Central States, Southeast and Southwest Areas Health and Welfare Fund v. Health Special Risk Inc et al
Filing
36
MEMORANDUM OPINION AND ORDER granting 17 Motion to Dismiss filed by Federal Insurance Company, Health Special Risk Inc, Ace American Insurance Company, Markel Insurance Company. The court grants defendants' motion to dismiss. Plaintiff may file an amended complaint within 30 days of the date this memorandum opinion and order is filed. (Ordered by Chief Judge Sidney A Fitzwater on 5/4/2012) (Chief Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
CENTRAL STATES, SOUTHEAST
AND SOUTHWEST AREAS HEALTH
AND WELFARE FUND, an Employee
Welfare Benefit Plan, by Howard
McDougall, a Trustee thereof,
in his representative capacity,
Plaintiff,
VS.
HEALTH SPECIAL RISK, INC., et al.,
Defendants.
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Civil Action No. 3:11-CV-2910-D
MEMORANDUM OPINION
AND ORDER
In this action by an ERISA1-regulated employee welfare benefit plan to recover relief
in the form of a declaratory judgment, restitution, and an equitable lien and imposition of a
constructive trust, the court must decide whether plaintiff is seeking monetary relief that is
unavailable under § 502(a)(3) of ERISA. Concluding that plaintiff is seeking unavailable
monetary relief, the court grants defendants’ motion to dismiss under Fed. R. Civ. P.
12(b)(6), but it also allows plaintiff to replead.
I
Plaintiff Central States, Southeast and Southwest Areas Health and Welfare Fund
(“Central States”) is an ERISA-regulated employee welfare benefit plan that provides health
1
Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq.
and welfare benefits, including medical and hospital benefits, to participants in the Teamsters
Union and their dependents.2 Three of the four defendants—Markel Insurance Company
(“Markel”), Federal Insurance Company (“Federal”), and Ace American Insurance Company
(“Ace”) (collectively, the “Insurer Defendants”)—are insurance companies that provided
accident medical insurance to various institutions and organizations.
Central States alleges that, under the terms of its Health and Welfare Fund Plan
Document (“Plan”), the Insurer Defendants were required to pay the medical expenses of
eleven individuals (“Insureds”) who were insured by both Central States and the Insurer
Defendants for the accidental injuries they sustained.3 The Plan’s coordination of benefits
(“COB”) provision states that, if another plan provides overlapping or duplicate coverage
for an accidental injury, the other plan will be primarily responsible for paying the insured’s
medical claims. Because the Insurer Defendants allegedly provided overlapping or duplicate
coverage for the Insureds’ accidental injuries, Central States argues that the Insurer
Defendants were primarily liable for the Insureds’ medical expenses.
The Insurer
Defendants, however, refused to pay these medical expenses. They argue that the policies
they issued were accidental injury excess policies, which were allegedly understood by the
2
In deciding defendants’ Rule 12(b)(6) motion, the court construes the complaint in
the light most favorable to Central States, accepts as true all well-pleaded factual allegations,
and draws all reasonable inferences in its favor. See, e.g., Lovick v. Ritemoney Ltd., 378 F.3d
433, 437 (5th Cir. 2004).
3
Six of the Insureds were insured as dependents under a Markel insurance policy, one
was insured as a dependent under a Federal insurance policy, and four were insured as
dependents under an Ace insurance policy.
-2-
parties to the policies to provide excess coverage only. To avoid financial hardship to the
Insureds, Central States paid their covered expenses and then sought reimbursement from
the Insurer Defendants through defendant Health Special Risk, Inc. (“HSR”), a third party
claims administrator for the Insurer Defendants. HSR, however, denied Central States’s
demands for reimbursement.
Central States then filed the instant lawsuit, seeking a declaratory judgment that
defendants4 “had, and continue to have, . . . primary responsibility for paying all the covered
medical expenses, which have been paid by Central States on behalf of the [Insureds],
relating to accidental injuries incurred by the [Insureds], and to pay their future medical
expenses, and that Central States[’s] liability is to only pay as secondary[.]” Compl. ¶ 42.
