Heyman v. M.L. Marketing Co. (In re Unis International, Inc.)

192 B.R. 715, 34 Fed. R. Serv. 2d 201, 34 Fed. R. Serv. 3d 201, 1996 Bankr. LEXIS 98, 28 Bankr. Ct. Dec. (CRR) 665
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedFebruary 2, 1996
DocketBankruptcy No. 95 B 06538; Adversary No. 95 A 01307
StatusPublished

This text of 192 B.R. 715 (Heyman v. M.L. Marketing Co. (In re Unis International, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Heyman v. M.L. Marketing Co. (In re Unis International, Inc.), 192 B.R. 715, 34 Fed. R. Serv. 2d 201, 34 Fed. R. Serv. 3d 201, 1996 Bankr. LEXIS 98, 28 Bankr. Ct. Dec. (CRR) 665 (Ill. 1996).

Opinion

MEMORANDUM OPINION

RONALD BARLIANT, Bankruptcy Judge.

INTRODUCTION

The chapter 7 Trustee has filed an adversary complaint virtually identical to a complaint filed pre-bankruptcy by the Debtor. That action was dismissed post-bankruptcy only because the Debtor’s attorneys had withdrawn and were not replaced by new counsel in the time required by a local rule. The issue here is whether that dismissal was “on the merits” and therefore res judicata as to this proceeding. Applying the plain language of Fed.R.Civ.P. 41(b), this Court finds that the dismissal order was on the merits and will therefore grant the defendant’s motion to dismiss this proceeding.

FACTS

The Trustee’s complaint states claims for breach of contract (Count I) and on account stated (Count II). This is the third complaint filed against the defendant on these claims. The Debtor, Unis International Corporation, filed the first action in the district court for this district. That case was dismissed for lack of jurisdiction over the defendant. The Debtor filed a second complaint in the district court of Maryland on May 21, 1993. Between November 1994 and December 1994, two attorneys for the Debtor withdrew, leaving Unis with one attorney who advised Unis that he also intended to withdrew. As required by Local Rule 101.2.(b), counsel notified Unis that it was required to have new counsel enter an appearance within 30 days of the filing of the motion to withdraw, or be subject to dismissal of its claims.

On March 27,1995, the clerk of the district court served a notice upon Unis advising it that 1) on March 9,1995, its counsel had filed a motion to withdraw; 2) Unis had 30 days from that date to have new counsel enter an appearance; and 3) if Unis did not obtain new counsel, the action could be dismissed. A copy of Local Rule 101.2.b, governing withdrawal of counsel, was attached to the notice.1

[717]*717Unis had until April 8, 1995, to obtain new counsel. It failed to do so, but, on April 4, 1995, Unis filed a petition in this court under Chapter 7 of the Bankruptcy Code. On April 28, 1995, after determining that Unis had not had new counsel enter an appearance on its behalf, the Maryland district court dismissed the action.

Meanwhile, in the bankruptcy case, the Trustee was appointed shortly after the petition was filed. On August 15, 1995, the Trustee obtained court approval to retain special counsel in the Maryland litigation. At the same time, the Trustee filed a motion in the Maryland case to vacate the order of dismissal pursuant to Fed.R.Civ.P. 60(b) and to be substituted as plaintiff in the case. On September 26, 1995, the district court granted the motion to substitute, but denied the motion to vacate. The Trustee filed a notice of appeal with the Fourth Circuit. That appeal is still pending.

On November 2, 1995, the Trustee commenced this proceeding by filing a complaint that is almost identical to the complaint in the Maryland case. The defendant filed a motion to dismiss the adversary proceeding on the grounds that the Maryland court’s order of dismissal was on the merits and with prejudice pursuant to Fed.R.Civ.P. 41(b), and, therefore, the present action is barred by res judicata. Alternately, the defendant argues that federal comity principles, or the “first to file rule,” require that the later action be dismissed.

DISCUSSION

Res Judicata

Res judicata will operate to bar a later action when the following three requirements have been met: “(1) A final judgment on the merits of an earlier action; (2) an identity of the cause of action in both the earlier and later suit; and (3) an identity of parties or privies in the two suits.” In re Maurice, 167 B.R. 136, 138 (Bankr.N.D.Ill.1994). Of the three elements, the only one at issue here is whether the order of dismissal in the Maryland case was a final judgment on the merits.

The order of dismissal entered by the Maryland district court did not specify whether dismissal was with or without prejudice. However, Rule 41(b), Fed.R.Civ.P., clearly states:

Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an adjudication upon the merits. [Emphasis added.]

Accordingly, when an action is dismissed, and the court does not specify that the dismissal is without prejudice, it is deemed to be with prejudice. LeBeau v. Taco Bell, Inc., 892 F.2d 605, 609 (7th Cir.1989); Kimmel v. Texas Commerce Bank, 817 F.2d 39, 41 (7th Cir.1987).

Despite the clarity of this rule, the trustee argues that 1) the order of dismissal cannot be with prejudice against a trustee in bankruptcy, relying on In re Raymond Constr. Co. of Florida, Inc., 6 B.R. 793 (Bankr.M.D.Fla.1980); and 2) the order should not be interpreted as a dismissal with prejudice.

In Raymond the court determined that a sua sponte state court order dismissing the plaintiff/debtor’s case was not binding on the trustee. This Court disagrees with the reasoning applied by the court in Raymond and declines to follow it. The bankruptcy judge relied upon a local rule of the state court providing for 90 days to substitute parties and § 108(a) of the bankruptcy code to extend that time as much as two years. The bankruptcy court’s reliance on § 108(a) was incorrect. Section 108(a) governs the time in which to commence an action. In Raymond the state court action was already pending; therefore, § 108(b) governed. Section 108(b) allows the trustee only an additional 60 days to act.2

The eases relied upon by the Trustee in support of his argument that the dismissal order should not be interpreted as with prejudice are equally unavailing in light of the unambiguous language of Rule 41(b). The [718]*718Trustee argues that because the relevant local rule does not specify the effect of dismissals thereunder, while a local rule governing dismissals for “want of prosecution” specifies that they are without prejudice, the intent of Local Rule 101.2.b must have been that any dismissal also be without prejudice. But it could also be argued that the district court for Maryland knew how to exercise the discretion afforded courts by Rule 41(b) and chose to exercise that discretion with respect to dismissals for want of prosecution, but not for other types of dismissals. This Court need not get into such a guessing game. Rule 41(b) was adopted to avoid precisely this type of speculation. What matters is that the order dismissing the case did not specify that it was without prejudice; under Rule 41(b), therefore, it “operates as an adjudication on the merits.” The local rule’s silence or, at most, ambiguity on the matter cannot substitute for the specificity required by Rule 41(b).

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192 B.R. 715, 34 Fed. R. Serv. 2d 201, 34 Fed. R. Serv. 3d 201, 1996 Bankr. LEXIS 98, 28 Bankr. Ct. Dec. (CRR) 665, Counsel Stack Legal Research, https://law.counselstack.com/opinion/heyman-v-ml-marketing-co-in-re-unis-international-inc-ilnb-1996.