Semtek International, Inc. v. Lockheed Martin Corp.

Brief Fact Summary.

Semter sued Lockheed Martin in California state court. Lockheed removed the case to California federal district court, where Semter’s claims were dismissed “on the merits and with prejudice” based on the two year state statute of limitations. The Court of Appeals affirmed. Semter also sued Lockheed Martin in state court in Maryland, on the same causes of action, which were not time-barred because Maryland had a three year statute of limitations. Lockheed removed the action to federal court in Maryland. The Maryland court remanded the case to state court, which granted Lockheed’s motion to dismiss on the ground of res judicata. Semter appealed the dismissal order; the state appellate court affirmed. The Supreme Court granted certiorari after the Maryland Court of Appeals declined review.

Synopsis of Rule of Law.

The claim preclusive effect of a federal judgment dismissing a diversity action on statute of limitations grounds is determined by the law of the state in which the federal court sits.

Facts.

Semter sued Lockheed Martin in California state court, alleging breach of contract and business tort claims. Lockheed removed the case to California federal district court, where Semter’s claims were dismissed “on the merits and with prejudice.” Dismissal was based on the two year state statute of limitations. The Court of Appeals affirmed. Semter also sued Lockheed Martin in state court in Maryland, on the same causes of action, which were not time-barred because Maryland had a three year statute of limitations. Lockheed sought injunctive relief against the Maryland action from the California federal court, and also removed the action to federal court in Maryland. The California Court denied relief and the Maryland court (2) remanded the case to state court, which granted Lockheed’s motion to dismiss on the ground of res judicata. Semter appealed the dismissal order; the state appellate court affirmed. The Supreme Court granted certiorariafter the Maryland Court of Appeals declined review.

Issue.

Is the claim preclusive effect of a federal judgment dismissing a diversity action on statute of limitations grounds determined by the law of the state in which the federal court sits?

Held.

Yes. The same claim preclusive rule  (the state rule) applies whether a dismissal of the matter has been ordered by a state or federal court.

Discussion.

The claim preclusive effect in Maryland of the California federal court’s dismissal “on the merits” was determined neither by precedent (DuPasseur v.  Rocherau) ” nor Federal Rule of Civil Procedure 41(b), as the Petitioner and Respondent contended, respectively.  Federal common law governed the claim preclusive effect of of a dismissal by a federal court sitting in diversity. The California federal court’s dismissal “on the merits” based on the statute of limitations was governed by the federal rule that would apply the law of the state courts in which the federal diversity court sat; i.e., California law of claim preclusion. Therefore, the Maryland court erred in deciding that the California federal court’s dismissal necessarily precluded the Maryland action.