Stellia Limited v. Yknot Global Limited , 379 P.3d 29 ( 2016 )

2016 UT App 133THE UTAH COURT OF APPEALS
STELLIA LIMITED,
Appellee,
v.
YKNOT GLOBAL LIMITED,
Appellant,
v.
DOMINIC TAMPONE,
Appellee.
Opinion
No. 20141167-CA
Filed June 23, 2016
Third District Court, Salt Lake Department
The Honorable Su J. Chon
No. 130907586
Jeffrey J. Steele and Justin R. Baer, Attorneys
for Appellant
Eric K. Schnibbe and David Paul Steiner, Attorneys
for Appellees
JUDGE J. FREDERIC VOROS JR. authored this Opinion, in which
JUDGE GREGORY K. ORME and SENIOR JUDGE RUSSELL W. BENCH
concurred.1
VOROS, Judge:
¶1 This is one of two appeals arising from a business dispute
between two companies, Yknot Global Limited and Stellia
Limited. In this appeal, Yknot asserts that the district court erred
1. Senior Judge Russell W. Bench sat by special assignment as
authorized by law. See generally Utah R. Jud. Admin. 11-201(6).
Stellia Limited v. Yknot Global Limited
by dismissing its counterclaims under the two-dismissal rule of
rule 41(a) of the Utah Rules of Civil Procedure. We affirm.
BACKGROUND
¶2 Yknot, organized in the United Kingdom and based in
Salt Lake County, sells various products online. Stellia,
organized and based in Malta, provides electronic credit card
processing services to online sellers—including, for a time,
Yknot. At some point a dispute arose between the two
companies; the nature of that dispute does not bear on the
questions presented on appeal.
¶3 This appeal involves three claims filed by Yknot (and
related individuals) against Stellia (and related individuals):
first, a complaint filed in federal district court; second, a
complaint filed in state court; and third, a counterclaim filed in a
second state court action. All sought more or less the same relief
on the same grounds.
¶4 First, Yknot sued Stellia and its principals, Kenneth
Cassar and Dominic Tampone, (collectively, Stellia) in federal
district court in Utah (the federal case). Stellia moved to dismiss
on jurisdictional grounds, and Yknot voluntarily dismissed its
federal complaint without court involvement. No appeal ensued.
This was the first dismissal.
¶5 Second, Yknot sued Stellia in Utah state court; the case
was assigned to Judge Andrew H. Stone (the Judge Stone Case).
Stellia moved to dismiss on the ground that Yknot, a foreign
entity not registered in Utah, lacked legal authority to sue in this
state. In response, Yknot, in its own words, ‚cured any
deficiency by filing its registration.‛ When settlement
negotiations broke down, Stellia withdrew its motion to dismiss
and prepared to file an answer and counterclaim. But before it
did so, Yknot filed a notice of voluntary dismissal, dismissing its
state complaint without judicial involvement. This was the
second dismissal.
20141167-CA 2 2016 UT App 133Stellia Limited v. Yknot Global Limited
¶6 Third, Stellia sued Yknot (and related individuals) in Utah
state court; the case was assigned to Judge Su J. Chon (the Judge
Chon Case). Stellia sought both affirmative relief and a
declaratory judgment, arguing that the two-dismissal rule found
in rule 41(a) of the Utah Rules of Civil Procedure barred any
potential counterclaim. Yknot and the individual defendants
responded by filing a counterclaim. Stellia moved to dismiss the
counterclaim, Judge Chon granted the motion, and Yknot
appealed. We address this appeal—from the Judge Chon case—
in this opinion.
¶7 Ten days after Stellia filed its complaint in the Judge Chon
Case seeking a declaratory judgment under the two-dismissal
rule, Yknot, now with new counsel, filed three motions seeking
relief from the second dismissal in the Judge Stone Case. First,
Yknot filed a motion to set aside the dismissal and to withdraw
its notice of dismissal. This motion relied on subsections (b)(3)
and (b)(6) of rule 60(b) of the Utah Rules of Civil Procedure.
Second, Yknot filed a motion to compel arbitration. And third,
Yknot filed a motion to consolidate the Judge Stone Case and the
Judge Chon Case. Stellia opposed all three motions.
