172 F.3d 47, 1999 WL 16481 (6th Cir. 1999)
CompuServe sued Saperstein in federal district court for declaratory and other relief regarding particular agreements and certain business torts. Saperstein counterclaimed seeking damages for the same business torts and for violations of state business practices acts. At a pretrial conference hearing the district court, pursuant to CompuServe's motion, struck certain of Saperstein's counterclaims and sua sponte dismissed the others without prejudice. At a later date the district court granted a motion by CompuServe to dismiss its claims with prejudice, ending the action in full. Saperstein appeals both the dismissal of his original four counterclaims and the dismissal of CompuServe's claims.
For the reasons stated below, we AFFIRM the order of the district court dismissing CompuServe's claims with prejudice, and REVERSE and REMAND the order dismissing Saperstein's counterclaims.
I. BACKGROUND AND PROCEDURAL POSTURE
Jerry Saperstein is the sole shareholder of FontBank, Inc. The actions underlying this appeal stem from a contractual dispute between CompuServe and FontBank. The original agreement was for FontBank to manage and handle marketing and distribution for an electronic marketing device offered through CompuServe to its subscribers. In 1996 FontBank sued CompuServe in state court.
CompuServe then filed this federal action against both FontBank and Saperstein in an alleged attempt to combine all the relevant issues in one proceeding. The action was for declaratory judgment regarding the parties' agreements, defamation, intentional interference with contractual relations, and violations of the Ohio Deceptive Trade Practices Act. The district court found CompuServe's requests for a declaratory judgment to be compulsory counterclaims in the state court action.
Saperstein filed an answer that included counterclaims for defamation, intentional interference with business and contractual relations, and violations of Ohio and Illinois business practices acts. The claims as set forth were basically conclusory allegations without any factual support. Both parties moved for more definite statements. Saperstein filed an amended answer, adding somewhat to his original counterclaims. Shortly thereafter, without seeking leave of the court as required under Fed. R. Civ. P. 15(a), Saperstein refiled essentially the same answer with the addition of six new counterclaims.
Two days after holding a conference hearing the district judge issued an order sua sponte dismissing without prejudice Saperstein's original four counterclaims, ostensibly under authority from Fed. R. Civ. P. 16(c), and granting CompuServe's motion to strike the six counterclaims added in the Second Amended Answer.
CompuServe's belief that FontBank had no authority to sue it in state court fell through when FontBank registered as a foreign corporation in Ohio, and thereafter CompuServe aborted its attempt to consolidate actions in federal court by filing a motion to dismiss its federal complaint without prejudice. The district court denied that motion but granted CompuServe's later motion to dismiss its action with prejudice.
Saperstein challenges the dismissal of both his and CompuServe's claims.
II. ANALYSIS
A. Dismissal of CompuServe's Claims With Prejudice
Saperstein argues that the district judge should not have granted CompuServe's motion to dismiss its own action with prejudice and should have instead allowed CompuServe's case to go forward. Saperstein claims that he is prejudiced by this because it may prevent him from maintaining future state-law claims. We have jurisdiction over the dismissals as final orders of the district court pursuant to 28 U.S.C. § 1291.
In Smoot v. Fox, 340 F.2d 301 (6th Cir. 1964), this court granted a petition for a writ of mandamus ordering the respondent district judge to dismiss with prejudice the plaintiff's action, as had been requested. The court said: "We know of no power in a trial judge to require a lawyer to submit evidence on behalf of a plaintiff, when he considers he has no cause of action or for any reason wishes to dismiss his action with prejudice, the client being agreeable. A plaintiff should have the same right to refuse to offer evidence in support of his claim that a defendant has." There is no basis for an exception to the Smoot doctrine in this case.
