United States District Court, D. Minnesota
Selective Insurance Company of South Carolina, Plaintiff/Counter-defendant,
Amit Sela, Defendant/Counter-claimant.
K. Brownson and Aaron M. Simon, Esqs., Brownson Norby, PLLC,
Minneapolis, Minnesota, for Plaintiff.
Christopher H. Yetka, Esq., Barnes & Thornburg LLP,
Minneapolis, Minnesota, for Defendant.
E. RAU, UNITED STATES MAGISTRATE JUDGE.
above-captioned case comes before the undersigned on
Defendant Amit Sela's (“Sela”) Motion for
Leave to Amend Counterclaims and Add Claim for Bad Faith
Under Minn. Stat. § 604.18 (“Motion to
Amend”) [Doc. No. 88]. This matter has been referred
for the resolution of pretrial matters pursuant to 28 U.S.C.
§ 636(b)(1) and District of Minnesota Local Rule 72.1.
For the reasons stated below, the Court grants Sela's
Motion to Amend.
the policy holder of a homeowners' insurance policy (the
“Policy”) that Selective issued to cover the
period of July 27, 2014, to July 27, 2015. (Second Am. Compl.
& Jury Demand, “Second Am. Compl.”) [Doc. No.
34 ¶ 7]. The Policy covers a residence in Minnetonka,
Minnesota (the “Property”), which Sela owns.
(Id. ¶ 3).
8, 2015, Sela reported that the Property's roof was
damaged in a June 29, 2015, hail storm. (Id. ¶
15). No party disputes that the Property suffered damage from
the hail storm. Instead, the issue in this lawsuit is whether
the terms of an exclusion in the Policy regarding an
insured's intentional concealment or misrepresentation
allows Selective to avoid paying Sela's claim.
See (id. ¶ 33).
of this dispute, Sela filed his Answer to Second Amended
Complaint and Counterclaims (“Answer &
Counterclaims”) [Doc. No. 37]. Relevant to the motion
before the Court, Sela reiterated that “there is no
dispute that the 2015 storm caused at least some property
damage.” (Answer & Countercls. ¶ 60).
Furthermore Sela asserted that the insurance policy at issue
“contain[ed] an Appraisal provision stating: If you and
we fail to agree on the amount of loss, either may demand an
appraisal of the loss.” (Id. ¶ 65)
(internal quotation marks omitted). “In this event,
each party will choose a competent and impartial appraiser
within 20 days after receiving a written request from the
other.” (Id.). If the appraisals differ, they
are submitted to an umpire-agreed upon by the appraisers-who
will adjudicate the dispute. See (id.).
“After receiving Selective's [notification that it
was denying Sela's claim, ] Mr. Sela made a written
demand for appraisal for the loss. Selective refused to
participate in such appraisal.” Sela requested the
appraisal after Selective filed this lawsuit, but at no time
did Selective inform Sela that it was declining coverage
until it filed its Complaint. See (Order Dated Oct.
10, 2017) [Doc. No. 85 at 5] (“December 2, 2016:
Selective notified Sela, through counsel, that it is denying
Sela's claim and initiated the instant lawsuit. (Email,
Ex. G, Yetka Decl. - 57) [Doc. No. 57-1 at 55]; see
also (Compl. & Jury Demand) [Doc. No. 1].”)
(Id. ¶ 66). Selective instead filed this
lawsuit on December 2, 2016, seeking to avoid payment under
the Policy. See generally (Compl. & Jury Demand)
[Doc. No. 1].
now moves the Court to amend his Answer and Counterclaims to
add a claim for bad faith denial of insurance coverage in
violation of Minnesota Statutes section 604.18. See
(Am. Answer to Second Am. Comp. & Countercls., “Am.
Answer & Countercls.”) [Doc. Nos. 68-1, 68-2]
(proposed Amended Answer and Counterclaims and a redlined
version showing differences between the Answer and
Counterclaims and the Amended Answer and Counterclaims,
respectively). Sela's proposed amendments are directed
solely to the addition of his counterclaim for bad faith
denial of insurance coverage. See generally (Am.