¶8 Judge Stone denied all of Yknot‘s motions. In denying the
first motion, the court found that Yknot had not established
grounds for relief under either rule 60(b)(3)—relief for fraud or
misconduct of an adverse party—or rule 60(b)(6)—relief for ‚any
other reason that justifies relief.‛2 See Utah R. Civ. P. 60(b)(3),
(b)(6). The court ruled that Yknot’s reliance on rule 60(b)(6) was
misplaced because the motion could have been brought under
rule 60(b)(1)—seeking relief for mistake—and therefore that it
did not state an ‚other reason‛ justifying relief. Further, the
court ruled that the facts did not support relief under rule
60(b)(1):
2. Because Yknot has not appealed the denial of its rule 60(b)(3)
motion, we do not address it.
20141167-CA 3 2016 UT App 133Stellia Limited v. Yknot Global Limited
Plaintiff has not established grounds for relief
under Utah Rule of Civil Procedure 60(b)(6); Utah
Rule of Civil Procedure 60(b)(6) does not apply
when a motion implicates Rule 60(b)(1); Plaintiff
has admittedly not moved for relief under Rule
60(b)(1); and the facts described in support of
Plaintiff’s Motion to Set Aside would not support
relief under Rule 60(b)(1).
As a result of this ruling, Judge Stone denied the second and
third motions as moot. Yknot appealed. We resolve that appeal
in Yknot Global v. Stellia Limited, the companion appeal to this
one. 2016 UT App 132.
¶9 After Judge Stone denied Yknot’s rule 60(b) motions,
Stellia moved to dismiss Yknot’s counterclaim and third party
complaint in the Judge Chon Case (the subject of this appeal).
Stellia argued that Yknot’s counterclaim represented a third
attempt to bring the same claims Yknot had voluntarily
dismissed in the federal case and in the Judge Stone Case. Thus,
Stellia maintained, the counterclaim ran afoul of rule 41’s two-
dismissal rule. Judge Chon agreed that the two-dismissal rule
barred Yknot’s counterclaim:
As to Stellia’s Seventh Claim for Relief,
seeking declaratory judgment, Defendants’ Motion
to Dismiss is DENIED on the grounds that the
‚Two Dismissal Rule‛ embodied in Utah Rule of
Civil Procedure 41 bars Yknot Global’s affirmative
claims against the Stellia Parties . . . as a result of
Yknot Global having twice brought and then
voluntarily dismissed the claims.
....
The Counterclaim and Third-Party
Complaint, as alleged by Yknot Global, is
20141167-CA 4 2016 UT App 133Stellia Limited v. Yknot Global Limited
dismissed because the ‚Two Dismissal Rule‛
embodied in Utah Rule of Civil Procedure 41 bars
Yknot Global’s affirmative claims against the
Stellia Parties and Cassar as a result of Yknot
Global having twice brought and then voluntarily
dismissed the claims.
(Emphasis in original.) Yknot petitioned for, and we granted,
permission to appeal Judge Chon’s interlocutory order of
dismissal.
ISSUES
¶10 The overarching issue in this appeal is whether the
district court properly dismissed Yknot’s counterclaims under
the two-dismissal rule found in rule 41(a)(1) of the Utah Rules of
Civil Procedure. Yknot offers five arguments why, in its view,
the two-dismissal rule should not apply here.
¶11 First, Yknot argues that the two-dismissal rule should not
apply because applying it here does not serve the purposes of
the rule.
¶12 Second, Yknot argues that the two-dismissal rule should
not apply because Yknot’s voluntary dismissal of the federal
complaint should be considered a stipulated dismissal to which
the two-dismissal rule should not apply.
¶13 Third, Yknot argues that the two-dismissal rule should
not apply because Yknot dismissed the federal case based on
jurisdictional issues.
¶14 Fourth, Yknot argues that the two-dismissal rule should
not apply because Yknot dismissed its second complaint to
pursue arbitration in a foreign country.
¶15 Finally, Yknot argues that the two-dismissal rule should
not apply to counterclaims.
20141167-CA 5 2016 UT App 133Stellia Limited v. Yknot Global Limited
¶16 ‚A ruling on a motion to dismiss presents a legal question
that we review for correctness, affording no deference to the
district court’s decision.‛ Turner v. Staker & Parson Co., 2012 UT
30, ¶ 7, 284 P.3d 600.
ANALYSIS
¶17 Similar to its federal counterpart, rule 41 of the Utah
Rules of Civil Procedure governs the dismissal of actions.
Subsection (a)(1) contains the two-dismissal rule. Under that
subsection, the first voluntary dismissal of an action is, unless
otherwise stated, without prejudice, but the second dismissal
operates as an adjudication on the merits:
Subject to the provisions of Rule 23(e) and of any
applicable statute, an action may be dismissed by
the plaintiff without order of court by filing a
notice of dismissal at any time before service by the
adverse party of an answer or other response to the
complaint permitted under these rules. Unless
otherwise stated in the notice of dismissal, 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 any state an action based
on or including the same claim.
