Moodys Market v. State Fund

2020 MT 217

Opinion

DA 19-0456 08/25/2020 IN THE SUPREME COURT OF THE STATE OF MONTANA 2020 MT 217 Case Number: DA 19-0456

MOODY’S MARKET, INC.; LIQUID ENGINEERING CORP.; STIEG RANCH LLC; Z INC.; STORY DISTRIBUTION CO.; VINTON CONSTRUCTION; MONTANA ROOFING CONTRACTORS ASSOCIATION, INC.; ACE ROOFING, LLC; CORY SIMONS CONSTRUCTION, INC.; and NATIONAL FEDERATION OF INDEPENDENT BUSINESS,

Plaintiffs and Appellants,

v.

MONTANA STATE FUND, MONTANA BOARD OF INVESTMENTS and STATE OF MONTANA,

Defendants and Appellees.

APPEAL FROM: District Court of the Twentieth Judicial District, In and For the County of Lake, Cause No. DV-18-12 Honorable John W. Larson, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

David M. McLean, Ryan C. Willmore, McLean & Associates, PLLC, Missoula, Montana

For Appellee Montana State Fund:

Curt Drake, Andres Haladay, Drake Law Firm, P.C., Helena, Montana

For Appellees State of Montana and Montana Board of Investments:

Timothy C. Fox, Montana Attorney General, J. Stuart Segrest, Civil Bureau Chief, Helena, Montana

Submitted on Briefs: May 13, 2020

Decided: August 25, 2020

Filed:

cir-641.—if __________________________________________ Clerk . Justice James Jeremiah Shea delivered the Opinion of the Court.

¶1 Moody’s Market, Inc., Liquid Engineering Corp., Stieg Ranch, LLC, Z Inc.,

Story Distributing Co., Vinton Construction, Montana Roofing Contractors Association,

Inc., Ace Roofing, LLC, Cory Simons Construction, Inc., and National Federation of

Independent Business (collectively, the “Policyholders”) appeal the orders of the

Twentieth Judicial District Court, Lake County, granting the Montana State Fund

(State Fund), the Montana Board of Investments (BOI), and the State of Montana’s (State)

motions to dismiss the Policyholders’ Complaint, denying the Policyholders’ motion for

leave to amend the Complaint, and entering final judgment against the Policyholders. We

address the following issues which we find to be dispositive:

Issue One: Are the Policyholders’ declaratory judgment claims justiciable, when they seek a declaration as to the constitutionality of statutes that are no longer in effect?

Issue Two: Did the District Court err in denying the Policyholders’ motion to amend their Complaint to name individual members of the State Fund Board of Directors and the BOI?

¶2 We affirm the District Court’s dismissal of the Policyholders’ Complaint and its

denial of their motion to amend.

PROCEDURAL AND FACTUAL BACKGROUND

¶3 On November 6, 2017, the Montana Legislature met in special session to address

budgetary issues regarding the State’s General Fund shortage. The General Fund shortage

was caused by various factors, including an unpredictably expensive forest fire season.

The Governor of Montana’s Proclamation calling the special session announced the

2 session’s scope, including “Legislation authorizing a management fee on excess

investment holdings of the [] State Fund to offset state fire costs.”

¶4 During the special session, the Legislature passed Senate Bill No. 4 (SB 4), which

enacted § 17-1-512, MCA (2017), and amended § 39-71-2320, MCA, authorizing the

imposition of a three-percent “management rate” on certain BOI portfolios, including the

State Fund, and required the funds be transferred to the State’s fire suppression account

“by April 1, 2018, and April 1, 2019.” The legislation provided that both

§ 17-1-512, MCA, and the amendment to § 39-71-2320, MCA, would terminate on June 30,

2019.

¶5 The Policyholders maintain workers’ compensation insurance coverage for their

employees through the State Fund, for which they pay premiums. On January 22, 2018,

the Policyholders filed a Complaint pursuant to Montana’s Uniform Declaratory

Judgments Act, § 27-8-101, et seq., against the State Fund, BOI, and the State. The

Policyholders sought a declaration that § 17-1-512, MCA, and the amended

§ 39-71-2320, MCA, violated several provisions of the United States and

Montana Constitutions.1 The Policyholders’ Complaint also sought a permanent injunction

enjoining the statutes’ enforcement and authorization.

1 The Policyholders’ Complaint alleged the following three counts: (1) violation of Mont. Const. Art. VIII, § 13; (2) violation of Mont. Const. Art. II, § 31, and U.S. Const. Art. I, § 10; (3) violation of Mont. Const. Art. II, § 29, and U.S. Const. amend. V.

