Medical Mut. of Ohio v. DeSoto

245 F.3d 561

MEDICAL MUTUAL OF OHIO, Plaintiff-Appellee, v. Denise deSOTO; Jose deSoto, Defendants-Appellants.

Nos. 99-3988, 00-3571.

United States Court of Appeals, Sixth Circuit.

Argued September 21, 2000.

Decided and Filed March 27, 2001.

COPYRIGHT MATERIAL OMITTED

ARGUED: Robert Eddy, GALLAGHER, SHARP, FULTON & NORMAN, Cleveland, Ohio, for Appellants.

Stephen F. Gladstone, (argued and briefed), Michael J. Holleran (briefed), FRANTZ & WARD, LLP, Cleveland, Ohio, for Plaintiff-Appellee Medical Mutual of Ohio in Nos. 99-3988, 00-3571.

ON BRIEF: Robert Eddy, Janice Aitken, GALLAGHER, SHARP, FULTON & NORMAN, Cleveland, Ohio, for Appellants.

Mary M. Utterback (briefed), THELEN, REID & PRIEST, Washington, D.C., Curtis A. Cole, briefed, THELEN, REID & PRIEST, Los Angeles, California, for California Healthcare Ass'n, Amicus Curiae in No. 99-3988.

William F. Gibson, Robert H. Eddy (argued and briefed), Janice Aitken (briefed), Gallagher, Sharp, Fulton & Norman, Cleveland, OH, for Defendant-Appellant Denise deSoto in No. 00-3571.

William F. Gibson, Robert H. Eddy (argued and briefed), Gallagher, Sharp, Fulton & Norman, Cleveland, OH, for Defendant-Appellant Jose Peppy deSoto in No. 00-3571.

Janice Aitken (briefed), Gallagher, Sharp, Fulton & Norman, Cleveland, OH, for Defendant-Appellant Denise deSoto in No. 99-3988.

Robert H. Eddy (argued and briefed), Janice Aitken, Gallagher, Sharp, Fulton & Norman, Cleveland, OH, for Defendant-Appellant Jose Peppy deSoto in No. 99-3988.

Before: MERRITT, KENNEDY, and GILMAN, Circuit Judges.

Pursuant to Sixth Circuit Rule 206

KENNEDY, Judge, delivered the opinion of the court, in which MERRITT, Judge, joined. GILMAN, Judge (pp. 575-77), delivered a separate concurring opinion.

AMENDED OPINION

KENNEDY, Circuit Judge.

This Employee Retirement Insurance and Security Act (ERISA) action comes before the court on the consolidated appeals of defendants, Denise deSoto and Jose deSoto, from (1) the district court's grant of summary judgment in favor of Medical Mutual of Ohio (MMO) finding the deSotos liable for unpaid reimbursement funds due under MMO's welfare benefit plan and (2) its judgment awarding MMO attorneys' fees pursuant to 29 U.S.C. § 1132(g)(1). On appeal, the deSotos assert the district court had no personal jurisdiction over them; MMO was not entitled to reimbursement for the benefits it provided Mrs. deSoto; and California law, in particular section 3333.1 of the California Civil Code, applies to any claim that MMO might have for reimbursement and prohibits it from recovering the medical expenses it paid on Mrs. deSoto's behalf arising from the alleged medical malpractice.¹

Because we agree that California law governs the contract between Mrs. deSoto and MMO and prohibits MMO from recovering the medical expenses it paid on behalf of Mrs. deSoto, we reverse the district court's grant of summary judgment in favor of MMO and remand with instructions to enter summary judgment in favor of the deSotos. We also vacate the court's judgment awarding attorneys' fees in light of this opinion.

I. FACTS

This case presents a unique set of circumstances. Unlike most benefit recovery cases involving group insurance policies, in which the insurance company's suit is premised upon the contract between the company and the insured's employer or organization, see LEE R. RUSS, 1 COUCH ON INSURANCE § 7:1 (3d ed.1997), MMO appears to premise its suit upon the Certificate issued to Mrs. deSoto. "The Certificates issued under the Cleveland Growth Associations's Counsel of Smaller Enterprises contract are employee welfare benefit plans governed by ERISA." Appellee's Br. at 4. "The Plan Certificates that form the basis for the parties' contractual obligations, and thus govern this lawsuit, provide as follows." Id. at 14. Thus, the reader of this opinion should keep in mind that our analysis is based upon MMO's representation that the Certificates control its relationship with Mrs. deSoto.