Utah R. Civ. P. 41(a)(1) (emphasis added). ‚*I+t is the duty and
practice of this court to adhere to the plain language of a rule.‛
St. Jeor v. Kerr Corp., 2015 UT 49, ¶ 12, 353 P.3d 137 (citing
Dipoma v. McPhie, 2001 UT 61, ¶ 11, 29 P.3d 1225). Moreover,
‚where the text of the rule is clear and unambiguous, our
inquiry ends, and we need not resort to additional methods of
interpretation.‛ Id. (citing Clark v. Archer, 2010 UT 57, ¶ 9, 242
P.3d 758).
20141167-CA 6 2016 UT App 133Stellia Limited v. Yknot Global Limited
¶18 The text of rule 41(a)(1) seems clear enough. Unless
otherwise stated, the first voluntary dismissal of a claim is
without prejudice. But the second dismissal of the same claim
operates as an adjudication on the merits, prohibiting a third bite
at the same apple, regardless of where the claim was brought
before.
¶19 Here, in the language of the rule, Yknot filed two notices
of voluntary dismissal of the same claim, one in federal district
court and one in state district court. Yknot acknowledges that
both dismissals were voluntary and that both complaints arose
from the same set of facts. And Yknot does not argue that rule 41
is ambiguous or unclear. Rather, it offers a number of reasons
why the rule should not apply here.
I. Rule 41 (a)(1) Means What It Says.
¶20 Yknot contends that ‚the two-dismissal rule should be
narrowly applied‛ because ‚its purpose is not served by
application in this matter.‛ The rule should be narrowly
construed, Yknot argues, where its literal application would
‚’close the courthouse doors to an otherwise proper litigant’‛
without serving the rule’s purpose. (Quoting In re Chi-Chi’s, Inc.,
338 B.R. 618, 624 (Bankr. D. Del. 2006)). The rule’s purpose,
Yknot maintains, is to prevent multiple lawsuits designed to
‚vex and annoy,‛ whereas Yknot simply sought ‚to pursue its
claims in a jurisdiction to which the Stellia Parties could not
object.‛ In support of this argument, Yknot cites several policy
considerations discussed in First Equity Federal Inc., v. Phillips
Dev., LC, 2002 UT 56, 52 P.3d 1137.
¶21 Stellia responds, in effect, that it has been vexed and
annoyed by Yknot’s multiple filings and that, in any event, First
Equity supports the application of the two-dismissal rule here.
We agree that First Equity disposes of this claim on appeal.
¶22 In First Equity, our supreme court construed rule 41(a)(1).
The defendants sought the benefit of the two-dismissal rule
where the plaintiff had effected the first dismissal not by a notice
20141167-CA 7 2016 UT App 133Stellia Limited v. Yknot Global Limited
of dismissal, but by an ex parte motion to dismiss. Id. ¶ 14. The
defendants argued that, in practice, a ‚perfunctory‛ ex parte
motion to dismiss functioned as a voluntary dismissal because
judges sign such motions without notice to opposing counsel ‚as
a matter of course where there has been no appearance on the
other side.‛ Id. ¶ 15 (citation and internal quotation marks
omitted).
¶23 In First Equity, our supreme court rejected this argument
under the plain language of rule 41. Id. ¶ 16. The ‚plain
language‛ of rule 41(a)(1), the court wrote, ‚refers exclusively to
notices of dismissal‛ without mentioning motions to dismiss. Id.
The court concluded, ‚We therefore construe rule 41(a)(1) to
mean exactly what it says and hold that its language does not
apply to motions to dismiss.‛ Id. In a footnote, the court also
noted a key difference between a notice of dismissal and a
motion to dismiss: judicial involvement. Id. ¶ 16 n.4. Whereas a
notice of dismissal ‚becomes effective the moment it is filed, . . .
an ex parte motion to dismiss becomes effective only after it is
granted by the district court. Hence, judicial involvement is
required in one situation, but not the other.‛ Id.
¶24 Like the supreme court in First Equity, we ‚construe rule
41(a)(1) to mean exactly what it says.‛ See id. ¶ 16. The parties
agree that Yknot filed a notice of dismissal, not a motion to
dismiss, in both the federal case and the Judge Stone Case.
