Court Opinion

ID: 4700325
Source: CourtListenerOpinion
Date Created: 2021-07-01 15:01:15.143885+00
Date Added: 2024-06-11T08:06:09.603950
License: Public Domain

USCA11 Case: 20-11743    Date Filed: 07/01/2021   Page: 1 of 15

                                                     [DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 20-11743
                      ________________________

                D.C. Docket No. 8:19-cv-00329-SCB-JSS

EMERGENCY RECOVERY, INC.,
SOLATIUM HEALTHCARE SOLUTIONS, LLC,

                                                     Plaintiffs-Appellees,

                                  versus

BRYAN HUFNAGLE,
JOSEPH KING,

                                                     Defendants-Appellants.

                      ________________________

               Appeal from the United States District Court
                   for the Middle District of Florida
                     ________________________

                               (July 1, 2021)

Before JILL PRYOR, NEWSOM and MARCUS, Circuit Judges.

PER CURIAM:
         USCA11 Case: 20-11743       Date Filed: 07/01/2021   Page: 2 of 15

      Defendants Bryan Hufnagle and Joseph King appeal from the district court’s

order dismissing without prejudice this action filed by plaintiffs Emergency

Recovery, Inc., and Solatium Healthcare Solutions, LLC (together, the

“companies”). The district court granted the companies’ motion for a voluntary

dismissal without prejudice and declined to condition the dismissal on the

companies’ payment of expenses Hufnagle and King incurred in litigating this

action. The court declined to impose this condition, finding that all the work that

Hufnagle and King’s attorneys performed in litigating the companies’ claims

would be useful in a parallel lawsuit Hufnagle and King filed against the

companies. Because the district court did not explain the reason for this

determination and given the undeveloped record, we cannot discern the basis for

the district court’s decision. Thus, we are unable to engage in meaningful

appellate review and must vacate and remand.

                       I.     FACTUAL BACKGROUND

      Emergency Recovery, a company owned by Bobbie Celler, offers healthcare

providers services related to medical billing. Hufnagle served as Emergency

Recovery’s chief operating officer and King served as its senior vice president of

operations.

      When Emergency Recovery hired the executives, they signed written

employment agreements. We briefly review the terms of these agreements that are

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relevant to the appeal. The executives agreed to work for Emergency Recovery for

an initial two-year term. Their compensation consisted of a base salary and a share

of Emergency Recovery’s profits. During the two-year term, Emergency Recovery

could terminate the executives only for “just cause.” Doc. 114-3 at 20, 27.1 In the

employment agreements, the executives promised not to disclose Emergency

Recovery’s trade secrets and confidential materials.

      About a year after the executives started working for Emergency Recovery,

the company signed an agreement to sell its assets to Solatium Healthcare, another

entity owned by Celler. The executives signed new employment agreements with

Solatium.

      Most of the terms in the executives’ agreements with Solatium were similar

to the terms in their contracts with Emergency Recovery. The contracts with

Solatium included two notable differences. First, under the new contracts with

Solatium, the executives earned higher base salaries and a larger share of the

profits. Second, the executives agreed to restrictive covenants that barred them

from working in the field of “third-party insurance billing and third-party insurance

collection . . . for a term of 12 months” after their employment with Solatium

ended. Id. at 39, 46.

      1
          “Doc.” numbers refer to the district court’s docket entries.

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      Although Celler signed the agreement to transfer Emergency Recovery’s

assets to Solatium, the transaction never was completed. Emergency Recovery

continued to pay the executives’ salaries, but it paid them based on the more

generous compensation terms in their contracts with Solatium.

      About a year later, the companies terminated both men. Lawsuits followed.

The companies filed this lawsuit in federal district court against the executives. A

few days later, the executives filed their own lawsuit against the companies and

Celler in Florida state court. The parties’ respective claims were as follows.

      In this lawsuit, the companies alleged that the executives were terminated

because they failed to maintain relationships with existing clients and to grow the

business, and they disclosed the companies’ trade secrets. The companies brought

misappropriation of trade secrets claims arising under Florida law and federal law

as well as breach of contract and tortious interference with business relationships

claims arising under Florida law. The companies sought the return of materials

containing their trade secrets, as well as actual and punitive damages.