Saperstein does not show substantial injustice, nor does he clearly indicate why he opposes the dismissal with prejudice at all. Saperstein argues only that dismissal of CompuServe's action at this time would prevent him from maintaining a suit for malicious prosecution, abuse of process, and spoliation of evidence. The district court found this argument unconvincing, and we agree. Saperstein's interpretation of Ohio and Illinois case law is mistaken. A cause of action for malicious prosecution in both states requires a termination in the plaintiff's favor. See Robb v. Chagrin Lagoons Yacht Club, Inc., 662 N.E.2d 9, 13 (Ohio 1996); Levin v. King, 648 N.E.2d 1108, 1110 (Ill. App. Ct. 1995). A dismissal with prejudice is a termination in favor of the plaintiff. In sum we conclude that the district court properly dismissed CompuServe's action with prejudice.
B. Subject Matter Jurisdiction Over Dismissal of Saperstein's Counterclaims
The district judge dismissed Saperstein's counterclaims without prejudice, finding that after three attempts, Saperstein was unable to state claims. In order for this court to have subject matter jurisdiction over the district court's dismissal of Saperstein's counterclaims, the decision must have been final. See 28 U.S.C. § 1291.
An order dismissing claims without prejudice is not a final decision where the party may simply cure the problem and refile unless the party declares the intention to stand on the pleading as it was written when the claims were dismissed. See Umbenhauer v. Woog, 969 F.2d 25, 30 n.6 (3d Cir. 1992). The court must discern whether the dismissal was the end of the action or merely a setback that can be cured by amendment. This court has said: "The special circumstances which will permit this court to regard such an order as final and appealable must be such as to make it clear that the court determined that the action could not be saved by any amendment of the complaint which the plaintiff could reasonably be expected to make, thereby entitling plaintiff to assume that he had no choice but to stand on his complaint." Azar v. Conley, 480 F.2d 220, 223 (6th Cir. 1973) (quoting Ruby v. Secretary of the United States Navy, 365 F.2d 385, 387 (9th Cir. 1966), cert. denied, 386 U.S. 1011 (1967)).
The law is clear when the district court expressly grants the dismissed party leave to amend. In such situations the dismissal is not final, and that order may not be appealed. See WMX Techs., Inc. v. Miller, 104 F.3d 1133, 1136 (9th Cir. 1997) (interpreting Jung v. K & D Mining Co., 356 U.S. 335 (1958)); Azar, 480 F.2d at 223; Borelli v. City of Reading, 532 F.2d 950, 952 (3d Cir. 1976).
When the district court is not clear, however, appellate jurisdiction is also not clear. See, e.g., United States v. Wallace & Tiernan Co., 336 U.S. 793 (1949) (allowing the appeal even though the case was dismissed without prejudice to filing another suit because as far as the district court was concerned, the case was over); Allied Air Freight, Inc. v. Pan American World Airways, Inc., 393 F.2d 441, 444 (2d Cir.), cert. denied, 393 U.S. 846 (1968) (stating that "dismissals with and without prejudice are equally appealable as final orders").
We hold that the district judge intended the dismissal without prejudice to be final, and for all important respects, the conclusion of the case. In the district judge's order dismissing Saperstein's claims, he wrote that under Federal Rule of Civil Procedure 16(c) the court may consider and take appropriate action with respect to "the formulation and simplification of the issues, including the elimination of frivolous claims or defenses." The court noted that the defendant had amended his counterclaims on two occasions subsequent to plaintiff's motion for a more definite statement and had failed to cure the defects. The court concluded that defendant was unable to sufficiently clarify his counterclaims so that they state claims upon which relief can be granted and dismissed counts one, two, three and four of defendant's counterclaims without prejudice, denying the defendant's request for further leave to amend. (Order of June 11, 1997.)
The district judge expressly denied Saperstein's request to amend further his counterclaims. Because the dismissal was "without prejudice," Saperstein is free to bring the dismissed claims as a separate suit at a separate time, but clearly, as far as the district judge was concerned, these claims would not reappear in this case. Because Saperstein was left with no opportunity to amend at all, and would be forced to begin yet another suit between the same parties, the determination of the district judge in these circumstances constitutes a final decision. As a result, we have jurisdiction over the appeal pursuant to 28 U.S.C. § 1291.
