In Rare Move, Fourth Circuit Exercises Pendent Jurisdiction Over Non-Final Order

In Elegant Massage, LLC v. State Farm Mutual Automobile Insurance Co., 95 F.4th 181 (4th Cir. 2024), the Fourth Circuit took the unusual step of exercising interlocutory appellate jurisdiction over an order denying a motion to dismiss. Having granted a petition for interlocutory review under Federal Rule of Civil Procedure 23(f) of a class certification order, the court concluded that its review of the class order required it also to review the district court's earlier denial of the defendant's motion to dismiss.

Elegant Massage arose out of a dispute over whether State Farm's insurance policy covered Elegant Massage's losses from suspending operations during COVID-19. Elegant Massage brought a putative class action against State Farm seeking, among other things, a declaration that the policy covered its losses. State Farm moved to dismiss, arguing that a "virus" exclusion in the policy meant the claims were not covered. The district court denied the motion to dismiss. In a subsequent order, the district court certified a class of similarly situated businesses.

Federal courts of appeal ordinarily only have jurisdiction over "final decisions" from district courts. Federal Rule of Civil Procedure 23(f) provides an exception to the final order rule, authorizing interlocutory review of class certification orders. In Elegant Massage, State Farm successfully petitioned the Fourth Circuit to review the class certification order under Rule 23(f). The Fourth Circuit then concluded that it had "pendent appellate jurisdiction" to review the motion to dismiss order as well. Courts exercise this pendent jurisdiction "sparingly," invoking it only when the additional issue is "interconnected" with an appealable interlocutory issue or "necessary" for the appellate court to review it. Although the Fourth Circuit observed that motion to dismiss and class certification orders "usually . . . address distinct issues," it concluded that in this case it would be "necessary" to review the district court's denial of the motion to dismiss in order to effectively review the class certification decision. The appellate court then reversed both orders.

Elegant Massage highlights that defendants should carefully consider their options after adverse district court rulings. Even in circumstances where interlocutory appellate review is normally not available, creative strategies on appeal could lead to favorable results.