Diaz v. Blue Cross & Blue Shield , 363 Mont. 151 ( 2011 )

December 21 2011
DA 09-0682
IN THE SUPREME COURT OF THE STATE OF MONTANA
2011 MT 322JEANNETTE DIAZ, LEAH HOFFMANN-BERNHARDT,
and RACHEL LAUDON, individually and on behalf of
others similarly situated,
Plaintiffs and Appellants,
v.
BLUE CROSS AND BLUE SHIELD OF MONTANA,
NEW WEST HEALTH SERVICES, MONTANA
COMPREHENSIVE HEALTH ASSOCIATION,
STATE OF MONTANA, and JOHN DOES 1-100,
Defendants and Appellees.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. BDV 2008-956
Honorable Jeffrey M. Sherlock, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
James G. Hunt (argued), Jonathan McDonald; Dix, Hunt & McDonald,
Helena, Montana
Erik B. Thueson (argued), Thueson Law Office, Helena, Montana
Jory C. Ruggiero, J. Breting Engel; Western Justice Associates, PLLC,
Bozeman, Montana
For Appellees:
Leo S. Ward, Kimberly A. Beatty, Daniel J. Auerbach (argued);
Browning, Kaleczyc, Berry & Hoven; Helena, Montana (for New West
Health Services)
Robert C. Lukes (argued), Kevin A. Twidwell; Garlington, Lohn &
Robinson, Missoula, Montana (for State of Montana)
Michael F. McMahon, Stefan T. Wall (argued); McMahon Law Firm,
PLLC, Helena, Montana (for Blue Cross and Blue Shield of Montana,
Inc.)
Argued: August 12, 2011
Submitted: August 30, 2011
Decided: December 21, 2011
Filed:
__________________________________________
Clerk
2
Justice Michael E Wheat delivered the Opinion of the Court.
¶1 The First Judicial District Court, Lewis and Clark County, denied Jeannette Diaz
(Diaz) and Leah Hoffmann-Bernhardt’s (Hoffmann-Bernhardt) motion for class
certification and concluded third-party administrators of the State of Montana’s (State)
employee healthcare benefit plan are not subject to made-whole laws established under
§§ 2-18-901 to -902 and 33-30-1101 to -1102, MCA. Diaz and Hoffmann-Bernhardt
appeal.1
¶2 We affirm in part and reverse in part and remand this matter to the District Court
for further proceedings consistent with this Opinion.
BACKGROUND
¶3 The State provides a self-funded employee healthcare benefit plan for its
employees and their dependents. The State plan was established under Title 2, chapter
18, part 8, MCA, to “provide state employees with adequate group hospitalization, health,
medical, disability, life, and other related group benefits in an efficient manner and at an
affordable cost.” Section 2-18-808, MCA. Approximately 32,000 members are currently
enrolled in the State plan. Funding for the State plan is derived from employee and
employer contributions. Blue Cross and Blue Shield of Montana (BCBS) and New West
Health Services (New West) (collectively “TPAs”) administer the State plan and receive
a flat fee per member for their services. BCBS and New West also independently
administer and operate their own healthcare policies for profit.
1
A third plaintiff, Rachel Laudon, and a third defendant, Montana Comprehensive Health
Association, entered a settlement and are not parties to this appeal.
3
¶4 Diaz was injured in an automobile collision caused by an insured negligent
tortfeasor. Diaz was insured for medical expenses through the State plan, which BCBS
administered. The tortfeasor’s insurer accepted liability and paid policy limits, which
included payment of Diaz’s medical expenses. Diaz alleges BCBS violated her made-
whole rights when it refused to pay Diaz for her medical expenses that had already been
paid by the tortfeasor’s insurer.
¶5 Like Diaz, Hoffmann-Bernhardt was injured in an automobile collision caused by
an insured negligent tortfeasor. The tortfeasor’s insurer paid some of Hoffmann-
Bernhardt’s medical expenses directly to her medical providers. New West, the
administrator of Hoffmann-Bernhardt’s State plan, also paid Hoffmann-Bernhardt’s
medical providers for her medical expenses. Subsequently, the medical providers
reimbursed New West for the medical expenses it had paid. Hoffmann-Bernhardt
submitted a claim to New West, requesting that it pay her the money her medical
providers reimbursed New West. Hoffmann-Bernhardt claims New West’s failure to pay
her the reimbursement violates her made-whole rights.
¶6 Diaz and Hoffmann-Bernhardt filed suit against the State, BCBS, and New West
for allegedly violating their made-whole rights by failing to conduct a made-whole
analysis before exercising subrogation rights. Diaz and Hoffmann-Bernhardt moved for
class certification pursuant to M. R. Civ. P. 23, seeking to include in the lawsuit
individuals who had their benefits reduced under the State plan, as well as individuals
who had their benefits reduced under policies independently issued and administered by
BCBS and New West. Diaz and Hoffmann-Bernhardt requested a declaratory ruling that
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the State’s, BCBS’s, and New West’s practices violate Montana’s made-whole laws; an
injunction requiring the State, BCBS, and New West to calculate and pay amounts
wrongfully withheld, plus interest; and an order enjoining the State, BCBS, and New
West from continuing to violate the made-whole rights of their insureds. The District
Court denied class certification. Diaz and Hoffmann-Bernhardt appealed to this Court.
¶7 In order to resolve the class certification issue, this Court remanded the matter to
the District Court to determine whether Montana’s made-whole laws apply to TPAs, such
as BCBS and New West. The District Court concluded they did not. Diaz and
Hoffmann-Bernhardt now challenge this ruling and appeal the following issues:
¶8 Issue One: Did the District Court err in determining the made-whole laws
codified in §§ 2-18-901 to -902 and 33-30-1101 to -1102, MCA, do not apply to TPAs?
