Appealing When a Case Is Legally (but Not Actually) Over

In Affinity Living Group, LLC v. StarStone Specialty Insurance Co., a divided Fourth Circuit held that it had appellate jurisdiction despite the parties’ stipulating to dismiss some claims without prejudice. The district court had issued a decision that necessarily—though not technically—resolved all of the claims, including the voluntarily dismissed ones. The decision dismissed two of the plaintiff’s claims. And its reasoning necessarily decided the two others. That is, the district court’s dismissal of the two claims “rendered legally deficient” the remaining claims. So even though the district court never formally dismissed the remaining claims, their dismissal was inevitable. The parties thus saved everyone some time by stipulating to their dismissal.

This is what Microsoft Corp. v. Baker should have said. Baker rightly held that plaintiffs in a class action cannot voluntarily dismiss their individual claims and then appeal the earlier denial of class certification. Although the denial of class certification might have made pursuing those individual claims economically irrational, it did not necessarily resolve them. The plaintiffs could have kept going. That’s why they shouldn’t have been able to manufacture an interlocutory appeal by voluntarily dismissing their claims. But when an interlocutory decision means that there’s nowhere else for plaintiffs to go—that their claims, though technically pending, are legally done—there’s no reason to not allow an appeal via voluntary dismissal.

The suit in Affinity Living

Affinity Living involved a dispute over insurance coverage. The plaintiff, which operated adult care homes, had been sued for allegedly submitting false Medicaid claims. The plaintiff then sought coverage from its insurance company. The policy required that the insurance company indemnify and defend the plaintiff against certain kinds of claims, including those for “damages resulting from a claim arising out of a medical incident.” But the insurance company denied coverage.

The plaintiff then sued the insurance company, pleading four claims:

• Count 1 sought a declaratory judgment that the insurance company had a duty to indemnify and defend the plaintiff;
• Count 2 alleged that the insurance company had breached the insurance contract;
• Count 3 alleged that the insurance company violated the common law duty of good faith and fair dealing; and
• Count 4 alleged a violation of North Carolina’s Unfair and Deceptive Trade Practices Act.

On the insurance company’s motion, the district court dismissed the contractual claims—counts 1 and 2. The policy did not require coverage (count 1), so the insurance company had not breached it (count 2). This decision left the business-tort claims—counts 3 and 4—pending. But rather than litigate them, the parties stipulated to their dismissal without prejudice. The stipulation said that the plaintiff could not “revive the claims in this case, in consequence of the Court’s dismissal on summary judgment of Counts I and II, and this action has therefore been finally resolved on the merits.” The plaintiff then appealed.

Appellate jurisdiction in Affinity Living

Before reaching the policy, the Fourth Circuit had to assure itself of its jurisdiction.

The problem of stipulated dismissals

The parties in Affinity Living had tried to facilitate an appeal by voluntarily dismissing all remaining claims. But as we’ve seen several times recently, courts are wary of this tactic and normally prevent parties from manufacturing an interlocutory appeal.

As a general matter, appeals in federal court must wait until the end of district court proceedings, after all issues have been resolved and all that remains is enforcing the judgment. This general rule protects district court proceedings from the interruption of interlocutory appeals, and it ensures that all related issues are resolved in a single appeal. Parties sometimes attempt to skirt this limit on interlocutory appeals by voluntarily dismissing the unresolved parts of cases without prejudice. With all claims seemingly dismissed, these parties intend to appeal the resolved portions of a case and then—regardless of the outcome of the appeal—reinstate that which they dismissed.

Concern over piecemeal appeals leads courts to often say that dismissals without prejudice are not final, appealable orders. That’s an overstatement; lots of dismissals without prejudice are appealable. And the concern over refiling voluntarily dismissed claims might be overblown. But courts often have to assure themselves of their jurisdiction before reviewing these dismissals. As the Affinity Living court noted, the parties’ “stipulation raise[d] a . . . concern about whether the Parties agreed to the voluntary dismissal as a subterfuge to manufacture jurisdiction for reviewing an otherwise non-appealable, interlocutory order.” (Cleaned up somewhat.)

