Rolan v. New West

11/07/2017
DA 17-0009
Case Number: DA 17-0009
IN THE SUPREME COURT OF THE STATE OF MONTANA
2017 MT 270
DANA ROLAN, own her own behalf and
on behalf of the class she represents,
Plaintiffs and Appellants,
v.
NEW WEST HEALTH SERVICES,
Defendant and Appellee.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. CDV 2010-91
Honorable Kathy Seeley, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Erik B. Thueson, Thueson Law Office, Helena, Montana
For Appellee:
Robert C. Lukes, Emma L. Mediak, Garlington, Lohn & Robinson PLLP,
Missoula, Montana
Submitted on Briefs: August 2, 2017
Decided: November 7, 2017
Filed:
__________________________________________
Clerk
Justice Michael E Wheat delivered the Opinion of the Court.
¶1 Dana Rolan and the class she represents appeal from the order of the First Judicial
District Court, Lewis and Clark County, granting New West Health Service’s (New
West) motion for summary judgment. Finding the issue stated below dispositive we
decline to address the additional issues raised by the parties. We reverse and remand for
further proceedings.
¶2 We restate the issue on appeal as follows:
Whether the District Court abused its discretion by granting New West leave to
amend its answer to assert ERISA preemption.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 Dana Rolan (Rolan) was injured in a vehicular collision on November 16, 2007,
and sustained serious injury, resulting in medical expenses totaling approximately
$120,000. Rolan carried health insurance through New West. The tortfeasor who caused
the accident carried liability insurance through Unitrin Services Group (Unitrin). Unitrin
accepted legal responsibility and paid approximately $100,000 of Rolan’s medical bills.
¶4 On January 26, 2010, Rolan filed a complaint against New West alleging
individual and class claims for breach of contract, violation of made-whole rights, and
unfair claims settlement practices under §§ 33-18-201, MCA, et seq. Rolan sought
compensatory and punitive damages. During a deposition, New West’s representative
affirmatively stated that Rolan’s plan was “not a properly constituted ERISA plan.”
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Relying on such representation, Rolan proceeded with her claims and class claims based
solely on state law.
¶5 Rolan sought to certify a class under M. R. Civ. P. 23(b)(2) for declaratory and
injunctive relief arising from the claims for breach of contract and violation of
made-whole rights. Rolan’s class certification was based on the systematic practices by
New West to avoid paying medical bills for an insured when a liability carrier was
available to pay medical bills as part of tort damages. On April 25, 2012, the District
Court granted class certification. Maintaining that Rolan’s claims were based solely on
state law claims, New West proceeded to appeal to this Court Rolan’s class certification.
We upheld the class certification in Rolan v. New West Health Servs., 2013 MT 220, 371
Mont. 228, 307 P.3d 291.
¶6 On October 24, 2013, New West moved to amend its answer alleging the policy
was an Employee Retirement Income Security Act (ERISA) policy and that all state law
claims were preempted by federal law. Rolan opposed New West’s motion to amend.
The District Court allowed New West to amend its answer to include the affirmative
defense of ERISA preemption. The District Court reasoned, “[i]f federal law does in fact
preempt state law resolution of this case, the ends of justice would not be served by
denying the motion to amend.” The District Court granted Rolan attorney fees for time
spent addressing New West’s abandoned defenses. Following the District Court’s order
allowing New West to amend, New West moved for summary judgment.
¶7 On May 6, 2015, the District Court granted New West’s motion for summary
judgment holding that Rolan’s policy was subject to ERISA and thus her original state
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law claims were preempted. However, the District Court allowed Rolan to amend her
complaint to include ERISA claims. On June 1, 2015, Rolan amended her complaint to
include both state law and ERISA claims. New West then removed the case to federal
court.
¶8 On February 29, 2016, the federal court remanded the case back to state court.
The federal court determined that New West’s removal was untimely. Judge Lovell cited
several causes for the delay in removal; one cause was: “New West’s inexplicable
confusion over whether its own plan was or was not an ERISA plan.” Nevertheless, the
federal court concluded that the state court had concurrent jurisdiction over Rolan’s
ERISA 502(a)(1) claims and therefore Rolan may proceed with her ERISA claims in
state court.
