Kirby v. Long-Term Disability Plan, 27,624.

196 P.3d 965

2008 NMCA 154

Stella R. KIRBY, Plaintiff-Appellee, v. LONG-TERM DISABILITY PLAN OF TAD RESOURCES INTERNATIONAL, INC., and Guardian Life Insurance Company of America, Defendants-Appellants.

No. 27,624.

Court of Appeals of New Mexico.

August 20, 2008.

Certiorari Granted, No. 31,329, November 5, 2008.

Mettler & Lecuyer, P.C., Earl Mettler, Albuquerque, NM, for Appellee.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Donald A. DeCandia, Albuquerque, NM, for Appellant Guardian Life Insurance.

OPINION

WECHSLER, Judge.

{1} The opinion filed in this case on June 23, 2008 is hereby withdrawn and the following substituted therefor. The motion for rehearing of Plaintiff Stella Kirby is denied.

{2} Defendant Guardian Life Insurance Company of America appeals the district court order granting summary judgment in favor of Plaintiff. The district court order allows Plaintiff to garnish the insurance policy sold by Defendant to the Long-Term Disability Plan of TAD Resources International, Inc. (the Plan) in order to satisfy the Plan's default judgment debt owed to Plaintiff. On appeal, Defendant argues that (1) garnishment was an inappropriate remedy; (2) its due process rights were violated as a result of the summary judgment order; (3) various provisions of the Employment Retirement Income Security Act (ERISA) of 1974, 29 U.S.C. §§ 1001 to 1461 (2000), should have precluded the granting of Plaintiff's motion for summary judgment; and (4) Plaintiff was absolutely barred by the doctrine of res judicata from seeking recovery from Defendant. We conclude that Defendant is neither indebted to the Plan nor does it hold any property of the Plan subject to garnishment; therefore, the district court erred in granting Plaintiff's motion for summary judgment on its garnishment claim. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

{3} Between April 15, 1996 and May 14, 1997, Plaintiff was receiving long-term disability benefits from Defendant under a group insurance policy purchased by her employer, TAD Resources International, Inc. (Employer). Pursuant to ERISA, Employer had set up the Plan and purchased the insurance policy from Defendant, which served as the Plan's third-party administrator. See 29 U.S.C. §§ 1101-1102. After May 14, 1997, Defendant stopped paying Plaintiff benefits under the policy. As a result, Plaintiff filed suit against Defendant and Employer in 1999 in state district court seeking relief from Defendant's decision to terminate her benefits. In her initial complaint, Plaintiff pleaded only state law claims; she did not include the appropriate federal statutory claims under ERISA. In reaction, Defendant filed a motion to dismiss the complaint based on ERISA preemption. See 29 U.S.C. § 1144(a) (stating that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described" in Section 1003(b)); see also Alliance Health of Santa Teresa, Inc. v. Nat'l Presto Indus., Inc., 2005-NMCA-053, ¶ 32, 137 N.M. 537, 113 P.3d 360 (explaining that ERISA expressly preempts state law claims that sufficiently relate to ERISA plans). The district court granted the motion and allowed Plaintiff fifteen days to amend her complaint. Plaintiff then filed an amended complaint, which named Employer as a defendant, but failed to name either Defendant or the Plan. Subsequently, Plaintiff filed another amended complaint, which again included claims against Defendant along with claims against Employer and the Plan. Defendant responded by arguing that Plaintiff was, as a result of failing to include it in the amended complaint following the initial dismissal of the case, barred by the doctrine of res judicata from suing it for benefits. The district court ultimately agreed and dismissed Plaintiff's claims against Defendant with prejudice. Following the dismissal of Plaintiff's claims against Defendant, the district court also (1) granted summary judgment in favor of Employer, releasing it from liability to Plaintiff for benefits because Defendant "had sole discretion to determine and pay benefits under" the ERISA plan and (2) denied Plaintiff's motion for summary judgment against the Plan, reasoning that summary judgment was improper when Plaintiff was already "precluded from recovering against the party that fund[ed] the Plan."