      In the state court action, the executives brought claims against the

companies and Celler arising from the termination of their employment. They

requested an accounting from the companies to determine the share of the profits to

which they were entitled. They also sought a declaration that the restrictive

covenants in their employment agreements with Solatium were unenforceable

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because they never were employed by Solatium. In addition, the executives

requested a declaration that they had been terminated without just cause and thus

were owed compensation and benefits for the remainder of their employment

terms. Although the companies brought no counterclaims in the state court action,

they raised several affirmative defenses, including that the executives had

materially breached their employment agreements. 2

       With this overview of the two actions in mind, we turn now to the

proceedings in the federal court action, which culminated in the order granting the

companies’ motion for voluntary dismissal without prejudice. During the

discovery period, the executives filed several motions to compel, seeking to require

the companies to identify their alleged trade secrets and to provide greater

specificity for their damages calculations. The district court twice granted these

motions. The court initially ordered the companies to provide more detailed

discovery responses and eventually required Celler to sit for a second deposition

addressing issues related to damages and the companies’ trade secrets.

       Also during the discovery period, Solatium filed a motion for a preliminary

injunction, seeking an order that the restrictive covenants barred the executives

       2
         Although the companies’ answer in the state court action is not included in the record
before us, we may take judicial notice of this pleading. See Paez v. Sec’y, Fla. Dep’t of Corr.,
947 F.3d 649, 651–52 (11th Cir. 2020); Fed. R. Evid. 201(b)(2).

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from continuing to work for a competitor. The executives opposed the motion.

The district court held an evidentiary hearing on the motion.

       After discovery closed, the executives filed a motion for summary judgment.

They sought summary judgment on all of Solatium’s claims, contending that it

never owned any trade secrets or employed them. The executives also sought

summary judgment on the damages claims, asserting that the companies had no

admissible evidence of their damages;3 on the trade secrets claims, arguing that the

companies had no trade secret and could not show misappropriation; and on the

tortious interference claims, explaining that the companies had identified no

conduct that constituted tortious interference under Florida law.

       The companies received multiple extensions of time to respond to the

summary judgment motion. Rather than file a response to the dispositive motion,

they moved for voluntary dismissal, requesting that the action be dismissed

without prejudice.

       The executives opposed the motion, advancing two arguments. First, they

argued that the district court should not award a dismissal without prejudice given

how far the litigation had progressed. Second, if the court was inclined to grant a

dismissal without prejudice, they urged it to “condition dismissal on payment of

       3
         The companies had no expert on damages and instead were relying on testimony from
Celler. The executives also filed a motion in limine to exclude this testimony.

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Defendants’ costs and attorneys’ fees.” Doc. 114 at 2. The executives maintained

they were entitled to reimbursement because they had incurred considerable

expense in defending the companies’ lawsuit.

       In a reply brief, the companies argued that the court should impose no

conditions on the dismissal. They contended there was no need to award litigation

expenses because “the work done by Defendants’ attorney[s] in this case is useful

towards the resolution of Defendants’ second-filed parallel action in Florida state

court.” Doc. 117 at 2. The companies cited nothing in the record to support this

assertion and offered no further explanation.

       The district court granted the companies’ motion, entered a dismissal

without prejudice, and closed the case. The court imposed no conditions on the

dismissal. It explained that it did not require the companies to pay the executives’

litigation expenses because “all work performed by Defendants’ attorneys in this

case has been, and will continue to be, useful towards the resolution of Defendants’

second-filed parallel action in Florida state court.” Doc. 118 at 4. The court did

not explain the basis for this conclusion, except to say that the executives “have not

argued otherwise.” Id. 4

       4
         When the court entered this order, there were three other motions pending: the
companies’ motion for a preliminary injunction, the executives’ motion for summary judgment,
and the executives’ motion in limine. The court closed the case without addressing the merits of
these motions.

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      The executives filed a motion for reconsideration. They challenged the

district court’s conclusion that all the work their attorneys had performed would be

useful in the state court action. They pointed out that the companies had raised this

argument for the first time in a reply brief and they had no opportunity to address

it. The district court denied the motion for reconsideration, again concluding that

all the work performed by the executives’ attorneys in this case would be useful in

the state court action. The executives appealed.

                        II.    STANDARD OF REVIEW

      We review for abuse of discretion a district court’s decision to grant a

voluntary dismissal without conditions. See McCants v. Ford Motor Co., Inc.,

781 F.2d 855, 857 (11th Cir. 1986). A district court abuses its discretion when it

applies an incorrect legal standard, follows improper procedures, or makes findings

of fact that are clearly erroneous. See Luxottica Grp., S.p.A. v. Airport Mini Mall,

LLC, 932 F.3d 1303, 1311 (11th Cir. 2019). We also will find an abuse of

discretion when “neither the district court’s decision nor the record provide[s]

sufficient explanation to enable meaningful appellate review.” Friends of the

Everglades v. S. Fla. Water Mgmt. Dist., 678 F.3d 1199, 1201 (11th Cir. 2012); see

Holmes v. Cont’l Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983) (stating that a

district court must provide an explanation for its decision such that an appeals

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         USCA11 Case: 20-11743          Date Filed: 07/01/2021   Page: 9 of 15

court has a “basis for judging the exercise of the district judge’s discretion.”

