Dennis Marlow and Provest, Incorporated, Formerly Known as Dennis Marlow, Incorporated v. Winston & Strawn, a Partnership, and Leslie A. Blau

Citations: 19 F.3d 300; 28 Fed. R. Serv. 3d 489; 1994 U.S. App. LEXIS 4533Docket: 93-1475, 93-1579

Court: Court of Appeals for the Seventh Circuit; March 14, 1994; Federal Appellate Court

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Dennis Marlow and Provest, Inc. appealed a district court order that partially granted Marlow's motion for voluntary nonsuit but converted it into a dismissal with prejudice without providing Marlow an option to choose between the dismissal or proceeding to trial. The appellate court found this conversion violated Federal Rule of Civil Procedure 41(a)(2), which mandates that plaintiffs be given a choice under specific terms before a dismissal. 

Marlow, a commodities trader, and Provest faced a nine-count complaint from the National Futures Association (NFA) in 1988 for distributing misleading promotional materials. Following directives from the NFA, Marlow hired attorney Leslie Blau from the law firm Winston and Strawn for representation. Subsequent NFA actions restricted Marlow's ability to solicit clients, ultimately leading to Provest's bankruptcy and Marlow's insolvency. 

In September 1990, Marlow and Provest filed a legal malpractice suit against Winston and Strawn, alleging negligent advice regarding promotional literature that resulted in fines, prohibitions on soliciting new accounts, loss of business opportunities, and damage to Marlow's reputation. The appellate court reversed the district court's dismissal order.

On November 14, 1990, Judge Bua dismissed Marlow's complaint for failure to prosecute due to his non-appearance at a status hearing. The dismissal was vacated and the case reinstated on May 2, 1991, and subsequently reassigned to Judge Conlon on May 16, 1991. The defendants filed their answer and counterclaim on June 5, 1991. The court set a discovery deadline for November 29, 1991, and required the final pre-trial order by December 24, 1991, placing the case on the January 1992 trial calendar.

After the discovery period, the defendants moved for summary judgment, arguing Marlow's complaint did not allege non-economic losses as required under Illinois law, referencing Collins v. Reynard, which stated that legal malpractice claims must include allegations of non-economic damages to survive dismissal. On December 3, 1991, Marlow sought to amend his complaint to include a breach of contract count, but the court denied this motion as untimely. The court also vacated the pre-trial order's deadline, allowing Marlow to respond to the summary judgment motion until December 24, 1991.

Concerned about the sufficiency of his complaint, Marlow moved to voluntarily dismiss his case without prejudice on December 18, 1991, to pursue his claim in state court. He filed a response to the summary judgment motion and a new two-count complaint in state court on December 24, 1991. Defendants objected to the dismissal and sought costs and fees as a condition for granting it. They also moved to dismiss the state court action, which was stayed pending the district court's decision.

On February 3, 1992, the Illinois Supreme Court agreed to reconsider the Collins I decision. On February 11, 1992, the district court granted summary judgment for the defendants, citing Marlow's failure to meet the 'economic injury' requirement established in Collins I. The following day, the court deemed Marlow's motion to voluntarily dismiss moot. Marlow's subsequent motion to stay district court actions, pending the state court's reconsideration of Collins I, was also denied as moot on February 19, 1992.

Marlow appealed the district court's summary judgment. During the appeal, the Illinois Supreme Court reversed its previous decision from Collins I, allowing plaintiffs in legal malpractice cases to recover for economic injuries (Collins II). Consequently, the appellate court reversed the district court’s summary judgment and remanded the case for reconsideration based on this new ruling.

Upon remand, the district judge ordered the parties to file a pretrial order by January 27, 1993, but Marlow instead filed a second motion for voluntary dismissal without prejudice on January 15, 1993. Defendants opposed this motion, requesting its denial or imposition of costs and fees for a dismissal without prejudice. The district judge granted Marlow's motion but dismissed the case with prejudice and without costs, without a hearing or addressing the defendants' opposition. 

Marlow later sought to reconsider the dismissal or withdraw his motion, but this request was denied. The district court explained that dismissals with prejudice are permissible under Fed. R.Civ. P. 41(a)(2) and justified its decision based on Marlow’s bad faith and forum shopping tactics, as well as the resources already expended by the defendants. The court noted that Marlow's motion for voluntary dismissal came nearly a year after it indicated the merits of his claim were frivolous. Marlow appealed the dismissal with prejudice, while defendants cross-appealed for $60,000 in attorneys’ fees.

