United States Court of Appeals For the First Circuit

No. 21-1112

VS PR, LLC,

Plaintiff, Appellee,

v.

ORC MIRAMAR CORPORATION; OSVALDO RIVERA-CRUZ; EXELIX CONSTRUCTION, CORP.; WTB PARTNERS CORP.; DISTRICT 1, CORP.; OSVALDO RIVERA & ASSOCIATES, P.S.C.; DT CONSULTING ENGINEERING CORP.; ALDRE DEVELOPMENT, CORP.; JV CONSULTING ENGINEERING CORP.,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Gustavo A. Gelpí, U.S. District Judge]

Before

Barron, Chief Judge, Howard and Thompson, Circuit Judges.

Edilberto Berríos Pérez, with whom REC Law Services, PSC was on brief, for defendants-appellants. Herman G. Colberg-Guerra, with whom María D. Trelles- Hernández, Pietrantoni Méndez & Álvarez LLC, Henry O. Freese Souffront, Carmen M. Alfonso Rodríguez, and McConnell Valdés LLC were on brief, for plaintiff-appellee. May 13, 2022 BARRON, Chief Judge. This appeal arises from the

decision by the United States District Court for the District of

Puerto Rico to dismiss without prejudice a collection and

foreclosure action that VS PR, a limited liability corporation,

brought against several defendants. The defendants argue on appeal

that the District Court should have dismissed the case with

prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1).

We disagree, and so we affirm.

I.

VS PR originally filed suit in the Puerto Rico Court of

First Instance on August 13, 2019, against ORC Miramar Corporation,

Osvaldo Rivera Cruz, Exelix Construction Corp., W.T.B. Partners

Corp., District 1 Corp., Osvaldo Rivera & Associates P.S.C., DT

Consulting Engineering Corp., Aldre Development Corp., and JV

Consulting Engineering Corp. VS PR alleged in the complaint in

that case that the defendants had received two loans from VS PR

that had been secured, in part, with real property. VS PR asked

the Court of First Instance to declare the payment obligation for

the loans due and sought to foreclose on the real property that

secured one of the loans.

On September 5, 2019, however, VS PR filed a notice of

withdrawal, in which it requested that the Court of First Instance

order the complaint withdrawn without prejudice. The Court of

- 3 - First Instance "issue[d] a Judgment granting the Plaintiff [its]

withdrawal without prejudice of the suit" on November 13, 2019.

VS PR then filed the complaint that gave rise to this

appeal on September 11, 2019, against the same defendants in the

District of Puerto Rico in which VS PR alleged similar facts and

sought the same relief. VS PR alleged that the federal court had

subject matter jurisdiction over the suit pursuant to

because the parties were completely diverse and the amount

in controversy exceeded $75,000.

The defendants responded to the complaint by moving to

dismiss the case for lack of subject matter jurisdiction. The

defendants argued in relevant part that VS PR had not established

that complete diversity between the parties existed, as required

by

(a)(1), because VS PR is a limited liability

corporation, such a corporation has the same citizenship as each

one of its members, and VS PR had not alleged the citizenships of

each of its members.

VS PR argued in response that it had alleged in its

complaint that there was complete diversity between the parties,

and that it had shown in a Declaration of Jurisdictional Facts

that its sole member -- another limited liability corporation --

was, by virtue of the citizenships of the members of that member

corporation, a citizen of Delaware, Maryland, Massachusetts,

Michigan, New Jersey, New York, Pennsylvania, and Virginia.

- 4 - The defendants, with permission from the District Court,

filed a reply arguing that VS PR had acknowledged its complaint

was insufficient to establish subject matter jurisdiction and that

the Declaration of Jurisdictional Facts had "the same and

additional flaws and deficiencies." The defendants pointed to

specific members of the sole member of VS PR that were themselves

limited liability corporations, state retirement systems, or

partnerships or trusts whose citizenships VS PR had not adequately

described. VS PR, also with permission from the District Court,

filed a sur-reply, along with an unsworn Declaration Affirming

Jurisdictional Facts.

