filed: August 16, 1989; As Corrected, October 6, 1989.
On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Civ. No. 87-34 Erie).
This appeal from a judgment of the district court, dismissing on grounds of res judicata and the statute of limitations, a securities fraud suit, brought under the civil RICO statute and federal securities law, presents three interesting questions. First, we must determine whether a dismissal for failure to file a complaint within the time limit set by the state court constitutes a sanction and therefore a decision on the merits, in which case it is a basis for claim preclusion, or a dismissal for failure to prosecute in which case it is not. Second, we must decide whether exclusive federal jurisdiction or concurrent jurisdiction exists over RICO claims. Under Pennsylvania law, if federal jurisdiction is exclusive, the state decision cannot act as a bar to litigation in the federal court. Third, we must consider whether this Court's decision in In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1988) (in banc), cert. denied, 488 U.S. 849, 109 S. Ct. 131, 102 L. Ed. 2d 103 (1988), which set a new standard for the determination of statutes of limitations for federal securities claims, should be applied retroactively.
For the reasons that follow, we hold that the dismissal was a sanction, that civil RICO jurisdiction is concurrent, and that Data Access should be applied retroactively given these facts. We therefore affirm.
I. FACTS AND PROCEDURAL HISTORY
On November 17, 1983, plaintiffs Samuel B. McCarter, First Seneca Bank & Trust Co., as executor for Dr. Leo Levine, and Olive M. Heck commenced an action by praecipe for writ of summons in the Court of Common Pleas of Warren County (Pennsylvania) against defendants Merle M. Mitcham, Butcher & Singer, Inc., who were their stockbrokers, and Thomas Gabreski, who was a stock purchaser. The action was intended to recover losses from an alleged scheme to defraud in a stock deal in which plaintiffs claim to have been induced to sell securities at a price below fair market value. On August 16, 1984, approximately nine months following the filing of their state court action, the prothonotary sent notice to the plaintiffs pursuant to local (Warren County) Rule L 307, informing them that their suit would be dismissed for a failure to prosecute if it was not placed on the trial list within 240 days after commencement of the suit.*fn1 The court subsequently ordered submission of a complaint by December 16, 1984, and discovery to be completed by January 15, 1985.
On January 21, 1985, after no complaint was filed by the date set by the court, defendants moved to dismiss for failure to file the complaint. On January 25, 1985, ten days after the discovery deadline, plaintiffs moved for an extension of time on the ground that their attorney was seriously ill. On April 25, 1985, plaintiffs filed a complaint, asserting claims under the Pennsylvania Securities Act of 1972, Pa.Stat.Ann. tit. 70, §§ 1-101 to 1-704 (Purdon Supp. 1988), and state common law. See App. at 66-90.
On June 6, 1985, defendants filed preliminary objections alleging that the complaint was not timely filed. On September 24, 1985, the Court of Common Pleas ruled that the plaintiffs' attorney's illness was insufficient to justify the delay in filing the complaint and dismissed the action with prejudice. No. A.D. 540 of 1983 (C.P. Warren Sept. 24, 1985). On December 15, 1986, the Superior Court of Pennsylvania affirmed. McCarter v. Mitcham, 362 Pa.Super. 644, 520 A.2d 1220 (1986).
On February 17, 1987, plaintiffs filed a complaint in the district court for the Western District of Pennsylvania asserting essentially identical claims, but pleading them as claims arising under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (1982); section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982) (as well as claims under Rule 10b-5(a); 17 C.F.R. § 240.10b-5 (1988)); and state law (as pendent claims). See App. at 4-26. On March 12, 1987, defendants moved to dismiss, Fed.R.Civ.P. 12 (b) (6), and/or for summary judgment, Fed.R.Civ.P. 56, asserting that all of plaintiffs' claims were barred by res judicata, that the section 10(b) claims were barred by the statute of limitations, and that the civil RICO claim failed to state a claim for relief. On May 6, 1987, the district court granted defendants' motion to dismiss on the grounds that all of the claims were barred by res judicata and that the section 10b claims had not been filed within the applicable statute of limitations. See McCarter v. Mitcham, 693 F. Supp. 349, 350 (W.D.Pa. 1987).
On May 15, 1987, plaintiffs moved for reconsideration. On July 9, 1987, the district court stayed its action pending resolution of the appeal of the state court action by the Pennsylvania Supreme Court, but vacated the stay on April 22, 1988, after that court dismissed the appeal as improvidently granted. McCarter v. Mitcham, 517 Pa. 486, 538 A.2d 1335 (1988). On August 31, 1988, the district court denied the motion for reconsideration and reaffirmed its prior decision to dismiss, holding that the section 10(b) claims were time-barred and that all other claims were barred by Pennsylvania res judicata law. 693 F. Supp. at 351-53. Appellants appeal this ruling.*fn2
A. Pennsylvania Claim Preclusion Law
Under 28 U.S.C. § 1738 (1982), a state court's judgment must be given the same effect in federal court that it would have been given in state court. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 84 L. Ed. 2d 274, 105 S. Ct. 1327 (1985); Kremer v. Chemical Construction Co., 456 U.S. 461, 72 L. Ed. 2d 262, 102 S. Ct. 1883 (1982); Nanavati v. Burdette Tomlin Memorial Hospital, 857 F.2d 96 (3d Cir. 1988), cert. denied, 489 U.S. 1078, 109 S. Ct. 1528, 103 L. Ed. 2d 834 (1989). The Pennsylvania law of res judicata applies a four-part test to determine whether a claim is barred:
The application of res judicata requires a concurrence of four (4) conditions: (1) an identity of the thing sued upon; (2) an identity of the cause of action; (3) an identity of the persons and parties to the action; and (4) an identity of the quality or capacity of the parties suing or sued.
