Posted by: Andy Taylor | June 15, 2011

Rule 54(b)(5) and the Rule of Unintended Consequences: Yet Another Rule 54(b) Trap

In 2008, Rule 54(b) of the Arkansas Rules of Civil Procedure was amended in an effort to resolve a finality problem that kept reoccurring. See Ark. R. Civ. P. 54(b), Addition to Reporter’s Notes, 2008 Amendments.  The problem was that defendants (often “John Doe” defendants) would be added to a complaint, but then those defendants would never be served. See id.  An order would be entered that would be considered by everyone to be final, and one party would then appeal. See id.  However, because there were unserved defendants, the order would not be binding on those parties, and the Supreme Court or Court of Appeals would be forced to dismiss the appeal for lack of a final order.  The purpose of Rule 54(b)(5) was to deal with this situation by providing that once a final order is entered, any claims against named but unserved defendants (including John Doe defendants) are dismissed. See Ark. R. Civ. P. 54(b)(5).

In Global Economic Resources, Inc. v. Swaminathan, 2011 Ark. App. 249, the Arkansas Court of Appeals introduced an interesting twist to the new rule.  The case has a rather lengthy history, as is outlined below.

Trial Court

The case began as a breach of contract action by Global against Susindran Swaminathan and Venkataraman Melpakkam (referred to in the remainder of this blog post as the “Individuals”), doing business as Sabare SCM Solution, Inc. Id. at 1-2.  After the answer was filed, Global filed an amended complaint dismissing the Individuals without prejudice, and adding Sabare SCM Solution, Inc., a Georgia corporation, as a separate defendant. Id. at 2.  The trial court dismissed Sabare SCM with prejudice, holding that the court did not have personal jurisdiction. Id.  Global appealed this order. Id.

First Appeal

Although the trial court had entered an order dismissing Sabara SCM, it had not entered an order in response to Global’s motion to dismiss the Individuals. Id.  Therefore, the Court of Appeals dismissed the appeal for lack of a final order. Id.

Back to the Trial Court

After the dismissal of the first appeal, Global filed another amended complaint. Id. at 2-3.  This complaint included as defendants the Individuals and Sabare SCM, and also added Ganesh Kumar and Sabare USA, Inc., as defendants. Id.  On the same day, Global filed a motion to withdraw its earlier motion to dismiss the Individuals. Id. at 3.  Sabare SCM and the Individuals again raised personal jurisdiction as a defense. Id.  On March 11, 2010, the trial court entered an order dismissing Sabare SCM and Sabare USA for lack of personal jurisdiction. Id.  In the same order, the trial court stated that it was granting Global’s earlier motion to dismiss the Individuals. Id.

After this order was entered, Global claimed to have served Sabare USA. Id. at 4.  Sabare USA moved to quash, arguing that the court did not have personal jurisdiction. Id.  In its response, Global asked that the motion to quash be denied, and also argued that the order dismissing the Individuals was improper because there was no motion to dismiss pending at the time (because Global had withdrawn its motion to dismiss). Id.

On September 30, 2010, the trial court entered an amended order reaffirming the conclusions in its March 11, 2010 order. Id. at 4-5. Six days later, on October 6, 2010, the trial court entered an “amended amended order,” correcting an error not relevant to the subject matter of this blog post. Id. at 5.  On October 25, 2010, Global filed a notice of appeal.

The Second Appeal

On appeal, the Court of Appeals dismissed the appeal, holding that the notice of appeal was not timely filed. Id. at 5-7.  The problem was that after the trial court dismissed the Individuals and Sabare SCM on March 11, 2010, only Sabare USA and Gamesh Kumar remained as parties. Id. Even though Sabare USA was served approximately two weeks after the March 11 order was entered, it had not been served prior to entry of that order (presumably Gamesh Kumar was never served). Id. at 4, 6.  Therefore, these two parties were “named but unserved defendant[s]” pursuant to Rule 54(b)(5), meaning that any claims against them were dismissed at the time the claims against the served parties were dismissed. Id. at 6.  As a result, the March 11, 2010 order was considered the final order for purposes of the notice of appeal, meaning that the October 25, 2010 notice of appeal was not timely filed. Id.

Conclusion

As mentioned above, the intent of Rule 54(b)(5) was to correct previous outcomes that “waste[d] litigants’ time and money and scarce judicial resources.” Ark. R. Civ. P. 54 Addition to Reporter’s Notes, 2008 Amendments.  The rule was meant to resolve the problem created when “a forgotten defendant[s] . . . presence destroys the finality of the judgment being appealed.” Id.  In this case, however, the unserved defendant actually created finality when none was intended, and the result was that the appeal was dismissed with the merits of the case never being addressed by the appellate court.

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