When a Rule 23(f) Appeal Becomes Something More: Fourth Circuit Exercises Pendent Appellate Jurisdiction Over Ruling on the Merits

Federal Rule of Civil Procedure 23(f) gives the court of appeals discretion to review a narrow class of interlocutory orders: those granting or denying class certification. But it is sometimes possible for other orders to come along for the ride, as demonstrated by the Fourth Circuit’s recent decision in Elegant Massage LLC v. State Farm Mutual Automobile Insurance Company, 95 F.4th 181 (4th Cir. 2024). The court’s use of pendent appellate jurisdiction could expand the opportunities for interlocutory review of merits-related rulings in class action litigation.

A Class for COVID-19-Related Insurance Coverage

Elegant Massage (a massage parlor) sought coverage under its commercial property policy for loss of business income and other damages it suffered as a result of the Virginia governor’s pandemic-related closure orders. After State Farm denied coverage, Elegant Massage filed suit on behalf of itself and a putative class of similarly situated entities.

The district court denied State Farm’s motion to dismiss under Rule 12(b)(6), concluding that the policy’s coverage of “direct physical loss” was ambiguous under Virginia standards, and could include the losses Elegant Massage alleged. The district court refused to certify an interlocutory appeal of that order under 28 U.S.C. § 1292(b). The district court then certified a class under Rule 23(b)(3), finding (in relevant part) that “questions of law or fact common to the members of the class predominate[d] over any questions affecting only individual members.”

Merits Review in a Rule 23(f) Appeal

The Fourth Circuit granted a petition for review of the class certification order under Rule 23(f). The court then determined that, under the doctrine of pendent appellate jurisdiction, it also had jurisdiction to review the denial of State Farm’s motion to dismiss.

Judge Keenan (joined by Judge Diaz) emphasized that pendent appellate jurisdiction is narrow and applies only if “either (1) an issue is inextricably intertwined with a question that is the proper subject of an immediate appeal, or (2) review of a jurisdictionally insufficient issue is necessary to ensure meaningful review of an immediately appealable issue.”

The court held that the second part of this test was met. It acknowledged that a motion to dismiss and a motion for class certification normally “will address distinct issues.” Indeed, there are numerous cases cautioning courts against making merits determinations at the class certification stage.

Here, however, the majority noted that the district court’s predominance analysis under Rule 23(b)(3) depended on its earlier decision regarding the meaning of “direct physical loss” in the insurance policy. The district court had cited the previous decision in its class certification opinion. And that decision had shaped the district court’s view concerning the common questions that would predominate in adjudicating the class claim. The circuit thus concluded that the order on the motion to dismiss “was integral to the district court’s later conclusion that the class members could prove their claims through evidence common to the class.”

The panel also found it significant that, in the time since the district court had denied the motion to dismiss and certified the class, a Fourth Circuit decision had rejected the district court’s interpretation of “direct physical loss.” Though the intervening case arose under West Virginia law, nothing in Virginia law warranted a contrary conclusion. Finding jurisdiction over the 12(b)(6) order, the Fourth Circuit reversed, and then summarily reversed the class certification decision as well.

A Warning Against Opening the Floodgates

Judge Wynn, dissenting in part, expressed concern about the consequences of the majority’s opinion. He worried that the majority’s approach lacked a “limiting principle,” and could support “review of almost any denial of a motion to dismiss filed in a class action” because “a district court’s ruling on a motion to dismiss will always guide a later order granting class certification.”

In Judge Wynn’s view, pendent appellate jurisdiction should be used only when absolutely necessary, to avoid undermining the general rule against interlocutory review. Here, he believed it was possible to resolve the Rule 23(f) appeal without touching the Rule 12(b)(6) ruling. Even assuming the district court’s 12(b)(6) decision was correct, predominance was absent because each plaintiff’s case presented individualized causation issues such as whether its losses were caused by the executive orders, or some other reason. Interestingly, the majority did not engage with Judge Wynn’s predominance analysis, suggesting it did not believe his solution was sufficient to resolve the class certification appeal.

Takeaways

Elegant Massage found pendent appellate jurisdiction in circumstances that arise frequently in class action practice. The decision arguably permits appellate review of a 12(b)(6) order whenever the district court’s construction of the relevant substantive law has a material impact on the predominance inquiry under Rule 23(b)(3). That will often be the case because merits rulings define the issues that must be litigated and therefore balanced in a predominance analysis.

At the same time, the facts of Elegant Massage were somewhat unique. The majority no doubt felt that declining jurisdiction over a substantive issue all but controlled by an intervening Fourth Circuit opinion would simply lead to waste and delay.

It remains to be seen whether the court would find jurisdiction in a case that did not involve an intervening Fourth Circuit precedent on the merits. Other courts (including the Fourth Circuit) have routinely refused to accept jurisdiction over orders that are not integrally related to the class certification decision. See, e.g., Industrial Services Group, Inc. v. Dobson, 68 F.4th 155, 167-8 (4th Cir. 2023); In re Zetia (Ezetimibe) Antitrust Litig., 7 F.4th 227, 238-9 (4th Cir. 2021); EQT Production Co. v. Adair, 764 F.3d 347, 364-65 (4th Cir. 2014); Myers v. Hertz Corp., 624 F.3d 537, 553-56 (2d Cir. 2010); Poulos v. Caesars World, Inc., 379 F.3d 654, 668-72 (9th Cir. 2004). A Rule 23(f) appeal is therefore likely to remain a treacherous—though not impassable—route for interlocutory orders on the merits to reach the court of appeals.