A federal appellate court has dismissed a plaintiff’s appeal for lack of appellate jurisdiction because the plaintiff was not a party to the lawsuit and did not meet the “exceptional circumstances” requirement for allowing nonparty appeals. The court dismissed the appeal despite the fact that the nonparty had previously been the plaintiff in the action.
In U.S. ex rel. Alexander Volkhoff, LLC v. Janssen Pharmaceutica N.V., a company filed a qui tam complaint in federal district court. A qui tam lawsuit is a suit brought under the False Claims Act (FCA) that rewards whistleblowers in successful cases where the government recovers funds lost to fraud. The complaint named the company as the relator and alleged violations of the FCA arising out of allegedly fraudulent marketing of medications by the defendants.
The defendants filed a motion to dismiss the original complaint, which the company did not oppose. Instead, the company filed an amended complaint removing itself as the relator and named Jane Doe, an anonymous natural person, as the only relator. The amended complaint failed to mention the relationship between the company and Jane Doe.
Both Jane Doe and the company, through filings, acknowledged that it was a tactical decision to replace the company with Jane Doe to avoid the dismissal of the original complaint’s FCA employment retaliation claim, which could only be brought by an individual.
Ultimately, the district court dismissed the suit under the “first-to-file bar,” which prevents private third parties from intervening in or filing similar FCA qui tam lawsuits after an initial relator has filed one. The company filed a notice of appeal.
The U.S. Court of Appeals for the Ninth Circuit dismissed the company’s appeal, holding that it violates the general rule that only parties to a lawsuit may appeal it. Under Federal Rule of Appellate Procedure 3(c)(1), “the notice of appeal must specify the party or parties taking the appeal by naming each one in the caption or body of the notice.” The court noted that nonparties’ appeals are only heard in “exceptional circumstances.” These circumstances arise when the equities of the case weigh in favor of hearing the appeal and the appellant, though not a party, participated in the district court proceedings.
The court explained that it has traditionally allowed nonparties to appeal only when they were significantly involved in the district court proceedings—often because they were compelled to participate by one of the parties or the court. Conversely, when nonparties choose not to meaningfully involve themselves in district court proceedings, the court has denied them the right to appeal.
The court reasoned that the company’s participation in the district court proceedings could not serve as the basis for a right to appeal as its activity in the case all but ceased with the filing of the amended complaint and that the company failed to show that the equities favored hearing its appeal. Furthermore, the substitution of Jane Doe in the place of the company was merely a strategic choice.
“Nonparty appeals that are permitted are a very rare occurrence,” says John M. Barkett, Miami, FL, cochair of the ABA Section of Litigation’s Ethics & Professionalism Committee. After the original qui tam action was filed, “the plaintiff allowed itself to be replaced as the relator, did not participate in the proceedings, and was not ‘haled’ into court against [its] will, signaling the absence of any equities,” adds Barkett.
“Some cases, although in different contexts, allow a party to appeal if they have an interest that is affected by the trial court’s judgment,” offers Sonia E. O’Donnell, Miami, FL, vice-chair of the Section of Litigation’s Appellate Practice Committee. “But others hold that neither an alleged interest in the outcome of the litigation nor participation in proceedings before the district court” give nonparties standing, says O’Donnell.
“In a fairly classic Justice O’Connor opinion, the Supreme Court in Devlin v. Scardelletti eschewed a formulaic approach in the specific context of when absent class members (who generally are nonparties) are considered parties,” says Brian J. Murray, Wheaton, IL, cochair of the Section’s Appellate Practice committee. “Instead, the Court adopted a substantive and functional analysis of their relationship to the issue at hand and while it doesn’t cite Devlin, the Ninth Circuit’s test seems similarly fact-specific,” explains Murray.
“Most all jurisdictions recognize the presumption that nonparties are not able to appeal from district court orders with which they disagree, but nearly all have built into that some kind of failsafe mechanism to allow nonparties to appeal when there seems like a really good reason to allow it,” Murray concludes.