C. Dismissal of Saperstein's Counterclaims Without Prejudice
The district judge denied Saperstein leave to amend and dismissed Saperstein's claims after a Fed. R. Civ. P. 16 pretrial conference because he "amended his counterclaims on two occasions subsequent to [CompuServe's] motion for a more definite statement and ... failed to cure the defects." (Order of June 11, 1997.) We normally review for abuse of discretion a district court's refusal to grant leave to amend. See Crawford v. Roane, 53 F.3d 750, 753 (6th Cir. 1995), cert. denied, 517 U.S. 1121 (1996).
Saperstein's counterclaims were originally set out as conclusory allegations. In response to CompuServe's motion for a more definite statement with respect to two of Saperstein's counterclaims, he added the names of alleged culprits, and supplemented each with the language: "[t]o date, however, my efforts to identify those [defamatory] statements have been frustrated by plaintiff/counter-defendant CompuServe's refusal to comply with Requests for Interrogatories and Production of Documents. A true and accurate copy of CompuServe's reply to my Interrogatories and Request for Production of Documents is attached as Exhibit A." Saperstein did not set forth any specific facts or examples. He claims that he had the facts all along, but did not want to burden the court or his opposition at the pleading stage.
The district court dismissed all four of Saperstein's counterclaims, stating that he amended his claims twice after the motion for a more definite statement and still failed to state claims on which relief could be granted. However, Saperstein amended two of his four counterclaims once, as indicated above. His second amended answer added six new counterclaims, but was submitted without leave of court and did not offer any changes to the first four counterclaims. Indeed, CompuServe had not responded to the changes he had made to Counts One and Two in the first amended answer, and Saperstein believed he had complied with the motion for a more definite statement. Moreover, CompuServe never asked for a more definite statement with respect to the third and fourth counts, and CompuServe never objected to the third and fourth counts. CompuServe also never filed a motion to dismiss. The district judge sua sponte denied Saperstein's request for further leave to amend and dismissed his original four counterclaims after one opportunity to amend in response to a motion for a more definite statement.
Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend "shall be freely given when justice so requires." Whether to grant or deny such a request is typically within the discretion of the district court, but "cases should be tried on their merits rather than the technicalities of pleadings." "Abuse of discretion occurs when a district court fails to state the basis for its denial or fails to consider the competing interests of the parties and likelihood of prejudice to the opponent." "Outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules." Foman v. Davis, 371 U.S. 178, 182 (1962).
Here the district court, citing authority to rid the proceedings of frivolous claims under Rule 16, dismissed sua sponte four of Saperstein's counterclaims without leave to amend. Given that CompuServe neither moved for a more definite statement of the counterclaims nor for their dismissal, that the counterclaims were not found to be frivolous, that Saperstein is a pro se party, and that leave to amend is to be freely granted under Fed. R. Civ. P. 15(a), the court should have afforded Saperstein one more opportunity to amend. While the question is a close one, this error constitutes an abuse of discretion.
Under Fed. R. Civ. P. 41(a)(2), "[i]f a counterclaim has been pleaded by a defendant prior to the service upon the defendant of the plaintiff's motion to dismiss [the plaintiff's action], the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court." Although at the time CompuServe's claims were dismissed, Saperstein's counterclaims were no longer pending, it follows that because dismissal of the counterclaims was error, on remand the counterclaims must be reinstated and shall remain pending for independent adjudication despite the dismissal with prejudice of the plaintiff's original claims that we affirm today. The parties are diverse, and Saperstein's original claim was for $900,000, so there is independent subject matter jurisdiction over the counterclaims under 28 U.S.C. § 1332.
III. CONCLUSION
For the reasons stated above, we AFFIRM the district court's dismissal of CompuServe's claims with prejudice, REVERSE the district court's dismissal of Saperstein's counterclaims without prejudice, and REMAND for further proceedings consistent with this opinion.