JDA Software Incorporated et al v. Berumen et al

Filing 115

ORDER - JDA's 89 motion for summary judgment is GRANTED, and the Berumens' 91 motion for summary judgment is DENIED. JDA is awarded $342,638.81 in reimbursement, to be paid from the third-party settlement funds deposited in the IOLTA trust account of Jackson White P.C. (See Docs. 14 , 17 .) The Clerk shall enter judgment accordingly and terminate this case. See document for complete details. Signed by Judge Douglas L Rayes on 10/21/2016. (ATD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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JDA Software Incorporated,

No. CV-14-01565-PHX-DLR

Plaintiff,

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v.

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ORDER

Sergio Berumen,

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Defendant.

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Plaintiffs/Counter-Defendants are the JDA Software Incorporated Welfare Benefit

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Plan

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Defendants/Counterclaimants are Sergio and Sylvia Berumen. Before the Court are the

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parties’ cross-motions for summary judgment. (Docs. 89, 91.) The motions are fully

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briefed, and the Court heard oral argument on September 15, 2016. For the following

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reasons, JDA’s motion is granted and the Berumens’ motion is denied.

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(the

Plan)

and

JDA

Software

Incorporated

(collectively,

JDA).

BACKGROUND

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This case arises under the Employment Retirement Income Security Act of 1974

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(ERISA), 29 U.S.C. § 1001 et seq. The Plan is a self-funded employee welfare benefit

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plan sponsored by JDA. (Doc. 90, ¶ 41.) During the relevant time period, Sylvia

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Berumen was a JDA employee and both she and her spouse, Sergio, were Plan

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participants. (Doc. 90, ¶ 3; Doc. 92, ¶ 2.) In March 2010, Mr. Berumen was severely

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injured in a motor vehicle collision. (Doc. 90, ¶ 9; Doc. 92, ¶ 1.)

He required a

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substantial amount of medical care and incurred $342,638.81 in medical costs, which

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were paid by the Plan. (Doc. 90, ¶ 10; Doc. 92, ¶ 4.) The Berumens later brought a

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personal injury action against the other motorist, along with an underinsured motorist

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claim, and recovered $1,370,000. (Doc. 90, ¶ 11; Doc. 92, ¶¶ 8-10.) JDA then brought

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this lawsuit under 29 U.S.C. §1132(a)(3)(B) to enforce a reimbursement clause in the

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Plan’s Summary Plan Description (SPD). (Doc. 15; Doc. 90, ¶¶ 6-8.) JDA seeks an

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equitable lien over Mr. Berumen’s third party settlement funds to reimburse the Plan for

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the medical expenses it paid on his behalf.

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counterclaimed against JDA, alleging that it failed to furnish required plan documents

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and seeking statutory penalties under 29 U.S.C. § 1132(c). (Doc. 64.) JDA seeks

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summary judgment on all claims and counterclaims; the Berumens seek summary

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judgment on JDA’s claims only. (Doc. 89 at 1; Doc. 91 at 2.)

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(Doc. 89 at 4.)

The Berumens

LEGAL STANDARD

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Summary judgment is appropriate if the evidence, viewed in the light most

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favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to

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any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

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P. 56(a). “[A] party seeking summary judgment always bears the initial responsibility of

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informing the district court of the basis for its motion, and identifying those portions of

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[the record] which it believes demonstrate the absence of a genuine issue of material

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fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Substantive law determines

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which facts are material and “[o]nly disputes over facts that might affect the outcome of

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the suit under the governing law will properly preclude the entry of summary judgment.”

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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is genuine ‘if

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the evidence is such that a reasonable jury could return a verdict for the nonmoving

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party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002)

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(quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the

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genuine factual issues “‘can be resolved only by a finder of fact because they may

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reasonably be resolved in favor of either party.’” Cal. Architectural Bldg. Prods., Inc. v.

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Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477

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U.S. at 250).

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ANALYSIS
I. Claim for Equitable Relief Under 29 U.S.C. § 1132(a)(3)
An ERISA plan fiduciary may bring a civil action to obtain “appropriate equitable

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relief” to enforce plan terms.

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equitable lien over specifically identifiable funds that the beneficiary agreed to convey to

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the plan. See Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 362 (2006). To secure

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an equitable lien, the plan must show that (1) the beneficiary promised to reimburse the

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plan for benefits paid under the plan if there is subsequent recovery from a third party, (2)

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the agreement specifically identifies a fund, apart from the beneficiary’s general assets,

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from which the plan will be reimbursed, and (3) the specifically identified funds are

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within the beneficiary’s possession and control.

