Court Opinion

ID: 890075
Source: CourtListenerOpinion
Date Created: 2013-06-05 06:25:00.309164+00
Date Added: 2024-06-11T11:19:16.979946
License: Public Domain

August 21 2012

                                         DA 11-0275

               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                         2012 MT 184

CANDICE BRILZ,

              Plaintiff and Appellant,

         v.

METROPOLITAN GENERAL
INSURANCE COMPANY,

              Defendant and Appellee.

APPEAL FROM:          District Court of the Fourth Judicial District,
                      In and For the County of Missoula, Cause No. DV 08-723
                      Honorable Ed McLean, Presiding Judge

COUNSEL OF RECORD:

               For Appellant:

                      Rex Palmer, Attorneys Inc., P.C., Missoula, Montana

               For Appellee:

                      Fred Simpson, Wilton H. Strickland, Bohyer, Simpson & Tranel, P.C.,
                      Missoula, Montana

                                                  Submitted on Briefs: February 22, 2012

                                                             Decided: August 21, 2012

Filed:

                      __________________________________________
                                        Clerk
Justice James C. Nelson delivered the Opinion of the Court.

¶1    Candice Brilz filed an action in Montana state court purportedly asserting statutory

and common law bad-faith claims against Metropolitan General Insurance Company

(Metropolitan). Metropolitan removed the action to federal court and filed a motion for

summary judgment, which the federal court granted. Thereafter, Brilz commenced the

instant declaratory judgment action in the Fourth Judicial District Court, Missoula

County, seeking a determination that she may pursue her common law bad-faith claim

against Metropolitan. Because the statute of limitations on that claim had since expired,

Brilz requested a ruling that she may pursue the claim pursuant to § 27-2-407, MCA, or

this Court’s doctrine of equitable tolling. The District Court dismissed the action, and

Brilz now appeals.

¶2    The sole issue on appeal is whether Brilz is entitled to pursue her common law

bad-faith claim. Brilz again argues that she may do so under § 27-2-407, MCA, or the

equitable tolling doctrine. We conclude, however, that principles of claim preclusion bar

her from filing a second action against Metropolitan arising out of the same underlying

facts. We accordingly affirm the District Court’s judgment.

                                   BACKGROUND

¶3    Brilz was injured and suffered property damage in an automobile collision which

occurred in Missoula on August 14, 1998. She alleges that the driver of the other vehicle,

David Kidder, was entirely at fault. At the time of the accident, Kidder was insured by

Metropolitan. His policy included coverage in the amount of $25,000 for personal injury

to one person.

                                            2
¶4     Brilz submitted a claim to Metropolitan seeking to recover under Kidder’s policy.

On January 8, 2001, Metropolitan offered to settle with Brilz by tendering the $25,000

policy limits. Brilz alleges that this only occurred after “numerous communications and

requests” on her part. Brilz accepted Metropolitan’s offer on February 2, 2001, thus

settling her insurance claim.

¶5     One year and five days later, on February 7, 2002, Brilz filed a lawsuit in the

Fourth Judicial District Court against Metropolitan regarding the manner in which

Metropolitan had adjusted her claim for insurance benefits. In paragraphs 7 through 9 of

her complaint, Brilz alleged that Metropolitan had violated the Unfair Trade Practices

Act by failing to reasonably investigate her claim and by failing to effectuate prompt,

fair, and equitable settlement of her claim. See § 33-18-201(4), (6), MCA. Additionally,

in paragraphs 11 and 12 of her complaint, Brilz alleged that Metropolitan knew it was

obligated to pay her claim but nevertheless withheld benefits, and in so doing acted

“oppressively, maliciously and outrageously towards Plaintiff, with conscious disregard

to Plaintiff’s known rights and with the intention of wrongfully interfering with

Plaintiff’s prospective economic advantage and property interest in such benefits and of

intentionally causing unjust and cruel hardship and severe emotional distress to Plaintiff.”

Brilz further alleged that Metropolitan “acted to and did vex, injure and annoy Plaintiff,”

and that in failing and refusing to timely and reasonably pay benefits based upon all

available information, Metropolitan “acted wrongfully and unreasonably.”

¶6     Metropolitan removed the action to the United States District Court for the District

of Montana based on diversity jurisdiction. See 28 U.S.C. §§ 1332(a)(1), 1441(a), (b).

                                             3
The parties then filed cross-motions for summary judgment on the question whether

Brilz’s claims are time barred. The federal district court concluded, first, that Brilz’s

statutory claim under the Unfair Trade Practices Act is barred by § 33-18-242(7)(b),

MCA, which prescribes a one-year statute of limitations on an action by a third-party

claimant against an insurer. Brilz argued that her complaint also set forth a separate

common law bad-faith claim to which a three-year statute of limitations applied. The

federal district court ruled, however, that Brilz had not alleged such a claim. The court

reasoned that her complaint “contains no allegations that [Metropolitan] acted in ‘bad

faith,’ breached its duty of good faith and fair dealing, or otherwise breached some duty

‘independent of statute or of insurance contract’ ” (quoting St. Paul Fire & Marine Ins.

