Opinion
Civ. No. 03-2480 (RHK/AJB).
June 26, 2003.
Kari Berman Litman, Berman Litman Law Firm, P.A., Edina, Minnesota, Attorney for Plaintiff.
Frank R. Berman, Frank R. Berman, PA., Edina, Minnesota, Attorney for Plaintiff.
Robert L. DeMay and Timothy P. Griffin, Leonard, Street and Deinard, Professional Association, Minneapolis, Minnesota, for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
Plaintiff EMPO Corporation describes itself as a "professional employer organization" whose clients are employers that have set up 401(k) retirement plans through EMPO. Plaintiff claims that it provided, on a confidential basis, a customer list and other information to Defendant J.D. Benefits, Inc., so that J.D. Benefits could perform administrative services for the retirement plans. This case has its genesis in a nine-count Complaint alleging that J.D. Benefits, Inc. and Batchelor engaged in tortious interference with contract, misappropriation of trade secrets, defamation, commercial disparagement, unfair competition, deceptive trade practices, breach of contract, breach of fiduciary duty, and fraud. EMPO alleges that, upon informing J.D. Benefits that it had decided to use another firm to provide administrative services for the 401(k) plans, Defendants began making disparaging, false, and misleading statements about EMPO and began using the claimed trade secret information to solicit EMPO's clients. EMPO's complaint seeks monetary damages and temporary and permanent injunctive relief.
Defendant David Batchelor is an owner and officer of J.D. Benefits.
Before the Court is Plaintiffs Motion to Dismiss pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure. Plaintiff wishes to dismiss this action without prejudice and without the imposition of any conditions. Defendants oppose the dismissal being "without conditions." They ask the Court to modify EMPO's proposed order such that any dismissal would be without prejudice if and so long as EMPO pays all attorneys' fees and costs incurred by the Defendants in this action (totaling $33,610.33) before commencing, or causing any other person to commence, a second action against either or both Defendants in any forum that asserts any claim pertaining to any employee benefit plan sponsored by EMPO or any of its past or current professional employer organization clients. For the reasons set forth below, the Court will dismiss the action without prejudice upon EMPO's payment of certain costs and fees.
Background
EMPO commenced this action in Hennepin County District Court on March 11, 2003. Together with the summons and complaint, it appears that EMPO also filed and served a motion for temporary injunctive relief, supporting memorandum, attorney affidavit, and affidavit of Alan Reid. EMPO obtained a hearing date of March 19 from the state court for the temporary injunction motion. Defendants, however, removed the action to this Court on March 17 on the grounds of diversity jurisdiction. Defendants answered the Complaint on March 25.
On March 19, 2003, Defendants forwarded to the Clerk of Court here documents EMPO had served and filed in state court on the day the case was removed. These documents included EMPO's motion to compel discovery and four additional affidavits supporting the motion for temporary injunction. (Doc. Nos. 3-7.).
By its own account, once the action was removed to this Court, EMPO did not immediately seek to schedule a preliminary injunction hearing. According to EMPO, the parties met for a Rule 26(f) conference on March 31, 2003. "At about that time," EMPO sought a hearing for a preliminary injunction motion. (Pl.'s Mem. Supp. Mot. to Dismiss at 4.) It obtained a hearing date from the Court of May 13, 2003. EMPO subsequently filed a preliminary injunction motion pursuant to Federal Rule of Civil Procedure 65, together with a supporting memorandum and affidavits on April 8.
Plaintiff asserts that, after removal to federal court, "[o]f course, Rule 26 immediately imposed a stay on discovery and other actions" until the Rule 26(f) conference was held. (Pl.'s Mem. Supp. Mot. to Dismiss at 4 (emphasis added).) The Rule 26 stay is hardly as sweeping as Plaintiff suggests. The stay applies to discovery, such that "a party may not seek discovery from any source before the parties have conferred as required by Rule 26(f)." Fed.R.Civ.P. 26(d) (emphasis added). Rule 26 does not preclude a party, prior to a Rule 26(f) conference, from moving for preliminary injunctive relief pursuant to Fed.R.Civ.P. 65.
EMPO complains that it could obtain no earlier hearing date "despite the immediacy of the requested relief." (Pl.'s Mem. Supp. Mot. to Dismiss at 5.).
Although Local Rule 7.1(b)(2)(A) requires the moving party to provide the Clerk of Court with two copies of the cover letter accompanying the dispositive motion papers served on opposing counsel, EMPO never filed with the Court a copy of its service letter for either the motion for preliminary injunction or the state court motion for temporary injunction. The Court cannot ascertain when Defendants were served with EMPO's preliminary injunction papers.
