In Rare Cases, Attorneys’ Fees and Costs May be Awarded When Case is Voluntarily Dismissed With Prejudice

Carroll v. E One, Inc., 893 F.3d 139 (3d Cir. 2018).  Near the start of his opinion in this case, Chief Judge Smith observed that “[a]ttorneys’ fees and costs are typically not awarded when a matter is voluntarily dismissed with prejudice.”  But in this case, the District Court did award such fees and costs.  On plaintiffs’ appeal, the Third Circuit held that such an award is permitted in “extraordinary circumstances,” which Chief Judge Smith stated “include a litigant’s failure to perform a meaningful pre-suit investigation, as well as a repeated practice of bringing meritless claims and then dismissing them with prejudice after both the opposing party and the judicial system have incurred substantial costs.”  Those factors were present here.

Plaintiffs were firefighters who sued multiple defendants, claiming that they suffered hearing loss caused by the loud noise generated by defendant Federal Signal Corporation’s fire sirens.  This was one of hundreds of such cases brought by plaintiffs’ counsel.  Here, however, “deposition testimony revealed all Plaintiffs’ claims to be clearly time-barred.”  Moreover, one of the plaintiffs, Christopher Turner, did not in fact suffer from hearing loss caused by loud noises.  Federal Signal demanded that plaintiffs dismiss the case and threatened to seek fees and costs for the alleged failure of plaintiffs’ counsel to do sufficient pre-suit diligence.  Plaintiffs then filed a notice of voluntary dismissal without prejudice, purportedly under Federal Rule of Civil Procedure 41(a)(1), which was ineffective since all defendants had already answered the Complaint.

The District Court ultimately entered an order assessing $127, 823.47 in costs and fees under Rule 41(a)(2).  Plaintiffs appealed, but the Third Circuit affirmed.  Chief Judge Smith stated that the abuse of discretion standard of review applied to the Rule 41(a)(2) fee and cost award, while any questions of that underlay the District Court’s analysis were to be reviewed de novo.

Chief Judge Smith began by noting, as plaintiffs now agreed, that their effort to seek dismissal under Rule 41(a)(1) was improper.  That rule permits a plaintiff to dismiss unilaterally “before the opposing party serves either an answer or a motion for summary judgment.”  Alternatively, dismissal can occur by stipulation.  Federal Signal had not agreed to stipulate to dismissal, and because Federal Signal had answered the Complaint, plaintiffs’ attempt to dismiss the case unilaterally was a nullity.  Instead, Rule 41(a)(2), which requires “a court order, on terms that the considers proper,” was the right basis for dismissal.

The Third Circuit, Chief Judge Smith said, had not ruled as to when attorneys’ fees and costs may be awarded in connection with a Rule 41(a)(2) dismissal with prejudice.  He canvassed cases from other Circuits, and found persuasive Second and Tenth Circuit authority to the effect that “extraordinary circumstances” may sometimes warrant an award of fees and costs.

The panel cautioned, however, that “this standard constitutes a high bar for litigants to meet.  The run-of-the-mill case will not meet such a bar, even when a jurist believes that a more thorough pre-suit investigation should have been conducted.”  But the circumstances of this case justified the District Court’s award.

There were audiograms that showed that plaintiff Turner’s hearing loss was not caused by loud noises.  But plaintiffs’ counsel did not look at the audiograms before filing suit, or even when Turner’s deposition was about to occur, when Federal Signal’s counsel alerted plaintiffs’ counsel about what the audiograms showed.  And depositions of many other plaintiffs revealed that they had had annual hearing checks for years before filing suit, at which time they were told that loud noises had caused their hearing loss.  Again, “even a brief discussion with these clients in advance of filing would have alerted counsel to the reality that Plaintiffs knew about their hearing loss for multiple years in advance, making their claims obviously time-barred.”

The District Court also cited the fact that plaintiffs’ counsel had filed, and later dismissed with prejudice, comparable cases elsewhere.  Plaintiffs contended that courts may not look at cases outside their own jurisdiction for this purpose.  Chief Judge Smith did not agree.  “[A] district court may, in its discretion, give weight to such facts when considering terms of dismissal under Rule 41(a)(2)….  We will not require district courts to wear blinders when exercising the broad discretion afforded them under Rule 41(a)(2).”

The general rule remains that attorneys’ fees and costs are not awardable in connection with a Rule 41(a)(2) dismissal with prejudice.  Nonetheless, in rare and extreme cases such as this one, with its combination of failure to investigate seemingly at all prior to suit, and a pattern of hundreds of other similar cases filed by the same counsel, such an award can be appropriate.