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Disability Plan, 683 F.3d 1083, 1092-93 (9th Cir. 2012).

29 U.S.C. §1132(a)(3).

Such relief may include an

Bilyeu v. Morgan Stanley Long Term

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Two of these requirements are not in dispute. First, the SPD’s reimbursement

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clause states: “if a third party causes Sickness or Injury for which you receive a

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settlement, judgment, or other recovery from any third party, you must use those

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proceeds to fully return to the Plan 100% of any Benefits you received for that Sickness

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or Injury.” (Doc. 90, ¶¶ 7-8.) Thus, the provision identifies a specific fund distinct from

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the Berumens’ general assets from which the Plan will be reimbursed. Second, the

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Berumens are holding $342,638.81 of the third-party settlement funds in trust pending the

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outcome of this litigation and, therefore, the funds are within their possession and control.

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(Doc. 14.)

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The dispositive question is whether the Berumens promised to reimburse the Plan.

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The SPD is the only document detailing the terms of the Plan, and contains provisions

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giving the Plan the right to reimbursement from third party recoveries. (Doc. 90, ¶¶ 6-8;

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Doc. 92, ¶ 11.) The Berumens argue, however, that the SPD’s contents do not constitute

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Plan terms within the meaning of ERISA and, therefore, JDA cannot enforce the

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reimbursement provision under § 1132(a)(3).

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Berumens argue that (1) they did not promise to reimburse JDA because they did receive

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a copy of the SPD and (2) the reimbursement provision is unconscionable. (Id. at 9, 11.)

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The Court disagrees.

(Doc. 91 at 7.)

Alternatively, the

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A. Enforceability of the SPD

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An ERISA plan must “be established and maintained pursuant to a written

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instrument.” 29 U.S.C. § 1102(a)(1). “[O]nce a plan is established, the administrator’s

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duty is to see that the plan is ‘maintained pursuant to [that] written instrument.’”

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Heimeshoff v. Hartford Life & Acc. Ins. Co., --- U.S. ---, 134 S. Ct. 604, 612 (2013)

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(quoting 29 U.S.C. § 1102(a)(1)).

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understand the terms of their plan, the plan administrator must furnish a summary,

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referred to as an SPD, “written in a manner calculated to be understood by the average

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plan participant, and . . . sufficiently accurate and comprehensive to reasonably apprise

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such participants and beneficiaries of their rights and obligations under the plan.” 29

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U.S.C. § 1022(a).

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communication with beneficiaries about the plan, but . . . their statements do not

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themselves constitute the terms of the plan[.]” Cigna Corp. v. Amara, 563 U.S. 421, 438

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(2011); see also US Airways, Inc. v. McCutchen, --- U.S. ---, 133 S. Ct. 1537, 1543 n.1

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(2013). Thus, if the contents of an SPD conflict with the terms of governing plan

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documents, the latter control. Amara, 563 U.S. at 436-38.

To ensure that participants and beneficiaries

Unlike governing plan documents, SPDs are meant to “provide

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In this case, however, the SPD is the only document detailing the rights and

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obligations of Plan participants. Moreover, the Berumens acknowledged during oral

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argument that the SPD contains all of the information required of a governing plan

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document. See 29 U.S.C. § 1102(b). Evidently this is not an uncommon practice.

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For certain types of plans, notably health plans, plan sponsors frequently
take a “consolidated” approach to their documents where the plan
document and the SPD take the form of a single document. . . . Th[is]
approach[ ] to plan documents stand[s] in contrast to the traditional practice
of using a formal legal document with a separate SPD document, the latter
being distributed to covered individuals apart from the full plan document.

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3 ERISA Practice and Litigation § 12:38. In these situations, “the SPD is sometimes

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argued to be the plan; that is, to serve simultaneously as the governing plan document.”

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Prichard v. Metro. Life Ins. Co., 783 F.3d 1166, 1169 (9th Cir. 2015).

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Relying on Amara, the Berumens argue that the SPD cannot simultaneously serve

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both purposes. (Doc. 91 at 2-3.) Amara, however, did not involve a consolidated plan

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document, and courts that have addressed consolidated plans consistently have found that

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an SPD can serve as the governing plan document if it is the only document detailing the

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participants’ rights and obligations and contains all necessary information. See e.g., Bd.

