Phillips USA, Inc. v. Allflex USA, Inc., 94-3288

• Decision Date: 26 February 1996
• Docket Number: No. 94-3288,94-3288
• Citation: 77 F.3d 354
• Parties: PHILLIPS USA, INC., Plaintiff-Appellant, v. ALLFLEX USA, INC., et al., and N.J. Phillips Pty., Limited, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 354

77 F.3d 354

34 Fed.R.Serv.3d 1262

PHILLIPS USA, INC., Plaintiff-Appellant, v. ALLFLEX USA, INC., et al., and N.J. Phillips Pty., Limited Defendants-Appellees.

No. 94-3288.

United States Court of Appeals Tenth Circuit.

Feb. 26, 1996.

Paul Hasty, Jr. (Richmond M. Enochs and Karl Kuckelman, also of Wallace, Saunders, Austin, Brown and Enochs, with him on the briefs), Overland Park, Kansas, for Plaintiff-Appellant.

Paul W. Rebein (William R. Sampson, also of Shook, Hardy & Bacon, with him on the brief), Overland Park, Kansas, for Defendant-Appellee N.J. Phillips Pty., Ltd.

Before EBEL and LOGAN, Circuit Judges, and HOLMES, District Judge. ^*

LOGAN, Circuit Judge.

Plaintiff Phillips USA, Inc. (Phillips USA) appeals the district court's grant of summary judgment in favor of defendant N.J. Phillips Pty., Ltd. (NJP).

On appeal Phillips USA asserts that (1) the district court abused its discretion in denying Phillips USA's motion to dismiss its claims against NJP without prejudice pursuant to Fed.R.Civ.P. 41; (2) the district court erred in granting NJP's motion for summary judgment based on federal res judicata (claim preclusion) law rather than Kansas law; and (3) even if the district court should have applied federal res judicata law those requirements were not met.

I

NJP is an Australian company that manufactures veterinary equipment. For more than thirty years NJP distributed its products through another Australian company, William Felton & Company, Pty., Ltd. (Felton & Co.), which then exported the products to the United States. The two companies had no written agreements until January 1, 1989, when they executed a distributorship agreement (NJP-Felton contract) providing Felton & Co. the exclusive right to distribute NJP products in the United States and Canada.

Felton & Co. created an American subsidiary, Phillips USA--incorporated in New York with its principal place of business in Kansas--to sell the NJP products in the United States. Phillips USA entered a separate agreement (Phillips USA-Allflex contract) with an American company, Allflex USA, Inc. (Allflex), to act as its sales representative in the United States. The Phillips USA-Allflex contract provided that Phillips USA would pay Allflex a commission for sales of NJP products.

After NJP raised its prices twice in twelve months, Phillips USA decided to terminate its contract with Allflex. Allflex waived the sixty-day notice of termination requirement under the contract and the contract was terminated as of May 1, 1991.

Phillips USA asserts that immediately after terminating the contract Allflex began to negotiate with NJP for distribution rights including those to which Felton & Co. had exclusive rights under the NJP-Felton contract. Ultimately, NJP contracted with Allflex New Zealand, Allflex USA's corporate parent, for the distribution of NJP products to the United States, Canada and other markets (NJP-Allflex contract). The NJP-Allflex contract provided that NJP would sell its products to Allflex New Zealand which would then ship NJP products to Allflex USA to be distributed in the United States and Canada.

In December 1991, Phillips USA and Felton & Co. filed suit against NJP in federal court in Australia, claiming that NJP breached its contract with Felton & Co. and engaged in deceptive and misleading trade practices. The court tried the liability and damages issues separately. In May 1992, the Australian court found that NJP breached the NJP-Felton contract by selling its goods to Allflex New Zealand for further shipment and sale in the United States and Canada. NJP unsuccessfully appealed the judgment.

In June 1992, about a month after the Australian judgment against NJP, Phillips USA filed the instant lawsuit against Allflex in state court in New York. ¹ Allflex removed the case to federal court which transferred it to the United States District Court for the District of Kansas. Phillips USA later amended its complaint, adding NJP as a defendant, asserting tortious interference with contract and that NJP had conspired with Allflex to displace and eliminate Phillips USA from the United States marketplace.

NJP filed a motion to dismiss on the ground the claims against it were barred by res judicata; it asserted plaintiff had the opportunity to bring the claims in the Australian action. Because NJP's motion to dismiss relied on matters outside the pleadings, the district court treated it as a motion for summary judgment.

