Duke Energy Benefits Committee v. Heafner

597 F.Supp.3d 849

DUKE ENERGY BENEFITS COMMITTEE, Plaintiff,

v.Bridget HEAFNER and DeMayo Law Offices, LLP, Defendants.

CIVIL ACTION NO. 3:21-CV-355-GCM-DSC

United States District Court, W.D. North Carolina, Charlotte Division.

Signed April 8, 2022

Errol J. King, Jr., Pro Hac Vice, Phelps Dunbar LLP, Baton Rouge, LA, Justine Marie Tate, Phelps Dunbar LLP, Raleigh, NC, Nathan A. Huff, K&L Gates LLP, Morrisville, NC, for Plaintiff.

Raboteau T. Wilder, Jr., Wilder & Pantazis, Charlotte, NC, Richard B. Fennell, James, McElroy & Diehl, Charlotte, NC, for Defendant DeMayo Law Offices, LLP.

ORDER

Graham C. Mullen, United States District Judge

THIS MATTER comes before the Court on Defendant DeMayo Law Offices, LLP's Motion to Dismiss (ECF No. 11), the Memorandum and Recommendation (M&R) of the Honorable David S. Cayer, United States Magistrate Judge (ECF No. 17), and the Objections to the M&R (ECF No. 18). This motion is ripe for disposition. For reasons that are discussed in more detail below, the Court will overrule the objections, adopt the magistrate's recommendation as modified, and deny the motion to dismiss.

I. INTRODUCTION

An employer health plan paid certain medical expenses for a participant injured in a motor vehicle accident. The participant obtained counsel and achieved a settlement of tort claims arising from the accident. Contrary to the Plan's asserted rights of subrogation and reimbursement, the participant and her attorney reimbursed only a portion of the funds paid out by the health plan, resulting in this lawsuit. The law firm filed the present motion to dismiss. At issue in the motion is whether Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) authorizes a plan administrator to sue a participant's attorney to obtain reimbursement from the participant's settlement proceeds. The magistrate judge concluded that it does. After a careful de novo review, the Court agrees.

II. BACKGROUND

Plaintiff Duke Energy Benefits Committee (the "Committee") is the named Plan Administrator and fiduciary for the Duke Energy Medical Plan ("the Plan"), an employee welfare benefit plan covered by ERISA.¹ ECF No. 1 ¶¶ 4–5. The Plan provides benefits to eligible employees and their dependents, including various health insurance benefits. Id. ¶ 8.

In September 2018, Defendant Bridget Heafner, a participant or beneficiary of the Plan,² was injured in a motor vehicle accident. Id. ¶¶ 6, 16. The Plan ultimately paid $36,698.52 in medical expenses on Heafner's behalf. Id. ¶ 17. Heafner separately hired Defendant DeMayo Law Offices, LLP ("DeMayo") to represent her in tort claims related to the accident. Id. ¶ 7.

As Heafner's legal claims were pending, the insurer's reimbursement and recovery agent reminded Heafner and DeMayo of Heafner's contractual obligations under the Plan. Id. ¶¶ 20, 21. Specifically, plan participants were required to fully reimburse any benefits received from third parties, including proceeds from "full and partial settlements, judgments, or other recoveries ...."³ Id. ¶ 15. Plan participants were forbidden from accepting settlements which failed to provide full reimbursement, absent written approval from the Plan. See id.

On November 10, 2020, the Plan received a check from DeMayo in the amount of $28,140.94—$8,557.58 less than what the Plan had paid in medical expenses. Id. ¶ 31. DeMayo sent a letter accompanying the check, stating: "[W]e understand that this does not satisfy the equitable lien and obligations between our client and your client ...." Id. ¶ 31. After the Plan attempted to obtain further reimbursement, DeMayo advised that in settlement other tort claims, Heafner recovered $100,000 from the applicable insurance companies. Id. ¶ 33. However, despite being fully aware of the Plan's $36,698.52 first priority lien amount against the settlement recovery, DeMayo also informed the Plan that amounts from the recovery were to be paid to other medical providers and to DeMayo for attorneys’ fees, and that $28,140.94 was the full amount it, on behalf of Heafner, was authorized to remit to the Plan for its lien interest. Id. DeMayo further advised that if the Plan did not accept this amount, it would send this money to the Heafner and the Plan would have to pursue recovery from Heafner. Id.

The Committee then filed suit against Heafner and DeMayo, seeking a constructive trust or equitable lien on settlement proceeds, plus interest, a declaration of the Plan's ownership of the settlement proceeds up to the amount owed, an injunction ordering turnover of the proceeds, and attorneys’ fees and costs. See ECF No. 1 at 13. Heafner and/or DeMayo are in possession of the Settlement Funds from which reimbursement is sought. Id. at ¶ 37.

