Mid-Century Ins. Co. v. Menking

327 F.Supp.2d 1049

MID-CENTURY INSURANCE COMPANY, Plaintiff, v. James MENKING, Defendant and Cross-Claimant, and Administrative Committee of the Wal-Mart Associates Health and Welfare Plan, Defendant and Cross-Claimant.

Administrative Committee of the Wal-Mart Associates Health and Welfare Plan, Plaintiff, v. James Menking and Mid-Century Insurance Company, Defendants.

No. 8:02CV267.

No. 8:02CV455.

United States District Court, D. Nebraska.

August 7, 2003.

Daniel P. Chesire, Lamson, Dugan Law Firm, Omaha, NE, Larry C. Johnson, Johnson, Welch Law Firm, Fremont, NE, for Mid Century Ins.

Christopher R. Hedican and Heidi A. Guttau-Fox, Baird, Holm Law Firm, Omaha, NE, Michael G. Connery, Torriano N. Garland, Kutak, Rock Law Firm, Omaha, NE, for Associates Health and Welfare Plan.

MEMORANDUM, ORDER AND JUDGMENT

SHANAHAN, District Judge.

Before the court are multiple pending motions in two cases, Case Nos. 8:02CV267 and 8:02CV455. The cases involve essentially the same parties and the same dispute, and the parties have stipulated that the court may consolidate the cases for all purposes. Accordingly, pursuant to the stipulation, the court will consolidate Case No. 8:02CV267 and Case No. 8:02CV455 for all purposes, including consideration of the pending motions to dismiss and for summary judgment. For the reasons herein, the court will deny James Menking's motions to dismiss and for summary judgment, and will and grant the motion for summary judgment filed by the Administrative Committee of the Wal-Mart Associates Health and Welfare Plan.

I. BACKGROUND

James Menking ("Menking") and the Wal-Mart Associates Health and Welfare Plan ("Plan") each claim entitlement to $25,000 in proceeds from Menking's underinsured motorist coverage. On July 20, 1997, Menking was injured in an automobile accident. At the time, Menking's mother was an employee of Wal-Mart Stores, Inc., and Menking was a beneficiary under her health insurance coverage. The Plan paid $77,727.19 of Menking's medical expenses.

Beyond coverage under the Plan, Menking also maintained $25,000 of underinsured motorist coverage through Mid-Century Insurance Company ("Mid-Century"). The Plan, a self-funded entity under the Employee Retirement Income Security Act, 29 U.S.C.A. § 1001 et seq. ("ERISA"), notified Mid-Century regarding a right of subrogation in the $25,000 based upon provisions in the agreement between the Plan and Menking's mother. Menking asserted that he, not the Plan, should receive the money.

Wary of being a stakeholder, Mid-Century brought an interpleader action against Menking, Wal-Mart Stores, Inc., and the Plan in state court and sought to deposit the $25,000 with the court. Before deposit could occur, however, the Plan removed the case to federal court. The case was docketed as Case No. 8:02CV267 and aligned Mid-Century as the Plaintiff and Menking and the Plan as Defendants. The Plan then submitted a cross-claim against Menking for payment of the $25,000 under the civil enforcement provision of ERISA, § 502(a)(3).

Menking then moved to remand the case back to state court. Concluding that the issues in the suit were completely preempted by ERISA, United States Magistrate Judge Thomas D. Thalken entered a Report and Recommendation recommending that this court deny the motion to remand. Menking did not object to the Report and Recommendation. See NELR 72.4; 28 U.S.C. § 636(b)(1)(A).

Perhaps concerned about the availability of removal jurisdiction, the "Administrative Committee" of the Plan instituted a second action in federal court prior to this court's ruling on Magistrate Judge Thalken's Report and Recommendation in Case No. 8:02CV267. See Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Wells, 213 F.3d 398, 400 (7th Cir.2000) (the administrative committee is, by statute, the fiduciary); Administrative Committee of Wal-Mart Stores, Inc. v. Varco, 338 F.3d 680, 2003 WL 21741691 (7th Cir. July 29, 2003) (plan instituted second action in federal court). Docketed as Case No. 8:02CV455, the second action aligns the Plan as Plaintiff and Menking and Mid-Century as Defendants. The second action also seeks relief pursuant to § 502(a)(3).

In addition, the Plan filed a motion to consolidate the second-filed case, Case No. 8:02CV455, with the first-filed case, Case No. 8:02CV267. Mid-Century filed a document indicating that it had no objection to consolidation, and Menking never responded. See NELR. 7.1(b)(2) (providing for 10 days to submit a brief opposing a motion). Before the court issued an order on consolidation, however, Menking filed both an answer and a motion to dismiss in Case No. 8:02CV455. The parties then filed cross-motions for summary judgment in Case No. 8:02CV455.