¶9 Following remand, Rolan filed a motion requesting the District Court to resolve all
matters regarding ERISA preemption. New West moved for summary judgment
asserting ERISA preemption requires dismissal of Rolan’s state law and ERISA claims.
On December 7, 2016, the District Court granted New West’s motion for summary
judgment and denied Rolan’s motion. The District Court again dismissed Rolan’s
argument that New West waived the affirmative defense of ERISA preemption. Further,
the District Court determined that complete preemption under § 502 of ERISA was
proper and thus barred any state law claims asserted by Rolan.
STANDARDS OF REVIEW
¶10 We review the district court’s decision to amend for an abuse of discretion.
Lindey’s v. Professional Consultants, 244 Mont. 238, 242, 797 P.2d 920, 923 (1990). “A
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district court abuses its discretion when it acts arbitrarily, without employment of
conscientious judgment, or in excess of the bounds of reason resulting in substantial
injustice.” Kershaw v. Mont. Dept. of Transp., 2011 MT 170, ¶ 11, 361 Mont. 215, 257
P.3d 358 (citation omitted).
DISCUSSION
¶11 Whether the District Court abused its discretion by granting New West leave to
amend its answer to assert ERISA preemption.
¶12 Rolan argues on appeal that the District Court abused its discretion in granting
New West’s motion to amend its answer. Specifically, Rolan maintains that ERISA
preemption is an affirmative defense and should have been pled in the answer.
¶13 New West counters that the District Court did not err by allowing leave to amend
because leave should be freely given “when justice so requires.” M. R. Civ. P. 15(a)(2).
New West contends that there was no evidence of bad faith, intentional delay, or dilatory
motive by New West; therefore, leave to amend was proper.
¶14 Montana Rule of Civil Procedure 8(c) provides that “[i]n responding to a pleading,
a party must affirmatively state any avoidance or affirmative defense.” The rationale for
requiring these defenses be affirmatively pled are the underlying principles of fairness
and notice. Weaver v. State, 2013 MT 247, ¶ 35, 371 Mont. 476, 310 P.3d 495. We have
previously held that ERISA preemption is an affirmative defense and thus is waivable if
not timely raised pursuant to M. R. Civ. P. 8(c). Winslow v. Mont. Rail Link, Inc., 2005
MT 217, ¶¶ 37-38, 328 Mont. 260, 121 P.3d 506; Rimrock Chrysler, Inc., v. DOJ, 2016
MT 165, ¶ 29, 384 Mont. 76, 375 P.3d 392 (citing Wolf v. Reliance Std. Life Ins., 71 F.3d
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444, 449 (1st Cir. 1995)). However, Rule 8(c) is not absolute; a district court may allow
a defendant to amend its answer to include an affirmative defense pursuant to
M. R. Civ. P. 15. Keller v. Dooling, 248 Mont. 535, 542, 813 P.2d 437, 441 (1991).
¶15 Montana Rules of Civil Procedure 15(a) provides “a party may amend its pleading
only with the opposing party’s written consent or court’s leave. The court should freely
give leave when justice so requires.” However, “this does not mean that a court must
automatically grant a motion to amend.” Kershaw, ¶ 25. We have articulated
circumstances justifying a court’s denial of a motion to amend. Such situations include
when the denial is “for an apparent reason such as undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by allowance of the
amendment, futility of the amendment, etc.” Bitterroot Int’l Sys. v. Western Star Trucks,
Inc., 2007 MT 48, ¶ 50, 336 Mont. 145, 153 P.3d 627 (quoting Lindey’s, 244 Mont. 238,
242, 797 P.2d 920, 923).
¶16 In determining whether an amendment would cause undue prejudice, a court
should balance the prejudice suffered by the opposing party “against the sufficiency of
the moving party’s justification of the delay.” Farmers Coop. Ass’n v. Amsden, LLC,
2007 MT 286, ¶ 14, 339 Mont. 445, 171 P.3d 690. We previously have concluded undue
prejudice exists when the opposing party already had expended “substantial effort and
expense” in the course of the dispute that “would be wasted” if the moving party were
allowed to proceed on a new legal theory. Eagle Ridge Ranch v. Park County, 283 Mont.
