Stellia Ltd. v. Yknot Global Ltd.

• Citation: 2016 UT App 133,379 P.3d 29
• Decision Date: 23 June 2016
• Docket Number: No. 20141167–CA,20141167–CA
• Parties: Stellia Limited, Appellee, v. Yknot Global Limited, Appellant, v. Dominic Tampone, Appellee.
• Court: Court of Appeals of Utah

379 P.3d 29

2016 UT App 133

Stellia Limited, Appellee,

v.Yknot Global Limited, Appellant,

v.Dominic Tampone, Appellee.

No. 20141167–CA

Court of Appeals of Utah.

Filed June 23, 2016

Jeffrey J. Steele and Justin R. Baer, Salt Lake City, Attorneys for Appellant.

Eric K. Schnibbe, Salt Lake City, and David Paul Steiner, Attorneys for Appellees.

Judge J. Frederic Voros Jr. authored this Opinion, in which Judge Gregory K. Orme and Senior Judge Russell W. Bench concurred.¹

Opinion

VOROS

, Judge:

¶ 1 This is one of two appeals arising from a business dispute between two companies, Yknot Global Limited and Stellia Limited. In this appeal, Yknot asserts that the district court erred by dismissing its counterclaims under the two-dismissal rule of rule 41(a) of the Utah Rules of Civil Procedure

. We affirm.

BACKGROUND

¶ 2 Yknot, organized in the United Kingdom and based in Salt Lake County, sells various products online. Stellia, organized and based in Malta, provides electronic credit card processing services to online sellers—including, for a time, Yknot. At some point a dispute arose between the two companies; the nature of that dispute does not bear on the questions presented on appeal.

¶ 3 This appeal involves three claims filed by Yknot (and related individuals) against Stellia (and related individuals): first, a complaint filed in federal district court; second, a complaint filed in state court; and third, a counterclaim filed in a second state court action. All sought more or less the same relief on the same grounds.

¶ 4 First, Yknot sued Stellia and its principals, Kenneth Cassar and Dominic Tampone, (collectively, Stellia) in federal district court in Utah (the federal case). Stellia moved to dismiss on jurisdictional grounds, and Yknot voluntarily dismissed its federal complaint without court involvement. No appeal ensued. This was the first dismissal.

¶ 5 Second, Yknot sued Stellia in Utah state court; the case was assigned to Judge Andrew H. Stone (the Judge Stone Case). Stellia moved to dismiss on the ground that Yknot, a foreign entity not registered in Utah, lacked legal authority to sue in this state. In response, Yknot, in its own words, “cured any deficiency by filing its registration.” When settlement negotiations broke down, Stellia withdrew its motion to dismiss and prepared to file an answer and counterclaim. But before it did so, Yknot filed a notice of voluntary dismissal, dismissing its state complaint without judicial involvement. This was the second dismissal.

¶ 6 Third, Stellia sued Yknot (and related individuals) in Utah state court; the case was assigned to Judge Su J. Chon (the Judge Chon Case). Stellia sought both affirmative relief and a declaratory judgment, arguing that the two-dismissal rule found in rule 41(a) of the Utah Rules of Civil Procedure

barred any potential counterclaim. Yknot and the individual defendants responded by filing a counterclaim. Stellia moved to dismiss the counterclaim, Judge Chon granted the motion, and Yknot appealed. We address this appeal—from the Judge Chon case—in this opinion.

¶ 7 Ten days after Stellia filed its complaint in the Judge Chon Case seeking a declaratory judgment under the two-dismissal rule, Yknot, now with new counsel, filed three motions seeking relief from the second dismissal in the Judge Stone Case. First, Yknot filed a motion to set aside the dismissal and to withdraw its notice of dismissal. This motion relied on subsections (b)(3) and (b)(6) of rule 60(b) of the Utah Rules of Civil Procedure

. Second, Yknot filed a motion to compel arbitration. And third, Yknot filed a motion to consolidate the Judge Stone Case and the Judge Chon Case. Stellia opposed all three motions.

¶ 8 Judge Stone denied all of Yknot's motions. In denying the first motion, the court found that Yknot had not established grounds for relief under either rule 60(b)(3)

—relief for fraud or misconduct of an adverse party—or rule 60(b)(6) —relief for “any other reason that justifies relief.”²

See Utah R. Civ. P. 60(b)(3), (b)(6). The court ruled that Yknot's reliance on rule 60(b)(6) was misplaced because the motion could have been brought under rule 60(b)(1) —seeking relief for mistake—and therefore that it did not state an “other reason” justifying relief. Further, the court ruled that the facts did not support relief under rule 60(b)(1) :

Plaintiff has not established grounds for relief under Utah Rule of Civil Procedure 60(b)(6)

;

Utah Rule of Civil Procedure 60(b)(6)

does not apply when a motion implicates Rule 60(b)(1) ; Plaintiff has admittedly not moved for relief under Rule 60(b)(1) ; and the facts described in support of Plaintiff's Motion to Set Aside would not support relief under Rule 60(b)(1).