3 ¶6 On March 6, 2018, the State Fund, BOI, and the State jointly moved to dismiss the

Policyholders’ Complaint for lack of standing. On August 2, 2018, the Policyholders

moved for leave to amend their Complaint. In addition to the three original counts seeking

declarations that the legislation violated provisions of the Montana and United States

Constitutions, the Policyholders sought to add a fourth count against individual members

of the State Fund Board of Directors and the BOI, alleging breach of fiduciary duties, duties

of loyalty, and statutory duties. On August 2, 2018, the State Fund filed an additional

motion to dismiss the Complaint pursuant to M. R. Civ. P. 12(b)(6), asserting the

Policyholders’ Complaint failed to state a claim against the State Fund upon which relief

can be granted.

¶7 On June 17, 2018, the District Court issued an “Opinion [and] Order Granting

Defendant State Fund’s Motion to Dismiss and Denying [Policyholders’] Motion to

Amend.” The District Court concluded that “[Policyholders] will not be injured because

SB 4 explicitly provides ‘[t]he state fund may not raise rates or reduce dividends to offset

real or estimated losses associated with the 3% management rate transfer.’” Therefore, the

District Court reasoned that the Policyholders lacked standing to bring their claims because

SB 4 “insulates [the Policyholders] from any injury that would give rise to a justiciable

controversy.” The District Court also denied the Policyholders’ motion for leave to amend

their Complaint after concluding that the proposed amendment did not cure the

Policyholders’ lack of standing and that the individual State Fund board members were

4 immune from liability pursuant to § 2-9-103, MCA, because they were acting in their

capacity as State employees.

¶8 On July 8, 2019, the District Court issued an “Opinion [and] Order Granting

Defendant State of Montana and Montana Board of Investments’ Motion to Dismiss.” As

it pertained to the State and the BOI, the District Court again held that the Policyholders

lacked standing to bring their claims because SB 4 “insulates [the Policyholders] from any

injury that would give rise to a justiciable controversy.” On July 11, 2019, the

District Court entered final judgment against the Policyholders.

¶9 While the legislation was in effect, funds totaling approximately $28,000,000 were

transferred from the State Fund to the fire suppression account in March of 2018 and 2019.

On June 30, 2019, § 17-1-512, MCA, and the amendment to § 39-71-2320, MCA, were

terminated pursuant to the terms of SB 4.

STANDARDS OF REVIEW

¶10 “Issues of justiciability . . . are questions of law, for which our review is de novo.”

City of Missoula v. Fox, 2019 MT 250, ¶ 7, 397 Mont. 388, 450 P.3d 898.

¶11 A district court’s denial of a motion to amend pleadings is reviewed for an abuse of

discretion. Farmers Coop. Ass’n v. Amsden, LLC, 2007 MT 286, ¶ 12, 339 Mont. 445,

171 P.3d 690. A district court abuses its discretion if it acts arbitrarily, without

employment of conscientious judgment, or in excess of the bounds of reason resulting in

substantial injustice. Bardsley v. Pluger, 2015 MT 301, ¶ 10, 381 Mont. 284, 358 P.3d 907.

5 DISCUSSION

¶12 Issue One: Are the Policyholders’ declaratory judgment claims justiciable, when they seek a declaration as to the constitutionality of statutes that are no longer in effect?

¶13 In their opening brief on appeal, the Policyholders summarize this case as follows:

The central issue in this case is whether [SB 4] (later codified at § 17-1-512, [MCA,] but since been terminated), authorizing monies held in trust by the [State Fund] and the [BOI] to be transferred to the Montana Fire Suppression Account or any other account of the State[ ], is unconstitutional; and whether the taking of [State Fund’s] private trust funds by way of a pretext ‘management fee’ as mandated by § 17-1-512[, MCA,] represents a taking without just compensation.

¶14 The Policyholders’ original Complaint, which was the subject of the State Fund,

BOI, and the State’s joint motion to dismiss, sought declaratory relief only. In invoking

the District Court’s jurisdiction, it explicitly stated: “This case is brought pursuant to

Montana’s Uniform Declaratory Judgment[s] Act pursuant to § 27-8-101, [MCA,]

[et seq.]” The three counts in the Complaint asserted violations of several provisions of

the Montana and United States Constitutions, and sought the court’s declaration to that

effect.

¶15 Because the statutory scheme at issue was still in effect at the time the District Court

ruled on the State Fund, the BOI, and the State’s motions to dismiss, the District Court

based its ruling on its conclusion that the Policyholders lacked standing to bring their

claims. We do not address the District Court’s standing determination, however, because

since the District Court’s ruling was issued the statutory scheme was terminated pursuant

6 to its own terms. Therefore, we conclude that the Policyholders’ declaratory judgment

action is not justiciable.

¶16 “The judicial power of Montana’s courts, like the federal courts, is limited to

‘justiciable controversies.’” Plan Helena, Inc. v. Helena Reg’l Airport Auth. Bd.,

2010 MT 26, ¶ 6, 355 Mont. 142, 226 P.3d 567 (citing Greater Missoula Area Fed’n. v.

Child Start, Inc., 2009 MT 362, ¶ 22, 353 Mont. 201, 219 P.3d 881). “A justiciable

controversy is one upon which a court’s judgment will effectively operate, as distinguished

from a dispute invoking a purely political, administrative, philosophical or academic

conclusion.” Clark v. Roosevelt Cty., 2007 MT 44, ¶ 11, 336 Mont. 118, 154 P.3d 48.

