United States Court of Appeals For the First Circuit
No. 19-2113
KEN JOHANSEN, individually and on behalf of all others similarly situated,
Plaintiff,
v.
LIBERTY MUTUAL GROUP INC., Defendant/Third-Party Plaintiff-Appellee, SPANISH QUOTES, INC., d/b/a WeSpeakInsurance, Defendant, LIBERTY MUTUAL INSURANCE COMPANY, Third-Party Plaintiff-Appellee,
DIGITAS, INC., Third-Party Defendant-Appellant, PRECISE LEADS, INC., Third-Party Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Allison D. Burroughs, U.S. District Judge]
Before
Howard and Thompson, Circuit Judges, and Arias-Marxuach, District Judge.
Of the District of Puerto Rico, sitting by designation. Laura Greenberg-Chao, Henshon Klein LLP, Michael Dockterman, and Steptoe & Johnson LLP on brief for Digitas, Inc., appellant. Manleen Singh, Anthony A. Froio, Eric Magnuson, and Robins Kaplan LLP on brief for Liberty Mutual, appellee.
September 25, 2024 HOWARD, Circuit Judge. When Ken Johansen sued Liberty
Mutual for violating the Telephone Consumer Protection Act (TCPA),
Liberty Mutual and Digitas, Inc. disputed whether Johansen's claim
triggered Digitas's duty to indemnify Liberty Mutual. Even after
Johansen's class action was settled and dismissed, the third-party
wrangling between Liberty Mutual and Digitas escalated, as each
day made the case more expensive to resolve. Today, we move this
protracted saga toward closure. The district court
found that Digitas violated its contractual duty to indemnify
Liberty Mutual and thus partially granted Liberty Mutual's motion
for summary judgment. Notwithstanding a thorny question of
appellate jurisdiction, we agree with the district court that
Digitas breached its warranty and that Liberty Mutual satisfied
the requisite preconditions to trigger Digitas's indemnity
obligation. We affirm.
I.
This appeal involves a small web of contractual
arrangements intended to help Liberty Mutual grow its customer
base.1 First and foremost, Liberty Mutual, a diversified auto
1 We take the facts from the parties' summary-judgment submissions and present them in the light most favorable to the non-moving party. See Lachance v. Town of Charlton, 990 F.3d 14, 17 n.1 (1st Cir. 2021). Though the parties filed cross-motions for summary judgment, we construe Digitas as the party that is due this favorable standard of review because only Digitas appealed the district court's summary-judgment ruling.
- 3 - insurer, contracted in 2012 with Digitas, a marketing services
provider. Under the agreement (the "Master Services Agreement" or
"MSA"), Digitas promised to deliver services as defined in ensuing
statements of work, which subsequently included "interactive
marketing" through "paid search, aggregator, affiliate and landing
pages (tracking and readout only)." Digitas warranted that these
services would "conform to [Liberty Mutual's] requirements as
specified in the applicable [statement of work]." Digitas also
extended its warranty to third-party contracts, promising to
provide to Liberty Mutual "the full benefit of all covenants,
warranties, representations and indemnities granted to Digitas by
third parties."
The MSA also contained an indemnification provision.
Each party agreed to indemnify the other against "all third[-]party
claims, damages, liabilities, costs and expenses, including
reasonable legal fees and expenses . . . , arising out of any
breach of any warranty . . . by the indemnifying party." In
addition to a breach of warranty, the MSA conditioned any indemnity
obligation on three prerequisites:
(i) prompt written notice by the indemnified party to the indemnifying party of any claim, action, or demand for which indemnity is claimed; (ii) the opportunity for complete control of the defense and settlement thereof by the indemnifying party; and (iii) such reasonable cooperation, at the indemnifying party's expense, by the indemnified party in
- 4 - the defense as the indemnifying party may request.
Liberty Mutual separately executed a similar marketing
agreement with Precise Leads, Inc. to " generat[e] call volume"
with prospective consumers. The Precise Leads contract also
contained an indemnification provision. For its part, Digitas
separately contracted with Spanish Quotes, Inc., which acted as an
insurance shopping tool to help customers find insurance quotes.
In doing so, Spanish Quotes warranted that its services would meet
Digitas's specifications and would not violate any laws, rules, or
regulations.
In 2014, a person identified as "Rita Johansen" visited
autoquotesdirect.com, expressed interest in purchasing car
insurance, and consented to fielding calls from insurers,
including Liberty Mutual. Months later, Ken Johansen received a
phone call from a representative of Auto Insurance Services.