As a result of this ruling, Judge Stone denied the second and third motions as moot. Yknot appealed. We resolve that appeal in Yknot Global v. Stellia Limited

, the companion appeal to this one. 2016 UT App 132, 379 P.3d 36.

¶ 9 After Judge Stone denied Yknot's rule 60(b)

motions, Stellia moved to dismiss Yknot's counterclaim and third party complaint in the Judge Chon Case (the subject of this appeal). Stellia argued that Yknot's counterclaim represented a third attempt to bring the same claims Yknot had voluntarily dismissed in the federal case and in the Judge Stone Case. Thus, Stellia maintained, the counterclaim ran afoul of rule 41's two-dismissal rule. Judge Chon agreed that the two-dismissal rule barred Yknot's counterclaim:

As to Stellia's Seventh Claim for Relief, seeking declaratory judgment, Defendants' Motion to Dismiss is DENIED on the grounds that the “Two Dismissal Rule” embodied in Utah Rule of Civil Procedure 41

bars Yknot Global's affirmative claims against the Stellia Parties ... as a result of Yknot Global having twice brought and then voluntarily dismissed the claims.

....

The Counterclaim and Third-Party Complaint, as alleged by Yknot Global, is dismissed because the “Two Dismissal Rule” embodied in Utah Rule of Civil Procedure 41 bars Yknot Global's affirmative claims against the Stellia Parties and Cassar as a result of Yknot Global having twice brought and then voluntarily dismissed the claims.

(Emphasis in original.) Yknot petitioned for, and we granted, permission to appeal Judge Chon's interlocutory order of dismissal.

ISSUES

¶ 10 The overarching issue in this appeal is whether the district court properly dismissed Yknot's counterclaims under the two-dismissal rule found in rule 41(a)(1) of the Utah Rules of Civil Procedure

. Yknot offers five arguments why, in its view, the two-dismissal rule should not apply here.

¶ 11 First, Yknot argues that the two-dismissal rule should not apply because applying it here does not serve the purposes of the rule.

¶ 12 Second, Yknot argues that the two-dismissal rule should not apply because Yknot's voluntary dismissal of the federal complaint should be considered a stipulated dismissal to which the two-dismissal rule should not apply.

¶ 13 Third, Yknot argues that the two-dismissal rule should not apply because Yknot dismissed the federal case based on jurisdictional issues.

¶ 14 Fourth, Yknot argues that the two-dismissal rule should not apply because Yknot dismissed its second complaint to pursue arbitration in a foreign country.

¶ 15 Finally, Yknot argues that the two-dismissal rule should not apply to counterclaims.

¶ 16 “A ruling on a motion to dismiss presents a legal question that we review for correctness, affording no deference to the district court's decision.” Turner v. Staker & Parson Co. , 2012 UT 30, ¶ 7, 284 P.3d 600

.

ANALYSIS

¶ 17 Similar to its federal counterpart, rule 41 of the Utah Rules of Civil Procedure

governs the dismissal of actions. Subsection (a)(1) contains the two-dismissal rule. Under that subsection, the first voluntary dismissal of an action is, unless otherwise stated, without prejudice, but the second dismissal operates as an adjudication on the merits:

Subject to the provisions of Rule 23(e) and of any applicable statute, an action may be dismissed by the plaintiff without order of court by filing a notice of dismissal at any time before service by the adverse party of an answer or other response to the complaint permitted under these rules. Unless otherwise stated in the notice of dismissal, the dismissal is without prejudice, except 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 claim.

Utah R. Civ. P. 41(a)(1)

(emphasis added). “[I]t is the duty and practice of this court to adhere to the plain language of a rule.” St. Jeor v. Kerr Corp., 2015 UT 49, ¶ 12, 353 P.3d 137 (citing Dipoma v. McPhie, 2001 UT 61, ¶ 11, 29 P.3d 1225 ). Moreover, “where the text of the rule is clear and unambiguous, our inquiry ends, and we need not resort to additional methods of interpretation.” Id. (citing Clark v. Archer, 2010 UT 57, ¶ 9, 242 P.3d 758 ).

¶ 18 The text of rule 41(a)(1)

seems clear enough. Unless otherwise stated, the first voluntary dismissal of a claim is without prejudice. But the second dismissal of the same claim operates as an adjudication on the merits, prohibiting a third bite at the same apple, regardless of where the claim was brought before.

¶ 19 Here, in the language of the rule, Yknot filed two notices of voluntary dismissal of the same claim, one in federal district court and one in state district court. Yknot acknowledges that both dismissals were voluntary and that both complaints arose from the same set of facts. And Yknot does not argue that rule 41

is ambiguous or unclear. Rather, it offers a number of reasons why the rule should not apply here.

I. Rule 41 (a)(1)

Means What It Says.

¶ 20 Yknot contends that “the two-dismissal rule should be narrowly applied” because “its purpose is not served by application in this matter.” The rule should be narrowly construed, Yknot argues, where its literal application would “ ‘close...