Opinion ID: 4553492
Heading Depth: 2
Heading Rank: 1

Heading: The Choice-of-Law Problem

Text: We review de novo a grant of a motion to dismiss for failure to state a claim. Warciak v. Subway Restaurants, Inc., 949 F.3d 354, 356 (7th Cir. 2020). A Rule 12(b)(6) motion tests “the legal suﬃciency of a complaint,” as measured against the standards of Rule 8(a). E.g., Runnion v. Girl Scouts of Greater Chicago and Northwest Indiana, 786 F.3d 510, 526 (7th Cir. 2015). It is the defendant’s burden to establish the complaint’s insufficiency. Yeksigian v. Nappi, 900 F.2d 101, 104 (7th Cir. 1990). There is procedural problem in this case, however, that made defendant’s use of Rule 12(b)(6) inappropriate. Continental did not actually challenge the complaint’s suﬃciency, at least by invoking the filed-rate doctrine. Continental instead advanced an aﬃrmative defense, which it had the burden of pleading and proving. Fed. R. Civ. P. 8(c)(1) (burden of pleading); Benson v. Fannie May Confections Brands, Inc., 944 F.3d 639, 645 (7th Cir. 2019) (burden of proving); see E. & 8 No. 19-2898 J. Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1039 n.11 (9th Cir. 2007) (filed-rate doctrine as aﬃrmative defense). With a narrow and pragmatic exception for a plaintiﬀ who has pleaded herself out of court, the appropriate vehicle for resolving an aﬃrmative defense is a motion for judgment on the pleadings under Rule 12(c), not a Rule 12(b)(6) motion. Benson, 944 F.3d at 645; see also Burton v. Ghosh, 961 F.3d 960, 964– 65 (7th Cir. 2020) (collecting cases); cf. Brooks v. Ross, 578 F.3d 574, 579 (7th Cir. 2009) (example of pragmatic exception where complaint unambiguously set forth dates establishing statute-of-limitations defense). “Observing the distinction is necessary to allocate correctly the burdens of pleading and proof,” H.A.L. N.Y. Holdings, LLC v. Guinan, 958 F.3d 627, 632 (7th Cir. 2020), and serves an important notice function. Burton, 961 F.3d at 965, citing Blonder-Tongue Labs., Inc. v. Univ. of Illinois Found., 402 U.S. 313, 350 (1971), among others. In this case, Continental’s filed-rate defense certainly drew on materials outside the complaint and was not appropriate for a Rule 12(b)(6) motion. Gunn did not plead himself out of court with one stray reference to the Washington state insurance commissioner, so an answer and motion under Rule 12(c), not a Rule 12(b)(6) motion, would have been the appropriate path to raise a filed-rate defense. We construe Continental’s motion as one under Rule 12(c), and Continental bore the burden of showing that the allegations of the complaint and an answer showed that an aﬃrmative defense conclusively defeated all of Gunn’s claims as a matter of law. See Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993). Regardless of the procedural bobble, Continental had to address an indispensable threshold question: under the law of what sovereign was it entitled to judgment? Law “does not No. 19-2898 9 exist without some definite authority behind it.” Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 533 (1928) (Holmes, J., dissenting). Claims and defenses have to come from somewhere. “Proof of [them] in the air, so to speak, will not do.” Palsgraf v. Long Island R.R. Co., 162 N.E. 99, 99 (N.Y. 1928). Yet that has basically been Continental’s approach. In support of its motion to dismiss, Continental assumed without argument that the applicable law was Washington’s, though Gunn pleaded at least one cause of action arising under a statute of the District of Columbia. On appeal, Continental asserts, again without argument, that Washington law creates Gunn’s causes of action and, astonishingly, claims that “federal common law” creates its filed-rate defense. But Continental does not argue for federal preemption.2 Nor does the 2 Chief Judge Howell denied dismissal in a recent case similar to Gunn’s, noting that a filed-rate defense “typically” has a basis in federal statute and in that context “supports the supremacy of federal regulation over certain federal as well as state and common law claims.” Krukas v. AARP, Inc., 376 F. Supp. 3d 1, 18 (D.D.C. 2019). In Krukas, the court assumed for purposes of argument that some version of a filed-rate doctrine could apply to insurance regulation and denied dismissal because the plaintiff did not directly challenge any regulated rates. Id. at 20−26. Federal law leaves insurance regulation and pricing to the States. 15 U.S.C. § 1011. In this context, it is “neither prudent nor appropriate for a federal court to impose the filed-rate doctrine on a state which has not adopted it, nor should a court stretch or bend a state doctrine to more comfortably fit the contours of the federal rule.” Bhasker v. Kemper Cas. Ins. Co., 284 F. Supp. 3d 1191, 1233 (D.N.M. 2018) (denying dismissal of insurance claims based on filed-rate doctrine), quoting Clark v. Prudential Ins. Co. of Am., No. CIV. 08-6197, 2011 WL 940729, at  (D.N.J. Mar. 15, 2011) (denying motion to strike insurance class claims based on filed-rate doctrine). 10 No. 19-2898 doctrine aﬀect federal jurisdiction.3 Continental has not explained why, in Gunn’s case arising under state law, federal law (let alone the narrow niches of federal common law that have survived Erie Railroad) could be relevant at all. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Williams v. Jader Fuel Co., Inc., 944 F.2d 1388, 1400 (7th Cir. 1991) (“the legal and factual suﬃciency of an aﬃrmative defense is examined with reference to state law”). Because Continental did not identify the source of governing law, we have little trouble concluding that it did not show properly that it was entitled to judgment based on this freefloating defense. The more diﬃcult question is what to do about it. “The matter of what questions may be taken up and resolved for the first time on appeal is one left primarily to the discretion of the courts of appeals.” Singleton v. Wulﬀ, 428 U.S. 106, 121 (1976). But the record here oﬀers little guidance. Gunn also did not engage on the choice-of-law issue. We must say frankly that the parties let the district court down. The parties each asserted their choice-of-law positions, and they clearly signaled that the choice of law could be decisive. But the parties went no farther than those assertions; neither side supported its position. The district court did not make 3 There is no suggestion here or reason to think that any version of the filed-rate doctrine affects a federal court’s subject-matter jurisdiction. See Wilson v. EverBank, N.A., 77 F. Supp. 3d 1202, 1233 n.6 (S.D. Fla. 2015) (collecting cases holding filed rates go to merits, not jurisdiction); see also Krukas, 376 F. Supp. 3d at 14 n.5 (distinguishing “nonjusticiability” rationale for filed-rate doctrine from Article III justiciability). No. 19-2898 11 its own choice of law but cited filed-rate cases from many state and federal courts. We recognize that an appeal is too late to raise a choice-oflaw issue for the first time and we are under no obligation to do so on our own initiative. “We are busy enough without creating issues that are unlikely to aﬀect the outcome of the case (if they were likely to aﬀect the outcome the parties would be likely to contest them).” Wood v. Mid-Valley Inc., 942 F.2d 425, 427 (7th Cir. 1991). In this case, however, both sides raised the choice-of-law issue but then oﬀered the district court (and us) little help. Choice of law may well be decisive here. The relevant issues are doubtful enough, and the stakes high enough for our state-based systems of decentralized insurance regulation, that they are better addressed by the district court in the first instance, perhaps with help from interested friends of the court who can provide insight into those systems and their relationship to one another. See, e.g., Harris v. KBR Servs., Inc., 724 F.3d 458, 462 (3d Cir. 2013) (remanding for initial choiceof-law determination where necessary to review dismissal for non-justiciability).