Co. v. Cumiskey, 204 Mont. 350, 357, 665 P.2d 223, 226 (1983)).1 Citing paragraphs

7 through 9 of the complaint, the federal district court observed that Brilz had alleged

violations of § 33-18-201(4) and (6), MCA, and from this the court then reasoned that she

“bases the allegations in her complaint entirely on statutory duties, and does not allege

the material elements of a common law bad faith claim.” The court did not identify what

it thought “the material elements of a common law bad faith claim” were, however. Nor

did the court specifically cite or discuss paragraphs 11 and 12 of Brilz’s complaint.

¶7     The United States Court of Appeals for the Ninth Circuit affirmed in a

memorandum opinion issued October 19, 2007. Brilz v. Metlife Auto & Home, 251 Fed.

       1
        The complete sentence in St. Paul Fire & Marine, 204 Mont. at 357, 665 P.2d at
226, from which the federal district court quoted, states: “We first recognized that an
insurance company has a duty independent of statute or of insurance contract to settle
claims in good faith with its insureds in Lipinski v. The Title Insurance Company (1982),
201 Mont. 1, 655 P.2d 970.”

                                             4
Appx. 458 (9th Cir. 2007). The court first concluded that Brilz’s statutory claim under

the Unfair Trade Practices Act is time barred. Brilz, 251 Fed. Appx. at 459-60. Turning

then to the question whether Brilz had alleged a common law claim, the court assessed

her complaint under Rule 8(a)(2) of the Federal Rules of Civil Procedure. Doing so, the

court held that Brilz’s pleadings failed to set forth a common law bad-faith claim because

although her complaint “explicitly alleged” that Metropolitan had violated the Unfair

Trade Practices Act, it “made no mention of any common law claim.” Brilz, 251 Fed.

Appx. at 460. The Ninth Circuit concluded that Brilz’s complaint “provided the court

and defendant ample notice of the statutory claim, but no meaningful notice of any

purported common law claim. Nor does she point to anything in the record that would

support any such claim.” Brilz, 251 Fed. Appx. at 460.

¶8    Following the federal courts’ termination of her 2002 action, Brilz commenced the

present action in the Fourth Judicial District Court. She filed her complaint in June 2008

and an amended complaint in May 2009. Brilz did not seek to renew her statutory claim

against Metropolitan; rather, she requested a declaration that she may pursue her common

law claim—even though, by this point, the statute of limitations on that claim had already

run—based on two theories.

¶9    Brilz’s first theory was premised on § 27-2-407, MCA,2 which states:

              If an action is commenced within the time limited for the action and
      . . . the action is terminated in any other manner than by a voluntary

      2
        Brilz invoked the 2007 version of § 27-2-407, MCA. Although the Legislature
has since amended the statute, see Laws of Montana, 2009, ch. 56, § 602, the
amendments did not materially change the statute. Thus, the current (2011) version of
§ 27-2-407, MCA, is quoted here.

                                            5
       discontinuance, a dismissal of the complaint for neglect to prosecute the
       action, or a final judgment upon the merits, the plaintiff . . . may commence
       a new action for the same cause after the expiration of the time limited and
       within 1 year after [the] . . . termination.

Brilz alleged that this statute applied to her common law claim because: she filed her

initial complaint against Metropolitan in state court within the statute of limitations for

common law bad-faith actions; her initial complaint properly pleaded an action for

common law bad faith under Montana’s pleading rules; Metropolitan removed the action

to federal court where the action was terminated, not on the merits, but because Brilz’s

complaint did not meet federal pleading rules; and there was still time to file a new action

for the same cause within one year after the termination of her first action.

¶10    Brilz’s second theory for pursuing her common law claim was premised on the

doctrine of equitable tolling. “Equitable tolling allows in limited circumstances for an

action to be pursued despite the failure to comply with relevant statutory filing

deadlines.” Lozeau v. GEICO Indem. Co., 2009 MT 136, ¶ 14, 350 Mont. 320, 207 P.3d

316 (listing “the requirements a party must demonstrate for application of the doctrine”).

Brilz alleged that this doctrine applied because: she acted reasonably and in good faith in

filing her first action in state court; Metropolitan was provided with timely notice of her

common law claim because it was filed within the applicable statute of limitations and it

was properly pleaded under Montana’s pleading rules; Brilz acted reasonably and in good

faith in seeking to pursue her “renewed” common law action following the termination of

her first action in the federal courts; and Metropolitan has not been prejudiced with

respect to its ability to gather evidence in defense of her claim.

                                              6
¶11    The District Court rejected Brilz’s arguments under both theories. With respect to

§ 27-2-407, MCA, the court concluded that, pursuant to the determination by the federal

courts, Brilz failed to allege a common law bad-faith claim in her prior suit. The District

Court agreed with Metropolitan that Brilz was essentially lodging “a collateral attack” on

the federal courts’ judgment, contrary to § 26-3-201, MCA.3 The court also reasoned that

Brilz was barred by principles of issue preclusion from relitigating the question whether

her original complaint contained a common law claim in addition to her statutory claim.

