NM Court of Appeals: Dismissal “without prejudice” can have res judicata effect

James and Tracy Turner borrowed money from First New Mexico Bank to finance the purchase and construction of a dairy. Later, the Turners filed a lender liability lawsuit against the Bank.

The Bank filed a motion to dismiss for failure to state a claim, which the trial court granted. The trial court’s order, however, said the Turners’ claims were being dismissed “without prejudice.”

The Turners then filed a new complaint, which the Bank moved to dismiss on claim preclusion grounds (“claim preclusion” is also known as “res judicata”). The Turners appealed, arguing that the first trial court’s dismissal of their complaint “without prejudice” meant that the dismissal could not have res judicata effect. The trial court agreed with the Bank, and the Turners appealed.

As it turns out, the words “without prejudice” don’t necessarily mean that an order has no preclusive effect.

As Chief Judge Michael Vigil explained in the Court of Appeals’ decision in Turner v. First New Mexico Bank, an order has claim preclusion effect if it is (1) a final judgment; (2) on the merits; involving (3) the same parties and (4) the same causes of action.

Here, the parties litigated, and the trial court decided, the merits of the motion to dismiss. Thus, despite the judge’s inclusion of the words “without prejudice,” the order of dismissal still had claim preclusive effect, because “it fully disposed of the rights of the parties, and otherwise disposed of the matter to the fullest extent possible, without authorizing or specifiying when an amended complaint could be filed.”

Judge Timothy Garcia filed a concurring opinion, arguing that the words “without prejudice” signal that a party is entitled to refile the lawsuit, but agreeing with the result because the Turners’ second complaint also failed to properly state a claim for relief.

Our Supreme Court may well accept review of Turner to clarify the meaning of the words “without prejudice.” But for now, if a trial court agrees to dismiss your complaint “without prejudice,” it’s safest to ask the court to include language specifically authorizing you to refile the complaint within a specified period of time. If the trial court declines to do so, then you had better appeal.