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December 18, 2012 Articles

"Manufactured Finality" and the Right to Appeal in Federal Courts

The circuits are split on the test for when appellate jurisdiction can be manufactured.

By Bennett Evan Cooper

Like a river marching inexorably to the sea, much litigation heads toward appeal, flowing over and around any obstacles in its course. Parties faced with an adverse decision on fewer than all of the claims seek ways of obtaining appellate review without either waiting until the end of the case or unnecessarily sacrificing anything of value that remains. When entry of partial final judgment under Federal Rule of Civil Procedure 54(b) is not available or has been denied, and either the district court or the court of appeals is likely to close the gate to an interlocutory appeal under 28 U.S.C. § 1292(b), parties may get creative. One such avenue of inspiration has been “manufactured finality,” which occurs where the trial court dismisses with prejudice fewer than all of the claims and the plaintiff then voluntarily dismisses whatever remains with the goal of obtaining a final judgment that is appealable as of right. Manufactured finality arises in a variety of settings, some more troubling and prone to manipulation than others, and the circuits are split on the test for when appellate jurisdiction can be manufactured. The Federal Advisory Committees on the Appellate Rules and the Civil Rules have been jointly looking at the issue for several years but have not proposed any amendments to the rules.

Four Scenarios
There are four basic scenarios for manufactured-finality issues: (1) the plaintiff unconditionally dismisses the remaining claims with prejudice; (2) the plaintiff dismisses the remaining claims with prejudice unless the court of appeals reverses the dismissal of the other claims; (3) the plaintiff dismisses the remaining claims without prejudice, but there is some barrier that would prevent the plaintiff from reasserting them (e.g., the statute of limitations); and (4) the plaintiff dismisses the remaining claims without prejudice and without any apparent obstacle to reinstatement.

Absolute Dismissal with Prejudice. The first setting is the least problematic. A party is a master of its claims, and if it wishes to abandon permanently some claims that it had no obligation to assert in the first place in order to secure an immediate appeal of claims it deems more important or central, there is no compelling reason to deny it that course. In that setting, the dismissal with prejudice is, however manufactured, a final decision—a decision that “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Cunnigham v. Hamilton Cnty., 527 U.S. 198, 204 (1999) (quotations and citation marks omitted). For this reason, most circuits have not had any problem in finding an appealable final judgment in such circumstances. E.g., OFS Fitel, LLC v. Epstein, Becker & Green, P.C., 549 F.3d 1344, 1357 (11th Cir. 2008); Rabbi Jacob Joseph Sch. v. Province of Mendoza, 425 F.3d 207, 210 (2d Cir. 2005); Great Rivers Co-op. of Se. Iowa v. Farmland Indus., Inc., 198 F.3d 685, 688 (8th Cir. 1999); John’s Insulation, Inc. v. L. Addison & Assocs., Inc., 156 F.3d 101, 107 (1st Cir. 1998).

Conditional Dismissal with Prejudice. The second setting is more troubling because the conditionality of the dismissal with prejudice suggests that “prejudice” is in the eye of the beholder. For the plaintiff, this is really an “all or nothing” bet: The party is essentially saying that although it does not really want to give up the remaining claims, it also does not want to proceed on them if that is all it has to go on. To the defendant, such a resolution may be nearly as appealing as an absolute dismissal; the defendant presumably already has won on the dismissed claims and can save itself a lot of time and money if preserving its win on appeal means that everything it did not already win on will go away as well. In reality, the result is the same as if the remaining claims had been left undismissed, but the plaintiff agreed to dismiss them with real prejudice if its appeal failed. This springing “return from the grave” by the dismissed claims has received a mixed reaction in the courts of appeals, with the Second Circuit finding a final judgment, but the Third, Seventh, Eighth, and Ninth Circuits finding none. Compare SEC v. Gabelli, 653 F.3d 49, 56–57 (2d Cir. 2011), with Fed. Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 440 (3d Cir. 2003), India Breweries, Inc. v. Miller Brewing Co., 612 F.3d 651, 657 (7th Cir. 2010), Clos v. Corrs. Corp. of Am., 597 F.3d 925, 928 (8th Cir. 2010), and Dannenberg v. Software Toolworks Inc., 16 F.3d 1073, 1076 (9th Cir. 1994). The Second Circuit concluded that the plaintiff’s “conditional waiver” created a final judgment because he ran “the risk that if his appeal is unsuccessful, his . . . case comes to an end.” Gabelli, 653 F.3d at 56 (quotations and internal citation omitted). In contrast, the Third Circuit rejected the tactic as “an inappropriate attempt to evade § 1291’s requirement of finality.” Fed. Home Loan Mortg. Corp., 316 F.3d at 440.

