                                                                                        June 4 2013


                                      DA 12-0626

             IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     2013 MT 149


TYSON S. PALLISTER, KEVIN BUDD,
and JESSICA NORMANDEAU,

           Class Members and Appellants,

     v.

BLUE CROSS AND BLUE SHIELD OF
MONTANA, INC., and MONTANA
COMPREHENSIVE HEALTH ASSOCIATION,

           Defendants and Appellees,

     v.

BRITTANY C. SMITH; RENEE NEARY, as
parent and guardian of DYLAN DALLASERRA;
KRISTA LUCAS; and ALICE JEAN SPEARE,
each individually and as representative members
of a class of similarly situated plaintiffs,

           Class Representatives and Appellees.


APPEAL FROM:        District Court of the Second Judicial District,
                    In and For the County of Butte/Silver Bow, Cause No. DV 08-553
                    Honorable Brad Newman, Presiding Judge


COUNSEL OF RECORD:

             For Appellants:

                    James G. Hunt, Jonathan McDonald; Dix, Hunt & McDonald;
                    Helena, Montana (for Pallister)

                    Jory C. Ruggiero, J. Breting Engel; Attorneys at Law; Bozeman, Montana
         For Appellees:

                Jacqueline T. Lenmark; Keller, Reynolds, Drake, Johnson & Gillespie,
                P.C.; Helena, Montana (for Montana Comprehensive Health Association)

                Robert G. McCarthy; McCarthy Law, P.C.; Butte, Montana
                (for the Class, Class Representatives, and Appellees)

                Michael F. McMahon, Stefan T. Wall; McMahon, Wall & Hubley, PLLC;
                Helena, Montana (for Blue Cross and Blue Shield of Montana, Inc.)




                                           Submitted on Briefs: March 20, 2013

                                                      Decided: June 4, 2013




Filed:

                __________________________________________
                                  Clerk




                                    2
Justice Jim Rice delivered the Opinion of the Court.

¶1     Class member and objector Tyson Pallister appeals from the denial by the Second

Judicial District Court, Silver Bow County, of his motion to substitute the district court

judge following remand from this Court. We affirm.

¶2     We address the following issue on appeal:

¶3     Did the District Court err by denying Pallister’s motion for substitution of judge

following remand?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶4     This appeal arises in an ongoing class action that we remanded for further

proceedings in Pallister v. Blue Cross and Blue Shield of Mont., Inc., 2012 MT 198, 366

Mont. 175, 285 P.3d 562 (Pallister I). The case has complex facts and a long procedural

history, much of which is not necessary to address for the purposes of this appeal.

¶5     Tyson Pallister, Kevin Budd, and Jessica Normandeau (collectively “Pallister”)

are unnamed members in a class action suit against insurers Blue Cross and Blue Shield

of Montana, Inc. (BCBSMT) and Montana Comprehensive Health Association

(MCHA).1      The suit generally seeks damages from BCBSMT and MCHA for the

companies’ delayed payments of benefits and for benefits improperly withheld. The

class members allege that while they were insured by BCBSMT or MCHA, the insurers

denied claims based on invalid exclusions set forth in the health insurance policies.




1
  Pallister, Budd, and Normandeau all objected to the class settlement, but only Pallister moved
for substitution of the District Court judge following remand, and only Pallister appeals here.
                                               3
Pallister I, ¶¶ 4-7; see also Blue Cross and Blue Shield of Mont., Inc. v. Mont. State

Auditor, 2009 MT 318, ¶ 19, 352 Mont. 423, 218 P.3d 475.

¶6     The District Court certified the class and appointed class counsel for the named

class members (Class Representatives). Pallister filed a motion to intervene, which the

District Court denied. BCBSMT, MCHA, and Class Representatives participated in

mediation and entered into a proposed class settlement. The District Court scheduled a

fairness hearing for the proposed settlement and sent notice of the hearing and settlement

to class members, who were given the choice to opt out. No class member, including

Pallister, opted out. Pallister objected to the settlement agreement and filed a motion to

conduct discovery into the fairness of the proposed settlement. The District Court denied

Pallister’s motion to conduct discovery, giving rise to the appeal in Pallister I.

¶7     This Court reversed the District Court’s denial of Pallister’s motion “on the

discrete issue of discovery,” and vacated the District Court’s approval of the settlement

agreement. Pallister I, ¶¶ 1, 43. We remanded to the District Court “with instruction to

allow discovery to be conducted into the settlement negotiations and the billing records

of the class counsel, to hold another fairness hearing, and to issue new findings of facts

and conclusions of law based upon the entirety of evidence received in the original

proceeding and during remand proceedings.” Pallister I, ¶ 22. Remittitur was issued

from this Court and filed with the District Court on September 25, 2012.

