By Nick Bullard and Luke Wetterstrom
The threat of punitive damages is a game-changer in civil litigation. It ratchets up the financial stakes and imperils the defendant’s reputation—often creating intense pressure to settle. Get ready for more of this game-changer in federal court, thanks to a recent shift in case law.
Until recently, federal courts enforced a Minnesota law, known as the “gatekeeping statute,” that makes it harder for parties to request punitive damages. For 30 years, federal courts enforced this gatekeeping statute pursuant to the Erie doctrine, which governs when state laws apply in federal court.
The 30-year streak is over. In 2017, Minnesota’s federal courts began reexamining the gatekeeping statute in light of the U.S. Supreme Court’s 2010 decision in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.1 A split has emerged since then. Most judges in the District of Minnesota now refuse to enforce the gatekeeping statute, making it easier for parties to request punitive damages. But a persistent minority still enforces the statute, and other judges have not yet weighed in.
This shifting landscape poses challenges for lawyers practicing in Minnesota federal court. The standard for requesting punitive damages varies from judge to judge, and key issues remain unresolved. This article aims to shed light on this subject and help lawyers avoid pitfalls awaiting them in federal court.
Pleading punitive damages: A comparison of federal and Minnesota practice
The Minnesota Legislature enacted the gatekeeping statute as part of the Tort Reform Act of 1986.2 The law clamps down on punitive damages in three ways:
- Timing restriction. The gatekeeping statute prohibits plaintiffs from pleading a punitive-damages claim in the initial complaint. Instead, after discovery, a plaintiff must move to amend the complaint to request punitive damages.3
- Affidavit requirement. The statute requires plaintiffs to support the motion to amend with affidavits showing the factual basis for punitive damages.4
- Screening requirement. A court may not grant the motion unless it finds the plaintiff has established a “prima facie” case for punitive damages.5
None of those restrictions exist in the Federal Rules of Civil Procedure. In fact, they arguably conflict with Rules 8(a), 9(g), and 15.
Unlike the gatekeeping statute, Rule 8(a) permits punitive-damages claims in an initial complaint.6 Similarly, Rule 9(g) says “special damages… must be specifically stated” in the pleadings.7 If punitive damages are “special damages”—a topic on which courts disagree8—Rule 9(g) seems to require plaintiffs to request them in the initial complaint.
Likewise, the federal rule governing amendment of pleadings, Rule 15, has no affidavit or prima facie screening requirements like the gatekeeping statute. Under Rule 15, a plaintiff can amend the complaint without court permission in the initial phase of the case.9 After that, court permission is required but must be “freely give[n].”10 The plaintiff need only allege enough facts—assumed to be true—to state a plausible claim for punitive damages.11 There is no requirement to submit supporting affidavits or evidence.12
A very brief refresher on the Erie doctrine
This apparent conflict between Minnesota and federal practice raises an important issue for lawyers in Minnesota: Which set of rules applies in federal diversity cases? This is where the Erie doctrine comes into play.
Under the Erie doctrine, federal courts in diversity cases must apply state “substantive” law and federal “procedural” law.13 Some laws are clearly substantive. For example, Minnesota law sets the substantive standard that must be met to award punitive damages (“deliberate disregard for the rights or safety of others”).14 But other laws blend procedure and substance. The gatekeeping statute is a good example. It requires a process for pleading punitive damages (procedural) to limit frivolous punitive-damages claims (substantive). Laws that blend procedure and substance create the trickiest Erie problems.
In 2010, the U.S. Supreme Court refined the Erie doctrine in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.15 Shady Grove instructs that a federal court exercising diversity jurisdiction should not apply a state law if (1) a federal rule of civil procedure “answer[s] the same question” as the state law and (2) the federal rule is valid.16 Courts need not “wade into Erie’s murky waters” when a federal rule meets both requirements.17
The old consensus: The gatekeeping statute applies in federal court
In 1987, Judge Donald Alsop was the first to consider whether the gatekeeping statute applies in federal court, and he concluded it did not, because the statute is “procedural in nature.”18
But the next year, Judge Edward Devitt reached the opposite conclusion.19
For the next 30 years, district judges uniformly followed Judge Devitt’s conclusion that the gatekeeping statute applies in federal court.20 Even Judge Alsop changed his view.21 During this period, the Eighth Circuit affirmed four decisions applying the gatekeeping statute in federal court, signaling approval of the practice (though it never analyzed the Erie issue).22
The law was settled. In federal court, a plaintiff could not include a claim for punitive damages under Minnesota law in the initial complaint. If the plaintiff later moved to add a claim for punitive damages, federal courts would enforce the gatekeeping statute instead of Rule 15.
