Wells Fargo Bank, NA v. Younan Properties, Inc., et al
Filing
Filed opinion of the court by Judge Posner. AFFIRMED. Richard A. Posner, Circuit Judge; Ann Claire Williams, Circuit Judge and David F. Hamilton, Circuit Judge. [6536093-1] [6536093] [13-1365]
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐1365
WELLS FARGO BANK, N.A.,
Plaintiff‐Appellee,
v.
YOUNAN PROPERTIES, INC., et al.,
Defendants‐Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11 C 8701 — Charles P. Kocoras, Judge.
____________________
ARGUED OCTOBER 28, 2013 — DECIDED DECEMBER 5, 2013
____________________
Before POSNER, WILLIAMS, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. In December 2011 Wells Fargo filed
this diversity suit for breach of contract against Younan
Properties, Sherry Younan, and Zaya Younan. The defen‐
dants moved for dismissal of the complaint on grounds of
lack of subject matter jurisdiction, Fed. R. Civ. P. 12(b)(1),
lack of personal jurisdiction over Sherry Younan because of
absence of personal jurisdiction (presumably owing to lack
of minimum contacts) in the state in which she was sued (Il‐
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linois), Fed. R. Civ. P. 12(b)(2), and insufficient service of
process on her. Fed. R. Civ. P. 12(b)(5). The district judge
ruled that the opposing parties were not of diverse citizen‐
ship and therefore the court lacked subject matter jurisdic‐
tion. The judge gave Wells Fargo leave to file an amended
complaint to cure that defect if it could. Instead of doing
that, Wells Fargo moved in September 2012, nine months af‐
ter filing its original complaint, to be allowed to dismiss its
suit without prejudice.
Rule 41(a)(2) of the civil rules provides, with immaterial
exceptions, that “an action may be dismissed at the
plaintiff’s request only by court order, on terms that the court
considers proper” (emphasis added). The defendants asked
the district judge to condition voluntary dismissal on Wells
Fargo’s paying the legal expenses ($56,000 according to the
defendants—we have rounded all dollar figures to the
nearest thousand) that the defendants had incurred in
preparing and filing motions to dismiss Wells Fargo’s
complaint on the alternative grounds that we mentioned.
The judge agreed that the dismissal requested by Wells
Fargo should be conditioned on its reimbursing the
defendants for the $11,000 in legal expenses that they’d
incurred in seeking dismissal on the ground of lack of
diversity of citizenship (and hence of subject matter
jurisdiction, there being no federal jurisdictional basis for the
suit other than diversity). But he refused to condition
dismissal on Wells Fargo’s reimbursing the defendants for
the other fees for which they were asking reimbursement.
That refusal has precipitated this appeal. The defendants ask
us to order Wells Fargo to pay them $56,000 – $11,000 =
$45,000. The $45,000 they seek includes an addition to the
$11,000 they were awarded for the expense of litigating the
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issue of diversity. They want to re‐itemize their legal bills to
show they spent more than $11,000 on that issue. Too late;
they should have done that in the district court. But that
leaves the question whether they’re entitled to any part of
the $45,000 for the other expenses that they claim to have
incurred in getting the suit dismissed.
Authorizing district judges to grant requests for
voluntary dismissal “on terms that the [district] court
considers proper” is terribly vague. It could be thought to
give district courts unreviewable discretion, on the theory
that a judge might “consider” anything to be proper. But
that can’t be right. We have to assume that implicitly the
word “reasonably” intervenes between “court” and
“considers.” In a government of laws, judges are not
permitted to make unreasonable rulings. “[D]iscretionary
choices are not left to a court’s ‘inclination, but to its judg‐
ment; and its judgment is to be guided by sound legal prin‐
ciples.’” Albemarle Paper Co. v. Moody, 422 U.S. 405, 416
(1975), quoting United States v. Burr, 25 F. Cas. No. 14,692d,
pp. 30, 35 (Cir. Ct. Va. 1807) (Marshall, C.J.). “We must not
invite the exercise of judicial impressionism. Discretion there
may be, but ‘methodized by analogy, disciplined by system.’
Cardozo, The Nature of the Judicial Process 139, 141 (1921).
Discretion without a criterion for its exercise is authorization
of arbitrariness.” Brown v. Allen, 344 U.S. 443, 496 (1953),
quoted in In re Oil Spill by Amoco Cadiz Off Coast of France on
March 16, 1978, 954 F.2d 1279, 1334 (7th Cir. 1992) (per cu‐
riam).
