Another Cert Petition on the Finality Trap

The last year or so has seen some significant judicial activity when it comes to the finality trap. The trap can arise after a party voluntarily dismisses some of its claims without prejudice and then tries to appeal. This scenario makes some courts of appeals suspicious, as parties sometimes use these voluntary dismissals to manufacture an interlocutory appeal. The courts have developed a variety of ways to stop parties from doing so. And some of those methods create a trap. The court of appeals deems the dismissal non-final and thus non-appealable. But the court also leaves no avenue for the appealing party to make the underlying decision final. The party is then left in limbo. The case is over and unchangeable in the district court. But it’s not final for purposes of appeal.

A new cert petition challenges the Ninth Circuit’s variation on the finality trap. More generally, the petition gives the Supreme Court a chance to disarm the trap once and for all. The case is Starline Tours of Hollywood, Inc. v. EHM Productions, Inc. The response is due May 7, 2021.

The Finality Trap Generally

The finality trap stems from courts’ attempts to prevent litigants from manufacturing interlocutory appeals in actions that involve multiple claims or parties. These attempts can come when the district court resolves some (but not all) of the claims on their merits. The resolution of these claims is generally not appealable, as most appeals in federal court must wait until the end of district court proceedings. And when the district court has decided only some of the claims in a multi-claim or multi-party suit, those proceedings are not over. So litigants in multi-claim or multi-party actions generally must wait to appeal until all of the claims are resolved.

Parties have attempted to skirt this limit on immediate appeals by voluntarily dismissing their remaining claims without prejudice. The plan is to dismiss those claims, thereby ending district court proceedings, and appeal the decision resolving the other claims. Then, regardless of the appeal’s outcome, the appellant reinstates the voluntarily dismissed claims and continues litigating them. To be sure, there might be limits on refiling, such as claim splitting or statutes of limitations. But the point is that nothing the district court did prevents the refiling.

Courts normally see this tactic for what it is: an attempted end-run around the final-judgment rule. And they normally rebuff litigants’ attempts to use it, holding that the voluntary dismissal without prejudice precludes the district court’s decision from being final and appealable. This is a reasonable rule; we don’t want parties trying to manufacture interlocutory appeals and thereby avoid the normal limits on those appeals. The problem—indeed, the “trap”—comes when courts don’t let the parties fix the jurisdictional defect.

Starline Tours & the Ninth Circuit’s Judicial-Involvement Rule

The defendant in Starline Tours appears to have fallen into the trap. Simplifying a bit, the case involved a partnership between a Los Angeles tour-bus operator and the tabloid TMZ. After the partnership broke down, TMZ sued the tour-bus operator, and the operator filed counterclaims. Some of the parties’ claims went to arbitration. The district court dismissed others, including most of the tour-bus operator’s counterclaims. And still others became moot. Eventually, all that remained was one of the tour-bus operator’s counterclaims. And since the arbitration had effectively resolved that claim, the parties jointly dismissed it (and the suit) without prejudice. The tour-bus operator then tried to appeal the district court’s dismissal of its counterclaims.

The Ninth Circuit held that it lacked jurisdiction. In the Ninth Circuit, a district court must be involved in a voluntary dismissal without prejudice for that dismissal to be final and appealable. That means approval and meaningful participation. This involvement, the Ninth Circuit has said, allows the district court to “offer a clear indication of finality, which would avoid confusing the parties and the public.” (Cleaned up.)

The Ninth Circuit saw insufficient involvement in Starline Tours. The parties had stipulated to the dismissal on their own, with no court involvement. And no “unambiguous evidence” existed showing that the parties intended for the dismissal to be with prejudice. The Ninth Circuit accordingly dismissed the appeal.

The Finality Trap & the Supreme Court

The defendant in Starline Tours has now petitioned for cert. And the topic is one that merits the Supreme Court’s attention. The courts of appeals have developed various rules for appealing after voluntarily dismissing some claims without prejudice, some better than others.

There is, of course, the Ninth Circuit’s requirement of district court involvement. There’s also the Fifth Circuit’s odd requirement that a party obtain a partial judgment under Federal Rule of Civil Procedure 54(b). Other circuits allow parties to solve any finality problems by disclaiming the right to refile the voluntarily dismissed claims. And in some circuits, there is no issue—parties can simply appeal after voluntarily dismissing some of their claims.

The best rule, I think, is to allow parties to disclaim any right to refile. If the concern underlying the finality trap is refiling, then a disclaimer of any right to refile should assuage that concern. The disclaimer approach is also simple—courts have allowed parties to disclaim their right to refile in their appellate briefing, at oral argument, or even after argument.

The other approaches are either too complicated (and risk losing the right to appeal) or too lax. Rules like the Fifth Circuit’s and the Ninth Circuit’s create needless hurdles for appeals and can result in the unnecessary loss of appellate rights. And freely allowing appeals after the without-prejudice voluntary dismissal of some claims creates the risk of manufactured interlocutory appeals.

So it’s time for the Supreme Court to disarm the finality trap. I won’t venture a guess as to whether the Court will do so. It denied cert in another finality-trap case in February: CBX Resources, L.L.C. v. ACE American Insurance Co. And the respondent has yet to file its opposition brief (due May 7, 2021). I’ll keep an eye on this one.

Petition for Writ of Certiorari, Starline Tours of Hollywood, Inc. v. EHM Productions, Inc., No. 20-1411 (Apr. 2, 2021), available at the Supreme Court and Westlaw.