¶9 Issue Two: Did the District Court err in denying class certification?
STANDARDS OF REVIEW
¶10 This Court reviews a district court’s conclusions of law for correctness. Shattuck
v. Kalispell Regl. Med. Ctr., Inc., 2011 MT 229, ¶ 8, 362 Mont. 100, 261 P.3d 1021. We
review a district court’s ruling on a motion to certify a class for an abuse of discretion.
Ferguson v. Safeco Ins. Co. of Am., 2008 MT 109, ¶ 10, 342 Mont. 380, 180 P.3d 1164.
A district court commits an abuse of discretion when it “acts arbitrarily without
conscientious judgment or exceeds the bounds of reason.” State v. Essig, 2009 MT 340,
¶ 14, 353 Mont. 99, 218 P.3d 838. In class certification cases, “[t]he judgment of the
[district] court should be accorded the greatest respect because it is in the best position to
5
consider the most fair and efficient procedure for conducting any given litigation.”
Sieglock v. Burlington N. Santa Fe Ry. Co., 2003 MT 355, ¶ 8, 319 Mont. 8, 81 P.3d 495.
DISCUSSION
¶11 Issue One: Did the District Court err in determining the made-whole laws
codified in §§ 2-18-901 to -902 and 33-30-1101 to -1102, MCA, do not apply to TPAs?
¶12 The made-whole laws applicable to this appeal are found in two separate locations
in the MCA: Title 2, chapter 18, part 9, which concerns the State employee benefit plan,
and Title 33, chapter 30, part 11, which addresses insurance in the context of “health
service corporations.” The statutes are indistinguishable in terms of purpose, but are not
identically written.
¶13 The District Court examined the contracts between the TPAs and the State and
concluded the subrogation statutes did not apply to the TPAs because, in fulfilling their
administrative duties under their respective contracts, they did not act as “insurers” or
“health care corporations” within the meaning of the subrogation statutes. Specifically,
the District Court determined the TPAs merely process claims for a flat fee; they pay
claims with State funds; and the State, because it makes the final decision regarding
claims, is the party ultimately liable to insureds. The District Court also rejected Diaz
and Hoffmann-Bernhardt’s argument that the TPAs are liable for violating made-whole
laws under a third-party beneficiary theory. We address the subrogation statutes and
third-party beneficiary argument in turn below.
Subrogation Statutes
6
¶14 “The role of the judge in statutory interpretation ‘is simply to ascertain and declare
what is in terms or in substance contained therein, not to insert what has been omitted or
to omit what has been inserted.’ ” Micone v. Dept. of Pub. Health & Human Servs., 2011
MT 178, ¶ 12, 361 Mont. 258, 258 P.3d 403 (quoting § 1-2-101, MCA). Where the plain
language of the statute is clear and unambiguous, no further statutory interpretation is
necessary. Micone, ¶ 12.
¶15 As an initial matter, we note Title 33 does not apply to the State employee
healthcare benefit plan. Section 33-1-102(7), MCA (“This code does not apply to the
state employee group insurance program established in Title 2, chapter 18, part 8 . . . .”).
Accordingly, because the TPAs’ administration of the State plan is at issue here, the
subrogation provisions contained in §§ 33-30-1101 to -1102, MCA, are inapplicable.
¶16 Under § 2-18-902(4), MCA, any right of subrogation is the insurer’s. Pursuant to
§ 2-18-901, MCA, the insurer, “to the extent necessary for reimbursement of benefits
paid to . . . the insured,” has a right of subrogation. (Emphasis added.) Thus, the party
who pays the claim is the insurer who possesses the subrogation right. Granting a
subrogation right to the party expending funds is consistent with the policy behind our
subrogation statutes that “absent repayment of the insurer[,] the insured would be
unjustly enriched by virtue of recovery from both the insurer and the wrongdoer, or in
absence of such double recovery by the insured, the third party would go free despite his
legal obligation in connection with loss.” Skauge v. Mt. Sts. Tel. & Telegraph Co., 172
Mont. 521, 524-25, 565 P.2d 628, 630 (1977).
7
¶17 The treatment of the term “insurer” in Title 2 and the factual circumstances
present here, as evinced in the TPAs’ contracts, clearly establish that the State is the
insurer, not the TPAs. Under the BCBS contract, BCBS immediately pays claims from
its personal account, but it is reimbursed by the State on a daily basis. Under the New
West contract, New West draws directly from State funds to pay claims. The State is the
party who provides the funds to pay claims and who ultimately accepts reimbursements
from medical providers and/or does not pay medical providers who have already received
payments from tortfeasors’ insurance companies. The State also makes the final decision
regarding claim denial. While the TPAs manage State funds as administrators of the
State plan, they do not provide or retain the funds. Therefore, they are not insurers within
the meaning of §§ 2-18-901 to -902, MCA, and, in this case, are not independently liable
for violating the made-whole laws.
Third-Party Beneficiary Theory
¶18 Not everyone who may benefit from performance, or who may suffer from non-
performance, of a contract between two other persons is permitted to enforce the contract.
Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts vol. 13, § 37:7,
29 (4th ed., West 2000). A stranger to a contract cannot sue for breach of contract unless
he or she is the intended third-party beneficiary of that contract. Dick Anderson Constr.,
Inc. v. Monroe Constr. Co., LLC, 2009 MT 416, ¶ 46, 353 Mont. 534, 221 P.3d 675.
