Randall v. Merrill Lynch

Decision Date19 June 1987
Docket NumberNo. 86-5372,86-5372
Citation261 U.S. App. D.C. 138,820 F.2d 1317
Parties, 56 USLW 2041, 8 Fed.R.Serv.3d 405 Laurence E. RANDALL, et al. v. MERRILL LYNCH, et al., Appellants.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (Civil Action No. 85-00942).

Barbara Moses, with whom Steven A. Brick, San Francisco, Cal., Jerry W. Markham and Stuart M. Goldberg, Washington, D.C., were on the brief, for appellants.

Paul H. Melbostad, with whom Thomas E. Horn, San Francisco, Cal., and Douglas B. Huron, Washington, D.C., were on the brief, for appellees.

Before MIKVA, STARR and WILLIAMS, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

Opinion concurring in part and dissenting in part filed by Circuit Judge WILLIAMS.

MIKVA, Circuit Judge:

This appeal is the latest event in a protracted dispute arising from appellees' maintenance of securities accounts with Merrill Lynch. Appellees twice brought suit against Merrill Lynch in Federal District Court in California. On both occasions, Merrill Lynch successfully moved to transfer to the District of Columbia, and appellees responded in both cases by voluntarily dismissing pursuant to Federal Rule of Civil Procedure 41(a)(1). The rule provides that a second voluntary dismissal has the effect of an adjudication on the merits. Following the second dismissal, appellees attempted to initiate arbitration. In January, 1986, the Eastern District of California enjoined the arbitration, as well as any other litigation, on the ground that a second voluntary dismissal under Rule 41(a)(1) operates as an adjudication on the merits barring further litigation. After this ruling appellees filed a motion with the District Court for the District of Columbia to vacate the second dismissal. In May, 1986, 110 F.R.D. 342, relying on Federal Rule of Civil Procedure 60(b)(6), the district court vacated the second dismissal, effectively authorizing appellees to go forward with their attempt at arbitration. It is this decision which Merrill Lynch challenges on appeal. We affirm.


In July, 1982, Laurence and Nadine Randall opened accounts with Merrill Lynch in the company's Washington, D.C. office. The Randalls thereafter moved to Chico, California, where they continue to reside. In December, 1983, the Randalls filed a complaint against Merrill Lynch in the United States District Court for the Northern District of California. As amended, the complaint alleged violations of various federal securities laws and regulations, as well as other claims. The essence of appellees' claim was that Merrill Lynch fraudulently concealed trading on the Randalls' account and fraudulently misrepresented the status of the Randalls' account, which caused them to violate prescribed margin requirements. Because of the margin-requirement violations, Merrill Lynch then froze the Randalls' account. As a result of this freeze, a number of options in the Randalls' options account expired, resulting in substantial financial loss. On April 23, 1984, the court granted Merrill Lynch's motion to transfer the case to Washington, D.C. pursuant to 28 U.S.C. Sec. 1404(a). Appellees voluntarily dismissed their case on August 13, 1984, before any proceedings took place in the District Court for the District of Columbia.

Shortly thereafter, the Randalls filed a revised complaint in the U.S. District Court for the Eastern District of California, where Chico is located. The second complaint was substantially identical to the first complaint. As before, Merrill Lynch moved to transfer the case to the District of Columbia. In March, 1985, the court granted the motion to transfer.

In August, 1984, Laurence Randall suffered an attack of acute, stress-related anxiety disorder and was certified as fully disabled by the State of California. Mr. Randall's doctors directed him not to participate in any cross-country litigation because of serious risk of suffering a heart attack or stroke. Mr. Randall's inability to work coupled with the medical costs necessitated by his illness depleted the Randalls' financial resources.

These health and financial concerns prompted the Randalls to terminate their pending legal action. On May 3, 1985, they again filed a notice of voluntary dismissal. The Randalls were informed by counsel that the second voluntary dismissal might have a preclusive effect under the "two-dismissal rule," which is a subsection of Federal Rule 41. That subsection provides that "a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court of the United States or of any state an action based on or including the same claims." Fed.R.Civ.P. 41(a)(1).

