The Second Circuit split over whether it had jurisdiction after a stipulated judgment, particularly whether a preliminary-injunction decision effectively resolved an action.
May 1, 2024
In New York State Telecommunications Association v. James, the Second Circuit split over an attempt at manufacturing finality. The district court had granted a preliminary injunction after concluding that federal law preempted a New York state law. The parties then stipulated to entry of a final judgment. A majority of the Second Circuit determined that this preemption decision effectively resolved the action, meaning the state could appeal. Judge Sullivan disagreed, emphasizing that the preemption decision was necessarily preliminary.
The decision nicely illustrates something I talk about in a forthcoming article: the different varieties of manufactured finality. The majority thought that the parties had tried to facilitate an appeal after a district court decision that—though technically interlocutory—effectively determined who won. (I call this manufactured finality after a “dispositive interlocutory decision.”) The dissent thought that the preliminary-injunction decision, though bad for the state, did not resolve the action. (I call this manufactured finality after an “adverse interlocutory decision.”) So in the dissent’s view, the parties tried to undermine the normal rules of appellate jurisdiction.
The Preliminary Injunction & Stipulated Judgment in New York State Telecommunications
Simplifying only a little bit, in 2021, New York passed a law requiring certain internet-service providers to offer high-speed internet to low-income consumers at fixed prices. A group of trade organizations representing internet service providers then sued. The plaintiffs argued that federal law preempted the state law. They also sought a preliminary injunction.
The district court granted the preliminary injunction. It concluded that field preemption applied, as the New York law regulated interstate communications. The district court alternatively held that the state law conflicted with regulations issued by the Federal Communications Commission.
New York appealed from this grant of a preliminary injunction under 28 U.S.C. § 1292(a)(1). While that appeal was pending, the parties jointly asked the district court to enter a stipulated judgment and permanent injunction. As the parties saw things, the district court’s legal conclusions in the preliminary-injunction decision effectively resolved the plaintiffs’ claims.
The district court granted the request and permanently enjoined the state law. New York then appealed.
Manufactured Finality in New York State Telecommunications Association
The parties’ efforts to create a final, appealable decision raised issues of manufactured finality. Manufactured finality involves (1) a district court decision that, by its terms, resolves fewer than all (and perhaps none) of the claims in an action; and (2) parties’ subsequent efforts to end district court proceedings and produce a “final decision,” which comes via something other than the adversarial litigation of all unresolved claims.
Courts of appeals often express concerns about manufactured finality. They worry that parties will manufacture appeals from interlocutory decisions outside of the scenarios in which statutes, rules, or judicial decisions permit interlocutory appeals. Manufactured finality can thus risk unsanctioned piecemeal appellate review. Manufactured finality can also circumvent established means for interlocutory review.
The Second Circuit was accordingly concerned with the parties’ efforts in New York State Telecommunications Association. And the panel ultimately split on whether the appeal was proper.
The Majority
A majority of the Second Circuit determined that the court had appellate jurisdiction. The majority said it could review a stipulated judgment so long as certain factors were met:
First, the district court must have “plainly rejected the legal basis” for the appellant’s claim or defense. Second, all claims must be disposed of with prejudice. Third, the appellant’s consent to final judgment must be “designed solely to obtain immediate appeal of the prior adverse decision, without pursuing piecemeal appellate review.” Fourth, the appellant must have “expressly preserved” the right to appeal.
(Citations and footnotes omitted.)
In New York State Telecommunications Association, all factors were satisfied.
First, the district court had definitively held federal law preempted New York’s law, thereby “plainly reject[ing]” New York’s defense. Although the district court needed to determine only that the plaintiffs were likely to succeed, the district court’s decision was not tentative. “Instead, it articulated unequivocal and purely legal conclusions concerning the preemptive effect of federal law, which were in no way tentative nor contingent on further discovery or factual development.” The district court had thus effectively resolved the preemption question. And that practically resolved the action. The majority added that were there any doubt as to whether the district court’s preemption decision was definitive, the district court resolved that doubt when it ordered a permanent injunction.
The other requirements were straightforward. Although the plaintiffs had initially voluntarily dismissed some other legal theories without prejudice, the plaintiffs later agreed to treat that dismissal as with one prejudice. The stipulated judgment was designed to produce an appeal without risking piecemeal review. And the stipulated judgment expressly reserved New York’s right to appeal.