This Court, relying upon the Restatement (Second) of Contracts § 302 (1981), has
described an intended third-party beneficiary as follows:
8
“(1) Unless otherwise agreed between promisor and promisee, a beneficiary
of a promise is an intended beneficiary if recognition of a right to
performance in the beneficiary is appropriate to effectuate the intention of
the parties and either
(a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance.”
Dick Anderson Constr., ¶ 47 (quoting Restatement (Second) of Contracts § 302(1)(a)-
(b)).
¶19 “Performance of a contract will often benefit a third [party,]” but unless the
contracting parties intended to benefit the third party, the third party’s status is that of an
incidental beneficiary. Restatement (Second) of Contracts § 302 cmt. e. “[T]here is a
plain distinction between a promise, the performance of which may benefit a third party,
and a promise made expressly for the benefit of a third party.” McKeever v. Or. Mortg.
Co., 60 Mont. 270, 273-74, 198 P. 752, 753 (1921) (internal quotation omitted).
¶20 Diaz and Hoffmann-Bernhardt argue the contracts between BCBS and the State
and the State and Montana Association of Health Care Purchasers, who in turn contracted
with New West, exist to benefit State employees and, as such, give employees a right to
sue either or both the State and the TPAs when their made-whole rights are violated.
Diaz and Hoffmann-Bernhardt rely upon Gardner & White Consulting Servs., Inc. v. Ray,
474 S.E.2d 663 (Ga. App. 1996), and Harman v. MIA Serv. Contracts, 260 Mont. 67, 858
P.2d 19 (1993), in support of their claim that contracts between an insurer and a TPA
9
create a third-party beneficiary contract, allowing insureds to sue either party to the
contract.
¶21 Both cases are distinguishable from the present case. Although the Gardner court
determined that an employee was a third-party beneficiary of a contract between a TPA
and self-funded county benefit plan, Gardner, 474 S.E.2d at 665-66, subsequent cases
have clarified Gardner, noting that a plaintiff cannot assume he or she is a third-party
beneficiary merely because he or she has benefitted from a contract between an insurer
and a TPA. Gilmour v. Gates, McDonald & Co., 382 F.3d 1312, 1315 (11th Cir. 2004).
Instead, the plaintiff must be able to “show from the face of the contract that it was
intended to benefit [him or] her.” Gilmour, 382 F.3d at 1315.
¶22 In Harman, the administrator had exclusive authority to approve or disapprove
claims under a vehicle service contract, assisted automobile dealerships in marketing
service contracts, and received a portion of the premiums from service contracts sold.
Harman, 260 Mont. at 69, 858 P.2d at 21. Based on the extent of the administrator’s
involvement, this Court concluded Harman, the owner of a vehicle service contract, was a
third-party beneficiary, noting “since [the administrator] has exclusive authority to
approve or disapprove claims under the contract . . . it is appropriate to recognize
[Harman’s] right to performance in order to effectuate the intentions of the parties . . . .”
Harman, 260 Mont. at 72, 858 P.2d at 23.
¶23 Here, unlike the administrator in Harman, the TPAs do not have exclusive
authority in administering claims under the State plan. The State and the TPAs
contracted for administrative services for the State’s benefit in operating its employee
10
healthcare benefit plan. Any benefits insureds receive from the TPAs’ expertise in
administering claims is merely incidental.
¶24 We conclude BCBS and New West, in their capacities as TPAs in the present case,
are not subject to the made-whole laws under either the subrogation statutes or under a
third-party beneficiary theory.
¶25 Issue Two: Did the District Court err in denying class certification?
¶26 Although we have concluded that neither BCBS nor New West are subject to the
made-whole laws under the facts of this case, the question of whether class certification
is appropriate with respect to Diaz and Hoffmann-Bernhardt’s claims against the State
remains to be resolved.
¶27 The propriety of a class action is governed by Rule 23 of the Montana Rules of
Civil Procedure. M. R. Civ. P. 23. The threshold inquiry into whether a class action is
appropriate requires analysis of Rule 23(a)’s four prerequisites: (1) numerosity, (2)
commonality, (3) typicality, and (4) adequacy of representation. Sieglock, ¶ 10. The
party seeking certification bears the burden of establishing that each element of Rule 23
is met. McDonald v. Washington, 261 Mont. 392, 400, 862 P.2d 1150, 1155 (1993).
Failure of any one of Rule 23(a)’s prerequisites is fatal to class certification. Murer v.
Mont. St. Compen. Mut. Ins. Fund, 257 Mont. 434, 437, 849 P.2d 1036, 1037 (1993).
After a court determines the Rule 23(a) prerequisites are satisfied, its certification
analysis shifts to Rule 23(b). M. R. Civ. P. 23(b). Therefore, we must initially turn our
inquiry to Rule 23(a)’s four prerequisites.
11
¶28 Before we do so, however, we have to address arguments by the State and the
TPAs that before this Court considers the Rule 23(a) prerequisites, it must first find the
class is precisely defined and the identified class representatives are members of the
class. Diaz and Hoffmann-Bernhardt describe the members of their proposed class as (1)
insureds under health insurance plans and policies administered or operated by the State
and the TPAs; (2) who were injured through the legal fault of persons who have legal
obligations to compensate them for all damages sustained; and (3) who have not been
made whole for their damages because the State and the TPAs have programmatically
failed to pay benefits for their medical costs.
¶29 The State and the TPAs argue Diaz and Hoffmann-Bernhardt’s class definition is
amorphous and has evolved throughout this litigation and, therefore, should be rejected.