As for equitable tolling, one of the requisites for applying this doctrine is “timely notice

to the defendant within the applicable statute of limitations in filing the first claim.”

Lozeau, ¶ 14 (internal quotation marks omitted). The District Court concluded that Brilz

had not provided such notice. In particular, the court stated that “the Plaintiff has never

set forth ‘any facts’ upon which she relies in pleading statutory bad faith or common law

bad faith, and therefore, just as was the case in the federal court, the Plaintiff has failed to

adequately plead her bad faith claims against the Defendant in state court.”

¶12    Brilz now appeals from the District Court’s rulings as to the application of

§ 27-2-407, MCA, and equitable tolling. We note that in October 2008, while the instant

declaratory judgment action was still pending in the District Court, Brilz filed a separate

action in the District Court asserting her common law bad-faith claim. She did so in

       3
         “[A] judgment or final order in an action or special proceeding before a court or
judge . . . of the United States having jurisdiction to pronounce the judgment or order . . .
is, in respect to the matter directly adjudged, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special
proceeding, litigating for the same thing under the same title and in the same capacity,
provided they have notice, actual or constructive, of the pendency of the action or
proceeding.” Section 26-3-201(2), MCA.

                                               7
order to comply with the one-year deadline of § 27-2-407, MCA. Metropolitan removed

that action to federal court based on diversity jurisdiction and then moved for summary

judgment arguing that § 27-2-407, MCA, cannot save Brilz’s common law claim. The

federal district court, however, decided that it should stay the action, not only because the

issues had already been fully briefed in state court and the state court was the better

forum for determining the parties’ rights under the governing state law, but also because

the federal district court did not want to “promote forum shopping,” which the court

concluded was Metropolitan’s motive in removing Brilz’s renewed bad-faith action. The

federal district court is holding Brilz’s action in abeyance until the conclusion of the

present declaratory judgment action.

                              STANDARDS OF REVIEW

¶13    We review de novo a district court’s interpretation and application of a statute and

a district court’s conclusions of law. Mosley v. Am. Express Fin. Advisors, Inc., 2010 MT

78, ¶ 10, 356 Mont. 27, 230 P.3d 479; Krutzfeldt Ranch, LLC v. Pinnacle Bank, 2012 MT

15, ¶ 13, 363 Mont. 366, 272 P.3d 635. This includes a district court’s application of

claim preclusion or issue preclusion, which is an issue of law that we review for

correctness. Touris v. Flathead County, 2011 MT 165, ¶ 10, 361 Mont. 172, 258 P.3d 1;

Estate of Eide v. Tabbert, 272 Mont. 180, 183, 900 P.2d 292, 294-95 (1995). We also

review de novo whether the factual circumstances warrant the grant of an equitable

exception to a statutory filing deadline. BNSF Ry. Co. v. Cringle, 2012 MT 143, ¶ 16,

365 Mont. 304, 281 P.3d 203. A district court’s underlying factual determinations,

however, are reviewed for clear error. Cringle, ¶ 16.

                                             8
                                      DISCUSSION

¶14    Whether Brilz is entitled to pursue her common law bad-faith claim.

¶15    The parties’ arguments in this case reflect two competing policies in the law. On

one hand, “[t]he policy of the law is to favor trial on the merits.” Schmitz v. Vasquez,

1998 MT 314, ¶ 27, 292 Mont. 164, 970 P.2d 1039. We declined in Schmitz “to elevate

form over substance,” noting that “[t]o bar [the plaintiff] from the courthouse because of

procedural irregularities from which [the defendant] could show no prejudice would do

nothing to further the goals and policies of the rules of civil procedure.” Schmitz, ¶ 27.

The policy that disputes should be resolved on their merits also underlies the rule that

judgments by default are not favored. See Essex Ins. Co. v. Moose’s Saloon, Inc., 2007

MT 202, ¶ 17, 338 Mont. 423, 166 P.3d 451; Nikolaisen v. Advance Transformer Co.,

2007 MT 352, ¶ 14, 340 Mont. 332, 174 P.3d 940.

¶16    Similarly, the fundamental purpose of § 27-2-407, MCA, commonly referred to as

the “saving statute,” is to allow a plaintiff to have her claim decided on its merits despite

the expiration of the statute of limitations. As the Court of Appeals observed in Allen v.

