DCI Solutions, Inc. v. Urban Outfitters, Inc. et al

Filing 129

ORDER granting Defendant Urban Outfitters' 125 Motion to Dismiss Remaining Equitable Counterclaims. Court dismisses w/o prejudice Dft's 4th, 5th and 6th counterclaims for violation of California Business and Professions Code 17200 et seq., declaratory relief and rescission. Signed by Judge Irma E. Gonzalez on 12/1/2011. (jah)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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DCI SOLUTIONS INC., a California
corporation,

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ORDER GRANTING
DEFENDANT AND
COUNTERCLAIMANT URBAN’S
MOTION TO DISMISS ITS
REMAINING COUNTERCLAIMS

Plaintiff,
vs.
URBAN OUTFITTERS, INC., a
Pennsylvania corporation, and Does 1-20,

[Doc. No. 125]

Defendants.

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CASE NO. 10cv0369 - IEG (BGS)

AND RELATED COUNTER CLAIMS.

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Presently before the Court is Defendant and Counterclaimant Urban Outfitters, Inc.

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(“Urban”)’s motion to dismiss its remaining equitable counterclaims without prejudice pursuant to

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Federal Rule of Civil Procedure 41(a). [Doc. No. 125.] For the reasons below, the Court

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GRANTS Urban’s motion.

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BACKGROUND
This case arises out of a contract dispute between Plaintiff and Counterdefendant DCI

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Solutions Inc. (“DCI”) and Urban. The factual background of this action is forth in detail in this

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Court’s prior order granting in part and denying in part Urban’s motion for summary judgment and

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need not be repeated herein. [See Doc. No. 60.]

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On January 25, 2010, DCI filed this action in San Diego County superior court. [Doc. No.

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1, Compl.] On February 16, 2010, Urban removed the action to this Court on the basis of diversity

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jurisdiction. [Doc. No. 1, Notice of Removal.] In its complaint, DCI asserted four causes of

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action against Urban for (1) fraud in the inducement, (2) breach of contract, (3) breach of the

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implied covenant of good faith and fair dealing, and (4) quantum meruit. [Compl.] On May 25,

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2010, Urban filed an amended answer and counterclaims against DCI for (1) fraud in the

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inducement; (2) fraud; (3) breach of contract; (4) violation of California Business and Professions

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Code §§ 17200 et. seq.; (5) declaratory relief; and (6) rescission. [Doc. No. 25.]

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Beginning on September 6, 2011, the Court held a jury trial on all of DCI’s claims and on

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Urban’s fraud and breach of contract counterclaims. On September 16, 2011, the jury returned a

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verdict in favor of Urban on all of DCI’s claims and in favor of DCI on Urban’s fraud and breach

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of contract counterclaims. [Doc. No. 116.] Following the verdict, the Court ordered Urban to file

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any motions related to its three remaining equitable counterclaims for violation of California

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Business and Professions Code §§ 17200 et. seq., declaratory relief, and rescission by September

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26, 2011. [Doc. No. 115.] By the present motion, Urban seeks to dismiss these three remaining

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counterclaims without prejudice pursuant to Federal Rule of Civil Procedure 41(a). [Doc. No.

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125.]

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DISCUSSION

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Urban requests that the Court dismiss its fourth, fifth and sixth counterclaims without

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prejudice. [Doc. No. 125.] DCI opposes this dismissal on two grounds. [Doc. No. 126.] First,

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DCI argues that the Court should dismiss these counterclaims with prejudice, so DCI does not

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have to face the possibility of having to defend against these counterclaims in subsequent

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litigation. [Id. at 2-3.] Second, DCI argues that if the Court dismisses the counterclaims without

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prejudice, the Court should order Urban to pay DCI’s attorneys’ fees and costs in any subsequent

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litigation involving those counterclaims. [Id. at 3-4.]

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Rule 41(a) of the Federal Rules of Civil Procedure governs the voluntary dismissal of an

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action in federal court. Rule 41(a)(2) provides that unless a plaintiff files a notice of dismissal

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before the opposing party serves either an answer or a motion for summary judgment, or the

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parties stipulate to the dismissal of the action, “an action may be dismissed at the plaintiff [or
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counterclaimaint]’s request only by court order, on terms that the court considers proper.” FED. R.

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CIV. P. 41(a)(2). The decision to grant or deny a motion pursuant to Rule 41(a)(2) is within the

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sound discretion of the district court and may be reviewed only for abuse of that discretion. Sams

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v. Beech Aircraft Corp., 625 F.2d 273, 277 (9th Cir. 1980). A court should grant a Rule 41(a)(2)

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motion for voluntary dismissal unless the defendant/counterdefendant will “suffer clear legal

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prejudice, other than the prospect of a subsequent suit on the same facts.” Phillips v. Illinois

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Central Gulf Railroad, 874 F.2d 984, 986 (9th Cir. 1989). The Ninth Circuit interprets “legal

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prejudice” to mean “prejudice to some legal interest, some legal claim, some legal argument.”

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Westlands Water Dist. v. United States, 100 F.3d 94, 96 (9th Cir. 1996).

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To protect the defendant’s interests when a dismissal is without prejudice, a court can

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condition a dismissal upon the payment of “appropriate costs and attorney fees.” Westlands

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Water, 100 F.3d at 97. However, the “[i]mposition of costs and fees as a condition for dismissing

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without prejudice is not mandatory.” Id.; accord. Stevedoring Servs. of Am. v. Armilla Intern.