Johansen confirmed that he had requested a car insurance quote,
and Auto Insurance Services transferred the call to Liberty Mutual.
After three similar calls and transfers, Johansen complained to
Liberty Mutual that telemarketers had been calling his home.
Because it was apparent that the calls originated from a Spanish
Quotes call source, Liberty Mutual contacted Digitas to inform
Digitas of Johansen's allegations and to request that Spanish
Quotes "track down the source based on the caller ID and shut them
- 5 - down." Digitas confirmed that its work, and the work of its
contractual partners, should not include outbound calls that were
then transferred to Liberty Mutual.
Johansen filed a putative class-action complaint in July
2015 against Liberty Mutual and Spanish Quotes under the TCPA.2
See 47 U.S.C. § 227. Johansen alleged that Spanish Quotes violated
the TCPA by, among other acts, solicitating members of the National
Do-Not-Call Registry multiple times in a year. He also alleged
that Liberty Mutual was responsible for ensuring that Spanish
Quotes complied with the TCPA.
Liberty Mutual promptly informed Digitas of Johansen's
lawsuit and referenced the MSA's indemnity provision. Digitas
responded five months later that it was "inclined to enter into an
agreement with Liberty to fund 40% of the defense of the underlying
TCPA action if Precise Leads [did] the same." Shortly thereafter,
Digitas again offered to pay for the defense under certain
conditions, one of which included Liberty Mutual covering a portion
of its costs of cooperation. Liberty Mutual rejected the offer,
pointing to the MSA's requirement that indemnitee cooperation come
"at the indemnifying party's expense."
2 "The TCPA restricts the making of telemarketing calls and the use of automatic telephone dialing systems and artificial or prerecorded voice messages. The rules apply to common carriers as well as to other marketers." FCC, FCC Actions on Robocalls, Telemarketing (July 23, 2018), https://www.fcc.gov/general/ telemarketing-and-robocalls [https://perma.cc/77EZ-UJEZ].
- 6 - Unable to agree on indemnification, Liberty Mutual filed
a third-party complaint against Digitas and Precise Leads, thus
beginning the litigation now before us. The third-party complaint
would come to include claims for breach of contract and negligence
against Digitas and Precise Leads, as well as a cross-claim for
contractual indemnity against Spanish Quotes. The district court
denied Digitas's motion to dismiss, finding that the MSA required
only an opportunity for control -- not actual tender -- of the
defense. Meanwhile, Digitas continued to attempt to negotiate the
scope of its indemnity obligation with Liberty Mutual. Digitas's
third offer contemplated resolving any indemnity issues through
private mediation. Its fourth and final offer excluded from
Digitas's indemnity obligation fees for the third-party litigation
and nullified any further obligations under the MSA unless Liberty
Mutual suffered an adverse judgment based on a specific finding of
Digitas's breach.
Johansen proposed to settle his individual claims in
January 2018. Throughout the settlement negotiations, Digitas
maintained that it had no duty to indemnify Liberty Mutual because
Liberty Mutual had not met the preconditions in the MSA.
Nevertheless, Liberty Mutual worked with Digitas to draft and
finalize an agreement to settle Johansen's claims. Johansen
eventually agreed to a five-figure settlement, and the district
court dismissed his claims against Liberty Mutual with prejudice.
- 7 - The third-party squabbling between Liberty Mutual and
Digitas persisted,3 even after Liberty Mutual settled its
third-party claims against Precise Leads. Liberty Mutual and
Digitas filed cross-motions for summary judgment on February 28,
2019. Liberty Mutual sought attorney's fees and its share of the
Johansen settlement payment. Digitas sought dismissal of the
third-party claims.
The district court found that Digitas violated its duty
to indemnify Liberty Mutual and partially granted Liberty Mutual's
cross-motion for summary judgment. It also partially denied
Liberty Mutual's cross-motion, insofar as Liberty Mutual's claim
of negligence was premised upon a finding that Digitas was liable
to Johansen for violating the TCPA. Accordingly, the district
court also partially denied and partially granted Digitas's
cross-motion. The court closed the case without determining
damages. Twenty-nine days later, Digitas filed this appeal.