Greyhound Lines, Inc., 656 F.2d 418, 422 (9th Cir. 1981):

       The saving statute is designed to avoid the harsh forfeiture of plaintiff’s
       rights where the plaintiff diligently and in good faith pursues an action only
       to have it dismissed on procedural grounds. Tietjen v. Heberlein, 54 Mont.
       486, 171 P. 928 (1918). If applicable, the saving provision tolls the statute
       of limitations, the principal aims of which are to prevent potential plaintiffs
       from neglecting suits, and to suppress stale and fraudulent claims after the
       facts concerning them have become obscured by a lapse of time and
       memory. Cassidy v. Finley, 173 Mont. 475, 568 P.2d 142 (1977); Noll v.
       City of Bozeman, 166 Mont. 504, 534 P.2d 880 (1975). In most instances,
       moreover, courts approach the question of tolling statutes of limitations in a
       liberal manner. See, e.g., Burnett v. New York Cent. R.R., 380 U.S. 424, 85

                                             9
       S.Ct. 1050 (1965); Gaines v. City of New York, 215 N.Y. 533, 109 N.E. 594
       (1915) (Brandeis, J.). See also Clark v. Oregon Short Line R.R., 38 Mont.
       177, 99 P. 298 (1909).

The policy behind the doctrine of equitable tolling is likewise to “avoid[ ] forfeitures and

allow[ ] good faith litigants their day in court.” Addison v. State, 578 P.2d 941, 945 (Cal.

1978); see also Collier v. City of Pasadena, 191 Cal. Rptr. 681, 686-87 (Cal. App. 2d

Dist. 1983) (noting additional policy considerations supporting the doctrine).4

¶17    In one of our earliest interpretations of the language of § 27-2-407, MCA, we held

that a party’s “bona fide attempt” to commence an action was sufficient to invoke the

statute, even though her original complaint contained insufficient allegations to state a

good cause of action. Clark v. Or. Short Line R.R. Co., 38 Mont. 177, 180, 184-86, 99 P.

298, 300, 301-02 (1909). We observed that “an action is commenced by filing what

purports to be a complaint, whether it states facts sufficient to constitute a cause of action

or not.” Clark, 38 Mont. at 186, 99 P. at 302. We further held that if the complaint is

dismissed based on “the merits of the pleading,” as distinguished from “the merits of the

controversy,” then it is not a “judgment on the merits” and the plaintiff may file another

action “asserting the same facts, accompanied by additional allegations which complete

the statement of a good cause of action.” Clark, 38 Mont. at 184-85, 99 P. at 301

(internal quotation marks omitted).        Relying on Clark, Brilz articulates a credible

argument that § 27-2-407, MCA, applies to her common law claim. Alternatively, she

argues that she satisfies the criteria for equitable tolling set forth at ¶ 14 of Lozeau.

       4
        Our equitable tolling jurisprudence can be traced to Erickson v. Croft, 233 Mont.
146, 150-51, 760 P.2d 706, 708-09 (1988), which in turn cites Addison, 578 P.2d at 943,
and Collier, 191 Cal. Rptr. at 684-85.

                                               10
¶18    As noted, however, there is a countervailing policy in the law, namely, efficiency

and finality. The doctrines of claim preclusion and issue preclusion (sometimes referred

to as res judicata and collateral estoppel, respectively5) “embody a judicial policy that

favors a definite end to litigation, whereby we seek to prevent parties from incessantly

waging piecemeal, collateral attacks against judgments.” Baltrusch v. Baltrusch, 2006

MT 51, ¶ 15, 331 Mont. 281, 130 P.3d 1267 (citations omitted); cf. State v. Gilder, 2001

MT 121, ¶ 10, 305 Mont. 362, 28 P.3d 488 (although the doctrines of law of the case and

res judicata are not identical, they often work hand in glove; two important policies

underlie and are common to both: judicial economy and finality of judgments). Under

claim preclusion, a final judgment on the merits of an action precludes the parties or their

privies from relitigating claims that were or could have been raised in that action. Under

issue preclusion, on the other hand, once a court decides an issue of fact or law necessary

to its judgment, that decision precludes relitigation of the same issue in a different cause

of action between the same parties. Kremer v. Chem. Constr. Corp., 456 U.S. 461, 466

n. 6, 102 S. Ct. 1883, 1889 n. 6 (1982); accord Baltrusch, ¶ 15 (claim preclusion bars the

relitigation of a claim that the party has already had an opportunity to litigate; issue

preclusion bars the reopening of an issue that has been litigated and determined in a prior

suit). These doctrines serve to conserve judicial resources, relieve parties of the expense

and vexation of multiple lawsuits, and foster reliance on adjudication by preventing

inconsistent decisions. Baltrusch, ¶ 15; Kremer, 456 U.S. at 466 n. 6, 102 S. Ct. at 1889

n. 6; Taylor v. Sturgell, 553 U.S. 880, 892, 128 S. Ct. 2161, 2171 (2008).

