Labor & Employment Law Daily Wrap Up, PROCEDURE—10th Cir.: State-law claim, previously dismissed without prejudice in federal court, barred by claim preclusion, (Jun 25, 2025)

By Todd Harrison, J.D.

Although no party is required to assert diversity jurisdiction just because it exists, the question becomes whether a plaintiff could have litigated the contested claim in a prior lawsuit.

Affirming a district court’s dismissal of a former US Bank employee’s previous state-law claim for wrongful termination that was removed to federal court on the basis of diversity jurisdiction, the Tenth Circuit determined that the employee could have pursued his claim in a prior lawsuit wherein that claim was dismissed without prejudice. There, he had the opportunity to do so by asserting diversity jurisdiction. However, in failing to assert diversity jurisdiction on his first go-round, he was precluded from bringing the claim in a new case (Markley v. U.S. Bank National Association dba US Bank, No. 24-1163 (10th Cir. Jun. 24, 2025)).

Lawsuit I. In 2019, the plaintiff sued his former employer in federal court, asserting a claim under the ADEA and a wrongful termination claim under Colorado law. In the cover sheet of his complaint, he asserted federal question jurisdiction but indicated that diversity jurisdiction also existed, although he did not assert diversity jurisdiction in the body of his complaint.

The district court granted summary judgment for US Bank on the ADEA claim and declined to exercise supplemental jurisdiction over the wrongful termination claim, dismissing the latter without prejudice. The district court then entered a “final judgment” and the case was closed.

Appeal I. Subsequently, the employee appealed the ADEA claim to the Tenth Circuit. He did not appeal the dismissal of the wrongful termination claim, nor did he ask the district court to reconsider its dismissal of the state-law claim and to resolve it under diversity jurisdiction. The Tenth Circuit affirmed the district court’s resolution of the ADEA claim.

Lawsuit II. Following the Tenth Circuit’s dismissal of the ADEA claim, the employee filed a new case in state court asserting a claim for wrongful termination. Asserting diversity jurisdiction, US Bank removed the case to federal court. It then moved to dismiss on several grounds, including claim preclusion. According to US Bank, the employee was precluded from relitigating his wrongful termination claim since it arose from the same transaction as his federal claim, and the district court’s final judgment on that claim foreclosed his state-law claim from moving forward in a new case.

Agreeing with US Bank, the district court found that claim preclusion applied to the state-law claim because the employee could have pursued that claim in his first lawsuit had he asserted diversity jurisdiction. He failed to do so and the district court concluded that he cannot get a second chance to litigate that claim in a new case. This appeal followed.

Final judgment. It was undisputed that both lawsuits shared identical parties and arose out of the same cause of action. The only issue was whether the first lawsuit rendered a “final judgment on the merits.” According to the employee, the first lawsuit did not do so because his state-law claim was dismissed without prejudice, and a dismissal without prejudice cannot be the basis for claim preclusion.

No requirement. Before addressing the heart of the employee’s claim, the court started with some common ground. It was undisputed that the employee could have pursued his state-law claim in his first lawsuit but failed to do so. He could have either appealed the dismissal of his state-law claim to the Tenth Circuit or notified the district court of diversity jurisdiction on a motion for reconsideration. He did neither.

According to the employee, he was not required to assert diversity jurisdiction to press his state-law claim when it was dismissed without prejudice. However, the court explained that this was beside the point, noting that while no party is required to assert diversity jurisdiction simply because it exists, the relevant question is whether the plaintiff could have litigated the contested claim in a prior lawsuit.

If the employee had asserted diversity jurisdiction, he could have had his state-law claim heard, observed the court. But because he failed to do so, both the strict test of and policy behind the doctrine of res judicata necessarily bar this action, said the court, further noting that both the First and Seventh Circuits, as well as the Colorado Court of Appeals, have reached the same conclusion based on similar facts.

Without prejudice. Turning to the crux of the employee’s argument—that a dismissal without prejudice is not a final judgment on the merits—the court agreed that dismissal without prejudice, particularly on jurisdictional grounds, is generally not a final judgment on the merits. However, the court determined that this point did not control in this case. Rather, for claim preclusion purposes, the question is whether there was a dismissal without prejudice as to the cause of action rather than the individual claim.

For example, explained the court, if a plaintiff sued in federal court but voluntarily dismissed his entire lawsuit before the court addressed the merits of the case, that dismissal would be without prejudice. No final judgment on the merits would exist as to the cause of action and claim preclusion would not bar a second lawsuit with the same claims. The same would be true if a court were to dismiss an entire lawsuit without prejudice.

In this instance, however, the district court did not dismiss the entirety of the first lawsuit without prejudice. Rather, it resolved the federal claim on the merits, then rendered a final judgment on the cause of action after the employee chose not to litigate (or appeal) his state-law claim. As such, that judgment was “final” for claim preclusion purposes since the court clearly intended to terminate all proceedings as to the claims or parties involved. Further, the judgment was also “on the merits” because it rested on the district court’s resolution of the federal claim, which arose from the same cause of action as the state-law claim.

When the employee walked away from his federal case after his federal claim was resolved on the merits, the district court’s final judgment closed the case and the cause of action, said the appellate court. If the employee had asserted diversity jurisdiction to litigate his state-law claim, then that cause of action would have remained live. But because he did not do so, claim preclusion barred him from bringing any claim related to his termination in a new lawsuit, concluded the court.

Party presentation principle. Finally, the employee argued that the district court violated the party presentation principle. Although US Bank asserted claim preclusion when it moved to dismiss, the employee contended that it did not raise the failure to assert diversity jurisdiction as one of the grounds on which claim preclusion applied. The district court reached that conclusion on its own.

The district court did not abuse its discretion in this instance, said the appellate court. It had an obligation to examine the merits of US Bank’s claim preclusion argument and it did so. Although it decided the issue on a different ground than the one US Bank initially raised, a district court is not required to render its decision in accordance with the position taken by one of the parties. Thus, the court did not violate the party presentation principle and its judgment was affirmed.

The case is No. 24-1163.

Judge: Tymkovich, T.

Attorneys: Madeline A. Collison (Benezra & Culver) for Darren Markley. Marko Joseph Mrkonich (Littler Mendelson) for U.S. Bank National Association dba US Bank.

Companies: U.S. Bank National Association; US Bank

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