial.). Particularly given the size of Ford's costs, there appears to be a significant likelihood that the Duffys would have withdrawn their motion for voluntary dismissal, had they been given the relevant information and an opportunity to do so. When faced with the Duffys' request for a voluntary dismissal under Rule 41(a)(2) and Ford's request for costs, the district court should have taken steps to determine the approximate costs for which the plaintiffs would be responsible before granting the motion and dismissing the jury. The Duffys then would have been forced to decide whether to accept the conditions and dismiss the case or to withdraw the motion. 24 We therefore vacate the district court's orders dismissing the refiled action and requiring the Duffys to pay Ford's fees, and we remand for the district court to reconsider its rulings. On remand, the district court is directed to assess andapportion the obligation to pay Ford's costs between the Duffys and the Thomases according to their respective fault in the first trial. Although the district court's failure to give the Duffys proper notice was an abuse of discretion, we find that it was reasonable to condition the voluntary dismissal upon the payment of Ford's costs. We therefore hold that the obligation to pay Ford's costs has not been extinguished. However, if the Duffys are themselves to blame but are unable to pay all or some of the costs allocated to them, the district court may decide, in its discretion, whether and on what terms the case should go forward. Should the Thomases fail to pay their share of Ford's costs, the Duffys will be allowed to proceed with their suit notwithstanding the Thomases' default. 25 We believe that this result is required by our holding that the district court should have given notice to the Duffys before imposing conditions on their dismissal that they were unable to fulfill. Admittedly, this result would entail some unfairness to Ford. However, faced with the case as it now stands, it seems inevitable that an innocent party will have to suffer, and we believe that it would be worse for the Duffys to lose their day in court, without notice, than for Ford to be required to bear its costs in this litigation. Furthermore, although our holding is limited to the unique circumstances of this case, district courts will be able to avoid the danger of such unfair outcomes in the future by requiring defendants to approximate their costs before granting a voluntary dismissal. Should the district court neglect its responsibility, the defendant -- the party with the easiest access to the relevant cost information -- will have an incentive to encourage the court to fulfill it. Indeed, in the instant case, Ford could have tried to protect itself by requesting that the district court clarify its terms and conditions when that court orally announced its intention to grant the Duffys' voluntary dismissal motion. 26 Finally, we note our disagreement with the dissent's assertion that Fed. R. Civ. P. 41(d) demonstrates that the district court's imposition of Ford's costs and attorney fees on the Duffys was permissible. As a preliminary matter, we do not believe that Rule 41(d), which allows district courts faced with the refiling of a previously dismissed action to make such order for the payment of costs of the action previously dismissed as it may deem proper and to stay the proceedings in the action until the plaintiff has complied with the order, is directly applicable here. Fed. R. Civ. P. 41(d). When the Duffys attempted, based on the language of Rule 41(d), to persuade the district court merely to stay the refiled case instead of dismissing it, the district court explicitly stated that it had imposed the payment condition pursuant to Rule 41(a)(2), not Rule 41(d). See J.A. at 427-29 (Order Den. Pl.'s Mot. for Stay & Order Dismissing Compl. Without Prejudice). 27 Moreover, we do not believe that our holding is inconsistent with Rule 41(d). First, although, as the dissent correctly points out, most courts that have considered the question have concluded that attorney fees may be awarded under Rule 41(d), the matter is far from settled in this circuit or in most others. See, e.g., Edward X. Clinton, Does Rule 41(d) Authorize an Award of Attorney's Fees?, 71 St. John's L. Rev. 81, 82 & nn.5-6 (1997) (noting that the federal courts are split on the issue of whether attorney fees may be awarded under Rule 41(d) and citing cases on both sides). Rule 41(d) therefore does not constitute clear authority for the district court's actions. In addition, a number of courts have expressed reluctance to exercise their discretion to award costs under Rule 41(d) when the result would be to deprive innocent plaintiffs of their day in court due to their inability to pay the defendant's costs. See Gregory v. Dimock, 286 F.2d 717, 718 (2d Cir. 1961); Zucker v. Katz, 708 F. Supp. 525, 539 (S.D.N.Y. 1989); Phoenix Canada Oil Co. v. Texaco, Inc., 78 F.R.D. 445, 448-49 (D. Del. 1978); see alsoLoubier v. Modern Acoustics, Inc., 178 F.R.D. 17, 22-23 (D. Conn. 1998) (noting that, although no showing of bad faith is required before costs may be imposed on the plaintiff under Rule 41(d), the plaintiff's motive in dismissing the prior action may be taken into account); see generally 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2375, at 415-16 (2d ed. 1995). Indeed, Rule 41(d) is intended to serve as a deterrent to forum shopping and vexatious litigation, of which there was no evidence in this case. Esquivel v. Arau, 913 F. Supp. 1382, 1386 (C.D. Cal. 1996) (quoting Simeone v. First Bank Nat'l Ass'n, 971 F.2d 103, 108 (8th Cir. 1992)). In any event, a district court's application of Rule 41(d), like its imposition of terms and conditions pursuant to Rule 41(a)(2), is still subject to review by the appellate court for abuse of discretion. See 8 Daniel R. Coquillette et al., Moore's Federal Practice § 41.70[7] (3d ed. 1997). We therefore believe that our decision is in harmony with the understanding of Rule 41(d) expressed in those cases. 28