With our leave, Liberty Mutual filed a motion under
Federal Rule of Civil Procedure 60(a)4 asking the district court
3 The dispute between Liberty Mutual and Spanish Quotes also continued. But because Spanish Quotes never moved for summary judgment, that dispute is not a part of this appeal. 4 Rule 60(a) allows a court to "correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record." Fed. R. Civ. P. 60(a). "[A]fter an appeal has been docketed in the appellate court and while it is pending, such a mistake may be corrected only with the appellate court's leave," id., which we granted here.
- 8 - to reopen the case and assess damages. The district court denied
the motion. Because, it reasoned, Rule 60(a) is intended to fix
"mechanical or mathematical mistake[s]," it was an "inappropriate
mechanism" through which to add damages. In response to our
subsequent request for clarification, the district court specified
that it had intended the judgment to be final. The court explained
that it had "assumed that the indemnification dispute involved a
sum certain and that the parties did not want or need an
evidentiary hearing" because Liberty Mutual had never submitted
damages evidence, even during the twenty-nine days between
judgment and appeal. "Should such a hearing be necessary," the
court suggested, it could conduct one once we dispensed of
Digitas's pending appeal.
II.
Before proceeding to the merits of Digitas's appeal, we
must first address Liberty Mutual's insistence that we lack
appellate jurisdiction. Liberty Mutual argues that we lack
jurisdiction under 28 U.S.C. § 1291 because a judgment, like the
one here, that "adjudicates only liability and not damages[ ]is
not a final order." Mullen v. St. Paul Fire & Marine Ins. Co.,
972 F.2d 446, 450 (1st Cir. 1992) (quoting Domegan v. Fair, 859
F.2d 1059, 1062 (1st Cir. 1988)); 15B Charles Alan Wright, Arthur
R. Miller & Edward H. Cooper, Federal Practice and Procedure §
3914.28 n.6 (2d ed. 2024) (collecting cases). The adjudication of
- 9 - attorney's fees, however, comprises an exception to this general
principle. See Ray Haluch Gravel Co. v. Cent. Pension Fund of
Int'l Union of Operating Eng'rs and Participating Emps., 571 U.S.
177, 179 (2014) ("Whether the claim for attorney's fees is based
on a statute, a contract, or both, the pendency of a ruling on an
award for fees and costs does not prevent, as a general rule, the
merits judgment from being final for purposes of appeal."). The
parties argue at length, and on the backdrop of an imperfect
record, about whether that exception applies to the attorney's
fees at issue here and whether Liberty Mutual's damages claim
comprises more than attorney's fees.
"The parties' arguments weave a jurisdictional riddle,
which is both intricate and difficult to resolve." Akebia
Therapeutics, Inc. v. Azar, 976 F.3d 86, 91 (1st Cir. 2020).
Thankfully, "the exigencies of [this] particular case do not
require" a "rush to decide" this issue. Id. (quoting Privitera v.
Curran, 855 F.3d 19, 22 (1st Cir. 2017)). Where a "case poses a
question of statutory, not Article III, jurisdiction" and where "a
decision on the merits will favor the party challenging the court's
jurisdiction," we may assume that we have jurisdiction to reach
the merits of an appeal. Caribe Chem Distribs., Corp. v. S. Agric.
Insecticides, Inc., 96 F.4th 25, 28 (1st Cir. 2024) (quoting Doe
v. Town of Lisbon, 78 F.4th 38, 45 (1st Cir. 2023)); see Akebia
Therapeutics, 976 F.3d at 91-92 ("Although hypothetical
- 10 - jurisdiction is generally disfavored, such a barrier is
insurmountable only when Article III jurisdiction is in issue."
(internal citations omitted)). Here, the only potential
jurisdictional barrier is statutory, see 28 U.S.C. § 1291,
and -- as discussed below -- our merits decision favors Liberty
Mutual, the party challenging our jurisdiction. See United States
v. Ayala-Lopez, 457 F.3d 107, 108 (1st Cir. 2006) ("[T]here is no
need to reach a more difficult non-Article III issue of appellate
jurisdiction [under § 1291] if the case may be easily disposed of
on the merits."); Doe, 78 F.4th at 44 (same); 15A Wright, Miller
& Cooper, supra, § 3905 (deeming "clearly appropriate" our practice
of "affirm[ing] a judgment if the result on the merits is easier
to reach than a thorny question of [appellate] jurisdiction"); id.
§ 3905 n.22 (collecting cases). We tarry no further. Because the
merits squarely favor Liberty Mutual, we bypass the jurisdictional
conundrum and resolve this case on straightforward contractual
interpretation.
III.