Rule 41(a) allows a plaintiff to voluntarily dismiss a case without prejudice as long as the defendant is not prejudiced, contingent on a court order and terms deemed appropriate by the court after the defendant has filed an answer or motion for summary judgment. Courts typically require that plaintiffs cover the defendant's incurred expenses, including reasonable attorneys' fees, as a condition for dismissal. Dismissal with prejudice is permissible under certain circumstances, but the critical issue is whether a court can convert a plaintiff's request for voluntary dismissal without prejudice into a dismissal with prejudice without providing the plaintiff an opportunity to withdraw the motion. Other circuits have established that plaintiffs should have the option to withdraw their motion if the imposed conditions are too burdensome, allowing them to proceed to trial instead.

In the case of Lau, the plaintiff sought to voluntarily dismiss her complaint without prejudice to refile in state court. The district court granted this motion but imposed attorneys' fees as a condition for dismissal without giving the plaintiff the choice to withdraw her motion and continue in federal court. The Ninth Circuit vacated the district court's judgment, instructing it to allow the plaintiff a reasonable time to either accept the dismissal conditions or withdraw her motion.

The D.C. Circuit's decision in GAF, referenced in Lau, also involved voluntary dismissal without prejudice. Initially granted without conditions, the district court later imposed attorneys' fees as a condition. The D.C. Circuit upheld the fees, stating that GAF was unlikely to withdraw its motion and proceed to trial, but emphasized that under Rule 41(a)(2), a plaintiff could either accept dismissal conditions or withdraw the motion and continue litigation.

The Fourth Circuit case of Andes highlighted a more severe condition where the plaintiff's motion for voluntary dismissal was granted with prejudice without notice or a hearing. The Fourth Circuit strongly opposed this approach, stating it violated fundamental fairness by denying the plaintiff an opportunity to respond to the defendants' request for dismissal with prejudice. The court vacated the district court's order and remanded the case to allow the plaintiff to exercise available options and respond appropriately.

The Second Circuit in Gravatt addressed a situation where a district court dismissed a plaintiff's case with prejudice without allowing the plaintiff, Gravatt, the opportunity to withdraw his motion for voluntary dismissal. Gravatt had filed a complaint in New York and later attempted to dismiss it without prejudice, but the court granted the dismissal with prejudice, contrary to established rules and without notifying him of this condition. The Second Circuit found this to be an error, emphasizing that a plaintiff seeking dismissal without prejudice under Rule 41(a)(2) must be given a chance to withdraw their motion if the court imposes conditions that convert it to a dismissal with prejudice. The court highlighted the importance of fairness and the right of the plaintiff to make informed decisions about their case. In the current case, Marlow was similarly denied the option to withdraw his motion, with the district judge unilaterally deciding to dismiss with prejudice. The court criticized this approach, suggesting that alternatives, such as denying the motion and forcing the trial, would have been more appropriate and aligned with the fairness principle established in Gravatt and Andes. This unilateral dismissal violated the 'terms and conditions' clause of Rule 41(a)(2).

Defendants claimed that Marlow had the opportunity to withdraw his motion before the district court's dismissal order on January 21, 1993, arguing he waited too long to act. They asserted that Marlow could have withdrawn his motion prior to the final pretrial order date of January 27, 1993, but he did not file to withdraw until January 28, 1993, after the pretrial date had passed. The defendants contended that Marlow effectively forced the court's hand by waiting too long, resulting in a dismissal with prejudice. However, the court found this assertion to be incorrect, noting that the record did not indicate any open period for Marlow to withdraw his motion. The dismissal order had the same effect as a judgment on the merits, requiring a motion to reopen or an appeal for alteration.

Consequently, the district court's order of dismissal was reversed and remanded for reconsideration of Marlow's motion. On remand, the district court could either deny the motion or allow Marlow to choose between dismissal with prejudice or proceeding to trial, with a reasonable timeframe given for his decision. If Marlow's motion was denied or withdrawn, he was expected to adhere to the trial calendar or face involuntary dismissal under Rule 41(b).

Defendants sought to condition any dismissal on Marlow's payment of $60,000 in attorney fees, which the court recognized as a generally acceptable condition. However, such conditions must be imposed by the district court at its discretion rather than by the appellate court, necessitating a renewal of the request on remand.

In conclusion, the district court abused its discretion in dismissing Marlow's complaint with prejudice, leading to the reversal of the dismissal and remand for further proceedings. The request for attorney fees as a condition of dismissal was denied, as it must be determined by the district court. Additionally, Marlow's challenge regarding the denial of his motion to reconsider was rendered unnecessary due to the reversal of the dismissal itself.