The District Court in S. Freedman & Co., Inc. v. Raab, 2007 U.S. Dist. LEXIS 44532 (D.N.J. June 18, 2007), had originally dismissed the plaintiff’s complaint without prejudice under Rule 12(h)(3) because the complaint lacked adequate jurisdictional allegations. Rather than correcting the allegations, plaintiff appealed the dismissal to the Third Circuit contending (without explanation) that the Court of Appeals had jurisdiction under 28 U.S.C. § 1291. The Third Circuit recited in its opinion that it had jurisdiction pursuant to § 1291, and it proceeded to affirm the dismissal for lack of subject matter jurisdiction. The plaintiff instituted a state court action the substantive allegations of which were "identical or nearly identical" to those contained in the original federal complaint. The defendant removed the action to the District Court and then filed a motion for summary judgment seeking a holding that the plaintiff was precluded by res judicata from pursuing the pending litigation. The issue of first impression was whether the decision by the Court of Appeals to exercise its appellate jurisdiction pursuant to 28 U.S.C. § 1291 over an order dismissing a case without prejudice necessarily converted the dismissal to one with prejudice. In concluding that the answer was affirmative, District Judge Robert B. Kugler noted that § 1291 jurisdiction over ‛all final decisions“ of the District Court ordinarily excludes dismissals without prejudice under Rule 12(h)(3). He observed that:

It is well-settled that if a plaintiff chooses to stand on his complaint, an appellate court may exercise jurisdiction over a dismissal without prejudice under § 1291, thereby converting the dismissal into one with prejudice. However, to this Court's knowledge no court has specifically stated that the converse is true, which is to say that if a court of appeals exercises jurisdiction over a district court's order dismissing a case without prejudice, it necessarily follows that the plaintiff stands on his complaint or that the dismissal is otherwise deemed to be converted to one with prejudice

The S. Freedman Court looked at the implications of its answer to the question thus posed: ‛[E]ither the Third Circuit erred in granting appellate jurisdiction under § 1291, or it did so upon proper grounds, specifically determining that Plaintiff was unable to correct the deficiencies in his Complaint or that Plaintiff chose to stand on his Complaint.“ Unwilling (and perhaps unable?) to conclude that the Third Circuit erred, the District Court held that the Third Circuit's implicit finding that the dismissal was with prejudice necessarily led to the conclusion that the District Court's prior dismissal was to be treated as having been based on the prior action's substantive merits. Held, summary judgment for defendant on res judicata grounds granted.

Query: Why wasn't the Third Circuit's decision also res judicata that the District Court lacked jurisdiction over the subject matter of the second lawsuit?