We review the district court's summary-judgment order de
novo. See Dukes Bridge LLC v. Beinhocker, 856 F.3d 186, 189 (1st
Cir. 2017); Bukuras v. Mueller Grp., LLC, 592 F.3d 255, 261 (1st
Cir. 2010). The presence of cross-motions for summary judgment
"neither dilutes nor distorts [our] standard of review." Great
Lakes Ins. SE v. Andersson, 89 F.4th 212, 217 (1st Cir. 2023)
- 11 - (quoting Mandel v. Bos. Phoenix, Inc., 456 F.3d 198, 205 (1st Cir.
2006)); Bukuras, 592 F.3d at 261. "Cross motions simply require
us to determine whether either of the parties deserves judgment as
a matter of law on facts that are not disputed." Anvar v. Dwyer,
82 F.4th 1, 7 (1st Cir. 2023) (quoting Barnes v. Fleet Nat'l Bank,
N.A., 370 F.3d 164, 170 (1st Cir. 2004)).
Because the parties agree that the indemnification
provision presents "a pure question of law regarding the
interpretation of unambiguous terms," we also review the district
court's contractual interpretation de novo. See Caldwell Tanks,
Inc. v. Haley & Ward, Inc., 471 F.3d 210, 215 (1st Cir. 2006).
Following the parties' lead, we apply Massachusetts law, under
which the intention of the parties guides our interpretation. See
Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777, 784 (1st Cir. 2011);
Bukuras, 592 F.3d at 262. As ever, we understand words to carry
their "usual and ordinary" meaning and read the whole contract "in
a reasonable and practical way, consistent with its language,
background, and purpose." Bukuras, 592 F.3d at 262 (quoting Cady
v. Marcella, 49 Mass. App. Ct. 334, 338 (2000)).
The district court found that Digitas violated its
contractual duty to indemnify Liberty Mutual because Digitas
breached its warranty and Liberty Mutual satisfied the
prerequisites to trigger Digitas's indemnity obligation. Digitas
argues on appeal that it could not have breached warranty absent
- 12 - a finding of actual liability and that Liberty Mutual did not
satisfy the MSA's prerequisites because its extracontractual
demands burdened Digitas's assumption of the defense. Finding
these objections unpersuasive, we affirm the district court.
A.
The MSA conditioned indemnity on the indemnitor's
"breach of any warranty, representation, covenant, obligation or
agreement." Liberty Mutual argues that Digitas breached its
warranty by allowing "warm transfers" in its campaign, some of
which formed the basis of Johansen's complaint and about which
Digitas knew. Digitas disputes none of these facts on appeal.5
Instead, Digitas argues that demonstrating Digitas's breach of
warranty required finding "a violation of the TCPA by Digitas," a
finding the district court did not make. We disagree.
"Where, as asserted here, the duty to indemnify arises
out of contract instead of as a matter of law, 'the question of
whether actual liability is a prerequisite to the duty to indemnify
5 In the customer-service industry, a "warm transfer" is the routing of a customer call from an operative to a colleague after the operative has explained to the colleague the context of the call. Vonage, Warm Transfer vs. Cold Transfer (Jan. 18, 2024), https://www.vonage.com/resources/articles/warm-transfer [https:// perma.cc/LW4N-QYTB]. The parties attach to the term a slightly different meaning, which incorporates an "outbound dial" to a potential customer. It is this outbound dialing that Johansen alleged violated the TCPA. To be clear, however, these technical details do not bear on the third-party action here. For our purposes, it is sufficient to note that Digitas does not dispute that it breached its warranty by allowing warm transfers.
- 13 - is answered by reference to what the parties . . . intended, as
reflected in the [contractual] language.'" Fashion House, Inc. v.
K mart Corp., 892 F.2d 1076, 1094 (1st Cir. 1989) (quoting
Bainville v. Hess Oil V.I. Corp., 837 F.2d 128, 131 (3d Cir.
1988)). Here, the parties agreed to indemnify each other from
"any and all third[-]party claims, damages, liabilities, costs,
and expenses . . . arising out of any breach of any warranty."
The plain language of the provision clearly encompasses a
"third[-]party claim" like Johansen's. See Samos Imex Corp. v.