29 The Duffys also argue that it was an abuse of discretion for the district court to impose on the refiled action the law of the case from the original action. They claim that this ruling rendered them unable to prevail in the refiled case, since the ineptness of the Duffys' original counsel had left significant gaps in their proof 6 . Furthermore, they point out that the district court's ruling undermines the policy behind Rule 41, which is to leave the parties as if the suit had never been brought. See National R.R. Passenger Corp. v. International Ass'n of Machinists, 915 F.2d 43, 48 (1st Cir. 1990). Ford, in response, points out that Rule 41 is also intended to protect the defendant from unfairness; in addition, Ford disputes the Duffys' contention that the district court's rulings left them unable to prevail in their case. Therefore, Ford urges that the district court's ruling did not constitute an abuse of discretion. 30 Under appropriate circumstances, we believe that it would not be an abuse of discretion for the district court to grant a voluntary dismissal on the condition that all rulings from the original action carry over to the refiled action. District courts have broad discretion to attach conditions to voluntary dismissals under Rule 41(a)(2). See id. Furthermore, several courts of appeals have upheld conditions on voluntary dismissals similar to the one at issue here. See, e.g., Parker, 940 F.2d at 1025 (upholding the district court's order that expert testimony excluded in the original action could not be reintroduced in the refiled action); Templeton v. Nedlloyd Lines, 901 F.2d 1273, 1276 (5th Cir. 1990) (noting with approval the district court's decision to condition a voluntary dismissal on the plaintiffs agreeing that they would not oppose the use of existing discovery in a subsequent suit). Thus, if necessary for the protection of Ford's legitimate interests, see, e.g., LeCompte, 528 F.2d at 603-05; 9 Wright & Miller, supra, § 2366, at 304, the district court could validly impose the evidentiary rulings from the Duffys' original action on their refiled action. 31 We are again troubled, however, by the district court's failure to give notice to the Duffys that it intended to condition the voluntary dismissal on retaining the law of the case in the refiled action. The record reveals no discussion of that condition on January 15, 1997, when the Duffys requested and the district court orally granted a voluntary dismissal. The first mention of the law-of-the-case conditionappeared in the district court's written order granting the voluntary dismissal, on January 24, 1997. In addition, the court did not specify the matters to be governed by the law of the case until an order entered on June 11, 1998, after the Duffys attempted to refile their suit. 7 This lack of notice meant that the Duffys did not have a sufficient opportunity to contest the district court's decision or to withdraw their motion for voluntary dismissal if they did not wish to accept that condition. 8 As we stated with respect to the cost condition, we hold that the district court should have given the Duffys notice and an opportunity to withdraw their motion before imposing the law-of-the-case condition. See Marlow, 19 F.3d at 305; Lau, 792 F.2d at 930; GAF Corp., 665 F.2d at 368. 32 We also note that the district court did not explain its reasons for deciding to apply its rulings from the original action to the refiled action. For this reason, it is particularly difficult to determine whether the district court appropriately exercised its discretion in attaching this condition to the Duffys' voluntary dismissal. See, e.g., DWG Corp., 962 F.2d at 1202 (citing Taragan v. Eli Lilly & Co., 838 F.2d 1337, 1339 (D.C. Cir. 1988)); LeCompte, 528 F.2d at 605. Ford contends that no additional discovery is necessary for the Duffys to prevail and that there is no legal or factual reason why the district court would be inclined to rule differently on the evidentiary issues if the Duffys were given an opportunity to re-visit them. At the same time, the Duffys contend that the district court's condition prevents them from prevailing in their suit and is not necessary for the protection of the defendant. We believe that the district court is in the better position to determine initially whether there is a basis for reconsidering its evidentiary rulings, whether the Duffys are still capable of prevailing in light of those rulings, and whether retaining the law of the case in the refiled action is necessary for the protection of Ford's interests. 33 We therefore find it necessary to vacate the district court's order applying the law of the original case to the refiled case and direct the district court on remand to reconsider its decision in light of any objections that the Duffys may wish to make. We note, however, that if the district court's rulings from the original action no longer apply in the refiled action, Ford may be entitled to reimbursement for any additional costs and fees that it will have to expend in the refiled litigation as a result of having to relitigate those rulings, consistent with our discussion in Part II.B.1.