DeMayo moved to dismiss, arguing that the Complaint failed to state a claim under Section 502(a)(3) of ERISA. The magistrate recommended denial of DeMayo's motion, concluding that (1) ERISA fiduciaries may sue beneficiaries’ attorneys under § 502(a)(3); and (2) North Carolina state law similarly permits suits by third party lienholders against attorneys to force distribution of funds. DeMayo objects to both conclusions.

III. STANDARD OF REVIEW

When reviewing objections to a magistrate judge's memorandum and recommendation, the district court conducts a de novo review of the challenged portions. See Arnett v. Leviton Mfg. , 174 F. Supp. 2d 410, 412 (W.D.N.C. 2001) (citing 28 U.S.C. § 636(b) ). The district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions. Fed. R. Civ. P. 72(b)(3).

A Rule 12(b)(6) motion tests the sufficiency of a complaint. Bing v. Brivo Sys., LLC , 959 F.3d 605, 616 (4th Cir. 2020). It does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses. Id. To survive a motion to dismiss, a complaint must contain "sufficient factual matter ... to state a claim that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation omitted). To assess whether a given complaint states a plausible claim, the reviewing court first disregards conclusory allegations. See id. at 679, 129 S.Ct. 1937 ("[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth."). Treating the remaining, well-pleaded allegations as true, and drawing all reasonable inferences in favor of the plaintiff, the Court then determines whether those allegations plausibly give rise to an entitlement to relief. See id. ; King v. Rubenstein , 825 F.3d 206, 212 (4th Cir. 2016).

IV. DISCUSSION

DeMayo argues that it cannot be sued under § 502(a)(3) of ERISA, citing three district court cases from the same district. See Great-West Life & Annuity Ins. Co. v. Bullock , 202 F. Supp. 2d 461, 465 (E.D.N.C. 2002) ; T.A. Loving Co. v. Denton , 723 F. Supp. 2d 837, 843 (E.D.N.C. 2010) ; CSC Emp. Benefits Fiduciary Comm. v. Avera , No. 5:15-CV-4-BO, 2015 WL 4041333, at *2–3 (E.D.N.C. July 1, 2015). The Court accordingly analyzes those cases, giving special attention to Bullock , which the other two cases applied.

Bullock presented similar facts to this case. An ERISA fiduciary sued a beneficiary, an attorney, and a law firm to obtain reimbursement of medical benefits from settlement proceeds. See Bullock , 202 F. Supp. 2d at 462. The court said of Section 502(a)(3): "Although ERISA grants a right to sue for violations of its provisions, it does not specify who can be held liable for those violations." Id. at 464. Because it thought that ERISA was silent on that issue, the Bullock Court proceeded to consider state law, consistent with the practice of using state law to develop federal ERISA common law. See id. ("[F]ederal courts, including the Fourth Circuit, have consistently drawn from and sanctioned the use of the forum state's law, if that law is compatible with ERISA's policies.").

The resulting survey of North Carolina law led the court to determine that "North Carolina courts are hesitant to hold attorneys liable for actions that impact non-client third-parties, as those third-parties are not in privity with the attorney's employment contract." Id. After considering relevant state cases and ethical rules, the Bullock Court concluded that an attorney could only be liable under ERISA "where the attorney is a party or signatory to a plan/contract, he otherwise agrees to disburse funds in accordance with the plan, or his refusal to distribute proceeds to the [plan] was a result of negligence or was coupled with bad faith." Id. at 465.

Denton and Avera , the other cases cited by DeMayo, both applied Bullock. In Denton , the court found that Bullock ’s "rule" had not been abrogated by the Supreme Court's decision in Sereboff v. Mid-Atlantic Med. Servs. , 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006).⁴ See Denton , 723 F. Supp. 2d at 840–41. Avera similarly applied Bullock after rejecting cases from other circuits which had permitted third-party recoveries under ERISA. Avera , 2015 WL 4041333, at *5.

The Court is unpersuaded by Bullock. The analysis in that case hinged on a consideration of state law, which it only reached because it found ERISA silent on "who can be held liable for [ERISA violations]." Bullock , 202 F. Supp. 2d at 464. But two years before Bullock , the Supreme Court answered that question. Section 502(a)(3) "admits of no limit ... on the universe of possible defendants." Harris Trust & Sav. Bank v. Salomon Smith, Inc. , 530 U.S. 238, 246, 120 S.Ct. 2180, 147 L.Ed.2d 187 (2000). Instead, the sole limitation is the requirement that the plaintiff seeks "appropriate equitable relief." Id. at 246, 250–51, 120 S.Ct. 2180.⁵ Bullock does not even cite Harris Trust , suggesting that the court may have overlooked controlling authority.⁶

Bullock also answers the...