Answer & Countercls.) (adding paragraphs eighty-two to
ninety-one to incorporate a counterclaim for bad faith denial
of insurance coverage).
decisions in this District for adding claims for punitive
damages under a similar standard in Minnesota Statutes
section 549.191 have yielded different results using the
framework articulated in Shady Grove Orthopedic
Associates, P.A. v. Allstate Ins. Co., 559 U.S. 393
(2010).” (Text Only Order Dated Apr. 9, 2018) [Doc. No.
107]. In light of these different results, the Court
requested “that the parties submit supplemental
briefing as to whether Sela's Motion to Amend-in light of
Shady Grove-should be analyzed under Rule 15 of the
Federal Rules of Civil Procedure or Minnesota Statute section
supplemental briefing, both parties agree that section 604.18
should control Sela's Motion to Amend. See
(Def.'s Br. Responding to Apr. 8, 2018 Order,
“Sela's Suppl. Br.”) [Doc. No. 109]; (Pl.
Selective Insurance Company of South Carolina's Suppl.
Mem. of Law on the Legal Standard Applicable to Def.'s
Mot. to Amend to Add a Claim for Bad Faith,
“Selective's Suppl. Br.”) [Doc. No. 110]. In
particular, both parties assert that Rule 15 and section
604.18 can co-exist, in large part, because Rule 15 is
“discretionary.” See, e.g., (Sela's
Suppl. Br. at 1, 3, 5- 6); (Selective's Suppl. Br. at
4-9). Both parties assert that “[i]f Minn. Stat. §
604.18, subd. 4 ‘and Minnesota Rule 15.01 can both
apply in the state court for their separate purposes, so too,
section [604.18, subd. 4] and Federal Rule 15(a) may both
apply in federal court in a diversity action.'”
See (Sela's Suppl. Br. at 4) (quoting Sec.
Sav. Bank v. Green Tree Acceptance, Inc., Civ. No.
3-89-28 (BPB/DDA), 1990 WL 36142, *2 (D. Minn. Mar. 22, 1990)
(Becker, Mag. J.) (alterations in original)); see
also (Selective's Suppl. Br. at 7 n.4). Furthermore,
both parties raised concerns about potential forum shopping
in support of their respective conclusions. See
(Sela's Suppl. Br. at 2); (Selective's Suppl. Br. at
10-12). Understandably, despite the similarities in their
arguments related to what standard to apply, the parties
disagree as to the outcome of applying Rule 15 or section
604.18. See (Sela's Suppl. Br. at 6-7);
(Selective's Suppl. Br. at 12-15).
stated earlier, the initial issue before this Court is what
legal standard controls amendments to the pleadings in a
diversity case: Rule 15 of the Federal Rules of Civil
Procedure or Minnesota Statute section 608.14. Rule 15
governs amendments of pleadings generally in federal cases
and specifies that the court “should freely give leave
when justice so requires.” Fed.R.Civ.P. 15(a). By
contrast, Minnesota Statute section 608.14 governs situations
in which a party wishes to add a claim for bad faith denial
of insurance coverage in Minnesota state court and requires
that the moving party establish, by prime facie evidence,
that the nonmoving party is liable under the statute.
See Minn. Stat. § 604.18, subdivs. 2, 4. More
specifically, section 608.14 requires that amendments
“must be accompanied by one or more affidavits showing
the factual basis for the motion.” Id. subdiv.
Court understands that because it has diversity jurisdiction,
the law of Minnesota generally applies. See, e.g.,
Prudential Ins. of Am. v. Kamrath, 475 F.3d 920, 924
(8th Cir. 2007) (stating that generally “[a] district
court sitting in diversity applies the law . . . of the state
in which it sits.” (citing Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941))). But,
[w]hen a situation is covered by one of the Federal Rules, .
. . the court has been instructed to apply the Federal Rule,
and can refuse to do so only if the Advisory Committee, this
Court, and Congress erred in their prima facie judgment that
the Rule in question transgresses neither the terms of the
Enabling Act nor constitutional restrictions.
Hanna v. Plumer, 380 U.S. 460, 471 (1965); see
also Burlington N. R.R. v. Woods, 480 U.S. 1,
4-5 (1987) (“The initial step is to determine whether,
when fairly construed, the scope of [the] Federal Rule . . .
is sufficiently broad to cause a direct collision with the
state law or, implicitly, to control the issue before the
court . . . .” (internal quotation marks omitted)).
