Kohl's Dep't Stores v. Castelli

961 F.Supp.2d 415

KOHL'S DEPARTMENT STORES, In its Capacity as Plan Administrator of the Kohl's Group Health Plan, Plaintiff,

v.Fred CASTELLI and Lite & Russell, Defendants.

No. 12–cv–02990 (ADS)(ARL).

United States District Court, E.D. New York.

Aug. 8, 2013.

Preempted

N.Y.McKinney's General Obligations Law § 5–335Tansey, Tracy & Convery, by James N. Tracy, Esq., Thomas Vincent Convery, Esq., Staten Island, NY, for the Plaintiff.

Lite & Russell, by Justin N. Lite, Esq., of Counsel, West Islip, NY, for the Defendants.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

On June 14, 2012, the Plaintiff Kohl's Department Stores (“Kohl's” or the “Plaintiff”), the Plan Administrator for the Kohl's Group Health Plan (the “Plan”), commenced this action against the Defendants Fred Castelli (“Castelli”) and Lite & Russell (collectively, the “Defendants”). The Plaintiff commenced this action to enforce the terms of the “Plan” and for equitable relief under the provisions of 29 U.S.C. § 1132(a)(3).

Specifically, the Plaintiff brings causes of action demanding that (1) Lite & Russell reimburse the Plan for the portion of legal service fees that were rendered in connection with a personal injury action filed by Castelli against a third-party in the Supreme Court of the State of New York (“the Underlying Action”) and (2) the Defendants reimburse the Plan for the portion of the settlement proceeds recovered in the Underlying Action as reimbursement for the paid benefits over which the Plan has an equitable lien or a constructive trust.

Presently before the Court is the Defendants' motion to dismiss the Complaint in its entirety pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ. P.”) 12(b)(6). First, the Defendants seek to dismiss the action on the ground that the Plaintiff's subrogation causes of action are time-barred. Second, the Defendants seek to dismiss the action on the ground that New York General Obligation Law § 5–335 (“N.Y. GOL § 5–335”) prohibits health benefit providers from enforcing any non-statutory contractual right of reimbursement and/or subrogation claims against an insured's recovery in a personal injury lawsuit. In this respect, the Defendants contend that the Employee Retirement Income Security Act (“ERISA”) does not preempt N.Y. GOL § 5–335.

In addition, the Defendants seek to dismiss the first and second causes of action on the ground that the Plaintiff does not enjoy a statutory lien. Finally, the Defendants seek to dismiss the Plaintiff's second cause of action on the ground that the Plaintiff has no legal authority to assert an equitable lien over the legal fees earned by Lite & Russell.

On March 29, 2013, Kohl's filed an opposition to this motion. The Defendants have not filed a reply. For the reasons that follow, the Defendants' motion is denied.

I. BACKGROUND

A. Factual Background

Unless otherwise stated, the following facts are drawn from the Complaint and are construed in a light most favorable to the Plaintiff.

On or about November 13, 2007, Castelli sustained personal injuries as a result of a motor vehicle accident (the “Accident”). At the time of the Accident, Castelli was a “Covered Person” under the Plan.

At all relevant times, the Plan was a self-funded employee welfare benefits plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 18 U.S.C. § 1001, et seq.

The terms and conditions of coverage under the Plan included the following:

If you receive a Benefit payment from the Plan for an injury caused by a third party, and you later receive any payment for that same condition or injury from another person, organization or insurance company, we have the right to recover any payments made by the Plan to you.

You agree as follows:

You will reimburse the Plan immediately upon recovery. Once we make or are obligated to make payments on your behalf, we are granted and you are required and consented to, an equitable lien by agreement or constructive trust on the proceeds of any payment, reimbursement, settlement or judgment received by you from Third Parties or any other source.

(Comp., at ¶¶ 3, 4.) (internal quotation marks omitted).

Between October 2009 and February 2010, the Plan paid medical benefits on behalf of Castelli in the amount of $63,732.80 (“the Paid Benefits”). The Paid Benefits covered medical expenses related to injuries Castelli sustained as a result of the Accident.

