## Facts

- Franklin Capital Corporation sued Douglas Wilson in November 2003 for breach of contract on a defaulted loan of about $57,000.
- Franklin’s counsel repeatedly failed to appear at case management conferences, prompting dismissal orders, reinstatements, and monetary sanctions.
- After counsel failed to attend a mandatory settlement conference, the trial court set an order to show cause (OSC) regarding dismissal and/or sanctions for May 19, 2005.
- On May 18, 2005, Franklin filed a voluntary dismissal without prejudice under California Code of Civil Procedure § 581(b)(1).
- On May 19, 2005 (with Franklin’s counsel again absent), the trial court proceeded despite the filed dismissal, vacated the voluntary dismissal, and entered a court dismissal with prejudice.
- Franklin moved to vacate the dismissal with prejudice; the trial court denied relief, and Franklin appealed.

## Issues

1. Whether Code of Civil Procedure § 581(b)(1) permitted Franklin to voluntarily dismiss the action without prejudice before “commencement of trial,” and whether a mandatory settlement conference or OSC constitutes commencement of trial.
2. Whether the trial court had authority to vacate a valid voluntary dismissal without prejudice and substitute a dismissal with prejudice as a sanction for counsel’s nonappearance and related delay.

## Decision

- The Court of Appeal reversed the order denying Franklin’s motion to vacate.
- Franklin had a statutory right under § 581(b)(1) to dismiss without prejudice any time before trial commenced.
- A mandatory settlement conference and an OSC concerning dismissal/sanctions are not the “commencement of trial.”
- Once Franklin filed the voluntary dismissal, the trial court lacked authority to undo it and enter a dismissal with prejudice.
- Independently, the court-held dismissal operated as a failure-to-prosecute dismissal, which is ordinarily without prejudice and cannot be converted into a merits preclusion sanction absent authority.

## Legal Principles

- Under Cal. Civ. Proc. Code § 581(b)(1), a plaintiff may voluntarily dismiss an action without prejudice at any time before commencement of trial.
- Pretrial proceedings such as settlement conferences and OSC hearings regarding sanctions or dismissal do not constitute commencement of trial for § 581(b)(1).
- A properly filed voluntary dismissal terminates the action and removes the matter from the trial court’s power to adjudicate the merits.
- Dismissals functionally based on failure to prosecute are generally without prejudice; a dismissal with prejudice carries res judicata effect and requires clear legal authorization.
- Trial courts may sanction attorney noncompliance through authorized measures (including monetary sanctions), but cannot impose merits-preclusive dismissals beyond statutory or controlling authority.

## Conclusion

The court held that Franklin’s pretrial voluntary dismissal without prejudice was effective under § 581(b)(1), and the trial court exceeded its authority by vacating that dismissal and substituting a dismissal with prejudice as a sanction for counsel’s nonappearance and delay.


Franklin Cap. Corp. v. Wilson, 148 Cal. App. 4th 187, 55 Cal. Rptr. 3d 424 (Cal. Ct. App. 2007)