Ambiguities in dismissal orders are construed against claim preclusion. In Papera v. Pennsylvania Quarried Bluestone Co., the parties moved to dismiss their suit after agreeing to a settlement. As requested by the parties, the court entered a dismissal order. However, after the settlement failed to consummate, the plaintiffs refiled their previously dismissed claim. The district court dismissed the case after holding that the plaintiffs were barred from relitigating their previous claims. The U.S. Court of Appeals for the Third Circuit disagreed. In a precedential opinion, the appellate court reversed the district court’s ruling and adopted two new rules when construing ambiguous dismissal orders.
A Proposed Settlement Unravels
The Paperas owned a quarry and agreed to let the Pennsylvania Quarried Bluestone Company mine the property. While Pennsylvania Quarried mined the property, the Paperas made repeated requests to the company to remove abandoned property and to pay for the mined stone. However, these requests went unfulfilled, and the Paperas brought suit in federal court.
The district court sent the case to mediation. After mediation, the parties returned to the district court believing they had reached a settlement and moved for the entry of a 60-day dismissal order. The court entered a two-sentence dismissal order stating the case was dismissed and that the parties had 60 days to finalize their settlement. However, the parties never reached a final settlement, and after the expiration of the allotted 60 days, the district court administratively closed the suit.
Four months after the dismissal order, the Paperas sought a conference call with the district court to discuss further litigation of their suit. The court responded that it no longer had jurisdiction over the suit because it had been administratively closed.
When the Paperas refiled their complaint, Pennsylvania Quarried moved for dismissal. The district court granted summary judgment in favor of Pennsylvania Quarried, holding that the Paperas were barred from refiling their suit due to claim preclusion. The Paperas appealed.
Court of Appeals Adopts New Rule
On appeal, the U.S. Court of Appeals for the Third Circuit addressed whether the district court’s initial dismissal order was with or without prejudice. In resolving this issue, the court cited Federal Rule of Civil Procedure 41(a), looked at the decisions of its sister circuits, and adopted two rules for construing ambiguities in dismissal orders.
Under Rule 41(a), involuntary dismissals are with prejudice and operate as an adjudication on the merits. Because of the dispositive nature of involuntary dismissals, the court found them to be disfavored and appropriate only in “limited circumstances.” A plaintiff’s first voluntary dismissal, by contrast, is without prejudice, and thus, void of any “claim-preclusive effect.” Following its inquiry, the court observed that claim preclusion traditionally requires a judgment on the merits.
The court also found the Fourth Circuit’s decision in Choice Hotels International, Inc. v. Goodwin & Boone persuasive. The Third Circuit adopted two rules for construing ambiguities in dismissal orders similar to the rules applied in Choice Hotels. First, unclear dismissal orders will be construed as voluntary. Second, the first unclear voluntary dismissal will be construed as being without prejudice. The court reasoned that “only a clear and explicit statement will suffice to make a dismissal involuntary, or voluntary with prejudice.”
Here, the appellate court found nothing in the record that specified whether the district court’s dismissal was with or without prejudice. It found that the dismissal order was the Paperas’s first dismissal, and therefore, without prejudice. Accordingly, the court of appeals vacated the district court’s grant of summary judgment and remanded the case. The court further concluded that when it is uncertain as to what kind of dismissal was entered, ambiguities in dismissal orders will be construed “against claim preclusion.”
Parties Must Ensure That a Case Is Properly Dismissed
The appellate court’s holding highlights the “responsibilities of the parties to ensure the case has been properly dismissed—with or without prejudice indications,” notes Angela Foster, North Brunswick, NJ, cochair of the ABA Section of Litigation’s Trial Evidence Committee. “Usually, after an amicable settlement, the parties will file a jointly signed stipulation to dismiss the case with prejudice with the court,” observes Foster. Such “dismissal orders should be drafted carefully to explicitly state the specific conditions of any dismissal,” recommends Kenneth N. Klemm, New Orleans, LA, cochair of the Section of Litigation’s Trial Evidence Committee.
However, this did not occur here. After the dismissal order, the parties did not agree to a settlement within the allotted 60 days and did not seek clarification of the dismissal order—until four months after it was entered. Because of the dispositive nature of dismissal orders, “these orders require litigators to be cognizant of such deadlines, and if a settlement cannot be consummated, move for relief to protect the interest of their clients,” suggests Klemm.
To mitigate the frustration that results from failed settlement agreements, “counsel should be careful to heed both the local rules and settlement orders issued by the court to avoid having claims precluded when the parties fail to consummate a settlement,” advises Klemm. And plaintiffs especially should “have language in the settlement agreement stating: In the event the defendant does not completely comply with the settlement agreement in its entirety, the plaintiff reserves the right to relitigate the case,” counsels Foster.
Andrew K. Robertson is a contributing editor for Litigation News.
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- Dowd v. City of Philadelphia, No. CV 19-1981, 2020 WL 1826596 (E.D. Pa. Apr. 10, 2020).
- Adam E. Lyons, “Procedural Dismissal Leads to Substantive Loss,” Litigation News (Feb. 20, 2017).
- John Haarlow Jr., “In Second Circuit an Arbitrator Decides Claim Preclusion in the First Instance,” Alternative Dispute Resolution (Feb. 18, 2015).
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