McCollough v. Minnesota Lawyers Mutual Insurance Company et al

Filing 21

FINDINGS AND RECOMMENDATIONS re 9 MOTION to Stay of Proceedings or, in the Alternative, Protective Order filed by Minnesota Lawyers Mutual Insurance Company. IT IS RECOMMENDED that Minnesota Lawyers' Motion for Stay of Proceedings be GRANTED. Objections to F&R due by 11/12/2009. Signed by Magistrate Carolyn S Ostby on 10/26/2009. (POC, )

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF MONTANA B IL L I N G S DIVISION T I M O T H Y McCOLLOUGH, Plaintiff, vs. M I N N E S O T A LAWYERS M U T U A L INSURANCE C O M P A N Y and JOHN DOES I a n d II, Defendants. P la in tiff Timothy McCollough ("McCollough") initiated this thirdp a r t y insurance bad faith case in state court after he prevailed in his la w s u it in this Court against Johnson, Rodenburg & Lauinger ("JRL") for claims related to JRL's debt collection activities directed at M c C o llo u g h . See Cmplt. (Court's Doc. No. 4) at 2-5. Defendant M in n e s o t a Lawyers Mutual Insurance Company ("Minnesota L a w y e r s " ), JRL's insurer, removed the case to federal court invoking t h is Court's diversity jurisdiction under 28 U.S.C. § 1332. Notice of R e m o v a l (Court's Doc. No. 1) at 2. N o w pending is Minnesota Lawyers's Motion for Stay of F I N D IN G S AND R E C O M M E N D A T I O N OF U N I T E D STATES M A G IS T R A T E JUDGE C V -0 9 -9 5 -B L G -R F C -C S O

P r o c e e d in g s or, in the Alternative, Protective Order ("Minn. Lawyers's M t n ." ). Court's Doc. No. 9. Having considered the parties' arguments, fo r the reasons discussed herein, the Court will recommend that the m o t io n to stay proceedings be granted. I. BACKGROUND I n 2007, McCollough sued CACV of Colorado, LLC ("CACV"), and J R L alleging violations of the Fair Debt Collection Practices Act (" F D C P A " ), Montana's Unfair Trade Practices and Consumer Protection A c t , abuse of process, and malicious prosecution. McCollough v. J o h n s o n , Rodenberg & Lauinger, CV 07-166-BLG-CSO ("underlying J R L case") (Final Pretrial Order, Court's Doc. No. 140, at 4). McCollough settled with CACV during discovery, id. (Notice of D is m is s a l, Court's Doc. No. 5, at 1), and obtained summary judgment on t h e FDCPA claim against JRL. Id. (Court's Doc. No. 140, at 2). A t an April 2009 trial, a jury found in McCollough's favor on the r e m a in in g claims. Id. (Special Verdict Form, Court's Doc. No. 161, at 12 ). Upon the Court's direction, id. (Order RE: Judgment, Court's Doc. N o . 183), the clerk of court entered judgment in McCollough's favor on

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J u n e 3, 2009. Id. (Judgment in a Civil Case, Court's Doc. No. 184). Following the Court's denial of JRL's post-trial motion, id. (Order D e n y in g [JRL's] Motion for a New Trial and to Amend the Judgment, C o u r t's Doc. No. 203), JRL appealed to the Ninth Circuit Court of A p p e a ls on August 19, 2009. Id. (Notice of Appeal, Court's Doc. No. 2 0 4 ). O n June 5, 2009, two days after entry of Judgment in the u n d e r ly in g JRL case, McCollough filed the instant action in state court. Cmplt. (Court's Doc. No. 4). He alleges, in part, that [d ]e s p it e ... multiple judicial determinations establishing t h a t its insured was legally liable for harm caused to M c C o llo u g h , ... Minnesota Lawyers Mutual entirely n e g le c t e d to attempt to effectuate a prompt, fair and e q u it a b le settlement with McCollough, and otherwise v io la t e d Montana Code Annotated § 33-18-201(1), (4) and (6), a n d its separate duty of good faith and fair dealing. I d . at ¶ 9. O n August 12, 2009, Minnesota Lawyers filed the pending motion fo r stay and, in the alternative, for a protective order. It seeks either a s t a y of these proceedings pending the Ninth Circuit's resolution of the u n d e r ly in g JRL case or, in the alternative, a protective order

