Plaintiffs looking to appeal the dismissal of claims must be careful when amending their pleadings, or risk waiving their right to appeal. The Third Circuit has recently held that a plaintiff waives its right to appeal the dismissal of claims where it fails to replead the claims in an amended complaint and it would not be futile to replead the dismissed claims.
In Atkinson v. Pennsylvania Shipbuilding Co., 473 F.3d 506 (3d Cir. 2007), the plaintiff brought a qui tam action in 1994 in the United States District Court for the Eastern District of Pennsylvania under the False Claims Act (“FCA”) against defendants Pennsylvania Shipbuilding Co. (“Penn Ship”) and First Fidelity Bank, N.A. (“Fidelity”). Plaintiff filed an amended complaint in 1997, adding Sun Ship, Inc. (“Sun Ship”), as a new defendant to the action. In 1998, plaintiff filed a second amended complaint and all three defendants moved to dismiss for failure to state a claim and for failure to plead fraud with particularity. The District Court dismissed all of plaintiff’s claims against Sun Ship and Fidelity, and dismissed some of plaintiff’s claims against Penn Ship. All of the dismissals were without prejudice and plaintiff was permitted to file a third amended complaint. Plaintiff’s third amended complaint contained twelve counts, abandoned some counts that had been previously asserted in the second amended complaint, and, significantly, named only Penn Ship and Fidelity as defendants. Sun Ship was not named as a defendant in the third amended complaint. The majority of the third amended complaint was ultimately dismissed pursuant to the FCA’s jurisdictional bar; the remaining portion of the action was later resolved by way of summary judgment.
On appeal to the Third Circuit, plaintiff challenged, among other things, the District Court’s decision to grant Sun Ship’s motion to dismiss the second amended complaint. In opposition, Sun Ship asserted that plaintiff waived its right to appeal the District Court’s dismissal of the second amended complaint with respect to Sun Ship by failing to replead the claims against Sun Ship in the third amended complaint.
The Third Circuit agreed with Sun Ship. The Court noted that the dismissal of Sun Ship from the second amended complaint was without prejudice, that plaintiff did not include Sun Ship in the third amended complaint, and that plaintiff did not indicate an intention to stand on the dismissed pleading with respect to Sun Ship. Thus, the Court concluded, where it would not be futile to replead dismissed claims, and the claims are omitted from an amended pleading, the right to challenge the dismissal on appeal is waived.
In its discussion, the Court noted that it had yet to articulate a rule which would govern these circumstances. The Atkinson Court, therefore, established the rule applicable in such circumstances: Plaintiffs are permitted to appeal dismissals despite amended pleadings that omit the dismissed claim provided that repleading that cause of action would have been futile. The Court stated that repleading is futile where the dismissal is on the merits, such as where it is with prejudice or based on a legal barrier other than lack of specificity or particularity. The Court further stated that where an amended complaint omits a party named in the preceding complaint, equitable principles apply “even more strongly” because a party omitted in an amended complaint has a legitimate expectation that it is no longer involved in the litigation. (Interestingly, the court did not mention that a defendant who is dismissed early from a multi-defendant suit that continues in the district court would not, under Rule 54, have any expectation of being able to appeal until final judgment was entered as to all claims and all parties.)
Thus, the Atkinson Court held that repleading would not have been futile because the claims against Sun Ship were dismissed based on pleading deficiencies, rather than on substantive issues, and because the District Court specifically invited plaintiff to file an amended complaint. The Court concluded that because plaintiff did not name Sun Ship as a defendant in the third amended complaint, and because plaintiff did not inform the court that it was standing on the allegations raised against Sun Ship in the second amended complaint, it would be unjust to permit plaintiff to bring Sun Ship back into the case and that plaintiff had therefore waived its right to challenge the District Court’s grant of Sun Ship’s motion to dismiss.