Nextel Commc'ns, Inc., 20 F. Supp. 2d 248, 253 (D. Mass. 1998)
(finding an indemnification clause activated upon claim alleging
liability, "and not just on final judgment of liability," where
clause extended to claims). A "claim" is a "demand for money,
property, or a legal remedy." Claim, Black's Law Dictionary (12th
ed. 2024). "Such a sensitive trigger cannot function with the
actual-liability standard acting as a safety," especially because
the MSA further lowered the bar by modifying "claim" with "any and
all." Warren Drilling Co. v. Equitable Prod. Co., 621 F. App'x
800, 805 (6th Cir. 2015) ("The words 'any' [or] 'claim' . . .
indicate an intent to displace an actual-liability rule."); see
also Fashion House, 892 F.2d at 1093-94 (binding an indemnitor to
an indemnitee's settlement where "broad" and "sweeping"
indemnification clause extended to any "liability, loss, claim,
suit, judgment and cause of action, or expense"); Trs. of N.Y.,
- 14 - New Haven & Hartford Co. v. Tileston & Hollingsworth Co., 345 Mass.
727, 728, 732 (1963) (allowing an indemnitee "to bind the
indemnitor to the result of a settlement" when indemnification
clause extended to "loss, damage[,] or injury").
We conclude that the parties did not intend "breach of
warranty" to necessitate a finding of actual liability. Because
Liberty Mutual provides undisputed evidence that Digitas allowed
"warm transfers" and that these transfers breached Digitas's
warranty to Liberty Mutual, we affirm the district court's finding
that Digitas breached its warranty under the MSA without reaching
the question of whether Digitas violated the TCPA.
B.
Breach of warranty notwithstanding, the MSA further
conditioned indemnity on the following three prerequisites:
(i) prompt written notice by the indemnified party to the indemnifying party of any claim, action, or demand for which indemnity is claimed; (ii) the opportunity for complete control of the defense and settlement thereof by the indemnifying party; and (iii) such reasonable cooperation, at the indemnifying party's expense, by the indemnified party in the defense as the indemnifying party may request.
The parties agree that Liberty Mutual provided prompt written
notice, satisfying the first requirement, but dispute whether the
remaining requirements were satisfied. We conclude that Liberty
- 15 - Mutual satisfied the second requirement and that Digitas's refusal
to assume the defense rendered the third requirement unripe.
Undisputed facts in the record provide evidence that
Liberty Mutual gave Digitas multiple opportunities for control of
the defense. "[T]o establish tender of an opportunity to defend"
under Massachusetts law, "[a]n indemnitee is 'not bound to make
any formal and explicit demand,' beyond providing information
alerting the indemnitor to the existence of the claim."
Psychemedics Corp. v. City of Bos., 486 Mass. 724, 735-36 (2021)
(quoting Tileston & Hollingsworth, 345 Mass. at 731). "Where the
parties have an existing contractual relationship," as they do
here, "it takes very little on the part of the indemnitee to
indicate an intent to charge the indemnitor with the defense."
Id. at 736. Liberty Mutual easily met this low burden in August
2015 when it notified Digitas of the Johansen claim and referenced
the MSA's indemnification clause. The parties' subsequent and
extensive communications about Digitas's indemnity obligation
supply further undisputed evidence that Liberty Mutual provided
the opportunity to control the defense.
On appeal, Digitas assumes its stance, twice rejected by
the district court, that "Liberty Mutual was required to turn over
the defense to Digitas or forfeit its right to indemnity." This
interpretation of the MSA remains patently incorrect. The MSA
required that Liberty Mutual give Digitas "opportunity" to control
- 16 - the defense, not that Liberty Mutual actually tender the defense.
Digitas's reading of the MSA disregards clear contractual language
and conflicts with Massachusetts caselaw, see id. at 735-36;
Tileston & Hollingsworth, 345 Mass. at 732-33.
Once Liberty Mutual gave Digitas notice and opportunity
to control the defense, "the burden shift[ed] to [Digitas]
proactively to attempt to assume the defense." Psychemedics Corp.,
486 Mass. at 726 ("To attempt proactively to assume the defense
entails good faith efforts promptly to assume and control the
defense of the claims asserted."); see City of Bos. v. Worthington,
76 Mass. (10 Gray) 496, 498–99 (1858). Of course, Liberty Mutual
had a corresponding duty to allow Digitas to assume the defense.
See Psychemedics Corp., 486 Mass. at 742. Any "affirmative acts
by [Liberty Mutual] thwarting, refusing, or in any way blocking
efforts by [Digitas] to assume the defense" would relieve Digitas
of its indemnity obligation. Id. at 743.
