Manufactured Finality in Arbitration Appeals

In 2017’s Microsoft Corp. v. Baker, the Supreme Court held that plaintiffs wanting to bring a class action cannot voluntarily dismiss their individual claims with prejudice and then appeal the denial of class certification. In doing so, the Supreme Court abrogated a line of Ninth Circuit decisions that allowed this voluntary-dismissal tactic. But class actions were not the only context in which the Ninth Circuit had sanctioned these appeals after voluntary dismissals. In 2010’s Omstead v. Dell, Inc., the Ninth Circuit held that plaintiffs could appeal decisions ordering arbitration by voluntarily dismissing their claims with prejudice.

In last week’s Langere v. Verizon Wireless Services, LLC, the Ninth Circuit held that Baker abrogated Omstead. Just like in the class-action context, the the voluntary-dismissal tactic in the arbitration context allowed plaintiffs to circumvent the rules governing appellate jurisdiction, invited protracted litigation and piecemeal appeals, and benefited only plaintiffs. So plaintiffs in the Ninth Circuit can no longer manufacture an appeal from an arbitration order by voluntarily dismissing their claims with prejudice.

The Langere Litigation

The plaintiff in Langere brought a purported class action against Verizon Wireless. He claimed that Verizon’s extended warranty program—which offered similar protections to those already provided by a phone’s manufacturer—violated state and federal consumer-protection statutes. Verizon sought an order compelling arbitration, which the district court granted.

Rather than arbitrate his claims or seek a certified appeal via 28 U.S.C. § 1292(b), the plaintiff voluntarily dismissed his claims with prejudice. According to the plaintiff, “arbitration was not ‘economically feasible,’ and he felt that appealing the arbitration order was his only viable option.” So he appealed to the Ninth Circuit, challenging the district court’s arbitration decision.

Manufactured Finality

The plaintiff in Langere was attempting to manufacture an interlocutory appeal. Under the 9 U.S.C. § 16, a decision ordering arbitration is generally not immediately appealable. The parties must normally proceed to arbitration, after which an aggrieved party can appeal the arbitration order. Some exceptions to this general rule exist. A plaintiff can ask the district court to certify its arbitration decision for an immediate appeal under the aforementioned § 1292(b). Mandamus is a another possible (though unlikely) avenue for immediate review. And some courts will allow an appeal if the district court dismisses—rather than stays—the action.

To circumvent this general prohibition on appealing arbitration orders, the plaintiff in Langere tried to manufacture finality. Manufactured finality essentially involves gambling on the chance of reversal, and plaintiffs sometimes try it when they suffer an adverse interlocutory decision that severely harms—but does not entirely undercut—their case. The plaintiff voluntarily dismisses their claims with prejudice. But the plaintiff also intends to appeal the adverse interlocutory decision and, if successful in the appeal, reinstate the voluntarily dismissed claims.

Class Actions & Manufactured Finality

The Supreme Court shut down this tactic—at least in the context of class actions—in Baker. Class-certification decisions are interlocutory and—absent an exception to the final-judgment rule—cannot be immediately appealed. Nowadays appeals of these decisions normally come via Federal Rule of Civil Procedure 23(f), which gives the courts of appeals discretion to hear interlocutory class-certification appeals. If the court of appeals declines to hear a case under Rule 23(f), that usually means that the parties will have to litigate the case to a final judgment to secure any appellate review. And conventional wisdom states that parties will rarely do so—the class-certification decision often determines the litigation’s stakes, and the claims are normally abandoned or settled once class certification is decided.

Before 2017, a few circuits (including the Ninth) had condoned another avenue for appealing class-certification decisions without litigating to a final judgment. These circuits allowed plaintiffs who had lost at class certification to manufacture finality. The plaintiffs could stipulate to a conditional and voluntary dismissal of their claims, appeal that dismissal, and, in that appeal, obtain review of the class-certification decision. If the court of appeals reversed, the plaintiffs could then revive their individual claims.

Baker rejected this avenue for appeals. The voluntary-dismissal tactic undermined the Congressionally approved system for appealing class-action decisions. It increased the risk of multiple, piecemeal appeals And it benefited only plaintiffs, not defendants.

