Mary Shoup Larry R. Shoup, Sr. v. Bell & Howell Company ( 1989 )

WILKINSON, Circuit Judge:

In this case we must determine if a dismissal by one federal court on statute of limitations grounds bars subsequent litigation of the same claim between the same parties in a second federal forum. The district court held it does not. We reverse and hold that pursuant to Fed.R.Civ.P. 41(b) the earlier statute of limitations ruling is a judgment on the merits subject to claim preclusion.

I.

On July 19, 1984, plaintiff Mary Shoup was injured while operating a mass mailing machine manufactured by defendant Bell & Howell Company. On July 14, 1986, she and her husband filed an action against defendant in the Court of Common Pleas of Pennsylvania alleging injury from the defective design and manufacture of the machine. Service was not obtained on defendant within the time required and the Shoups’ complaint was reinstated with the Court of Common Pleas in January, 1987. Service was then obtained on defendant, which removed the case to the United States District Court for the Eastern District of Pennsylvania on the basis of diversity of citizenship.

Following removal of the suit, Bell & Howell filed a motion for summary judgment asserting that the Shoups’ claims were barred by the Pennsylvania statute of limitations applicable to personal injury actions. Because service of process was not obtained on defendant until after the statute of limitations had run, the court granted defendant’s motion. The Shoups did not appeal the dismissal of their action.

On July 14, 1987, the Shoups filed lawsuits identical to the Pennsylvania action against Bell & Howell in both the United States District Court for the District of Maryland and the Circuit Court for Baltimore, Maryland. Defendant removed the latter action to the District of Maryland on the basis of diversity of citizenship and the two actions were consolidated. Bell & Howell then argued that the prior dismissal of plaintiffs’ action in the Pennsylvania federal court required a dismissal in the Maryland action. The district court held that claim preclusion did not bar plaintiffs’ suit, and this appeal followed. See 28 U.S.C. § 1292(b).

II.

Pursuant to claim preclusion doctrine “[a] valid and final personal judgment rendered in favor of the defendant bars another action by the plaintiff on the same claim.” Restatement (Second) of Judgments § 19 (1982). Three requirements exist for the invocation of claim preclusion: 1) the parties must be the same or in privity with the original parties; 2) the claims in the subsequent litigation must be substantially the same as. those in the prior litigation; and 3) the earlier litigation must have resulted in a final judgment on the merits. Id.; see also Adkins v. Allstate Ins. Co., 729 F.2d 974, 976 (4th Cir.1984). Of these requirements, only the third is at issue. We hold that the federal district court’s dismissal of plaintiffs’ Pennsylvania action on statute of limitations grounds is a final judgment on the merits.

We note at the outset that federal, not state, law determines the preclusive effect of a prior federal judgment, including the question of whether that judgment was on the merits. It is true that plaintiff filed her Maryland lawsuit within that state’s three-year limitations period for personal injury actions. Md.Cts. & Jud.Proc. Ann. § 5-101 (1984); Levin v. Friedman, 271 Md. 438, 317 A.2d 831, 835 (1974). That fact, however, does not determine whether an earlier identical action between the parties, found to be time barred because it was not filed within Pennsylvania’s two year statute of limitations, 42 Pa.Cons. Stat.Ann. § 5524 (Purdon 1981), precluded the plaintiffs from bringing the Maryland lawsuit.

The district court permitted the Maryland action to proceed on two grounds. First, the court held plaintiffs’ action was not precluded because Maryland conflicts law determines in a diversity action the effect of the earlier judgment and Maryland law regards the Pennsylvania statute of limitations as procedural. Because the statute is procedural, the district court reasoned, it merely bars plaintiffs’ remedy, not their right, and thus does not preclude plaintiffs from enforcing their right in a Maryland federal court where the Pennsylvania statute is inapplicable. Second, the district court held that Fed.R.Civ.P. 41(b) does not preclude plaintiffs’ present action because the prior summary judgment dismissal was not a dismissal on the merits for Rule 41(b) purposes.

We disagree on both grounds. While state law certainly controls the rights and duties of the parties in a federal action founded upon diversity of citizenship, Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), this circuit has recognized that “whether a federal court sits in diversity or has some other basis of jurisdiction, questions of the effect and scope of its judgment involve the power of the federal tribunal itself, and are not varied merely because state rules of decision underlie the judgment.” Harnett v. Billman, 800 F.2d 1308, 1312 (4th Cir.1986); see also Firemen’s Fund Insurance Co. v. International Market Place, 773 F.2d 1068, 1069 (9th Cir.1985); Precision Air Parts, Inc. v. Avco Corp., 736 F.2d 1499, 1503 (11th Cir.1984); Hunt v. Liberty Lobby, Inc., 707 F.2d 1493, 1497 (D.C.Cir.1983). The judgment of a federal court is no less a federal judgment because it was rendered in diversity. “Federal law determines the effects under the rules of res judicata of a judgment of a federal court,” Restatement (Second) of Judgments § 87 (1982), just as in a state court the law of the state in which the judgment was rendered determines the preclusive effect a federal court must give the judgment. Migra v. Warren City School Dist. Bd. of Ed., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984). Any other result would consign the effect of federal judgments to the uncertainties of state law in whatever jurisdiction a subsequent suit happened to be brought.