¶8     On October 4, 2012, Pallister filed a motion for substitution of District Judge

Bradley Newman, who has presided over the proceedings since 2008.                    Class


                                          4
Representatives objected, and BCBSMT and MCHA filed a joint objection to the motion.

Judge Newman denied Pallister’s motion, stating:

       The statutory right to seek a substitution of the trial judge is granted to
       “each adverse party.” Section 3-1-804(1) and (12).
               The statute requires actual adversity, rather than hostility, between
       the parties at issue. [Ratliff v. Pearson, 2011 MT 241, ¶¶ 14-17, 362 Mont.
       163, 261 P.3d 1037.] Pallister is not an adverse party. Rather, he is a class
       member. While Pallister objects to the manner in which class counsel and
       the class representatives worked to resolve this action, he still stands to
       benefit from the prosecution and ultimate resolution of the litigation. In
       other words, Pallister shares a commonality of interest with the original
       class representatives.
                                            . . .
               Section 3-1-804(12) governs the right to seek substitution where a
       judgment is reversed on appeal. As noted above, such right is granted only
       to “adverse parties.” The Court already has addressed the issue of
       adversity. Additionally, the Supreme Court remanded this action for the
       purpose of “limited discovery” to be conducted by the objecting class
       members. The Supreme Court recognized that this Court should set and
       oversee the parameters of such discovery. At no point in its opinion and
       order did the Supreme Court change Pallister’s procedural position in this
       action. He remains a class member, not a separate party to the litigation.

Pallister appeals the denial of his motion for substitution.

                                STANDARD OF REVIEW

¶9     “A district court’s interpretation and application of a statute is a conclusion of law.

We review a district court’s conclusions of law for correctness.” Kulstad v. Maniaci,

2009 MT 403, ¶ 6, 353 Mont. 467, 221 P.3d 127 (citing Williams v. Schwager, 2002 MT

107, ¶ 36, 309 Mont. 455, 47 P.3d 839). “This Court reviews for correctness a district

court’s ruling on a motion to substitute a district court judge.” Ratliff, ¶ 9 (citing Patrick

v. State, 2011 MT 169, ¶ 12, 361 Mont. 204, 257 P.3d 365).




                                           5
                                       DISCUSSION

¶10 Did the District Court err by denying Pallister’s motion for substitution of judge
following remand?

¶11    The parties’ arguments frame the issue as whether Pallister is a “party” who has a

right to substitute the district court judge pursuant to § 3-1-804(12), MCA. Pallister

argues he is an “adverse party” within the meaning of the statute because it is “the

relationship between BCBSMT and Pallister that determines adversity.” Citing Devlin v.

Scardelletti et al., 536 U.S. 1, 122 S. Ct. 2005 (2002), Pallister posits that “an unnamed

class member who objects to a settlement is a ‘party’” and “Pallister became a party to

the action when he objected to the settlement and appealed it to the Montana Supreme

Court.” BCBSMT and MCHA maintain that Pallister did not successfully intervene and

“does not occupy the status of a ‘party’ for the remaining aspects of the lawsuit, including

for purposes of section 3-1-804(12), MCA.”               Class Representatives argue that

“[a]lthough individual class members may be accorded some of the rights absent

intervention such as the right to object to a proposed settlement and the right to appeal the

approval of a class settlement over those objections raised at the fairness hearing[,] they

are not parties for all purposes.” Class Representatives also contend that nothing in

Pallister I considered or granted Pallister the status of a party in the action.

¶12    Section 3-1-804, MCA, provides the rules governing substitution of district court

judges. Subsection (12) addresses a party’s right to substitution upon remand, and reads

in its entirety:

             (12) When a judgment or order is reversed or modified on appeal
       and the cause is remanded to the district court for a new trial, or when a
                                           6
       summary judgment or judgment of dismissal is reversed and the cause
       remanded, each adverse party is entitled to one motion for substitution of
       district judge. The motion must be filed, with the required filing fee, within
       20 calendar days after the remittitur from the supreme court has been filed
       with the district court. There is no other right of substitution in cases
       remanded by the supreme court.
               In criminal cases, there is no right of substitution when the cause is
       remanded for resentencing.

Section 3-1-804(12), MCA (2011).2 The statute thus affords “each adverse party” one

motion to substitute a district court judge. Section 3-1-804(12), MCA.

¶13    Implicit in the status of an “adverse party” is the requirement that the movant

under § 3-1-804(12), MCA, be a “party” to the action. Generally, “[i]n a civil action, the

party complaining is known as the plaintiff and the adverse party as the defendant.”

Section 25-5-101, MCA. The Montana Rules of Civil Procedure also recognize that one

who is joined, M. R. Civ. P. 19 and 20, or one who intervenes, M. R. Civ. P. 24, becomes

a party to the action. The U.S. Supreme Court recently summarized:

       In general, “[a] ‘party’ to litigation is ‘[o]ne by or against whom a lawsuit
       is brought,’” United States ex rel. Eisenstein v. City of New York, 556 U.S.
       928, [933], 129 S. Ct. 2230, 2234 [] (2009), or one who “become[s] a party
       by intervention, substitution, or third-party practice,” Karcher v. May, 484
       U.S. 72, 77, 108 S. Ct. 388 [] (1987).

