Reviewing Motions to Dismiss via Rule 23(f)

In Elegant Massage, LLC v. State Farm Mutual Automobile Insurance Co., a divided Fourth Circuit reviewed—and reversed—the denial of a motion dismiss while hearing a class-certification appeal under Rule 23(f). The majority thought it could do so because the class-certification and motion-to-dismiss decisions were “so interconnected as to require concurrent review.” Judge Wynn dissented in part, contending that class certification could easily be reviewed without delving into the dismissal motion.

The District Court Decisions in Elegant Massage

The case involved a purported class action against an insurance company. The plaintiff was a business that sought to recover lost business income under its policy due to Covid-19 related closures. The insurance company moved to dismiss, arguing that the closures were not covered by the policy. The district court denied that motion.

Later, the district court certified a class of insureds. The insurance company then sought permission to appeal this class-certification decision under Federal Rule of Civil Procedure 23(f), which the Fourth Circuit granted.

The Majority on Pendent Appellate Jurisdiction Over the Dismissal Decision

The panel unanimously held that class certification was improper. Where the court split was whether it could also review the denial of the motion to dismiss.

The majority thought that it could, using the doctrine of pendent appellate jurisdiction. The majority acknowledged that denials of motions to dismiss and orders granting class certification are normally distinct. But here, they were inseparable. In denying the motion to dismiss, the district court interpreted the term “direct physical loss” in the insurance policy to include Covid-19 closures. When later granting class certification, the district court relied on this interpretation of “direct physical loss.” In assessing predominance, for example, the district court explained that “other similarly situated class members would need to show ‘substantially similar’ facts, namely, that they held identical State Farm policies, that their businesses suspended operations under the executive orders, and that they filed claims for the resulting losses that State Farm denied.” So “[t]he threshold merits question addressed in the district court’s order denying State Farm’s motion to dismiss thus was integral to the district court’s later conclusion that the class members could prove their claims through evidence common to the class.”

Judge Wynn’s Dissent

Judge Wynn dissented on this point. He explained that the court could review (and reverse) the grant of class certification without mentioning the motion to dismiss. Granted, the motion-to-dismiss denial “guided” the later class-certification decision. But that is inevitable:

[A] district court’s ruling on a motion to dismiss will always guide a later order granting class certification. When a district court grants class certification, it assumes that there are live issues to be resolved, and it will often reference issues from its prior discussion of the claims to determine if they can be resolved by common proof.

The majority’s reasoning thus opened the door to reviewing dismissal orders alongside every class-certification appeal. And that has consequences. Aggrieved parties have a new incentive to seek review of class-certification decisions.

Judge Wynn ended by noting the propriety of limiting the scope of interlocutory appeals:

By denying us statutory authority to conduct interlocutory review outside of narrow circumstances, such as those permitted by Rule 23(f) or § 1292(b), Congress expressed an inclination for keeping inquisitive appellate judges from weighing in on the merits of claims before the facts are fully developed. I worry that the majority’s exercise of jurisdiction opens Pandora’s box by providing the basis on which future panels may justify inquiries into the merits of class actions that neither I nor the members of the majority would think ripe for appellate review.

An Unnecessary Use of Pendent Appellate Jurisdiction

I’m with Judge Wynn on this one. To begin with, I’m no fan of pendent appellate jurisdiction. In fact, I’m not sure that pendent appellate jurisdiction is ever necessary. And it creates all sorts of practical problems like (as Judge Wynn noted) encouraging interlocutory appeals in the hope of obtaining a broad scope of review.

Further, even under accepted doctrine, extending pendent appellate jurisdiction in Elegant Massage was unnecessary. True, the court needed to wrestle with the district court’s interpretation of the policy, which influenced the class-certification decision. But there was no need to address the order in which the district court had first addressed that issue. If reversal of the class-certification order undermined the rationale for the earlier denial of the motion to dismiss, the district court could address that matter on remand.

Elegant Massage, LLC v. State Farm Mutual Automobile Insurance Co., 2024 WL 995480 (4th Cir. Mar. 8, 2024), available at the Fourth Circuit and Westlaw