Consequently, under the reasoning of First Equity, the two-
dismissal rule applies.
¶25 Further, we do not read First Equity to authorize courts to
disregard the plain language of rule 41(a)(1); unlike some rules,
rule 41(a)(1) does not invite the court to weigh the equities of the
situation. Indeed, many courts have held that ‚the two-dismissal
rule, as set forth in [rules analogous to Utah Rule of Civil
Procedure 41(a)], is not a matter within the trial court’s
discretion.‛ See e.g., Evins v. Carvin, 426 S.W.3d 549, 556 (Ark. Ct.
App. 2013) (considering the analogous rule of the Arkansas
Rules of Civil Procedure and citing Restatement (Second) of
Judgments § 20(1) cmt. h (1982)); accord Spokane County v.
20141167-CA 8 2016 UT App 133Stellia Limited v. Yknot Global Limited
Specialty Auto & Truck Painting, Inc., 103 P.3d 792, 796 (Wash.
2004). Rather, these courts conclude, it ‚applies automatically to
unilateral dismissals by the plaintiff and does not provide for
court discretion to look into the reasons for the dismissal.‛
Guillen v. Pierce County, 110 P.3d 1184, 1188 (Wash. Ct. App.
2005) (citation and internal quotation marks omitted)
(considering the analogous rule of the Washington Superior
Court Civil Rules).
¶26 We understand that First Equity cited the two-dismissal
rule’s purposes in support of its plain-language reading of rule
41(a)(1), describing the two-dismissal rule as ‚a dispositive
procedural rule *that+ should be applied narrowly.‛ See First
Equity Fed. Inc. v. Phillips Dev. LC, 2002 UT 56, ¶ 17, 52 P.3d 1137.
And we recognize, as Yknot implicitly argues, that adhering to
the plain language of rule 41(a)(1) in First Equity mitigated the
harshness of the two-dismissal rule, whereas adhering to the
plain language of the rule here leads to a harsh result. See id.¶¶ 17–19. Nevertheless, our reading of First Equity compels us to
read rule 41(a)(1) ‚to mean exactly what it says,‛ not to weigh
relative equities. And because we apply the rule as written, this
result, though arguably harsh in some circumstances, should not
come as a surprise.
II. Yknot’s Dismissal of the Federal Action Qualifies as a
Dismissal for Purposes of the Two-Dismissal Rule.
¶27 Yknot next contends that ‚*t+he dismissal of the federal
case should be construed as a stipulation, rendering the two-
dismissal rule inapplicable.‛ Yknot acknowledges that Stellia
filed a motion to dismiss the federal action on jurisdictional
grounds, not a stipulation to a notice of dismissal. But Yknot
reasons that Stellia’s motion to dismiss—later withdrawn—
‚should be considered a stipulation, taking *Yknot’s voluntary
dismissal] out of the context of the two-dismissal rule.‛
¶28 Under rule 41(a) of the Federal Rules of Civil Procedure, a
plaintiff may dismiss an action without a court order by filing ‚a
stipulation of dismissal signed by all parties who have
20141167-CA 9 2016 UT App 133Stellia Limited v. Yknot Global Limited
appeared.‛ Fed. R. Civ. P. 41(a)(1)(A)(ii).3 But even if Stellia’s
withdrawn motion to dismiss on jurisdictional grounds qualifies
as an appearance for purposes of the federal rule, it does not
qualify as a stipulation. Yknot offers no support—and we are
aware of none—for its assertion that moving the court to dismiss
an action is tantamount to stipulating to a voluntary dismissal.
¶29 Even if Stellia’s motion to dismiss could somehow be
construed as a stipulation to Yknot’s voluntary dismissal, we
cannot see how Yknot’s argument survives First Equity. That
opinion clarifies that the dispositive question is not whether a
defendant stipulates to a dismissal or even has notice of it, but
‚whether judicial involvement is required.‛ First Equity, 2002 UT
56, ¶ 16 n.4. And, as Yknot acknowledges, it ‚did not obtain an
order of dismissal from the federal court.‛ The dismissal
therefore qualifies as a first dismissal under the two-dismissal
rule.
¶30 Finally, Yknot relies on Murray v. Conseco, Inc., 467 F.3d
602 (7th Cir. 2006). But Murray does not aid Yknot’s argument. In
Murray, the United States Court of Appeals for the Seventh
Circuit held that the two-dismissal rule did not apply because
the plaintiff’s motion ‚was not signed by all parties.‛ Id. at 605.