Following the Rule 26(f) conference on March 31, EMPO's counsel informed Defendants' counsel that it would provide its initial Rule 26(a)(1) disclosures on April 24, 2003. On April 7, 2003, Defendants moved for expedited discovery tailored to the issues raised by the preliminary injunction motion and sought an expedited hearing so as to preserve the May 13 hearing date for the preliminary injunction motion. Defendants alternatively asked the Court to reschedule Plaintiffs preliminary injunction motion to a date later than May 13, 2003, so that Defendants could complete discovery targeted to the injunction motion. (Doc. No. 10.) EMPO opposed Defendants' motion in all respects. On April 16, Magistrate Judge Boylan issued an order granting Defendants' motion and setting the following pre-hearing discovery schedule:
Discovery responses due May 2
Motions to compel due May 5
Responses to motions to compel due May 8
(Doc. No. 26). Magistrate Judge Boylan also rescheduled the hearing on the preliminary injunction motion to June 12, 2003, or as soon thereafter as it might be set. (Id.) EMPO did not appeal or otherwise seek relief from Magistrate Judge Boylan's Order.
EMPO claims that, because of its "inability to obtain a hearing before June 12, 2003, it appeared that Plaintiff could not obtain any meaningful temporary relief." (Pl.'s Mem. Supp. Mot. to Dismiss at 5.)
Moreover, given its success in being able to maintain its relationship with [sixty of seventy-two] accounts, and its hope of being able to obtain the business of the others, there appeared to be no immediate reason to proceed with this suit and in the interest of judicial economy and cost effectiveness, Plaintiff tendered a Stipulation for Dismissal Without Prejudice which was rejected by Defendants.
(Id.) On May 1, 2003, the parties appeared before Magistrate Judge Boylan for a Rule 16 pretrial status conference. (See Doc. No. 9.) At the conference, EMPO's counsel delivered to Defendants' counsel a proposed Stipulation for Dismissal Without Prejudice, already signed by Plaintiffs counsel. (Litman Aff. Ex. A.) On May 6, 2003, Defendants' counsel responded to the proposed stipulation as follows:
Defendants are willing to enter an appropriate stipulation for dismissal of the above-referenced action. Defendants are wiling to stipulate that the dismissal shall be without prejudice on the merits if and so long as the following condition is satisfied; otherwise the dismissal must be with prejudice:
Prior to commencing an second action against J.D. Benefits, Inc., and/or David Batchelor in any forum which asserts any claim pertaining to any employee benefit plan sponsored by EMPO or any of its past or current [professional employer organization] clients, EMPO Corporation shall pay attorneys' fees and other costs incurred by the Defendants in defending themselves in [the above-captioned matter].
If you are willing to agree to the foregoing condition, we will draft a revised stipulation for your review. If not, it will be necessary for EMPO to seek dismissal of the above-referenced action pursuant to Rule 41(a)(2).
(Litman Aff. Ex. B.)
Upon receiving Defendants' response, EMPO brought the instant motion. EMPO argues that the Defendants' proposed condition is unacceptable "in light of the fact that litigation may be commenced against Defendants that involves claims if the damages prove substantial by virtue of the permanent loss of clients, or other claims about which Plaintiff is now unaware." (Pl's Mem. Supp. Mot. to Dismiss at 3.) EMPO further states that it learned, after this action was commenced, facts from which it has reason to believe that Defendants improperly and without authorization withdrew several hundred thousand dollars from the retirement plans of EMPO's clients and from the employee participants' accounts. (Id.) EMPO asserts that the condition Defendants seek to place on the proposed dismissal without prejudice "is an attempt to impede EMPO from taking legal action, if it becomes necessary, to protect the employees/participants who have been harmed by Defendants." (Id. at 4.)
Analysis
"It is axiomatic that a dismissal pursuant to Rule 41(a)(2) is not one of right but is rather a matter for the discretion of the trial court." United States v. Gunc, 435 F.2d 465, 467 (8th Cir. 1970), cited in Great Rivers Co-op. v. Farmland Indus., Inc., 198 F.3d 685, 689 (8th Cir. 1999). Rule 41(a)(2) of the Federal Rules of Civil Procedure provides in relevant part that "an action shall not be dismissed at the plaintiffs instance save upon order of the court and upon such terms and conditions as the court deems proper. . . . Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice." Fed.R.Civ.P. 41(a)(2) (emphasis added).