Here, the applicable federal law is Fed.R. Civ.P. 41(b). See 5 J. Moore, Moore’s Federal Practice II 41.14 (2d ed. 1987). It provides in pertinent part that:

Unless the court in its order for dismissal otherwise specifies, a dismissal under this subsection 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.

The plain language of the Rule indicates that the dismissal of plaintiffs’ Pennsylvania action on statute of limitations grounds is an adjudication on the merits. The federal court in Pennsylvania did not otherwise specify the dismissal to be “without prejudice,” and the Shoups failed to move the court, pursuant to Fed.R.Civ.P. 59(e) or 60(b)(6), to specify that the judgment was “without prejudice.” Moreover, the dismissal was not one “for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19,” nor was it a dismissal for want of a proper case or controversy, which some courts have held to be within the jurisdictional exception of Fed.R. Civ.P. 41(b). See McCarney v. Ford Motor Co., 657 F.2d 230 (8th Cir.1981) (dismissal for lack of standing); Korvettes, Inc. v. Brous, 617 F.2d 1021 (3rd Cir.1980) (dismissal for mootness).

Numerous courts have held that a Rule 41(b) limitations dismissal is a judgment on the merits. See PRC Harris, Inc. v. Boeing Company, 700 F.2d 894, 896 (2d Cir.1983); Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 562 (5th Cir.1983); Nathan v. Rowan, 651 F.2d 1223, 1226 (6th Cir.1981); Cemer v. Marathon Oil Company, 583 F.2d 830, 832 (6th Cir.1978); Chang v. Northwestern Memorial Hospital, 549 F.Supp. 90, 95 (N.D.Ill.1982); see also 5 J. Moore, Moore’s Federal Practice 1141.14 (2d ed. 1987). In a case analogous to the present one, PRC Harris, 700 F.2d 894 (2d Cir.1983), plaintiffs brought an action in New York state court against Boeing identical to a federal action in Washington dismissed earlier on statute of limitations grounds. That case, like this one, was removed to federal court. The Second Circuit affirmed the judgment of the district court in Boeing’s favor, holding that a “dismissal for failure to comply with the statute of limitations will operate as an adjudication on the merits, ...” Id. at 896. The court added that Rule 41(b) dictates this result because “all but certain enumerated dismissals will be considered ‘on the merits,’ and the Rule does not exempt a dismissal on statute of limitations grounds from its general operation.” Id. We find this reasoning compelling.

Appellees contend, however, that PRC Harris conflicts with Costello v. United States, 365 U.S. 265, 81 S.Ct. 534, 5 L.Ed.2d 551 (1961). See Burgess v. Cohen, 593 F.Supp. 1122, 1124 (E.D.Va.1984) (Costello indicates “scope of Rule 41(b) was not intended to include a dismissal on limitations grounds as an unqualified decision upon the merits”). At issue in Costello was whether a district court’s previous dismissal of a denaturalization proceeding because the government had failed to file an affidavit of good cause should operate as a dismissal on the merits so as to bar a subsequent denaturalization proceeding. The Supreme Court held that the dismissal was essentially one “ ‘for lack of jurisdiction,’ within the meaning of the exception under Rule 41(b).” Costello, 365 U.S. at 285, 81 S.Ct. at 544. The Court added that it regarded the lack of jurisdiction exception as “encompassing those dismissals which are based on a plaintiff’s failure to comply with a precondition requisite to the Court’s going forward to determine the merits of his substantive claim.” Id. See also Johnson v. Boyd-Richardson Co., 650 F.2d 147 (8th Cir.1981) (dismissal for failure to name defendant correctly on summons).

We cannot accept appellees’ contention that a dismissal on statute of limitations grounds is, like a dismissal for failure to file an affidavit of good cause, a dismissal for lack of jurisdiction, and thus not a final adjudication on the merits. “[Dismissals for want of jurisdiction are paradigms of non-merits adjudication.” See Nilsen, 701 F.2d at 562. In such a dismissal the court does not “regard the merits of an action.” It “merely classifies] [an] action, whatever its merits, as one on which the court concerned cannot speak.” In contrast, a statute of limitations dismissal assumes the court “could have spoken but refuses to do so.” Id. The power to declare law, including the law relating to the statute of limitations, is present. Of course, jurisdictional dismissals may involve a court in complex questions of law or fact, e.g., whether a defendant has sufficient contacts with the forum. So too may statutes of limitations dismissals, e.g., whether a limitations period has been tolled or when a cause of action has accrued. The former, however, must be resolved before a court may even undertake to speak on the latter, or indeed on any non-jurisdictional aspect of the case. Nothing may proceed until jurisdiction has attached.