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p r o h ib it in g discovery of its file regarding the underlying JRL case. Minn. Lawyers's Mtn. at 1-2. II. P A R T I E S ' ARGUMENTS 1 M in n e s o t a Lawyers argues that this action is premature and u rg e s the Court to stay it for two principal reasons. First, before thirdp a r t y bad faith actions may proceed, they must first meet MCA § 33-182 4 2 (6 )( b )'s requirement that the underlying action be finally a d ju d ic a te d or settled. Mem. of Law in Support of Deft's Mtn. ("Minn. L a w y e r s 's Br.") (Court's Doc. No. 10) at 6-8. Such finality is critical, M in n e s o ta Lawyers argues, because discovery in the bad faith case of d o c u m e n t s containing attorney-client and work product information w o u ld be unfairly prejudicial to the defendant in the underlying JRL c a s e if it is reversed or retried. Id. S e c o n d , Minnesota Lawyers argues, a stay of this case is w a r r a n t e d because, if the Ninth Circuit reverses the underlying JRL c a s e , this case would be unnecessary. Id. at 8-11. Any expenditure of

Because the Court is recommending that Minnesota Lawyers's m o t io n be granted to the extent it seeks a stay of proceedings, the Court w il l not address the parties' arguments related to Minnesota Lawyers's a lt e r n a t iv e motion for a protective order. -4 -

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r e s o u r c e s in this case, it argues, would be wasted. Minn. Lawyers's R e p ly (Court's Doc. No. 12) at 5. Even if the Ninth Circuit reverses only p a r t of the underlying JRL case, Minnesota Lawyers argues, at least s o m e expenditure of legal resources would be wasted and information r e v e a le d in discovery would be unfairly prejudicial to JRL if the u n d e r ly in g JRL case has to be tried again. Id. I n response, McCollough argues that Minnesota Lawyers has fa ile d to show that either a stay or a protective order is necessary. Pltf's B r . in Opposition to Mtn. for Stay of Proceedings and for Protective O r d e r ("McCollough's Resp.") (Court's Doc. No. 11) at 2. First, he a r g u e s that judicial economy weighs in favor of denying a stay because t h e defendant, relevant facts, and legal issues in the underlying JRL c a s e are "entirely different" from those in the case at hand. Id. at 6. For example, he argues, JRL is the defendant in the underlying case w h ile Minnesota Lawyers is the defendant here. Also, the underlying c a s e involved facts and legal claims relating to JRL's debt collection a c t iv it ie s while this case involves facts and legal claims relating to in s u r a n c e claims handling practices. Id. Because of these differences,

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M c C o llo u g h argues, "[t]here is no danger of `conflicting judgments' b e c a u s e these are completely different cases, with different parties, p re s e n tin g different legal issues." Id. S e c o n d , McCollough argues that any balancing of hardships b e t w e e n the parties in this case favors denying a stay. Id. at 8-16. He a rg u e s that because Minnesota Lawyers is not a party to the underlying J R L case, it "is not being forced to expend time and money litigating the s a m e issues in multiple forums." Id. at 9. On the other hand, M c C o llo u g h argues, it is fairly possible that he will suffer harm if this c a s e is stayed because: (1) "justice delayed is justice denied" and more t h a n three months already have passed since entry of judgment in the u n d e r ly in g JRL case; (2) he needs discovery to identify the "John Doe" d e f e n d a n t s named in this case and claims against them will be timeb a r r e d if not filed within the next nine months; and (3) discoverable e v id e n ce is subject to loss or destruction during any delay in the p r o ce e d in g s that a stay may produce. Id. at 14-15. T h ir d , McCollough argues that Montana law indicates that bad fa it h claims against insurers not only may be brought promptly