       5
           McDaniel v. State, 2009 MT 159, ¶ 27 n. 2, 350 Mont. 422, 208 P.3d 817.

                                            11
¶19    Metropolitan argues both doctrines in this case. At the outset, we do not agree that

issue preclusion is applicable here, as Brilz is not attempting to reopen an issue that was

litigated and determined in the prior suit between her and Metropolitan. In order for issue

preclusion to apply, the issue decided in the prior adjudication must be “identical” to the

issue raised in the subsequent action. McDaniel, ¶ 28. Metropolitan’s theory, with which

the District Court agreed, is that Brilz is attempting to relitigate the question whether she

pleaded a common law bad-faith claim in her 2002 complaint. What Metropolitan fails

to recognize, however, is that the federal courts decided this question under Rule 8(a)(2)

of the Federal Rules of Civil Procedure; and, as Brilz points out, she does not challenge

the federal courts’ conclusion that she failed to state a common law claim under federal

pleading standards. Rather, her argument is that her allegations were sufficient to state a

common law claim under Montana pleading standards. In this regard, the Supreme Court

revised the federal standard for reviewing a motion to dismiss in Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), five months prior to the Ninth Circuit’s

decision in Brilz’s case.    The Supreme Court further elaborated on the standard in

Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009). For the most part, state high

courts have declined to adopt the new “plausibility” standard announced in Twombly and

Iqbal. See Hawkeye Foodservice Distrib. v. Iowa Educators Corp., 812 N.W.2d 600, 608

(Iowa 2012) (citing cases). And, as the Twombly dissent noted, the new federal approach

appears to be in tension with extant law in Montana and other states. 550 U.S. at 578

n. 5, 127 S. Ct. at 1978 n. 5 (Stevens & Ginsburg, JJ., dissenting) (citing, among others,

Jones v. Mont. Univ. Sys., 2007 MT 82, 337 Mont. 1, 7, 155 P.3d 1247, 1252); see also

                                             12
e.g. McKinnon v. W. Sugar Coop. Corp., 2010 MT 24, ¶¶ 12, 17, 20, 355 Mont. 120, 225

P.3d 1221; Morse v. Espeland, 215 Mont. 148, 151, 696 P.2d 428, 430 (1985). A

determination that Brilz’s complaint failed to state a common law claim under the federal

standard, therefore, is distinct from the issue whether her complaint stated a common law

claim under Montana’s standard.

¶20    We do agree with Metropolitan’s argument for the application of claim preclusion,

however. Before discussing that doctrine, we first note that federal common law governs

the claim-preclusive effect of a dismissal by a federal court sitting in diversity. Semtek

Intl. Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508, 121 S. Ct. 1021, 1028 (2001).

The federal common law rule, in turn, is to apply the claim-preclusion law of the state in

which the federal diversity court sits. Semtek, 531 U.S. at 508, 121 S. Ct. at 1028. In

other words, “the same claim-preclusive rule (the state rule) appl[ies] whether the

dismissal has been ordered by a state or a federal court.” Semtek, 531 U.S. at 508, 121

S. Ct. at 1028. Any other rule, the Supreme Court noted, “would produce the sort of

‘forum-shopping . . . and . . . inequitable administration of the laws’ that Erie seeks to

avoid.” Semtek, 531 U.S. at 508-09, 121 S. Ct. at 1028 (ellipses in original).

¶21    Again, claim preclusion bars the relitigation of a claim that the party has already

had an opportunity to litigate. Baltrusch, ¶ 15. This includes claims that were or could

have been litigated in the first action. Wiser v. Mont. Bd. of Dentistry, 2011 MT 56, ¶ 17,

360 Mont. 1, 251 P.3d 675; Somont Oil Co. v. A & G Drilling, Inc., 2008 MT 447, ¶ 11,

348 Mont. 12, 199 P.3d 241. Hence, as a result of the doctrine’s application, a party may

be precluded from litigating a matter that has never been litigated and that may involve

                                            13
valid rights to relief. The rationale here is to force parties to raise such matters in their

first suit in the interest of judicial economy and avoiding the expense and vexation of

multiple lawsuits. But, given the countervailing policy favoring the resolution of disputes

on their merits, claim-preclusion rules must strike the proper balance between efficiency

and finality on one hand and the vindication of just claims on the other. See Restatement

(Second) of Judgments § 24 cmt. b (1982); Charles Alan Wright et al., Federal Practice

and Procedure vol. 18, § 4406, 138, § 4407, 157, § 4415, 351 (2d ed., West 2002).6

¶22    Claim preclusion encompasses the concepts of merger and bar: all parts of a

single claim merge in a judgment for the plaintiff or are barred by a judgment for the

defendant. Restatement (Second) of Judgments §§ 18, 19; Wright et al., Federal Practice

and Procedure at § 4406, 138-39; see also Hughes v. Salo, 203 Mont. 52, 61-62, 659

P.2d 270, 274-75 (1983). The elements of claim preclusion are: (1) the parties or their

privies are the same in the first and second actions; (2) the subject matter of the actions is

the same; (3) the issues are the same in both actions, or are ones that could have been

raised in the first action, and they relate to the same subject matter; (4) the capacities of

the parties are the same in reference to the subject matter and the issues between them;

and (5) a valid final judgment has been entered on the merits in the first action by a court

of competent jurisdiction. Baltrusch, ¶ 16; Mt. W. Bank, N.A. v. Glacier Kitchens, Inc.,

2012 MT 132, ¶ 14, 365 Mont. 276, ___ P.3d ___; Touris v. Flathead County, 2011 MT

       6
         The citations to federal authorities in this discussion are only for their persuasive
value in analyzing the question presented. See e.g. Baltrusch, ¶¶ 15, 18, 20 (citing
federal jurisprudence as persuasive authority). As noted, the claim-preclusive effect of
the federal district court’s dismissal of Brilz’s complaint is determined by Montana law.
Semtek, 531 U.S. at 508, 121 S. Ct. at 1028.

