Regions Bank v. Prager

• Decision Date: 08 July 2021
• Docket Number: No. W2019-00782-SC-R11-CV,W2019-00782-SC-R11-CV
• Citation: 625 S.W.3d 842
• Court: Tennessee Supreme Court
• Parties: REGIONS BANK v. Nathan I. PRAGER

625 S.W.3d 842

REGIONS BANK

v.Nathan I. PRAGER

No. W2019-00782-SC-R11-CV

Supreme Court of Tennessee.

January 6, 2021 Session¹

FILED July 8, 2021

Christopher W. Conner, J. Matthew Williams, Tyler C. Brown, Maryville, Tennessee, for the appellant, Regions Bank.

Joseph D. Barton, Millington, Tennessee, for the appellee, Nathan I. Prager.

Jeffrey S. Bivins, C.J., delivered the opinion of the Court, in which Cornelia A. Clark, Sharon G. Lee, Holly Kirby, and Roger A. Page, JJ., joined.

Jeffrey S. Bivins, C.J.

The issue in this appeal is whether the Plaintiff's lawsuit is barred by the doctrine of res judicata. The Plaintiff originally filed suit against the Defendant in the Circuit Court for Shelby County in May 2014. Unbeknownst to the parties, the trial court sua sponte dismissed the lawsuit for failure to prosecute. Upon learning of the dismissal over ten months later, the Plaintiff moved to set aside the dismissal. The trial court denied the Plaintiff's request to set aside the dismissal but, articulating an erroneous reading of Rule 41.02(3) of the Tennessee Rules of Civil Procedure, entered an order that stated the dismissal did not bar the Plaintiff from refiling its lawsuit. When the Plaintiff refiled its lawsuit in August 2017, the Defendant filed a motion to dismiss based on the doctrine of res judicata. Despite language to the contrary in its prior order, the trial court granted the Defendant's motion, holding that the dismissal of the original lawsuit operated as an adjudication on the merits. A divided panel of the Court of Appeals affirmed the trial court's dismissal of the second lawsuit. We conclude that the doctrine of res judicata does not bar the Plaintiff's lawsuit. Accordingly, we reverse the decision of the Court of Appeals, vacate the trial court's judgment, and reinstate the Plaintiff's lawsuit.

I. FACTUAL AND PROCEDURAL BACKGROUND

In May 2014, Regions Bank ("the Plaintiff") filed a breach-of-contract lawsuit ("the first lawsuit") against Nathan I. Prager ("the Defendant") based on a promissory note executed by the parties in December 2011. On August 11, 2016, the trial court sua sponte entered an order dismissing the first lawsuit ("the initial order of dismissal") based on the Plaintiff's failure to prosecute. See Tenn. R. Civ. P. 41.02. Although the record on appeal does not contain the initial order of dismissal, the parties agree that the order did not state whether the dismissal was with or without prejudice. This fact is significant in that Rule 41.02(3) of the Tennessee Rules of Civil Procedure provides that, other than in the case of certain inapplicable exceptions, "[u]nless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this Rule 41 ... operates as an adjudication upon the merits."

However, neither party apparently received notice that the case had been placed on the dismissal docket, and neither party was served with the initial order of dismissal. In fact, the parties continued to engage in discovery and settlement negotiations after entry of the initial order of dismissal.

The Plaintiff first learned of the existence of the initial order of dismissal over ten months later on June 29, 2017, when it attempted to file a motion in the first lawsuit. Having learned of the order, the Plaintiff filed a motion to set aside the dismissal, presumably pursuant to Rule 60.02 of the Tennessee Rules of Civil Procedure. Because the motion to set aside is not in the record, it is unclear what grounds the Plaintiff relied on in seeking relief. The parties agree that the trial court denied the motion to set aside on July 25, 2017. However, there is no order to that effect in the record.

The Plaintiff then filed a "Motion to Reconsider" in the wake of the July 25, 2017 denial of its motion to set aside. The "Motion to Reconsider," like the motion to set aside, also is not in the record. What is in the record is an "Order Denying Motion to Reconsider" and a transcript of the trial court's related verbal ruling, which was specifically incorporated by reference into the order. The trial court conducted a hearing on the "Motion to Reconsider" on July 28, 2017, three days after it had denied the motion to set aside. The trial court's verbal ruling, in its entirety, was as follows:

Well, let me just make a few observations for you. Number one, this case has been on the books since May of 2014. My guess is it's had at least one trial date, probably more than one, and it ended up being continued. Cases earn their way on to a dismissal docket by not showing any activity whatsoever within at least one year prior to the date of the notice of the dismissal docket. That would have been the case here.

