Vs Pr, LLC v. Orc Miramar Corporation

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.

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May 13, 2022

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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order the complaint withdrawn without prejudice.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

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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 28 U.S.C.
§ 1332 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 28 U.S.C. § 1332(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.

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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

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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
1 Rule 11(c)(2) provides that "[a] motion for sanctions
. . . 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."
2 Rule 41(a) provides for three forms of "Voluntary
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:

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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.

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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., 361 F.3d 22, 25 (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, 743 F.3d 271, 276 (1st Cir. 2014) (noting that "we may
occasionally bypass statutory jurisdiction," and "exercise
'hypothetical jurisdiction'" "when precedent clearly dictates the

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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, 138 S. Ct. 1061, 1070 (2018) (ellipsis
in original). It follows that the "except as provided" phrase in
Rule 41(a)(2) plainly addresses the "conflict," Cyan, 138 S. Ct.
at 1070, 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, 484
F.3d 139, 143 (1st Cir. 2007))).

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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, 138 S. Ct. at 1070, 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, 908 F.3d 248 (7th Cir. 2018), and Shaver v.
Barrett Daffin Frappier Turner & Engel, L.L.P., 593 F. App'x 265
(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

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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., 496 U.S. 384 (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,'" id. 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.

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