Plaintiff expends a great deal of energy arguing that the Defendants cannot demonstrate "plain legal prejudice" and, therefore, dismissal of this action should be without prejudiceand should be unconditional. Plaintiff misreads the case law under Rule 41(a)(2). The question of whether to grant a plaintiffs motion for voluntary dismissal of its lawsuit is separate and distinct from the question of what terms and conditions for such a dismissal are appropriate. "Plain legal prejudice" is clearly relevar to the former question; if "plain legal prejudice" would result to the defendant from a voluntary dismissal, it would be an abuse of discretion to grant the motion at all. On the question of the appropriate "terms and conditions" for a voluntary dismissal, however, EMPO has cited no case holding that "plain legal prejudice" must be proven before any conditions may be imposed.
In a case EMPO relies on heavily, Paulucci v. City of Duluth, 826 F.2d 780 (8th Cir. 1987), the appellants (plaintiffs) argued that the district court abused its discretion in denying their motion for voluntary dismissal because it had not "consider[ed] whether an award of attorney's fees and costs to [the defendants] might eliminate any prejudice resulting from a voluntary dismissal." 826 F.2d at 783. The Eighth Circuit held that "[i]n deciding whether to permit voluntary dismissal, a district court is not limited to considering just the expenses and costs related to the lawsuit."Id. (emphasis added). The court of appeals observed that more than just the money spent in the instant litigation was at risk for the defendants — a subsequent lawsuit would create further uncertainty over title to land, and the Pauluccis had offered no explanation for the voluntary dismissal they sought. Id. The Pauluccis' counsel represents EMPO in this action.
The venerable case of Cone v. West Virginia Pulp Paper Co. is clear: "Traditionally, a plaintiff . . . has had an unqualified right, upon payments of costs, to take a nonsuit [i.e., dismissal without prejudice] in order to file a new action after further preparation, unless the defendant would suffer some plain legal prejudice other than the mere prospect of a second lawsuit." 330 U.S. 212, 217 (1947) (emphasis added). The Eighth Circuit has similarly held that "[i]n granting a motion for voluntary dismissal, district courts typically impose the condition that plaintiff pay the defendant the reasonable attorney's fees incurred in defending the suit." Belle-Midwest, Inc. v. Missouri Property Cas. Ins. Guar. Ass'n, 56 F.3d 977, 978-79 (8th Cir. 1995); see also New York. C. St. Louis R. Co. v. Vardaman, 181 F.2d 769, 771 (8th Cir. 1950) (holding that the "payment to the defendant of the expenses and a reasonable attorney fee may properly be a condition for dismissal without prejudice under Rule 41(a)" and noting that "such expenses and fee must be confined to those referable only to the cause of action dismissed"); cf. Painter v. Golden Rule Ins. Co., 121 F.3d 436, 440 (8th Cir. 1997) (affirming district court orders conditioning voluntary dismissal of declaratory judgment action upon payment of attorneys' fees and awarding defendant $37,493.35 in fees under Rule 41(a)(2)).
Defendants ask the Court to condition a voluntary dismissal of this case on EMPO's payment of the Defendants' attorneys' fees and costs in this litigation but only if EMPO commences, or causes any other person to commence, a second action against one or both Defendants asserting "any claim pertaining to any employee benefit plan sponsored by EMPO or any of its past or current PEO clients." (Defs.' Mem. Opp'n Pl.'s Mot. to Dismiss at 3.) Defendants contend that their requested condition of dismissal is "more permissive" than that found in the cases cited above because they are not seeking an immediate reimbursement of costs and fees. (Id. at 16.) The devil, however, is in the details.
As EMPO correctly observes, Defendants' proposed condition is triggered not only by EMPO bringing a second suit in the future but also by EMPO "causing" any other person to bring a future suit. Defendants refer to a "friendly employer-sponsor" as the sort of "other person" whom EMPO might cause to file suit(see Def.'s Mem. at 16), but the language of Defendants' requested condition — "any other person" — is broader than that. Furthermore, Defendants offer no guidance as to what constitutes "causing" another person to file suit.
EMPO additionally points out that future litigation that would trigger Defendants' proposed condition is quite broad. EMPO would be obliged to reimburse Defendants for their fees and costs in this action if EMPO or any other person brings "any claim pertaining to any employee benefit plan sponsored by EMPO or any of its past or current PEO clients." (Defs.' Mem. at 3 (emphasis added).) The future litigation encompassed by the proposed condition is therefore greater than simply a second suit that is based upon or includes the same claims as those asserted in this action. Cf. Fed.R.Civ.P. 41(d).