Digitas argues at length that Liberty Mutual did just
that, burdening Digitas's assumption of the defense with
extracontractual conditions.6 As a legal matter, an indemnitee
6Digitas's briefs occasionally suggest that Liberty Mutual's alleged intransigence represented a "lack of cooperation" that precluded satisfaction of the MSA's third requirement: "such reasonable cooperation, at the indemnifying party's expense, by the indemnified party in the defense as the indemnifying party may request." But Liberty Mutual could not cooperate, nor did Digitas request any cooperation, "in the defense" because Digitas never assumed the defense and still disputes its status as "the
- 17 - clearly cannot condition assumption of the defense on
extracontractual demands. But as a factual matter, it was Digitas,
not Liberty Mutual, who insisted on extracontractual conditions.
Digitas, at various points, offered to assume the defense only if:
Precise Leads did the same, Liberty Mutual covered its own costs
of cooperation, indemnity disputes would be resolved through
private mediation, previous legal fees were subject to Digitas's
consideration, third-party-litigation fees were excluded, or any
further obligations under the MSA were nullified absent an adverse
judgment based on Digitas's breach. Each of these conditions
either did not appear in or directly conflicted with the MSA.
Thus, Liberty Mutual's rejection of them did not constitute
thwarting, refusing, or blocking Digitas's assumption of the
defense. See id.
We do not dispute Digitas's right to contest the scope
of its indemnity obligation, as many of Digitas's proposed
conditions did. But none of these scope-of-obligation objections
affect what is, according to Digitas, "[t]he only issue on
appeal[:] whether Liberty Mutual properly triggered Digitas'[s]
indemnity obligations." Digitas could have assumed the defense
indemnifying party." Reading the MSA "in a reasonable and practical way," Bukuras, 592 F.3d at 262, Liberty Mutual is correct that "[t]he third condition was never ripe." Nevertheless, we construe Digitas's lack-of-cooperation allegations as support for the distinct argument that Liberty Mutual burdened Digitas's assumption of the defense.
- 18 - under a reservation of rights, "the common-sense solution" to
circumstances in which a party cannot "obtain[] a determination of
[its] rights and obligations before the claimed performance is
due." Restatement (Third) of Restitution and Unjust Enrichment
§ 35 cmt. a (Am. L. Inst. 2011); see id. § 35 cmt. c (explaining
"a dispute over an indemnity obligation in an ordinary
contract . . . might be resolved in a proper case by performance
under protest and a subsequent claim in restitution");
Psychemedics Corp., 486 Mass. at 726 n.5. But Digitas has staked
its appeal on the proposition that "Liberty Mutual failed to
fulfill conditions precedent under the MSA." The appeal cannot
survive our conclusion to the contrary.
IV.
Digitas finally argues that, even if we affirm the
district court, we should dismiss the case because "there is
nothing further to be done below." According to Digitas, Liberty
Mutual has no options to seek damages because it did not introduce
damages evidence, file a timely post judgment motion, or appeal
the final judgment. These are paradigmatic district-court issues.
See, e.g., 11 Charles Alan Wright et al., Federal Practice and
Procedure § 2857 (3d ed. 2024) ("Appellate review [of Rule 60(b)
motions] is limited to determining whether the district court
abused its discretion."); id. § 2872. We leave them to the
district court.
- 19 - ***
For all these reasons, we AFFIRM the district court's
judgment and remand for any further proceedings. Each party shall
bear its own costs.
-Dissenting Opinion Follows-
- 20 - ARIAS-MARXUACH, District Judge, dissenting. I do not
disagree with the majority's analysis of the merits of Digitas,
Inc.'s appeal. Instead, I respectfully dissent due to my concerns
about the majority's reliance on the hypothetical jurisdiction
doctrine. With some exceptions, the subject-matter jurisdiction
of the courts of appeals is limited to "final decisions of the
district courts." 28 U.S.C. § 1291. Appellate courts have a duty
to verify the existence of their own subject-matter jurisdiction.
See United States v. Horn, 29 F.3d 754, 767-68 (1st Cir. 1994).
In this case, however, the majority relies on a doctrine of
hypothetical jurisdiction to sidestep that question and reach the
merits of the appeal.
The hypothetical jurisdiction doctrine provides that if a
"case poses a question of statutory, not Article III,
jurisdiction," then "the question of jurisdiction 'need not be
resolved if a decision on the merits will favor the party
challenging the court's jurisdiction.'" Caribe Chem Distribs.