The district court provided Phillips USA a limited amount of time to conduct discovery on the res judicata issue and ordered its response to the motion for summary judgment by November 15, 1993. Phillips USA moved to dismiss its claims against NJP and other defendants without prejudice. NJP objected and argued that the district court should rule on its motion for summary judgment. The district court denied Phillips USA's motion to dismiss without prejudice and granted NJP's motion for summary judgment. The district court later granted plaintiff's motion for reconsideration, amended its ruling and granted Phillips USA additional time to conduct discovery concerning res judicata and to respond to NJP's motion. After Phillips USA filed its response to NJP's motion for summary judgment, the district court denied Phillips USA's motion for voluntary dismissal and granted NJP's motion for summary judgment. ²

II

Phillips USA first asserts the district court abused its discretion in denying its motion to dismiss without prejudice its claims against NJP.

We review the district court's decision to deny a voluntary dismissal under Fed.R.Civ.P. 41(a)(2) for an abuse of discretion. See American Nat'l Bank & Trust Co. of Sapulpa v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir.1991). A court abuses its discretion if it renders a decision that is "arbitrary, capricious, whimsical, or manifestly unreasonable." United States v. Robinson, 39 F.3d 1115, 1116 (10th Cir.1994) (quotations omitted). The rule is designed "primarily to prevent voluntary dismissals which unfairly affect the other side, and to permit the imposition of curative conditions," 9 C. Wright and A. Miller, Federal Practice and Procedure § 2364 at 279 (2d ed. 1994) (quoting Alamance Indus., Inc. v. Filene's, 291 F.2d 142, 146 (1st Cir.), cert. denied, 368 U.S. 831, 82 S.Ct. 53, 7 L.Ed.2d 33 (1961)). Thus, "[w]hen considering a motion to dismiss without prejudice, 'the important aspect is whether the opposing party will suffer prejudice in the light of the valid interests of the parties.' " Clark v. Tansy, 13 F.3d 1407, 1411 (10th Cir.1993) (quoting Barber v. General Elec. Co., 648 F.2d 1272, 1275 (10th Cir.1981)).

Rule 41(a)(2) controls voluntary dismissals after an opposing party answers or files a motion for summary judgment:

Except as provided in paragraph (1) of this subdivision of this rule [dismissal before service or answer or dismissal by stipulation], an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper.... Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice.

Fed.R.Civ.P. 41(a)(2).

In Tansy, we adopted the following as relevant factors the district court should consider in ascertaining the "legal prejudice" the opposing party might suffer if the district court grants a motion to dismiss without prejudice: "the opposing party's effort and expense in preparing for trial," Tansy, 13 F.3d at 1411; "excessive delay and lack of diligence on the part of the movant," id. at 1412; and "insufficient explanation of the need for a dismissal," id.; see United States v. Outboard Marine Corp., 789 F.2d 497, 502 (7th Cir.) (setting out factors), cert. denied, 479 U.S. 961, 107 S.Ct. 457, 93 L.Ed.2d 403 (1986). A district court may also consider the present stage of litigation. See 789 F.2d at 502 (considering "the fact that a motion for summary judgment has been filed by the defendant"); see also Zagano v. Fordham University, 900 F.2d 12, 14 (2d Cir.) (considering the expenses that will be duplicated by a second trial), cert. denied, 498 U.S. 899, 111 S.Ct. 255, 112 L.Ed.2d 213 (1990). These factors need not all be resolved in favor of the moving party for dismissal to be appropriate; likewise, they need not all be resolved in favor of the party opposing the motion to dismiss. See Outboard Marine Corp., 789 F.2d at 502. Further, they are not exclusive; rather, they are guides for the district court.

The district court here identified each of the listed factors and focused specifically on "the fact that a motion for summary judgment of the claims against NJP has been pending for four months." I App. 221. Thus, it relied heavily not only on the fact that defendant has filed a motion for summary judgment, see Outboard Marine Corp., 789 F.2d at 502, but also on Phillips USA's lack of "diligence." The court noted that it had granted Phillips USA additional time to respond to NJP's proffered material facts, and also an extension of time for discovery on the res judicata issue. The court recited that Phillips USA did not show that it had conducted further discovery on the res judicata issue and did not request further time for discovery. Rather, a few days before its response to the summary judgment motion was due, Phillips USA filed its motion to dismiss without prejudice.

The court also noted that Phillips USA offered "little explanation" for its decision to dismiss, citing only "numerous business, financial and personal issues facing [Phillips USA's] Chief Executive Officer." I App. 182 (quoting Plaintiff's Memorandum in Support of Motion to Dismiss). The court further noted that "[t]his litigation [had been] pending for over a year," id. at 222, and that although the district court had expressed concern that NJP might not be a proper party, Phillips USA had failed to demonstrate that it was. Id. at 223.

The district...