Dismissal with Only “Practical” Prejudice. The third scenario, which involves a dismissal nominally without prejudice but with a limitations or similar barrier to reassertion, seems on at least a functional level to be effectively a dismissal with prejudice; the source of the prejudice is simply extrinsic to the dismissal order itself. For this reason, the Second, Third, Fourth, Seventh, and Tenth Circuits have followed a “practical” or “pragmatic” approach in finding an appealable final judgment in this setting. See, e.g., Chappelle v. Beacon Commc’ns Corp., 84 F.3d 652, 654 n.3 (2d Cir. 1996); Fassett v. Delta Kappa Epsilon (N.Y.), 807 F.2d 1150, 1155–56 (3d Cir. 1986); GO Computer, Inc. v. Microsoft Corp., 508 F.3d 170, 174–75 (4th Cir. 2007); Palka v. City of Chi., 662 F.3d 428, 433–34 (7th Cir. 2011); Jackson v. Volvo Trucks N. Am., Inc., 462 F.3d 1234, 1238 (10th Cir. 2006). One has to wonder, however, about the wisdom of such an exception: If the would-be appellant truly believes that the claim cannot be reasserted despite the dismissal without prejudice, why not compel it to stipulate to dismissal with prejudice?

Dismissal Without Prejudice. The fourth scenario—dismissal without prejudice of apparently reassertable remaining claims—has proved the most troubling because it smacks the most of one or both parties manipulating the case to secure an appeal without really giving up anything. The Second, Third, Fifth, Seventh, Tenth, and Eleventh Circuits have flatly rejected this strategy, concluding that judgment is not final for purposes of appellate jurisdiction where it results from a dismissal without prejudice and with the possibility of unconditional reinstatement. See, e.g., Rabbi Jacob Joseph Sch., 425 F.3d at 210; LNC Invs. LLC v. Rep. of Nicaragua, 396 F.3d 342, 347 (3d Cir. 2005); Swope v. Columbian Chems. Co., 281 F.3d 185, 192 (5th Cir. 2002); Horwitz v. Alloy Auto. Co., 957 F.2d 1431, 1435–36 (7th Cir. 1992); Heimann v. Snead, 133 F.3d 767, 769 (10th Cir. 1998); Hood v. Plantation Gen. Med. Ctr., Ltd., 251 F.3d 932, 934 (11th Cir. 2001).

On the other hand, the Sixth, Eighth, and Federal Circuits have concluded that such a dismissal does produce an appealable final judgment, while the First and D.C. Circuits have reached the merits of appeals pursued through this course without expressly addressing or deciding the jurisdictional issue. See, e.g., Hicks v. NLO, Inc., 825 F.2d 118, 120 (6th Cir. 1987); Hope v. Klabal, 457 F.3d 784, 789–90 (8th Cir. 2006); Doe v. United States, 513 F.3d 1348, 1353–54 (Fed. Cir. 2008); Rymes Heating Oils, Inc. v. Springfield Terminal Ry. Co., 358 F.3d 82, 87 (1st Cir. 2004); Stewart v. D.C. Armory Bd., 863 F.2d 1013, 1016 (D.C. Cir. 1988). The D.C. Circuit has to date rejected manufactured finality only where the plaintiff voluntarily dismissed its remaining claim without prejudice and, under Federal Rule of Civil Procedure 41(a)(1), did so through a stipulation of the parties, not an order of the district court. Robinson-Reeder v. Am. Council on Educ., 571 F.3d 1333, 1339–40 (D.C. Cir. 2009).

