Case of the Day: Derr v. Swarek

The case of the day is Derr v. Swarek (5th Cir. 2014). This was the appeal of the case of the day from Sept. 12, 2013. The basic facts: Thomas L. Swarek and Thomas A. Swarek sued Herman Derr in the Issqquena County, Mississippi chancery court seeking specific performance of a purchase and sale agreement and damages. Derr, who resided in Germany, moved to dismiss for lack of personal jurisdiction. He died while the case was pending, and his estate was substituted as defendant. The case was stayed while the parties fought about whether it belonged in the chancery court or in the circuit court. While the litigation was stayed, Derr’s heirs filed a lawsuit in a German court seeking a declaratory judgment on the contract claim. Swarek sought to substitute the heirs for the estate as parties in the Mississippi action, but the Swareks then voluntarily dismissed their claims with prejudice before the substitution. Ultimately the German courts decided that the Derr heirs were entitled to their declaratory judgment even though the Swareks (it would seem) had mooted the suit by dismissing their own claims with prejudice. (According to the German court, the dismissal was a “unilateral statement” that did not extinguish the Derr’s claims under German law). The German court awarded costs in the amount of $300,000 (!), and the Derrs sought recognition of the judgment for costs in Mississippi. As we saw in the earlier case, the district court refused recognition of the judgment, and the Derrs appealed.

On appeal, Judge Clement, writing for herself and Judge Smith, rejected the view that the German judgment was not entitled to recognition because the German action was intended to interfere with the Mississippi action. She noted that even if the Swareks could have sought an anti-suit injunction, they didn’t, and anyway, the rules about dealing with parallel proceedings apply only while the two proceedings are parallel, not once one has gone to judgment. But the judge had another ground for affirming the district court’s decision. the dismissal of the Mississippi lawsuit with prejudice operated as a final judgment on the merits and was res judicata. The Swareks could not have reasserted their claims against Derr or his heirs either in Mississippi or in Germany. The heirs argued that the dismissal had no res judicata effect because the court had lacked jurisdiction over them; “in an ordinary case,” the court noted, “a court’s dismissal of claims against a defendant—even if purportedly rendered on the merits—would not bar re-litigation of those claims if the court did not have personal jurisdiction over the defendant.” But here it was not the court that dismissed the case, but the Swareks, and under Mississippi’s Rule 41, which is similar to FRCP 41, a party has the right to dismiss an action with prejudice before the filing of an answer. Moreover, it was clear that the dismissal with prejudice operated against the heirs, even though they had not formally been joined as parties, given that they were in privity with Derr and his estate.

Under Mississippi law, a judgment will not be recognized if recognition would “render meaningless substantial rights of the non-moving party” or violate public policy. Here, according to the court, the German judgment failed both tests. The German court, by holding that the question of res judicata was open for litigation in Germany, had failed to accord comity to the outcome of the Mississippi (even though that outcome was a dismissal rather than a judgment), and had prejudiced the Swareks by refusing to permit them to put their own claims to rest via a dismissal with prejudice.

The Derr heirs argued that it was wrong to consider the German court’s substantive reasoning. All that they were seeking to enforce was the German judgment for costs, which they considered to be a separate item. But the court found this unpersuasive. The cost award “does not exist independently of the underlying judgment.”

Judge Davis dissented. He conceded arguendo that the Mississippi dismissal with prejudice operated as a final adjudication of the Swarek’s claims, but he argued that it did not conflict with the German judgment, because the German judgment ruled against the Swareks not because their claim was barred by res judicata, but on the merits. The German court also held that the heirs would have been entitled to costs even if it had ruled in their favor on the res judicata point. And some portion of the costs (the decision does not break this out) in Germany were incurred after the initiation of the German case but before the dismissal with prejudice. Surely those costs are fair game, Judge Davis reasoned.

Ultimately, I think this decision is likely to be of little importance, because Mississippi has not enacted either the UFMJRA or the UFCMJRA, and because of the highly unusual procedural posture.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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