Sheet Metal Workers' National Pension Fund Board of Trustees v. Courtad, Inc.

Filing 8

Memorandum Opinion and Order denying defendant's motion to dismiss. (Related Doc # 5 ). Judge Sara Lioi on 7/26/2013. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
SHEET METAL WORKERS’
NATIONAL PENSION FUND
BOARD OF TRUSTEES
PLAINTIFF,
vs.

COURTAD, INC.,
DEFENDANT.

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CASE NO. 5:12-cv-2738

JUDGE SARA LIOI

MEMORANDUM OPINION
AND ORDER

This matter is before the Court upon the motion (Doc. No. 5) of defendant
Courtad, Inc. (“defendant” or “Courtad, Inc.”) to dismiss the complaint (Doc. No. 1) of
plaintiff Sheet Metal Workers’ National Pension Fund Board of Trustees (“plaintiff” or
the “Fund”). Plaintiff has filed a response in opposition (Doc. No. 6), and defendant has
filed a reply (Doc. No. 7). The matter is ripe for disposition. For the following reasons,
defendant’s motion is DENIED.
I. BACKGROUND
The following background consists of the relevant allegations made by
plaintiff in its complaint.
Prior to May 1, 2004, Courtad Construction Systems, Inc. (“Courtad
Construction”) employed workers represented by a local union. (Doc. No. 1 at ¶ 10.)
Courtad Construction was bound by a Collective Bargaining Agreement with the local

union, under which it was required to contribute to the Fund on behalf of its covered
employees. (Doc. No. 1 at ¶ 11.)
On or about May 1, 2004, Courtad Construction underwent a statutory
“complete withdrawal” from the Fund, as defined in Section 4203 of the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1383. (Doc. No. 1 at ¶ 12.) As a
result of the complete withdrawal, the Fund determined that Courtad Construction owed
it $141,580.54 in withdrawal liability. (Doc. No. 1 at ¶ 13.) The Fund demanded payment
from Courtad Construction, but received none. (Doc. No. 1 at ¶ 14–15.)
Defendant Courtad, Inc. is the “alter ego and mere continuation of Courtad
Construction.” (Doc. No. 1 at ¶ 31.) Courtad, Inc. and Courtad Construction have had
substantially identical employees, business purposes, facilities, operations, equipment,
and supervision for all times relevant hereto. (Doc. No. 1 at ¶ 32.) Both companies were
controlled by Dennis Courtad, and both operated at the same facility until Courtad
Construction was dissolved. (Doc. No. 1 at ¶¶ 33, 35.)
On January 26, 2006, the Fund sued Courtad Construction for the
withdrawal liability payments in the United States District Court for the Eastern District
of Virginia. (Doc. No. 1 at ¶¶ 14–16.) Courtad, Inc. was not a party to the case. On July
16, 2006, the court entered summary judgment in favor of the Fund, ordering Courtad
Construction to make the withdrawal liability payments, as well as pay interest,
liquidated damages, and attorney’s fees. (Doc. No. 1 at ¶ 17.) On March 27, 2007, the
Fund entered into a settlement agreement (the “First Settlement Agreement”) with

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Courtad Construction, under which Courtad Construction would make quarterly
payments to the Fund, beginning April 1, 2007. (Doc. No. 1 at ¶¶ 18–19.)
On July 26, 2007, the Ohio Secretary of State dissolved Courtad
Construction. (Doc. No. 1 at ¶ 20.) Defendant Courtad, Inc. made the first four payments
to the Fund under the First Settlement Agreement on Courtad Construction’s behalf.
(Doc. No. 1 at ¶ 21.) Courtad, Inc. issued three different checks for the fifth payment, but
all three checks were returned as unpaid due to insufficient funds. (Doc. No. 1 at ¶ 22.)
No further payments were made. (Doc. No. 1 at ¶ 23.)
On June 5, 2008, the Fund filed suit in this Court against Courtad
Construction; Courtad, Inc.; and Dennis Courtad, the president and owner of Courtad
Construction, for the unpaid withdrawal liability and breach of the First Settlement
Agreement. (Doc. No. 1 at ¶ 24; Doc. No. 5–1, Compl., Bd. of Trs. Sheet Metal Workers’
Nat’l Pension Fund v. Courtad Constr. Sys., Inc. (“Courtad I”), No. 5:08-cv-1357, June
5, 2008.) The Fund’s claim against Courtad, Inc. was based on a theory of controlled
group liability. (Doc. No. 1 at ¶ 24.) On July 22, 2008, the Fund received a consent
judgment from Courtad Construction and Dennis Courtad for the amounts owed, and its
claim against Courtad, Inc. was dismissed. (Doc. No. 1 at ¶¶ 24–25, Ex A.) The Fund,
Courtad Construction, and Dennis Courtad entered into another settlement agreement (the
“Second Settlement Agreement”) for payment of the consent judgment. (Doc. No. 1 at
¶ 25, Ex. B.) On August 2, 2008, Courtad, Inc., on behalf of Courtad Construction and
Dennis Courtad, sent the Fund a check for the initial payment under the Second