The Ninth Circuit, being the Ninth Circuit, has gone its own way. Recognizing that “there is no unanimity on this issue,” the court rejected “the purportedly bright-line rule of disallowing appeals if some claims are dismissed without prejudice” and noted that the circuits that adhere to that approach have been “ultimately forced to graft numerous exceptions onto this rule, if not depart from it outright.” James v. Price Stern Sloan, Inc., 283 F.3d 1064, 1070 & n.8 (9th Cir. 2002). The Ninth Circuit instead adopted a subjective approach that looks to whether “the record reveals . . . evidence of intent to manipulate our appellate jurisdiction.” Id. at 1070. As one may expect, under such a subjective test, finality may depend on how discreet, tactless, or collusive the parties are.

One variant of the fourth scenario involves a dismissal without prejudice of remaining claims that completely eliminates one or more defendants from the litigation. Because joinder of multiple defendants in a single lawsuit is not generally required, the policy against splitting claims against a single defendant arguably is “not violated when a plaintiff ‘unjoins’ multiple defendants through a voluntary dismissal without prejudice.” Missouri ex rel. Nixon v. Coeur D’Alene Tribe, 164 F.3d 1102, 1106 (8th Cir. 1999). The Eighth and Ninth Circuits have held that such a dismissal creates a final judgment. Id.; Duke Energy Trading & Mktg., L.L.C. v. Davis, 267 F.3d 1042, 1049 (9th Cir. 2001). The Seventh Circuit does not appear to agree; it recognized appellate jurisdiction where the remaining defendants had been dismissed without prejudice only after the panel during oral argument gave the plaintiff’s lawyer a choice: “[S]tand your ground and we’ll dismiss the appeal, or convert your dismissal of the other two defendants to dismissal with prejudice, which will bar your refiling your claims against them.” Arrow Gear Co. v. Downers Grove Sanitary Dist., 629 F.3d 633, 636–37 (7th Cir. 2010).

Resolving the Circuit Splits
Whether and how to resolve such splits are topics of debate. This may be one of those situations where uniformity may not be absolutely critical and the house could stand divided. For example, it is difficult to foresee that very many plaintiffs will forum-shop based on whether they could successfully manufacture finality and appeal as of right in the event that one or more but fewer than all claims were dismissed. But if a resolution is needed, it does not appear that a resort to Congress will be necessary, as 28 U.S.C. § 2072(c) expressly authorizes the Supreme Court to promulgate rules that “define when a ruling of a district court is final for purposes of appeal under section 1291.”

As of September 2012, the issue of manufactured finality has remained on the agenda of the Advisory Committees on the Appellate Rules and the Civil Rules for four years. It appears that the joint subcommittee that has been considering possible rule changes has reached a consensus on the first and fourth scenarios: Dismissal of the remaining claims with prejudice produces a final judgment, but dismissal without prejudice does not. A major sticking point has been the third scenario of conditional dismissals with prejudice, and it is not yet known whether a rule change will ultimately force uniformity among the circuits. In the meantime, if all else fails, it may be possible to manufacture finality in some circumstances and in some circuits. But creating an avenue of appeal as of right that, unlike Rule 54(b) or section 1292(b), does not require the cooperation of the district or circuit court (or both) may yet require the client to make a hard choice of whether to abandon permanently its remaining claims, regardless of the outcome of the appeal.

Keywords: litigation, appellate practice, unconditional dismissal with prejudice, conditional dismissal with prejudice, dismissal without prejudice

Bennett Evan Cooper is a partner with Steptoe & Johnson LLP in Phoenix, Arizona.

Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).