H&H Network Services, Inc. v. Unicity International, Inc.

¶1 Unicity International, Inc. (Unicity) appeals the district

court's September 8, 2011 ruling dismissing with prejudice

Unicity's third-party claim for attorney fees against Roger Hooban.

We affirm in part and vacate in part.

¶2 On December 2, 2008, H&H Network Services, Inc. (H&H)

filed suit against Unicity alleging breach of a distributorship

H&H Network Services, Inc. v. Unicity International, Inc.

1. Hooban purchased H&H at a bankruptcy auction on November

30, 2004. While the parties refer to the claims against Hooban as

counterclaims, Hooban was not a party to H&H's complaint and

the claims against him are therefore third-party claims.

20120104-CA 2 2014 UT App 73

agreement between the parties and other related claims. Unicity

filed a counterclaim against H&H and a third-party claim against

Hooban, seeking declaratory judgments and an award of attorney

fees.1 H&H and Hooban then moved to dismiss Unicity's claims

against Hooban. On June 24, 2009, the district court granted the

motion in part, dismissing Unicity's declaratory judgment claims,

but denied the motion with respect to the attorney fees claim

against Hooban. The court acknowledged that Unicity's attorney

fees claim relied on a theory that Hooban was the alter ego of H&H

but explained that "Unicity ha[d] not pleaded alter ego in its

counterclaim.” Nevertheless, the court noted that "the case [was]

only six months old, so there [was] a possibility that Unicity

[would] file a motion to amend” its claim to include the alter ego

theory of liability as a basis for its attorney fees claim against

Hooban.

¶3 Over a year later, Unicity moved for leave to amend its

claim against Hooban so that it could pursue its alter ego theory of

liability. However, the court denied Unicity's motion, ruling that

it was untimely and unjustifiably delayed, and that allowing the

amendment would result in prejudice to H&H and Hooban.

Having been denied its request to amend, Unicity moved to

voluntarily dismiss its attorney fees claim without prejudice with

the expectation of refiling on a later date. H&H and Hooban filed

a memorandum in opposition seeking dismissal of Unicity's

attorney fees claim with prejudice. The court denied Unicity's

motion to voluntarily dismiss without prejudice and instead

dismissed with prejudice. Unicity timely appeals.

¶4 Under rule 41 of the Utah Rules of Civil Procedure, a trial

court has discretion to determine whether to grant a motion for

H&H Network Services, Inc. v. Unicity International, Inc.

20120104-CA 3 2014 UT App 73

voluntary dismissal. Murray First Thrift & Loan Co. v. Benson, 563

P.2d 185, 186 (Utah 1977). The rule entitles a court to grant or

dismiss the motion "upon such terms and conditions as the court

deems proper.” Utah R. Civ. P. 41(a)(2)(ii). Accordingly, "[w]e

review a trial court's decision to dismiss a claim with prejudice for

an abuse of discretion.” Albrecht v. Bennett, 2002 UT App 64, ¶ 14,

44 P.3d 838. "This judicial discretion is key to ensuring that claims

that should not be brought again are not dismissed without

prejudice.” Nu-Med USA, Inc. v. 4Life Research, LC, 2008 UT 50, ¶ 8,

190 P.3d 1264. Additionally, rule 41(a) states, "Unless otherwise

specified in the order, a dismissal under this paragraph is without

prejudice.” Utah R. Civ. P. 41(a)(2)(ii). Thus, a court may dismiss an

action with prejudice under rule 41(a)(2) as long as the court so

specifies in the dismissal order. See id.; Nu-Med, 2008 UT 50, ¶ 7

("The plain language of [rule 41(a)(2)(ii)] suggests that a court

order might specify that a dismissal is with prejudice.”).

¶5 Unicity argues that the district court abused its discretion by

denying Unicity's motion to dismiss without prejudice and instead

dismissing with prejudice Unicity's attorney fees claim against

Hooban. The district court ruled that "dismissing the remaining

cause of action with prejudice is a reasonable and appropriate

avenue to resolve this nearly-fully litigated, two-year-old case.”

The court based its decision, in part, on the probable extent to

which Hooban and H&H would be prejudiced if Unicity's motion

to dismiss without prejudice were granted. The court also applied

the four factors from Ohlander v. Larson, 114 F.3d 1531 (10th Cir.

1997), that we applied in an earlier case. See Rohan v. Boseman, 2002

UT App 109, ¶¶ 21–22, 46 P.3d 753 (explaining that "'[a]bsent legal

prejudice to the defendant, the [trial] court normally should grant'”

a motion for voluntary dismissal, and setting forth factors relevant

to the prejudice analysis (alterations in original) (quoting Ohlander,

114 F.3d at 1537)). The Ohlander factors are the opposing party's

effort and expense in preparing for trial, excessive delay and lack

of diligence on the part of the movant, insufficient explanation for

the need for a dismissal, and the present stage of litigation.

Ohlander, 114 F.3d at 1537. The Ohlander factors are "by no means

H&H Network Services, Inc. v. Unicity International, Inc.

2. In an order dated November 25, 2009, the district court granted

Unicity's motion for judgment on the pleadings as to the original

December 2, 2008 complaint filed by H&H. The court then twice

awarded Unicity attorney fees against H&H, once on June 29, 2010,

and again on September 21, 2010.

20120104-CA 4 2014 UT App 73

exclusive” and "[a]ny other relevant factors should” also be

considered. Id.