Smith et al. v. Bayer Corp., ___ U.S. ___, ___, 131 S. Ct. 2368, 2379 (2011). Section 3-

1-804(9), MCA, contemplates joined and intervening parties, providing “[n]o party who




2
  Unless otherwise specified, all references to the Montana Code Annotated are to the 2011
version. See Or., In Re: Revised Rules on Substitution of District Judges, (Mont. July 9, 2009)
(No. 09-0289).

                                           7
is joined or intervenes has any right of substitution after the time has run as to the original

parties to the proceeding.”3

¶14    In contrast to these provisions governing parties to litigation, members of a class

action are generally absent and unnamed, and are not typical adversarial parties before

the court. M. R. Civ. P. 23; see also William B. Rubenstein, Newberg on Class Actions

vol. 1, § 1:5, 12-16 (5th ed., West 2011) (“The position that absent class members occupy

in class action litigation is sui generis, and attempts to analogize to conventional ‘party’

status are likely to fail.”). Absent class members occupy a unique position:

       [A]bsent plaintiff class members are not subject to other burdens imposed
       upon defendants. They need not hire counsel or appear. They are almost
       never subject to counterclaims or cross-claims, or liability for fees or costs.
       Absent plaintiff class members are not subject to coercive or punitive
       remedies. Nor will an adverse judgment typically bind an absent plaintiff
       for any damages, although a valid adverse judgment may extinguish any of
       the plaintiff’s claims which were litigated.

Phillips Petroleum Co. v. Shutts et al., 472 U.S. 797, 810, 105 S. Ct. 2965, 2973-74

(1985).

¶15    Pallister correctly points out that an unnamed class member may be considered a

“party” for the purposes of appealing the approval of a settlement.            See Devlin v.

Scardelletti et al., 536 U.S. 1, 14, 122 S. Ct. 2005, 2013 (2002). In Devlin, the U.S.

Supreme Court held that nonnamed class members who have objected in a timely manner

to approval of a settlement at the fairness hearing may be considered a “party” for the


3
  In Mattson v. Mont. Power Co., 2002 MT 113, 309 Mont. 506, 48 P.3d 34, we analyzed a
previous version of § 3-1-804, MCA, and there recognized three different classes of parties:
“original parties, subsequently joined parties and intervenors, and third party defendants.”
Mattson, ¶ 21.
                                          8
purposes of appealing the approval of the settlement without first intervening. Devlin,

536 U.S. at 14, 122 S. Ct. at 2013. However, the Devlin Court was careful to explain that

“[n]onnamed class members, however, may be parties for some purposes and not for

others.     The label ‘party’ does not indicate an absolute characteristic, but rather a

conclusion about the applicability of various procedural rules that may differ based on

context.” Devlin, 536 U.S. at 9-10, 122 S. Ct. at 2010. The holding in Devlin is specific

to appeals of class action settlements and does not address the party status of nonnamed

class members for purposes of post-appeal procedural questions following remand.

¶16       We discussed the meaning of “adverse parties” within § 3-1-804, MCA, in

Goldman Sachs Group, Inc. v. Mont. Second Jud. Dist. Ct., 2002 MT 83, 309 Mont. 289,

46 P.3d 606, where we held:

          [I]n order to invoke the right of substitution in cases involving multiple
          parties under § 3-1-804, MCA, the moving party must demonstrate
          adversity with a co-party to the action . . . . The determination of adversity
          is based solely on the allegations set forth in the complaint.

Goldman Sachs, ¶ 17. More recently, in Ratliff, we summarized the holding of Goldman

Sachs, stating “[t]he statute requires the subsequently joined party to establish that

adversity, rather than hostility, existed between it and other defendants in order to

exercise an independent right to substitute.” Ratliff, ¶ 22 (citing Goldman Sachs, ¶¶ 14-

17) (emphasis in original).

¶17       Pallister did not successfully intervene and he remains an unnamed class member.

Despite his earlier successful appeal of the settlement approval in Pallister I, he has not

become a party for all purposes and is not a party for purposes of substitution. As an

                                            9
unnamed class member, Pallister does not enjoy the same rights, and is not burdened by

the same responsibilities, as a named class representative.            The District Court

appropriately determined that Pallister is “a class member, not a separate party to the

litigation.” Lacking party status for this purpose, Pallister cannot establish that he is an

“adverse party” under § 3-1-804(12), MCA.

¶18    Further, this Court remanded in Pallister I “on the discrete issue of discovery,”

vacating the District Court’s approval of the settlement. Pallister I, ¶¶ 1, 43. Section 3-

1-804(12), MCA, provides for substitution on remand when a “cause is remanded to the

district court for a new trial, or when a summary judgment or judgment of dismissal is

reversed and the cause remanded,” and further provides that “[t]here is no other right of

substitution in cases remanded by the supreme court.” Our decision in Pallister I was not

a remand for a new trial or a reversal of summary judgment or judgment of dismissal.

¶19    Affirmed.



                                                        /S/ JIM RICE


We concur:

/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ BRIAN MORRIS
/S/ PATRICIA COTTER




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