Court Opinion

ID: 2999897
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:58:53.100383+00
Date Added: 2024-06-11T15:03:27.423125
License: Public Domain

In the
 United States Court of Appeals
                For the Seventh Circuit
                          ____________

No. 06-1124
DENNIS E. MURRAY, SR. and JAMES D. MASSEY,
                                            Plaintiffs-Appellants,
                                 v.

CONSECO, INCORPORATED and CONSECO SERVICES, L.L.C.,
                                           Defendants-Appellees.
                          ____________
            Appeal from the United States District Court
     for the Southern District of Indiana, Indianapolis Division.
          No. 03 C 1701—Larry J. McKinney, Chief Judge.
                          ____________
 ARGUED SEPTEMBER 13, 2006—DECIDED OCTOBER 25, 2006
                   ____________

  Before BAUER, WOOD, and WILLIAMS, Circuit Judges.
  BAUER, Circuit Judge. Dennis E. Murray and James D.
Massey filed a declaratory judgment action against
Conseco, Incorporated and Conseco Services, L.L.C., al-
leging fraud and various violations of securities, banking,
and tying laws. The defendants filed a motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6) and also questioned the
court’s subject matter jurisdiction. The plaintiffs then filed
a “notice of consent to dismiss” conceding that the court
lacked jurisdiction. The district court granted defendants’
motion to dismiss based on lack of subject matter jurisdic-
tion without prejudice. The defendants filed a motion for
2                                                No. 06-1124

reconsideration, arguing that pursuant to the two-dismissal
rule of Fed. R. Civ. P. 41 the dismissal should be with
prejudice. The district court granted this motion, which is
the subject of this appeal. We vacate and remand.

                       I. Background
  On October 9, 2003, Dennis E. Murray and James D.
Massey filed suit against Conseco, Incorporated, Conseco
Services, L.L.C., Merrill Lynch & Co., Inc., Price-
WaterhouseCoopers, LLP, Bank of America, N.A., and
JP Morgan Chase Bank. Plaintiffs invoked 28 U.S.C. § 1331
as the basis for federal subject matter jurisdiction. On
November 14, 2003, plaintiffs filed a voluntary notice of
dismissal under Fed. R. Civ. P. 41(a).
  On the same day, plaintiffs filed the instant action
against only Conseco, Incorporated and Conseco Services,
L.L.C. (“Conseco Entities”). On May 16, 2005, plaintiffs
were granted leave to file a first amended complaint. This
amended complaint contained nine counts: (1) declaratory
judgment due to change in control; (2) declaratory judgment
for indemnity; (3) declaratory judgment to require exhaus-
tion of other remedies; (4) declaratory judgment
and rescission due to violation of regulation U; (5) rescission
and damages due to prohibited tying; (6) declaratory
judgment for indemnity based on conditional releases;
(7) state securities claim under Indiana Code §§ 23-2-1-12
and 23-2-1-19; (8) common law fraud; and, (9) federal
securities claim under 15 U.S.C. § 78j(b) and Rule 10b-5, 17
C.F.R. § 240.10b-5. Like its predecessors, the first amended
complaint asserted 28 U.S.C. § 1331 as the basis for
jurisdiction.
  On July 15, 2005, Conseco Entities moved to dismiss
the first amended complaint with prejudice under Fed. R.
Civ. P. 12(b)(6). In Conseco Entities’ motion, they ques-
tioned the court’s subject matter jurisdiction.
No. 06-1124                                                  3

  On September 22, 2005, plaintiffs filed a “notice of
consent to dismiss first amended complaint” in which they
conceded that the district court lacked subject matter
jurisdiction. The notice stated:
      Defendants contend that pursuant to the well-pleaded
    complaint rule, there is no federal question jurisdiction
    and accordingly, the First Amended Complaint should
    be dismissed for lack of subject matter jurisdiction.
    (Defts. Mem. in Support of Mot. to Dismiss, pp. 9-11).
    After considering the authorities on which defendants
    rely, plaintiffs agree that the well-pleaded complaint
    rule precludes finding federal question jurisdiction and
    accordingly, plaintiffs consent to dismissal of their First
    Amended Complaint for lack of federal subject matter
    jurisdiction.
      Simultaneously with the filing of this notice, plaintiff
    Dennis Murray is filing a motion for leave to file
    Plaintiff’s Second Amended Complaint in which fed-
    eral jurisdiction is asserted for the first time on diver-
    sity grounds. Murray is a citizen of Ohio and defen-
    dants have their principal places of business in Indiana.
    Since James Massey is a citizen of Indiana, there is no
    diversity as to Mr. Massey and his claims will need to
    be resolved in a state court proceeding.
  Also on September 22, 2005, plaintiff Murray filed a
motion for leave to file a second amended complaint in
which he brought the same claims as those he filed in the
original complaint, however, upon the basis of diversity
jurisdiction rather than federal subject matter jurisdic-
tion. On September 26, 2005, Conseco Entities filed an
opposition to plaintiffs’ motion for leave to file a second
amended complaint. In this motion, Conseco Entities
asked the district court to dismiss the case with prejudice,
arguing that plaintiffs’ “notice of consent to dismiss first
amended complaint” was a voluntary dismissal subject to
the two-dismissal rule set forth in Fed. R. Civ. P. 41(a)(1).
4                                                 No. 06-1124

