Ripalda v. American Operations Corp.

• Decision Date: 20 October 1992
• Docket Number: No. 91-7068,91-7068
• Citation: 977 F.2d 1464
• Parties: Judy RIPALDA, Appellant, v. AMERICAN OPERATIONS CORPORATION, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1464

977 F.2d 1464

298 U.S.App.D.C. 189

Judy RIPALDA, Appellant, v. AMERICAN OPERATIONS CORPORATION, et al.

No. 91-7068.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 9, 1992.

Decided Oct. 20, 1992.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 90-01699).

David P. Sutton, with whom David L. Hilton, Washington, D.C., was on the brief, for appellant.

Donald M. Caplan, Bethesda, Md., for appellee System Planning Corp.

Before BUCKLEY, WILLIAMS, and D.H. GINSBURG, Circuit Judges.

Opinion for the court filed by Circuit Judge D.H. GINSBURG. D.H. GINSBURG, Circuit Judge:

The appellant Judy Ripalda, a resident of Virginia, brought this tort action in district court against American Operations Corporation (AOC), a Delaware corporation, and Kleen Master, Inc., a Florida corporation. The district court dismissed the suit, and rejected the plaintiff's motion for reconsideration on three grounds: (1) lack of diversity between plaintiff and defendant AOC; (2) failure separately to establish the jurisdictional amount with respect to the remaining defendant Kleen Master; and (3) noncompliance with an earlier court order. For the reasons stated below, we reverse.

I. BACKGROUND

Ripalda alleges that in August 1987, while in a government building in Washington, D.C., she slipped and fell when she stepped on a fluid that had leaked onto the floor from an air conditioning unit while it was being serviced by employees of AOC. Employees of Kleen Master then arrived to clean the floor. When she again approached the area, a Kleen Master employee directed her to walk on a particular part of the floor, whereupon she again slipped and fell, causing her further injury.

In July 1990 Ripalda filed a negligence action against AOC and Kleen Master in federal district court. She invoked the diversity jurisdiction of the district court under 28 U.S.C. § 1332, and claimed that the defendants were jointly and severally liable for her injuries in the amount of $250,000. In lieu of a responsive pleading from AOC, counsel for Ripalda received a letter from counsel for System Planning Corporation, stating that AOC was "not in existence"; the original corporation of that name had been merged into System Planning in March 1987--more than four months prior to the alleged accident--and while a second AOC had been incorporated in April 1987, in order "to protect the name," its charter had been surrendered in July 1989--a year prior to the filing of the suit. (When necessary to distinguish between the two corporations, we will refer to them as "AOC No.1" or "AOC No.2.)" Counsel for System Planning suggested that if Ripalda were to amend her complaint to name that company as a defendant, it would then file a responsive pleading.

Ripalda duly amended her complaint to substitute System Planning for AOC, again naming Kleen Master a co-defendant. System Planning then filed a motion to dismiss the complaint for lack of subject matter jurisdiction, contending that because its principle place of business was in Ripalda's state of residence (Virginia), the case lacked the complete diversity required for jurisdiction under 28 U.S.C. § 1332.

The district court dismissed the case for want of diversity. The court also indicated that the plaintiff could not establish diversity by reinstating her claim against AOC because that corporation had been dissolved a year prior to the filing of her suit, whereas the parties must be diverse when the complaint is filed. "Because the limitations period [had] apparently expired absent any tolling," the court granted Ripalda leave to replead, but added that "the only basis for maintaining suit in this Court is against Kleen Master alone...." (Memorandum and Order, Feb. 7, 1991.)

Ripalda did file a second amended complaint. Contrary to the court's direction, however, the new complaint named not only Kleen Master but also AOC. Characterizing the second amended complaint as an "audacious and totally unsuccessful attempt to avoid the requirements" of its February 7 order, the district court dismissed the case sua sponte. The court again explained that the substitution of AOC for System Planning could not establish diversity because AOC had been dissolved prior to the filing of the suit. The court also held that Ripalda had failed to demonstrate that the claim against Kleen Master by itself involved the requisite jurisdictional amount. (Memorandum and Order, February 25, 1991.)

Ripalda filed a motion for reconsideration of the February 7 and February 25 orders. In support of this motion, Ripalda cited for the first time a section of the Delaware General Corporation Law providing that, "[a]ll corporations, whether they expire by their own limitations or are otherwise dissolved, shall nevertheless be continued, for the term of 3 years from such expiration or dissolution ..., bodies corporate for the purpose of prosecuting and defending suits...." 8 Del.Code Ann. § 278. Relying upon this statute she argued that AOC, despite its earlier dissolution, was still suable as a Delaware corporation at the time she filed her complaint.

