NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 2 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
VICTORIA SMITH, on behalf of herself and No. 23-35508 all others similarly situated, D.C. No. 1:22-cv-00050-SPW Plaintiff-Appellant,
v. MEMORANDUM*
HEALTH CARE SERVICE CORPORATION,
Defendant-Appellee,
and
JOHN DOES 1-10; CARING FOR MONTANANS, INC., Blue Cross and Blue Shield of Montana, Inc.,
Defendants.
Appeal from the United States District Court for the District of Montana Susan P. Watters, District Judge, Presiding
Argued and Submitted April 3, 2024 Portland, Oregon
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: OWENS and FRIEDLAND, Circuit Judges, and SILVER,** District Judge. Partial concurrence and partial dissent by Judge SILVER.
Victoria Smith appeals from the district court’s judgment dismissing her
claims under Federal Rule of Civil Procedure 12(b)(1). Smith alleges that Blue
Cross1 unlawfully enforced subrogation in violation of Montana’s made-whole
doctrine and (accordingly) in breach of their contract. See Rolan v. New W. Health
Servs., 504 P.3d 464, 473-74 (Mont. 2022) (“The made-whole doctrine does not
stem from the terms of a contract but rather is provided by the equitable principles
inherent in the Skauge ruling.” (quotation marks omitted) (referencing Skauge v.
Mountain States Tel. & Tel. Co., 565 P.2d 628, 632 (Mont. 1977))). As the parties
are familiar with the facts, we do not recount them here. We review a district
court’s dismissal for lack of ripeness de novo. Twitter, Inc. v. Paxton, 56 F.4th
1170, 1173 (9th Cir. 2022). We review questions of law de novo. Chappel v.
Lab’y Corp. of Am., 232 F.3d 719, 723 (9th Cir. 2000).
We reverse the district court’s conclusion that Smith’s claims are not ripe for
adjudication. Because we affirm the district court’s holding that Rawlings Inc.’s
** The Honorable Roslyn O. Silver, United States District Judge for the District of Arizona, sitting by designation. 1 Health Care Service Corporation does business as Blue Cross and Blue Shield of Montana. Because both parties and the district court refer to the defendant as “Blue Cross,” we do the same here.
2 second letter to Smith (“the Rawlings letter”) did not constitute enforcement of
subrogation, we conclude that Smith failed to state a claim for unlawful
subrogation. We remand to the district court with instructions to grant Smith leave
to amend her complaint to include additional factual allegations.
1. Smith’s lawsuit is ripe. “A dispute is ripe in the constitutional sense if it
present[s] concrete legal issues, presented in actual cases, not abstractions.” Mont.
Env’t Info. Ctr. v. Stone-Manning, 766 F.3d 1184, 1188 (9th Cir. 2014) (quotation
marks omitted). Here, there is a concrete legal issue whether the Rawlings letter
constitutes unlawful enforcement. Smith alleged an injury sufficient for standing
(and ripeness) through “temporary loss of use of [her] money” because her
attorneys had held Smith’s settlement money in trust pending resolution of Blue
Cross’s alleged enforcement. Van v. LLR, Inc., 962 F.3d 1160, 1164 (9th Cir.
2020) (per curiam); see also Twitter, 56 F.4th at 1173 (“[T]he constitutional
component of ripeness is synonymous with the injury-in-fact prong of the standing
inquiry.” (quotation marks omitted)).
2. Smith failed to state a claim. As an initial matter, the question whether
the asserted conduct violates Montana’s made-whole doctrine is a question of law.
Although actions short of litigation in court could constitute enforcement, and
although Montana courts have sometimes used “enforce” and “assert”
interchangeably, we do not believe Montana courts would hold that the Rawlings
3 letter, even in the context of Smith’s other alleged communications with Blue
Cross, was the sort of conduct that triggers an insurer’s duty to conduct a made-
whole analysis under Montana’s made-whole doctrine. See Enforce, Black’s Law
Dictionary (11th ed. 2019) (“[T]o compel obedience to.”).