¶6 The district court concluded that H&H and Hooban would

suffer "severe prejudice” under Ohlander if it were to grant

Unicity's motion to dismiss without prejudice. The court ruled, for

example, that Unicity failed to provide reasonable or justifiable

excuse or explanation for its failure to proceed for more than a year

in moving to amend its pleadings to include an alter ego claim

against Hooban. The court also concluded that "H&H would be

prejudiced by extending Unicity the opportunity to bring yet

another lawsuit for attorney fees against Hooban . . . because

[H&H] may have to indemnify Hooban for the resulting expenses.”

Additionally, the court determined that granting Unicity's motion

to dismiss without prejudice "would harm judicial economy, as it

appear[ed] to circumvent the Court's earlier decision” denying

Unicity's motion to amend. Indeed, the possibility of subsequent

litigation on the same claim may in some cases constitute prejudice.

See Nu-Med, 2008 UT 50, ¶ 8 ("Conceivably, a dismissal without

prejudice of a plaintiff's or counter claimant's claim could result in

costly relitigation of the dismissed claim.”). Finally, the court noted

that it had already granted Unicity judgment against H&H.2 Based

on our review of the record and the district court's treatment of the

Ohlander and other relevant factors, we conclude that the court

acted within its discretion by dismissing Unicity's attorney fees

claim against Hooban with prejudice.

¶7 Unicity argues that a dismissal with prejudice under rule

41(a) required notice of the court's intention to dismiss with

prejudice, an opportunity to be heard in opposition to dismissal

H&H Network Services, Inc. v. Unicity International, Inc.

20120104-CA 5 2014 UT App 73

with prejudice, and an opportunity to withdraw the request for

voluntary dismissal and to proceed with the litigation. Because

these specific procedural requirements have not been adopted by

Utah courts, Unicity relies on cases interpreting rule 41 of the

Federal Rules of Civil Procedure. See, e.g., United States v. 266

Tonawanda Trail, 95 F.3d 422, 425–26 (6th Cir. 1996); Jaramillo v.

Burkhart, 59 F.3d 78, 79 (8th Cir. 1995); Choice Hotels Int'l, Inc. v.

Goodwin & Boone, 11 F.3d 469, 471–72 (4th Cir. 1993); Gravatt v.

Columbia Univ., 845 F.2d 54, 56 (2d Cir. 1988); Andes v. Versant Corp.,

788 F.2d 1033, 1037 (4th Cir. 1986). We need not decide whether

Utah law requires such additional process because either way the

result in this case would not be different. The record indicates that

Unicity received notice of a possible dismissal with prejudice as

early as May 4, 2011, when H&H and Hooban submitted their

opposition to Unicity's motion to dismiss requesting that the

district court dismiss with prejudice. Unicity then availed itself of

the opportunity to argue in its reply memorandum that application

of the Ohlander factors weighed in favor of a dismissal without

prejudice. The motion hearing occurred on August 29, 2011, nearly

four months later. At the hearing, counsel for Unicity

acknowledged the possibility of dismissal with prejudice, stating,

"The rule that applies, of course, provides that under Rule 41 we

file our own motion to dismiss if we elect not to go forward, and

then the Court decides is it with prejudice or without prejudice.”

(Emphasis added.) Unicity was aware that the district court might

dismiss with prejudice and it had an opportunity to respond to and

argue against that possibility. Accordingly, we affirm the district

court's denial of Unicity's motion to dismiss without prejudice and

the court's dismissal with prejudice of Unicity's attorney fees claim

against Hooban.

¶8 Unicity also challenges the district court's determination that

principles of res judicata would preclude Unicity from filing a new

claim for attorney fees against Hooban under an alter ego theory.

Res judicata encompasses two distinct legal theories: claim

preclusion and issue preclusion. Gillmor v. Family Link, LLC, 2012

UT 38, ¶ 10 n.4, 284 P.3d 622. Claim preclusion prevents parties

H&H Network Services, Inc. v. Unicity International, Inc.

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from raising claims or causes of action that could and should have

been litigated in a prior action between those parties. Id. ¶ 10. Issue

preclusion prevents parties from relitigating facts or issues that

were fully litigated in a prior action involving one or more of the

parties. Macris & Assocs., Inc. v. Neways, Inc., 2000 UT 93, ¶ 19, 16

P.3d 1214. However, res judicata in either of its forms is an

affirmative defense to subsequent claims, State v. Perank, 858 P.2d

927, 931 n.3 (Utah 1992), and the party asserting the preclusive

effect of prior litigation has the burden of proving the elements of

res judicata, Busch v. Busch, 2003 UT App 131, ¶ 6, 71 P.3d 177.

¶9 The district court determined that its ruling in this case

would have preclusive effect if Unicity were to bring a future claim

against Hooban for attorney fees based on an alter ego theory.

However, res judicata is a defense that may be raised only to

successive litigation. An action raising claims or issues that

implicate the doctrine must be filed before a res judicata defense is

ripe for adjudication. Because there is no second case raising these

claims, the district court was not in a position to evaluate the

preclusive effect of its ruling in this case on a hypothetical future

alter ego claim by Unicity against Hooban. Instead, if Unicity files

a new claim for attorney fees against Hooban and Hooban raises

either form of res judicata as a defense, the district court in that

case should then determine whether the court's rulings in this case,

or any other litigation between the parties, prevent Unicity from

maintaining the action. Accordingly, we vacate the district court's

determinations—without expressing any opinion as to the merits

of those determinations—that claim preclusion and issue

preclusion bar Unicity from bringing a future claim for attorney

fees against Hooban.

See above