More recently, in Shady Grove, the Supreme Court
provided additional clarification regarding its holdings in
Hanna and Burlington N. R.R., stating that
a court “must first determine whether [the Federal
Rule] answers the question in dispute.” 559 U.S. at
398. In light of Shady Grove, the question thus
becomes whether the framework for considering amendments
embodied in Rules 8, 9, 12, and 15 “answers the
question” of whether Sela may amend his Answer and
Counterclaims and if it does, whether Rules 8, 9, 12, and 15
are valid in view of the Rules Enabling Act, codified at 28
U.S.C. § 2072, or other constitutional restrictions.
issue of a section 604.18 amendment parallels the procedure
for amending pleadings under Minnesota Statutes section
549.191, governing amendments to add punitive damages claims
under Minnesota law. Courts in this District have routinely
applied the requirements of section 549.191 and not the
Federal Rules in diversity cases. See In re Bair Hugger
Forced Air Warming Devices Prods. Liab. Litig.,
MDL No. 15-2666 (JNE/FLN), 2017 WL 5187832, at *1 n.1 (D.
Minn. July 27, 2017) (Noel, Mag. J.) (citing cases). Section
604.18 is more recently enacted than its punitive-damages
sister statute. Compare generally Minn. Stat. §
549.191 (enacted in 1986), with Minn. Stat. §
604.18 (enacted in 2008). Nevertheless, like section 549.191,
courts in this District have held that section 604.18
controls in the context of motions to amend
pleadings. This Court is not aware of any court in
this District addressing Shady Grove when
determining whether the Federal Rules of Civil Procedure or
section 604.18 controls when a party seeks to add a claim for
bad faith. The only cases of which this Court is aware that
makes mention of a potential conflict with the Federal Rules
of Civil Procedure are Brown, 2013 WL 12308196, and
Gordon v. State Farm Fire & Cas. Co., No.
11-cv-3176 (JRT/LIB), 2012 WL 3848409 (D. Minn. Aug. 17,
2012) (Brisbois, Mag. J.), which addressed a related issue of
whether to grant a motion to strike. See Gordon,
2012 WL 3848409 at *1, 5. The analysis in Gordon,
however, is premised largely on decisions in this District
predating Shady Grove under section 549.191 and not
in light of Shady Grove itself. See Gordon,
2012 WL 3848409, at *3 n.3. Likewise, the analysis in
Brown does not consider a potential conflict between
the Federal Rules and section 604.18 under Shady
Grove. See Brown, 2013 WL 12308196 at *2.
the Court notes that recent decisions in this District have
reached opposite results when considering whether Rule 15 or
section 549.191 controls. Compare In re Bair Hugger,
2017 WL 5187832 (finding the court must apply Rule 15 of the
Federal Rules of Civil Procedure), with Order Dated
Mar. 8, 2018, Inline Packaging, LLC v. Graphic Packaging
Int'l, LLC, No. 15-cv-3183 (ADM/LIB) (D. Minn.)
[Doc. No. 534] (Brisbois, Mag. J.) (finding the court must
apply Minn. Stat. § 549.191). These differing opinions
on the related issue of whether Rule 15 or section 549.191
controls in view of Shady Grove prompted this Court
to consider the question of whether the Federal Rules or
section 604.18 controls.
Court concludes the relevant Federal Rules “answer
the question in dispute” and control in this instance.
Furthermore, there is nothing to suggest that these rules run
afoul of the Rules Enabling Act or any constitutional
provisions that render them invalid. The Court addresses each
prong of this analysis in turn.
Federal Rules Control
mentioned above, Rule 15 applies when a party seeks to amend
a pleading in federal court. Rule 15 does not exist in a
vacuum. Rule 15 answers the question of when and what
standard governs the amendments of a pleading, and Rules 8
and 9 dictate the requirements of pleading generally and
specifically. That is,
There can be no dispute that our modern rules of civil
procedure are based on the concept of “simplified
notice pleading, ” Conley v. Gibson, 355 U.S.
41, 47 (1957), and that “[a]ll pleadings shall be so
construed as to do substantial justice.” Fed.R.Civ.P.
8(f). This can indeed be seen in the basic requirements for a
claim for relief as set forth in Rule 8(a), and in the
dictate of Rule 15(a), which states that a court shall grant
a party leave to amend a complaint “freely . . . when
justice so requires.” Fed.R.Civ.P. 15(a); see also
Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir.