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Settlement Agreement. (Doc. No. 1 at ¶ 28.) That check was also returned unpaid for
insufficient funds. (Doc. No. 1 at ¶ 29.)
On January 17, 2012, the Fund filed another suit, this time against only
defendant Courtad, Inc., in the United States District Court for the Eastern District of
Virginia. (Doc. No. 5–4, Compl., Bd. of Trs. Sheet Metal Workers’ Nat’l Pension Fund v.
Courtad, Inc. (“Courtad II”), No. 1:12CV54-LO-TRJ, Jan. 17, 2012.) In that suit, the
Fund sought damages from Courtad, Inc. for breach of the Second Settlement Agreement
as an alter ego of Courtad Construction. (Doc. No. 5–4 at ¶¶ 40–42.) On March 9, 2012,
the Fund dismissed that action pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of
Civil Procedure. (Doc. No. 5–5, Notice of Dismissal Without Prejudice, Courtad II, Mar.
9, 2012.)
On November 2, 2012, the Fund brought the instant case (“Courtad III”),
again, as in Courtad II, seeking damages from Courtad, Inc. for breach of the Second
Settlement Agreement as an alter ago of Courtad Construction. (Doc. No. 1 at ¶¶ 33–44.)
II. LAW AND ANALYSIS
A. Documents Outside the Pleadings
Ordinarily, matters outside of the pleadings are not to be considered by a
court in ruling on a motion to dismiss, Weiner v. Klais & Co., Inc., 108 F.3d 86, 88 (6th
Cir. 1997), and a court considering such matters must convert the motion to dismiss to a
motion for summary judgment. Fed. R. Civ. P. 12(d). However, a court “may consider
the Complaint and any exhibits attached thereto, public records, items appearing in the
record of the case and exhibits attached to the defendant’s motion to dismiss so long as
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they are referred to in the Complaint and are central to the claims contained therein.”
Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008).
Accordingly, the Court will consider the relevant court documents from
Courtad I and II, as they are part of the public record. The Court will also consider the
Second Settlement Agreement, as it was attached to plaintiff’s complaint. However, the
Court shall not consider the affidavit from plaintiff’s counsel attached to plaintiff’s
opposition to defendant’s motion.
B. The “Two Dismissal” Rule
Defendant’s motion to dismiss is premised on the theory that plaintiff’s
complaint is barred by the “two dismissal” rule of Rule 41(a)(1)(B) of the Federal Rules
of Civil Procedure. Under Rule 41(a)(1)(A), a plaintiff may voluntarily dismiss an action
by filing a notice of dismissal, provided the opposing party has not served an answer or a
motion for summary judgment, or by filing a stipulation of dismissal signed by all parties
who have appeared. As a general rule, “[u]nless the notice or stipulation states otherwise,
the dismissal is without prejudice.” Fed. R. Civ. P. 41(a)(1)(B). However, “if the plaintiff
previously dismissed any federal- or state-court action based on or including the same
claim, a notice of dismissal operates as an adjudication on the merits.” Id. This is known
as the “two dismissal” rule or the “double dismissal” rule. “‘By its own clear terms the
‘two dismissal’ rule applies only when the second dismissal is by notice under Rule
41(a)(1). It does not apply to a dismissal by stipulation nor to an involuntary dismissal
nor to dismissal by court order under Rule 41(a)(2).’” Sutton Place Dev. Co. v. Abacus