Judge Sullivan’s Dissent
Judge Sullivan dissented. In addition to the four factors the majority had identified, Judge Sullivan thought that two more were required:
Though I agree that all of these elements are prerequisites, our precedent requires two more conditions before a party may appeal a stipulated judgment. First, in order to “plainly reject[]” the legal basis for the appellant’s case, the district court’s decision must be a “final ruling” on an issue, as opposed to a tentative finding or dicta. In other words, a decision cannot “effectively dismiss[]” a claim when it is only a provisional finding that is “subject to change when the case unfolds.” Second, the stipulated judgment appeal cannot be an attempt to circumvent the interlocutory appellate rules already in place.
As Judge Sullivan saw things, both of these additional requirements were missing.
As to the first, the district court’s decision was necessarily tentative. That’s because it was part of a preliminary-injunction decision, in which the district court must determine only the likelihood of success on the merits. Preliminary-injunction decisions involve a prediction of the merits. True, the district court used unequivocal language in its decision. But “a strong ‘prediction’ is still only a prediction.” Judge Sullivan added that the district court’s acceptance of the stipulated judgment could not effectively determine an issue because “a district court does not ‘determine’ anything when it so-orders a stipulated judgment.”
On the second point, Judge Sullivan thought that the parties were circumventing the normal means of reviewing preliminary-injunction decisions: 28 U.S.C. § 1292(a)(1). The Supreme Court spoke quite harshly about these sorts of efforts in Microsoft Corp. v. Baker. Judge Sullivan took from those statements a “broad rule”: “whenever Congress or the Rules Committee has preauthorized the right to appeal specific interlocutory orders, a litigant may not employ a stipulated judgment to seize additional appellate rights beyond those preauthorized avenues.”
As Judge Sullivan saw things, the parties “used a stipulated judgment to expand its preauthorized appellate rights.” Under § 1292(a)(1), New York could have obtained a review only of the preliminary-injunction decision. The stipulated judgment expanded an appeal to the ultimate merits of the action. Microsoft thus barred jurisdiction.
The Varieties of Manufactured Finality
I’ve written quite a bit about manufactured finality recently, including a forthcoming article creatively titled Manufactured Finality (a draft of which Judge Sullivan cited in his dissent). New York State Telecommunications Association—with its differing assessments of what the district court did—nicely illustrates one of the points I make in that article: the distinction between dispositive interlocutory orders and adverse interlocutory orders.
Dispositive Interlocutory Decisions
As the majority saw things, the district court entered what I’ve called a “dispositive interlocutory decision.” This variation on manufactured finality involves a district court decision that effectively—though not technically—resolves the parties’ claims. The decision is nominally interlocutory. But after that decision, only one party can prevail.
Appeals from dispositive interlocutory decisions are not problematic. The action is effectively over. All a stipulated judgment does in these cases is accelerate the inevitable end of district court proceedings. Courts should accordingly welcome this variety of manufactured finality.
Adverse Interlocutory Decisions
Judge Sullivan thought that the district court had entered what I’ve called an “adverse interlocutory decision.” These decisions make litigating a claim less attractive. But they don’t actually resolve the claim.
Appeals from adverse interlocutory decisions can create problems. Some courts see an appellate-jurisdiction issue with them, as the action might not be truly over and the parties might be circumventing established avenues for appellate review. Other courts see an Article III problem, contending that consent to a judgment after an adverse interlocutory decision extinguishes standing. I think the real problem with these appeals is waiver. But whatever the reason, courts don’t like these appeals.
The Decision in New York State Telecommunications Association
Was the district court order in New York State Telecommunications Association a dispositive interlocutory order or an adverse one? I think the majority was probably correct in treating the order as dispositive. It sounds like the district court definitively concluded that federal law preempted New York’s broadband-access act. No factual development or further litigation could change that conclusion. So the district court had determined both what the law was and how it applied to the undisputed facts.
If that’s the case, then the preemption issue was effectively resolved at the preliminary-injunction stage. The plaintiffs could have moved for summary judgment on preemption grounds and prevailed. The stipulated judgment merely reached that same outcome with less work.
The Safer Route of Invited Summary Judgment?
One last point. Judge Sullivan suggested in his dissent that New York could have asked the district court to enter summary judgment against it. I agree that this is a safer route—it lets the district court make clear that it has effectively resolved the action.
But given the uncertainty over manufactured finality, I can understand any reluctance to do so. It’s conceivable that a court of appeals would have held that this invited judgment would bar an appeal. Some courts might find a problem with finality. Other courts might find a problem with Article III jurisdiction and appellate standing. Those courts would be wrong on both points. But it’s not unimaginable that courts would do this.
New York State Telecommunications Association v. James, 2024 WL 1814541 (2d Cir. Apr. 26, 2024), available at CourtListener and Westlaw