By extension, if Yknot’s motion in federal court effectively was,
as Yknot contends, ‚signed by all the parties,‛ Murray suggests,
if anything, that the two-dismissal rule would apply.
III. Application of the Two-Dismissal Rule Does Not Depend on
the Plaintiff’s Purpose for Dismissing.
¶31 Third, Yknot contends that ‚the purpose for filing the
dismissal should be a significant factor in evaluating the
application of the two-dismissal rule.‛ Yknot would have us
3. By contrast, under the Utah rule, stipulations do not obviate
the need for judicial involvement. See Utah R. Civ. P. 41(a)(2)(i).
20141167-CA 10 2016 UT App 133Stellia Limited v. Yknot Global Limited
apply this principle to the dismissals in both the federal case and
the Judge Stone Case.
¶32 ‚Because the voluntary dismissal of the federal case was
based on an arguable lack of jurisdiction,‛ Yknot argues, ‚the
dismissal should not be considered for purposes of the two-
dismissal rule.‛ In effect, Yknot maintains that, by voluntarily
dismissing and promptly filing in state court, it served judicial
economy. As for the Judge Stone case, Yknot argues that it
dismissed the action ‚not with the intention to harass or annoy,
but to bring its claims in a jurisdiction in which the Stellia Parties
would not, or could not, reasonably object.‛ In effect Yknot
reasons that it should not be prejudiced merely for filing in
different courts in an attempt to find a jurisdiction acceptable to
Stellia.
¶33 In support of its arguments, Yknot again relies on Murray,
discussed above, and on another Seventh Circuit case, Sutton
Place Dev. Co. v. Abacus Mortgage Inv. Co., 826 F.2d 637 (7th Cir.
1987). Again, Murray does not aid Yknot for the reasons
explained above. But neither does Sutton Place. There, the
Seventh Circuit, like the Utah Supreme Court in First Equity,
applied the two-dismissal rule according to its plain language:
‚Here, application for the second dismissal was made by motion
and granted by order of Judge Moran.‛ Therefore, the court
held, ‚the language of the rule does not trigger the so-called ‘two
dismissal’ exemption upon which the district court relied.‛ Id. at
640. The court also observed that the plaintiff’s purpose in
dismissing was not to harass the defendant, but noted that fact
to support its application of the plain language of the rule, not to
depart from it. See id. at 641. In short, these cases provide no
basis to depart from First Equity’s mandate that we construe rule
41(a) to mean what it says.
¶34 Yknot maintains that ‚it should not be punished for
attempting to bring its claims in a jurisdiction to which Stellia
could not object.‛ And Stellia did ground its objections in
jurisdictional principles. But it accompanied its objections with
suggestions on how Yknot could cure the jurisdictional defects.
20141167-CA 11 2016 UT App 133Stellia Limited v. Yknot Global Limited
In any event, the two-dismissal rule is a straightforward rule
under which results are driven by objective events, not by the
parties’ subjective intentions or motivations.
IV. The Two-Dismissal Rule Applies to Yknot’s Counterclaims.
¶35 Finally, Yknot contends that the two-dismissal rule does
not bar a third action when brought as a counterclaim. It argues
that Stellia seeks to use the two-dismissal rule ‚as a sword when
it was clearly intended only as a shield.‛ The rule, Yknot
maintains, is intended to protect defendants from vexatious
lawsuits, not to allow plaintiffs to ‚avoid meritorious
counterclaims while freely asserting their own claims.‛
¶36 Other than cases addressing the purposes of rule 41 and
litigation in general, Yknot cites no authority in support of its
contention that a claim barred from reassertion in a complaint by
rule 41’s two-dismissal rule may nevertheless be brought as a
counterclaim in an answer. Accordingly, it has not carried its
burden of persuasion on appeal. See Utah R. App. P. 24(a)(9);
State v. Hawkins, 2016 UT App 9, ¶ 60, 366 P.3d 884.
¶37 In any event, rule 41 itself states, ‚The provisions of this
rule apply to the dismissal of any counterclaim, cross-claim, or
third-party claim.‛ Utah R. Civ. P. 41(c). Thus, ‚*t+he two-
dismissal rule applies equally to counterclaims, crossclaims, and
third party claims.‛ Synovus Bank v. Pierce, No. 1:11CV190, 2012
WL 3528053, at *2 (W.D.N.C. Aug. 15, 2012).
CONCLUSION
¶38 The judgment of the district court is affirmed.
20141167-CA 12 2016 UT App 133