This is the third article in our series exploring proposed changes to the Federal Rules of Civil Procedure and the New York Civil Practice Law and Rules aimed at reducing frivolous litigations and reining in escalating litigation costs.

Moving to dismiss a meritless complaint is a vital weapon in the arsenal of cost-conscious litigants. But when a federal district court wrongly denies a meritorious motion, the defendant who should have been out of the case is instead out of luck. Unlike the procedure in New York state courts, under the federal rules of civil procedure, the denial of a motion to dismiss does not qualify as a "final decision" and thus there is no appeal as of right, and discretionary appeals almost always fall outside the scope of 28 U.S.C. §1292(b). As a result, defendants are forced to choose between two evils: accede to a disadvantageous settlement of meritless claims or incur skyrocketing legal fees for discovery, further motion practice and even trial. To reduce the heavy burden on clients and the strain on an overburdened district court system while controlling the volume of interlocutory appeals, we propose amending 28 U.S.C. §1292 to permit a modified appeal as of right from the denial of motions to dismiss.

Appeals of interlocutory orders—such as those denying motions to dismiss—are largely governed by 28 U.S.C. §1292. Unfortunately, §1292(a) affords parties the right to immediately appeal only a narrow selection of orders, namely those concerning injunctions, appointing receivers or winding up receiverships, and the rights and liabilities of parties in admiralty cases. Otherwise, litigants can only appeal as of right from a "final decision," which is usually defined as an order that ends the litigation on its merits and leaves the district court with nothing to do other than execute the judgment.

In theory, a defendant whose motion to dismiss is denied can seek a discretionary appeal under 28 U.S.C. §1292(b). However, to reach the circuit court under this subsection, the district court judge must certify that the order "involves a controlling question of law as to which there is substantial ground for difference of opinion," and the circuit court must then agree to accept the appeal. Worse still, the district court proceedings are not stayed during an appeal unless so ordered by the district or circuit courts. The need for multiple layers of favorable discretionary determinations by both the trial and appellate courts has made immediate appeal from the erroneous denial of a motion to dismiss almost nonexistent.

The equities of the limited appeal system are highly problematic. Innocent defendants who have been dragged into court and then have their meritorious motions to dismiss denied are left in the disagreeable position of either settling the case to avoid the significant costs of discovery or bearing that cost to be vindicated later in the litigation process. In the worst-case scenario, a litigant with the requisite means may bear the onerous costs of both discovery and trial to finally be vindicated by a circuit court's reversal of the district court's denial of the motion to dismiss. Plaintiffs, on the other hand, are further incentivized to bring weak claims because surviving a motion to dismiss often equates to extorting an early settlement.

At the same time, allowing unfettered, immediate appeals of the denial of a motion to dismiss could have negative efficiency impacts. As is the case in the New York state courts, which are extremely permissive of interlocutory appeals, expanding appeals as of right under §1292 could encourage litigants to inundate the circuit courts with appeals from denials of motions to dismiss even when those appeals are meritless.

Judge Posner considered these competing interests in the Seventh Circuit's decision in In re Text Messaging Antitrust Litigation, 630 F.3d 622 (7th Cir. 2010). In that case, the district court certified an appeal under §1292(b) of its denial of defendants' motion to dismiss based on the uncertain and uneven application of the Twombly pleading standard by the district courts, and the Seventh Circuit accepted the appeal to assuage the confusion. Writing for the panel, Judge Posner explained that when a district court denies a motion to dismiss it forces the parties into discovery and, "by doing so create[s] irrevocable as well as unjustifiable harm to the defendant that only a[n] immediate appeal can avert." Id. at 625-26. Posner qualified his statement by noting that the holding was meant to apply only to "complex case[s] of extremely dubious merit" and by stating that "[s]uch appeals should not be routine." Id.

The challenge, then, is to create a procedure that allows litigants to appeal denials of motions to dismiss immediately in cases where the defendant faces an unjustifiable level of harm from continued litigation, while ensuring that such appeals are not routine. To do so, we propose amending Section 1292 to permit an interlocutory appeal from the denial of a motion to dismiss with two conditions: 1) fee shifting and 2) streamlined briefing.

First, to disincentivize frivolous appeals, a defendant who appeals from the denial of a motion to dismiss and loses should pay the appellee's costs and fees for opposing the appeal. Imposing a financial burden on unsuccessful appellants will deter defendants and ensure that these appeals do not become routine by targeting the core concern that drives defendants—cost of litigation.

Second, judicial economy and efficiency can be promoted by deciding the appeals based on the papers submitted to the district court. This condition will encourage both parties to meticulously brief the issue for the district court (while also potentially generating more accurate district court decisions) and improve the efficiency with which the circuit courts render appellate decisions.

With the ever-increasing costs of litigation, expanding interlocutory appeals in the federal courts is highly desirable. No place is this truer than in the context of denials of a meritorious motion to dismiss, which can subject defendants to exorbitant and ultimately wasted legal fees. To ameliorate this problem while preventing an appellate flood, we propose amending 28 U.S.C. §1292 to permit an immediate appeal as of right from the denial of a motion to dismiss with streamlined briefing and fee shifting if the appeal is unsuccessful. Tweaking the federal approach to interlocutory appeals will go a long way towards promoting efficiency for litigants and courts alike.

Russell Yankwitt is the founder of Yankwitt LLP. Dina Hamerman is a commercial litigator at the firm. Luke Holden, a law clerk, assisted in the preparation of this article.

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