The new emerging consensus: Rule 15 trumps the gatekeeping statute
After Shady Grove, district judges began looking at the issue anew. This reexamination arose in the context of motions to amend to add punitive-damages claims—were those motions governed by the gatekeeping statute or Rule 15?
Magistrate Judge Franklin Noel was the first to reexamine this issue in 2017. Judge Noel concluded the gatekeeping statute and Rule 15 “address the same subject matter”—the requirements for a motion to amend—so Rule 15 governs under Shady Grove. 23
Since Judge Noel’s 2017 decision, all but two of the judges to consider this issue have agreed that Rule 15, not the gatekeeping statute, governs a motion to add a punitive-damages claim. This new consensus includes five Minnesota district judges (Nancy Brasel, Kate Menendez, Ann Montgomery, Patrick Schiltz, and John Tunheim)24 and seven magistrate judges (Hildy Bowbeer, John Docherty, Dulce Foster, Franklin Noel, Steven Rau, Becky Thorson, and Elizabeth Cowan Wright).25 Federal judges outside Minnesota have also joined the consensus.26
The two exceptions are Magistrate Judge Leo Brisbois and Judge Wilhelmina Wright. Judge Brisbois “disagree[s]” with Judge Noel’s 2017 decision because, in his view, Rule 15 and the gatekeeping statute “can peacefully co-exist.”27 In 2022, Judge Wright affirmed Judge Brisbois’s enforcement of the gatekeeping statute, agreeing “the pleading of punitive damages” must “conform” to the gatekeeping statute’s requirements.28
Many Minnesota federal judges still have not weighed in on this issue since Judge Noel’s 2017 decision. Judge Donovan Frank and Magistrate Judge Tony Leung have continued to apply the gatekeeping statute, but without Erie analysis.29 Judge Eric Tostrud noted “the recent intra-District trend has been not to apply” the gatekeeping statute but did not reach the issue.30 As of the publication of this article, the other seven active and senior Minnesota federal judges have not addressed this issue since 2017. (They are Judges Jerry Blackwell, Paul Magnuson, David Doty, Michael Davis, Joan Ericksen, David Schultz, and Jon Huseby.)
Ultimately, the Eighth Circuit may need to intervene to resolve this intra-district split. But that may not happen for a while. This issue tends to evade appellate review because the decision to apply (or not apply) the gatekeeping statute usually is not immediately appealable.
Remaining questions and pitfalls
While awaiting clarity from the Eighth Circuit, lawyers and judges will need to continue to work through other important issues regarding the gatekeeping statute.
May a plaintiff include a punitive-damages claim in the initial complaint?
A major unsettled question is whether a plaintiff may include a punitive-damages claim in the initial complaint—something the gatekeeping statute prohibits but the federal rules permit.
Judge Noel’s 2017 decision, and the following decisions, do not squarely address that issue. As mentioned, those decisions analyze whether Rule 15 or the gatekeeping statute governs a motion to amend to add a punitive-damages claim. The decisions do not address whether the plaintiff could have included such a claim at the outset instead of later moving to amend.
This timing issue presents a different Erie analysis. In the context of a motion to amend, the Erie analysis pits the gatekeeping statute against Rule 15. But on the timing issue, the question is whether to apply the gatekeeping statute (which prohibits punitive-damages claims in the initial complaint) or Rules 8 and 9(g) (which do not).
Case law on this issue is sparse since Shady Grove. In 2021, Judge Tunheim enforced the gatekeeping statute’s prohibition on punitive damages in initial pleadings, but without Erie analysis.31 On the other hand, Judge Menendez in 2019 refused to strike an initial punitive-damages claim but analyzed the issue “as though [the plaintiff] had filed a motion to amend.”32
Minnesota lawyers will have to await further case law on this issue. Two data points, however, suggest federal judges ultimately may jettison the gatekeeping statute’s timing restriction. First, Judge Schiltz analyzed a similar Minnesota statute—barring a complaint from including a claim for bad-faith denial of insurance benefits—in light of Shady Grove and concluded it conflicts with Rule 8.33 Second, federal judges have analyzed other states’ gatekeeping statues on punitive damages in light of Shady Grove and concluded they conflict with the federal rules.34 Even before Shady Grove, a federal appellate court held that Rule 8 trumps a state statute prohibiting punitive damages in the initial complaint.35
What can defendants do to challenge punitive-damages claims?
Assuming plaintiffs can now threaten punitive damages in federal court right out of the gate, defendants still have means to eliminate that threat early in litigation.