Importantly, Blue Cross did not withhold or retain money that would belong
to Smith under the made-whole doctrine, as has been described by Montana courts
as “de facto subrogation.” See, e.g., Rolan v. New W. Health Servs., 307 P.3d 291,
296 (Mont. 2013) (insurer received reimbursements and retained them); Diaz v.
State, 313 P.3d 124, 127 (Mont. 2013) (explaining that policy terms allowing an
insurer to “avoid payment for covered medical expenses” without a made-whole
analysis “allows the Plan to exercise de facto subrogation”). Smith’s cited cases
are inapposite because they involved insurers who retained or withheld money
and/or addressed whether Montana’s made-whole doctrine applies even when there
is contract language allowing subrogation—circumstances that do not exist here.
See, e.g., Swanson v. Hartford Ins. Co. of the Midwest, 46 P.3d 584, 586 (Mont.
2002) (addressing whether Montana’s made-whole doctrine applied despite
contract language to the contrary, in a case where the insurer initially refused to
endorse and release a settlement check); Youngblood v. Am. States Ins. Co., 866
P.2d 203, 204 (Mont. 1993) (holding that a policy that “required
subrogation . . . pursuant to Oregon law” was unenforceable in Montana).
4 We are not aware of Montana cases addressing the question here: what
constitutes “assertion” or “enforcement” when the allegation is that an insurer is
seeking money from an insured. Although the Rawlings letter was sent from the
subrogation department and had a boilerplate heading with a payment address, the
letter did not say Blue Cross had a lien, provide a final amount owed, or demand
payment. Instead, the letter provided a chart of medical payments made on
Smith’s behalf and simply requested more information, including the status of the
claim.
Given the district court’s dismissal based on ripeness, Smith has not yet had
an opportunity to amend her complaint. See Lopez v. Smith, 203 F.3d 1122, 1130
(9th Cir. 2000) (en banc) (stating that leave to amend should be granted unless “the
pleading could not possibly be cured by the allegation of other facts” (citation
omitted)). Therefore, we remand to the district court with instructions to grant
Smith leave to amend her complaint to include additional factual allegations.
Each party shall bear its own costs on appeal.
AFFIRMED in part, REVERSED in part, and REMANDED.
5 FILED Smith v. Health Care Service Corp., No. 23-35508 MAY 2 2024 Silver, District Judge, concurring in part and dissenting in part: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
I agree Smith’s lawsuit is ripe, but I believe the current complaint,
supplemented by properly incorporated documents, stated claims for relief. The
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 2 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
VICTORIA SMITH, on behalf of herself and No. 23-35508 all others similarly situated, D.C. No. 1:22-cv-00050-SPW Plaintiff-Appellant,
v. MEMORANDUM*
HEALTH CARE SERVICE CORPORATION,
Defendant-Appellee,
and
JOHN DOES 1-10; CARING FOR MONTANANS, INC., Blue Cross and Blue Shield of Montana, Inc.,
Defendants.
Appeal from the United States District Court for the District of Montana Susan P. Watters, District Judge, Presiding
Argued and Submitted April 3, 2024 Portland, Oregon
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: OWENS and FRIEDLAND, Circuit Judges, and SILVER,** District Judge. Partial concurrence and partial dissent by Judge SILVER.
Victoria Smith appeals from the district court’s judgment dismissing her
claims under Federal Rule of Civil Procedure 12(b)(1). Smith alleges that Blue
Cross1 unlawfully enforced subrogation in violation of Montana’s made-whole
doctrine and (accordingly) in breach of their contract. See Rolan v. New W. Health
Servs., 504 P.3d 464, 473-74 (Mont. 2022) (“The made-whole doctrine does not
stem from the terms of a contract but rather is provided by the equitable principles
inherent in the Skauge ruling.” (quotation marks omitted) (referencing Skauge v.
Mountain States Tel. & Tel. Co., 565 P.2d 628, 632 (Mont. 1977))). As the parties
are familiar with the facts, we do not recount them here. We review a district
court’s dismissal for lack of ripeness de novo. Twitter, Inc. v. Paxton, 56 F.4th
1170, 1173 (9th Cir. 2022). We review questions of law de novo. Chappel v.
Lab’y Corp. of Am., 232 F.3d 719, 723 (9th Cir. 2000).
