Commercial Litigation and Arbitration

Dismissal of State Law Claim for Lack of Subject Matter Jurisdiction — with State Court Remaining an Open Alternative — Is Not a Favorable Termination Permitting an Award of Costs under Fed.R.Civ.P. 54(d)

From Adams v. Monumental Gen. Cas. Co., 2009 U.S. Dist. LEXIS 55194 (M.D. Ga. June 30, 2009), a Class Action Fairness Act (“CAFA”) action in which class certification was denied and the Court declined to exercise supplemental jurisdiction:

Presently pending before the Court is Plaintiff's Motion to Strike Defendant's Bill of Costs.... s motion presents an issue of first impression not yet addressed in this Circuit: whether the dismissal of an action based upon lack of subject matter jurisdiction, upon the denial of a motion for class certification and a declination to exercise supplemental jurisdiction over remaining state law claims, amounts to a favorable termination of the litigation such that the party against whom the claims were asserted is entitled to recover its costs. As discussed below, the Court finds that for purposes of the recovery of costs, such dismissal is not a favorable termination, and even if it is deemed a favorable termination, costs should not be awarded in this case.


Under Federal Rule of Civil Procedure 54(d)(1), "[u]nless a federal statute, these rules, or a court order provides otherwise, costs-other than attorney's fees-should be allowed to the prevailing party." There is a "strong presumption that the prevailing party will be awarded costs." ... Generally, "[a] defendant is a prevailing party if the plaintiff achieves none of the benefits sought in bringing its lawsuit." ... "Usually the litigant in whose favor judgment is rendered is the prevailing party for purposes of rule 54(d)." ... Moreover, if a plaintiff's federal claims are dismissed on the merits and the court declines supplemental jurisdiction over the remaining state law claims, the defendant is generally considered to be the "prevailing party." ...

In this action, Plaintiff asserted no federal substantive law claims, and therefore..., Defendant did not prevail on any federal substantive law claims. All of Plaintiff's substantive law claims were based upon state law. This Court had jurisdiction over this action under the diversity of citizenship provisions of the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.). The Court exercised supplemental jurisdiction over Plaintiff's individual state law claims. It is undisputed that Defendant prevailed on Plaintiff's motion for class certification. The denial of class certification removed the basis for federal subject matter jurisdiction unless the Court exercised its discretion to maintain supplemental jurisdiction over the remaining state law claim, which the Court ultimately declined to do. Therefore, the question arises as to whether Defendant's success on some of the state law claims and the motion for class certification makes it a prevailing party even though the primary state law claim was dismissed without prejudice.

A strong argument can be made that Defendant is not the prevailing party for purposes of Rule 54(d)(1). Although it prevailed on Plaintiff's motion for class certification, the claim for certification was not a federal substantive law claim. The underlying substantive law claim was a state law claim for breach of contract. Furthermore, the Court's dismissal of other state law claims on the merits does not diminish the merit of Plaintiff's breach of contract claim, which essentially sought the same primary relief as the other claims-a return of unearned premium. The primary individual relief being sought by Plaintiff was for a return of her unearned premium, and on that claim, Defendant did not prevail. Neither party prevailed because that claim was dismissed without prejudice. See Sequa Corp. v. Cooper, 245 F.3d 1036, 1037-38 (8th Cir. 2001) (per curiam) ("[A] voluntary dismissal without prejudice means that neither party can be said to have prevailed."). Based on the foregoing, the Court finds Plaintiff's argument that Defendant was not the prevailing party for purposes of an award of costs to be persuasive.

[Footnote 1] An argument could be made that Plaintiff prevailed on this claim because after she filed this action Defendant tendered to her the unearned premium refund. The Court notes that had that tender been accompanied by an offer of judgment in that amount pursuant to Federal Rule of Civil Procedure 68, Defendant would likely have been entitled to recover its costs as a matter of right.

Share this article:


Recent Posts