Defendants' proposed condition to a voluntary dismissal goes beyond the twofold purpose of conditioning a dismissal awarding costs and fees under Rule 41(a)(2): to fully compensate the defendant for reasonable expenses incurred before dismissal and to deter vexatious litigation. See 8 James W. Moore, et al,Moore's Federal Practice §§ 41.40[1], 41.40[10][d][i]. In light of the Eighth Circuit and Supreme Court precedent confirming that a voluntary dismissal may be conditioned on the payment of a defendant's expenses, the Court finds no compelling need to impose the broader — albeit contingent — condition requested by Defendants. The Court will condition the dismissal of this action on EMPO's payment of the legal fees Defendants incurred for services that either will have to be repeated in a second suit or would not have been incurred but for the unique procedural history of this lawsuit. If that condition is too onerous, EMPO need not accept the dismissal on those terms. 9 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure, § 2366 (2d ed.).
In the first week of this litigation, Defendants incurred $10,270.50 in legal fees for their counsel's review and analysis of EMPO's Complaint, the state court Motion for Temporary Injunction and supporting affidavits, and for the preparation and filing of a Notice of Removal. (Second Griffin Aff. ¶ 3a.) It appears unlikely that such efforts will be useful in a subsequent lawsuit, for if EMPO intends to re-plead claims for money damages that have been pled in this case, there would be no reason to dismiss this action. As EMPO itself has argued, this case is in its infancy, and EMPO thus has ample time to prepare for a trial on its damages claims and, if necessary, amend the Complaint to add new claims.
Between April 7 and April 16, 2003, Defendants incurred $3,879.50 in attorneys' fees in bringing a motion to obtain expedited discovery relevant to EMPO's aborted preliminary injunction motion. (Second Griffin Aff. ¶ 3c.) That work was specific to the procedural history of this case, and nothing before the Court suggests that such legal work would be applicable to a subsequent lawsuit. Defendants have also incurred costs in this litigation of $1,171.33. (Id. ¶ 3.)
The Court is not impressed by EMPO's assertions that it had to abandon its efforts to obtain preliminary injunctive relief due to the "very busy schedule of the federal court," and that this result was in no way "due to any delay or lack of diligence by Plaintiff." (See Litman Aff. ¶¶ 3, 4.) EMPO did not comply with the Local Rules for dispositive motion practice in this Court, waited almost two weeks after this matter had been removed to federal court before requesting a hearing for a preliminary injunction motion, and waited almost three weeks before filing motion papers pursuant to Federal Rule of Civil Procedure 65. EMPO's ability to proceed with a preliminary injunction motion was not "stayed" by Rule 26, as EMPO implies. If a May 13 hearing date was prejudicial to EMPO's interests, it could have asked to have another judge hear the preliminary injunction motion sooner. It did not. Finally, when Magistrate Judge Boylan rescheduled the preliminary injunction hearing to sometime after June 12, Plaintiff could have sought relief from that Order under Local Rule 72.1 and requested that the appeal be heard on an expedited basis. It did not. Samuel Beckett was right: "There's man all over for you, blaming on his boots the faults of his feet." Waiting for Godot, act I.
Discovery, including the preparation of initial disclosures and the parties' first and second rounds of written discovery requests, is conceivably of value and usable in subsequent litigation between these parties. See Kern v. TXO Prod. Corp., 738 F.2d 968, 972-73 (8th Cir. 1984) (observing that, in determining the amount of fees to be paid as a condition for voluntary dismissal, some of the work of defendant's counsel may not have to be repeated in a second action). Accordingly, it is not fitting to require EMPO to pay the fees Defendants incurred between March 18 and April 4, 2003, and April 17 and April 30, 2003, totaling $18,289.50. The Court thus determines that the amount of expenses and costs EMPO should be required to pay to Defendants as a condition of dismissal without prejudice is $15,321.33.
EMPO does not suggest, and certainly has not presented evidence establishing, that it lacks the means to pay $15,321.33 to Defendants prior to dismissal, such that this condition would deprive it of access to the courts. Accordingly, when Defendants' counsel has filed an affidavit substantiating that it has received $15,321.33 from EMPO, the Court will enter an Order dismissing this action without prejudice.
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS ORDERED that Plaintiff EMPO Corporation's Motion to Dismiss (Doc. No. 31) is CONDITIONALLY GRANTED. If, by July 24, 2003, EMPO Corporation has paid to Defendants' counsel the sum of $15,321.33, and Defendants' counsel has submitted proof of said payment to the Court by affidavit, the Court will enter an Order dismissing this matter without prejudice.