The court promptly denied reconsideration, offering two grounds. First, the court held, "[t]he fact that a defunct corporation is still suable under Delaware law cannot control this federal court's diversity jurisdiction where diversity at [the] time of suit does not exist." Second, after noting the claim of the plaintiff's counsel "that he did not believe the Court had barred him from suing the 2nd [AOC]," the court held that Ripalda's disregard of the February 7 order independently justified dismissal: "Plaintiff's counsel disregarded the Court's explicit rulings in drafting the Second Amended Complaint by not proceeding against Kleen Master alone. If counsel considered those ruling in error, the appropriate course would have been to file a motion for reconsideration at that stage...." (Memorandum and Order, March 22, 1991.)

Ripalda appeals the orders dismissing the case and denying reconsideration. During the pendency of her appeal, Ripalda and Kleen Master settled their dispute, leaving only AOC as a defendant.

II. ANALYSIS

On appeal, Ripalda challenges as an abuse of discretion the district court's refusal, on disciplinary grounds, to grant reconsideration of its orders dismissing the case. She then renews her claim that the second amended complaint meets the diversity requirement for federal jurisdiction.

A. Abuse of Discretion

The district court has the "inherent power" to dismiss a case sua sponte when a party fails to comply with a court order designed to advance the orderly prosecution of the case. Link v. Wabash R., 370 U.S. 626, 630, 82 S.Ct. 1386, 1388, 8 L.Ed.2d 734 (1962). We review its decision to dismiss--and by extension its refusal to reinstate--a case only for an abuse of discretion. See Bristol Petroleum Corp. v. Harris, 901 F.2d 165, 167 (D.C.Cir.1990); Butler v. Pearson, 636 F.2d 526, 527 (D.C.Cir.1980). In light of the district court's "front-line responsibility for operating the judicial system," moreover, we are properly "hesitant" to find that it has abused its discretion. Bristol Petroleum, 901 F.2d at 167.

On the other hand, dismissal is a "drastic step, normally to be taken only after unfruitful resort to lesser sanctions." Jackson v. Washington Monthly Co., 569 F.2d 119, 123 (D.C.Cir.1977); accord Bristol Petroleum, 901 F.2d at 167 ("As a rule, we have noted, dismissal is in order only when lesser sanctions would not serve the interests of justice"); Automated Datatron, Inc. v. Woodcock, 659 F.2d 1168, 1170 (D.C.Cir.1981); Butler, 636 F.2d at 529; 9 C. Wright & A. Miller, Federal Practice and Procedure § 2369, at 193-196 (1971 & Supp.1992) (collecting cases). A review of our prior cases indicates that the district court's first-resort dismissal of this case was an abuse of discretion.

In Shea v. Donohoe Construction Co., 795 F.2d 1071 (D.C.Cir.1986), we reviewed and summarized what our past decisions revealed to be the three basic justifications for dismissing an action because of counsel's misconduct:

First, dismissal is necessary at times because the other party in the case has been so prejudiced by the misconduct that it would be unfair to require him to proceed further in the case. Second, dismissal may be appropriate where resort to any less drastic sanctions would not mitigate the severe burden that the misconduct has placed on the judicial system. Finally, dismissal may, on certain occasions, serve as an ultimate sanction, aimed at punishing abuses of the system and deterring future misconduct.

Id. at 1074. See also Bristol Petroleum, 901 F.2d at 167. In Shea we also noted that "the factors to be addressed by the trial judge in considering the propriety of dismissal differ depending on which of these purposes is to be served." 795 F.2d at 1074.

In the present case, counsel's departure from the court's instructions neither prejudiced the defendants nor imposed significantly upon the judicial system. Thus, the only justification for the dismissal was to punish counsel in order to deter him (and others) from future misconduct. While the client must of course take responsibility for the conduct of her "freely selected agent," see Link, 370 U.S. at 633-34, 82 S.Ct. at 1390, dismissal of an action for attorney misconduct may be a "disproportionate sanction," where, as here, there has been no harm to the defendants or to the judicial system and the client had no notice of the misconduct. See Shea, 795 F.2d at 1077-78 ("We look disfavorably upon dismissals as sanctions for attorney misconduct or delay unless the client himself had been made aware of the problem, usually through notice from the trial court") (emphasis in original); Jackson, 569 F.2d at 123 ("Dismissals for misconduct attributable to lawyers and in no wise to their clients invariably penalize the innocent and may...