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The Finality Trap Revisited

Imagine that you have brought a five- count complaint in a federal district court. The court just entered summary judgment against your client on four of those counts. You cannot immediately appeal the order because your fifth count remains pending, but the damages available for that claim do not justify trying it alone. However, that claim has jury appeal, so you hesitate to abandon it permanently while that summary judgment ruling could still eventually be reversed. Facing this dilemma, you might decide to dismiss the fifth claim without prejudice under Federal Rule of Civil Procedure 41(a) with the intention of appealing the order that eliminated the heart of your case. If you did so, you would not be the first to be seduced by the possibility of seeking an appeal while preserving a minor, yet valuable, claim. By adopting this strategy, however, you may forfeit the right to appeal any ruling in the case—ever.

This problem—the “finality trap”—is one created by the “final judgment rule” that holds that courts of appeals generally have jurisdiction only over decisions that fully resolve cases, with a few, closely confined exceptions.1 Because a claim dismissed without prejudice can be litigated in the future, a dismissal without prejudice generally does not resolve the claim “finally” for appellate jurisdictional purposes.

The application of these rules in a lawsuit involving only one count is straightforward. If the claim is dismissed without prejudice, the plaintiff cannot appeal. To pursue the claim, he or she must refile it. Yet in lawsuits involving more than one claim (or party), the final judgment rule has surprising consequences. If you dismiss your fifth count without prejudice, the court’s summary judgment ruling does not become final because the fifth count may be litigated in the future. Thus, if you appeal, the court of appeals lacks jurisdiction over the case. Yet dismissing your fifth count leaves nothing pending before the district court, depriving it of jurisdiction over the four claims that were adjudicated on their merits.2  The finality trap is sprung. Your case is no longer pending in any court. You have lost most of your claims (by a ruling that precludes you from asserting them in many subsequent action), you have lost your right to further litigate any of your claims in the district court, and you may have lost your right to appeal (unless your assigned appellate panel views your jurisdictional plight sympathetically).

A surprising—even harsh—result?Yes, but one that has been recognized by at least 10 of the 13 courts of appeals.Only the First and Federal Circuits consistently give parties a reprieve from the finality trap.4  For example, in Marshall v. Kansas City Southern Railway Co., the Fifth Circuit expressly invoked the finality trap, dismissing the plaintiffs’ second attempt to take an appeal from an interlocutory order.5  The plaintiffs sought to appeal from a district court order denying their motion to remand the case to state court based on the court’s ruling that the plaintiffs fraudulently joined non-diverse defendants and dismissing claims against those defendants. After the plaintiffs dismissed their remaining claim against the diverse defendant, without prejudice, they appealed. The Fifth Circuit held “[i]n so doing, Plaintiffs have forfeited their right to appeal—presumably inadvertently—because we must . . . dismiss this second appeal for lack of appellate jurisdiction.”6

Although the result may seem severe, it follows logically from fundamental jurisdictional principles, including the justice system’s goal of promoting the efficient use of its resources. As the Supreme Court repeatedly observed, courts could not resolve disputes efficiently if every ruling could be challenged individually. 7  Forcing parties to wait until their case is fully decided to file an appeal also winnows claims of error to those that are determinative, and eliminates needless appeals from rulings that seem important when issued but turn out to be irrelevant.8 Permitting parties to dismiss claims without prejudice to challenge interlocutory rulings in a piecemeal fashion would undermine these aims.