They rely upon a federal case,2 Polich v. Burlington N., Inc., 116 F.R.D. 258, 261 (D.
Mont. 1987), which provides that before delving into the rigorous analysis required by
Rule 23, a court first should consider whether a precisely defined class exists and whether
the named plaintiffs are members of the proposed class.
¶30 First, given our decision under Issue One, it is clear the members of the class will
be individuals insured under the State plan, just like Diaz and Hoffmann-Bernhardt.
Second, the prerequisites set forth in Rule 23(a) sufficiently define a class in this case,
and any additional definition by this Court, at this time, is unnecessary. With the class
2
This Court has previously acknowledged that federal authority is instructive on the issue of
class certification because Rule 23 is identical to Federal Rule of Civil Procedure 23. Sieglock, ¶
10.
12
description Diaz and Hoffmann-Bernhardt have provided this Court, we now turn our
discussion to Rule 23(a)’s prerequisites.
1. Rule 23(a)
Numerosity
¶31 The element of numerosity “requires that the class be so numerous that joinder of
all members is impracticable.” McDonald, 261 Mont. at 400, 862 P.2d at 1155; M. R.
Civ. P. 23(a)(1). “Mere speculation as to satisfaction of the numerosity requirement is
not sufficient. Rather, plaintiffs must present some evidence of, or reasonably estimate,
the number of class members.” Polich, 116 F.R.D. at 261. The District Court
determined this requirement was met based upon testimony that hundreds of State
insureds had been in car crashes over the past eight years. Our review of the record
convinces us that the District Court was correct in determining the numerosity element is
met.
Commonality
¶32 “[C]lass litigation must present a common issue of law or fact.” Ferguson ¶ 16.
Regardless of differences among class members, the commonality requirement is met
when a single issue is common to all. Ferguson, ¶ 16. Commonality is not a “ ‘stringent
threshold and does not impose an unwieldy burden on plaintiffs. . . . [A]ll that is
necessary . . . is an allegation of a standardized, uniform course of conduct by defendants
affecting plaintiffs.’ ” Ferguson, ¶ 26 (quoting LaBauve v. Olin Corp., 231 F.R.D. 632,
667-68 (S.D.Ala. 2005)).
13
¶33 The District Court determined this element was not met because a common issue
of law or fact did not exist; instead, individualized made-whole assessments were
required in each case:
While a determination will need to be made in each case as to whether
Montana common law relating to subrogation has been violated, that
determination will require separate mini-trials for each Plaintiff which will
include potential determinations as to whether: policy limits were paid by
the automobile liability insurer; whether future medical treatment may be
required which may necessitate expert testimony from medical
practitioners; whether a Plaintiff had other automobile coverage such as
medical payments and underinsured coverage; whether the third-party
tortfeasor had assets available to contribute to the settlement; and, the
amount of medical benefits which were withheld by the State plan . . . and
how much of that amount will be necessary to make the insured whole.
¶34 In Ferguson, this Court concluded the commonality requirement was satisfied
because a common issue of fact and/or law existed regarding whether the insurer had
programmatically breached the made-whole laws by failing to make a made-whole
determination before exercising its subrogation rights. Ferguson, ¶¶ 26-28. Similarly,
the class members here share a common issue of fact and/or law as to whether the State is
programmatically breaching Montana’s made-whole laws by exercising the following
exclusion:
The following services and expenses are not covered:
. . .
5. Expenses that [an insured] is entitled to have covered, or that are
paid under an automobile insurance policy, a premise liability policy, or
other liability insurance policy. This includes but is not limited to, a
homeowner’s policy or business liability policy, or expenses that [an
insured] would be entitled to have covered under such policies if not
covered by the State Plan.
14
Thus, we conclude that in this case, just as in Ferguson, the commonality requirement
imposed by Rule 23(a)(2) is met.
Typicality
¶35 The typicality requirement under Rule 23(a)(3) is designed to ensure that the
named representatives’ interests are aligned with the class’s interests, the rationale being
that “ ‘a named plaintiff who vigorously pursues his or her own interests will necessarily
advance the interests of the class.’ ” McDonald, 261 Mont. at 402, 862 P.2d at 1156(quoting Jordan v. Co. of L. A., 669 F.2d 1311, 1321 (9th Cir. 1982), vacated on other
grounds, 459 U.S. 810, 103 S. Ct. 35 (1982)). The typicality requirement generally
prevents plaintiffs from bringing a class action against defendants with whom they have
not had any dealings. Murer, 257 Mont. at 438, 849 P.2d at 1038. Typicality is met if
the named plaintiff’s claim “ ‘stems from the same event, practice, or course of conduct
that forms the basis of the class claims and is based upon the same legal or remedial
theory.’ ” McDonald, 261 Mont. at 402, 862 P.2d at 1156 (quoting Jordan, 669 F.2d at
1321). The event, practice, or course of conduct need not be identical. Polich, 116
F.R.D. at 262. Similar to the test for commonality, the typicality requirement is not
demanding. See Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 884 (6th Cir. 1997).
¶36 The District Court determined Diaz and Hoffmann-Bernhardt failed to establish
typicality because the made-whole determination would have to be made on an individual
basis. As discussed under the commonality requirement, the State’s practice of
employing its exclusion to third-party liability coverage constitutes an event, practice, or
15
course of conduct that Diaz and Hoffmann-Bernhardt share with the class, thereby
satisfying the typicality element.
