Opinion
Case No. 1:18-cv-67
2020-02-11
FIRST INTERNATIONAL BANK & TRUST, Plaintiff, v. OASIS PETROLEUM NORTH AMERICA LLC, Defendant.
Joshua A. Swanson, David T. Hermanson, Vogel Law Firm, Fargo, ND, Drew James Hushka, Vogel Law Firm, Moorhead, MN, for Plaintiff. John W. Morrison, Jr., Benjamin J. Sand, Paul Jonathan Forster, Crowley Fleck PLLP, Bismarck, ND, for Defendant.
Joshua A. Swanson, David T. Hermanson, Vogel Law Firm, Fargo, ND, Drew James Hushka, Vogel Law Firm, Moorhead, MN, for Plaintiff.
John W. Morrison, Jr., Benjamin J. Sand, Paul Jonathan Forster, Crowley Fleck PLLP, Bismarck, ND, for Defendant.
ORDER GRANTING MOTION TO AMEND COMPLAINT
Clare R. Hochhalter, United States Magistrate Judge
Plaintiff's Motion to Amend Complaint to Add Claim for Punitive Damages is before the court. (Doc. No. 23). For the reasons explained below, the motion is granted.
I. Procedural Background
Plaintiff moved to amend its complaint to add a claim for punitive damages on June 20, 2019. (Doc. No. 23). Defendant filed a response in opposition, and Plaintiff replied. (Doc. Nos. 31, 34). The Court ordered additional briefing on the legal standard required to adjudicate the motion and the parties provided supplemental briefs. (Doc. Nos. 41, 42).
II. Governing Law
A. Federal Rule 15 and North Dakota Century Code § 32-03.2-11(1) .
Under the Federal Rules of Civil Procedure, motions to amend pleadings are governed by Rule 15. Rule 15 provides generally that plaintiffs may amend a complaint as a matter of course within a specified time period; after such time has passed, a plaintiff may amend a complaint with the opposing party's consent, or the court's leave. Rule 15(a)(2) provides the court "should freely give leave when justice so requires." Rule 15 provides no restriction on the kinds of claims that may be maintained in amended complaints; it makes no requirement for submitting supplemental testimonial evidence and requires no judicial analysis unique to the merits of any claim, including a claim for punitive damages. A copy of the proposed amended complaint must be included with the motion. D.N.D. Civ. L. R. 5.1(C) (2017). Generally, a complaint (or an amended complaint) survives federal judicial scrutiny if it meets the minimum pleading requirements of federal law. Amendments should be permitted liberally. Baptist Health v. Smith, 477 F.3d 540, 544 (8th Cir. 2007), citing Chesnut v. St. Louis County, Mo., 656 F.2d 343, 349 (8th Cir. 1981). "[D]enial of leave to amend pleadings is appropriate only in those limited circumstances in which undue delay, bad faith on the part of the moving party, futility of the amendment, or unfair prejudice to the non-moving party can be demonstrated." Hillesheim v. Myron's Cards & Gifts, Inc., 897 F.3d 953, 955 (8th Cir. 2018) (citing Roberson v. Hayti Police Dep't, 241 F.3d 992, 995 (8th Cir. 2001) ). Affording parties an opportunity to test their claim on the merits is the preference under Federal Rule of Civil Procedure 15(a)(2). Ash v. Anderson Merchandisers, LLC, 799 F.3d 957, 962–63 (8th Cir. 2015) (citing Foman v. Davis, 371 U.S. 178, 181, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ).
The term "exemplary damages" is used in the North Dakota provisions, but the Court will use the term "punitive damages" for clarity in this opinion.
North Dakota law provides a different procedure for amending complaints to include a claim for punitive damages. See N.D.C.C. § 32-03.2-11. Under North Dakota law, such claims may not be maintained initially. Id. at 32-03.2-11(1). Instead, claims for punitive damages may only be pled by amended complaint. Id. Further, the amended complaint must conform with special rules requiring the motion to be supplemented with supporting affidavit or deposition testimony. Id. A court applying Section 32-03.2-11(1) must review the motion and supporting evidence. If the court finds "sufficient evidence to support a finding by the trier of fact that a preponderance of the evidence proves oppression, fraud, or actual malice," the court shall grant the motion to amend. Id.