We reverse the district court’s conclusion that Smith’s claims are not ripe for
adjudication. Because we affirm the district court’s holding that Rawlings Inc.’s
** The Honorable Roslyn O. Silver, United States District Judge for the District of Arizona, sitting by designation. 1 Health Care Service Corporation does business as Blue Cross and Blue Shield of Montana. Because both parties and the district court refer to the defendant as “Blue Cross,” we do the same here.
2 second letter to Smith (“the Rawlings letter”) did not constitute enforcement of
subrogation, we conclude that Smith failed to state a claim for unlawful
subrogation. We remand to the district court with instructions to grant Smith leave
to amend her complaint to include additional factual allegations.
1. Smith’s lawsuit is ripe. “A dispute is ripe in the constitutional sense if it
present[s] concrete legal issues, presented in actual cases, not abstractions.” Mont.
Env’t Info. Ctr. v. Stone-Manning, 766 F.3d 1184, 1188 (9th Cir. 2014) (quotation
marks omitted). Here, there is a concrete legal issue whether the Rawlings letter
constitutes unlawful enforcement. Smith alleged an injury sufficient for standing
(and ripeness) through “temporary loss of use of [her] money” because her
attorneys had held Smith’s settlement money in trust pending resolution of Blue
Cross’s alleged enforcement. Van v. LLR, Inc., 962 F.3d 1160, 1164 (9th Cir.
2020) (per curiam); see also Twitter, 56 F.4th at 1173 (“[T]he constitutional
component of ripeness is synonymous with the injury-in-fact prong of the standing
inquiry.” (quotation marks omitted)).
2. Smith failed to state a claim. As an initial matter, the question whether
the asserted conduct violates Montana’s made-whole doctrine is a question of law.
Although actions short of litigation in court could constitute enforcement, and
although Montana courts have sometimes used “enforce” and “assert”
interchangeably, we do not believe Montana courts would hold that the Rawlings
3 letter, even in the context of Smith’s other alleged communications with Blue
Cross, was the sort of conduct that triggers an insurer’s duty to conduct a made-
whole analysis under Montana’s made-whole doctrine. See Enforce, Black’s Law
Dictionary (11th ed. 2019) (“[T]o compel obedience to.”).
Importantly, Blue Cross did not withhold or retain money that would belong
to Smith under the made-whole doctrine, as has been described by Montana courts
as “de facto subrogation.” See, e.g., Rolan v. New W. Health Servs., 307 P.3d 291,
296 (Mont. 2013) (insurer received reimbursements and retained them); Diaz v.
State, 313 P.3d 124, 127 (Mont. 2013) (explaining that policy terms allowing an
insurer to “avoid payment for covered medical expenses” without a made-whole
analysis “allows the Plan to exercise de facto subrogation”). Smith’s cited cases
are inapposite because they involved insurers who retained or withheld money
and/or addressed whether Montana’s made-whole doctrine applies even when there
is contract language allowing subrogation—circumstances that do not exist here.
See, e.g., Swanson v. Hartford Ins. Co. of the Midwest, 46 P.3d 584, 586 (Mont.
2002) (addressing whether Montana’s made-whole doctrine applied despite
contract language to the contrary, in a case where the insurer initially refused to
endorse and release a settlement check); Youngblood v. Am. States Ins. Co., 866
P.2d 203, 204 (Mont. 1993) (holding that a policy that “required
subrogation . . . pursuant to Oregon law” was unenforceable in Montana).
4 We are not aware of Montana cases addressing the question here: what
constitutes “assertion” or “enforcement” when the allegation is that an insurer is
seeking money from an insured. Although the Rawlings letter was sent from the
subrogation department and had a boilerplate heading with a payment address, the
letter did not say Blue Cross had a lien, provide a final amount owed, or demand
payment. Instead, the letter provided a chart of medical payments made on
Smith’s behalf and simply requested more information, including the status of the
claim.
Given the district court’s dismissal based on ripeness, Smith has not yet had
an opportunity to amend her complaint. See Lopez v. Smith, 203 F.3d 1122, 1130
(9th Cir. 2000) (en banc) (stating that leave to amend should be granted unless “the
pleading could not possibly be cured by the allegation of other facts” (citation
omitted)). Therefore, we remand to the district court with instructions to grant
Smith leave to amend her complaint to include additional factual allegations.
