The Second Circuit recently ruled that the Southern District of New York improperly dismissed without prejudice a False Claims Act lawsuit brought by Magdy M. Youssef, against his former employers Tishman Construction Corporation (“Tishman Corp.”) and Turner Corporation (“Turner Corp.”). The ruling clears the way for Youssef to pursue his claims against his former employers in the Eastern District of New York.

In 2010, Youssef, a structural engineer, brought a qui tam suit against Tishman Corp., and Turner Corp., in the Southern District of New York, alleging that they had perpetrated a “fraudulent billing scheme” on construction projects financed by the government, including construction at One World Trade Center. In December 2011, in light of the fact that both the New York Attorney General and the U.S. Attorney’s Office had decided not to intervene, Youssef sought voluntary dismissal of the lawsuit. Relying in large part on a statement in a letter from Youssef’s counsel that Youssef had “decided not to pursue this matter any further,” the Southern District dismissed the action with prejudice as to the claims brought by Youssef, but without prejudice as to the United States and the State of New York.

In August 2012, Youssef learned that the federal government was investigating similar claims against the defendants, and refiled his claim in the Eastern District of New York. He claimed that it was only after re-filing his lawsuit that he learned that the dismissal in the Southern District was with prejudice. Indeed, the dismissal was not entered on the docket until September 18, 2012. After the Southern District denied his request to modify its earlier order to reflect a dismissal without prejudice, Youssef appealed the dismissal order.

On appeal, the Second Circuit vacated the district court’s judgment and remanded the case with instructions to dismiss the action without prejudice. The panel reasoned that in the absence of any indication by the plaintiff, the Federal Rule governing voluntary dismissals presumes that the dismissal sought is without prejudice. The plain language of Federal Rule of Civil Procedure 41(a)(1) states, “[u]nless the notice [of voluntary dismissal] states otherwise, the dismissal is without prejudice.”

Reviewing the letter sent by Youssef’s counsel to the District Court in December 2011, the Second Circuit determined that there was no reason to conclude Youssef was requesting a dismissal with prejudice. Rather, the Second Circuit reasoned that the statement made by Youssef’s counsel that he had “decided not to pursue this matter any further” may “just as well have been indicating an intention simply to stop pressing the complaint . . . for any number of reasons having nothing to do with the merits of the claim.”

After the government declines to intervene in a qui tam action, relators oftentimes will voluntarily dismiss their complaints for pragmatic reasons, having nothing to do with the merits of their claims. This decision illustrates that those dismissals, indeed, are always going to be without prejudice, leaving open the possibility that the claims may be revived at a later date in the either the same or a different forum.