B. Applicable Law in Diversity Cases
Historically, there was a split of authority among federal courts regarding the standard to apply when deciding a motion to amend a complaint to include a claim for punitive damages. See Nereson v. Zurich Ins. Co., No. CIV. A3-91-72, 1992 WL 212233, at *1, n.1 (D.N.D. Aug. 20, 1992) (citing cases representing a split of authority). Federal courts in North Dakota have applied Section 32-03.2-11(1) of the North Dakota Century Code when determining whether to allow amendments for punitive damages in diversity cases. Nereson, 1992 WL 212233, at *1 (D.N.D. Aug. 20, 1992) (finding no conflict between Section 32-03.2-11(1) and Rule 15, and finding Erie required application of state law). Recently, federal courts have reconsidered the issue in light of Shady Grove Orthopedic Assocs., P.A v. Allstate Ins. Co., 559 U.S. 393, 130 S.Ct. 1431, 176 L.Ed.2d 311 (2010).
Shady Grove involved an attempt by plaintiff Shady Grove Orthopedic Associates to collect unpaid statutory interest from defendant Allstate Insurance Company. Shady Grove, 559 U.S. at 397, 130 S.Ct. 1431. Shady Grove sought to collect the interest through a federal class action lawsuit brought on behalf of itself and others. Id. The district court held that New York state law prohibited class action claims for penalties such as statutory interest. The district court applied New York law in dismissing the claim, even though Rule 23 of the Federal Rules of Civil Procedure would have allowed the class action claim to proceed. Id.
The Second Circuit Court of Appeals affirmed the decision of the district court. Id. at 398, 130 S.Ct. 1431. It found there was no conflict between Rule 23 and New York state law – not unlike the Nereson case in North Dakota, which found no conflict between Rule 15 and Section 32-03.2-11. Nereson, 1992 WL 212233 at *1. The circuit agreed if there were a conflict between a federal rule and New York state law, the federal rule would control unless it violated the Rules Enabling Act. Shady Grove, 559 U.S. at 398, 130 S.Ct. 1431. Ultimately, the court held the New York law was substantive and under Erie it was entitled to be applied in federal court. Id.
The Supreme Court disagreed, issuing an opinion both complex and instructive in its overlap between Justice Scalia's plurality opinion and Justice Stevens’ concurrence. A majority of justices agreed on a "familiar framework" for analysis: first, determine whether the Federal Rule "answers the question in dispute," id. at 398, 130 S.Ct. 1431, or in the words of Justice Stevens, whether the Federal Rule is "sufficiently broad to control the issue before the Court." Id. at 421, 130 S.Ct. 1431 (Stevens, J., concurring in part and concurring in the judgment). If so, the Federal Rule is valid unless it violates the Rules Enabling Act at 28 U.S.C. § 2072. See id. at 410, 130 S.Ct. 1431 ("A few words in response to the concurrence. We understand it to accept the framework we apply – which requires first, determining whether the federal and state rules can be reconciled (because they answer different questions), and second, if they cannot, determining whether the Federal Rule runs afoul of § 2072(b).") (Scalia, J., plurality opinion).
The majority of Justices agreed, Erie and its progeny have no application when a federal rule answers the question and does not violate the Rules Enabling Act. Justice Scalia wrote, "[w]e do not wade into Erie's murky waters unless the federal rule is inapplicable or invalid;" Id. at 398, 130 S.Ct. 1431. Justice Stevens agreed, Erie does not guide the analysis when a Federal Rule of Civil Procedure applies:
If no federal rule applies, a federal court must follow the Rules of Decision Act, 28 U.S.C. § 1652, and make the "relatively unguided Erie choice," Hanna [v. Plumer], 380 U.S. [460] at 471, 85 S.Ct. 1136 (1965), to determine whether the state law is the "rule of decision." But when a situation is covered by a federal rule, the Rules of Decision Act inquiry by its own terms does not apply. See § 1652 ; Hanna, 380 U.S. at 471, 85 S.Ct. 1136. Instead, the Rules Enabling Act (Enabling Act) controls.
Id. at 417, 130 S.Ct. 1431 (Stevens, J., concurring in part and concurring in the judgment).
