First Int'l Bank & Trust v. Oasis Petroleum N. Am. LLC

587 F.Supp.3d 896

FIRST INTERNATIONAL BANK & TRUST, Plaintiff,

v.OASIS PETROLEUM NORTH AMERICA LLC, Defendant.

Case No. 1:18-cv-67

United States District Court, D. North Dakota.

Signed February 11, 2020

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.¹ 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) ).

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 [14 L.Ed.2d 8] (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

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