¶37 In addition, the State and the TPAs argue the typicality element is not met because
Diaz and Hoffmann-Bernhardt do not have claims against all of the named defendants,
yet they have elected to sue multiple defendants who operate under distinct types of
health plans. Our decision in Issue One, however, has rendered this argument moot, as
Diaz and Hoffmann-Bernhardt’s claims are restricted to the State only and, therefore, are
not against defendants with whom they are not insured. Therefore, the typicality element
is present.
Adequate Representation
¶38 The fourth requirement under Rule 23(a) allows certification only where the
representative parties will fairly and adequately protect the interests of the class. M. R.
Civ. P. 23(a)(4). This element requires that the named representative’s attorney be
qualified and competent and able to conduct the litigation and “ ‘that the named
representative’s interests not be antagonistic to the interests of the class.’ ” McDonald,
261 Mont. at 403, 862 P.2d at 1156 (quoting Jordan, 669 F.2d at 1323).
¶39 The State and the TPAs do not challenge the competency of Diaz and Hoffmann-
Bernhardt’s attorneys. Instead, they reiterate their typicality argument concerning the
named plaintiffs not having claims against all defendants. Because we resolved this
question in our discussion of the typicality element, we conclude Diaz and Hoffmann-
Bernhardt would fairly and adequately protect the interests of the class.
2. Rule 23(b)
16
¶40 Having determined that Diaz and Hoffmann-Bernhardt have sufficiently
established the Rule 23(a) requirements, we now turn to Rule 23(b), which provides in
relevant part:
(b) Types of Class Actions. A class action may be maintained if Rule 23(a)
is satisfied and if:
. . .
(2) the party opposing the class has acted or refused to act on grounds that
apply generally to the class, so that final injunctive relief or corresponding
declaratory relief is appropriate respecting the class as a whole; or
(3) the court finds that the questions of law or fact common to the class
members predominate over any questions affecting only individual
members, and that a class action is superior to other available methods for
fairly and efficiently adjudicating the controversy. The matters pertinent to
the findings include:
(A) the class members’ interests in individually controlling the
prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the
controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of
the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
M. R. Civ. P. 23(b)(2)-(3).
¶41 Diaz and Hoffmann-Bernhardt sought class certification under Rule 23(b)(2) or, in
the alternative, Rule 23(b)(3). The District Court concluded certification was precluded
under Rule 23(b)(2) because whether the State can exercise its exclusion to require
tortfeasors’ insurers to pay first, thereby lowering the amount the State pays its insureds,
is a question that requires individualized made-whole assessments as to each insured.
The District Court further determined Rule 23(b)(3)’s predominance and superiority
17
requirements were not satisfied, as individualized issues of proof predominated over
common issues, and potential class members may be better off bringing individual
claims.
Rule 23(b)(2)
¶42 The United States Supreme Court recently ruled that F. R. Civ. P. 23(b)(2) does
not authorize class certification when each class member would be entitled to an
individualized award of monetary damages, or when each class member would be
entitled to a different injunction or declaratory judgment against the defendant. Wal-mart
Stores, Inc. v. Dukes, ___ U.S. ___, 131 S. Ct. 2541, 2557 (2011). “The key to the [Rule
23](b)(2) class is the indivisible nature of the injunctive or declaratory remedy
warranted—the notion that the conduct is such that it can be enjoined or declared
unlawful only as to all of the class members or as to none of them.” Wal-mart Stores,
Inc., ___ U.S. at ___, 131 S. Ct. at 2557 (internal quotation omitted).
¶43 Diaz and Hoffmann-Bernhardt argue the class is certifiable under Rule 23(b)(2)
because a single question affects all class members: Can the State, in compliance with
the subrogation laws, programmatically exercise its exclusion before conducting a made-
whole analysis? Diaz and Hoffmann-Bernhardt rely upon Ferguson, where this Court
concluded Rule 23(b)(2) certification was appropriate, claiming the District Court
committed the same errors here in denying Rule 23(b)(2) certification as the district court
in Ferguson. We agree.
¶44 There, Ferguson’s insurer subrogated against a third-party tortfeasor’s insurance
carrier, recovering some of the amounts it had paid Ferguson for property damages
18
incurred in an automobile crash. Ferguson sued, claiming her insurer did not conduct a
made-whole analysis before it subrogated against her recovery. Ferguson, ¶¶ 4-5. In her
motion for class certification, Ferguson requested declaratory relief that her insurer
breached its insurance contract by failing to conduct a made-whole analysis before it
subrogated against her recovery. Assuming she succeeded in her declaratory action,
Ferguson sought an injunction requiring the insurer to return to her any amounts it had
illegally subrogated until it completed the requisite made-whole adjustments. Ferguson,
¶ 33. The district court denied class certification, reasoning the action would require
factual determinations regarding made-whole entitlements and, thus, was not suitable for
a class action. Ferguson, ¶¶ 12-14. We reversed the district court, noting fact-specific
determinations were outside the context of the declaratory and injunctive relief Ferguson
sought, as Ferguson only requested that amounts unlawfully withheld from the class
members be returned until the insurer conducted a made-whole analysis. Ferguson, ¶¶
33-37.
¶45 The District Court distinguished the present case from Ferguson on its facts. The
District Court determined that unlike in Ferguson, where the insurer’s programmatic
exercise of its subrogation rights was the primary issue, this case required individualized
made-whole determinations as to each class member.