MMO is a mutual insurance company incorporated under the laws of Ohio. As such, it provides group health insurance plans — governed by ERISA — for member companies of the Greater Cleveland Growth Associations's Counsel of Smaller Enterprises. Under that arrangement, the employees of member companies are eligible to become participants in MMO's welfare benefit plan. To become a participant, an eligible employee must apply and be approved for coverage. The employee receives a Certificate, which, according to MMO's brief on appeal, constitutes the plan and governs the relationship between the MMO and the employee.

The factual circumstances giving rise to this litigation began on December 13, 1993, when Mrs. deSoto underwent surgery at the University of California's Irvine Medical Center in connection with injuries she sustained from an automobile accident. Pursuant to the terms of the Certificate, MMO paid for Mrs. deSoto's medical expenses incurred because of that accident, including the costs associated with her surgery. As a result of mistakes made during that surgery, Mrs. deSoto was left in a coma and required additional medical attention, thereby incurring additional medical expenses. MMO paid these medical expenses as well. In total, MMO paid $616,537.53 on behalf of Mrs. deSoto.

In an effort to recover some of the damages caused by the mistakes made during surgery, the deSotos filed a law suit against the Regents of the University of California Medical Center in the Superior Court of the State of California for Orange County. The court entered a default judgment against the Regents and awarded the deSotos $9,000,000 in damages. Of that amount, the court designated $1,536,531.00 as past medical expenses.

The Regents attacked the judgment, and in particular the award of medical expenses, filing a motion to vacate the default judgment and grant a new trial, and appealing the judgment as excessive. Soon after the Regents filed their appeal, Mrs. deSoto, through her guardian, Mr. deSoto, negotiated a settlement agreement with the Regents providing for an initial lump sum payment of $2,100,000 and an additional $15,000.00 per month to increase at 3% per year for Mrs. deSoto's life. The settlement characterized the payments as "damages on account of personal injury within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986, as amended." That characterization, the Regents and deSotos believed, represented their intent to exclude from their settlement any award of medical expenses.

Believing that the deSotos' recovery entitled it to reimbursement for the medical expenses irrespective of how the recovery was characterized, MMO contacted the deSotos and requested that they reimburse it $616,537.53. The deSotos disagreed with MMO's assessment of the situation and refused to pay, arguing that under the terms of the Certificate, MMO was not entitled to reimbursement. And even if the Certificate entitled MMO to recover the medical expenses, they protested, California's insurance law prohibited it from obtaining any recovery. Believing it and the deSotos were at an impasse, MMO filed suit in the District Court for the Northern District of Ohio. Upon completing discovery, both parties moved for summary judgment. After finding that it had jurisdiction, the district court agreed with MMO. It ruled that ERISA common law entitled MMO to reimbursement; found that Ohio law rather than California law applied to the plan; held that ERISA common law rather than Ohio law governed the issue; and directed the deSotos to pay MMO $616,537.53.² The deSotos appeal that judgment.

Based on that judgment, MMO moved for attorneys' fees pursuant to 29 U.S.C. § 1132(g)(1). The district court, applying the five part-test set forth in Secretary of Labor v. King, 775 F.2d 666 (6th Cir.1985), determined that MMO was entitled to attorneys' fees and awarded it $57,735.70 in fees and $223.20 in costs. The deSotos appeal that judgment as well.

The consolidated appeals are now before this court.

II. DISCUSSION

We review a district court's grant of summary judgment de novo. See Duggins v. Steak `N Shake, Inc., 195 F.3d 828, 832 (6th Cir.1999). Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

A. Personal Jurisdiction

As with every case, we begin with any jurisdictional issues. The district court determined that § 1132(e)(2) of ERISA provided it with the authority to exercise jurisdiction over the deSotos since the plan was administered in Ohio. Section 1132(e)(2) provides,

Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district court where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found.

29 U.S.C. § 1132(e)(2). That section, the court ruled, alters the personal jurisdiction calculus established by International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Rather than asking whether the defendant has sufficient minimum contacts with the forum state for the exercise of jurisdiction to comport with traditional notions of fair play and substantial justice, as courts do when relying on a state's long-arm statute to establish territorial jurisdiction, a court should ask whether the defendant has sufficient minimum contacts with the United States. Because the deSotos had sufficient minimum contacts with the United States, the court concluded its exercise of jurisdiction over them comported with traditional notions of fair play and substantial justice.

According to the deSotos, the court's decision to base the personal...