Given the unopposed motion for consolidation and the fact that the parties did not object to the Report and Recommendation pending in Case No. 8:02CV267, this court adopted the Report and Recommendation and denied remand in Case No. 8:02CV267.¹ The court then ordered the parties to submit their planning report under Fed.R.Civ.P. 26(f) in Case No. 8:02CV267. In the planning report, the parties (including Menking) stipulated that Case No. 8:02CV267 may be "consolidated for all purposes" with Case No. 8:02CV455, and that the court may treat the pending motions for summary judgment in Case No. 8:02CV455 as having been filed in both cases. The parties further stipulated that Mid-Century could pay the proceeds of the $25,000 into court and be dismissed from the lawsuit, leaving Menking and the Plan to adjudicate their adverse claims to the proceeds. To date, however, the court has not permitted dismissal of Mid-Century or granted leave to deposit the disputed funds under Fed.R.Civ.P. 67.²

II. ANALYSIS

A. FEDERAL PREEMPTION AND ENFORCEMENT OF ERISA SUBROGATION RIGHTS

The Eighth Circuit has routinely concluded that suits for subrogation by ERISA fiduciaries (like the Plan) are completely preempted by ERISA. See Lyons v. Philip Morris Inc., 225 F.3d 909, 912 (8th Cir.2000); United of Omaha v. Business Men's Assur. Co. of America, 104 F.3d 1034 (8th Cir.1997); Southern Council of Indus. Workers v. Ford, 83 F.3d 966, 969 (8th Cir.1996); Baxter v. Lynn, 886 F.2d 182, 185-86 (8th Cir.1989) (concluding that actions against self-funded plans based on Missouri's common law of subrogation and "any such state law" are preempted by ERISA). Furthermore, on at least two occasions prior to 2002, the Eighth Circuit permitted suits under the exclusive civil enforcement provision of ERISA, § 502(a)(3), where the suits sought "specific performance" of subrogation clauses in plan agreements. See Southern Council, 83 F.3d at 969 (permitting subrogation suit against plan beneficiary); Lyons, 225 F.3d at 912-13 (recognizing the § 502(a)(3) restriction to "equitable relief" but permitting subrogation suit to proceed against a non-beneficiary/participant third-party).

In 2002, however, the United States Supreme Court decided Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), which altered the relevant remedial landscape. In Great-West, an ERISA plan paid medical expenses to the plan beneficiary and the beneficiary then received a settlement from a third party. The settlement was then distributed to the beneficiary's attorney, a special needs trust for the beneficiary's care, and to other lienholders in amounts approved by a state court. The plan, proceeding under § 502(a)(3), ultimately sued the beneficiary in federal district court to recover a portion of the settlement proceeds.

By its terms, § 502(a)(3) authorizes ERISA fiduciaries (like the Plan) "to obtain ... appropriate equitable relief ... to enforce ... the terms of the plan." 29 U.S.C. § 1132(a)(3)(B)(ii) (emphasis added). Writing for a five-Justice majority, Justice Scalia interpreted this statutory language to mean that § 502(a)(3) authorizes ERISA plans to pursue only that relief which was "typically available" in courts of equity, not in courts of law, in the days of the divided bench.³ Great-West, 534 U.S. at 210, 122 S.Ct. 708. According to the Court, relief "typically available in equity" includes actions for specific relief, including injunction and certain forms of "equitable restitution" like constructive trust and equitable lien. Id. at 211-14, 122 S.Ct. 708.

Furthermore, although the plan in Great-West characterized its claim to the settlement proceeds as one for both injunction and "restitution", the Court found that the plan was not seeking relief typically available in equity. On the injunction, the Court concluded that the plan was not seeking equitable relief because it did not seek to enjoin future harm, but merely to enforce payment of sums past due. Id. at 210-11, 122 S.Ct. 708. Likewise, Justice Scalia noted that "for restitution to lie in equity, the action 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." Id. at 214, 122 S.Ct. 708 (emphasis added). Applying this definition, he concluded that "equitable restitution" was not possible because the respondents did not have possession of the particular settlement funds to which the plan claimed a right. Id. Accordingly, the Court opined that the plan's claim was, in substance, merely a legal claim "to impose personal liability .... for a contractual obligation to pay money." Id. at 210, 122 S.Ct. 708. Because "[m]oney damages are, of course, the classic form of legal relief," Id., the Court held that the plan's action was not authorized by ERISA § 502(a)(3).

B. THE PENDING MOTIONS FOR DISMISSAL AND SUMMARY JUDGMENT

In the present cases, Section 502(a)(3) is the very section under which the Plan proceeds. (8:02CV267, Filing No. 8 at 5; 8:02CV455, Filing No. 6 at 5). Because Great-West precludes the Plan from seeking "legal" relief under ERISA, the Plan has predictably pled its case as one...