Decisions enforcing the finality trap also properly confine the final judgment rule’s exceptions and prevent them from swallowing that rule. Under 12 U.S.C. § 1292(b), an interlocutory order that presents “a controlling question of law” may be appealed, but only with permission by the district court and the court of appeals. Under Federal Rule of Civil Procedure 54(b), a district court may certify as “final” an order that resolves (1) one “claim” in a case with multiple claims or (2) all of the claims against one party in a case with multiple parties, so that it may be appealed immediately. These exceptions are intended to permit parties to appeal orders that are not final only in exceptional circumstances — and they require the approval of at least one court.9  Allowing a party to dismiss a claim without prejudice to clear the way for an appeal of an interlocutory ruling would effectively give the party the power to manufacture appellate jurisdiction by itself, without the approval of any court. In fact, a party could “conceivably appeal as many times as he has claims,” repeatedly circumventing these restrictions on the right to appeal.10

While the finality trap prevents parties from circumventing Rule 54(b) and § 1291, it harshly punishes parties who dismiss minor claims without prejudice to simplify litigation without intending to manipulate the appellate process. It also threatens to place a party’s right to appeal under the control of other parties.11  Further, the finality trap may penalize parties whose adversaries are allowed to dismiss claims (or counterclaims) without prejudice: If a losing party cannot appeal a judgment entered after a claim has been dismissed without prejudice, the prevailing party may not be able to enforce that judgment either, because it may not be final. Thus, the finality trap may snare parties regardless of their motive for dismissing claims without prejudice or role in that process.12

To rescue parties from such harsh results otherwise dictated by the final judgment rule, some courts of appeals improvise additional exceptions to it. A sample of the courts’ improvised solutions are set out below in order of decreasing fidelity to strict interpretation of the final judgment rule—that is, from a strict, jurisdictional treatment of the final-judgment rule to a prudential or pragmatic approach to the requirement:13

  1. Enforcing the spirit, but not the letter, of the “final judgment rule

    Permitting appellants to convert dismissals without prejudice into dismissals with prejudice in their briefs or at oral argument.14  These courts upheld the final judgment rule albeit at the cost of encroaching on powers normally exercised only by district courts.

    Declaring that dismissals without prejudice were intended to be — or even were actually — dismissals with prejudice.15  This approach acknowledges the rule but treats it as being satisfied by a legal fiction.

    Treating rulings as final if they would have been appealable under Rule 54(b).16  These courts of appeals asserted jurisdiction over appeals if they could have been fit into an acknowledged exception to the final judgment rule, even where that procedure was not followed.

  2. Construing finality pragmatically

    Accepting appeals if the dismissed claims were “effectively barred” as a matter of law or equity17—for example, if the applicable statute of limitations had expired,18 the claims were collaterally estopped from being reasserted,19 the dismissed claims were identical to affirmative defenses that failed as a matter of law,20 or the claims were obviously defective.21

    Regarding orders as final if the dismissed claims cannot be litigated further in federal court, even if relief may be granted by a state court.22

    Accepting appeals if the dismissed claims cannot be litigated further for practical reasons.23

  3. Excusing parties with “clean hands”

    Regarding orders as final if the appellants explicitly disclaimed any intention of pursuing the claims that had been dismissed without prejudice.24

    Asserting jurisdiction over appeals by parties who did not dismiss claims without prejudice for the purpose of manufacturing appellate jurisdiction.25

  4. Relying on other “indicia of finality”

    Justifying the exercise of jurisdiction on the ground that the district court believed that it had fully resolved the case.26 

    Asserting that “[a]ppellate courts routinely exercise jurisdiction over claims dismissed without prejudice when the dismissal contains sufficient indicia of finality”—without identifying any “indicia of finality” that are as sufficient as a genuinely final judgment.27

While these decisions may ameliorate the harsh effect of the finality trap, they do so at a high cost: predictability and uniformity of the jurisdictional rules. Some of the “solutions” rely on legal fictions, some tilt the balance of power between appellate and district courts, and all permit litigants to avoid having to evaluate their cases seriously and make hard choices about their appellate strategy. Where these courts have suggested litigants may escape the finality trap by themselves, the courts have not clearly identified what a litigant must prove (or how) to exercise his or her right of appeal. Is it sufficient that the record is devoid of any evidence that the appellant intended to manufacture jurisdiction (and if so, what constitutes evidence of manipulation)? Must the appellant explain that its remaining claims are not worth trying (and if so, where should that explanation be provided)? Must the appellant explicitly disclaim any intent to pursue its dismissed claims (and if so, may that disclaimer be contingent upon the outcome of the appeal)? None of these answers is available to a litigant before filing an appeal, when that information is necessary.