Specifically, defendants can move to dismiss for failure to state a plausible claim under Minnesota’s substantive standard for punitive damages. After Shady Grove, federal judges agree Minnesota’s substantive standard still governs in federal court.36 And it is a high bar. Under Minnesota law, punitive damages are permitted only if the defendant acted with “deliberate disregard for the rights or safety of others”37—requiring “egregious” misconduct.38 Even at the pleading stage, plaintiffs must allege facts plausibly suggesting the defendants acted with deliberate disregard for the rights or safety of others.39
Does the gatekeeping statute apply in federal question cases?
Thus far, this article has focused on federal diversity cases. But federal courts also adjudicate Minnesota law claims under supplemental jurisdiction in federal question cases. Does the gatekeeping statute apply in those cases?
The answer depends on whether the Erie doctrine applies in supplemental jurisdiction cases. Every Supreme Court case to apply an Erie analysis has arisen in diversity jurisdiction.40 While the Court has suggested Erie applies beyond diversity cases—and most courts assume it does—the issue remains unresolved.41
This has led to another intra-district split in the District of Minnesota. Before Shady Grove, Judge Raymond Erickson concluded the gatekeeping statute is “equally applicable” in supplemental jurisdiction cases.42 But in 2019, Judge Susan Richard Nelson concluded the gatekeeping statute “is inapplicable” in such cases.43
Minnesota lawyers should watch for other judges to weigh in on this issue—or for the Eighth Circuit to resolve it.
Conclusion
There is now a split of authority on the critical question of whether Minnesota’s gatekeeping statute applies in federal court. Most district judge say no, but others say yes, and still others have not yet decided. Until the Eighth Circuit resolves this issue, lawyers should check where the judge assigned to their case stands on this issue. Stay tuned for more litigation and developments on this issue in the years to come.
Nick Bullard is a partner at Dorsey & Whitney LLP in Minneapolis. His practice focuses on employee benefit and ERISA litigation, healthcare-related litigation, and appellate matters.
Luke Wetterstrom is an associate at Dorsey & Whitney LLP in Minneapolis. His practice focuses on general civil litigation.
Notes
1 559 U.S. 393, 406 (2010).
2 Kuehn v. Shelcore, Inc., 686 F. Supp. 233, 234 (D. Minn. 1988).
3 Minn. Stat. §549.191.
4 Id.
5 Id.
6 See Fed. R. Civ. P. 8(a)(3) (“A pleading which sets forth a claim for relief must contain… a demand for the relief sought, which may include… different types of relief.”).
7 Fed. R. Civ. P. 9(g) (emphasis added).
8 Compare Maglione v. Cottrell, Inc., 2001 U.S. Dist. LEXIS 25022, at *6 (N.D. Ill. 2001), with Nal II, Ltd. v. Tonkin, 705 F. Supp. 522, 528 (D. Kan. 1989).
9 Fed. R. Civ. P. 15(a)(1).
10 Fed. R. Civ. P. 15(a)(2).
11 Orange Rabbit, Inc. v. Franchoice, Inc., 2020 U.S. Dist. LEXIS 79825, at *15 (D. Minn. 2020).
12 See Fed. R. Civ. P. 15; Orange Rabbit, 2020 U.S. Dist. LEXIS 79825, at *10.
13 Hanna v. Plumer, 380 U.S. 460, 465 (1965).
14 See Minn. Stat. §549.20, subd. 1; Orange Rabbit, 2020 U.S. Dist. LEXIS 79825, at *10.
15 Supra note 1.
16 Id. at 397. Shady Grove was a 4-1-4 fractured decision, but the plurality opinion and Justice Steven’s both advanced substantially similar tests. Id. at 421 (Stevens, J., concurring).
17 Id. at 398.
18 Jacobs v. Pickands Mather & Co., 1987 U.S. Dist. LEXIS 13673, at *2 (D. Minn. 1987).
19 Fournier v. Marigold Foods, Inc., 678 F. Supp. 1420, 1422 (D. Minn. 1988).
20 In re Bair Hugger Forced Air Warming Devices Prods. Liab. Litig., 2017 U.S. Dist. LEXIS 193938, at *3 n.1 (D. Minn. 2017) (collecting cases).
21 Sav. Bank v. Green Tree Acceptance, Inc., 739 F. Supp. 1342, 1353 (D. Minn. 1990).
22 See Popp Telecom Inc. v. Am. Sharecome, Inc., 361 F.3d 482, 491 n.10 (8th Cir. 2004); Porous Media Corp. v. Pall Corp., 173 F.3d 1109, 1118 (8th Cir. 1999); Bunker v. Meshbesher, 147 F.3d 691, 696 (8th Cir. 1998); Gamma-10 Plastics, Inc. v. Am. President Lines, Ltd., 32 F.3d 1244, 1255 (8th Cir. 1994).