(internal quotation marks omitted)).

                                 III.     ANALYSIS

      Federal Rule of Civil Procedure 41(a) governs when a plaintiff may

voluntarily dismiss an action without prejudice. Under Rule 41(a)(1), a plaintiff

may voluntarily dismiss an action without prejudice without seeking leave of court

so long as the defendant has not filed either an answer or a motion for summary

judgment. Fed. R. Civ. P. 41(a)(1)(i). Once the defendant files either an answer or

a summary judgment motion, Rule 41(a)(2) applies. This subsection permits a

plaintiff to voluntarily dismiss an action “only by court order, on terms that the

court considers proper.” Fed. R. Civ. P. 41(a)(2). Unless the order states

otherwise, a Rule 41(a)(2) voluntary dismissal is without prejudice. Id.

      Because the executives filed answers, our focus is on Rule 41(a)(2). The

decision whether to grant a voluntary dismissal under this rule is committed to a

district court’s “broad equitable discretion.” McCants, 781 F.2d at 857. In

deciding whether to exercise its discretion, a district court must “weigh the relevant

equities and do justice between the parties in each case, imposing such costs and

attaching such conditions to the dismissal as are deemed appropriate.” Id.

      In McCants, we said that a district court generally should grant a motion for

voluntary dismissal “unless the defendant will suffer clear legal prejudice, other

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than the mere prospect of a subsequent lawsuit, as a result.” Id. at 856–57

(emphasis omitted). The fact that the plaintiff filed a motion for voluntary

dismissal after the defendant moved for summary judgment does not in and of

itself establish clear legal prejudice. Arias v. Cameron, 776 F.3d 1262, 1273 (11th

Cir. 2015).

      Under Rule 41(a)(2), a district court may attach conditions to the dismissal,

including requiring the plaintiff to pay some or all of the expenses that the

defendant incurred in litigating the federal action. See McCants, 781 F.2d at 860.

When deciding whether to attach such a condition, a district court should consider

whether the “defendant has been put to considerable expense in preparing for

trial.” Id. If the defendant has, the court “ordinarily” should enter a dismissal

without prejudice “on [the] condition that the plaintiff reimburse the defendant for

at least a portion of his expenses of litigation,” including attorney’s fees. Id. But

when a “subsequent similar suit between the parties is contemplated,” the court

may limit the award to those expenses “incurred in discovering information and

researching and pressing legal arguments that will not be useful in the later suit.”

Id. After identifying “how much of the work done by [the defendant] in [the] case

was wasted and how much will be useful in further litigation,” the court should

weigh the equities to determine whether to condition the dismissal on the

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          USCA11 Case: 20-11743       Date Filed: 07/01/2021    Page: 11 of 15

plaintiff’s payment of all, or a portion, of the defendant’s litigation expenses. Id. at

860–61.

        The executives raise two arguments on appeal. First, they argue that the

district court abused its discretion by granting the motion for voluntary dismissal

without prejudice. Second, they argue that even if the district court did not abuse

its discretion by granting a voluntary dismissal without prejudice, it abused its

discretion by declining to condition the dismissal on the companies’ payment of at

least a portion of the executives’ attorney’s fees. We consider each argument in

turn.

        As to the first argument, we cannot say that the district court abused its

considerable discretion in deciding to grant a dismissal without prejudice.

Contrary to the executives’ argument, there is no bright-line rule that precludes a

district court from granting a plaintiff’s motion for a voluntary dismissal without

prejudice when the defendant has a summary judgment motion pending. See

Arias, 776 F.3d at 1273.

        The executives nonetheless argue that the district court abused its discretion

because in cases with similar facts we have affirmed district court orders denying

motions for voluntary dismissal without prejudice. See, e.g., Fisher v. P.R. Marine

Mgmt., Inc., 940 F.2d 1502 (11th Cir. 1991). But the fact that we have affirmed

district court orders denying motions for voluntary dismissal without prejudice in

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similar situations does not mean that a district court abuses its discretion when it

grants such a motion. After all, the abuse of discretion standard contemplates that

a district judge has a “zone of choice within which” she “may go either way in

granting or denying the motion.” See Pontenberg v. Boston Sci. Corp., 252 F.3d

1253, 1259 n.5 (11th Cir. 2001).