Even among courts that have enforced the final-judgment rule, dismissing appeals taken after claims were dismissed without prejudice, some have encouraged disappointed appellants to seek relief from district courts — for example, by asking for the conversion of a dismissal without prejudice into one with prejudice. 28  Yet this approach is inconsistent in a different way. These courts strictly enforce a bar on their own jurisdiction while ignoring the effect of a dismissal under Rule 41(a) on the limited jurisdiction of federal district courts. Treating the final judgment rule as a strict condition of jurisdiction for courts of appeals while suggesting district courts may exercise jurisdiction pragmatically appears contradictory. While it provides relief from the finality trap, it further muddies the procedural waters for future litigants.

Perhaps most importantly, these solutions are applied in a wildly unpredictable fashion, between — and even within — the circuits.29  The right of appeal is fundamental to our judicial system. For that right to be administered fairly, it must be governed by a clear, uniform rule. Currently, that right is subject to different, inconsistent rules in different parts of the country or across different panels of the same court. Justice is not served if a litigant in one case may file an appeal that is not available to a litigant in another case in substantially similar circumstances, or if the procedure for determining whether a decision is sufficiently final in California differs significantly from the procedure used in New York. Most unfortunately, the sympathetic approach employed by many appellate courts facing the trap may perversely lull future litigants into discounting the risk and walking voluntarily into that same finality trap. When future appeals are adjudicated to lack jurisdiction by panels that enforce the finality requirement strictly, those parties may feel especially aggrieved that their appeals foundered where procedurally indistinguishable appeals were permitted to proceed elsewhere in published opinions. For these reasons, the finality trap poses an especially grave threat to litigators with national practices who may discover belatedly that they have unintentionally forfeited their clients’ rights to appeal.

This problem cannot be solved efficiently by a decision by the Supreme Court because the finality trap arises in a variety of circumstances that are unlikely to be presented in a single case. The only genuine solution is a rule that addresses the problem broadly, in all of its variations, and establishes a bright line. The Supreme Court’s power to establish rules of procedure gives it the authority to define when district courts’ rulings are final.30  The Supreme Court could amend Rule 60 to expand district courts’ power to modify judgments to include dismissing pending claims, converting dismissals without prejudice into dismissals with prejudice, and taking other necessary steps to resolve issues of finality. It could amend Rule 54 to provide that claims dismissed without prejudice at least 90 days before the ruling otherwise appealable do not affect the finality of that or any subsequent order (to prevent perceptive litigants from dismissing claims in anticipation of an unfavorable ruling). Finally, it could amend Rule 54 to permit expressly an approach utilized by the Second Circuit in a case in which the plaintiff agreed to dismiss his claims, reserving his right to litigate them further if—but only if— his appeal was successful. 31  After reciting the final judgment rule and discussing its rationale, the court of appeals agreed to consider the appeal, observing that because the “plaintiff ’s ability to reassert a claim [wa]s made conditional on obtaining a reversal from this court, the finality rule is not implicated in the same way [as it would be if the dismissal was unconditionally without prejudice].”32

This approach expedited the resolution of the case, yet ruled out the possibility that the appellant could “ke[ep] the dismissed claims on ice”33  while challenging the district court’s ruling.

None of these proposals would undermine the goal of resolving challenges to decisions in a single step, without allowing piecemeal appeals. Each would discourage attempts to manufacture jurisdiction. In the end, which particular solution is adopted seems far less important than the adoption of some predictable solution. While parties attempting to manipulate the process deserve their fate, allowing intricacies of appellate practice to trap well-meaning, but unwary, litigants undermines a central aim of our federal34  judicial system—the speedy and fair resolution of claims. Something still needs to be done about this unfair trap. !