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Mortg. Inv. Co., 826 F.2d 637, 640 (7th Cir. 1987) (quoting 9 C. Wright & A. Miller,
Federal Practice and Procedure § 2368, at 188 (1971)).
“‘Because of the ease with which a voluntary dismissal may be secured,
courts have held that the two-dismissal rule was practically necessary to prevent an
unreasonable use of dismissals.’” Demsey v. Demsey, 488 F. App’x 1, 2 (6th Cir. 2012)
(quoting Loubier v. Modern Acoustics, 178 F.R.D. 17, 20 (D. Conn. 1998)). In particular,
“Rule 41(a)(1)(B) ‘was intended to eliminate the annoying of a defendant by being
summoned into court in successive actions and then, if no settlement is arrived at,
requiring him to permit the action to be dismissed and another one commenced at
leisure.’” Demsey, 488 F. App’x at 2 (quoting Cooter & Gell v. Hartmarx Corp., 496
U.S. 384, 397 (1990)); see also 9 C. Wright & A. Miller, Federal Practice & Procedure
§ 2368 (3d ed.) (“‘two dismissal’ rule . . . was intended to prevent delays and harassment
caused by plaintiffs securing numerous dismissals without prejudice”).
Technically, “‘[t]he two dismissal rule does not bar a subsequent suit, but
instead merely states that when the rule applies, the dismissal of the second suit operates
as an adjudication on the merits; once there is an adjudication on the merits, it is the
doctrine of res judicata which bars subsequent suits on the same cause of action.’” Evans
v. Oh. Laborers Fringe Benefit Programs, No. 5:12CV01459, 2013 WL 526942, at *3
(N.D. Ohio Feb. 11, 2013) (quoting W. Grp. Nurseries, Inc. v. Ergas, 211 F. Supp. 2d
1362, 1368 (S.D. Fla. 2002)); see also Manning v. S.C. Dep’t of Highway & Pub.
Transp., 914 F.2d 44, 46 (4th Cir. 1990) (“Because a notice of a second dismissal by the
plaintiff serves as an ‘adjudication on the merits,’ the doctrine of res judicata applies.”)
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Because the rule creates preclusive effect, “‘a court should be most careful not to
construe or apply the exception too broadly’ where the purpose behind the rule ‘would
not appear to be served by its literal application.’” Evans, 2013 WL 526942, at *3
(quoting Poloron Prods., Inc. v. Lybrand Ross Bros. & Montgomery, 534 F.2d 1012,
1017 (2d Cir. 1976)).
C. Courtad I Was Dismissed by Court Order, Not by the Fund
The “two dismissal” rule operates where “the plaintiff previously
dismissed” the first action. Fed. R. Civ. P. 41(a)(1)(B). Dismissals that are the result of a
court order do not implicate the two dismissal rule. See ASX Inv. Corp. v. Newton, 183
F.3d 1265, 1268 (11th Cir. 1999) (“There is no two dismissal rule set out in Rule 41(a)(2)
and we see no basis for reading the two dismissal rule to apply where the first dismissal is
achieved by motion and order of the court.”); Pacult v. Walgreen Co., No. 08-cv-542-slc,
2012 WL 171082, at *2 (W.D. Wis. Jan. 20, 2012) (adopting the reasoning in Newton);
Estate of Migliaccio v. Midland Nat’l Life Ins. Co., 436 F. Supp. 2d 1095, 1102–03 (C.D.
Cal. 2006) (same); Olynyk v. Scoles, 868 N.E.2d 254, 259 (Ohio 2007) (citing Newton
approvingly and applying its reasoning to analogous state rule of civil procedure).
“Although dismissal under Rule 41(a)(2) is, as the rule says, ‘at the plaintiff's instance,’
the actual dismissal is by the court and therefore does not implicate the Rule 41(a)(1) two
dismissal rule.” Newton, 826 F.2d at 1268.
In this circuit, voluntary dismissals under Rule 41(a)(1) are limited to
those that dismiss “the entire controversy.” Philip Carey Mfg. Co. v. Taylor, 286 F.2d
782, 785 (6th Cir. 1961), cert. denied, 366 U.S. 948 (1961) (quoting Harvey Aluminum,
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Inc. v. Am. Cyanamid Co., 203 F.2d 105, 108 (2d Cir. 1953), cert. denied, 345 U.S. 964
(1953)).1 A plaintiff seeking to dismiss only one defendant from an action must move the
Court to do so under Rule 21. Taylor, 286 F.2d at 785.2
In Courtad I, plaintiff filed a document entitled, “Partial Stipulation of
Dismissal Without Prejudice of Claims against Defendant Courtad, Inc.” (the “Partial
Stipulation”). It was signed only by plaintiff’s counsel. The judge refiled the Partial
Stipulation with the addition of her signature and “So Ordered.” The Partial Stipulation
cannot be a notice of dismissal under Rule 41(a)(1)(A)(i) because it only seeks to dismiss
one party, not the entire action, and it cannot be a stipulation of dismissal under Rule
41(a)(1)(A)(ii) because it is not signed by all of the parties who have appeared.
Therefore, the dismissal sought via the Partial Stipulation must have been effected by the
order of the court. Although the text of the proposed order submitted by plaintiff and
signed by the judge indicates that the dismissal is pursuant to Rule 41(a), the law of the
Sixth Circuit indicates that Rule 21 governs the dismissal of only one party in a case
involving multiple parties. But regardless of whether the dismissal was made under Rule
41(a)(2) or Rule 21, the dismissal was made by court order, not by notice of the plaintiff

