The Merger Rule in Appeals After Dismissals for Failure to Prosecute

Dismissals for failure to prosecute are appealable, and the court of appeals will review the propriety of the dismissal. The more interesting issue is what else the court of appeals will review. The merger rule normally means that all interlocutory decisions merge into the final judgment. But allowing litigants to appeal interlocutory decisions by inviting a failure-to-prosecute dismissal rewards dilatory tactics and risks piecemeal review.

The courts of appeals are nearly unanimous in refusing to review interlocutory orders that came before a dismissal for failure to prosecute. The Third Circuit did so in this week’s R & C Oilfield Services LLC v. American Wind Transport Group LLC. The district court ordered that the plaintiffs’ claims be arbitrated. Rather than arbitrate, the plaintiff did nothing, resulting in an eventual dismissal for failure to prosecute. On appeal, the Third Circuit refused to review the arbitration decision. The court of appeals determined that the failure-to-prosecute dismissal prevented the the arbitration decision from merging into the final judgment.

This is a good rule, though I might think about it as a rule of waiver rather than merger: the failure to prosecute waives any challenges to interlocutory orders. I’ll also note that I’ve run across two Second Circuit cases that reviewed interlocutory rulings after a failure-to-prosecute dismissal. And there might be some support for that approach in an old, cryptic Supreme Court decision.

The Tactic of Inviting and Appealing Dismissals for Failure to Prosecute

Manufactured finality refers to the various ways in which litigants try to create a final decision that is appealable under 28 U.S.C. § 1291. One variety involves adverse interlocutory decisions and dismissals for a failure to prosecute.

An adverse interlocutory decision makes a claim less attractive. It might make litigating more expensive or limit the possible recovery. But it does not effectively decide the claim. These interlocutory decisions are normally not immediately appealable, though avenues exist for immediate appellate review like certified appeals under 28 U.S.C. § 1292(b) or extraordinary review via writs of mandamus.

Litigants who cannot use the established means for interlocutory review sometimes try to create an appealable decision by sitting on their hands until the district court dismisses the case for failure to prosecute. These litigants then appeal from the failure to prosecute, which is a final decision. And in that appeal, they challenge the adverse interlocutory order. The hope is that if the court of appeals reverses that interlocutory decision, it will also vacate the dismissal and allow the claim to resume in the district court.

The R & C Oilfield Dismissal

That’s precisely what the plaintiffs tried in R & C Oilfield. The plaintiffs sued the defendant for breach of contract. The defendant responded by asking the district court to order arbitration. The district court then compelled arbitration and stayed the action.

The plaintiffs, however, refused to arbitrate. More than year after the district court’s decision, the court learned that the plaintiff had not commenced arbitration and had no plans to do so. So at the defendant’s request, the district court dismissed the case for failure to prosecute.

The plaintiff then appealed. And in that appeal, the plaintiff challenged the arbitration order.

An Exception to the Merger Rule for Failure-to-Prosecute Dismissals

The Third Circuit refused to review the arbitration order.

All interlocutory decisions normally merge into the final judgment. So once the district court enters a final judgment, an aggrieved party normally can appeal and challenge those interlocutory decisions. Under the merger rule, then, it would seem that the arbitration order merged into the ultimate dismissal.

But there’s an exception to the merger doctrine for failure-to-prosecute dismissals. When a district court dismisses an action for failure to prosecute, interlocutory orders normally do not merge into the final judgment. That’s because the ordinary merger rule would allow litigants to manufacture interlocutory appeals. Anytime they suffered an adverse interlocutory decision and wanted to appeal, they could wait for the district court to dismiss the action for failure to prosecute and then appeal. Reviewing interlocutory orders in these appeals could accordingly lead to piecemeal appellate review. It could also add substantial delay to litigation as litigants wait for the dismissal. And it would reward a litigants “dilatory and bad faith tactics.”

The Third Circuit accordingly held that the arbitration order did not merge into the final judgment. The court of appeals then reviewed the dismissal for failure to prosecute and affirmed.

Manufactured Finality & Failure-to-Prosecute Dismissals

I’ve run into this issue a few times in my current research on manufactured finality. Most courts of appeals agree with the Third Circuit: interlocutory decisions normally do not merge into the final judgment when a case is dismissed for failure to prosecute. (I say “normally” because we saw an exception to this exception to the merger rule last year.)

There is, however, some authority to the contrary. Two Second Circuit decisions—Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc. and Allied Air Freight, Inc. v. Pan American World Airways, Inc.—reviewed interlocutory orders after dismissals for failure to prosecute. Later Second Circuit cases have questioned Gary Plastic and Allied Air, with one suggesting that those cases involved orders that “as a practical matter stopped the plaintiff’s action altogether or could not be examined again at trial.” And at least one court (the Sixth Circuit) has expressly rejected Allied Air.

There’s also the Supreme Court’s decision in United States v. Procter & Gamble Co., which some have read to support the proposition that interlocutory orders merge into a final decision despite a failure-to-prosecute dismissal. Procter & Gamble involved a civil antitrust suit, and the defendants sought grand-jury minutes that the government was using in preparing its case. When the district court ordered the government to produce the minutes, the government asked the district court to amend its order to provide that it would dismiss the the case if the government did not produce them. The district court agreed, the government persisted in refusing to disclose, and the district court dismissed the case.

The Supreme Court held that the dismissal was final and thus appealable. The Court explained that the government “had lost on the merits and was only seeking an expeditious review.” The case was thus not one in which an appellant had consented to the judgment. The appellant wanted only that the judgment be final.

Procter & Gamble is a cryptic decision. On the one hand, it sounds like the government manufactured an appeal from an adverse interlocutory order—the discovery order—by inviting a dismissal. On another hand, the Court said that the government had lost on the merits, suggesting that the interlocutory order was dispositive and effectively resolved the case. (How a discovery order did this, I do not know.) Or Procter & Gamble might be an odd variation on the rule that parties can obtain appellate review of discovery orders by defying those orders and being held in contempt. Or maybe the Court was just wrong.

R & C Oilfield Services LLC v. American Wind Transport Group LLC, 2022 WL 3350590 (3d Cir. Aug. 15, 2022), available at the Third Circuit and Westlaw