1986). This fundamental tenor of the Rules is one of
liberality rather than technicality, and it creates an
important context within which we decide cases under the
modern Federal Rules of Civil Procedure.
Miller v. Am. Heavy Lift Shipping, 231 F.3d 242,
247-48 (6th Cir. 2000) (footnote omitted); see
also 5 Charles A. Wright, Arthur R. Miller, &
Mary Kay Kane, Federal Practice and Procedure § 1203 (3d
ed. 2017) (stating there is a “strong nexus between
Rule 8 and . . . Rule 9 (pleading special matters), . . .
[and] Rule 15 (amended and supplemental pleadings”);
cf. Fed. R. Civ. P. 15 advisory committee's note
to 1991 amendment (stating that Rule 15's relation back
provision was amended because “Schiavone v.
Fortune[, 477 U.S. 21 (1986)] . . . was inconsistent
with the liberal pleading practices secured by Rule
8”). Because issues surrounding the application of Rule
15 are better understood in the context of Rules 8, 9, and
12, the Court first discusses all four federal rules and then
compares them to section 604.18.
Rules 8, 9, and 12
requires “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8. Rule 8's “notice pleading” is
designed to “to give the defendant fair notice of what
the . . . claim is and the grounds upon which it
rests.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (internal quotation marks omitted) (omission
in original). “The liberal notice pleading of Rule 8(a)
is the starting point of a simplified pleading system, which
was adopted to focus litigation on the merits of a
claim.” Swierkiewicz v. Sorema N.A., 534 U.S.
506, 514 (2002). These relaxed pleading standards are
designed to be inclusive and reduce the frequency by which
litigants are prevented from bringing their claims. See
Twombly, 550 U.S. at 575. Specifically, Rule 8's
“drafters intentionally avoided any reference to
‘facts' or ‘evidence' or
said, Rule 8's liberal standard is circumscribed in two
primary ways. The first is through application of Rule 9,
specifying that certain matters must be pleaded differently
than what Rule 8 generally requires. See Fed. R.
Civ. P. 8, 9. An example in which Rule 9 may limit Rule
8's liberal standard is the “particularity”
requirement when pleading “circumstances constituting
fraud or mistake.” See Fed. R. Civ. P. 9(b).
This does not mean, however, that Rule 9 fundamentally alters
notice pleading. To the contrary, the Court “must
interpret the requirements of Rule 9(b) in harmony with the
principles of notice pleading.” Abels v. Farmers
Commodities Corp., 259 F.3d 910, 920 (8th Cir. 2001)
(internal quotation marks omitted). For example, with respect
to Rule 9(b), “[t]he special nature of fraud does not
necessitate anything other than notice of the claim; it
simply necessitates a higher degree of notice, enabling the
defendant to respond specifically, at an early stage of the
case, to potentially damaging allegations of immoral and
criminal conduct.” Id.
second way in which Rule 8's liberal notice standard is
constrained is through the requirements set forth in
Ashcroft v. Iqbal, 556 U.S. 662 (2009), and
Twombly-which address Rule 8's requirements in
the context of a motion to dismiss under Rule 12. See,
e.g., Twombly, 550 U.S. at 554-58 (discussing
Rule 8 in the context of Rule 12(b)(6)). Specifically, these
cases stand for the general proposition that Rule 8
“does not require ‘detailed factual allegations,
'” but claims “must [nevertheless] contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.'”
Iqbal, 566 U.S. at 678 (quoting Twombly,
550 U.S. at 555, 570). That is, “[a] pleading that
offers labels and conclusions or a formulaic recitation of
the elements of a cause of action will not do. Nor does a
complaint suffice if it tenders naked assertion[s] devoid of
further factual enhancement.” Id. (internal
quotation marks omitted) (citations omitted) (second
alteration in original). Furthermore, there are others ways
in which a pleading can be challenged under Rule 12.
For example, the form and sufficiency of a statement of a
claim for relief under Rule 8(a)(2) may be tested by a motion
to dismiss for failure to state a claim upon which relief can
be granted, Rule 12(b)(6), by a motion for judgment on the
pleadings, Rule 12(c), by a motion for a more definite
statement, Rule 12(e), or by a motion to strike redundant,
immaterial, impertinent, or scandalous matter, Rule 12(f).
