## Facts

- Semtek International Inc. sued Lockheed Martin Corp. in California state court for inducement of breach of contract and related business torts.
- Lockheed removed the case to the U.S. District Court for the Central District of California based on diversity jurisdiction.
- The federal district court dismissed the action as barred by California’s statute of limitations and stated the dismissal was “on the merits” and “with prejudice.”
- Semtek later filed essentially the same claims in Maryland state court, where the claims were timely under Maryland’s longer limitations period.
- The Maryland trial court dismissed the Maryland action on res judicata grounds based on the prior federal dismissal.

## Issues

1. Whether the claim-preclusive effect of a federal diversity judgment dismissing on state statute-of-limitations grounds is governed by state law where the federal court sits.
2. Whether Federal Rule of Civil Procedure 41(b)’s statement that certain dismissals “operate[] as an adjudication upon the merits” automatically creates nationwide claim-preclusive effect in other courts.

## Decision

- The Supreme Court unanimously reversed and remanded.
- Federal common law governs the claim-preclusive effect of a federal judgment, including one entered by a federal court sitting in diversity.
- In diversity cases, that federal common-law rule generally incorporates the claim-preclusion law that state courts would apply in the state where the rendering federal court sits.
- Rule 41(b)’s “adjudication upon the merits” language does not itself prescribe the claim-preclusive effect the judgment must receive in other courts; it primarily prevents refiling in the same federal district court.
- The Maryland appellate court erred by treating the California federal dismissal as necessarily claim-preclusive without determining what claim-preclusive effect California courts would give a comparable limitations dismissal.

## Legal Principles

- The preclusive effect of a federal-court judgment is a matter of federal common law.
- In diversity cases, federal common law generally adopts the forum state’s claim-preclusion rules to reduce forum shopping and unequal administration of state-created rights.
- A dismissal “on the merits” under Rule 41(b) does not automatically mean the judgment has claim-preclusive effect in other jurisdictions.
- When a federal diversity action is dismissed as time-barred under state law, later claim preclusion turns on the preclusion rules of the state in which the federal court sat, as incorporated by federal common law.

## Conclusion

The Court held that federal common law governs the claim-preclusive effect of federal diversity judgments and generally looks to the rendering state’s preclusion law; therefore, a limitations dismissal labeled “with prejudice” under Rule 41(b) does not automatically bar refiling in another state, and the Maryland courts had to assess preclusion under California’s rules.


Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001)