Lake at Las Vegas Investors Group, Inc. v. Pacific Malibu Development Corp.

A group of investors (plaintiffs) filed a contract action against Transcontinental Corporation and other defendants (defendants) in state court in Nevada. Six days later, the investors filed a notice of voluntary dismissal and immediately refiled the same case, which the defendants removed to federal court. In federal court, the investors voluntarily dismissed all claims against Transcontinental. Months later, the investors added Transcontinental and two of its entities—a wholly owned subsidiary and a general partner—as additional parties. Transcontinental invoked Federal Rule of Civil Procedure (FRCP) 41(a)(1)(B)’s two-dismissal-rule penalty and asked the court to dismiss the claims against it and its entities with prejudice. The investors contested the motion on five grounds: (1) they lacked capacity to sue because they were not registered in Nevada, as required by state law, so there was no first action to dismiss; (2) that even if there was an action in Nevada state court, the dismissal was not voluntary because by law it was subject to dismissal; (3) that the two-dismissal penalty requires an actual intent to harass; (4) that all defendants must be dismissed before the penalty applies; and (5) that even if the penalty applies to Transcontinental, it does not apply to its subsidiary and partner. The district court granted Transcontinental’s motion and the investors appealed.