  On October 13, 2005, the district court granted Conseco
Entities’ motion to dismiss without prejudice. On October
17, 2005, Conseco Entities filed a motion for reconsideration
arguing that the court should dismiss the case
with prejudice because the court, in fact, had subject matter
jurisdiction, and alternatively, the two-dismissal rule
operated irrespective of whether subject matter jurisdiction
existed.
  On December 13, 2005, the district court again deter-
mined that the court lacked subject matter jurisdiction and
now concluded that the dismissal triggered the two-dis-
missal rule of Rule 41(a)(1). In its decision, the court agreed
with Conseco Entities that Rule 41(a)(1) operated regard-
less of whether the court has jurisdiction and then dis-
missed the case with prejudice. Plaintiffs appeal this
decision.

                         II. Discussion
A. Rule 41(a)
  Plaintiffs argue that the district court erred in finding
that plaintiffs’ “notice of consent to dismiss first amended
complaint” was a voluntary dismissal. We agree.
    Fed. R. Civ. P. 41(a) provides that,
      an action may be dismissed by the plaintiff without
      order of court (i) by filing a notice of dismissal at any
      time before service by the adverse party of an answer or
      of a motion for summary judgment, whichever
      first occurs, or (ii) by filing a stipulation of dismissal
      signed by all parties who have appeared in the action.
      Unless otherwise stated in the notice of dismissal or
      stipulation, the dismissal is without prejudice, except
      that a notice of dismissal operates as an adjudication
      upon the merits when filed by a plaintiff who has
      once dismissed in any court of the United States or of
No. 06-1124                                                   5

    any state an action based on or including the same
    claim.
The plain language of Rule 41(a)(1) limits voluntary
dismissals to documents filed before service of an answer or
motion for summary judgment, or to stipulations of dis-
missal signed by all parties. Here, Rule 41(a)(1) is
not implicated because the motion was filed after the
answer and was not signed by all parties.
   Further, plaintiffs’ notice was filed in response to an issue
first raised in defendants’ motion to dismiss, that the well-
pleaded complaint rule would prevent a finding of federal
question jurisdiction over plaintiffs’ claims. In so doing,
plaintiffs “consented” to the court’s dismissal of its first
amended complaint for lack of subject matter jurisdiction.
When a plaintiff alerts the court that it lacks jurisdiction to
hear his case, he is not necessarily invoking Rule 41(a)(1).
While a plaintiff can choose at his discretion to file a Rule
41(a)(1) notice of dismissal, he is duty-bound to inform the
district court of jurisdictional problems. See BEM I, L.L.C.
v. Anthopologie, Inc., 301 F.3d 548, 551 (7th Cir. 2002)
(noting that “lawyers who practice in federal court have an
obligation to assist the judges to keep within the boundaries
fixed by the Constitution and Congress”). The district court,
having been made aware that it lacks jurisdiction, is then
required to dismiss the action. See Fed. R. Civ. P. 12(h)(3).
We conclude that there was no voluntary dismissal and,
as such, the two-dismissal rule is not implicated in this
case.
6                                                No. 06-1124

B. Subject Matter Jurisdiction
   The district court held that it lacked subject matter
jurisdiction over the first amended complaint, yet dismissed
the case with prejudice. Plaintiffs argue that this ruling was
in error. We agree. A dismissal for lack of subject matter
jurisdiction is not on the merits. Bunker Ramo Corp. v.
United Business Forms, Inc., 713 F.2d 1272, 1277 (7th Cir.
1983); Frederickson v. City of Lockport, 384 F.3d 437, 438
(7th Cir. 2004); Johnson v. Wattenbarger, 361 F.3d 991, 993
(7th Cir. 2004). “ ‘No jurisdiction’ and ‘with prejudice’ are
mutually exclusive.” Frederickson v. City of Lockport, 384
F.3d at 438. A court that lacks subject matter jurisdiction
cannot dismiss a case with prejudice. Id.

                      III. Conclusion
  For the foregoing reasons, we vacate the district court’s
dismissal with prejudice and the entry of judgment in favor
of defendants and remand with instructions to enter a
dismissal of the first amended complaint without prejudice
for lack of subject matter jurisdiction and to again grant
plaintiffs’ motion for leave to file a second amended com-
plaint based on diversity jurisdiction.

A true Copy:
       Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—10-25-06