Each party shall bear its own costs on appeal.
AFFIRMED in part, REVERSED in part, and REMANDED.
5 FILED Smith v. Health Care Service Corp., No. 23-35508 MAY 2 2024 Silver, District Judge, concurring in part and dissenting in part: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
I agree Smith’s lawsuit is ripe, but I believe the current complaint,
supplemented by properly incorporated documents, stated claims for relief. The
record includes two letters depicting repeated attempts by Smith to determine if
Blue Cross would pursue subrogation. Eventually, Smith received a letter
identifying exact amounts and directing her to make payment. In my view, that
was sufficient to establish Blue Cross may have attempted subrogation contrary to
Montana law. Therefore, I respectfully concur in part and dissent in part.
During the proceedings below and in briefing this appeal, the parties agreed
there were two letters that should be deemed incorporated into the complaint. The
first letter, dated February 11, 2022, was from Smith’s counsel to Rawlings. That
letter explained that in early 2021, Smith’s counsel had sent a letter requesting
information about a possible lien Blue Cross might wish to assert. Blue Cross had
responded by explaining Rawlings would represent it regarding a “potential lien.”
Smith’s counsel then sent a letter to Rawlings, asking for information about the
potential lien. Rawlings did not respond. The February 11, 2022, letter recounted
this history and again asked Rawlings for an explanation of any potential lien.
That letter noted Smith believed no “subrogation claim will lie as Ms. Smith will
pay attorney fees and costs and will never be made whole.” Rawlings responded
with the five-page letter now referred to as the “Rawlings letter.” 1 The letterhead for the Rawlings letter identified the sender as “The Rawlings
Company LLC, Subrogation Division.” The first page of the letter indicated
Rawlings had generated a unique file number for the expenses associated with
Smith’s hip implant replacement. The letter’s first page also stated the letter’s
other pages were “a summary of the medical expenses paid by” Blue Cross for
Smith’s hip implant replacement. The first page warned Smith the amount of
Rawlings’ “claim may increase,” and Rawlings requested “an update on this
claim.” The remaining four pages listed each of the medical procedures Smith had
undergone in connection with her hip implant replacement, including each
procedure’s cost. Each of those pages stated Smith should “Make Checks Payable
To Rawlings & Associates” and “Please write [Smith’s unique file] number on
your check.”
The majority concludes the Rawlings letter and the other communications
are not enough to support a claim for relief. But viewing the Rawlings letter in the
light most favorable to Smith, it conveyed the “Subrogation Division” believed
there was a claim that “may increase,” and Smith should provide an “update on
this claim.” The letter included exact amounts and repeatedly instructed Smith
how to make payment. So viewed, a reasonable person could conclude the letter
was demanding payment, i.e. attempting to enforce subrogation. In fact, it seems
implausible that a letter containing exact amounts and repeated instructions how to
2 make payment on a pending “claim” would not qualify as an attempt to assert
subrogation. Given the applicable standard at the motion to dismiss stage, Smith’s
allegations and the two letters were enough to state claims for relief.
The majority argues existing Montana law addresses subrogation situations
where insurers “retained or withheld money.” Thus, the majority believes it is an
open question “what constitutes ‘assertion’ or ‘enforcement’ when the allegation is
that an insurer is seeking money from an insured.” It is true there is no Montana
authority addressing whether the standard for determining if subrogation is being
enforced should be different if an insurer is pursuing subrogation by withholding
money instead of seeking to recover money already in the insured’s possession.
But I see no basis to conclude Montana’s “made whole” doctrine might
differentiate between these two situations. Blue Cross itself seems to have
conceded there is no distinction in that its position on appeal is that a lawsuit
brought by Blue Cross against Smith would be an attempt to enforce subrogation.
In my view, the fact that Blue Cross is demanding repayment instead of
withholding money is a distinction without a difference.
Smith will have the opportunity to amend her complaint to include all of the
parties’ interactions, but Montana law is strict regarding insurers enforcing
subrogation. I believe the current complaint supplemented by the parties’ letters
stated claims for relief.