Barry L. Pickens is a partner and Lloyd Gattis is an associate at Spencer Fane Britt & Browne LLP in Kansas City, Missouri. They wish to thank Terry Schackmann for his invaluable assistance with a previously published version of this article.35Endnotes1. 12 U.S.C. § 1291; Coopers & Lybrand v. Livesay, 437 U.S. 463, 467 (1978). The exceptions are discussed later in this article. 2. E.g., United States v. 475 Martin Lane, 545 F.3d 1134, 1145 (9th Cir. 2008) (“Once the notice of dismissal [under Rule 41(a) 1)] has been !led, the district court loses jurisdiction over the dismissed claims and may not . . . issue further orders pertaining to them.”); In re Matthews, 395 F.3d 477, 480–81 (4th Cir. 2005). See Schmier v. McDonald’s LLC, 569 F.3d 1240, 1242 (10th Cir. 2009) (ruling that dismissing a claim under Rule 41(a)(1) “terminates federal jurisdiction except for the limited purpose of reopening and setting aside the judgment of dismissal within the scope allowed by Rule 60(b)”) (internal punctuation omitted).3. See, e.g., Rabbi Jacob Joseph Sch. v. Province of Mendoza, 425 F.3d 207, 210–11 (2d Cir. 2005); LNC Invs. LLC v. Republic Nicaragua, 396 F.3d 342, 345–46 (3d Cir. 2005); Talley v. Farrell, 43 F. App’x 657, 657 (4th Cir. 2002) (per curiam); Marshall v. Kan. City S. Ry. Co., 378 F.3d 495, 499–500 (5th Cir. 2004); Dearth v. Mukasey, 516 F.3d 413, 415–16 (6th Cir. 2008); Doctor’s Assoc., Inc. v. Duree, 375 F.3d 618, 622 (7th Cir. 2004); Tan v. Kaiser Harbor City Med. Ctr., No. 98-56893, 2000 WL 278119, at *1 (9th Cir. Mar. 10, 2000) (unpublished table decision); Jackson v. Volvo Trucks N. Am., Inc., 462 F.3d 1234, 1238 (10th Cir. 2006); OFS Fitel, LLC v. Epstein, Becker & Green, P.C., 549 F.3d 1344, 1356 n.6 (11th Cir. 2008); Robinson-Reeder v. Am. Council on Educ., 571 F.3d 1333 (D.C. Cir. 2009). However, as noted below, some of these circuits have also made exceptions to this rule. And, the Fourth Circuit recently asked parties to brief this issue (without ultimately addressing it), suggesting that the law in that circuit may not be !nally settled. See Independence News, Inc. v. City of Charlotte, 568 F.3d 148, 153 n.2 (4th Cir. 2009). 4. See, e.g., Mirpuri v. ACT Mfg., Inc., 212 F.3d 624, 629 (1st Cir. 2000); Doe v. United States, 513 F.3d 1348, 1352–54 (Fed. Cir. 2008).5. 378 F.3d at 499–500.6. Id. at 496.7. See, e.g., Stringfellow v. Concerned Neighbors, 480 U.S. 370, 380 (1987).8. See, e.g., id.; Perkins v. Endicott Johnson Corp., 128 F.2d 208, 212 (2d Cir. 1942) (Frank, J.), aff ’d, 317 U.S. 501 (1943).9. The “collateral order” doctrine is a third exception that authorizes immediate appeals from “decisions that are conclusive, that resolve important questions separate from the merits, and that are effectively unreviewable on appeal from the final judgment in the underlying action.” See Cunningham v. Hamilton County, 527 U.S. 198, 204 (1999).10. Dannenberg v. Software Toolworks Inc., 16 F.3d 1073, 1076 (9th Cir. 1994).11. See, e.g., Hood v. Plantation Gen. Med. Ctr., 251 F.3d 932 (11th Cir. 2001) (dismissing an appeal by one plaintiff because another plaintiff had voluntarily dismissed a claim).12. In fact, the finality trap may create an opportunity for an egregious type of manipulation of the judicial