¶46 In determining whether to certify a class, “a district [court] should not assess any
aspect of the merits unrelated to a Rule 23 requirement.” Mattson v. Mont. Power Co.,
2009 MT 286, ¶ 67, 352 Mont. 212, 215 P.3d 675 (internal quotation omitted). “ ‘[T]he
question is not whether the plaintiff or plaintiffs have stated a cause of action or will
19
prevail on the merits, but rather whether the requirements of Rule 23 are met.’ ” Eisen v.
Carlisle & Jacquelin, 417 U.S. 156, 178, 94 S. Ct. 2140, 2153 (1974) (quoting Miller v.
Mackey Intl., Inc., 452 F.2d 424, 427 (5th Cir. 1971)). The District Court, in determining
that individualized made-whole determinations were necessary here, erroneously delved
into the merits of Diaz and Hoffmann-Bernhardt’s claim. In doing so, the District Court
failed to recognize that there is no prerequisite for individualized, fact-specific
determinations. The primary issue is whether the State’s act of exercising its exclusion
before conducting a made-whole analysis violates Montana’s subrogation laws.
¶47 Like Ferguson, Diaz and Hoffmann-Bernhardt seek to enjoin an insurer—the
State—from exercising its exclusion before it conducts a made-whole analysis. See
Ferguson, ¶¶ 33-37. The declaratory relief sought here is whether Montana’s made-
whole laws are being violated by the State’s act of accepting reimbursements from
medical providers who have received payments from third-party insurers and/or act of
refraining from paying medical bills that third-party insurers have already paid. “The
challenge here is not to an error in [the State’s] application of the [made-whole] rule to
any given insured. Rather, this case challenges the procedures of a program . . . [the]
class claims seek a declaratory ruling . . . to compel [the State] to follow the legal
standard in its subrogation program.” See Ferguson, ¶ 34.
¶48 As contemplated by Rule 23(b)(2), there is a common question presented for
declaratory and injunctive relief, to which a single answer will affect all class members:
Can the State, in compliance with §§ 2-18-901 to -902, MCA, withhold payment of
medical expenses or accept reimbursement of medical expenses paid by a third-party’s
20
insurer before it conducts a made-whole analysis? Any individualized determinations
regarding whether class members have been made whole will not occur in the context of
this class action claim.
Rule 23(b)(3)
¶49 Because we have concluded the class is certifiable under Rule 23(b)(2), we need
not address the parties’ arguments regarding Rule 23(b)(3).
CONCLUSION
¶50 BCBS and New West, as TPAs in this case, are not subject to the made-whole
laws as “insurers” under §§ 2-18-901 to -902, MCA, or under a third-party beneficiary
theory. The District Court abused its discretion in denying class certification, as Diaz and
Hoffmann-Bernhardt have demonstrated the Rule 23 requirements are met.
¶51 We affirm in part and reverse in part and remand this matter to the District Court
for further proceedings consistent with this Opinion.
/S/ MICHAEL E WHEAT
We concur:
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ PATRICIA COTTER
/S/ BRIAN MORRIS
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Justice Beth Baker, concurring.
¶52 I do not join the Court’s opinion today because I do not agree with all of its
discussion and rationale. I do concur, however, that, under the terms of their contracts
with the State of Montana, the third-party administrators in this case are not “insurers”
for purposes of Montana’s made-whole laws and should be dismissed from the action. In
light of the Court’s resolution of that issue, I agree a class properly may be certified
under M. R. Civ. P. 23(b)(2) to address the narrow issue of declaratory relief to determine
whether the State’s health care benefit plan is subject to the same subrogation and
made-whole analyses that apply to private insurers and, if so, whether the State may
exclude coverage for medical expenses paid by a third-party’s insurer without first
conducting a made-whole analysis of a claim made under the State plan.
¶53 The relief sought by the Plaintiffs in their initial complaint and in their proposed
amended complaint, which had not been filed at the time appeal was taken, goes beyond
that narrow issue, requesting individual calculation of benefits alleged to have been
wrongfully withheld, determination and payment of interest for delayed payments, and
damage claims for constructive fraud and deceit, breach of the insurance contract, bad
faith, and an award of punitive damages. As noted by the Court, following completion of
the initial briefing in this appeal, the United States Supreme Court ruled in Wal-Mart
Stores, Inc. v. Dukes that class certification under Fed. R. Civ. P. 23 was not proper in a
case involving individual employment discrimination claims by some 1.5 million class
members. In reversing the class certification order, the Court in part concluded that
employees’ claims for backpay were improperly certified under F. R. Civ. P. 23(b)(2).
22
131 S. Ct. at 2557. Given the need for individualized determination of each class
member’s eligibility for backpay, the Supreme Court did not decide whether there are any
forms of “incidental” monetary relief that are consistent with its interpretation of
Rule 23(b)(2) because the employees could not satisfy even the “incidental monetary
relief” standard. Wal-Mart, 131 S. Ct. at 2560. Likewise, given our disposition of Issue
1, we need not decide in this case whether individualized claims for bad faith, punitive or
other monetary damage awards would preclude class certification.
¶54 The question whether a person covered by the State’s health benefit plan must be
made whole prior to the State subrogating against her recovery or refusing to pay medical
expenses for injuries caused by a third party is a question that may be answered,
applicable to the entire class, without an individualized made-whole determination of
each class member. Whether the State Plan’s Coordination of Benefits provision
breaches a duty to reimburse an insured for all losses before the State’s right of
subrogation may be exercised is a common issue because that alleged duty, if it exists, is
a duty owed to all class members. As in Ferguson, the plaintiffs challenge what they
allege is “a program of subrogation which systematically deprives all class members of
any consideration of their ‘made-whole’ rights.” Ferguson, ¶ 34.
