September 2026 | Client Alert
The Decision
On September 2026, the First Circuit dismissed the appeal in Air-Con, Inc. v. Daikin Applied Latin America, LLC, No. 24-1863, 2026 WL 2454286 (1st Cir. Aug. 21, 2026), for lack of jurisdiction under 28 U.S.C. § 1291. The holding: a judgment on the merits of plaintiff’s claim, but also granting the voluntary dismissal of a counterclaim without prejudice, does not yield a final, appealable judgment when the counterclaim could be refiled in the same court. It makes no difference whether the claim without prejudice belongs to the appellant or the appellee.
Background
Air-Con, a Puerto Rico distributor, sued Daikin, a Miami-based subsidiary of Daikin Industries, for impairing its rights under Puerto Rico’s Dealer’s Act (Law 75). After Air-Con dropped non-diverse defendants, Daikin removed the case to federal court and counterclaimed for over $235,000 in unpaid obligations, as well as to seek a declaratory judgment of just cause to terminate.
The district court granted Daikin summary judgment dismissing the plaintiff’s Law 75 claim, dismissed the declaratory counterclaim as unripe, and set the damages counterclaim for trial. After Air-Con’s efforts to seek interlocutory appeal of the decision to dismiss its claim were denied, Daikin then voluntarily dismissed its remaining counterclaim without prejudice so that “the Court can enter judgment and this case can conclude.” Over Air-Con’s objection, the court granted the dismissal without prejudice and entered what it labeled a final judgment, dismissing the Law 75 claim with prejudice and the damages counterclaim without prejudice. Air-Con appealed.
The Court’s Reasoning
Judge Hamilton of the Seventh Circuit, sitting by designation, wrote for the panel. He explained that § 1291 requires a “final decision,” one that “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Catlin v. United States, 324 U.S. 229, 233 (1945). Because Daikin’s counterclaim remained susceptible of revival in the same court, the judgment was not final.
The court drew on Microsoft Corp. v. Baker, 582 U.S. 23 (2017), which rejected “inventive litigation ploys,” including voluntary dismissal under Rule 41(a), to manufacture appellate jurisdiction and sidestep Rule 54(b) and § 1292(b). A survey of sibling circuits confirmed the majority rule: a voluntary dismissal without prejudice defeats finality. Only the Eleventh Circuit holds otherwise, while the Ninth Circuit inquires into intentional manipulation.
Critically, the court recognized that when remaining claims are dismissed with prejudice, so they will not resurface after appeal, that path can produce a final, appealable judgment. The problem arises only when parties try to hedge their bets by dismissing without prejudice, preserving the ability to revive dismissed claims after an appeal.
The court refused to distinguish based on whose claim was dismissed. Rule 54(b) “treats counterclaims, whether compulsory or permissive, like other multiple claims.” Cold Metal Process Co. v. United Eng’g & Foundry Co., 351 U.S. 445, 452 (1956). Letting a party manufacture finality through a without-prejudice dismissal would transfer control over the timing of appeal from judges to litigants.
The court acknowledged the risk that an opponent could hold appellate rights hostage with a lingering claim, but identified safeguards: the district court can force an election between dismissal with prejudice and trial, and a Rule 41(b) dismissal for failure to prosecute may apply if a party refuses to choose.
Why the Decision Matters
Air-Con forecloses the use of a voluntary without-prejudice dismissal to fast-track appellate review. Prior First Circuit cases, including Donahue v. Federal National Mortgage Ass’n, 980 F.3d 204 (1st Cir. 2020), Shea v. Millett, 36 F.4th 1 (1st Cir. 2022), and Dusel v. Factory Mutual Insurance Co., 52 F.4th 495 (1st Cir. 2022), either assumed jurisdiction without deciding the point or left it open. The court noted that such assumptions have no precedential effect, see Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 91 (1998), making Air-Con the first square decision on this issue in the First Circuit. The appellate court also flagged that the merits of the Law 75 claim are not “necessarily obvious”: the case raises an unresolved question of Puerto Rico law, whether Law 75 requires advance notice when a distributor terminates only a product line, not the entire relationship. That issue awaits resolution for a future final judgment resolving it. This case merely underscores the stakes of getting the finality question right.
For parties defending Law 75 or similar claims, a favorable summary judgment on one claim cannot be converted into an immediately appealable judgment by voluntarily dismissing a pending counterclaim without prejudice. The structured routes remain: Rule 54(b) partial final judgment or § 1292(b) certification, both requiring judicial approval.
Practical Considerations for Clients
Clients should keep the following in mind:
- A voluntary dismissal without prejudice of a remaining claim or counterclaim will not create appellate jurisdiction over an earlier interlocutory ruling. For immediate review, pursue Rule 54(b) or § 1292(b) certification, both of which require court approval.
- When dismissing a counterclaim to conclude a case, weigh whether dismissal with prejudice better serves the client. A with-prejudice dismissal supports finality; a without-prejudice dismissal does not.
- A party facing a tactical without-prejudice dismissal has options: seek a court order requiring an election between with-prejudice dismissal and trial, or invoke Rule 60(b) to prompt the court to finish the case.
- The merits question left open, whether Law 75 requires advance notice before terminating a single product line rather than the full relationship, remains unresolved.
Conclusion
Air-Con holds that a voluntary dismissal without prejudice does not produce a final judgment when the claim could be refiled in the same court, regardless of which party holds it. Litigants seeking interlocutory review should use Rule 54(b) or § 1292(b), not dismissal tactics.
Authors: Gabriel A. Miranda Rivera & Aníbal A. Román Medina
____________________________________________________________________________________________________________________________________
This O’Neill & Borges Client Alert is prepared for general information purposes only. It does not constitute legal advice or a legal opinion; nor does it establish an attorney-client relation with the recipient. For further information or to establish an attorney-client relation please contact us at info@oneillborges.com or your prime contact attorney at O&B.