process: If a party determines during the course of litigation that it will likely prevail, it might add a claim (or counterclaim) solely to dismiss it without prejudice later, and thereby arguably prevent its adversary from ever being able to appeal the adverse ruling—in effect, ensuring that its anticipated victory is unappealable.13. This decisions cited are a sample, not an exhaustive survey, of the approaches taken.14. See, e.g., Laborers’ Pension Fund v. A&C Envtl., Inc., 301 F.3d 768, 774 n.4 (7th Cir. 2002); Erie County Retirees Assn v. County of Erie, 220 F.3d 193, 201–02 (3d Cir. 2000).15. See, e.g., Minn. Pet Breeders v. Schell & Kampeter, Inc., 41 F.3d 1242, 1245 (8th Cir. 1994).16. See, e.g., James, 283 F.3d at 1066–67; Chrysler Motors Corp. v. Thomas Auto Co., 939 F.2d 538, 540 (8th Cir. 1991).17. See, e.g., LNC Invs., 396 F.3d at 346. 18. See Doe, 513 F.3d at 1354.19. See Great Rivers of Se. Iowa, Inc. v. Farmland Indus., Inc., 198 F.3d 685, 688 (8th Cir. 1999).20. See GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189, 198–99 & n.3 (3d Cir. 2001).21. See Furnace v. Bd. of Trs. of S. Ill., 218 F.3d 666, 669–70 (7th Cir. 2000).22. See, e.g., Iverson v. City of Phila., 213 F. App’x 115, 117 (3d Cir. 2007).23. See, e.g., United States v. Graf!a, 215 F.3d 1331 (7th Cir. 2000) (stating that the claim was “no longer susceptible” to being brought); Equip. Fin. Group, Inc. v. Traverse Computer Brokers, 973 F.2d 345 (4th Cir. 1992) (!nding that the defendant was no longer “vulnerable to judgment”). 24. See, e.g., James, 283 F.3d at 1066–67.25. See, e.g., Romoland Sch. Dist. v. Inland Empire Energy Ctr., LLC, 548 F.3d 738 (9th Cir. 2008). Some courts have emphasized that the claims were dismissed before the adverse ruling was issued. See Schoenfeld v. Babbit, 168 F.3d 1257, 1264–66 (11th Cir. 1999). More frequently, courts have observed that the dismissed claims involved relatively small amounts of money and warrant proceeding to trial. See, e.g., Doe, 513 F.3d at 1354.26. See, e.g., James, 283 F.3d at 1066–67.27. Mirpuri, 212 F.3d at 629. 28. See, e.g., Puls v. Landmark Cmty. Newspapers, Inc., No. 08-1263, 2009 WL 1927442, at *1 n.1 (10th Cir. July 7, 2009) (unpublished) (noting ruling could be certified under Rule 54(b)); LNC Invs., 396 F.3d at 347 n.6 (stating the bar to appeal could be removed by dismissing claims with prejudice or having them adjudicated).29. Notably, the Eighth Circuit has approached the problem in several inconsistent ways. See Hope v. Klabal, 457 F.3d 784, 788–90 (8th Cir. 2006); see also Schackmann & Pickens, Part II, supra n.1 at 142–44 (detailing the Eighth Circuit’s previous perambulations).30. See 28 U.S.C. § 2072(c).31. See Purdy v. Zeldes, 337 F.3d 253, 258 (2d Cir. 2003).32. Id.33. James, 283 F.3d at 1066.34. The authors express no opinion about whether the same analysis may apply to jurisdiction in state courts because those courts have their own jurisdictional provisions and are not subject to the inherent limitations on jurisdiction that are imposed on federal courts by the U.S. Constitution.35. See Terry W. Schackmann & Barry L. Pickens, The Finality Trap: Accidentally Losing Your Right to Appeal, Part I, 58 J. Mo. B. 78, and Part II, 58 J. Mo. B. 138 (2002).