The District Court denied the defendants' motion to

dismiss for lack of jurisdiction without prejudice on September

11, 2020. The District Court at that time also directed the

parties to submit a joint proposed timetable for jurisdictional

discovery within a week. The District Court thereafter approved

the plan the parties submitted. Following jurisdictional

discovery, the defendants answered the complaint on December 1,

2020, and continued to assert that the District Court did not have

diversity jurisdiction over the case.

On December 15, 2020, the defendants filed a motion in

which they alleged that discovery "ha[d] yielded evidence of

absence of diversity jurisdiction" following the investment of

"[s]ignificant time, effort and resources" that were "devoted to

- 5 - establish the factual and legal grounds upon which dismissal is to

occur." The defendants indicated that they intended to file a

counterclaim but would not do so in order to avoid "additionally

burdening the Court and its valuable resources" when it was "highly

probable" that the case would "be dismissed voluntarily or

involuntarily." The defendants also indicated that they had

instigated the "safe harbor" procedure under Federal Rule of Civil

Procedure Rule 11(c)(2) to seek sanctions against VS PR.1

A week later, on December 22, VS PR filed a motion to

dismiss the complaint voluntarily pursuant to Federal Rule of Civil

Procedure 41(a)(2). The motion specifically noted that

Rule 41(a)(2) provided for voluntary dismissal in cases in which

"an answer or motion for summary judgment has been served." It

also noted that "[u]nless otherwise ordered by the court, a

dismissal under Fed. R. Civ. P. 41(a)(2) is without prejudice"

(emphasis in original).2

Rule 11(c)(2) provides that "[a] motion for sanctions 1

. . . must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets." Rule 41(a) provides for three forms of "Voluntary 2

dismissal": (1) By the Plaintiff. (A) Without a Court Order. Subject to Rules 23(e), 23.1(c), 23.2, and 66 and any applicable federal statute, the plaintiff may dismiss an action without a court order by filing:

- 6 - The defendants objected to the motion. They argued that

VS PR had acknowledged that the District Court lacked subject

matter jurisdiction due to a lack of complete diversity of the

parties and that this "necessarily results in dismissal," such

that the criteria used for determining if "the voluntary

dismissal . . . is with or without prejudice" would not apply, as

a dismissal for lack of subject matter jurisdiction was not an

"ordinary garden variety voluntary dismissal." They further

argued that the District Court not only had to dismiss the case on

(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or (ii) a stipulation of dismissal signed by all parties who have appeared. (B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice. But if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits. (2) By Court Order; Effect. Except as provided in Rule 41(a)(1), an action may be dismissed at the plaintiff's request only by court order, on terms that the court considers proper. If a defendant has pleaded a counterclaim before being served with the plaintiff's motion to dismiss, the action may be dismissed over the defendant's objection only if the counterclaim can remain pending for independent adjudication. Unless the order states otherwise, a dismissal under this paragraph (2) is without prejudice.

- 7 - that ground but also had to do so with prejudice pursuant to Rule

41(a)(1)(B).

The District Court granted VS PR's motion for voluntary

dismissal pursuant to Rule 41(a)(2) and dismissed VS PR's action

without prejudice. The defendants timely appealed, on the ground

that the dismissal must be with prejudice.

II.

The defendants argue that, in consequence of the phrase

"[e]xcept as provided in Rule 41(a)(1)" in Rule 41(a)(2), the

requirement to dismiss an action with prejudice following a second

voluntary dismissal that Rule 41(a)(1)(b) sets forth applies here,

even though the voluntary dismissal that is at issue was made

pursuant to a court order that did not provide for the dismissal

to be with prejudice. Reviewing de novo, see, e.g., Crowley v.

