Solutions Shared Servs. v. Michael Jimenez, & Glasheen, Valles, & Inderman, LLP

452 F.Supp.3d 541

SOLUTIONS SHARED SERVICES, Plaintiff,

v.Michael JIMENEZ, and Glasheen, Valles, & Inderman, LLP, Defendants.

Civil Action No. 5:19-cv-01054-OLG

United States District Court, W.D. Texas, San Antonio Division.

Signed April 6, 2020

Catherine Dowie, Ryan L. Woody, Matthiesen, Wickert & Lehrer, S.C., Hartford, WI, James T. Busenlener, Matthiesen Wickert & Lehrer S.C., New Orleans, LA, for Plaintiff.

Jonathon Clark, Glasheen, Valles & Inderman, LLP, Austin, TX, for Defendants.

ORDER

ORLANDO L. GARCIA, CHIEF UNITED STATES DISTRICT JUDGE

On this day, the Court considered Plaintiff's Motion to Dismiss Amended RICO Counterclaim (docket no. 19) (the "Motion"). Having considered the Motion and the record, the Court finds that the Motion should be GRANTED.

BACKGROUND

Defendant Michael Jimenez ("Jimenez") sustained serious head injuries as a result of a May 12, 2017 motor vehicle accident. Docket no. 1 at ¶ 2. Jimenez was a covered participant in the Solutions Shared Services Health and Welfare Benefit Plan ("the Plan"), which Plaintiff Solution Shared Services ("Plaintiff") administers. Id. at ¶¶ 6 & 9. Following the accident, Jimenez filed claims for medical expenses with the Plan, which the Plan promptly paid in the amount of $245,979.69. Id. at ¶ 14. Additionally, Jimenez retained Defendant Glasheen, Valles, & Inderman, LLP, ("GVI") to represent him in claims against the parties responsible for the motor vehicle accident and his resulting injuries. Id. at ¶ 16. On June 12, 2017, Plaintiff retained The Phia Group, LLC to notify GVI of Plaintiff's subrogation interest and right to 100% reimbursement under the Plan. Id. at ¶ 17. Glasheen, an attorney at GVI, responded to The Phia Group acknowledging that they were "claiming a subrogation interest." Id. at ¶ 18. Defendants settled their claims with the responsible parties "for at least $3,895,000.83." Id. at ¶ 19. However, Defendants have yet to reimburse Plaintiff despite its alleged "first priority reimbursement claim" under the Plan and informed Plaintiff that it would not be receiving 100% reimbursement. Id. at ¶¶ 19-24.

Accordingly, Plaintiff filed this lawsuit against Defendants seeking to enforce the Plan's subrogation interest. Id. Plaintiff asserts four claims for relief. First, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), Plaintiff seeks a constructive trust and equitable lien upon the funds in order to enforce the terms of the Plan. Id. at ¶¶ 25-34. Second, Plaintiff seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 that the Plan is entitled to first priority reimbursement of the benefits paid to Jimenez, and that Texas state law, particularly the "make-whole" and "common fund" doctrines, are preempted by ERISA and thus inapplicable. Id. at ¶¶ 35-45. Third, Plaintiff seeks a declaratory judgment pursuant to 29 U.S.C. § 1132(a)(3)(B)(ii) permitting the Plan to "reverse all charges paid by the Plan with the Defendant Michael Jimenez's medical providers and further to offset any and all benefits paid on his behalf." Id. at ¶¶ 46-47. Finally, Plaintiff seeks attorney's fees and costs pursuant to both 29 U.S.C. § 1132(g) and the terms of the Plan. Id. at ¶¶ 48-50.

On October 24, 2019, Defendants filed their first answer, asserting a counterclaim against Plaintiff for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 - 1968. Docket no. 10 at ¶¶ 64-73. In their original answer, Defendants alleged that the Plan fraudulently claimed to be self-funded in order to skirt Texas law's limitations on subrogation and collect "un-warranted, unfair, and unjust recoveries of benefits paid." Id. at ¶ 66. As evidence of this alleged fraud, Defendants showed the Plan's 2016 and 2017 Form 5500s in which the Plan claimed to be "insured" rather than funded by the "General assets of the sponsor." Id. at ¶¶ 48-63.

Plaintiff moved to dismiss this counterclaim, in part arguing that GVI could not assert a RICO cause of action. See docket no. 13. Defendants then amended their answer, and then argued that Plaintiff's original motion should be denied as moot. See docket nos. 15 and 16. For efficiency, the Court will DENY AS MOOT Plaintiff's original motion to dismiss (docket no. 10) and will instead consider the merits of the present Motion and the amended counterclaim.

In their amended counterclaim, Defendants restate their allegations that Plaintiff is fraudulently misrepresenting the funding status of the Plan, telling Defendants that it is self-funded when the Plan marked "insured" in its 2016 and 2017 Form 5500 filings signed under penalty of perjury. Docket no. 15 at ¶¶ 48-58. Defendants allege that the misrepresentation is material, as an insured plan would be subject to the limitations of subrogation imposed by Texas Civil Practice & Remedies Code § 140.001 - 140.007. Id. at ¶ 59.