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fo llo w in g an underlying action, but must be brought promptly. He a rg u e s that § 33-18-242(6), MCA, does not allow a third-party claimant t o file a bad faith action until after the underlying claim has been s e t t le d or a judgment entered in favor of the claimant. But at the same t im e , § 33-18-242(7)(b), MCA, requires the third-party claimant to file t h e bad faith claim within one year. This short statute of limitations, M c C o llo u g h argues, indicates that the Montana legislature intended t h a t third party claimants file bad faith actions while underlying a c t io n s are pending on appeal. Id. at 9. III. D IS C U S S IO N T h e U.S. Supreme Court in Landis v. North American Co. a n n o u n c e d the general principle that district courts have inherent p o w e r to control their dockets and promote efficient use of resources "for it s e lf, for counsel, and for litigants." 299 U.S. 248, 254 (1936). A d is t ric t court thus enjoys discretion to stay proceedings in its own court w h e n appropriate. Id.; Dependable Highway Express, Inc. v. N a v ig a to rs Ins. Co., 498 F.3d 1059, 1066 (9 th Cir. 2007); Lockyer v. M ir a n t Corp., 398 F.3d 1098, 1109 (9 th Cir. 2005). But the Ninth Circuit

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C o u r t of Appeals cautions that it reviews a district court's exercise of d is c r e t io n in entering a stay order under a "somewhat less deferential" s ta n d a r d than the abuse-of-discretion standard employed in other c o n t e x t s . Dependable Highway, 498 F.3d at 1066 (citation omitted). I n Landis, the Supreme Court provided the following guidance for c o u rt s considering motions for stay orders and observed that the a n a ly s is requires balancing the benefits of a stay with any hardship a s ta y may impose: [A party seeking] a stay must make out a clear case of h a r d s h ip or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will w o r k damage to some one else. Only in rare circumstances w ill a litigant in one cause be compelled to stand aside while a litigant in another settles the rule of law that will define t h e rights of both. L a n d is , 299 U.S. at 255. T h e Ninth Circuit has refined the Landis standard with the fo llo w in g factors courts should consider: (1) "stays should not be in d e fin it e in nature" and "should not be granted unless it appears likely t h e other proceeding will be concluded within a reasonable time[,]" D e p e n d a b le Highway, 498 F.3d at 1066 (citing Leyva v. Certified

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G r o c e r s of California, Ltd., 593 F.2d 857, 864 (9 th Cir. 1979)); (2) courts m o r e appropriately enter stay orders where a party seeks only damages, d o e s not allege continuing harm, and does not seek injunctive or d e c la r a t o r y relief since a stay would result only in delay in monetary r e co v e ry , Lockyer, 398 F.3d at 1110 (citing CMAX, Inc. v. Hall, 300 F.2d 2 6 5 , 268-69 (9 th Cir. 1962)); (3) stays may be appropriate if resolution of is s u e s in the other proceeding would assist in resolving the proceeding s o u g h t to be stayed, id. at 1110-11 (citing CMAX, 300 F.2d at 269 ("In t h e interests of uniform treatment of like suits there is much to be said fo r delaying the front runner.")); and (4) stays may be appropriate for c o u r ts ' docket efficiency and fairness to the parties pending resolution of in d e p e n d e n t proceedings that bear upon the case, "whether the s e p a r a t e proceedings are judicial, administrative, or arbitral in c h a r a c t e r , and [such stays] do[] not require that the issues in such p r o c e e d in g s are necessarily controlling of the action before the court[,]" id . at 1111 (citing Leyva, 593 F.2d at 863-64). A p p ly in g the foregoing analytical framework to the case at hand, t h e Court concludes that a stay is appropriate in this case. Both the