¶55 The Plaintiffs did not cite in either their initial or proposed amended complaints
§§ 2-18-901 and 2-18-902, MCA, the statutes on which the Court relies in characterizing
the State as “the insurer” for subrogation purposes. Opinion, ¶ 17. The central issue in
this case, on which the District Court has not yet ruled, is whether the State is subject to
the same rule as a private insurer, or whether a legislatively-promulgated health benefit
23
plan is subject to a different subrogation analysis. As the District Court observed, “[a]
legal question exists as to whether the State employee benefit plan . . . can require the
tortfeasor’s insurer to pay first thereby lowering the amount the State [is] required to pay
in benefits.” Resolution of that question is not needed for today’s determination that the
TPAs do not act as “insurers” for purposes of the subrogation laws in administering the
State’s health care benefit plan. As the Court rightly concludes, however, it is a question
that may be answered without analysis of any individual insured’s amount of loss or
recovery. In this regard, the claim for class relief here is indistinguishable from that
made in Ferguson. To the extent the class includes members whose right to recover is
time-barred, whose claims were released by settlement, or whose recovery is otherwise
subject to dispute, affirmative defenses may apply against any individual claims for
relief, but do not defeat the propriety of certification as to the declaratory relief sought for
the class as a whole.
¶56 Because the case is being remanded and the claims against the TPAs will be
dismissed, the parties and the District Court will have the opportunity to review the
remaining claims in light of our ruling today and to consider the Wal-Mart decision in
fashioning the scope of the issues to be decided in the context of the class action.
/S/ BETH BAKER
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Justice Jim Rice, dissenting.
¶57 I believe the Court has become so lost in the forest that it cannot see the
controlling legal principles for all the trees. To remedy its predicament, the Court has
re-pled the case, reversing the District Court on a case that was never before that court.
¶58 To begin, it is important to mention the Court’s errors of omission. It appears the
Court is holding, without explanation, that the State will be required, first, to refund in a
lump sum all monies that Plaintiffs claim have been wrongfully withheld in violation of
the made whole doctrine and then seek to re-obtain funds lawfully withheld by filing a
later action for subrogation. This is implicit within the rationale on which the Court
rejects the District Court’s determination that individualized assessments will be
necessary: “Any individualized determinations regarding whether class members have
been made whole will not occur in the context of this class action claim.” Opinion, ¶ 48.
(Emphasis added.) Obviously, then, those determinations will need to be made in a later
action. This directive may well come as a surprise to both sides: as discussed further
herein, “individualized assessments” are the core of Plaintiffs’ entire suit as pled, and no
party has requested or understood that this lawsuit could end by the payment of a lump
sum by the State, followed by the filing of separate subrogation claims. Further, as a
practical matter, calculation of a lump sum without individualized assessments would be
nigh impossible. As noted herein, the State has not even received notice on all the
potential claims. However, without further explanation, the Court simply leaves the case
hanging in this posture. That leads to the Court’s next omission.
25
¶59 The apparent basis for the Court’s action here is the hidden holding that, in its role
of providing a healthcare plan, the State is an insurer. I describe the holding as “hidden”
because it is decided within a discussion that is purported to be about application of the
made whole doctrine to TPAs. However, the Court’s holding sweeps beyond the stated
issue, leaping to the additional conclusion that “the factual circumstances present here . . .
clearly establish that the State is the insurer, not the TPAs.” Opinion, ¶ 17. In doing so,
the Court does not so much as mention the State’s arguments to the contrary, such as its
contention and analysis that, for the same reasons we concluded the Uninsured
Employers Fund was not an insurer in Thayer v. Uninsured Employers’ Fund, 1999 MT
304, 297 Mont. 179, 991 P.2d 447, neither is it an insurer. See Appellee St. of Mont.’s
Ans. Br., p. 42 (June 10, 2010) (“the problem with Plaintiffs’ case is they seek to apply a
doctrine which evolved in the context of ‘for profit’ insurance under Title 33 to benefit
programs subsidized by The [sic] State for its employees and State-subsidized health care
benefits for those who are unable to obtain health coverage through more traditional
channels. The rationale which applied to the creation of the ‘made whole doctrine’ in for
profit insurance claims simply does not apply in this other context.”). This was the issue
we carefully considered in determining the status of the State’s CHIP program in
Shattuck v. Kalispell Reg’l Med. Ctr., 2011 MT 229, 362 Mont. 100, 261 P.3d 1021, but
the Court gives no consideration whatsoever to this question today in declaring the State
to be an insurer. The Court’s decision appears to be based on the presupposition that
“someone has got to be an insurer here,” and if the TPAs are not, then the State is.
26
¶60 Perhaps it is easy to forget the parties’ arguments, as they were made so long ago.
The appeal from the District Court’s order on class certification was filed two years ago,
and the briefs containing these arguments followed thereafter, beginning in April 2010.
After briefing, the Court remanded this matter, directing the District Court to address a
merits issue—the “made whole” doctrine—before returning the case here, followed by
more briefing and oral argument.1 Forgetfulness arising from the long course of this case
may have contributed to the Court’s determination to re-make the case into something
completely different from what was originally pled. It appears the Court has transformed
the case to make it similar to Ferguson.