Unlike Costello, the Shoups did not fail to comply with any “precondition” to the hearing of their claims by the Pennsylvania federal court. The Pennsylvania court here had jurisdiction to make a time bar determination. Fed.R.Civ.P. 41(b) recognizes that statutes of limitations embody public policies of protection against stale claims which are no less important than other rules of decision. Thus, claim preclusion acts to bar the Shoups’ action “even though the substantive issues have not been tried.” Restatement (Second) of Judgments § 19 comment a (1982); see also Adkins, 729 F.2d at 976.

The fact that the district court in Pennsylvania issued a summary judgment order reinforces the principle that adjudication was on the merits. In Adkins, this circuit held that “[f]or purposes of res judicata, a summary judgment has always been considered a final disposition on the merits.” Adkins, 729 F.2d at 976 n. 3; see also Pottratz v. Davis, 588 F.Supp. 949, 954 (D.Md.1984) (emphasis in original). (“A summary judgment dismissal is a final adjudication on the merits under Fourth Circuit cases”). Other courts and commentators have reached a similar conclusion. See Exhibitors Poster Exchange, Inc. v. National Screen Service Corporation, 421 F.2d 1313, 1319 (5th Cir.1970) (lack of pre-clusive effect for summary judgment dispositions “would compel the useless ritual of a formal trial to get the equivalent ruling at the end of the evidence”); Hubicki v. ACF Industries, Inc., 484 F.2d 519, 524 (3rd Cir.1973); Restatement (Second) of Judgments § 19 comment g (1982); 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4444 (1981).¹

III.

Claim preclusion promotes economy in the use of judicial resources and finality in litigation. Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 400-01, 101 S.Ct. 2424, 2428-29, 69 L.Ed.2d 103 (1981); Nevada v. United States, 463 U.S. 110, 129-30, 103 S.Ct. 2906, 2917-18, 77 L.Ed.2d 509 (1983). It “rests on a determination that justice is better served by attributing finality to judgments ... than by second efforts at improved results.” 18 Wright, Miller & Cooper, supra, at § 4415.

The instant case is one for which the doctrine of claim preclusion seems designed. The prior Pennsylvania action involved the same claim and the same parties present here. The case was finally adjudicated on the merits. To require defendant to litigate an identical action in Maryland would: 1) undercut the effect of the Pennsylvania judgment; 2) deplete limited judicial resources; and 3) either lead to inconsistent judgments or require a party to prevail twice.

We recognize that the fortuities of forum law may affect recovery. Federal law, however, does not permit a plaintiff to shop indefinitely for favorable statutes of limitations in every state where personal jurisdiction over a defendant might be found. We need not ponder all the factors that may have led plaintiff to file first in a Pennsylvania forum, for we are not at liberty to vary the principles of preclusion to accommodate them. The doctrine of res judicata “ ‘is not a mere matter of practice or procedure inherited from a more technical time than ours. It is a rule of fundamental and substantial justice, of public policy and of private peace, which should be cordially regarded and enforced by the courts....”’ Federated Department Stores, 452 U.S. at 401, 101 S.Ct. at 2429, quoting Hart Steel Co. v. Railroad Supply Co., 244 U.S. 294, 299, 37 S.Ct. 506, 508, 61 L.Ed. 1148 (1917). No principle of law sanctions its rejection.

The judgment of the district court is therefore REVERSED.

1 . The dissent’s discussion of our precedents is misplaced. The decision on which the dissenting opinion relies, Stebbins v. Nationwide Mutual Insurance Company, 528 F.2d 934 (4th Cir.1975), never so much as mentions the Rule we are required to interpret here. Moreover, Steb-bins found plaintiffs action precluded, a result the dissent now rejects. In fact, the dissent affords no more than an ad hoc example of how its standard of "manifest unfairness” is to operate. The dissent possesses some obligation to propose a workable rule of judicial administration, especially when at least three circuits, see PRC Harris, 700 F.2d at 896; Nilsen, 701 F.2d at 562; Nathan, 651 F.2d at 1226, fail to share its understanding of the preclusive effect of limitations dismissals. Under the dissent’s formulation, a limitations dismissal with preclusive effect in a subsequent suit brought in the Fifth Circuit, for example, would apparently be up for grabs in the Fourth.

Moreover, the dissent’s particularized approach to questions of preclusion is flatly inconsistent with that of Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), where the Supreme Court declared that "[t]he doctrine of res judicata serves vital public interests beyond any individual judge’s ad hoc determination of the equities in a particular case.” Id. at 401, 101 S.Ct. at 2429.

The decision which the dissent attempts to distinguish, Adkins, contains an unambiguous declaration that summary judgment dispositions are decisions on the merits. The dissenting opinion, in its own words, is not free "to ignore binding precedent" with which it disagrees. See note 8. Nor does the dissent possess the authority either to annul the Pennsylvania limitations period or to amend the plain terms of Rule 41(b), which simply does not include limitations dismissals among non-merits determinations.