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MANZE v. STATE FARM INSURANCE COMPANY (05/04/87)

filed: May 4, 1987.

MANZE, JANE JOHNSTON AND MANZE, CHARLES, H/W, APPELLANTS IN NO. 86-1341,
v.
STATE FARM INSURANCE COMPANY, MANZE, JANE JOHNSTON AND MANZE, CHARLES, H/W, APPELLANTS IN NO. 86-1342



Appeal from the United States District Court for the Eastern District of Pennsylvania, District Civil Nos. 86-1721, 86-2370.

Seitz, Becker and Mansmann, Circuit Judges.

Author: Mansmann

Opinion OF THE COURT

MANSMANN, Circuit Judge.

These consolidated matters come before us on appeal from an order of the district court dismissing the plaintiff's bad faith claim against the defendant insurer with prejudice pursuant to Fed. R. Civ. P. 41(a)(2) and appointing a neutral arbitrator to hear the plaintiff's claim for uninsured motorist benefits.

The appeal at No. 86-1342 raises an issue of first impression in our circuit regarding practice and procedure under Rule 41. We hold that the plaintiffs timely notice of voluntary dismissal of her bad faith claim pursuant to Rule 41(a)(1)(i) precluded the district court from subsequently dismissing the action with prejudice in accordance with Rule 41(a)(2).

At appeal No. 86-1341, we find that the district court's order appointing a neutral arbitrator is final and appealable pursuant to 28 U.S.C. § 1291. We hold, as well, that State Farm timely filed its petition to remove Manze's action from state to federal court and that the amount in controversy here satisfies the jurisdictional requirement of 28 U.S.C. § 1332(a). We conclude, finally, that the district court did not abuse its discretion in appointing a neutral arbitrator.

We will reverse the judgment of the district court on appeal at No. 86-1342, and will vacate the court's assessment of $750 in costs against the plaintiff. We also will deny the appellee's motion to quash the appeal at No. 86-1341 and will affirm the district court's order appointing the neutral arbitrator.

I.

The plaintiff, Jane Johnston Manze ("Manze"), claimed uninsured motorist benefits under her insurance policy with the defendant, State Farm Insurance Company ("State Farm"), for averred personal injuries arising out of an automobile accident. After the parties failed to settle the claim, Manze filed a petition in state court to compel arbitration and to appoint an arbitrator. The court subsequently dismissed Manze's petition as moot. Yet, when State Farm allegedly refused to proceed to arbitration, Manze sued State Farm in a Pennsylvania court asserting the defendant's bad faith. State Farm removed the matter to federal court, then moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted. The defendant also requested costs, fees, and punitive damages on account of the plaintiffs "frivolous" complaint.

At a status conference with the court on April 8, 1986, the district court instructed the plaintiff to respond to the defendant's motion to dismiss, to submit an affidavit concerning selection of a neutral arbitrator, and to produce medical evidence of a causal connection between the accident and Manze's injuries by April 11, 1986. The court also counseled the plaintiff:

If upon reflection you would like to withdraw this action and have the matter resolved in state court by picking an arbitrator and arbitrating the matter, as you should have done, then do that . . . .

On April 10, 1986, the plaintiff filed a praecipe of dismissal to dismiss without prejudice the bad faith claim pursuant to Fed. R. Civ. P. 41(a)(1). The plaintiff then filed with the state court a petition to appoint a neutral arbitrator.*fn1 On April 21, 1986, the district court entered an order staying discovery against the defendant pending decision on its Rule 12(b)(6) motion. On April 23, 1986, the defendant petitioned to remove the plaintiffs petition to appoint a neutral arbitrator to federal court. The district court held a hearing two days later addressing both the plaintiff's voluntary dismissal of the bad faith claim and the petition to appoint a neutral arbitrator.

At that hearing, the district court orally dismissed the plaintiff's bad faith claim, remanded the pending removal petition of State Farm, and dismissed the plaintiff's personal injury claim for a tumor on her hand for lack of medical evidence causally relating the tumor to the underlying automobile accident. The plaintiff's counsel thereupon argued that the plaintiff previously had voluntarily dismissed her bad faith claim pursuant to Rule 41(a)(1). At the court's suggestion, Manze filed a joint motion for reconsideration of the April 25, 1986 oral order and for remand to the state court.

On May 9, 1986, the district court issued an order vacating the April 25 bench order, requiring the parties to file briefs concerning the efficacy of the plaintiff's voluntary dismissal, and directing the plaintiff to respond to the defendant's motion to dismiss.

The district court held a hearing on these matters on May 21, 1986, which occasioned a final order on June 3, 1986. In that order the district court dismissed the plaintiff's bad faith claim with prejudice pursuant to Fed. R. Civ. P. 41(a)(2), assessed $750 in costs against the plaintiff, and appointed a neutral arbitrator to hear the uninsured motorist benefits claim. This appeal followed.

II.

The plaintiff presents us with two issues on appeal. Manze insists that the district court's purported dismissal with prejudice of the bad faith claim was a nullity, since the Rule 41(a)(1) voluntary dismissal notice terminated that action. Manze also contends that the defendant improperly removed from state court the petition to appoint a neutral arbitrator and that the federal district court, therefore, lacked jurisdiction to select the arbitrator. In addition, we must determine whether to grant a motion by State Farm to quash Manze's appeal from the order appointing a neutral arbitrator on the ground that the order is interlocutory and unappealable.*fn2 We exercise plenary review with respect to these questions of law. See Universal Minerals v. C.A. Hughes & Co., 669 F.2d 98, 103 (3d Cir. 1981).

III.

We address first the plaintiff's argument that the district court erred in holding that the defendant's motion to dismiss the plaintiff's bad faith claim precluded her subsequent attempt to dismiss the action voluntarily pursuant to Rule 41(a)(1). Because the district court dismissed Manze's complaint with prejudice, we possess jurisdiction to hear this appeal pursuant to 28 U.S.C. § 1291 (1982). See Borelli v. City of Reading, 532 F.2d 950, 951-52 (3d Cir. 1976).

A.

Fed. R. Civ. P. 41(a)(1) provides in ...


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