Inconvenience, added expense, excessive delay, prolonged litigation, and tactical disadvantage do not constitute “legal prejudice.” When plaintiffs missed the deadline to amend their complaint, a split federal court of appeals allowed them to dismiss the suit and file the amended complaint in a new action. The court’s opinion turned on whether the undisputed prejudice to defendants amounted to “legal prejudice.” ABA Litigation Section leaders disagree on whether the court got it right.
In their initial and amended complaint, the consumers in Kamal v. Eden Creamery, LLC, accused Halo Top of underfilling ice cream pints. During discovery, the consumers shifted to a “fraud by omission” theory, alleging that the defendants failed to inform customers that the ingredients and production methods rendered the ice cream susceptible to “shrinkage.” Shortly after deposing Eden Creamery—but eight months after the deadline to amend pleadings and six weeks before the close of discovery—the consumers moved to amend their complaint and incorporate this new theory. The U.S. District Court for the Southern District of California denied the motion, determining that the consumers had not established “good cause” to amend the scheduling order because they had long-since shifted to the new theory. The district court also held that the amendment would necessitate re-opening discovery, which would prejudice the defendants.
Undeterred, the consumers moved to voluntarily dismiss their claims without prejudice, admitting their intent to file a new lawsuit and pursue the fraud theory. The district court advised the consumers that they could either accept dismissal with prejudice or continue litigation in the current action. At the consumers’ election, the district court dismissed the individual claims with prejudice, reasoning that, since filing an amended complaint would be prejudicial to the defendants, then it would be similarly prejudicial if plaintiffs were permitted to file the complaint as a new lawsuit.
On appeal, the U.S. Court of Appeals for the Ninth Circuit vacated the district court’s order. In a split decision, the Ninth Circuit held that the dismissal with prejudice was an abuse of discretion because the defendants had not established “legal prejudice.” While conceding that the defendants would be required to face a revised fraud theory in a different lawsuit, the majority found the hardship did not constitute legal prejudice.
The majority opinion provided examples of legal prejudice: loss of federal forum, the right to a jury trial, or statute-of-limitations defense. In contrast, “uncertainty because a dispute remains unresolved,” “threat of future litigation,” “inconvenience of defending another lawsuit,” and “tactical [dis]advantage” is not sufficient. The dissent criticized the majority’s interpretation as a departure from precedent that recognized loss of a legal interest or argument as “legal prejudice.” Litigation Section leaders likewise disagree on whether the majority took the correct approach.
“The Ninth Circuit’s analysis seems well-reasoned and based on precedent in that circuit saying that the threat of future litigation does not amount to legal prejudice,” states Jason K. Kellogg, Miami, FL, Co-Chair of the Section’s Class Actions & Derivative Suits Committee. “Although most people would agree that it constitutes a general kind of ‘prejudice,’ as the Ninth Circuit says, ‘legal prejudice’ is a term of art with a specific meaning, and that meaning does not include the threat of future litigation.” Following the Kamal decision, Kellogg suggests that practioners “ask themselves the question, ‘does prejudice impact a substantive right—like a claim or defense—or a procedural right—like a rule?’”
Siding with the dissent, Joshua L. Johanningmeier, Madison, WI, Co-Chair of the Section’s Products Liability Litigation Committee, observes, “I do not think that the district court abused its discretion . . . . The abuse of discretion standard required more deference to the district court.” He continues, “the Ninth Circuit’s analysis offers potential examples of legal prejudice but then discounts nearly all of them. The end result of the majority opinion provides no real guidance as to what legal interest or argument could be lost that would rise to the level of legal prejudice and, in fact, leaves us wondering if its standard could be met at all.”
On one point Kellogg and Johanningmeier agree: The district court should award fees and costs to defendants on remand. “At a higher level, this case and the dissent correctly emphasize the bigger issue—parties are not held to the requirements of the rules, including scheduling orders, strictly enough,” comments Johanningmeier. “The majority appears to create a bright-line rule that ignores the facts of the plaintiffs’ conduct in this case and would seem to require courts to do the same in the future.”
Nonetheless, Kellogg notes, “there may be a reckoning for the plaintiffs anyway. The defendants will no doubt make the new court aware of what happened before. So, for those who dismiss only to refile, I think there are other safeguards to prevent abuse.” Still, Kellogg agrees that “[the dissent] raises an interesting point about the possibility that there will be a blind spot under the rules in these cases where a dismissal follows the denial of a motion for leave to amend. How that plays out will be interesting to watch.”