In light of Shady Grove, courts have begun to revisit the issue of motions to amend complaints to add claims for punitive damages. In 2017, a Minnesota court held Federal Rule 15, rather than state law, controlled the amendment of pleadings to add claims for punitive damages. In re Bair Hugger, No. MDL152666JNEFLN, 2017 WL 5187832, at *5 (D. Minn. July 27, 2017). Other courts follow the same approach, resulting in a "new consensus" that Rule 15 governs the procedure. Jenkins v. Immedia, Inc., No. 13-CV-00327-CMA-KLM, 2019 WL 1875501, at *5 (D. Colo. Apr. 25, 2019), report and recommendation adopted, No. 13-CV-00327-CMA-KLM, 2019 WL 2314972 (D. Colo. May 31, 2019).
Minnesota pleading requirements for punitive damages, found at Minnesota Statutes §§ 549.191 and 549.20, are analogous to North Dakota's Section 32-03.2-11(1). In both, a plaintiff may not seek punitive damages in a complaint. Rather, a plaintiff must move to amend a complaint and must attach supporting evidence. See also Rodenburg LLP, v. Certain Underwriters at Lloyd's London, ECF No. 3:19-cv-27, Doc. No. 43, at 5, entered July 30, 2019 (noting Minnesota developments and discussing federal law and North Dakota punitive damages law in context of motion to amend complaint).
C. Determination of Applicable Law
Together, the plurality and concurring opinions in Shady Grove highlight the applicable test to determine whether Rule 15 governs the process for amending plaintiff's complaint to include a claim for punitive damages. The Sixth Circuit Court of Appeals summarized the Shady Grove test in Gallivan v. United States:
The first question we must ask is whether the Federal Rules of Civil Procedure answer the question in dispute ... In other words, do the Federal Rules answer "the same question" as the state rule? If the Federal Rules answer that question, we then must ask whether the Federal Rules are valid under the Constitution and the Rules Enabling Act. If the answers to both those questions are yes, then our work is done. We apply the Federal Rules ...
Gallivan, 943 F.3d 291, 293 (6th Cir. 2019) (internal citations omitted).
The question in dispute here is whether plaintiff may amend its complaint to include a claim for punitive damages. Both Rule 15 and Section 32 32-03.2-11(1) address whether and how a complaint may be amended. Rule 15 provides a pathway for plaintiff to amend a complaint; first as a matter of course within a specified period of time, and later upon the agreement of parties or upon leave of court. Section 32 32-03.2-11(1) provides a different pathway with different requirements. Rule 15 makes no distinction for punitive damage claims, requiring only that amendment be made either as a matter of course within the time allowed; or, that amendment be made otherwise upon the consent of parties or leave of court. Leave, it turns out, should be freely given when justice requires. Rule 15(a)(2). Clearly, Rule 15 answers the question in dispute, precisely.
Since Rule 15 answers the question in dispute, Shady Grove dictates that Rule 15 governs the process for amending a complaint unless the rule runs afoul of the Rules Enabling Act at 28 U.S.C. § 2072(b). Here, the parties do not dispute that Rule 15 does not run afoul of the Rules Enabling Act. (Doc. No. 41, p. 5; Doc. No. 42, p. 1). The court agrees; the Federal Rules are presumptively valid under both constitutional and statutory constraints. Burlington N. R. Co. v. Woods, 480 U.S. 1, 6, 107 S. Ct. 967, 970, 94 L.Ed. 2d 1 (1987).
Defendant urges a construction of Rule 15 such that it does not answer the question in dispute, arguing for procedural accommodation among state and federal rules based on sensitivity to the substance of rights and remedies included in Section 32-03.2-11(1). Defendant contends Section 32-03.2-11(1) and Rule 15 can be reconciled and be found not in conflict, rendering the majority's Shady Grove analysis inapposite.