23 Bair Hugger, 2017 U.S. Dist. LEXIS 193938, at *10.
24 Speed RMG Partners, LLC v. Arctic Cat Sales, Inc., 2021 U.S. Dist. LEXIS 254721, at *14 (D. Minn. 2021) (Brasel); Mgmt. Registry, Inc. v. A.W. Cos., 2019 U.S. Dist. LEXIS 226063, at *42 (D. Minn. 2019) (Menendez); Urbieta v. Mentor Corp., 2018 U.S. Dist. LEXIS 120808, at *8 (D. Minn. 2018) (Montgomery); Selective Ins. Co. v. Sela, 353 F. Supp. 3d 847, 858 (D. Minn. 2018) (Schiltz) (in dicta); Mgmt. Registry, Inc. v. A.W. Cos., 2020 U.S. Dist. LEXIS 15513, at *7 (D. Minn. 2020) (Tunheim).
25 Zimmerman v. Standard Ins. Co., 2021 U.S. Dist. LEXIS 111598, *15 (D. Minn. 2021) (Bowebeer); Russ v. Ecklund Logistics, Inc., 2022 U.S. Dist. LEXIS 52314, at *14 (D. Minn. 2022) (Docherty); McNamara v. Kuehne, 2023 U.S. Dist. LEXIS 30945, *7 (D. Minn. 2023) (Foster); Rogers v. Mentor Corp., 2018 U.S. Dist. LEXIS 81245, at *23 (D. Minn. 2018) (Rau); Ramirez v. AMPS Staffing, Inc., 2018 U.S. Dist. LEXIS 71118, at *13 (D. Minn. 2018) (Thorson); Orange Rabbit, 2020 U.S. Dist. LEXIS 79825, at *15 (Cowan Wright).
26 E.g., In re Testosterone Replacement Therapy Prods. Liab. Litig. Coordinated Pretrial Proceedings v. Actavis, Inc., 430 F. Supp. 3d 516, 551 (N.D. Ill. 2019); Jenkins v. Immedia, Inc., 2019 U.S. Dist. LEXIS 70894, at *14 (D. Colo. 2019).
27 Inline Packaging, LLC v. Graphic Packaging Int’l, LLC, 2018 U.S. Dist. LEXIS 74102, at *12 (D. Minn. 2018); see also Rilley v. MoneyMutual, LLC, 2018 U.S. Dist. LEXIS 218771, at *13-14 (D. Minn. 2018).
28 Johannessohn v. Polaris Indus., 2022 U.S. Dist. LEXIS 149766, at *7 (D. Minn. 2022).
29 Bhatia v. 3M Co., 323 F. Supp. 3d 1082, 1103 (D. Minn. 2018) (Frank); Parada v. Anoka Cty., 2019 U.S. Dist. LEXIS 157328, at *18 (D. Minn. 2019) (Leung).
30 BCBSM, Inc. v. GS Labs, LLC, 2023 U.S. Dist. LEXIS 15593, at *71 (D. Minn. 2023).
31 Bergman v. Johnson & Johnson, 2021 U.S. Dist. LEXIS 152758, at *17–18 (D. Minn. 2021).
32 Mgmt. Registry, 2019 U.S. Dist. LEXIS 226063, at *42.
33 Sela, 353 F. Supp. 3d at 857.
34 E.g., Kilburn v. Autosport Acquisitions, 2021 U.S. Dist. LEXIS 17404, at *4 (E.D. Mo. 2021).
35 Cohen v. Office Depot, Inc., 184 F.3d 1292, 1295–99 (11th Cir. 1999), vacated in part on other grounds, 204 F.3d 1069 (11th Cir. 2000).
36 E.g., Speed RMG, 2021 U.S. Dist. LEXIS 254721, at *20.
37 Minn. Stat. §549.20 subd. 1(a).
38 Lundgren v. Eustermann, 370 N.W.2d 877, 882 (Minn. 1985).
39 Speed RMG, 2021 U.S. Dist. LEXIS 254721, at *21.
40 Alexander A. Reinert, Erie Step Zero, 85 Fordham L. Rev. 2341, 2352 (2017).
41 Id.
42 Ulrich v. City of Crosby, 848 F. Supp. 861, 866 n.5 (D. Minn. 1994).
43 Benner v. St. Paul Pub. Schs, 380 F. Supp. 3d 869, 910 (D. Minn. 2019).