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of Trustees v. Moore, 800 F.3d 214, 220 (6th Cir. 2015) (“Nothing in Amara prevents a

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document from functioning both as the ERISA plan and as an SPD, if the terms of the

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plan so provide.”); Bd. of Trustees of Nat’l Elevator Industry Health Benefit Plan v.

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Montanile, 593 F. App’x 903, 910 (11th Cir. 2014) vacated and remanded on other

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grounds, 644 F. App’x 984 (11th Cir. 2016) (enforcing SPD because it was the only

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written instrument providing for the rights and obligations of plan participants and noting

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that “the Amara Court had no occasion to consider whether the terms of a [SPD] are

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enforceable where it is the only document that specif[ies] the basis on which payments

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are made to and from the plan”) (internal citations and quotations omitted); Admin.

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Comm. of Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Gamboa, 479 F.3d

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538, 544 (8th Cir. 2007) (“Where no other source of benefits exists, the summary plan

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description is the formal plan document, regardless of its label.”); Feifer v. Prudential

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Ins. Co. of Am., 306 F.3d 1202, 1209 (2d Cir. 2002) (“Although the [SPD] contains the

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disclaimer that it was ‘not intended to cover all details of the Plan’ and that the ‘actual

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provisions of the Plan will govern,’ we reject the notion that this disclaimer renders the

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[SPD] a non-plan during the period when it was the only written document describing

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benefits.”) The Court finds these authorities persuasive. The SPD is enforceable because

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it is the only document describing the rights and obligations of Plan participants, it

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contains all information required of governing plan documents, and the Berumens

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received benefits pursuant to its terms.

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B. Furnishing the SPD

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The Berumens next argue that the SPD’s reimbursement provision cannot be

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enforced against them because they did not receive a copy of the SPD during the time

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that Mrs. Berumen was employed with JDA.1 Plan administrators are required to furnish

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participants and beneficiaries with a copy of the SPD within ninety days of enrollment.

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29 U.S.C. § 1024(b)(1)(A). Documents may be furnished electronically provided that the

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system for doing is: reasonably calculated to ensure actual receipt of the information. 29

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C.F.R. § 2520.104b-(1)(c)(1)(i). JDA made the SPD available via an internal HR Portal

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accessible by all employees. A link to the HR Portal was provided to Mrs. Berumen

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during a mandatory benefits training shortly after she was hired. These measures are

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sufficiently calculated to ensure that employees receive the SPD. See Beal v. Barnes

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Healthcare of Florida, LLC, No. 3:05-cv-689-J-16MMH, 2007 WL 220163, at *2 (M.D.

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Fla. Jan. 25, 2007) (“Defendant states that providing information as to where to obtain

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the document, i.e., website, at corporate office, and providing the ability to obtain the

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document, i.e., access to a computer and the Internet, meets the requirements of the

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statute. The Court would have to agree. In today’s ever increasing electronic society,

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transmission by email and/or referral to websites are the norm rather than the

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exception.”). Moreover, having received medical benefits pursuant to the SPD, the

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Berumens may not now “deny the corresponding responsibilities and obligations that are

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clearly imposed on [them] in the same document[.]” See Gamboa, 479 F.3d at 545.

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C. Unconscionability

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Finally, relying primarily on Arizona law, the Berumens argue that the SPD

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constitutes an unconscionable contract of adhesion. ERISA plans, however, are not

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governed by state law.

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governed by a uniform federal common law.” Evans v. Safeco Life Ins. Co., 916 F.2d

Rather, “the interpretation of ERISA insurance policies is

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The Berumens also argue that they did not promise to reimburse the Plan because
they did not sign the SPD. They cite no authority, however, that requires ERISA plans to
be signed by participants and beneficiaries, nor is the Court aware of any.

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1437, 1439 (9th Cir. 1990).

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unconscionability principles to ERISA plans, nor is the Court aware of any.