On or about May 30, 2008, Castelli filed a personal injury action in the Supreme Court of the State of New York, County of Suffolk, alleging that the negligence of third parties caused the Accident. Lite & Russell represented Castelli in that action, entitled “ Freddy Castelli, et al. v. Town of Brookhaven, et al.,” Index No. 20992–08, (“the Underlying Action”). As part of that litigation, Castelli and Lite & Russell entered into a retainer agreement providing for a one-third contingency attorneys' fee. In or about 2010, the Underlying Action settled for a sum certain (“the Settlement Proceeds”).

As a result, the Plaintiff alleges that the Plan has an equitable lien or constructive trust over that portion of the Settlement Proceeds owed to the Plan as reimbursement for the Paid Benefits. The Plaintiffs further allege that the Defendants have refused to reimburse the Plan for its portion of the Settlement Proceeds.

In its first causes of action, the Plaintiff demands that Defendants reimburse the Plan for the portion of the Settlement proceeds to which the Plaintiff was entitled, including reasonable attorneys' fees and costs pursuant to 29 U.S.C § 1132(g).

In its second cause of action, the Plaintiff alleges that the Defendant Lite & Russell accepted a fee for legal services rendered in connection with the Underlying Action from the Settlement Proceeds. The Plaintiff further contends that the Plan has an equitable lien or constructive trust over that portion of the fee owed to the Plan as reimbursement for the Paid Benefits, and demands that Lite & Russell reimburse the Plan.

B. Procedural History

On June 14, 2012, the Plaintiff filed the Complaint. On or about September 19, 2012, the Defendants filed the instant motion, seeking to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief could be granted.

II. DISCUSSION

A. Standard on a Motion to Dismiss

Under the now well-established Twombly standard, a complaint should be dismissed only if it does not contain enough allegations of fact to state a claim for relief that is “plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007). The Second Circuit has explained that, after Twombly, the Court's inquiry under 12(b)(6) is guided by two principles. Harris v. Mills, 572 F.3d 66 (2d Cir.2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)).

“First, although ‘a court must accept as true all of the allegations contained in a complaint,’ that ‘tenet’ ‘is inapplicable to legal conclusions' and ‘threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.’ ” Id. (quoting Iqbal, 556 U.S. at 663, 129 S.Ct. 1937). “ ‘Second, only a complaint that states a plausible claim for relief survives a motion to dismiss' and ‘[d]etermining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.’ ” Id. (quoting Iqbal, 556 U.S. at 664, 129 S.Ct. 1937). Thus, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and ... determine whether they plausibly give rise to an entitlement of relief.” Iqbal, 556 U.S. at 664, 129 S.Ct. 1937.

Finally, “in adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration ‘to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken.’ ” Leonard F. v. Israel Disc. Bank of N.Y., 199 F.3d 99, 107 (2d Cir.1999) (quoting Allen v. WestPoint–Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991)).

B. As to Whether the Plaintiff's Claim was Timely Filed

The Plaintiff asserts claims under 29 U.S.C. § 1132(a)(3) to enforce the terms of the Plan. The Defendants counter that the three-year Statute of Limitations under New York CPLR § 206 governs subrogation actions, and that the Plaintiff's claims are time-barred. In this regard, the Defendants contend that this three year Statute of Limitations begins to run from the date of the accident and that the Plaintiffs had until November 13, 2010, three years after the accident occurred, to commence this action.

In order to determine the appropriate statute of limitations governing the Plaintiff's claims, the Court must first determine whether the Plaintiff's claims for reimbursement of Paid Benefits constitute a form of equitable relief under § 1132(a)(3).

1. As to Whether Plaintiff's Claims for Reimbursement of Paid Benefits are a Form of Equitable Relief under § 1132(a)(3).

29 U.S.C. § 1132(a)(3) provides as follows:

[a] civil action may be brought by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

“For restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.” Great–West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 214, 122 S.Ct. 708, 714–15, 151 L.Ed.2d 635 (2002).

In Knudson, the Court addressed whether insurers can bring “subrogation-like” actions under an ERISA plan pursuant to 29...