Can a party “manufacture” appellate jurisdiction for an otherwise interlocutory appeal through the voluntary dismissal of remaining claims? That question was generally answered in the negative by the Supreme Court in 2017 in Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017). There, the Court held that plaintiffs could not subvert the final-judgment requirement for appellate jurisdiction from 28 U.S.C. § 1291 to shortcut their way to an appeal of class certification by simply dismissing the remaining individual claims without prejudice. The Court rejected this attempt to create appellate jurisdiction where it otherwise wouldn’t exist, refusing to allow the plaintiffs to have their appeal heard and then, as was clearly intended by the without prejudice dismissal, reassert the dismissed claims after the issue on appeal was decided. The Fourth Circuit applied this rule from Microsoft a year later in Keena v. Groupon, Inc., 886 F.3d 360 (4th Cir. 2018) and declined to find appellate jurisdiction where the plaintiff voluntarily dismissed her suit in order to appeal an arbitration order rather than participate in arbitration prior to appealing properly.
Then came the Fourth Circuit’s recent decision in Affinity Living Group, LLC v. Starstone Specialty Insurance Co. As background, in 2016, Affinity was sued by a third party for submitting false Medicaid reimbursement claims. Affinity held an insurance policy with StarStone Specialty Insurance covering “damages resulting from a claim arising out of a medical incident.” After StarStone denied coverage for the False Claims Act claims, Affinity filed an action against StarStone in the Middle District of North Carolina. Affinity asserted claims against StarStone for (1) declaratory judgment as to coverage obligations, (2) breach of contract, (3) breach of the common law duty of good faith and fair dealing, and (4) violation of the North Carolina Unfair and Deceptive Trade Practices Act.
The district court granted StarStone’s motion for judgment on the pleadings as to the declaratory judgment and breach of contact claims, dismissing both of those claims. The parties then stipulated to the dismissal of the remaining extra-contractual claims (breach of implied covenant and UDTP) without prejudice. Significantly, the stipulation stated that any amendment to those claims “cannot revive the claims in this case, in consequence of the Court’s dismissal on summary judgment on Counts I and II, and this action has therefore been finally resolved on the merits.” Reading between the lines, the stipulation suggests that if the district court were to be reversed on appeal, Affinity would bring all four claims on remand, and if the dismissal were affirmed, the two other claims would not be revived.
Although both appellant and the appellee contended that the Court had proper jurisdiction over the appeal, the panel addressed the threshold jurisdictional issue so as to satisfy itself that the district court’s judgment was, in fact, “final” under 28 U.S.C. § 1291 and thus appropriate for review. The majority acknowledged that the manner in which the case had become “final” in the lower court, the stipulation of dismissal without prejudice as to the remaining two claims, raised the concern that the parties had attempted “subterfuge to manufacture jurisdiction for reviewing an otherwise non-appealable, interlocutory order.”
Based on Microsoft and Keena, you might think that under these circumstances, the Fourth Circuit would reject the parties’ attempt to create a final, appealable order, through the stipulation. You’d be wrong. After discussing both Microsoft and Kenna, the panel majority in Affinity Living nevertheless determined that it had jurisdiction over this appeal. The key distinction, the majority said, was that in Microsoft and Keena the remaining claims that were voluntarily dismissed in an attempt to satisfy the final judgment rule were independently viable; in Affinity Living, they were not. As the Court explained, success on both the breach of implied covenant of good faith and fair dealing claim and the UDTP claim brought by Affinity Living were dependent on the determination of a contractual duty to provide coverage, which the district court had ruled did not exist in granting judgment on the pleadings on the declaratory judgment and breach of contract causes of action. Thus, the remaining extra-contractual claims were “doomed.” In that situation, then, the voluntary dismissal with prejudice was of claims that were no longer legally viable, and the voluntary dismissal created an appealable final judgment. The panel majority then proceeded on to the merits, and reversed the district court’s dismissal of the contractual claims, concluding that Affinity Living’s insurance policy from StarStone did provide coverage for the False Claims Act suit.
Judge King dissented. In his view, the distinction made by the panel majority (that the voluntary dismissed extra-contractual claims were allegedly rendered unwinnable based on the district court’s dismissal of the contractual claims) was insufficient to create an exception to the rule from Microsoft and Keena that a party may not manufacture final decision jurisdiction through a voluntary dismissal. The dissent opined that Affinity Living could have sought entry of final judgment through FRCP Rule 54(b), and then appealed. Or, Affinity Living could have sought to appeal the dismissal of the contractual claims as an interlocutory appeal under 28 U.S.C. § 1292(b), which allows for a permissive (discretionary) interlocutors appeal regarding “a controlling question of law as to which there is substantial ground for difference of opinion” when “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Judge King acknowledged that the majority’s ruling may have been “pragmatic,” but created a confusing exception to the clear rule set out by the Supreme Court in Microsoft.
What are your thoughts on this? If the dismissal of the contractual causes of action killed the possibility of success on the remaining causes of action, is that dismissal effectively a final judgment? It is curious that, although I have not looked at the district court briefing, the defendant in moving for judgment on the pleadings as to the first two causes of action, apparently did not also move for judgment on the pleadings as to the remaining causes of action, despite the fact that a win on the first two causes of action necessarily meant a win on the third and fourth causes of action (at least in the opinion of the Fourth Circuit panel majority). Is it possible that the facts were such that the dismissal of the contractual claims did not render the extra-contractual claims unwinnable? While the Court cited North Carolina caselaw for the rule of law that “without a contractual duty to provide coverage, [there can be no] breach of the implied covenant of good faith and fair dealing ….[or] Unfair and Deceptive Trade Practice Act,” those concepts are not necessarily absolute. Yes, when extra-contractual claims are predicated on a breach of contract, then a finding of no breach means the extra-contractual claims must also fail. But, for example, a UDTP claim under N.C.G.S. § 75-1.1 can be based on acts occurring outside of the contractual relationship between the parties. Should the panel majority have undertaken a more in-depth analysis of whether the extra-contractual claims truly could have stood alone under the specific facts in this case? And is that perhaps Judge King’s broader point? That the exception created by the Court in this case opens the door to the Court having to conduct an extensive analysis of the relationship between the claims dismissed by the lower court that are sought to be appealed and the claims voluntarily dismissed by the parties? Is that better than a straightforward rule that a voluntarily dismissal without prejudice of remaining claims can never create a § 1291 final judgment for claims that were dismissed by the district court?
Let us hear from you in the comments!
–Patrick Kane; Corinne Spencer (Summer Associate, Wake Forest School of Law Class of 2021)