Jo Ann Howard and Associates, P.C. et al v. Cassity et al

Filing 753

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that Forever Defendants' Motion to Withdraw Counterclaims 750 is GRANTED, as set forth above. IT IS FURTHER ORDERED that Plaintiffs Motion to Dismiss Counterclaims of theForever Defendants 680 is DENIED, as moot. Signed by Honorable E. Richard Webber on August 17, 2011. (MCB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

DONNA J. GARRETT, et al.,
Plaintiffs,
vs.
J. DOUGLAS CASSITY, et al.,
Defendants.

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Case No. 4:09CV01252 ERW

MEMORANDUM AND ORDER
This matter comes before the Court on Plaintiffs’ Motion to Dismiss Counterclaims of
the Forever Defendants1 [ECF No. 680] and Forever Defendants’ Motion to Withdraw
Counterclaims [ECF No. 750].
In their Motion, Plaintiffs seek dismissal of Forever Defendants’ counterclaims – for
breach of the duty of good faith and fair dealing, tortious interference with expectancy, breach of
fiduciary duty, civil conspiracy, equitable estoppel, and a declaratory judgment – on the general
basis that the counterclaims represent an improper collateral attack on the related Texas
liquidation proceedings of National Prearranged Services, Inc. (“NPS”), Lincoln Memorial Life
Insurance Company (“Lincoln”), and Memorial Services Life Insurance Company (“Memorial”).
Forever Defendants failed to file a timely response to Plaintiffs’ Motion, and the Court issued an
Order to Show Cause [ECF No. 744], directing Forever Defendants to explain why Plaintiffs’
Motion should not be granted.

1

“Forever Defendants” are Defendants Brentwood Heritage Properties, LLC, Forever
Enterprises, Inc., Forever Illinois, Inc., Forever Network, Inc., Legacy International Imports, Inc.,
Lincoln Memorial Services, Inc., National Heritage Enterprises, Inc., National Prearranged
Services Agency, Inc., and Texas Forever, Inc.

In response, Forever Defendants filed their Motion to Withdraw Counterclaims, stating
that they should be permitted to withdraw their counterclaims because they believe it will be
necessary to amend those claims and file new responsive pleadings before the November 11,
2011 deadline for such amendments. Plaintiffs contend that Forever Defendants’ Motion should
be denied – and theirs granted – because the Motion is merely an attempt to avoid having their
counterclaims dismissed with prejudice. As a result, the Court first considers whether Forever
Defendants should be permitted to withdraw their counterclaims.
Because Plaintiffs have filed a motion to dismiss directed at Forever Defendants’
counterclaims, Forever Defendants may only voluntarily dismiss the counterclaims with leave of
the Court. See Fed. R. Civ. P. 41(a)(1)(A) (plaintiff may dismiss claims as of right before
opposing party serves answer or motion for summary judgment, or by stipulation of all parties),
(c)(1) (dismissal as of right of a counterclaim under the preceding sub-section must occur before
any responsive pleading is served, not only an answer or motion for summary judgment), (a)(2)
(if voluntarily dismissal is unavailable under Rule 41(a)(1), “an action may be dismissed at the
plaintiff’s request only by court order, on terms that the court considers proper”). The decision
whether to permit dismissal in these circumstances lies within the discretion of the district court.
Great Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 198 F.3d 685, 689 (8th Cir. 1999) (“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.”). In exercising that discretion, the Eighth Circuit has instructed
district courts to consider the following factors: (1) “whether the party has presented a proper
explanation for its desire to dismiss”; (2) “whether a dismissal would result in a waste of judicial
time and effort”; (3) “whether a dismissal will prejudice the defendants”; and (4) whether the
plaintiff is seeking dismissal “merely to escape an adverse decision” or “to seek a more favorable

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forum.” Hamm v. Rhone-Poulenc Rorer Pharm., Inc., 187 F.3d 941, 950 (8th Cir. 1999)
(internal citations omitted).
All four of these factors suggest that Forever Defendants’ Motion should be denied. As
for the first factor, the entirety of Forever Defendants’ reasoning for seeking voluntary dismissal
is that they “anticipate it will be necessary to amend the counterclaim[s] and file new pleadings
on or before the Rule 16 deadline.” In making this statement, Forever Defendants appear to
concede that their counterclaims, as currently pled, are inadequate, which explains why they
sought voluntary dismissal only after being ordered to show cause as to why Plaintiffs’ Motion to
Dismiss should not be granted. Simply put, it does appear that Forever Defendants are
attempting to “escape an adverse decision.” Given Plaintiffs’ pending Motion, and the lack of
any clear explanation as to how Forever Defendants might amend their counterclaims, it also
seems likely that allowing Forever Defendants to re-plead at some future time will result in a
waste of judicial resources. Likewise, granting Forever Defendants’ Motion and allowing them
to re-file these counterclaims could be prejudicial to Plaintiffs, in that Plaintiffs have already
devoted significant efforts to the counterclaims in filing a 35-page brief in support of their
Motion to Dismiss.
That said, if the Court were to deny Forever Defendants’ Motion and consider the merits
of Plaintiffs’ Motion to Dismiss, the end result would still be a dismissal of these counterclaims
without prejudice. In an August 3, 2011 Memorandum and Order [ECF No. 747], the Court
granted Plaintiffs’ motion to dismiss the counterclaims of co-Defendant Hollywood Forever, Inc.
The Court reasoned that because Hollywood Forever’s counterclaims all concerned conduct by