5 Wright, Miller, & Kane, supra, §
light of Rules 8, 9, and 12, Rule 15 provides its own liberal
provision under which federal courts review motions for leave
to amend. See Paul D. Carrington,
“Substance” and “Procedure” in the
Rules Enabling Act, 1989 Duke L.J. 281, 310 (“The
forgiving spirit of Rule 8 required the liberal amendment
provision of Rule 15(a) . . . .”). Specifically, under
Rule 15, leave to amend counterclaims “should [be]
freely give[n] . . . when justice so requires.”
Fed.R.Civ.P. 15(a); id. advisory committee's
note to 2009 amendment (stating that Rule 15 is “the
sole rule governing amendment of a pleading to add a
counterclaim”); see also Trim Fit LLC v.
Dickey, 607 F.3d 528, 531-32 (8th Cir. 2010) (analyzing
a motion to amend to add a counterclaim under Rule 15).
Nonetheless, leave to amend a counterclaim should not be
given when there is “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 virtue of allowance of the
amendment, [or] futility of amendment[.]” See Foman
v. Davis, 371 U.S. 178, 182 (1962) (stated in the
context of a Rule 15 amendment to a complaint). As such, Rule
15 espouses the liberal standard that amendments should be
allowed, unless certain limited exceptions are present.
example of this liberal standard at work can be seen under
the futility analysis. Under this framework, “[d]enial
of a motion for leave to amend on the basis of futility means
the district court has reached the legal conclusion that the
amended [pleading] 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 quotation marks omitted). Under
12(b)(6), the pleading “must contain sufficient factual
matter, accepted as true, to state a claim
to relief that is plausible on its face.”
Iqbal, 556 U.S. at 678 (internal quotation marks
omitted) (emphasis added). “A claim has facial
plausibility” where there is sufficient “factual
content [pleaded] that allows the court to draw the
reasonable inference that [a party] is liable for the
misconduct alleged.” Id. (internal quotation
marks omitted). That is, analysis under Rules 15 and 12(b)(6)
generally requires a court not consider matters outside the
pleadings to determine whether leave to amend should be
given. See, e.g., Arias, 2013 WL 12145854,
at *2 (stating “[n]o matters outside the pleading may
be considered” when conducting a futility analysis
under Rules 12(b)(6) and 15 (citing Casazza v.
Kiser, 313 F.3d 414, 417 (8th Cir. 2002))); cf. Hamm
v. Rhone-Poulenc Rorer Pharm., Inc., 187 F.3d 941, 948
(8th Cir. 1999) (“Rule 12(b)(6) itself provides that
when matters outside the pleadings are presented and not
excluded by the court, the motion [to dismiss] shall be
treated as one for summary judgment and disposed of as
provided in Rule 56.”).
liberal standard can also be viewed from the standpoint of
the interplay between Rule 8 and Rule 12(b)(6). See,
e.g., Brooks v. Midwest Heart Group, 655 F.3d
796, 801 (8th Cir. 2011) (“Considered through the
appropriate prism of Rule 12(b)(6), there is no doubt that,
as to Brooks's claims of race and sex discrimination, the
statement in Brooks's complaint . . . was sufficient to
meet the liberal pleading standard of Rule 8(a).”).
That is, under Rule 15, leave to amend should be freely
given, so long as an amendment is pleaded with sufficient
specificity “to state a claim to relief that is
plausible on its face.” Iqbal, 556 U.S. at
678; see also Fed. R. Civ. P. 8, 12, 15. As a
corollary to the interplay between Rule 8 and 15, under Rule
9, a claim still must meet the facial plausibility standard,
but that standard differs depending on the claim asserted.
See Fed. R. Civ. P. 9; Abels, 259 F.3d at
920 (stating that Rule 9 does not change the notice pleading
paradigm, only that certain claims under Rule 9 require
“a higher degree of notice” to demonstrate facial
Rule 15 reflects two of the most important policies of the
federal rules. First, the rule's purpose is to provide
maximum opportunity for each claim to be decided on its
merits rather than on procedural
technicalities. This is demonstrated by the emphasis
Rule 15 places on the permissive approach
that the district courts are ...