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b a la n c e of hardships between the parties and the potential for n a r r o w in g issues justify a stay. A s an initial matter, after weighing the parties' competing in t e r e s t s as Landis requires, the Court believes it is reasonable to c o n c lu d e that there exists a fair possibility that a stay of these p r o c e e d in g s will work at least some damage to McCollough. A delay in a n y potential recovery he may receive, by itself, raises a "fair p o s s ib ilit y " of harm to him. Thus, under Landis, Minnesota Lawyers m u s t show a "clear case of hardship or inequity" warranting a stay. The C o u r t concludes that it has. F ir s t , inequity would result from discovery of Minnesota L a w y e r s 's JRL file if it reveals attorney-client or work product in fo r m a tio n . Such disclosure could unfairly prejudice JRL in the u n d e r ly in g case should JRL prevail in its appeal and return to this C o u r t . The Court notes that McCollough, in resisting Minnesota L a w y e r s 's motion both to the extent it seeks a stay and to the extent it s e e k s a protective order, argues that his discovery requests "are e s s e n t ia lly standard initial discovery requests, typical of those served in

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t h e vast majority of third-party MUTPA cases" and that this "broad d is c o v e r y ­ including discovery addressed to precisely the matters M c C u llo u g h (sic) seeks to explore ­ is contemplated under Montana la w , and recognized as appropriate by the Ninth Circuit." McCollough's R e s p . at 12. S e c o n d , as discussed in more detail below, resolution of the appeal in JRL's favor could render this case unnecessary. Should the Ninth C ir c u it reverse the underlying JRL case in its entirety and find in favor o f JRL, McCollough may have no third-party bad faith case against M in n e s o t a Lawyers. Subjecting Minnesota Lawyers to potentially c o s t ly and resource-consuming discovery would pose a hardship upon it if JRL prevails on appeal. T h ir d , this Court is mindful of its obligation to attempt to s a fe g u a r d judicial resources. Although it is not of paramount concern, a llo w in g proceedings in this case could result in unnecessary e x p e n d it u r e s of the Court's resources if JRL prevails on appeal. See L o c k y e r , 398 F.3d at 1112 (recognizing "the importance of the district c o u r t having the ability to control its own docket, particularly in this

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t im e of scarce judicial resources and crowded dockets."). F in a lly , the factors detailed above that the Ninth Circuit instructs d is t r i c t courts to consider in evaluating stay requests weigh in favor of a s t a y . First, a stay here would not be the "indefinite in nature" variety t h a t the court criticized in Dependable Highway, 498 F.3d at 1066 (c it in g Leyva, 593 F.2d at 864). Rather, Minnesota Lawyers seeks, and t h is Court will recommend imposition of, only a stay limited in duration t o the pendency of the appeal in the underlying case. The appeal before t h e Ninth Circuit presumably "will be concluded within a reasonable t im e " as the Ninth Circuit contemplated in Dependable Highway. Thus, the stay in this matter will not be indefinite in nature. S e c o n d , McCollough in this action seeks solely monetary damages. Cmplt. at 5-6. He does not allege continuing harm, nor does he seek in ju n c t iv e or declaratory relief. A stay, therefore, might result only in p o s s ib le delay in monetary recovery. Lockyer, 398 F.3d at 1110 (citing C M A X , 300 F.2d at 268-69). F in a lly , resolution of issues in the underlying JRL case's appeal w o u ld assist in resolving issues in this case. Id. at 1110-11 (citing

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C M A X , 300 F.2d at 269). Whatever the outcome of the appeal, the N in t h Circuit's decisions on issues pending therein likely will have a s u b s t a n t ia l impact on McCollough's claims in this case. Id. at 1111 ( c it in g Leyva, 593 F.2d at 863-64). I n reaching the above conclusions, the Court finds unpersuasive McCollough's arguments in opposition to a stay. McCollough's c o n t e n t io n that this case need not be stayed because Minnesota L a w y e r s "is not a party to the other proceedings and is not being forced t o expend time and money litigating the same issues in multiple fo r u m s ," McCollough's Resp. at 8-9, ignores the reality of the r e la t io n s h ip between an insurer and its insured. As counsel are aware, a n insurer often is contractually bound to spend time and money lit ig a tin g cases on behalf of its insureds. Given the relationship b e tw e e n Minnesota Lawyers and JRL, it is reasonable to assume that M in n e s o t a Lawyers has an interest, pecuniary or otherwise, in the fate o f the underlying JRL case. Thus, the proposition that Minnesota L a w y e r s has no stake in the underlying JRL case is unconvincing. M c C o llo u g h may be correct that the underlying JRL case has a