                                             14
165, ¶¶ 13, 18, 361 Mont. 172, 258 P.3d 1; Thornton v. Alpine Home Ctr., 2001 MT 310,

¶ 14, 307 Mont. 529, 38 P.3d 855. Here, it is clear the parties are the same, the subject

matter is the same (that being the manner in which Metropolitan adjusted Brilz’s claim

for insurance benefits), and the parties’ capacities are the same in reference to the subject

matter and the issues between them. The other two elements—whether the issues are the

same, and whether a final judgment was entered on the merits in the first action—require

a more detailed discussion. We address these two elements in turn.

¶23    “Claim preclusion traditionally aimed to prevent plaintiffs from ‘splitting’ causes

of action, but now also operates as a kind of common-law compulsory joinder

requirement, promoting judicial economy through the consolidation of related claims.”

Negron-Fuentes v. UPS Supply Chain Solutions, 532 F.3d 1, 8 (1st Cir. 2008). Whether

claims are “related” can be the thorniest facet of the analysis, as the doctrine does not

preclude everything that might have been disputed between the parties, but only matters

within a certain sphere. See Wright et al., Federal Practice and Procedure at § 4406,

140-41. In this regard, we have indicated that claim preclusion applies where the second

suit arises from the same underlying basis or subject matter as the first suit. Olsen v.

Milner, 2012 MT 88, ¶ 23, 364 Mont. 523, 276 P.3d 934; Touris, ¶ 17; Wiser, ¶¶ 12-13.

Section 24 of the Restatement (Second) of Judgments provides a useful elaboration of

this approach. That section addresses the dimensions of a “claim” for purposes of merger

or bar and sets forth the general rule concerning “splitting,” as follows:

       (1) When a valid and final judgment rendered in an action extinguishes the
       plaintiff’s claim pursuant to the rules of merger or bar (see §§ 18, 19), the
       claim extinguished includes all rights of the plaintiff to remedies against the

                                             15
       defendant with respect to all or any part of the transaction, or series of
       connected transactions, out of which the action arose.

       (2) What factual grouping constitutes a “transaction”, and what groupings
       constitute a “series”, are to be determined pragmatically, giving weight to
       such considerations as whether the facts are related in time, space, origin, or
       motivation, whether they form a convenient trial unit, and whether their
       treatment as a unit conforms to the parties’ expectations or business
       understanding or usage.

Restatement (Second) of Judgments § 24.7

¶24    The concept of “transaction” here “connotes a natural grouping or common

nucleus of operative facts.” Restatement (Second) of Judgments § 24 cmt. b. Thus,

where one act causes a number of harms to, or invades a number of different interests of,

the same person, there is still only one transaction. Restatement (Second) of Judgments

§ 24 cmt. c.    The rationale and premise underlying this approach is that modern

procedural systems afford parties ample means for fully developing the entire transaction

in one action—e.g., by permitting the presentation of all material relevant to the

transaction without artificial confinement to any single substantive theory or kind of

relief and without regard to historical forms of action or distinctions between law and

equity; by allowing allegations to be made in general form and reading them indulgently;

       7
        The Restatement formulation is the predominant federal rule. See Wright et al.,
Federal Practice and Procedure at § 4407, 169. Various states also have adopted or
applied the Restatement’s test. See e.g. Argus Real Estate, Inc. v. E-470 Pub. Highway
Auth., 109 P.3d 604, 609 (Colo. 2005); Andrus v. Nicholson, 186 P.3d 630, 633 (Idaho
2008); Computer One, Inc. v. Grisham & Lawless P.A., 188 P.3d 1175, 1183 (N.M.
2008); Whitaker v. Bank of Newport, 836 P.2d 695, 698-99 (Or. 1992); Mack v. Utah
State Dept. of Com., 221 P.3d 194, 203 (Utah 2009); Sound Built Homes, Inc. v.
Windermere Real Estate/South, Inc., 72 P.3d 788, 794-96 (Wash. App. Div. 2 2003);
Foianini v. Brinton, 855 P.2d 1238, 1240-41 (Wyo. 1993). And this Court has previously
indicated that “there is merit to the transaction test” set forth in the Restatement. Lane v.
Fourth Jud. Dist. Ct., 2003 MT 130, ¶ 28, 316 Mont. 55, 68 P.3d 819.