{4} Eventually, the case was presented to this Court on appeal. The issue that Plaintiff raised was whether she was permitted to seek judgment against the Plan "as an entity" even though Defendant (the "disability insurer in control of administration of the plan") had been dismissed on res judicata grounds. Kirby v. TAD Res. Int'l, Inc., 2004-NMCA-095, ¶ 1, 136 N.M. 148, 95 P.3d 1063. We concluded that Defendant and the Plan were not "identical or inseparable in regard to Plaintiff's benefits claim under [ERISA]." Id. ¶ 38. Accordingly, we also concluded "that Plaintiff's benefits claim against the Plan [was] not barred under res judicata or collateral estoppel," but we declined to render an opinion regarding "whether Plaintiff, were she to obtain a judgment against the Plan, [could] succeed in some action or proceeding to enforce the judgment." Id. Finally, we held that the district court was correct in ruling that Employer was an improper party to the lawsuit since it was merely a "sponsor and plan administrator with no control over the administration of the Plan and no authority or discretion in regard to acting on a benefits claim." Id. ¶ 45.

{5} On remand following that appeal, Plaintiff filed a motion in state district court seeking benefits directly from the Plan under ERISA. At a subsequent hearing on Plaintiff's motion, no one entered an appearance on behalf of the Plan. As a result, the district court entered a default judgment against the Plan, concluding that (1) Plaintiff was totally disabled, (2) Plaintiff's circumstances met the definition of "disability" under the Plan's insurance policy, (3) Defendant's denial of benefits to Plaintiff was "arbitrary and capricious and without support in the record," and (4) Plaintiff was therefore entitled to future monthly benefits as well as benefits retroactive to the date that Defendant terminated payments in 1997. Shortly thereafter, Plaintiff's counsel contacted the Plan and requested satisfaction of the judgment. The Plan responded by asserting that it was Defendant's obligation to pay benefits under the policy; therefore, it refused to pay Plaintiff anything. Defendant also refused to pay Plaintiff, reasoning that the default judgment was entered exclusively against the Plan and that Plaintiff's claims against it had previously been dismissed with prejudice.

{6} Plaintiff proceeded to file suit in federal district court under ERISA's judgment enforcement provision, see 29 U.S.C. § 1132(a)(1)(B), in an attempt to compel Defendant to satisfy the Plan's state district court judgment debt. After that court granted Defendant's motion to dismiss, Plaintiff returned to state district court in order to file pleadings requesting, among other things, that she be allowed to collect on the Plan's judgment debt from Defendant by way of garnishment. Subsequently, Defendant moved to dismiss all of Plaintiff's claims, and Plaintiff filed a motion for summary judgment on her garnishment claim. After a hearing, the district court granted Plaintiff's motion for summary judgment. In doing so, the district court found that "the insurance policy sold by Defendant ... is an asset of the ... Plan" and that "[t]he policy imposes an obligation on [Defendant] to pay the benefits awarded to Plaintiff." Accordingly, the district court concluded that Plaintiff was permitted to recover on the Plan's judgment debt directly from Defendant by garnishing the group insurance policy that was sold by Defendant to Employer. Defendant presently appeals from that order.

GARNISHMENT OF THE INSURANCE POLICY

{7} In this appeal, we must determine whether Plaintiff's motion for summary judgment on her garnishment claim was properly granted. The parties do not frame their arguments so as to allege or deny the existence of a genuine issue of material fact; rather, the question presented focuses on the propriety of the district court's application of our garnishment law to allow Plaintiff to garnish the group insurance policy at issue as an "asset" of the Plan. We therefore focus exclusively on the second prong of the summary judgment standard—whether Plaintiff is "entitled to a judgment as a matter of law." See Rule 1-056(C) NMRA. We afford such a question de novo review. See Bd. of Educ. v. Thunder Mountain Water Co., 2007-NMSC-031, ¶ 6, 141 N.M. 824, 161 P.3d 869 ("Because the material facts are undisputed, we review the district court's grant of summary judgment de novo.").

{8} Plaintiff argues in her answer brief that "[i]t is well-recognized that garnishment of insurance coverage is a remedy that lies to collect a judgment against an insured defendant" if "(1) there is a non-voidable underlying judgment in favor of the judgment creditor and (2) the garnishee insurance carrier's policy of insurance covered the obligation that is the subject of the judgment." Her argument follows that because there is an enforceable judgment against the Plan and the insurance policy purchased from Defendant "covers the obligation sued upon," the insurance policy is subject to garnishment in the amount of the future and retroactive benefits awarded against the Plan in the default judgment. However, none of the cases that Plaintiff cites in support of her argument considered situations in which the garnishor was a beneficiary under a long-term disability policy; rather, they all considered situations in which the garnishor was a third-party beneficiary seeking to recover under the judgment debtor's liability insurance policy following vehicular accidents. See, e.g., Howard v. Quality Xpress, Inc., 1999-NMCA-121, ¶¶ 1-2, 128 N.M. 79,...