Defendant's approach is not unlike the decision in Gasperini v. Center for Humanities, Inc. 518 U.S. 415, 116 S. Ct. 2211, 135 L.Ed. 2d 659 (1996). In Gasperini, the Court considered the compatibility of Federal Rule 59(a), governing motions for a new trial in federal court, with a New York statute allowing state courts to review jury verdicts and order new trials under a different standard. Gasperini, 518 U.S. at 420-22, 116 S.Ct. 2211. The Court acknowledged that in cases where the Federal Rule covered the matter, it would apply regardless of contrary state law so long as it did not violate the Rules Enabling Act and the Constitution. Id. at 428, n. 7, 116 S.Ct. 2211. Yet the Court determined that in the matter before them, the state law and federal law did not conflict. Id. at 436-7, 116 S. Ct. 2211. ("In the case before us ... the principal state and federal interests can be accommodated.") The Court ultimately analyzed the issue under the Rules of Decision Act, Erie, and its progeny. See id. at 426-7, 116 S. Ct. 2211.
Circumstances here, as in Shady Grove, differ from Gasperini. Here, there is a direct conflict between state and federal rule, implicating the Rules Enabling Act analysis, rather than Erie-Rules of Decision Act analysis. The Gasperini analysis has no application when a federal rule answers the question at issue. Unlike in Gasperini where the Court ruled the state and federal interests could be accommodated, id. at 436-37, 116 S. Ct. 2211, no such accommodation is available regarding the procedure for amending a complaint; both the state rule and Rule 15 address and answer the question at issue. In such a situation, Shady Grove demands the analytical framework described above.
Defendant further argues stare decisis and the long history of court decisions in this District require the application of Section 32-03.2-11. It is true that as a general principal, "the doctrine of stare decisis demands that the Court not lightly cast aside past decisions." United States v. Losoya-Mancias, 332 F. Supp. 2d 1261, 1263 (D.N.D. 2004). Yet, even at the time Nereson was decided in 1992, there was a split of authority as to Rule 15. See Nereson, 1992 WL 212233 at 1, n.1, (citing cases representing a split of authority). Recently, the impact of Shady Grove has been recognized by courts in sister states, and our own court, see Rodenburg, supra, ECF No. 3:19-cv-27, Doc. No. 43, at 5 (noting post- Shady Grove developments), as cause to revisit Rule 15 in the context of motions to amend a complaint. Even absent the trend in favor of revisiting the issue, "a decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case." Camreta v. Greene, 563 U.S. 692, 709, 131 S. Ct. 2020, 2033, 179 L.Ed. 2d 1118 (2011). This court believes the issue deserves fresh consideration in light of intervening Supreme Court and other caselaw. Shady Grove and cases responding to it offer important guidance on the issue, particularly where a Federal Rule of Civil Procedure, here Rule 15, answers the question very differently than Section 32-03.2-11(1).
Defendant criticizes Minnesota cases which cite Shady Grove in finding a direct conflict between Rule 15 and the relevant state rule. Defendant argues Shady Grove is distinguishable because Rule 23 left no room for judicial discretion, such that "a contrary state law cannot survive." By contrast, Defendant contends, " Rule 15 is an empty vessel" so "a state substantive law can fill that void without creating conflict." This court disagrees. Rule 15 is not empty: it mandates that judges "should freely" grant leave to amend "when justice so requires." Rule 15(a)(2). Section 32-03.2-11(1) imposes requirements not found in Rule 15, requirements prohibited in some cases by federal rules which govern all federal proceedings. See Fed. R. Civ. P. 1 ("These rules govern the procedure in all civil actions and proceedings in the United States district courts, except as stated in Rule 81.")
Defendant's attempts to artificially reconcile Rule 15 and Section 32-03.2-11(1) serve to highlight their incompatibility. Defendant writes, "At some point in ruling on the Helling Trust's motion to amend, the Court will have to ask itself whether the proposed amendment is potentially meritorious or futile." (Doc. No. 42, pp. 5-6). Because Rule 15 itself supplies no standard to structure this analysis, Defendant reasons, the Court must look to Section 32-03.2-11(1) to analyze the futility question.
Denial of a motion for leave to amend on the basis of futility is proper, when plaintiff's claim is in fact futile; that is, when upon appropriate review of the proposed amended complaint, a court finds " ‘the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.’ " Zutz v. Nelson, 601 F.3d 842, 850 (8th Cir. 2010) (internal citations omitted). Specifically, this requires the Court "look to the pleadings and discern whether the complaint states enough facts that plausibly leads to a cause of action." Zutz, 601 F.3d at 852, citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Matters outside the pleadings may not be considered in deciding a Rule 12(b)(6) motion. Zean v. Fairview Health Servs., 858 F.3d 520, 526 (8th Cir. 2017) (emphasis added); see also, Fed. R. Civ. P.12(d).