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by allowing allegations to be mutually inconsistent subject to the pleader’s duty to be

truthful; by permitting considerable freedom of amendment and tolerating changes of

direction in the course of litigation; and by enabling parties to resort to compulsory

processes besides private investigations to ascertain the facts surrounding the transaction.

Restatement (Second) of Judgments § 24 cmt. a. “The law of res judicata now reflects the

expectation that parties who are given the capacity to present their ‘entire controversies’

shall in fact do so.”8 Restatement (Second) of Judgments § 24 cmt. a.

¶25    Here, we conclude that Brilz’s statutory and common law bad-faith claims arose

from the same transaction. There is a common nucleus of operative facts underlying the

two claims, that being the manner in which Metropolitan adjusted her claim for insurance

benefits. They form a convenient trial unit, and their treatment as a unit conforms to the

parties’ expectations. Indeed, Brilz’s position is that she in fact pleaded both a statutory

claim and a common law claim in her 2002 complaint, at least insofar as Montana’s

pleading standards are concerned.

¶26    Turning, then, to the question whether a final judgment was entered on the merits

in the first suit, the federal district court disposed of Brilz’s 2002 action on cross-motions

for summary judgment, and we have held that summary judgment is a final judgment on

the merits for purposes of claim preclusion. Wiser, ¶ 10 (citing Mills v. Lincoln County,

       8
         Given this premise, claim preclusion would not apply to situations where the
jurisdiction of the court in the first suit was limited to deciding specific matters. For
example, a district court sitting in probate has only the special and limited powers
conferred by statute, and has no power to hear and determine any matters other than those
which come within the purview of the statute or which are implied as necessary to a
complete exercise of those expressly conferred. Haugen v. Haugen, 2008 MT 304, ¶ 9,
346 Mont. 1, 192 P.3d 1132.

                                             17
262 Mont. 283, 285, 864 P.2d 1265, 1267 (1993)). Brilz points out, however, that the

portion of the federal district court’s order directed to her common law claim involved an

analysis of whether she had even pleaded such a claim. Brilz argues that the federal

district court’s judgment was not “on the merits” with respect to her common law claim

because the court ultimately ruled that she had failed to allege such a claim in her

complaint. Brilz cites Lane v. Farmers Union Ins., 1999 MT 252, ¶ 41, 296 Mont. 267,

989 P.2d 309, for the proposition that there can be no “judgment on the merits” of a claim

if the claim is not “effectively raised in the pleadings.” This portion of Lane, however,

concerned the application of issue preclusion and, thus, is not directly on point.

¶27    As noted earlier, claim preclusion encompasses the concepts of merger and bar.

Under the latter, “[a] valid and final personal judgment rendered in favor of the defendant

bars another action by the plaintiff on the same claim.”          Restatement (Second) of

Judgments § 19. It is frequently said—as our caselaw illustrates—that this rule applies

only if the judgment is rendered “on the merits.” The prototypical case is one in which

the merits of the claim are in fact adjudicated against the plaintiff after trial of the

substantive issues. As the Restatement notes, however, judgments not passing directly on

the substance of the claim have increasingly come to operate as a bar (and, for this

reason, the Restatement eschews the “on the merits” terminology due to its possibly

misleading connotations). Restatement (Second) of Judgments § 19 cmt. a. This includes

a judgment for the defendant on the insufficiency of the complaint; in other words, the

plaintiff whose complaint is dismissed for failure to state a claim is barred from bringing

a second action premised on the same claim. Restatement (Second) of Judgments § 19

                                             18
cmt. d; see also e.g. Stewart v. U.S. Bancorp, 297 F.3d 953, 957 (9th Cir. 2002) (under

federal law, dismissal for failure to plead a cognizable claim is a “judgment on the

merits” to which claim preclusion applies).

       Such a result is warranted by the ease with which pleadings may be
       amended, normally at least once as a matter of course, and by the unfairness
       of requiring the defendant to submit to a second action (often initiated long
       after the first has come to an end) when no such amendment is sought, or
       when no appeal has been taken from an erroneous denial of leave to amend.

Restatement (Second) of Judgments § 19 cmt. d. Hence, “[t]he modern view . . . is that a

party should be held to account not only for what he actually pleaded, but for what he

could have pleaded in the earlier suit.” Pisnoy v. Ahmed, 499 F.3d 47, 61 (1st Cir. 2007).

Again, this is due in part to the impact of modern pleading rules:

       Pleading has moved so far from older rules that in many courts great effort
       would be required to plead a valid claim so ineptly as to suffer dismissal.
       Even if a complaint is found wanting, leave to amend is available with great
       freedom. This permissive pleading practice couples with such burdens as
       are imposed on the defendant to warrant control of the plaintiff’s claim by
       the first court. Having brought suit, the plaintiff should be prepared to
       plead a valid claim, to persuade the court that amendment should be
       granted, to demonstrate valid reasons for dismissal without prejudice to a
       second action, or be barred. Very few meritorious claims indeed should be
       precluded by this rule.