¶17 The Policyholders seek reversal of the District Court’s dismissal of their Complaint

which was based on their alleged lack of standing. Assuming, for the sake of argument,

that the Policyholders had standing to initiate their declaratory judgment action challenging

the constitutionality of § 17-1-512, MCA (2017), and amended § 39-71-2320, MCA, the

constitutionality of these statutes became an academic conclusion when the statutes were

terminated. The statutes are neither constitutional nor unconstitutional because they are no

longer statutes. Thus, we would be remanding this cause to the District Court so it could

render an advisory opinion as to the constitutionality of a statutory scheme that is no longer

in effect.

¶18 Although this appeal was taken after the statutory scheme at issue was terminated,

the parties limit their arguments on appeal to the narrower issue of standing and do not

address the broader issue of justiciability, a threshold question which this Court must raise

7 and address sua sponte even if it has not been raised by the litigants. Plan Helena, ¶ 13.

Because the Policyholders’ declaratory judgment action does not present a justiciable

controversy, we must dismiss the appeal as it pertains to this issue. Plan Helena, ¶ 12

(Once a court no longer has before it a justiciable case or controversy, it is required to

dismiss the action at that point).

¶19 Issue Two: Did the District Court err in denying the Policyholders’ motion to amend their Complaint to name individual members of the State Fund Board of Directors and the BOI?

¶20 M. R. Civ. P. 15 governs the amendment of pleadings. Under M. R. Civ. P. 15(a),

a court should “freely” give leave to amend “when justice so requires.”

See also Farmers Coop., ¶ 12. However, M. R. Civ. P. 15(a) does not require a court to

“automatically grant a motion to amend.” Bardsley, ¶ 20 (quoting Kershaw v.

Mont. Dep’t of Transp., 2011 MT 170, ¶ 25, 361 Mont. 215, 257 P.3d 358). Leave to

amend is properly denied when the amendment is futile or legally insufficient to support

the requested relief. Ally Fin., Inc. v. Stevenson, 2018 MT 278, ¶ 21, 393 Mont. 332,

430 P.3d 522 (citing Hobble-Diamond Cattle Co. v. Triangle Irrigation Co.,

249 Mont. 322, 325, 815 P.2d 1153, 1155-56 (1991)).

¶21 The Policyholders sought leave to amend their Complaint to assert claims against

individual members of the State Fund Board of Directors and the BOI, alleging breach of

fiduciary duties, duties of loyalty, and statutory duties. The Policyholders argue the

District Court abused its discretion by denying their proposed amendment seeking to assert

claims against individual State Fund and BOI board members. We disagree.

8 ¶22 The District Court correctly determined the Policyholders’ proposed amendment is

futile because the State Fund and BOI board members are statutorily immune from liability.

See § 39-71-2318, MCA (“The members of the board, the executive director, and

employees of the state fund are not liable personally, either jointly or severally, for any

debt or obligation created or incurred by the state fund.”); § 2-15-1808(4), MCA

(designating BOI as a quasi-judicial board); Eklund v. Trost, 2006 MT 333, ¶ 22,

335 Mont. 112, 151 P.3d 870 (citing § 2-9-112, MCA) (providing that individual members

of a governmental board exercising quasi-judicial authority are entitled to immunity from

suit). We have previously recognized that when a proposed defendant “enjoys statutory

immunity from liability,” it is futile to name the defendant as a party to the action.

Emanuel v. Great Falls Sch. Dist., 2009 MT 185, ¶ 20, 351 Mont. 56, 209 P.3d 244. We

affirm the District Court’s denial of the Policyholders’ proposed amendment to their

Complaint.

CONCLUSION

¶23 Because the Policyholders’ declaratory judgment claims challenging the

constitutionality of § 17-1-512, MCA (2017), and amended § 39-71-2320, MCA, do not

present a justiciable controversy, their appeal as to the District Court’s dismissal of their

Complaint is dismissed. We affirm the District Court’s denial of the Policyholders’ motion

for leave to amend their Complaint to add claims against individual members of the

9 State Fund Board of Directors and the BOI because the individual board members are

statutorily immune. 2

/S/ JAMES JEREMIAH SHEA

We Concur:

/S/ MIKE McGRATH /S/ LAURIE McKINNON /S/ INGRID GUSTAFSON /S/ BETH BAKER /S/ DIRK M. SANDEFUR /S/ JIM RICE

2 To the extent that the Policyholders assert that they have suffered damages by the actions of the State, State Fund, and/or the BOI, this Opinion does not address, nor does it foreclose, an action for damages, or any other viable claim for relief. The only issues decided by this Opinion are whether the Policyholders’ declaratory judgment claims as to the constitutionality of the statutes at issue are justiciable, and whether their claims against individual members of the State Fund Board of Directors and the BOI are barred because of statutory immunity.