L.L. Bean, Inc.,

(1st Cir. 2004) ("[W]e typically

review the interpretation of a federal procedural rule de novo

. . . ."), we disagree.3

3 The defendants contend that because there is not complete diversity between the parties, we do not have subject matter jurisdiction to hear their appeal based on the diversity of the parties. They nonetheless contend that we do have subject matter jurisdiction based on the federal question that this appeal presents because their appeal turns on their contention that Rule 41 compels that VS PR's action be dismissed with, rather than without, prejudice. We may assume that is so, because, as we will explain, there is no merit to the defendants' appeal. Cf. Alvarado v. Holder,

(1st Cir. 2014) (noting that "we may occasionally bypass statutory jurisdiction," and "exercise 'hypothetical jurisdiction'" "when precedent clearly dictates the

- 8 - The Supreme Court of the United States has explained

that "[t]housands of statutory provisions use the phrase 'except

as provided in . . .' followed by a cross-reference in order to

indicate that one rule should prevail over another in any

circumstance in which the two conflict." Cyan, Inc. v. Beaver

Cty. Emps. Retirement Fund,

(2018) (ellipsis

in original). It follows that the "except as provided" phrase in

Rule 41(a)(2) plainly addresses the "conflict," Cyan,

, that otherwise would exist between the bar that is set

forth in paragraph (2) of Rule 41(a) to making a voluntary

dismissal without a court order, see Fed. R. Civ. P. 41(a)(2)

("[A]n action may be dismissed at the plaintiff's request only by

court order" (emphasis added)), and the authorization for making

a voluntary dismissal without a court order in certain

circumstances that is set forth in paragraph (1) of Rule 41(a).

The "except as provided" phrase does so by making clear that,

notwithstanding the use of the word "only" in Rule 41(a)(2),

dismissals without court orders are permitted in the circumstances

provided for in Rule 41(a)(1)(A). The "[e]xcept as provided"

phrase thus does not, at least in resolving that conflict, do the

work that the defendants in bringing this appeal claim that it

does, because the resolution of that conflict does not implicate

result on the merits" (quoting Royal Siam Corp. v. Chertoff,

(1st Cir. 2007))).

- 9 - the dismissal-with-prejudice requirement in Rule 41(a)(1) in the

least.

Moreover, there is no textual basis for concluding that

the "[e]xcept as provided" phrase in Rule 41(a)(2) also resolves

some other conflict between the two paragraphs of Rule 41(a) that

would make the dismissal-with-prejudice requirement set forth in

paragraph (1) of Rule 41(a) applicable to the kind of voluntary

dismissal that paragraph (2) of Rule 41(a) addresses. And that is

because there is no "conflict," Cyan,

, between

the two paragraphs of Rule 41(a) that implicates the dismissal-

with-prejudice requirement, given that the first paragraph

addresses how an action must be dismissed only following "a notice

of dismissal" while the second paragraph addresses how an action

must be dismissed only following a voluntary dismissal pursuant to

a court order.

The defendants also fail to identify any precedent that

would compel -- or even support -- their reading of Rule 41(a).

In fact, the defendants acknowledge that there is no such authority

from our circuit. And, while they point to Dvorak v. Granite Creek

GP Flexcap I, LLC,

(7th Cir. 2018), and Shaver v.

Barrett Daffin Frappier Turner & Engel, L.L.P.,

(5th Cir. 2014), as if each provides support for their position,

neither case speaks to the proper way to dismiss an action

following a voluntary dismissal pursuant to a court order under

- 10 - Rule 41(a)(2), which is the type of voluntary dismissal that is at

issue here.

The defendants do briefly gesture at an argument based

on the purpose of Rule 41 by citing to a dictum in Cooter & Gell v.

Hartmarx Corp.,

(1990), which states that "Rule

41(a)(1) was intended to eliminate 'the annoying of a defendant by

being summoned into court in successive actions and then, if no

settlement is arrived at, requiring him to permit the action to be

dismissed and another one commenced at leisure,'"

at 397

(quoting 2 Am. Bar Ass'n, Proceedings of the Institute on Federal

Rules 350 (1938)). But, that dictum cannot overcome the text of

Rule 41(a), which, as we have explained, requires that an action

must be dismissed with prejudice following a voluntary dismissal

pursuant to a court order only when the court order so provides.

Nor are the defendants' remaining arguments of any help to them,

because they address only whether the parties can stipulate that

a second dismissal under Rule 41(a)(1) is without prejudice, rather

than the prejudicial effect of a voluntary dismissal pursuant to

a court order under Rule 41(a)(2).4

III.

Affirmed.

4 We thus need not address VS PR's argument that we should affirm the District Court's judgment on judicial estoppel grounds.

- 11 -