Many decisions recite and apply the principle that a Rule
41(a)(2) determination is subject to review for abuse of
discretion. See, e.g., Colón Cabrera v. Esso Standard Oil Co.
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(Puerto Rico), Inc., 723 F.3d 82, 87–88 (1st Cir. 2013); Hecke‐
thorn v. Sunan Corp., 992 F.2d 240, 241 (9th Cir. 1993);
McCants v. Ford Motor Co., 781 F.2d 855, 860–61 (11th Cir.
1986); see also United States v. Criden, 648 F.2d 814, 817–18
(3d Cir. 1981); Henry J. Friendly, “Indiscretion About Dis‐
cretion,” 31 Emory L.J. 747, 771–73 (1982). In the influential
formula of Judge Calvert Magruder, a discretionary ruling
by a lower court must be set aside if the reviewing court
“has a definite and firm conviction that the court below
committed a clear error of judgment in the conclusion it
reached upon a weighing of the relevant factors,” In re Jo‐
sephson, 218 F.2d 174, 182 (1st Cir. 1954), quoted in Finley v.
Parvin/Dohrmann Co., 520 F.2d 386, 390 (2d Cir. 1975)
(Friendly, J.). That amounts to saying that the reviewing
court must be highly confident that an error was committed.
So the district judge in this case would be reversed had he
conditioned voluntary dismissal of Wells Fargo’s case on its
CEO’s wearing a dunce cap to signal contrition.
Normally a voluntary dismissal permitted under Rule
41(a)(2) is without prejudice, meaning that the plaintiff is
free to refile his suit, for example in a state court if he sought
dismissal because he either realized there was no federal
jurisdiction or didn’t think the issue of jurisdiction worth the
time and expense of litigating over. A consequence of a
voluntary dismissal on such a ground would be that the
defendant’s expenditures on contesting the existence of
federal jurisdiction had been wasted, or largely so, because
he had not killed the suit but had merely shifted it to another
court. A judge who reasonably believed that the plaintiff had
imposed a gratuitous expense on the defendant by filing in
the wrong court and now wanted to dismiss without
prejudice in the expectation of refiling in the right court
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would therefore be justified in conditioning voluntary
dismissal on the plaintiff’s reimbursing some or all of the
defendant’s expenditures in litigating the jurisdictional
issue. The plaintiff could avoid this expense by asking that
the dismissal be with prejudice, or, if the judge refused, by
withdrawing his motion to dismiss. See, e.g., Marlow v.
Winston & Strawn, 19 F.3d 300, 304–05 (7th Cir. 1994); Andes
v. Versant Corp., 788 F.2d 1033, 1037 (4th Cir. 1986); 9 Charles
A. Wright & Arthur R. Miller, Federal Practice and Procedure
§ 2367, p. 551 (3d ed. 2008). But if as in this case the case is
dismissed without prejudice “the fee award should
reimburse the defendant for expenses incurred in preparing
work product that will not be useful in subsequent litigation
of the same claim.” Cauley v. Wilson, 754 F.2d 769, 772 (7th
Cir. 1985); see also Koch v. Hankins, 8 F.3d 650, 652 (9th Cir.
1993); Kern v. TXO Production Corp., 738 F.2d 968, 972–73 (8th
Cir. 1984); McLaughlin v. Cheshire, 676 F.2d 855, 856–57 (D.C.
Cir. 1982) (per curiam); 9 Wright & Miller, supra, § 2366, pp.
526–37.
Wells Fargo does not contest the judge’s conditioning
dismissal without prejudice on reimbursement of the $11,000
spent by the defendants to prove lack of subject matter
jurisdiction. Unsatisfied, the defendants ask for
reimbursement of the expenses they incurred in
demonstrating insufficient service of process on her. (They
dropped the Rule 12(b)(2) ground for dismissing her from
the suit—lack of minimum contacts.) The judge thought
$45,000 too much for that limited legal work. The defendants
made no effort to justify to him their extravagant‐seeming
request, which included more than $9,000 for two briefs each
of which was just half a page long and merely incorporated
by reference another lawyer’s brief.
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An additional reason the defendants are not entitled to
reimbursement for their expenses in trying to demonstrate
absence of sufficient service on Sherry Younan is that the de‐
fense of insufficient service is deemed waived unless raised
in a timely fashion, such as in a responsive pleading. Fed. R.
