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Ninth Circuit Dismisses For Lack Of Jurisdiction Non-Lead Plaintiff’s Appeal From The Dismissal Of A Putative Class Action Against Medical Device Company
11/01/2023On October 11, 2023, a divided panel of the United States Court of Appeals for the Ninth Circuit dismissed for lack of standing an appeal from the dismissal of a putative class action asserting claims under the Securities Exchange Act of 1934 against a medical device company and its former CEO. Habelt v. iRhythm Technologies, Inc., —F.4th—, 2023 WL 6614359 (9th Cir. 2023). Lead plaintiff alleged that the Company made misrepresentations regarding the regulatory process prior to the company receiving a historically low Medicare reimbursement rate for one of its products. After the district court granted defendants’ motion to dismiss, lead plaintiff declined to appeal. However, the individual who filed the initial complaint in the action (but did not make a motion for appointment as lead plaintiff, or thereafter participate in the action) sought to appeal. The majority of the three-judge panel held that appellant was not a party to the action and therefore dismissed the appeal for lack of jurisdiction. In a dissenting opinion, Judge Mark J. Bennett opined that appellant should be deemed a party and that, even if he were not a party, exceptional circumstances existed to justify finding that he had standing to appeal (and, on the merits, would have reversed the district court’s dismissal of the action).
The majority opinion explained that, as a general rule, only parties to a lawsuit have the statutory right to appeal from an adverse judgment. Id. at *2. The majority noted that this rule was distinct from constitutional standing and applied to exclude non-parties that may nevertheless have an interest in the outcome of the litigation. Id.
The majority rejected appellant’s argument that he was a “party” because he had previously filed a complaint and that his name appeared in the caption of the operative amended complaint. The majority explained that the caption is merely “the handle to identify” an action, and that a person can appear in the caption “without necessarily becoming a party to the action.” Id. at *3. Moreover, the majority emphasized that the filing of an amended complaint extinguished appellant’s prior complaint, and the body of the operative complaint further made clear that lead plaintiff was the only plaintiff. Id. The majority also observed that, while unnamed members of a certified class may be considered a party for the purpose of appealing an adverse judgment, no class had yet been certified here. Id.
In addition, the majority held that appellant had failed to demonstrate exceptional circumstances that confer upon him standing to appeal as a non-party. Id. For example, the majority noted that non-parties have been permitted to appeal “when they were significantly involved in the district court proceedings” or where the non-party is “haled … into the proceeding against his will,” neither of which the majority concluded was the case for appellant. Id. at *3-4. The majority also noted that the Supreme Court had “cautioned against reliance on exceptions to the rule that only parties can appeal,” and had urged non-parties to follow the “better practice” of seeking intervention for purposes of appeal, which appellant here declined to do. Id. at *4 (citing Marino v. Ortiz, 484 U.S. 301, 304 (1988)).
In a lengthy dissent, Judge Bennett first opined that appellant should be deemed a party based on four factors. First, appellant filed the first complaint in the action. Second, appellant remained in the caption of the operative complaint. Third, appellant’s claims were covered by the substantive allegations in the operative complaint. And fourth, appellant “never evinced any intent to remove himself as a party, and the district court never provided notice that it was doing so.” Id. The dissent rejected the view that an amended complaint necessarily “rendered [appellant’s] initial complaint nonexistent,” opining that this result was not expressly compelled by the PSLRA and that the amended complaint here did not extinguish appellant’s original complaint. Id. at *5. The dissent reasoned that requiring the body of an amended complaint to expressly state that the plaintiff that filed the original complaint was still a party would “elevate[] form over substance.” Id.
The dissent further explained that appellant never showed any intent to withdraw as a party, and because appellant was a named plaintiff in the operative complaint and “remained covered by its substantive allegations,” it was reasonable for him to assume that he was still a party. Id. at *6. Thus, procedural due process “likely required pre-termination notice, not post-termination notice” that appellant’s party status had been terminated, and that even post-termination notice would have given appellant the opportunity to move to intervene or take other action to try to preserve his claims for appeal. Id. at *7.
The dissent also opined that, even if appellant were not deemed a party, he still ought to qualify for appellate standing because filing the initial complaint constitutes participating in the district court proceedings and the equities favored allowing to him appeal, including because it was uncertain whether a future claim filed by appellant would be precluded or time‑barred. Id. at *9.
The dissent also addressed the merits of the appeal and opined that certain of the challenged statements rejected by the district court were not, as the district court had determined, forward‑looking statements protected by the PSLRA’s safe harbor provision or otherwise non‑actionable predictions about the outcome of regulatory proceedings. Id.
