Facts: While this isn’t a family-law case, it involves a procedural issue of interest to all civil litigators, including those of us who practice family law.

Landlord leased commercial space to Tenant. After the property was damaged by tornadoes, Tenant was asked to vacate temporarily so repairs could be made. Later, Landlord sought to terminate the lease, citing a provision allowing termination if the property is “damaged but not wholly destroyed” by a storm.

Tenant objected, sued Landlord for breach of contract, and sought compensatory damages $3.5 million. Landlord denied breaching the lease agreement.

Landlord served Tenant with discovery requests. Landlord agreed to Tenant’s request for an extension, but Tenant still did not submit discovery responses by the new deadline.

Landlord and Tenant then agreed to a 20-day extension and that Tenant’s failure to meet that deadline would result in Tenant’s lawsuit being dismissed with prejudice. An agreed order was entered that said, “If [Tenant] has not served [Landlord] with responses and responsive documents by or before [the new 20-day deadline], the Court will enter an order dismissing [Tenant’s] Complaint with prejudice.”

After Tenant failed to comply with the new 20-day deadline, Landlord moved to dismiss Tenant’s lawsuit with prejudice.

When a case is dismissed “with prejudice,” it cannot be refiled. However, when a case is dismissed “without prejudice,” it can be refiled later.

Four days before the hearing on Landlord’s motion, Tenant voluntarily dismissed its lawsuit without prejudice.

Landlord argued the order of dismissal should be changed to reflect a dismissal with prejudice. The trial court denied Landlord’s request.

Landlord appealed.

On Appeal: The Court of Appeals vacated the trial court’s ruling.

Rule 41.01 generally gives a party the free and unrestricted right to dismiss a lawsuit voluntarily before trial. This right is subject to five exceptions:

• class-action lawsuits,
• shareholder derivative actions,
• Rule 66 applies when a receiver has been appointed,
• when the opposing party’s motion for summary judgment is pending, and
• a voluntary dismissal cannot deprive the other party of a right that became vested while the case was pending.

This last exception was at issue here. Landlord argued that his vested right to a dismissal with prejudice arose from the agreed order.

In Tennessee, an agreed order is a contract and its interpretation is governed by the laws of contract. An agreed order is a binding contract and represents the achievement of an amicable result to pending litigation.

The Court vacated the trial court’s ruling allowing Tenant’s dismissal without prejudice:

[Tenant] did not seek to voluntarily dismiss its case prior to the running of the extended time period for discovery that the parties agreed to, which was approved by the trial court, or prior to [Landlord] filing a motion seeking to have the case dismissed in accordance with the parties’ agreement. Under these circumstances, if [Tenant] did not meet the terms of the parties’ agreement, then [Landlord] has a vested right barring [Tenant] from obtaining a voluntary dismissal without prejudice….

[Landlord’s] right to a dismissal with prejudice is dependent upon the triggering conditions having occurred….

The trial court did not make a finding as to whether [Tenant] complied with the terms of the parties’ agreement as set forth in the Agreed Order. Given our conclusion that if the triggering condition occurred then the parties’ agreement creates a vested right limiting [Tenant’s] ability to obtain a dismissal without prejudice, the question of whether [Tenant] complied with the terms of the Agreed Order becomes critical. The determination of whether to grant [Landlord’s] motion for dismissal with prejudice rises and falls upon the question of whether [Tenant] satisfied the terms of the Agreed Order.

The Court vacated the trial court’s ruling and remanded the case back to the trial court to determine whether Tenant complied with the parties’ agreement as stated in the Agreed Order.

Source: J.E.T., Inc. v. Hasty (Tennessee Court of Appeals, Middle Section, March 18, 2024).

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