Class Action Lawyer Persuades Tenth Circuit to Vacate Conditions on Rule 41(a)(2) Dismissal That Limited Him from Refiling Action

In Frank v. Crawley Petroleum Corp., No. 20-6018 (10th Cir. Mar. 29, 2021), the Tenth Circuit holds that a plaintiff’s class-action lawyer has standing to challenge restrictions on his practice that a district court imposed in a Rule 41(a)(2) voluntary dismissal.

The class action, removed to federal court under the Class Action Fairness Act, concerned underpayment of royalties on natural-gas-producing wells. Five years into the case, before class certification was decided, the plaintiff moved to dismiss his action with prejudice. “Crawley opposed the motion. It alleged that it had already spent about $1 million defending the suit and ‘[m]uch of that will be wasted, even if another putative class representative sues Crawley for the same claims.’”

The district court granted plaintiff’s motion to dismiss, but sua sponte imposed three conditions:

“(1) In the event counsel for Plaintiff . . . file[s] any suit seeking to certify substantially the same class against Crawley Petroleum Corp., such suit shall be filed in the U.S. District Court for the Western District of Oklahoma and assigned to the Honorable Patrick R. Wyrick.

“(2) In the event such suit is filed, all discovery accomplished in this case shall carry over to the new case.

“(3) In the event such suit is filed, Defendant will be permitted to file an application for costs and attorney fees pursuant to Rule 41(d) of the Federal Rules of Civil Procedure.”

The district court noted that “the conditions were not a punishment for any improper behavior by counsel,” although it suggested that plaintiff’s counsel may have been motivated by forum shopping.

The Tenth Circuit reverses. It first holds that plaintiff’s counsel has standing on appeal to challenge the conditions. Although the notice of appeal was nominally filed by the class plaintiff, “it was clear from the outset that the appeal was being taken on behalf of his attorney, Mr. Sharp. Under Fed. R. App. P. 3(c)(4), ‘[a]n appeal must not be dismissed . . . for failure to name a party whose intent to appeal is otherwise clear from the notice’ …. Mr. Sharp undoubtedly has [a unique] interest [in the outcome]. We have entertained appeals from nonparty attorneys when the attorney is a specific object of the challenged order.”

Although the conditions were not in the form of a sanction, as to which the lawyer would have an undoubted interest to appeal, “Mr. Sharp has a legally protected interest in practicing his profession ….  The injury is present now because Mr. Sharp must refrain from taking certain actions. True, the imposition of any sanction against him is dependent on his violating the order. But that ‘conditional’ aspect of the order does not prevent standing.” Moreover, “The limitations on Mr. Sharp’s legally protected interests are directly caused by the order, and overturning the order would remedy the problem. He therefore has standing to appeal the order.”

The Tenth Circuit also holds that the dismissal order is final and appealable. “There was nothing pending before the district court after it issued that order. Permitting an appeal of the conditions imposed by that order does not lead to piecemeal appeals since there is nothing else that could be appealed. No litigation is interrupted and delayed by permitting the appeal.” The panel also considers the order final as a practical matter. “[D]elaying Mr. Sharp’s right to appeal has consequences that may be irreparable. So long as the order is in effect, Mr. Sharp may have difficulty retaining clients to pursue a class action against Crawley; and even if he is ultimately successful in obtaining clients, a delay could have severe statute-of-limitations implications.”

Having determined its appellate jurisdiction, the panel finally holds that the conditions were an abuse of discretion because the defendant was not prejudiced by the dismissal. Plaintiff’s counsel argued “that the conditions were improper because neither the district court nor Crawley has identified any legal prejudice to Crawley created by the dismissal. We agree. The legal prejudice they have identified would have been equally present if the district court had proceeded to resolve the class-certification motion (as initially requested by Crawley in response to Plaintiff’s motion to dismiss with prejudice).”

The panel notes that the district court did not consider the effect of Smith v. Bayer Corp., 564 U.S. 299 (2011), which held that denial of class certification has no binding effect on putative absent class members. “Under Bayer there would be no constraint on Mr. Sharp’s representing a different named plaintiff in pursuit of an identical putative class action. The district court did not explain how Crawley was prejudiced by Plaintiff’s voluntary dismissal. On the contrary, the dismissal avoided any further wasted effort by Crawley in this case, so dismissal may have actually left Crawley better off than if it had prevailed in its opposition to class certification.”

Bayer also undermines the district court’s second ground for finding prejudice: ‘the specter of bad faith dismissal so that a more favorable forum can be sought’ …. If Mr. Sharp could file a new suit with a new plaintiff in a new forum regardless of the outcome of the motion for voluntary dismissal, why would the motion for voluntary dismissal suggest bad faith? (In any event, ‘forum shopping’ is generally an improper basis for imposing conditions on a voluntary dismissal….) …. Judge shopping may be a particularly pernicious form of forum shopping, but it too is a necessary consequence of Bayer.”

Thus, “[b]ecause Crawley has not identified any legal prejudice it would suffer from the dismissal, the imposition of conditions was an abuse of discretion.”

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