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Plaintiff SDR2 after the NPS/Lincoln/Memorial receivership proceedings were instituted – in
contrast with Plaintiffs’ claims, which arise out of an alleged fraudulent scheme that led the
Texas Department of Insurance to declare those entities insolvent – the parties’ respective claims
did not share any “common nucleus of operative fact,” making supplemental jurisdiction over the
state-law counterclaims unavailable under 28 U.S.C. § 1367. See id. at 2-4. Additionally, the
Court noted that if diversity jurisdiction were available, the Court would nevertheless abstain
from entertaining Hollywood Forever’s counterclaims under Burford and Colorado River
abstention principles, because hearing the claims would unnecessarily interfere with the Texas
state proceedings, in which Hollywood Forever is in the process of pursuing the same recovery.
See id. at 4-6.3 This reasoning is equally applicable to Forever Defendants’ counterclaims, which
likewise (1) concern entirely different legal and factual issues than Plaintiffs’ claims, insofar as
they all relate to Plaintiff SDR’s actions in the Texas state court proceedings, and (2) are
disruptive of Texas’s efforts to resolve creditor claims in a single, mandatory proceeding.4
Because the Court lacks subject matter jurisdiction over these counterclaims under § 1367 – the
sole jurisdictional basis Forever Defendants allege – these claims would have to be dismissed
without prejudice under Rule 12(b)(1).
2

Plaintiff SDR is Plaintiff Donna J. Garrett, Special Deputy Receiver in the Texas
liquidation proceedings.
3

Specifically, the Court found that Hollywood Forever’s counterclaims implicated
Burford’s concern about federal review being “disruptive of state efforts to establish a coherent
policy with respect to a matter of substantial public concern” – namely, the insolvency of
insurance companies operating in Texas – and Colorado River’s “considerations of wise judicial
administration” where federal and state courts “are contemporaneously asked to exercise
jurisdiction over the same dispute.” See Wolfson v. Mut. Benefit Life Ins. Co., 51 F.3d 141, 144,
145 (8th Cir. 1995) (internal quotations and citations omitted), abrogated in part on other
grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711 (1996).
4

Forever Defendants acknowledge that Defendant Forever Network, Inc. has submitted
claims in that proceeding, pursuing the same recovery sought in its counterclaims here.
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The Court finds that the appropriate solution is instead to grant conditional voluntary
dismissal under Rule 41(a)(2) – that is, dismissal “on terms that the court considers proper.” See,
e.g., Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 381 (1994) (district court has
discretion to order compliance with settlement agreement as a condition of Rule 41(a)(2)
dismissal); Reddy v. Rallapally, 103 Fed. App’x 65, 66 (8th Cir. 2004) (district court has
discretion under Rule 41(a)(2) to condition dismissal on plaintiffs’ payment of defendant’s costs
and attorneys’ fees should plaintiff subsequently re-file the case). In seeking voluntary dismissal
instead of responding to Plaintiffs’ Motion to Dismiss, Forever Defendants have represented to
the Court their intention to amend their counterclaims, with knowledge of Plaintiffs’ arguments
as to why those counterclaims should be dismissed. It would therefore be unfair to Plaintiffs to
permit Forever Defendants to refile the same counterclaims at a later date, to the extent Plaintiffs
have already incurred the burden and expense of filing the pending Motion to Dismiss and of
responding to Forever Defendants’ Motion to Withdraw.
Thus, the Court will permit Forever Defendants to voluntarily dismiss their counterclaims
under Rule 41(a)(2), but Forever Defendants will be required, as a condition of re-filing these
counterclaims, to compensate Plaintiffs for their costs and reasonable attorneys’ fees in
responding to Forever Defendants’ Motion to Withdraw.5 Simply re-pleading the counterclaims
and alleging jurisdiction under 28 U.S.C. § 1332 will not suffice to avoid this condition, because
Forever Defendants were aware of this potential jurisdictional cure before seeking voluntary
dismissal of their claims.

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Plaintiffs suggest that the Court should simply dismiss Forever Defendants’ claims with
prejudice under Rule 41(a)(2). The Court finds that to be an unduly harsh result, given how the
Court would have otherwise resolved Plaintiffs’ Motion to Dismiss.
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Accordingly,
IT IS HEREBY ORDERED that Forever Defendants’ Motion to Withdraw
Counterclaims [ECF No. 750] is GRANTED, as set forth above.
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Dismiss Counterclaims of the
Forever Defendants [ECF No. 680] is DENIED, as moot.
Dated this 17th Day of August, 2011.

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E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE

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