62, 68-69, 938 P.2d 1342, 1346 (1997).
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¶17 Initially, the District Court failed to conduct an inquiry into whether Rolan and the
class she represents would be prejudiced. The District Court failed to determine if undue
delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the opposing party
by allowance of the amendment, or futility of the amendment existed. The District
Court’s reasoning was as follows:
“[t]he Court is sensitive to Rolan’s arguments regarding the effects of
allowing amendment at this stage. However, the briefing before the Court
does not directly address the question of whether ERISA in fact preempts
federal law. If federal law does in fact preempt state law resolution of this
case, the ends of justice would not be served by denying the motion to
amend.”
Clearly, the District Court allowed amendment purely because the defense would apply.
¶18 We have upheld a District Court’s denial to amend to include an affirmative
defense, even if such defense could apply. See, e.g., Bitterroot, ¶ 54; Cullen v. Western
Mortgage & Warranty Title Co., 47 Mont. 513, 530, 134 P. 302, 307 (1913); Meadow
Lake Estates Homeowners Ass’n v. Shoemaker, 2008 MT 41, ¶¶ 30-31, 341 Mont. 345,
178 P.3d 81; Peuse v. Malkuch, 275 Mont. 221, 228, 911 P.2d 1153, 1157 (1996). If we
allowed amending an answer any time an affirmative defense applied it would effectively
eliminate M. R. Civ. P. 8(c). A district court should freely allow a party to amend its
pleadings; however, leave to amend should not be automatically given. Thus, the District
Court should have inquired as to whether Rolan would suffer prejudice from the
amendment.
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¶19 We have upheld a district court’s denial of motion for leave to amend if
extraordinary circumstances are present. In Peuse, we recognized that a party’s
prolonged delay in adopting a new legal theory is prejudicial to the opposing party,
particularly when a party waits until after the opposing party files a motion for summary
judgment. Peuse, 275 Mont. at 228, 911 P.2d at 1157. In affirming the district court’s
denial of the defendants’ motion, we noted the two-year delay and explained that if the
district court were to have granted the defendants’ motion, the plaintiff would have been
“prejudiced since his [summary judgment] motion was based on the original pleadings
which remained unchanged for almost two years.” Peuse, 275 Mont. at 227, 911 P.2d at
1157. Further, we noted that new counsel does not excuse an inopportune request for
amendment when those defenses were available to original counsel. Peuse, 275 Mont. at
227, 911 P.2d at 1156. We concluded that “[l]itigants should be allowed to change legal
theories after a motion for summary judgment has been filed only in extraordinary cases.”
Peuse, 275 Mont. at 228, 911 P.2d at 1157.
¶20 We later affirmed Peuse in Bitterroot Int’l Sys. v. Western Star Trucks, Inc.,
¶¶-52-54. We recognized that a district court should balance the alleged prejudice to the
opposing party against the rationale of the party seeking leave to amend. We noted that
Western Star’s oversight justification in seeking leave to amend did not outweigh
Bitterroot’s prejudice against the amendment which would have occurred after a
five-year delay, the close of discovery, and within three months of trial. Bitterroot,
¶¶ 51-53. Further, Western Star attempted to minimize its oversight by stating that
Bitterroot should have known such a defense was likely. We were unpersuaded, stating,
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“Western’s counsel fails to explain adequately, however, how such an obvious defense
escaped its attention for nearly five years.” Bitterroot, ¶ 53. In concluding the district
court properly denied Western Star’s motion to amend, we determined that allowing
Western Star to amend under these circumstances “would render Rule 8(c)’s purpose of
providing adequate notice of affirmative defenses to the plaintiff a nullity.” Bitterroot,
¶ 54.