¶61 The Court offers that “Diaz and Hoffmann-Bernhardt argue the class is certifiable
under Rule 23(b)(2) because a single question affects all class members: Can the State,
in compliance with the subrogation laws, programmatically exercise its exclusion before
conducting a made-whole analysis?” Opinion, ¶ 43. However, this is not, and never has
been, the claim of the Plaintiffs. The Plaintiffs’ pleadings do not challenge the State’s
internal mechanism for applying the made whole doctrine. Rather, it is the Plaintiffs’
claim, repeatedly stated, that the State has “illegally withheld” benefits, should be made
to calculate the amount withheld for “each member of the class,” should “immediately
pay” such benefits plus interest, and should pay punitive damages. Compl., pp. 15-16
(Oct. 23, 2008); Proposed Amend. Compl., pp. 17-18 (n.d.). In detail, the Complaint and
Proposed Amended Complaint explain as follows:
1
After directing the District Court to undertake consideration of a merits issue on remand, the
Court now criticizes the District Court for considering the merits. See Opinion, ¶ 46.
27
The [State],2 therefore, ha[s] no right to exclude or refuse to pay benefits
for medical costs under these circumstances . . . . [T]he plaintiffs and the
class they represent are requesting a declaratory judgment that the [State’s]
withholding of benefits violates the “made whole” law. They request an
injunction or other appropriate orders requiring the [State] to calculate the
amounts they have unlawfully withheld and to pay those amounts to the
plaintiffs. They also request injunctive relief prohibiting the defendants
from continuing to violate the “made whole” laws. They request all other
damages allowed by Montana law, including their costs and attorney fees.
See Compl., pp. 4-5; Proposed Amend. Compl. 4-5 (emphasis added). The Plaintiffs
further explain that their “main issue” is whether the State has deprived them of benefits.
They request injunctive relief “which will compel the defendants to calculate the amount
unlawfully withheld from each individual member of the class and then to pay that
amount to the individual members of the class.” Compl., p. 12; Proposed Amended
Complaint, p. 12 (emphasis added). “The remedy requested does not present an onerous
task, since it will be the defendants’ obligation to determine the full extent of
reimbursement due to each member of the class.” Compl., p. 12; Proposed Amend.
Compl., p. 12 (emphasis added).
¶62 Yet, apparently to re-cast this case to be like Ferguson, the Court offers the new
proposition that individualized determinations “will not occur in the context of this class
action claim.” Opinion, ¶ 48. In Ferguson, the action filed “d[id] not seek to adjudicate
any individual ‘made-whole’ entitlements,” and we reversed the determination made by
the District Court based on its belief that such entitlements were required. Ferguson v.
Safeco Ins. Co. of Am., 2008 MT 109, ¶¶ 8, 39, 42, 342 Mont. 380, 180 P.3d 1164.
2
Originally, the Complaint and Proposed Amended Complaint stated claims against all the
named Defendants. Because the TPAs are being removed, Opinion, ¶ 24, the State is now the
only remaining Defendant. However, the claims as pled remain the same.
28
However, Plaintiffs’ case here was simply pled differently than in Ferguson. Further,
Ferguson involved definite claims. Safeco had already pursued and obtained subrogation
recoveries in each claimant’s case, making claim identification very efficient. Ferguson,
¶¶ 4-7. Here, subrogation “actions” or “recoveries” by the State have not likewise
occurred in each claim. Indeed, the District Court found that the State did “not always
receive notice that an accident has occurred.” Or. RE: Class Action Request, p. 4
(Dec. 16, 2009). The failure to pay benefits may have occurred because a medical
provider failed to bill the State, having already been paid by the tortfeasor’s insurer. In
other cases, the State simply received an unsolicited reimbursement. Far from
“programmatically exercis[ing] its exclusion before conducting a made-whole analysis,”
Opinion ¶ 43, the State may not have even known it applied an exclusion or failed to
make payment, making it far from Ferguson as well.
¶63 Then, completing the transformation of this case to Ferguson, the Court redrafts
the class definition to something different from the one considered by the District Court.
Compare Opinion, ¶ 28, with the District Court’s Order RE: Class Action Request, p. 6.
The Court now defines the class as insureds “who have not been made whole for their
damages because the State and the TPAs have programmatically failed to pay benefits for
their medical costs.” The Court does not explain how insureds “who have not been made
whole” can become class members without individualized assessments, which the Court
holds will not be made in this case. After re-making the case, the Court then
perfunctorily performs an assessment of Rule 23 factors to the new case, never reviewing
29
those issues as they were presented to the District Court within the case that was actually
brought. Thus, the Rule 23 assessment at that juncture is little more than pretense.
¶64 Finally, the Court overlooks the standard of review and its purposes. The ultimate
question is whether the District Court abused its very broad discretion in determining that
the putative class as pled in plaintiffs’ complaint did not meet the criteria set forth in
M. R. Civ. P. 23:
Trial courts have the broadest discretion when deciding whether to certify a
class. The judgment of the trial court should be accorded the greatest
respect because it is in the best position to consider the most fair and
efficient procedure for conducting any given litigation. Therefore, this
Court will not disturb a trial court’s ruling on a motion to certify, unless
there is an abuse of discretion.
Sieglock v. Burlington N. Ry. Co., 2003 MT 355, ¶ 8, 319 Mont. 8, 81 P.3d 495 (citation
omitted) (emphasis added). The standard of review reflects abundant common sense:
that in class certification questions, appellate courts should defer to district courts, which
are tasked with shepherding proposed class cases through the trial process. Here, the
District Court well analyzed the case that was actually before it and did not abuse its
discretion. It did not seek to remake the case, and neither should this Court.
¶65 Had we affirmed the District Court initially, instead of remanding, this case could
have been re-plead or re-filed to address the class problems the District Court properly
identified. I dissented from our failure to do so then, and I dissent from the Court’s
action today. I would affirm.
/S/ JIM RICE
30