Cavanagh et al v. Northern New England Benefit Trust

Filing 22

///ORDER 21 Motion for Order to Show Cause. NNEBT is entitled to summary judgment on all of the claims in this case except for its request for attorneys fees. Within twenty days of the date of this order, NNEBT shall either file a motion for attorneys fees or notify the court that it does not intend to do so. So Ordered by Magistrate Judge Landya B. McCafferty.(kad)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Robert V. Cavanagh
and Rhoda M. Cavanagh
v.

Civil No. 12-cv-394-LM
Opinion No. 2013 DNH 079

Northern New England
Benefit Trust

O R D E R
In an order dated April 30, 2012, plaintiffs were directed
to show cause why the court should not grant summary judgment in
favor of Northern New England Benefit Trust (“NNEBT”), sua
sponte, based upon the United States Supreme Court’s recent
decision in US Airways, Inc. v. McCutchen, 569 U.S. ___, 133 S.
Ct. 1537 (2013).

Plaintiffs’ show-cause briefing is now before

the court.
The Legal Standard
“A district court may grant summary judgment where ‘there
is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.’”

Barclays Bank PLC v.

Poynter, 710 F.3d 16, 19 (1st Cir. 2013) (quoting Fed. R. Civ.
P. 56(a)).

Typically, summary judgment is granted in response

to a motion by a party, but the court may grant summary judgment

sua sponte.

As the court of appeals for this circuit has

explained:
In appropriate circumstances, a district court
may enter summary judgment sua sponte. Berkovitz v.
Home Box Office, Inc., 89 F.3d 24, 29 (1st Cir. 1996)
(citing Celotex Corp. v. Catrett, 477 U.S. 317, 326
(1986)). Given the potential unfairness of this
practice, however, the district court may summarily
decide a claim on its own initiative only if two
conditions are met: First, discovery must be
“sufficiently advanced that the parties have enjoyed a
reasonable opportunity to glean the material facts.”
Id. at 29. Second, the court must first “give [ ] the
targeted party appropriate notice and a chance [in
accordance with the rules] to present its evidence on
the essential elements of the claim or defense.” Id.
In this context, “notice” requires that the nonmovant
was given “reason to believe the court might reach the
issue and received a fair opportunity to put its best
foot forward.” Leyva v. On the Beach, Inc., 171 F.3d
717, 720 (1st Cir. 1999) (internal quotation marks and
citation omitted); see also Stella v. Town of
Tewksbury, 4 F.3d 53, 56 (1st Cir. 1993) (“[T]he
notice requirement for sua sponte summary judgment
demands at the very least that the parties (1) be made
aware of the court’s intention to mull such an
approach, and (2) be afforded the benefit of the
minimum 10–day period mandated by Rule 56.”)
Wells Real Estate Inv. Trust II, Inc. v. Chardon/Hato Rey
P’ship, S.E., 615 F.3d 45, 51-52 (1st Cir. 2010) (parallel
citations omitted); see also Fed. R. Civ. P. 56(f).

Here, the

first condition is met by the parties’ submission of a Joint
Statement of Material Facts (“Jt. Statement”) in conjunction
with NNEBT’s motion for judgment on the pleadings.

The second

condition is met by the court’s show-cause order.

Thus, there

is nothing to prevent the court from granting summary judgment

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sua sponte if, indeed, NNEBT is entitled to judgment as a matter
of law on any of the claims in this case.
Discussion
In US Airways, “the United States, appearing as amicus
curiae, claim[ed] that the common-fund rule has a special
capacity to trump a conflicting [ERISA] contract.”
at 1547.

133 S. Ct.

The Court responded by explaining:

[I]f the agreement governs, the agreement governs
. . . . We have no doubt that the common-fund
doctrine has deep roots in equity. See Sprague v.
Ticonic Nat. Bank, 307 U.S. 161, 164 (1939) (tracing
equity courts’ authority over fees to the First
Judiciary Act). Those roots, however, are set in the
soil of unjust enrichment: To allow “others to obtain
full benefit from the plaintiff’s efforts without
contributing . . . to the litigation expenses,” we
have often noted, “would be to enrich the others
unjustly at the plaintiff’s expense.” Mills v.
Electric Auto–Lite Co., 396 U.S. 375, 392 (1970); see
Boeing [Co. v. Van Gemert], 444 U.S. [472,] 478
[(1980)]; Trustees v. Greenough, 105 U.S. 527, 532
(1882); supra, at 1545-1546 and n.4. And as we have
just explained, principles of unjust enrichment give
way when a court enforces an equitable lien by
agreement. See supra, at 1546–1547. The agreement
itself becomes the measure of the parties’ equities;
so if a contract abrogates the common-fund doctrine,
the insurer is not unjustly enriched by claiming the
benefit of its bargain. That is why the Government,
like McCutchen, fails to produce a single case in
which an equity court applied the common-fund rule
(any more than the double-recovery rule) when a
contract provided to the contrary. Even in equity,
when a party sought to enforce a lien by agreement,
all provisions of that agreement controlled.

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133 S. Ct. at 1547-48 (parallel citations omitted).

Based upon

the foregoing, the Court held that “in an action brought under
[29 U.S.C. § 1132(a)(3)] based on an equitable lien by
agreement, the terms of the ERISA plan govern.”

Id. at 1551.