¶21 There are no extraordinary circumstances in this case that would warrant granting
New West’s motion to amend. Rolan and the class argued that they would be
substantially prejudiced by allowing New West to amend its answer to include the
affirmative defense of ERISA preemption. Rolan and the class cite to three specific
reasons prejudice would occur: (1) the length of the delay, (2) the parties have conducted
extensive discovery, and (3) the case has already been appealed to the Montana Supreme
Court for class certification based on state law claims. Conversely, New West has not
offered any reasonable justification for the delay. New West has not sufficiently
explained why it failed to assert ERISA preemption in its original answer, why its own
representative in a deposition substantiated that ERISA did not apply, or why it
proceeded based upon state law claims for nearly three and a half years. The facts of this
case are akin to Peuse and Bitterroot, in which we affirmed the district courts’ denial of
leave to amend. Nevertheless, the District Court determined that New West should be
able to amend its pleading.
¶22 Although length of delay and stage of the proceedings are crucial factors, alone
they may not warrant denying the amendment. However, had the District Court
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conducted a proper inquiry into undue prejudice, we conclude the class certification
would have been the dispositive issue. Rolan and the class were certified as a class based
only on state law claims. Allowing New West to amend to include ERISA preemption
would effectively destroy the class. As a class, they shared a common question of law or
fact. Specifically, Rolan and her class alleged New West had systematically violated
their state law made-whole rights. New West’s amendment could de-certify the class,
forcing Rolan and the class to either seek re-certification based on ERISA claims or
proceed alone, ten years after Rolan’s injury and more than seven years after she filed
suit. The District Court failed to consider the effect of the amendment on the class. We
conclude that Rolan and the class she represents would be unduly prejudiced by allowing
New West to amend.
¶23 Rolan and the class she represents already had expended substantial effort and
expense, including an appeal to this Court in the course of the dispute, that was wasted
when New West was allowed to proceed on a new legal theory. Therefore, Rolan’s
showing of undue prejudice to her and the class combined with the New West’s failure to
reasonably justify the delay should have led the District Court to deny leave to amend.
¶24 Thus, we conclude the District Court exceeded the bounds of reason resulting in
substantial injustice to Rolan. We recognize that district courts should freely grant leave
to amend; however, based on the District Court’s inadequate inquiry and the
extraordinary circumstances of this case, we conclude that the District Court abused its
discretion by granting New West leave to amend.
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¶25 Reversed and remanded.
/S/ MICHAEL E WHEAT
We Concur:
/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ BETH BAKER
/S/ DIRK M. SANDEFUR
/S/ JIM RICE
Justice Laurie McKinnon, dissenting.
¶26 I dissent from the Court’s conclusion that the District Court “exceeded the bounds
of reason resulting in substantial injustice to Rolan” when it allowed New West leave to
amend its answer to assert federal preemption. Opinion, ¶ 24. We have repeatedly held
that leave to amend should be freely granted when justice requires unless the moving
party is guilty of undue delay, bad faith, or a dilatory motive. Aldrich & Co. v. Ellis,
2002 MT 177, ¶ 27, 311 Mont. 1, 52 P.3d 388. There was no evidence of intentional
delay, bad faith, or a dilatory motive on the part of New West. Further, the District Court
took efforts to alleviate any prejudice to Rolan as a result of the amendment. Here, the
District Court concluded that the “ends of justice would not be served by denying the
motion to amend.” The District Court recognized that the application of state subrogation
statutes and doctrine to federal ERISA benefit plans was incorrect as a matter of law.
The court appreciated that applying the wrong law to the parties’ disputes would not
advance proper resolution of their underlying claims nor further the ends of justice.
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Clearly, the District Court believed those considerations deserved more weight in the
analysis and that New West’s leave to amend should prevail over Rolan’s objection.
¶27 The District Court was in a very difficult position, as clearly factors weighed in
favor of both granting and denying leave to amend. I do not think it as clear and
one-sided as the Court opines and, under the present circumstances, the rule of deference
to the trial court should prevail. Accordingly, I dissent from the Court’s decision finding
the District Court abused its discretion by granting New West leave to amend. I would
address the merits of the controversy.
/S/ LAURIE McKINNON
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