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Third Circuit Upholds Voluntary Dismissal Order Challenged by Defendant

Carroll v. Prosser (In re Innovative Commn’c Corp.), No. 13-1324, 2014 WL 1979309 (3d Cir. May 16, 2014)

This Opinion issued by the Third Circuit on May 16, 2014 affirmed several orders of the District Court of the Virgin Islands relating to a fraudulent transfer action brought by the chapter 11 trustee of the Innovative Communication Corporation debtors (“ICC”) against Dawn Prosser.  Ms. Prosser became the subject of the action following her receipt of ICC property transferred from her husband Jeffrey Prosser, the ultimate owner and sole member of ICC.  Although a significant portion of the decision is unremarkable, the Third Circuit was given the opportunity to discuss briefly the standard for voluntary dismissals under Federal Rule of Civil Procedure 41(a)(2). During the action, the trustee moved and was given permission to dismiss with prejudice several counts against Ms. Prosser.  Ms. Prosser appealed this order.  The Third Circuit upheld the District Court’s approval of the trustee’s motion to dismiss, noting that motions brought under Federal Rule of Civil Procedure 41 “should be granted liberally.”  In re Paoli R.R. Yard PCB Litig., 916 F.2d 829, 863 (3d Cir. 1990).  A dismissal order will be upheld on appeal unless its entry was an “arbitrary action which has subjected the defendant to plain prejudice beyond the prospect of subsequent litigation.”  Westinghouse Elec. Corp. v. United Elec. Radio & Mach. Workers of Am., 194 F.2d 770, 771 (3d Cir. 1952).  In the instant case, Ms. Prosser was unable to articulate any prejudice she suffered as a result of the dismissal and, accordingly, the Court upheld the District Court’s order.