Civ. P. 12(h)(1)(B)(ii). The defendants’ answer to Wells
Fargo’s complaint (an answer is of course a responsive
pleading) was filed on March 8, 2012, and contained no chal‐
lenge to service. Not until July 9—four months after the de‐
fendants had filed their answer and nearly three months af‐
ter Wells Fargo had filed a motion for summary judgment—
did Sherry Younan, through new counsel, claim she’d never
been served. That was too late. In re State Exchange Finance
Co., 896 F.2d 1104, 1106 (7th Cir. 1990); 5C Charles A. Wright
& Arthur R. Miller, Federal Practice and Procedure § 1391, p.
501 (3d ed. 2004).
For completeness we address the possible bearing on this
case of the family resemblance between Rule 41(a)(2) and 28
U.S.C. § 1447(c), which provides that when a party removes
a case to federal district court and the court determines that
there is no federal jurisdiction “the case shall be remanded”
and the remand order “may require payment of just costs
and any actual expenses, including attorney fees, incurred as
a result of the removal.” The Supreme Court has held that
such payment may be required “only where the removing
party lacked an objectively reasonable basis for seeking re‐
moval.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141
(2005). If the same standard applies to requiring payment of
expenses wasted by a defendant because the plaintiff is vol‐
untarily dismissing his complaint, the defendants wouldn’t
be entitled even to the $11,000 the district judge awarded
them, because they don’t argue that the plaintiff lacked a
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reasonable basis for invoking federal jurisdiction. They
couldn’t argue that with a straight face; a recent decision by
the Supreme Court indicates that Wells Fargo is almost cer‐
tainly a citizen of South Dakota, Wachovia Bank v. Schmidt,
546 U.S. 303, 307–09, 318 (2006), in which event there is com‐
plete diversity.
But Wells Fargo rightly does not argue for the section
1447(c) standard (“objective reasonableness”). Rule 41(a)(2)
is worded very differently from section 1447(c). It does not
mention attorney’s‐fee shifting, or indeed direct the district
court to do anything at all. It merely authorizes the court to
allow a voluntary dismissal upon such terms as the court
thinks proper. We interpret this to mean that we can reverse
the district court’s order only if the terms strike us as unrea‐
sonable. With the plaintiff asking the court for a chance to
bring the same suit against the same defendants in a differ‐
ent court, it is reasonable to require the plaintiff to compen‐
sate the defendants for any wasted motion forced upon them
by the plaintiff’s having chosen the wrong court. So the
$11,000 award to the defendants is secure. But they are enti‐
tled to no more.
There is one loose end to tie up. At the oral argument of
the appeal we asked the lawyers what the present state of
the legal dispute between Wells Fargo and the defendants is
and learned that Wells Fargo had refiled its suit in a state
court in California. We were also told that Sherry Younan’s
conjoined issues of minimum contacts and sufficiency of
service had evaporated because she was properly served in
California and as a California resident she can’t contest per‐
sonal jurisdiction there. But all is not resolved. The contract
on which Wells Fargo is suing has a forum selection clause
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which provides that a suit to enforce the contract can be
brought only in a state or federal court in Illinois. The de‐
fendants have moved to dismiss Wells Fargo’s refiled Cali‐
fornia suit on that ground. And Sherry Younan has told the
California court that if it dismisses the suit and Wells Fargo
refiles in Illinois (necessarily in a state court, our district
court having ruled that there is no federal subject matter ju‐
risdiction in Illinois over the suit and Wells Fargo not having
appealed that ruling, though the ruling may well be incor‐
rect in light of the Wachovia Bank decision), the Illinois state
court will have personal jurisdiction over her. Although that
is contrary to what she told the district judge in the present
case, she contests the applicability of the forum selection
clause to her. She argues that her signature on the contract
that Wells Fargo is suing on—the contract that contains the
clause—was forged. If so, the expenses she has incurred in
contesting personal jurisdiction were not wasted; she can use
their fruits to oppose personal jurisdiction in Illinois should
the suit return to this state pursuant to that clause. If her sig‐
nature wasn’t forged—if she’s lying in contending that it
was—the expenses that she incurred in fighting personal ju‐
risdiction here were wasted—but only because of her lie. To
put this another way, her challenge to personal jurisdiction
is either reusable in the new litigation (if her signature was
forged), or fraudulent if she lied about her signature being
forged.
But in mentioning these complications we are straying
beyond the appeal, which challenges the adequacy of the fee
award on unconvincing grounds. The judgment is
AFFIRMED.
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