Addressing the issue of whether a district court erred in granting a voluntary dismissal (in order to cure a standing issue) without first disposing of the pending counterclaims, the U.S. Court of Appeals for the Federal Circuit found that while the grant of dismissal was erroneous, it was “harmless error” and that making the dismissal without prejudice and without conditions was within the district court’s discretion. Walter Kidde Portable Equipment, Inc. v. Universal Security Instruments, Inc., Case No. 06-1420 (Fed. Cir., Mar. 2, 2007) (Jordan, J., 3rd Cir., sitting by designation).

Kidde initially brought suit against Universal Security Instruments (USI) alleging infringement of a patent relating to battery backup smoke detectors. The case proceeded to the stage of expert reports, even in the face of the defendants challenge to Kidde’s standing to assert the patent. Because Kidde’s expert reports were untimely, the district court granted USI’s motion to exclude the reports and declarations of Kidde’s three expert witnesses. However, because the district court had been concerned with a long-simmering standing issue raised by USI, challenging Kidde’s claim of ownership of the patent at the time the suit was filed, Kidde moved for voluntary dismissal, without prejudice or conditions, so that it could cure any standing defect (as it had long since perfected its claim to ownership of the subject patent). The motion was granted and the case was dismissed (Kidde I). Kidde then promptly filed a new action (Kidde II) on the same day in the same court. USI argued that the district court abused its discretion by granting Kidde’s motion to dismiss without prejudice or conditions.

Under Rule 41(a)(2) of the Federal Rules, courts have discretion to grant a plaintiff’s motion to voluntarily dismiss and to determine whether terms and conditions should be imposed when granting such a motion. Applying the law of the regional circuit to this procedural issue, the court noted that district court has discretion to grant a plaintiff’s motion for voluntary dismissal without prejudice, as long as there is no clear legal prejudice to the defendant. Factors indicative of prejudice include the opposing party’s effort and expense in preparing for trial, excessive delay and lack of diligence on the part of the movant, and insufficient explanation of the need for a voluntary dismissal and the present stage of litigation. An “abuse of discretion” standard is used when reviewing a district court’s decision to grant such a motion without prejudice or conditions. While the district court did not specify the grounds on which it granted Kidde’s motion to dismiss without resolving USI’s counterclaims, the Federal Circuit concluded that it was not an abuse of discretion to do so. The Federal Circuit explained that the dismissal of Kidde’s claims did not affect USI’s substantial rights, because USI would be able to reassert all of its counterclaims in Kidde II.

The Federal Circuit also noted that although the district court erred by not first determining whether it had subject matter jurisdiction over the counterclaims (i.e., were they asserted against the wrong party) before granting Kidde’s motion to voluntarily dismiss, the error was harmless. The Court reasoned that if the district court were to vacate the order granting voluntary dismissal, the parties would still arrive at the same position they are at now. In other words, had the district court determined that it had subject matter jurisdiction over the counterclaims, the court would still have had discretion to dismiss USI claims on motion and consolidate them with Kidde II, ultimately bringing the case to the same position. Thus, the Federal Circuit held the dismissal was harmless error since it did not affect a “substantial” right and that voiding of the in limine ruling that did not warrant a remand. Thus, even though the district court erred in dismissing the entire Kidde I suit (including USI counterclaims) and in failing to address the issue of standing prior to the dismissal, the Federal Circuit found, under the total of the circumstances, the error was “harmless”.