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This is a minority view, as several other circuits, as well as leading civil procedure treatises, have
concluded that Rule 41(a) allows for the dismissal of all claims against a single defendant. See Letherer v.
Alger Group, L.L.C., 328 F.3d 262, 266 n.2 (6th Cir. 2003) (collecting cases and references). Indeed, a
more recent Sixth Circuit case seemed to retreat from Taylor, affirming a district court’s dismissal of all
claims against one of two defendants under Rule 41(a)(2) without discussing why Rule 41 was applicable.
Banque de Depots v. Nat’l Bank of Detroit, 491 F.2d 753, 755–57 (6th Cir. 1974). In any event, “district
courts in this circuit have consistently applied Sixth Circuit precedent as limiting notices of dismissal to
those that eliminate all claims against all defendants.” EQT Gathering, Inc. v. A Tract of Property Situated
in Knott County, Ky., Civil Action No. 12-58-ART, 2012 WL 3644968, at *2 (E.D. Ky. Aug. 24, 2012)
(collecting cases).
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Rule 21 provides, in pertinent part: “On motion or on its own, the court may at any time, on just terms,
add or drop a party.”
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or a stipulation of dismissal signed by all parties who have appeared, and therefore it does
not meet the criteria of the “two dismissal” rule.
D. Policy Considerations
In addition, policy considerations also counsel against invocation of the
“two dismissal” rule in this case. Both previous dismissals, viewed in context, are more
than run-of-the-mill voluntary dismissals by the Fund under Rule 41(a)(1)(A). In Courtad
I, the Fund explicitly agreed to dismiss Courtad, Inc. as a component of the settlement
with Courtad Construction and Dennis Courtad. (Doc. No. 1–2 at ¶ 6.) The parties’
settlement, memorialized in the Second Settlement Agreement, thus reflects that the
parties to Courtad I conferred and negotiated for the dismissal of Courtad, Inc. from that
action. Moreover, the Fund presented the proposed dismissal to the court as a “partial
stipulation of dismissal” on the same day as the proposed consent decree, and the court
ordered the dismissal and entered consent judgment several days later. See Island
Stevedoring, Inc. v. Barge CCBI, 129 F.R.D. 430, 432 (D.P.R. 1990) (although the parties
did not file a formal stipulation, the record indicated that the first dismissal resulted from
“negotiations and a consent agreement among the parties,” so the “two dismissal” rule
did not apply).
In Courtad II, Courtad, Inc. admittedly consulted with the Fund regarding
the Fund’s desire to dismiss the case in order to refile in another venue. (Doc. No. 7 at
143.) Thus, not only is there no evidence that the Fund dismissed either of the previous
actions out of the desire to harass defendant, the evidence actually shows, to the contrary,
that the dismissals occurred after the parties conferred. For that reason, even if Courtad I
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and II were “based on or including the same claim,” and even if Courtad I were
dismissed by plaintiff, not by court order, this would not be a proper occasion to invoke
the “two dismissal” rule. See Logan Proffitt Irrevocable Trust v. Mathers, Nos. 2:09-cv292, 2:10-cv-147, 2011 WL 9369856, at *3 (E.D. Tenn. Aug. 2, 2011) (electing not to
apply the “two dismissal” rule where the parties had a “tacit agreement . . . concerning
dismissing the case in order to refile it in a more convenient forum”); Ater ex rel. Ater v.
Follrod, 238 F. Supp. 2d 928, 953 (S.D. Ohio 2002) (electing not to apply the “two
dismissal” rule where plaintiffs’ counsel conferred with defendants’ counsel prior to
dismissing claims because “the dismissals were not completely unilateral” and there was
no evidence the dismissal was intended to harass defendants).
E. Courtad I and II Were Not “Based on or Including the Same Claim”