The Supreme Court technically held that the voluntary dismissal was not “final” under 28 U.S.C. § 1291 and thus not appealable. As I’ve explained before, that was a bit odd; district court proceedings were over, so the case was as “final” as it ever was going to be. Despite this questionable reasoning, Baker was correct in its outcome—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.

Arbitration & Manufactured Finality

Baker abrogated a line of Ninth Circuit decisions allowing the voluntary-dismissal tactic in the class-action context. But the Ninth Circuit had also allowed plaintiffs to use this tactic in the arbitration context. In 2010’s Omstead v. Dell, Inc., the Ninth Circuit held that plaintiffs could appeal a decision ordering arbitration by voluntarily dismissing their claims with prejudice.

Omstead’s reasoning was similar to that used in the Ninth Circuit’s class-action cases. In the class-action context, plaintiffs contended that the voluntary-dismissal tactic was necessary necessary because there was no point in continuing on with only individual claims; they were negative-value claims and thus not worth the pursuing. Omstead applied that reasoning to arbitration. The court thought that “a plaintiff who deems an interlocutory ruling to be so prejudicial as to deserve immediate review has the alternative of dismissing the complaint voluntarily with prejudice.” (Cleaned up.)

Baker & Manufactured Finality in Arbitration Appeals

The plaintiff in Langere relied on Omstead in appealing the district court’s arbitration order. But the Ninth Circuit concluded that Baker had abrogated Omstead. Although Baker dealt only with class actions, the Ninth Circuit thought that Baker’s reasoning applied equally to the arbitration context.

For one thing, the voluntary-dismissal tactic circumvented the rules governing arbitration appeals. Just like appeals from class certification, Congress has created a specific regime governing appeals from arbitration decisions. Section 16(b) generally prohibits them, providing an exception only for discretionary appeals under § 1292(b). The voluntary-dismissal tactic “transforms discretionary, interlocutory appeals of orders compelling arbitration into appeals as of right.” And appeals as of right essentially nullify the discretionary scheme that Congress created.

For another, the voluntary-dismissal tactic “invites protracted litigation piecemeal appeals” in the arbitration context just as much as it does in the class-action context. The tactic gives plaintiffs (not courts) the power to halt proceedings to take an appeal. And it risks multiple appeals in a single action—each addressing part of the case—rather than a single appeal at the end of district court proceedings.

Finally, the voluntary-dismissal tactic in the arbitration context is one sided: it benefits only plaintiffs. Just like the class-action context, plaintiffs control the voluntary dismissal of their claims, so only they can use the tactic. The court recognized that arbitration appeals are already one sided; defendants can generally appeal from decisions refusing to order arbitration. But that disparity comes from the pro-arbitration system that Congress created, and the court would not second-guess that judgment.

Baker’s reasoning thus applied just as much to the arbitration context as it did to the class-action context. And that meant Omstead was no longer good law:

The reasoning of [Baker] was that the voluntary-dismissal device cannot be permitted to subvert the final judgment rule or a finely wrought, discretionary-appellate regime. And that is precisely what the gambit before us now purports to do. Simply, the rationales of Omstead and [Baker] are incompatible and irreconcilable. For that reason, we conclude that Omstead’s jurisdictional holding is overruled.

The Ninth Circuit accordingly dismissed the appeal.

What’s Next for Manufactured Finality?

Langere raises two additional questions about manufactured finality.

First (and specific to the Ninth Circuit) is what courts will do if plaintiffs now try to undo voluntary dismissals that relied on Omstead. After Baker, some plaintiffs have tried to undo their voluntary dismissals that relied on pre-Baker caselaw. They’ve had mixed success in the Ninth Circuit. That court has twice reversed district courts’ refusal to undo dismissals via Federal Rule of Civil Procedure 60(b)(6). But it has affirmed another. And an unpublished decision from late last year suggested that the reasoning of these cases applied to the arbitration context. (That case did not address whether the voluntary-dismissal tactic was proper in the arbitration context.) Anyone who relied on Omstead in dismissing their claims and has a pending appeal now has an uncertain future.

The second question is the more general one of whether manufactured finality has a future in the courts of appeals. I suspected that it didn’t after Baker. Langere strengthens that suspicion.

Langere v. Verizon Wireless Services, LLC, 2020 WL 7705568 (9th Cir. Dec. 29, 2020), available at the Ninth Circuit and Westlaw.