The standard under Rule 15 differs from the requirements of North Dakota state law. Unlike Section 32-03.2-11(1) which places a heightened burden on a plaintiff at the pleading stage, the 12(b)(6) inquiry requires the court to accept all alleged facts as true and afford the plaintiff all reasonable inferences arising from the alleged facts. Butler v. Bank of Am., N.A., 690 F.3d 959, 961 (8th Cir. 2012). Moreover, under Section 32-03.2-11(1), proposed amended complaints must be accompanied by affidavit or deposition testimony. In contrast, Rule 15 analysis is strictly limited to review of the four corners of the proposed amended complaint, which by Local Rule 5.1(C), must be submitted with the motion. A court cannot simultaneously consider and not consider matters outside the pleadings, which is in effect what defendant argues is required. See Selective Ins. Co. of S.C. v. Sela, 353 F. Supp. 3d 847, 858–59 (D. Minn. 2018) (noting conflict between Rule 12(b)(6) futility analysis which is limited to four corners of proposed amended complaint, and Minnesota state statute requiring submission of evidence).
For all the foregoing reasons, under the analysis required under Shady Grove, Rule 15 must govern.
III. Analysis Under Rule 15
Leave to amend under Rule 15 is not automatic. A motion to amend may be denied for compelling reasons such as undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the non-moving party, or futility of the amendment. See Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 715 (8th Cir. 2008) (federal standard, though liberal, does not create absolute right to amend).
Defendant argues Plaintiff's claim is futile. An amendment is futile if it fails to state a claim upon which relief could be granted and would not survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Zutz, 601 F.3d at 850. To survive a motion to dismiss for failure to state a claim, the complaint must allege "sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " In re Pre-Filled Propane Tank Antitrust Litig., 860 F.3d 1059, 1063 (8th Cir. 2017) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). The 12(b)(6) inquiry requires the court to accept all alleged facts as true and afford the plaintiff all reasonable inferences arising from the alleged facts. Butler, 690 F.3d at 961 (8th Cir. 2012).
Futility analysis in the context of this case necessarily includes awareness of the substantive requirements for an award of punitive damages under North Dakota law. Section 31-03.2-11(1) requires proof "by clear and convincing evidence of oppression, fraud, or actual malice." In the context of punitive damages, "oppression" is defined as "subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights." McHugh v. Jacobs, 450 F.Supp.2d 1019, 1022 (D.N.D. 2006) (citing North Dakota Pattern Jury Instructions C-72.10). "Actual malice" means "an intent with ill will or wrongful motive to harass, annoy, or injure another person." McHugh, 450 F.Supp.2d at 1022 (citing North Dakota Pattern Jury Instructions C-72.16). Direct evidence of actual malice is not required. Atkinson v. McLaughlin, No. 1:03-CV-091, 2007 WL 557024, at *8 (D.N.D. Feb. 15, 2007) (internal citations omitted). Instead, "the character of the act itself, with its surrounding facts and circumstances, may be inquired into for the purpose of ascertaining the motive or purpose which influenced the mind of the party in committing the act ..." Atkinson, 2007 WL 557024 at *8. If such a motive is found to be improper or unjustifiable, the law authorizes the jury to make a finding of malice. Id.
Accepting Plaintiff's factual allegations as true and affording Plaintiff all reasonable inferences, the Court finds the proposed amended complaint alleges sufficient factual matter to state a claim for relief that is plausible on its face. The 18-page proposed amended complaint includes multiple allegations of fact. Together the allegations make a plausible claim for an award of punitive damages under North Dakota law. Plaintiff's pleading satisfies the minimal requirements for amending a complaint under Rule 15, even though it remains to be seen whether the claim will survive until trial or result in a jury award of damages.
IV. Conclusion
Plaintiff's Motion to Amend Complaint to Add Claim for Punitive Damages (Doc. No. 23) is GRANTED . Plaintiff is directed to file its amended complaint by February 17, 2020. The Court declines to set a briefing schedule for further motions for summary judgment at this time.
IT IS SO ORDERED .