Wright et al., Federal Practice and Procedure at vol. 18A, § 4439, 194-97 (footnotes

omitted).

¶28    It is precisely for these reasons we conclude that principles of claim preclusion

must prevail over Brilz’s argument based on Clark v. Or. Short Line R.R. Co., 38 Mont.

177, 99 P. 298 (1909), and § 27-2-407, MCA. Clark was decided long before the 1961

adoption of the Montana Rules of Civil Procedure. As we have explained, the liberal

                                              19
pleading philosophy of the Rules of Civil Procedure superseded the highly technical

theory of code pleading which often resulted in substantial injustice to the injured party.

McJunkin v. Kaufman & Broad Home Sys., Inc., 229 Mont. 432, 436-37, 748 P.2d 910,

913 (1987). During that period, “ ‘the slip of an [attorney’s] quill pen could spell death

for a plaintiff’s cause of action.’ ”    McJunkin, 229 Mont. at 437, 748 P.2d at 913

(brackets in original) (quoting Thompson v. Allstate Ins. Co., 476 F.2d 746, 749 (5th Cir.

1973)). Those days are over in Montana. Given the liberality of our rules regarding

pleadings and amendments to pleadings (not to mention the demise of the quill in favor

of the word processor), see McKinnon v. W. Sugar Coop. Corp., 2010 MT 24, ¶¶ 12, 17,

20, 355 Mont. 120, 225 P.3d 1221; Kunst v. Pass, 1998 MT 71, ¶¶ 34-36, 288 Mont. 264,

957 P.2d 1; Hobble-Diamond Cattle Co. v. Triangle Irrigation Co., 249 Mont. 322,

325-26, 815 P.2d 1153, 1155-56 (1991), we hold that a dismissal for inadequate pleading

is a “final judgment on the merits” for purposes of claim preclusion under Montana law,

so long as leave to amend was available and either was not requested or was requested

but properly rejected under the circumstances.9

¶29    Here, at the time of the federal district court’s decision in Brilz’s case, the law in

the Ninth Circuit was as follows. Absent prejudice to the opposing party, or a strong

showing of undue delay, bad faith or dilatory motive on the part of the movant, repeated

       9
        See Lindey’s, Inc. v. Prof. Consultants, Inc., 244 Mont. 238, 242, 797 P.2d 920,
923 (1990) (while the rule favors allowing amendments, a trial court is justified in
denying a motion to amend for an apparent reason such as undue delay, bad faith or
dilatory motive on the part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing party by allowance of
the amendment, or futility of the amendment).

                                             20
failure to cure deficiencies by amendments previously allowed, or futility of amendment,

there existed “a presumption . . . in favor of granting leave to amend.” Eminence Capital,

LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (per curiam) (emphasis in

original). Dismissal with prejudice and without leave to amend was not appropriate

unless it was clear that the complaint could not be saved by amendment. Eminence

Capital, 316 F.3d at 1052. In Eminence Capital, the Ninth Circuit concluded that the

district court had abused its discretion in denying leave to amend where “plaintiffs’

allegations were not frivolous, plaintiffs were endeavoring in good faith to meet the

heightened pleading requirements and to comply with court guidance, and, most

importantly, it appears that plaintiffs had a reasonable chance of successfully stating a

claim if given another opportunity.” 316 F.3d at 1053. In light of this policy toward

amendments, which is the same liberal policy this Court has adopted with respect to

amendments under Montana law, see Hobble-Diamond Cattle, 249 Mont. at 325-26, 815

P.2d at 1155-56; Walstad v. Norwest Bank of Great Falls, 240 Mont. 322, 324, 783 P.2d

1325, 1326 (1989), it is clear that Brilz could have sought to amend her complaint in the

federal proceeding in an attempt to save her common law claim. She admittedly did not

do so. Accordingly, we conclude that the federal district court’s judgment was a final

judgment on the merits, and all five elements of claim preclusion are thus satisfied in this

case.

¶30     Brilz argues extensively that the allegations in her 2002 complaint were sufficient

to state a common law bad-faith claim against Metropolitan under Montana law. That

may be true, but it is beside the point. Metropolitan had a statutory right to remove the

                                            21
action to federal court. See 28 U.S.C. §§ 1332(a)(1), 1441(a), (b). Once there, it became

incumbent on Brilz to comply with federal pleading requirements. Her choice not to seek

amendment of her complaint while she had the opportunity to do so leads us to conclude

that claim preclusion applies here and defeats her arguments under the saving statute and

under the doctrine of equitable tolling. Although the District Court denied Brilz’s request

for a declaratory judgment under somewhat different reasoning, we will affirm a district

court decision if the right result was reached, though for the wrong reason, and we do so

here. Hinebauch v. McRae, 2011 MT 270, ¶ 25, 362 Mont. 358, 264 P.3d 1098.

¶31    Affirmed.

                                                                  /S/ JAMES C. NELSON

We Concur:

/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ JIM RICE
/S/ BRIAN MORRIS

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