Corp. v. S. Agric. Insecticides, Inc., 96 F.4th 25, 28 (1st Cir.
2024) (quoting Doe v. Town of Lisbon, 78 F.4th 38, 44-45 (1st Cir.
2023)). The doctrine has been used to avoid jurisdictional
questions arising under laws as varied as the Eleventh Amendment,
the Illegal Immigration Reform and Immigrant Responsibility Act,
the bankruptcy code, and the procedure governing appellate review
of remands following removal. See Parella v. Ret. Bd. Of R. I.
- 21 - Emps.' Ret. Sys., 173 F.3d 46, 53-57 (1st Cir. 1999) (Eleventh
Amendment); Seale v. INS, 323 F.3d 150, 152-57 (1st Cir. 2003)
(immigration law); Parkview Adventist Med. Ctr. v. United States
ex rel. Dep't of Health & Hum. Servs., 842 F.3d 757, 760 (1st Cir.
2016) (bankruptcy code); Caribe Chem Distribs., Corp., 96 F.4th at
28 (removal procedure); see also Joshua S. Stillman, Hypothetical
Statutory Jurisdiction and the Limits of Federal Judicial Power,
68 Ala. L. Rev. 493, 511 (2016) ("Courts have used hypothetical
statutory jurisdiction to bypass a wide array of statutory subject-
matter jurisdiction issues, such as those under the Foreign
Sovereign Immunities Act, the Contract Disputes Act, the False
Claims Act, the Freedom of Information Act, the supplemental
jurisdiction statute, the Administrative Procedure Act, and the
Alien Tort Statute.").
The hypothetical jurisdiction doctrine was generally rejected
by a majority of the justices of the Supreme Court in Steel Co. v.
Citizens for a Better Env't, 523 U.S. 83 (1998), because it
"offends fundamental principles of separation of powers." Id. at
94. The Court reiterated that determining jurisdiction is "the
first and fundamental question" in every appeal." Id. (quoting
Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 453 (1900))
(emphasis added). "This question," the majority continued, "the
court is bound to ask and answer for itself, even when not
otherwise suggested." Id. (emphasis added). "Jurisdiction is
- 22 - power to declare the law, and when it ceases to exist, the only
function remaining to the court is that of announcing the fact and
dismissing the cause." Id. (quoting Ex parte McCardle, 74 U.S. (7
Wall.) 506, 514 (1868)). "This conclusion should come as no
surprise," the Steel Co. majority wrote, as "[t]he requirement
that jurisdiction be established as a threshold matter 'spring[s]
from the nature and limits of the judicial power of the United
States' and is 'inflexible and without exception.'" Id. (quoting
Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884)).
Despite Steel Co.'s strong condemnation of hypothetical
jurisdiction, a First Circuit panel concluded in Parella v.
Retirement Board of Rhode Island Employees' Retirement System that
"the rule does not appear to be an absolute one." 173 F.3d at 53.
The panel observed that two justices in the five-justice majority
wrote a concurrence noting that the rule that jurisdictional
questions be decided first had been diluted. Id. The Parella
court also noted that the four justices that did not fully join
the majority opinion disagreed that jurisdictional issues should
always be decided before reaching the merits. Id. at 53-54.
Finally, the panel in Parella emphasized that "[t]he decision in
Steel Co. distinguishes between Article III jurisdiction questions
and statutory jurisdiction questions, holding that the former
should ordinarily be decided before the merits, but the latter
need not be." Id. at 54. Thus, Parella held that "[t]he various
- 23 - opinions in the case, read as a whole, are not entirely clear as
to whether (or to what extent) Steel Co. undermines our earlier
practice [of bypassing jurisdictional issues]." Id. (citation
omitted).
The above reading of Steel Co. notwithstanding, the
separation-of-powers concerns implicated by reaching the merits of
cases without ascertaining jurisdiction are far from trivial, even
when dealing with statutory jurisdiction. Article III vests the
judicial power in "one supreme Court, and in such inferior Courts
as the Congress may from time to time ordain and establish." U.S.
Const. art. III, § 1. Congress has the power to create inferior
courts, and only it may define their jurisdiction. See Sheldon v.
