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“Sham Litigation” Suit Revived by Fourth Circuit

Ellis Winters

Ellis & Winters

Waugh Chapel South, LLC v. United Food & Commercial Workers Union Local 27
No. 12-1429, 2013 WL 4505288 (4th Cir. Aug. 26, 2013)

In Waugh Chapel South, LLC v. United Food & Commercial Workers Union Local 27, the Fourth Circuit affirmed the dismissal of a complaint against the Mid-Atlantic Retail Food Industry Joint Labor-Management Fund. It held that the fund was not a “labor organization” under the National Labor Relations Act (NLRA). The court also vacated the district court’s conclusion that the Noerr-Pennington doctrine protected the remaining defendants and remanded the action to the district court for further proceedings.

Waugh Chapel South, LLC, WCS LLC, WCS Properties Business Trust (collectively WCS) and ELG Inglewood LLC sued the United Food and Commercial Workers (UFCW) Union Locals 27 and 400 and the fund under the Labor Management Relations Act (LMRA), 29 U.S.C. § 187, which provides a cause of action for “unfair labor practices” as defined by the NLRA, 29 U.S.C. § 158 (b)(4). The complaint consisted of two counts of secondary boycott activity under the NLRA, pertaining to two commercial-real-estate projects. WCS alleged that the defendants had filed 14 separate challenges against their commercial-real-estate project involving Wegmans Food Market, Inc., a non-unionized supermarket. WCS also alleged that the defendants filed these challenges with the purpose of forcing WCS to terminate its relationship with Wegmans and that this conduct constituted an illicit “secondary boycott” under the NLRA.

The defendants moved to dismiss the complaint; they argued that the Noerr-Pennington doctrine immunized their First Amendment right to challenge the projects. In rebuttal, WCS contended that the defendants’ challenges constituted “sham litigation” that was not protected by the First Amendment. As an alternative ground for dismissal, the fund argued that it was not a “labor organization” under the NLRA and was therefore not subject it to the LMRA’s conditions. The district court agreed with both arguments and dismissed the complaint. WCS appealed.

The Fourth Circuit first evaluated whether it had jurisdiction to decide the merits of the appeal. In this case, after the district court dismissed with prejudice Count I and most of Count II of the complaint, WCS and ELG entered into a consent order, purporting to dismiss the remainder of Count II “with prejudice, but without prejudice to refiling in any other proceeding.” ELG acknowledged that voluntary dismissal under Rule 41(a)(2) of the Federal Rules of Civil Procedure was intended to allow appellate review of an otherwise interlocutory order. Relying on a Seventh Circuit case, the Fourth Circuit found that this kind of split judgment would ordinarily not be considered final. The Fourth Circuit further noted that “[s]everal of [its] sister circuits have held that litigants may not use voluntary dismissals as a subterfuge to manufacture jurisdiction for reviewing otherwise non-appealable, interlocutory orders.” Quoting an Eighth Circuit case, the Fourth Circuit observed that it faced two options:

In most cases, the proper remedy will be to reverse the Rule 41(a)(2) order and remand for completion of the case, without considering the merits of the earlier interlocutory order(s). We may also deem the ambiguous voluntary dismissal of Count [II] to be with prejudice and go on to consider the appeal from the district court’s dismissal of all remaining claims.

The Fourth Circuit “cho[se] the latter remedy . . . , [because] it police[d] the boundaries of [its] appellate jurisdiction without punishing the litigants in this appeal.” Accordingly, it deemed the voluntary dismissal to be with prejudice and proceeded with considering the merits of WCS’s appeal.

The Fourth Circuit affirmed the district court’s dismissal of the complaint against the fund, finding that the fund was not a “labor organization” under the NLRA because WCS had not alleged that it engaged in a pattern or practice of “dealing with” employers. The court vacated the dismissal of the complaint against the unions based on the protection of the Noerr-Pennington doctrine. Because the purported sham litigation “encompass[ed] a series of legal proceedings rather than a singular legal action,” the Fourth Circuit applied the standard set forth in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 513 (1972), and engaged in a “holistic evaluation of whether ‘the administrative and judicial processes have been abused.’” The Fourth Circuit concluded that there was a genuine issue of material fact as to whether the unions had “indiscriminately filed (or directed) a series of legal proceedings without regard for the merits and for the purpose of violating federal law.” (The Fourth Circuit refashioned the district court’s dismissal of the claims against the unions as a grant of summary judgment because much of the evidence considered by the district court consisted of material appended as part of the motion to dismiss.) The unions’ “one-out-of-fourteen batting average” in terms of successful legal challenges suggested a policy of starting proceedings for the purpose of violating the law. Therefore, the Fourth Circuit found that the unions had forfeited protection under the Noerr-Pennington doctrine and that the district court erred in dismissing WCS’s claims against them.

*This article originally appeared in the ABA Appellate Section Circuit Notes.

August 26, 2013
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