Voluntary dismissals when a case is practically v. legally over

But not all stipulated dismissals are created equal.

Microsoft Corp. v. Baker: Practically over

As one example, the Fourth Circuit discussed the Supreme Court’s decision in Microsoft Corp. v. Baker at some length. (Despite involving a with-prejudice dismissal, Baker nicely illustrates the underlying concern of parties manufacturing interlocutory appeals.) Baker held that plaintiffs in class actions could not voluntarily dismiss their individual claims and then appeal the district court’s interlocutory decision denying class certification. This tactic was an end-run around Federal Rule of Civil Procedure 23(f), which gives the courts of appeals discretion to review interlocutory class-certification decisions. The reasoning was a bit odd—the Court held that there was no “final decision” under 28 U.S.C. § 1291, despite the district court proceedings being over. But the outcome was correct—the plaintiffs were trying to circumvent Rule 23(f) and manufacture the appeal of an order that they should not have been able to appeal.

The plaintiffs in Baker argued that their tactic was necessary because there was no point in continuing on with only individual claims; they were negative-value claims and thus not worth pursuing. But the denial of class certification in Baker did not technically end the action. It only made the action impractical. Because the plaintiffs could still have litigated their individual claims and then, win or lose, appealed the denial of class certification, their voluntary dismissal was not appealable.

Affinity Living: Legally over

Affinity Living, the Fourth Circuit explained, was different. The district court’s decision dismissing counts 1 and 2 necessarily resolved the merits of counts 3 and 4:

But here, success on Counts 1 and 2 is necessary for [the plaintiff] to prevail on the merits of Counts 3 and 4. Without a contractual duty to provide coverage, [the insurance company] cannot breach the covenant of good faith and fair dealing. The same is true under the North Carolina Unfair and Deceptive Trade Practices Act. So in rejecting [the plaintiff]’s contractual claims (Counts 1 and 2), the district court—as a doctrinal matter—doomed [the plaintiff]’s extra-contractual claims (Counts 3 and 4).

“So [the plaintiff]’s case was not just practically over (as in [Baker]) but legally over—and no legal argument could permit success on Counts 3 and 4 after the rejection of Counts 1 and 2.” Had the insurance company moved for summary judgment on counts 3 and 4, the district court would have inevitably granted the motion. The parties saved everyone some time by stipulating to the same result. There was also no attempt at gamesmanship here. If the Fourth Circuit affirmed the dismissal of counts 1 and 2, counts 3 and 4 were forever gone (despite being dismissed without prejudice).

Judge King’s dissent

Judge King dissented, contending that the court lacked jurisdiction. According to Judge King, the parties were trying “to perform an end run around the procedural rules governing their circumstances—just as in Baker.” And “[a]lthough the panel majority’s jurisdictional ruling may very well be motivated by pragmatism, [its] decision further complicates the already complex topic of federal appellate jurisdiction.”

This is what Baker should have said

I’ve argued before that, although correct in its outcome, Baker should have used different reasoning. If a district court makes an interlocutory decision that necessarily resolves a plaintiff’s claim—that is, holds that a plaintiff cannot prove an essential element of its cause of action—then a subsequent voluntary dismissal of that claim should be appealable. Once the district court has issued a decision that legally requires the dismissal of a claim, the resolution of that claim is inevitable. The parties could go through the pro forma motions of securing a dismissal from the court. Or the plaintiff can reach the same outcome in fewer steps by voluntarily dismissing the claim.

There’s no harm in this—no risk of piecemeal appeals or circumventing the normal limits on appellate jurisdiction. Affinity Living living accordingly shows what the Supreme Court should have said in Baker.

Affinity Living Group, LLC v. StarStone Specialty Insurance Co., 2020 WL 2630845 (4th Cir. May 26, 2020), available at the Fourth Circuit and Westlaw.