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d iffe r e n t defendant, different relevant facts, and different legal issues fr o m the case at hand. But these differences do not foreclose a stay of p r o ce e d in g s in this case. The Supreme Court in Landis instructed that a district court may impose a stay if it is "efficient for its own docket a n d the fairest course for the parties ... pending resolution of in d e p e n d e n t proceedings which bear upon the case" and noted that im p o s it io n of a stay "does not require that the issues in such p r o c e e d in g s are necessarily controlling of the action before the court." Landis, 299 U.S. at 863-64. Because resolution of the underlying JRL c a s e 's appeal could bear upon issues in this case, the Court may enter a s t a y . Id.; Levya, 593 F.2d at 863 (stay may be most efficient and fairest c o u rs e when there are "independent proceedings which bear upon the c a s e ." ) . T h e Court also declines to alter its conclusion herein even when fa c e d with McCollough's argument that a stay will time bar his claims a g a in s t John Doe defendants. The Court concludes that the argument is too speculative. Without citation to any authority, McCollough claims t h a t "John Doe defendants will be time-barred if [an amended

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c o m p la in t identifying them is] not filed within the next nine months." 2 M c C o llo u g h 's Br. at 15. S h o u ld McCollough seek to amend his complaint to substitute J o h n Doe defendants with fully identified parties after the applicable s t a t u t e of limitations expires, Rule 15(c) of the Federal Rules of Civil P r o ce d u re will provide the only procedural vehicle. See Hovland v. G a r d e lla , 2008 WL 5395738 *11 (D. Mont. 2008) (noting that federal R u le 15(c)(1) applies rather than Montana's Rule 15(c) when such a t t e m p t e d amendment occurs after removal from state court). Rule 1 5 (c )(1 ) provides: (c ) Relation Back of Amendments. (1 ) When an Amendment Relates Back. An amendment to a

McCollough arrived at the "nine months" figure because he filed this a c tio n in state court on June 5, 2009 (Court's Doc. No. 4), i.e., three m o n t h s before filing his brief in response to Minnesota Lawyers's motion t o stay. The applicable statute of limitations for his claim is one year. M C A § 33-18-242(7)(b). Thus, nine months remained at the time he filed h is brief until the expiration of the statute of limitations, assuming the filin g commenced the action for purposes of the statute of limitations. M in n e s o ta Lawyers takes the position that the "statute of limitations has n o t yet begun to run on [McCollough's] claim [and] he does not have to n a m e his John Doe defendants until after the [underlying JRL case] is lit ig a te d to finality." Minn. Lawyers's Reply Brief (Court's Doc. No. 12) at 11. -1 5 -

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p le a d in g relates back to the date of the original pleading when: (A ) the law that provides the applicable statute of limitations a llo w s relation back; (B ) the amendment asserts a claim or defense that arose out o f the conduct, transaction, or occurrence set out-or a t te m p t e d to be set out-in the original pleading; or (C ) the amendment changes the party or the naming of the p a r t y against whom a claim is asserted, if Rule 15(c)(1)(B) is s a t is fie d and if, within the period provided by Rule 4(m) for s e r v in g the summons and complaint, the party to be brought in by amendment: (i) received such notice of the action that it will not be p re ju d ic e d in defending on the merits; and (ii) knew or should have known that the action would have b e e n brought against it, but for a mistake concerning the p r o p e r party's identity. H e r e , neither McCollough nor the record provides any reliable in s ig h t regarding the possible identity of the John Doe defendants or of t h e role each may have played in the events giving rise to his action. At t h is juncture, on this record, it is impossible to employ the foregoing r u le to determine whether any hypothetical amendment might relate b a c k with respect to any hypothetical John Doe defendant McCollough m ig h t later identify. Thus, the Court is not inclined to alter its