After the second voluntary dismissal, appellees filed, on July 9, 1985, a petition for arbitration with the National Association of Securities Dealers. In August, Merrill Lynch filed suit in the Eastern District of California to enjoin the arbitration, citing the two-dismissal rule. The district court granted defendant's motion for summary judgment on that basis. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Randall, 110 F.R.D. 499 (E.D.Cal.1986). In its opinion, the court stated that "the proper remedy is for the Randalls to move to vacate the second dismissal before the District Court for the District of Columbia rather than a third attempt to litigate the claim." Id. at 500.

In March, 1986, appellees filed just such a motion to vacate, and the District Court for the District of Columbia granted the motion on May 14, 1986. See Randall v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 110 F.R.D. 342 (D.D.C.1986). The court relied on Rule 60(b)(6), which permits a court to relieve a party from a final judgment for reasons of justice. The court found that at the time of the second dismissal, "Mr. Randall suffered a disabling illness that would permit his participation in this litigation only at the risk of even greater disability" and that "Mr. Randall's illness caused a serious depletion of [appellees'] assets, leaving them unable to maintain litigation in this district." Id. at 344. The court also held that the Randalls' decision to terminate the case was not "free, calculated, or strategic," but rather was "precipitated by events beyond their control." The court further found that vacating the second dismissal would not prejudice Merrill Lynch. Id. at 344. These findings, coupled with a strong policy favoring resolution of cases on the merits, persuaded the court to grant the Randalls' motion. This appeal followed.

A. Authority Under Rule 60(b)(6) to Vacate Voluntary Dismissals

Rule 41(a)(1)(i) of the Federal Rules of Civil Procedure provides a simple, self-executing mechanism whereby a case may be dismissed in certain circumstances without motion, argument, or judicial order. When the plaintiff files a notice of dismissal before service by the adverse party of an answer or of a motion for summary judgment, the dismissal takes effect automatically: the trial judge has no role to play at all. Appellant contends that the dismissal is not only automatic but also irreversible. A trial judge, appellant argues, has no discretion to vacate a Rule 41(a)(1)(i) voluntary dismissal. According to appellant, a judge may not vacate such a dismissal even pursuant to Rule 60(b)(6), which authorizes a court on motion to relieve a party from a "final judgment, order or proceeding for ... any ... reason justifying relief from the operation of judgment."

Appellant primarily relies on Thorp v. Scarne, 599 F.2d 1169 (2d Cir.1979), and D.C. Electronics, Inc. v. Nartron Corp., 511 F.2d 294 (6th Cir.1975), to support this proposition. We find these authorities inapposite. They held that a trial judge has no discretion to prevent a voluntary dismissal in the first instance; they did not speak to whether a court has discretion to vacate a voluntary dismissal at a subsequent time on the original plaintiff's motion. Appellant also cites Santiago v. Victim Services Agency, 753 F.2d 219 (2d Cir.1985). But this case also is wide of the point. In Santiago, the court held only that once a plaintiff has voluntarily dismissed his case the trial court has no jurisdiction to grant a defendant's motion for attorney's fees. Santiago has no bearing on a court's authority to entertain a 60(b) motion to set aside a dismissal under Rule 41 (a)(1)(i). In short, appellant cites no case law, and this court has found none, to support its position.

No such case exists because the language of the Federal Rules of Civil Procedure clearly supports the opposite result. As noted previously, Rule 60(b) allows a court to relieve a party from a "final judgment" for any reason justifying relief. Because the voluntary dismissal in this case operated as an adjudication on the merits, it was a "final judgment" under Rule 60(b). And nothing in the language of Rule 41(a)(1)(i) exempts voluntary dismissals from the scope of judicial authority under Rule 60(b). We therefore conclude that the district court had power to vacate this voluntary dismissal under Rule 60(b) if the requisite justification existed.

B. Justification for Application of Rule 60(b)(6)

A trial court enjoys a large measure of discretion in deciding whether to grant or deny a 60(b) motion, see 7 J. Moore & J. Lucas, MOORE'S FEDERAL PRACTICE p 60.19 (2d ed. 1985); 11 C. Wright & A. Miller, FEDERAL PRACTICE AND PROCEDURE: CIVIL Sec. 2857 (1973). A reviewing court may reverse a district court's grant of relief under Rule 60(b)(6) only for an abuse of discretion. See Southern Pacific Telecommunications Co. v. American Telephone & Telegraph Co., 740 F.2d 1011, 1017 (D.C.Cir.1984).

Rule 60(b) "was intended to preserve the 'delicate balance between the sanctity of final judgments ... and the incessant command of a court's conscience that justice...

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