Sill, 49 U.S. (8 How.) 441, 448-49 (1850). Consequently, as this
Court has repeatedly recognized, the inferior "[f]ederal courts
are courts of limited jurisdiction." Am. Fiber & Finishing, Inc.
v. Tyco Healthcare Grp., 362 F.3d 136, 138 (1st Cir. 2004). "Thus,
they can hear cases only if and to the extent that they are
authorized to do so by statute." Rhode Island v. EPA, 378 F.3d 19,
22 (1st Cir. 2004) (citing Bell v. New Jersey, 461 U.S. 773, 777
(1983)).
While other circuits also rely on hypothetical jurisdiction
to sidestep statutory subject-matter jurisdiction questions,7 the
7 The Second, Third, Sixth, Eighth, Ninth, Tenth, D.C., and Federal Circuits appear to allow the exercise of hypothetical
- 24 - desire to continue to rely on this doctrine is not monolithic.
The Eleventh Circuit rejected the doctrine over a decade ago. See
Friends of the Everglades v. EPA, 699 F.3d 1280, 1288-89 (11th
Cir. 2012). Reasoning that "[w]e cannot exercise hypothetical
jurisdiction any more than we can issue a hypothetical judgment,"
the Eleventh Circuit declined to reach the merits of a controversy
because 33 U.S.C. § 1369(b)(1) did not grant the court subject-
matter jurisdiction. Id. at 1289. Even in circuits where
hypothetical jurisdiction remains in use, judges have written in
detail to critique the doctrine. See Kaplan v. Central Bank of
the Islamic Republic of Iran, 896 F.3d 501, 517 (D.C. Cir. 2018)
(Edwards, J., concurring); Butcher v. Wendt, 975 F.3d 236, 245-52
(2d Cir. 2020) (Menashi, J., concurring in part); cf. Stillman,
supra, at 512-33 (arguing the exercise of hypothetical statutory
jurisdiction is unconstitutional).
During the Supreme Court's last term, three justices would
have granted certiorari to resolve the "entrenched Circuit split"
regarding the continuing use of hypothetical jurisdiction and
statutory subject-matter jurisdiction. See Butcher v. Wendt, 975 F.3d 236, 242-44 (2d Cir. 2020); Jordon v. Att'y Gen. of the U.S., 424 F.3d 320, 325 n.8 (3d Cir. 2005); Khodr v. Holder, 531 Fed. App'x 660, 664 n.4 (6th Cir. 2013); Lukowski v. INS, 279 F.3d 644, 647 n.1 (8th Cir. 2002); NLRB v. Barstow Cmty. Hosp.–Operated by Cmty. Health Sys., Inc., 474 Fed. App'x 497, 499 (9th Cir. 2012); Yancey v. Thomas, 441 Fed. App'x 552, 555 n.1 (10th Cir. 2011); Kramer v. Gates, 481 F.3d 788, 791 (D.C. Cir. 2007); Minesen Co. v. McHugh, 671 F.3d 1332, 1337 (Fed. Cir. 2012).
- 25 - stated that "the lower courts' distinction between 'statutory
jurisdiction' and 'Article III' jurisdiction seems untenable."
Waleski v. Montgomery, McCracken, Walker & Rhoads, LLP, 143 S. Ct.
2027, 2027 (2023) (Thomas, J., dissenting). They reiterated that,
"[t]he jurisdiction of federal courts is limited both by the bounds
of the 'judicial power' as articulated in Article III, § 2, and by
the extent to which Congress has vested that power in the lower
courts as required by Article III, § 1." Id. (internal quotation
marks and citation omitted). The justices argued that although
assuming statutory jurisdiction may sometimes be efficient, that
is not enough justification for a court to forego examining its
jurisdiction. See id. at 2028. "Although [s]ome cases might cry
out for decision on the merits, and sometimes it is convenient to
assume away difficult jurisdictional questions to decide a case on
easier merits grounds, courts’ threshold duty to examine [their]
own jurisdiction is no less obligatory in such cases.” Id.
(internal quotation marks and citation omitted). The three
justices underscored that "[m]uch more than legal niceties are at
stake here." Id. (quoting Steel Co., 523 U.S. at 101-02). "For
a court to pronounce upon the meaning or the constitutionality of
a state or federal law when it has no jurisdiction to do so is, by
very definition, for a court to act ultra vires." Id.
Because the continuing currency of the hypothetical
jurisdiction doctrine, even in its present form, appears to offend
- 26 - separation-of-powers principles, I would resolve the doubts over
the Court’s jurisdiction before addressing the merits of the appeal
and, should those doubts prove irreducible, would dismiss the
appeal for lack of jurisdiction.
- 27 -