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c o n clu s io n that a stay is appropriate herein. F in a lly , also informing the Court's decision here is the unsettled n a t u r e of Montana law regarding the degree of finality that must exist b e fo re a third-party claimant may bring a third-party insurance bad fa it h case. As noted, Minnesota Lawyers, although it does not seek d is m is s a l of this action, argues that this case is premature. It contends t h a t MCA § 33-18-242(6)(b) requires that the underlying case be finally a d ju d ic a t e d before such a claim may proceed and that, because an a p p e a l is pending in the underlying case, the requisite finality has not b e e n satisfied. Minn. Lawyers's Br. at 6-8. M c C o llo u g h , on the other hand, counters that the statute requires o n ly that the underlying claim be "settled or a judgment entered in f a v o r of the claimant on the underlying claim." McCollough's Br. at 9 (q u o t in g MCA § 33-18-242(6)(b)). He adds that, once judgment has been e n t e r e d , the statute further requires that the third-party claimant file t h e claim within one year. Id. (citing MCA § 33-18-242(7)(b)). Thus, M c C o llo u g h argues, not only may he proceed with his case now, he is r e q u ire d under the statute to do so. Id. McCollough further argues that

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a balance has been struck in Montana between the c o m p e t in g interests of third-party [Montana Unfair Trade P r a ct ic e s Act ("MUTPA")] claimants, and insurers. The le g is la t u r e , and the Montana Supreme Court, have declared t h a t once judgment has been entered in favor or the c la im a n t by the district court, a third-party MUTPA may p r o ce e d . Neither the Montana legislature, nor the Montana S u p r e m e Court, has declared that the third-party claim may b e filed, but cannot proceed in the normal manner. I d . at 11-12 (emphasis in original). N o case decided by the Montana Supreme Court addresses this p r e c is e issue in the context presented in the instant case.3 In any event, r e s o lu tio n of this issue is not necessary to allow the Court to grant the s t a y requested. It is true that the statute requires that an underlying c a s e be settled or that judgment in it be entered before a third-party

The Montana Supreme Court has issued decisions in workers' c o m p e n s a t io n cases that address the issue. See, e.g., O'Connor v. Nat'l U n io n Fire Ins. Co., 87 P.3d 454, ¶ 30 (Mont. 2004) (answering certified q u e s t io n s from the Ninth Circuit, the Montana Supreme Court held that M U T P A claims against an insurer accrue when Workers' Compensation C o u r t enters judgment even though the judgment left open question of t o t a l extent and duration of the worker's disability). But because the " in h e r e n t nature of workers' compensation claims and the workers' c o m p e n s a t io n system creates a piecemeal process" that allows some claims t o be settled or otherwise finally resolved, "other claims [may be] left open o r reserved for later disposition." Jimenez v. Liberty Northwest Ins. Corp., 2 0 0 7 WL 1378407 (D. Mont. 2007). Thus, such cases do not provide d e f in it iv e guidance on the issue. -1 8 -

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c la im a n t may file a third-party claim. Here, judgment was entered and M c C o llo u g h filed his third-party claim. All the Court is recommending h e r e in is that this case be stayed pending resolution of the appeal of the u n d e r ly in g JRL case. A stay will not interfere with McCollough's ability t o file an action since he already has filed it, nor will a stay foreclose his a b ilit y to proceed with this action, if appropriate, once the appeal is d e c id e d . IV . C O N C L U S IO N B a s e d on the foregoing, IT IS RECOMMENDED that Minnesota L a w y e r s 's Motion for Stay of Proceedings (Court's Doc. No. 9) be GRANTED. N O W , THEREFORE, IT IS ORDERED that the Clerk shall serve a copy of the Findings and Recommendation of United States M a g is t r a t e Judge upon the parties. The parties are advised that p u r s u a n t to 28 U.S.C. § 636, any objections to the findings and r e c o m m e n d a t io n must be filed with the Clerk of Court and copies served o n opposing counsel within ten (10) days after receipt hereof, or o b je c t io n is waived.

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D A T E D this 26 th day of October, 2009.

/S / Carolyn S. Ostby C a r o ly n S. Ostby U n it e d States Magistrate Judge

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