      We now turn to the executives’ second argument: that the district court

abused its discretion when it refused to condition the dismissal on the companies’

payment of expenses that the executives incurred in litigating this action. There is

no dispute that the executives incurred considerable expenses, approximately

$200,000, in litigating this case. Because there was a similar lawsuit pending

among the same parties, in deciding whether to impose a payment-of-expenses

condition, the district court had to consider whether the executives’ litigation

expenses were for work that might be useful in the state court action. See

McCants, 781 F.2d at 860–61.

      The district court purported to determine that all of the work the executives’

attorneys performed in this case would be useful in the state court litigation. The

court stated, “Plaintiffs correctly argue that all work performed by Defendants’

attorneys in this case has been, and will continue to be, useful towards the

resolution of Defendants’ second-filed parallel action in Florida state court,” and

noted that the executives “ha[d] not argued otherwise.” Doc. 118 at 4. The court’s

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order denying the motion for reconsideration consisted of a single-sentence minute

entry that relied on the companies’ response to the motion to find, once again, that

the work performed by the executives’ attorneys would be useful in the state court

litigation.

       Beyond these conclusory statements, the district court offered no

explanation of what it reviewed or how it made this determination. Without any

such explanation, we are unable to engage in meaningful appellate review of the

district court’s decision and must remand for the district court to explain it. See

Friends of the Everglades, 678 F.3d at 1201. 5

       Sometimes when a district court fails to explain its reasoning, we

nevertheless are able to engage in meaningful review because we can infer from

the record the basis for the court’s decision. See United States v. $242,484.00,

389 F.3d 1149, 1154 (11th Cir. 2004). But we cannot do so in this case because

the record did not include evidence from which the district court could determine

that all the work performed in the federal litigation would be useful in the state

       5
          The order could be construed as saying that the court determined all the work that the
executives’ attorneys performed in the federal litigation would be useful in the state court
litigation because the executives had not argued otherwise. But because the companies argued
for the first time in their reply brief that no expenses should be awarded because all the work
would be useful in the state court litigation and the district court granted the motion for a
voluntary dismissal just two days later, without giving the executives any opportunity to respond,
the executives could not have “argued otherwise.” Under these circumstances, the district court
could not, without more, treat the question of whether all the work would be useful in the state
court litigation as undisputed.
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           USCA11 Case: 20-11743          Date Filed: 07/01/2021        Page: 14 of 15

court litigation. Indeed, the record contains only minimal information about the

state court proceedings. And it contains no time records or other information from

the executives’ attorneys detailing the work they performed in defending the

federal lawsuit. In the absence of a developed record, we cannot discern the basis

for the district court’s decision that all the work the executives’ attorneys

performed to defend this action would be useful in the state court litigation.

       The record does reflect that some of the work the executives’ attorneys

performed in this case would be useful in the state court action. In this action, the

companies claimed, among other things, that the executives had breached their

employment contracts. The same question is at issue in the state court lawsuit.

The executives alleged in their complaint that they were entitled to compensation

for the remainder of their employment terms because they had not breached their

employment contracts and were terminated without just cause.6

       But that there is some overlap is not enough to affirm the district court’s

determination that all the work the executives’ attorneys performed would be

useful in the state court action because this case included more than just the

companies’ breach of contract claims. The companies also brought tortious

interference with business relations claims, and Solatium filed a motion for a

       6
          The question of whether the executives breached their employment contracts is at issue
in the state court action for another reason as well: the companies raised their alleged breach as
an affirmative defense.

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preliminary injunction to bar Hufnagle and King from continuing in their new jobs.

From the limited record before us, we cannot discern the basis for the district

court’s determination that work the executives’ attorneys undertook to defend

against the tortious interference claims or oppose the motion for preliminary

injunction would be useful in the state court action.

      We therefore vacate the order imposing no conditions on the dismissal and

remand for further proceedings. On remand, the district court should address what

portion of the work performed by the executives’ attorneys in the federal litigation

will be useful in the state court litigation, explaining the basis for its decision.

After deciding this question, the district court should weigh the equities and decide

whether to condition the dismissal on the companies’ payment of these expenses.

See McCants, 781 F.2d at 860–61.

                                IV.    CONCLUSION

      For the reasons set forth above, we vacate the district court’s order granting

the motion for a voluntary dismissal without prejudice and remand for further

proceedings.

      VACATED and REMANDED.

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