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Operating Engineers Local 139 Health Benefit Fund v. Gustafson Const. Corp., 258 F.3d

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645, 655 (7th Cir. 2001) (noting that no case has included unconscionability principles in

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federal common law of ERISA). To the contrary, several courts have found that ERISA

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preempts state law unconscionability claims. See Franks v. Prudential Health Care Plan,

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Inc., 164 F. Supp. 2d 865, 875 (W.D. Tex. 2001) (“ERISA conflict preemption disallows

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[plaintiff’s] state law claims for breach of contract, breach of the implied covenant of

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good faith and fair dealing, bad faith, breach of fiduciary duty, accounting,

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unconscionability, intentional misrepresentation, negligent misrepresentation, wrongful

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conversion and unjust enrichment.”); Castillo v. Tyson Foods, Inc., No H-14-2354, 2015

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WL 6039236, at *9 (S.D. Tex. Oct. 15, 2015) (rejecting unconscionability defense

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because plaintiff “ha[d] not cited . . . cases applying unconscionability under the federal

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common law of ERISA as a defense against enforcement of a benefit plan’s terms.”).

The Berumens cite no authority applying state
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Moreover, contracts of adhesion are not per se unenforceable, see Broemmer v.

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Abortion Servs. of Phx., Ltd., 840 P.2d 1013, 1016 (Ariz. 1992), and the Berumens have

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cited no ERISA cases finding reimbursement provisions unconscionable. Indeed, several

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courts have rejected arguments that reimbursement provisions in ERISA plans are unfair

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to plan participants and beneficiaries. See AT&T Inc., v. Flores, 322 F. App’x 391, 394

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(5th Cir. 2005); Kress v. Foods Emp’rs Labor Relations Ass’n, 391 F.3d 563, 570 (8th

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Cir. 2004); United McGill Corp. v. Sinnett, 154 F.3d 198, 173 (4th Cir. 1998). Moreover,

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reimbursement and subrogation provisions are “crucial to the financial viability of self-

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funded ERISA plans.” Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Welfare Plan v.

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Shank, 500 F.3d 834, 838 (8th Cir. 2007); Admin. Comm. of Wal-Mart Stores, Inc.

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Assocs.’ Welfare Plan v. Salazar, 525 F. Supp. 2d 1103, 1113 (D. Ariz. 2007) (noting

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that it is in the interest of both the plan and its beneficiaries “that the [p]lan be reimbursed

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and remain soluble for future usage. Thus, reimbursement is not unfair.”).

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Accordingly, JDA has established the existence of an enforceable promise on the

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part of the Berumens to reimburse the Plan for benefits paid if there is subsequent third-

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party recovery. The reimbursement provision identifies a specific fund distinct from the

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Berumens’ general assets from which the Plan will be reimbursed, and those funds are

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within the Berumens’ possession and control. JDA is, therefore, entitled to an equitable

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lien over $342,638.81 of the third-party settlement funds pursuant to the SPD’s

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reimbursement provision and 29 U.S.C. §1132(a)(3).

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II. Counterclaim for Failure to Furnish Plan Documents

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In their counterclaim, the Berumens allege that JDA violated 29 U.S.C. §§

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1024(b)(4) and 1132(c) by failing to furnish them with the governing plan documents

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after they requested them.

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assumption that the SPD cannot serve as the governing plan document. It is undisputed

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that JDA timely provided the Berumens with copies of the SPDs after their attorney

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asked for them. (See Doc. 64, ¶¶ 8-12.) Accordingly, JDA is entitled to summary

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judgment on the Berumens’ counterclaim.2

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Their counterclaim, however, is based on the mistaken

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The Berumens also assert for the first time in their response in opposition to
JDA’s motion for summary judgment that JDA did not comply with 29 U.S.C. §
1024(b)(4) because it failed to furnish its stop-loss insurance policy. (Doc. 97 at 6-7.)
This theory, however, was not alleged in their counterclaim. The Court will not consider
new claims raised for the first time on summary judgment. See Wasco Products, Inc. v.
Southwall Tech., Inc., 435 F.3d 989, 992 (9th Cir. 2006) (“[S]ummary judgment is not a
procedural second chance to flesh out inadequate pleadings.”) (internal citation and
quotation omitted).

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IT IS ORDERED, that JDA’s motion for summary judgment, (Doc. 89), is

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GRANTED, and the Berumens’ motion for summary judgment, (Doc. 91), is DENIED.

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JDA is awarded $342,638.81 in reimbursement, to be paid from the third-party settlement

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funds deposited in the IOLTA trust account of Jackson White P.C. (See Docs. 14, 17.)

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The Clerk shall enter judgment accordingly and terminate this case.

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Dated this 21st day of October, 2016.

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Douglas L. Rayes
United States District Judge

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