The Court then elaborated: “Neither general principles of unjust
enrichment nor specific doctrines reflecting those principles –
such as the double-recovery or common fund rules – can override
the applicable contract.”

Id.

Here, the applicable contract provides that “[b]y accepting
benefits under this plan, a Participant . . . agrees to hold the
proceeds of any recovery in trust for the benefit of the plan to
the extent of any payment made by the plan.”
C (doc. no. 13-3).

Jt. Statement, Ex.

The contract also includes provisions

directed to two doctrines that reflect the principles of unjust
enrichment.

With respect to the double-recovery doctrine, the

contract states:
The plan’s right of recovery shall be a prior lien
against any proceeds recovered by the Participant.
This right of recovery shall not be defeated nor
reduced by the application of any so-called “MadeWhole Doctrine” . . . or any other such doctrine
purporting to defeat the plan’s recovery rights by
allocating the proceeds exclusively to non-medical
expense damages.
The “made-whole doctrine” referred to in the contract would
appear to be a variant of the double-recovery rule, which was at
issue in US Airways.

See 133 U.S. at 1546 (“the Sereboffs

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contended that a variant of the double-recovery rule, called the
make-whole doctrine, trumped the plan’s terms).

With respect to

the common-fund doctrine, the contract states:
• No Participant hereunder shall incur any expenses on
behalf of the plan in pursuit of the plan’s rights
hereunder, specifically; no court costs, attorneys’
fees or other representatives’ fees may be deducted
from the plan’s recovery without the prior express
written consent of the plan. This right shall not be
defeated by any so-called “Fund Doctrine”, “Common
Fund Doctrine”, or “Attorney’s Fund Doctrine”.
Id.

As the Supreme Court explained in US Airways, if a plan

“wishe[s] to depart from the well-established common-fund rule,
it [must] draft its contract to say so.”

133 S. Ct. at 1548.

That is just what NNEBT did in this case; it drafted its
contract to abrogate both the common-fund rule and the madewhole doctrine.
The Cavanaghs’ response to the show-cause order does not
address the made-whole doctrine.

As for the common-fund

doctrine, the Cavanaghs attempt to evade the contractual
language abrogating that doctrine by arguing that while Mr.
Cavanagh, as a plan participant, may not deduct attorney’s fees
from the plan’s recovery, his attorney may, because his
attorney: (1) obtained and controls the proceeds that have been
recovered from the third-party tortfeasor; and (2) is not bound
by the plan’s abrogation of the common-fund doctrine because he
is not a plan participant or a party to the contract containing

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the abrogation language.

In so arguing, the Cavanaghs rely upon

Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204
(2002), and analogize the special needs trust established for
the plan participant in that case to the attorney’s trust
account that currently holds the proceeds they recovered from
the third-party tortfeasor.
The Cavanaghs misapprehend the import of Great-West.

“The

question presented [in that case was] whether [29 U.S.C. §
1132(a)(3)] authorize[d] [an] action by [a plan fiduciary] to
enforce a reimbursement provision of an ERISA plan.”
at 206.

534 U.S.

Thus, Great-West does not stand for the proposition

that a plan participant’s attorney, by virtue of depositing his
client’s recovery in his trust account, has a claim to an
attorney’s fee that is sufficient to defeat an express
abrogation of the common-fund doctrine in his client’s plan.
Finally, while the Cavanaghs accurately quote several statements
from US Airways extolling the equitable virtues of the commonfund doctrine, those statements are part of the Court’s
discussion of how to properly construe a reimbursement provision
that does not address the allocation of attorney’s fees.

Here,

of course, the plan expressly addresses that issue, which
“leaves [no] space for the common-fund rule to operate,” US
Airways, 133 S. Ct. at 1549.

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Based upon the Supreme Court’s decision in US Airways,
NNEBT is entitled to judgment as a matter of law on the
Cavanaghs’ request for a declaratory judgment that NNEBT’s liens
are subject to: (1) a one-third deduction for attorney’s fees;
(2) a pro rata charge for costs; and (3) equitable
apportionment.

Necessarily, NNEBT is entitled to judgment as a

matter of law on the Cavanaghs’ request for an award of
attorney’s fees.

NNEBT is also entitled to judgment as a matter

of law on its claim for an equitable lien, in the amount of
$46,949.45, on the Cavanaghs’ recovery from the driver who
injured Mr. Cavanagh.
All that remains of this case is NNEBT’s request for
attorney’s fees and costs.

Without fully analyzing the issue,

the court suspects rather strongly that the facts of this case
would not support an award of fees and costs, based upon the
language of the contract.

Specifically, the court notes that

Mr. Cavanagh did not outright refuse to honor his obligations
under the contract but, instead, he interposed a legal argument
for a reduced reimbursement that enjoyed judicial support until
the Supreme Court decided US Airways.

But, given the substance

of the show-cause order, the question of attorney’s fees is not
properly before the court and, thus, remains to be resolved
another day.

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Conclusion
For the reasons detailed above, NNEBT is entitled to
summary judgment on all of the claims in this case except for
its request for attorney’s fees.

Within twenty days of the date

of this order, NNEBT shall either file a motion for attorney’s
fees or notify the court that it does not intend to do so.
SO ORDERED.

__________________________
Landya McCafferty
United States Magistrate Judge

May 23, 2013
cc:

Kenneth M. Brown, Esq.
William R. Cahill, Jr., Esq.

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