Dunham v. Temple University, 288 Pa.Super. 522, 534, 432 A.2d 993, 999 (1981).
For relitigation to be precluded, Pennsylvania law requires that the prior determination be "on the merits." See Ross v. Bowlby, 353 Pa.Super. 59, 509 A.2d 332 (1986) (disposition of case not on the merits does not bar relitigation); Consolidation Coal Co. v. Dist. 5, UMW, 336 Pa.Super. 354, 485 A.2d 1118 (1984) (res judicata applies where prior action was decided on the merits). Where the prior dismissal was based on a judgment of non pros, Pennsylvania courts will not give preclusive effect to the judgment. As the Pennsylvania Superior Court has stated:
the legal effect of the entry of a judgment of non pros is not such as to preclude a plaintiff who suffers such a judgment from instituting another suit on the same cause of action provided, however, that the second suit is brought within the period of the statute of limitations [and the plaintiff is willing to pay for costs of the former suit].
Haefner v. Sprague, 343 Pa.Super. 342, 347, 494 A.2d 1115, 1118 (1985).*fn3
Although neither the Superior Court nor the Supreme Court of Pennsylvania have spoken to the issue, Pennsylvania claim preclusion law also appears to require that the original court have subject matter jurisdiction over the cause of action in order for that cause of action to be later barred in a second lawsuit in a court with subject matter jurisdiction over the cause of action. Pennsylvania lower courts have so held. See, e.g., Philadelphia v. Stradford Arms, Inc., 1 Pa.Commw. 190, 274 A.2d 277 (1971) (claim preclusion will only apply when first tribunal has equivalent subject matter jurisdiction as second) Furthermore, courts of other states have nearly universally required subject matter jurisdiction in the first action as a prerequisite to barring the second action. See Nanavati, 857 F.2d at 111.
B. Was the State Court Dismissal on the Merits?
The first major issue in this case is whether the state court dismissal with prejudice was a decision "on the merits" as that term is applied in Pennsylvania jurisprudence or whether instead it is analogous to a dismissal for failure to prosecute. As discussed above, an entry of judgment of non pros pursuant to the local rules for mere inactivity for an extended period of time would not bar relitigation under Pennsylvania preclusion law.
Applying Pennsylvania law, this Court has drawn a distinction between dismissal as a result of the simple failure to prosecute and dismissal as a sanction for failure to obey a court order. Dismissals of the latter type most likely have preclusive effect. See Wade v. City of Pittsburgh, 765 F.2d 405, 408-09 (3d Cir. 1985). This interpretation is suggested by the Superior Court in Dunham, which seems to say that, where a party fails to follow court orders and as a result its case is dismissed, res judicata applies even though there was no judicial decision finally addressing and adjudicating the merits of the case. See Dunham, 288 Pa.Super. at 533, 432 A.2d at 999. Moreover, the Superior Court in Consolidation Coal stated that where the prior action was dismissed with prejudice, further litigation may be barred even though there was, literally speaking, no decision "on the merits." See Consolidation Coal, 336 Pa.Super. at 365, 485 A.2d at 1123. Thus, while no Pennsylvania court has squarely held that failure to follow a court order is a decision on the merits, it appears that the Pennsylvania courts interpret the phrase "on the merits" expansively, and would prohibit relitigation in some cases even when the original court has not actually entered a final decision on the merits of the case as such.
In this case, the state court, rather than permitting the prothonotary to dismiss the case automatically for failure to prosecute pursuant to Rule L 307, dismissed the case with prejudice following a failure by the plaintiffs to file the complaint within the extended time limits set by the court. The dismissal was not entered automatically by the prothonotary upon failure to file the complaint, but rather was issued by the court with a well-considered opinion and order dismissing the case with prejudice. The court stated in its opinion that "defendant's motion is not for procedural non prosequitur." Com Pleas Op. at 5. We believe that, under these circumstances, the court's dismissal was not for failure to prosecute, but rather as a sanction for the untoward delay in filing of the complaint.
We conclude therefore that the order to dismiss with prejudice was an order "on the merits" within the meaning set forth by the Pennsylvania courts. Hence, the prior litigation can be preclusive of any further litigation as long as the four prongs of the Pennsylvania res judicata ...