Not only that, more than one year went by without anyone bothering to check on the status of the case to even find out that it had been dismissed for lack of prosecution.

Now, I could grant your motion and set it on another dismissal docket, which we have active right now, and guess what, the case will be dismissed for lack of prosecution. If I set that order aside and put it on another dismissal docket, with notice given to you here and now verbally and in person, the case will be dismissed for lack of prosecution.

Now with that said, a dismissal for lack of prosecution under those circumstances is simply a dismissal pursuant to Rule 41. And unless it is designated, quote, with prejudice, underline the word, "With" here, it is neither with nor without prejudice and that doesn't bar you from refiling the suit.

We went through that when you were here over a month ago. And that's where we still stand. You're welcome to refile the suit. If you had been engaged in settlement negotiations and the rest of that sort of thing, my common sense approach would be to sit down at a comfortable place at a table with our clients together and come to some resolution and get it out of the way, instead of going through all of the gymnastics, if you will, of getting this case back into court , so to speak.

Your motion is denied.

(Emphasis added). After the July 28, 2017 hearing, the trial court entered the corresponding "Order Denying Motion to Reconsider" on August 4, 2017. In the order, the trial court confirmed its dismissal of the first lawsuit for failure to prosecute pursuant to Rule 41. The order did not specify whether the dismissal was with or without prejudice. However, mirroring the trial court's verbal ruling, the order expressly stated: "Unless [the dismissal pursuant to Rule 41] is designated ‘with prejudice’, [sic] it is neither with or without prejudice and that doesn't bar a refiling of the suit." Unfortunately, the trial court's language clearly represents an erroneous interpretation of Rule 41.02(3).

In light of the August 4, 2017 order, the Plaintiff refiled its lawsuit on August 8, 2017 ("the present lawsuit"). More than ten months later, in June 2018, the Defendant filed a motion to dismiss in which he asserted that the matter previously had been adjudicated on the merits pursuant to Rule 41.02(3), and thus the Plaintiff's claim was barred under the doctrine of res judicata. The Plaintiff filed a response to the motion to dismiss in which the Plaintiff detailed the history of the first lawsuit. The Plaintiff argued that the most recent order dismissing the first lawsuit—the August 4, 2017 order—governed the issue of whether the dismissal was an adjudication on the merits. According to the Plaintiff, the August 4, 2017 order made clear that the trial court had not intended to dismiss the first lawsuit with prejudice, and thus the Plaintiff was free to refile its lawsuit.

The trial court granted the Defendant's motion to dismiss the present lawsuit, finding simply that the motion was well-taken. Thereafter, the Plaintiff filed a "Motion to Reconsider."² At the hearing on this motion, the trial court commented:

Well, let me say this, I've read everything that you all have given me now for this additional go around in this case. And I -- a good bit of emphasis has been placed upon what I would characterize as a side bar comment by the Court, you're welcome to refile the lawsuit. And I've been known to make side bar comments that were off target in other matters and I apologize if that that [sic] misled counsel for the [P]laintiff in this particular case.

But to characterize that side bar comment as a, quote, ruling, you know, would be inappropriate, I think. And again, having reviewed the entire matter now, yet again, and the Court is of the opinion that this motion is simply not well taken and cannot be granted and it will not be granted. I'll be careful about making side bar comments henceforth.

On the Plaintiff's appeal, a divided panel of the Court of Appeals affirmed the trial court's judgment dismissing the present lawsuit based on the doctrine of res judicata. Regions Bank v. Prager, No. W2019-00782-COA-R3-CV, 2020 WL 2319168 (Tenn. Ct. App. May 11, 2020), perm. app. granted, (Tenn. Sept. 18, 2020). The majority noted that the initial order of dismissal did not specify whether the dismissal was with or without prejudice. Id. at *3. Looking to Rule 41.02(3), the majority recognized that "[i]n the absence of language that indicates otherwise, this dismissal was therefore ‘on the merits.’ " Id. (citing Tenn. R. Civ. P. 41.02(3) ).

The majority acknowledged that the trial court, in its August 4, 2017 order denying the Plaintiff's "Motion to Reconsider" in the first lawsuit, stated that unless the dismissal of the first lawsuit was designated "with prejudice," the dismissal was neither with nor without prejudice and did not bar the Plaintiff from refiling its lawsuit. Id. As the majority recognized, the trial court's explanation of the law "is in direct conflict with the plain language of Rule 41.02(3)." Id. The majority acknowledged that the "Plaintiff may have relied on the trial court's inaccurate summary of the substance of Rule 41.02." Id...