Shortcuts to Appeal Can Come Back to Haunt You
In any given case, litigation can be a long and winding road. Because so many discrete issues arise along the way, it is often tempting to seek a shortcut to early appellate review. To be sure, interlocutory appeals can help ensure a case is resolved correctly and in reasonable time, as evidenced not only by the frequency with which parties avail themselves of longstanding avenues to early appellate review, but also by the increasing allowance of immediate discretionary appeals from certain kinds of orders. See, e.g., Fed. R. Civ. P. 23(f) (allowing immediate appeal from class certification order); 28 U.S.C. §1453 (allowing immediate appeal from order remanding class action to state court). But litigants and lawyers should be wary that their zeal to appeal does not lead them to take a shortcut that has undesirable long-term ramifications.
Such a shortcut recently came back to haunt our adversary in a contract dispute. Our client acquired Plaintiff’s business several years ago for a sum paid at closing and an agreement to calculate an additional earn-out payment several years later, based on the business’s performance. Plaintiff was unhappy with the earn-out calculation, which led to litigation. In court, Plaintiff advanced three theories of recovery. The court granted summary judgment to our client on two of the three and held that Plaintiff’s remaining theory should go to trial.
Plaintiff disagreed with the summary judgment ruling. But, rather than ask the trial judge to certify the summary judgment ruling for interlocutory appeal, Plaintiff forged another route to the appellate court. Plaintiff triggered a final, appealable order by asking the trial court to dismiss the one theory of recovery that survived summary judgment. Our client had no objection (of course), and the court entered the dismissal. On appeal, the U.S. Court of Appeals for the Second Circuit reviewed the two theories of recovery on which the trial court had granted summary judgment. The appellate court affirmed summary judgment on one theory and reversed on the other, remanding the case to the trial court for further proceedings on the resurrected theory.
Back in the trial court on remand, Plaintiff asserted plans to litigate both the resurrected theory and the theory that had initially survived summary judgment (and then been voluntarily dismissed). The court held that the dismissal was binding such that Plaintiff could not proceed to trial on the previously dismissed theory. The court then denied Plaintiff’s request to modify the dismissal order. As the court explained, “by agreeing to dismiss its claim” that had survived summary judgment, Plaintiff “did not simply set that claim aside for another day; it abandoned the claim. That was the price [the plaintiff] paid for obtaining what would otherwise have been an impermissible interlocutory appeal of this Court’s decision concerning [its] other claims.” Sec. Plans, Inc. v. CUNA Mut. Ins. Soc’y, — F. Supp. 3d —, No. 08-CV-6313L, 2015 WL 5841529, at *3 (W.D.N.Y. Oct. 7, 2015). The court recognized that Plaintiff “may rue its decision to take that claim out of the case, but it chose to do so and … must now live with that decision.” Id. at *2.
While the trial court relied primarily on Second Circuit authority to bolster its reasoning, this is a broadly accepted principle. Under “well settled” Second Circuit law, a party “cannot appeal an adverse decision on some claims by simply voluntarily dismissing the remaining claims without prejudice.” Rabbi Jacob Joseph Sch. v. Province of Mendoza, 425 F.3d 207, 210 (2d Cir. 2005) (internal quotation marks omitted). To the contrary, the Second Circuit requires any remaining claims be dismissed with prejudice to establish the finality necessary for an appeal. “This rule furthers the goal of judicial economy by permitting a plaintiff to forgo litigation on the dismissed claims while accepting the risk that if the appeal is unsuccessful, the litigation will end.” Id. (internal quotation marks omitted). The Second Circuit has characterized any less stringent approach to this issue as “clearly an end-run around the final judgment rule.” Id. (internal quotation marks omitted).
Other courts have reached the same conclusion. The key here is the idea that immediate appeal requires—absent a specific basis for interlocutory review—a final order, which cannot be created by a dismissal without prejudice that would allow one or more dismissed claims to be resuscitated later on. Every federal court of appeals, the D.C. Circuit recently explained, “appears to acknowledge a presumption against … allow[ing] dismissals without prejudice to finalize trial court proceedings for appellate review.” Blue v. D.C. Pub. Sch., 764 F.3d 11, 17 (D.C. Cir. 2014) (citing cases).
The Seventh Circuit, for its part, is strict about this rule. In Joyce v. J.C. Penney Corp., for example, the Seventh Circuit held that an appeal may proceed after “a plaintiff voluntarily forgoes with prejudice the remainder of a case to secure immediate appellate review of a contested and otherwise interlocutory ruling,” because dismissing with prejudice means that “the proceedings in the district court are finished.” 389 F. App’x 529, 530 (7th Cir. 2010) (emphasis added)). Wisconsin state courts apply a similarly stringent analysis. See, e.g., Lassa v. Rongstad, 2006 WI 105, ¶ 35, 294 Wis. 2d 187, 207, 718 N.W.2d 673, 684 (“Parties may not manufacture artificial issues for appeal. Moreover, a judgment or order must be ‘final’ as defined by rule in order to be appealable as a matter of right.”); Cascade Mountain, Inc. v. Capitol Indem. Corp., 212 Wis. 2d 265, 269, 569 N.W.2d 45, 47 (Ct. App. 1997) (a party “cannot, by stipulating to the entry of a conditional judgment, obtain a mandatory appeal of an interlocutory order”).
In long-running litigation, there is often a benefit to seeking interlocutory appeal. Such an effort, however, should be carefully considered and made under procedural provisions that will not foreclose future recovery. As a general matter, courts are loath to rescue litigants from foreseeable downstream consequences of their lawyers’ strategic decisions.