In its Motion, Plaintiff makes several arguments. First, Plaintiff asserts that Jimenez has not suffered a concrete and unspeculative injury as required under RICO. See docket no. 19. As part of this argument, Plaintiff asserts that the funding status of the Plan is irrelevant, because the Texas subrogation law (Texas Civil Practice & Remedies Code § 140) is preempted by ERISA. Id. at 5-8. As a result of this preemption, the Plan's terms determine its reimbursement rights, and thus there is no difference between the reimbursement amount under the Plan's terms versus the amount owed under the preempted Texas subrogation law. See id. Alternatively, Plaintiff argues that even if the subrogation law applies, the Plan is self-funded, and any reliance on "the minutia of the Form 5500 filings" is misplaced. See id. at 8-12. Instead, Plaintiff points to the Summary Plan Description ("SPD") as governing this funding question, which states: "The Plan's benefits and administration expenses are paid directly from the general assets of the Plan Sponsor." Docket no. 1-3.¹

Moreover, Plaintiff argues that the alleged injury is too speculative, even if the Texas subrogation law is not preempted and the Plan is in fact insured. Plaintiff asserts that Defendants' injury is merely the loss of the use of personal funds rather ran any actual, out of pocket expenditures. See docket no. 19 at 12-14. Defendants claim that the injury is the wrongful imposition of debt, citing to Chevron v. Donziger in the Second Circuit, which held that a corruptly obtained $8.646 billion-dollar international judgment constituted a RICO injury. See docket no. 15 at ¶ 75 n.3; see also Chevron Corp. v. Donziger , 833 F.3d 74, 135 (2d Cir. 2016). Plaintiff distinguishes this case on the grounds that Chevron was able to demonstrate that the defendant had already collected large portions of the judgment, and thus there was an actual quantifiable injury, unlike this case. See docket no. 19 at 14.

Additionally, Plaintiff argues that Defendants cannot prove causation as any loss of potential interest is caused by Defendants' mishandling of the disputed funds. See id. at 15-16. In particular, Plaintiff points to the Texas Code of Professional Conduct's requirement that an attorney holds disputed funds in a trust or escrow account separate from the attorney's assets, and, if possible, hold the funds in an "individual interest bearing trust account." See id. at 15; See Texas Code of Professional Conduct Rule 1.14. Accordingly, the failure to earn interest on the disputed funds was caused by Defendants rather than the Plaintiff.

Plaintiff further argues that ERISA, rather than RICO, should be the vehicle used to determine the parties' rights to the disputed funds. Plaintiff cites various Fifth Circuit precedent to stand for the principle that ERISA is designed to be the exclusive vehicle for determining claims for benefits. See docket no. 19 at 17-18. Moreover, Plaintiff argues that one cannot assert a fraud cause of action related to ERISA when a party brings a suit pursuant to ERISA to determine its rights prior to any reliance on the supposed fraud. Id. at 18. Plaintiff contends that this is the case here, as it has filed suit under ERISA to determine its rights under the Plan.

Finally, Plaintiff argues that Defendants have not adequately alleged a pattern of "racketeering activity," as required to state a RICO claim. Moreover, Plaintiff contends that Defendants have failed to plead this pattern with specificity, as required by Rule 9(b). See id. at 19.

In response, Defendants refute Plaintiff's argument that the Texas subrogation law is preempted, as the text of the statute specifically exempts self-funded ERISA plans, thereby implying that insured plans are not exempt from the statute. See docket no. 21 at 6. Moreover, the Fifth Circuit found that a similar "make-whole" doctrine in Louisiana affected risk pooling and thus was saved from ERISA preemption. Id. ; see Benefit Recovery, Inc. v. Donelon , 521 F.3d 326, 331 (5th Cir. 2008). In response to Plaintiff's alternative argument that it is self-funded, Defendants urge the Court to permit discovery before making such a finding. Docket no. 21 at ¶ 20. They point to the signed Form 5500s as sufficient evidence to survive the 12(b)(6) stage. Id.

Defendants also counter Plaintiff's argument that the injury is too speculative by citing to the Chevron case discussed above. Id. at ¶ 21. Defendants argue that the Second Circuit found a RICO injury based on attachments on property interests like the "lien" Plaintiff is placing on the disputed funds in this case. Id. at ¶¶ 21-24. Finally, Defendants request leave to amend.

Plaintiff then filed its reply, pointing out the various substantive arguments to which Defendants offered no response. Specifically, Plaintiff contends that Defendants did not identify what Plaintiff recovered as a result of its alleged RICO activity, nor did they respond to the argument that they failed to keep the money in an interest-bearing account. See docket no. 23 at 2. Defendants did not respond to Plaintiff's argument...