                                                                                              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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