NOT FOR PUBLICATION FILED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.

3