The Montana Supreme Court’s recent decision in Diaz v. Blue Cross and Blue Shield of Montana, 2011 Mont. LEXIS 433 (Mont. Dec. 21, 2011) is an interesting example of how some state supreme courts are effectively ignoring or side-stepping the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). I have not seen any state supreme court squarely take on the Wal-Mart opinion and and reject it, but some courts seem to be simply ignoring Wal-Mart. This case is a good example of that.
Diaz involved a healthcare benefit plan for state employees. The claim was that persons injured in auto accidents were entitled to essentially be paid twice for medical expenses – both by the tortfeasor’s insurer and by the state employee healthcare plan. The contention was that the state healthcare plan was not entitled to subrogation rights against the tortfeasor’s insurer under the “made whole doctrine” as applied in Montana.
The Montana Supreme Court held that certain statutes were not applicable to the third-party administrators sued in the case, but that the trial court had abused its discretion in denying class certification. While the court noted that it had previously relied on federal authority on class certification, and noted Wal-Mart’s holding on certification of Rule 23(b)(2) classes, the court simply ignored what Wal-Mart had to say about commonality and consideration of the merits at the class certification stage. The court explained that commonality was not a stringent threshold and that “[a]ll that is necessary . . . is an allegation of a standardized, uniform course of conduct by defendants affecting plaintiffs.” Diaz, at *16. This was a quote from a 2005 federal district court opinion that had been quoted in a later Montana Supreme Court decision. It is plainly inconsistent with Wal-Mart’s holding that commonality requires a common issue that is one where “determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart, 131 S. Ct. at 2551. The trial court in Diaz seemed to be applying that type of standard, focusing on whether individual determinations would be needed on each claim. The state supreme court majority, however, found it sufficient that there was a common issue of whether the state was improperly exercising subrogation rights without first making a “made whole” determination. Whether that was an issue that would satisfy Wal-Mart’s commonality test is unaddressed.
The Montana Supreme Court went on to conclude that the trial court, “in determining that individualized made-whole determinations were necessary here, erroneously delved into the merits of [the plaintiffs’] claims.” Diaz, at *25. Again, this seems inconsistent with Wal-Mart’s instruction that “[f]requently th[e] rigorous analysis [required for class certification] will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped.” Wal-Mart, 131 S. Ct. at 2551. The Montana Supreme Court’s conclusion on this point also seems inconsistent with the basic nature of a class certification determination. If the trial court cannot decide whether an individual determination is required on each claim, how can it properly decide class certification?
The court also seems to reject or side-step Wal-Mart’s unanimous holding on Rule 23(b)(2). The opinion is unclear on this point, but it seems to ignore the fact that damages would have to be individualized, and the injunctive or declaratory relief purportedly sought (returning money until fact-specific determinations were made) would be a temporary step towards an individualized determination.
There is a strong dissent by Justice Rice beginning with the statement that “I believe the Court has become so lost in the forest that it cannot see the controlling legal principles for all the trees.” Diaz, at *32 (Rice, J., dissenting). The dissent focuses on the prior history of the case, which included a prior appeal to the state supreme court. Justice Rice suggests essentially that the majority had transformed the nature of the plaintiff’s claims and “re-made” the case into a different one than the case the trial court had decided.
There is nothing inherently wrong with a state supreme court disagreeing with the U.S. Supreme Court on class certification issues, if it is consistent with due process. But if a state supreme court is going to do so, particularly where the state rule is identical to the federal rule and the state court has followed or adopted federal law, in my view the state court should explain its departure from the U.S. Supreme Court. It should address Wal-Mart on its merits and reach a reasoned conclusion, not ignore Wal-Mart or side-step it. Only a rigorous analysis by state supreme and appellate courts will further the development of class action law.