Even if Courtad I and Courtad II were both dismissed by notice under
Rule 41(A)(1)(a)(i), the “two dismissal” rule could not be invoked because they are not
“based on or including the same claim.”
“Enforcement of [a] settlement agreement . . . whether through award of
damages or decree of specific performance, is more than just a continuation or renewal of
the dismissed suit, and hence requires its own basis for jurisdiction.” Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 378 (1994). In Kokkonen, the Supreme
Court stated that “the facts underlying [the] dismissed claim . . . and those underlying
[the] claim for breach of settlement agreement have nothing to do with each other[.]” Id.
at 380. The Court continued:
The suit [to enforce the settlement agreement] involves a claim for breach
of a contract, part of the consideration of which was dismissal of an earlier
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federal suit. No federal statute makes that connection (if it constitutionally
could) the basis for federal-court jurisdiction over the contract dispute.
The facts to be determined with regard to such alleged breaches of
contract are quite separate from the facts to be determined in the principal
suit[.]
Id. at 381. In short, “[i]n Kokkonen . . . the Supreme Court held that, in enforcing a
settlement agreement that produced the dismissal of an earlier federal suit, a federal court
adjudicates a breach-of-contract controversy distinct from the dismissed suit. Limbright v.
Hofmeister, 566 F.3d 672, 674 (6th Cir. 2009) (quoting Kokkonen, 511 U.S. at 378).
In Courtad I, the Fund filed suit to collect allegedly unpaid withdrawal
liability from Courtad Construction; Courtad, Inc.; and Dennis Courtad. The Fund’s
claims against Courtad, Inc. were: (1) under ERISA, on the theory that Courtad, Inc. was
a business under “common control” with Courtad Construction; (2) under the First
Settlement Agreement, for alleged breach thereof; (3) under Ohio’s Uniform Fraudulent
Transfer Act, related to Courtad, Inc.’s alleged receipt of assets from Courtad
Construction; and (4) under federal labor law, for alter-ego liability with Courtad
Construction. The First Settlement Agreement was signed on March 27, 2007, and
Courtad I was filed on June 5, 2008.
In contrast, in Courtad II, the Fund filed suit against Courtad, Inc. for
breach of the Second Settlement Agreement, which was entered into by Courtad
Construction and Dennis Courtad on July 22, 2008. Courtad, Inc. sent the Fund a check
for the initial payment under the Second Settlement Agreement on August 2, 2008, which
was returned for insufficient funds that same day.

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Courtad I and II are in the same position as the two suits discussed in
Kokkonen. Courtad II was a suit to enforce the Second Settlement Agreement, part of the
consideration of which was dismissal of Courtad I. Kokkonen dictates that the facts
underlying Courtad I and those underlying Courtad II “have nothing to do with each
other.” See Kokkonen, 511 U.S. at 380. At the time Courtad I was filed, the Second
Settlement Agreement did not exist, nor had the alleged behavior occurred that
constituted a breach of the Second Settlement Agreement. See Microvote Corp. v. Casey,
No. 94-3890, 57 F.3d 1070 (table), at *2–*3 (6th Cir. June 16, 1995) (affirming the
district court’s holding, construing a state rule of civil procedure “substantially the same
as Rule 41(a)(1) of the Federal Rules of Civil Procedure,” that a claim arising after a
dismissal could not be the “same claim” as that which was dismissed). Thus, Courtad I
and II are not “based on or including the same claim,” and therefore the “two dismissal”
rule is not implicated.
III. CONCLUSION
For the foregoing reasons, defendant’s motion to dismiss is DENIED.
IT IS SO ORDERED.
Dated: July 26, 2013
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

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