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B.V., 889 F.2d 919, 921 (9th Cir. 1989). Further, the Ninth Circuit has held that “Fed. R. Civ. P.

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41(a)(2) in itself is not ‘specific statutory authority’ for the imposition of sanctions against an

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attorney.” Heckethorn v. Sunan Corp., 992 F.2d 240, 242 (9th Cir. 1993). “Given the

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presumption that an attorney is generally not liable for fees unless that prospect is spelled out, it

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would be incongruous to conclude from the broad language of Fed. R. Civ. P. 41(a)(2) that an

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attorney could be sanctioned by authority of this rule alone.” Id. at 242; see also Int’l Union of

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Petroleum & Indus. Workers v. Western Indus. Maintenance, Inc., 707 F.2d 425, 428 (9th Cir.

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1983) (“[A]bsent contractual or statutory authorization, a prevailing litigant ordinarily may not

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collect attorneys’ fees.”). “Thus, the district court must have an independent basis to impose fees

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and costs as a condition of voluntary dismissal.” Chavez v. Northland Group, 2011 U.S. Dist.

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LEXIS 10113, at *10 (D. Ariz. Feb 1, 2011); accord. Chang v. Pomeroy, 2011 U.S. Dist. LEXIS

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13806, at *2 (E.D. Cal. Feb. 10, 2011) (“[A] court cannot impose fees and costs as a condition of

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voluntary dismissal absent some basis other than the mere fact of the plaintiff’s request for Rule

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41(a)(2).”).

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DCI argues that the Court should exercise its discretion and dismiss the remaining
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counterclaims with prejudice. [Doc. No. 126 at 2-3.] In support of this argument, DCI fails to

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point to any prejudice it would suffer by a dismissal without prejudice other than the prospect of

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facing a future lawsuit. [See id. at 2. (“DCI will suffer prejudice if Urban’s remaining claims are

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dismissed without prejudice. Namely, DCI faces the possibility of having to defend claims it has

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already defeated.”).] The Ninth Circuit has stated that “the prospect of a subsequent suit on the

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same facts” is insufficient to establish “legal prejudice.” Phillips, 874 F.2d at 986; see also

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Westland Waters, 100 F.3d at 96 (“[T]he threat of future litigation which causes uncertainty is

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insufficient to establish plain legal prejudice.”). Therefore, DCI has not shown that it will suffer

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clear legal prejudice. See id.

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DCI also argues that the Court should dismiss these counterclaims with prejudice because

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Urban has failed to explain why the counterclaims should be dismissed without prejudice. [Doc.

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No. 126 at 3.] Urban has provided a sufficient explanation of its reason for seeking dismissal

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without prejudice. It explains that DCI contends that the contract at issue has a three-year window

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for compensation that is still ongoing. [Doc. No. 127 at 2.] Therefore, DCI might attempt to

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assert claims against Urban for compensation based on the contract in the future. [Id.]

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Accordingly, because DCI has not shown that it will suffer clear legal prejudice, and Urban has

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provided an explanation for its request, the Court DISMISSES WITHOUT PREJUDICE

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Urban’s remaining equitable counterclaims. See Phillips, 874 F.2d at 986

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In addition, the Court declines to condition the dismissal on the payment of attorney’s fees

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and costs in any subsequent litigation. First, DCI has provided no basis for the award of attorney’s

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fees other than Rule 41(a)(2). Rule 41(a)(2) is not itself authority for the imposition of attorney’s

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fees, and the Court must have an independent basis to condition the dismissal of the counterclaims

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on the award of attorney’s fees. See Heckelthorn, 992 F.2d at 242; Chavez, 2011 U.S. Dist.

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LEXIS 10113, at *10; Chang, 2011 U.S. Dist. LEXIS 13806, at *2. DCI has provided no statutory

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authority or contractual provision providing for the award of attorney’s fees, and DCI has

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presented no evidence showing that Urban has “‘acted in bad faith, vexatiously, wantonly, or for

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oppressive reasons.’” Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 258-59

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(1975). Further, all the cases that the Court has reviewed have only conditioned dismissal on an
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award of attorney’s fees for the present action not subsequent litigation. See Koch v. Hankins, 8

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F.3d 650, 652 (9th Cir. 1993) (explaining that a defendant is only entitled to recover, as a

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condition of dismissal, costs for work in the present action that will not be useful in subsequent

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litigation). DCI has not presented the Court with any case where a court conditioned dismissal on

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an award of attorney’s fees in future litigation. If Urban does eventually bring DCI back to court

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on these counterclaims and DCI believes that the subsequent litigation is frivolous or in bad faith,

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DCI can seek an award of attorney’s fees in that action. See Alyeska Pipeline, 421 U.S. at 258-59;

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see also FED. R. CIV. P. 41(d).

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CONCLUSION
For the reasons above, the Court GRANTS Urban’s motion and DISMISSES WITHOUT

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PREJUDICE Urban’s fourth, fifth and sixth counterclaims for violation of California Business

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and Professions Code §§ 17200 et seq., declaratory relief, and rescission.

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IT IS SO ORDERED.
DATED: December 1, 2011

________________________________
IRMA E. GONZALEZ, Chief Judge
United States District Court

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