It seeks an injunction prohibiting the Insurer Defendants and HSR, in its capacity as third
party claims administrator, from violating the Plan’s COB provisions. Central States also
seeks “an order of equitable relief requiring [defendants] to make restitution to Central States
of an identifiable amount5 consisting of the unreimbursed covered medical expenses Central
States has overpaid on behalf of the [Insureds].” Id. at ¶ 47. Finally, Central States seeks
an equitable lien and imposition of a constructive trust, pursuant to ERISA § 502(a)(3), 29
4
The complaint seeks a declaration that “the Defendants” had primary responsibility
for paying the covered medical expenses. It is unclear whether Central States maintains that
the Insurer Defendants and HSR had primary responsibility or whether they intend to seek
this part of their declaratory judgment only against the Insurer Defendants.
5
Central States seeks restitution in the amount of $66,414.59 plus interest against HSR
and Markel; $2,973.95 plus interest against HSR and Federal; and $12,662.11 plus interest
against HSR and Ace.
-3-
U.S.C. § 1132(a)(3), upon funds constructively held by defendants.6
Defendants move to dismiss under Rule 12(b)(6), arguing that under the Supreme
Court’s decision in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204
(2002), Central States cannot recover monetary relief under ERISA § 502(a)(3), 29 U.S.C.
§ 1132(a)(3). Knudson, 534 U.S. at 210.
II
In deciding defendants’ Rule 12(b)(6) motion, the court evaluates the sufficiency of
the complaint by “accept[ing] all well-pleaded facts as true, viewing them in the light most
favorable to the plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.
2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467
(5th Cir. 2004)) (internal quotation marks omitted). To survive defendants’ motion, plaintiff
must plead enough facts “to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than
a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S.
at 555 (“Factual allegations must be enough to raise a right to relief above the speculative
6
Central States seeks a constructive trust in the amount of $66,414.59 plus interest
against HSR and Markel; $2,973.95 plus interest against HSR and Federal; and $12,662.11
plus interest against HSR and Ace.
-4-
level[.]”). “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the
pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (alteration omitted) (quoting Rule
8(a)(2)).
III
A fiduciary can bring a civil action under § 502(a)(3) of ERISA “(A) to enjoin any
act or practice which violates any provision of this subchapter or the terms of the plan, or (B)
to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any
provisions of this subchapter or the terms of the plan.” 29 U.S.C. § 1132(a)(3). The
Supreme Court has narrowly interpreted the term “other appropriate equitable relief” to
include only “those categories of relief that were typically available in equity.” Mertens v.
Hewitt Assocs., 508 U.S. 248, 256 (1993) (emphasis in original); see also Knudson, 534 U.S.
at 210. Thus “if a plan or a plan’s fiduciary seeks to impose personal liability on a defendant
for breach of contract, [the court] would not have jurisdiction under section 502(a)(3)
because such relief was not typically available in equity.” ACS Recovery Servs., Inc. v.
Griffin, ___ F.3d ___, 2012 WL 1071216, at *2 (5th Cir. Apr. 2, 2012) (citing Knudson, 534
U.S. at 210). “If, however, the plan or plan’s fiduciary seeks restitution in equity in the form
of a constructive trust or equitable lien, the action would fall under section 502(a)(3) because
the action would be classified as equitable.” Id. (citing Knudson, 534 U.S. at 213).
The parties dispute whether the nature of this lawsuit is equitable or legal. Central
-5-
States seeks three different types of relief: a declaratory judgment, restitution, and an
equitable lien and imposition of a constructive trust. Defendants argue that, under the
Supreme Court’s decision in Knudson, Central States cannot recover monetary relief under
ERISA § 502(a)(3). They maintain that although Central States attempts to plead around
Knudson by labeling its claims under equitable theories of restitution and “equitable
lien/constructive trust,” or as a declaratory judgment action for injunctive relief, the relief
Central States seeks is monetary under Knudson, and the complaint must be dismissed.
Central States responds that, under Sereboff v. Mid-Atlantic Medical Services, Inc.,
547 U.S. 356 (2006), and the Fifth Circuit’s decision in Bombardier Aerospace Employee
Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348 (5th Cir. 2003), if an
ERISA plan overpays benefits that it is not required to pay, it can seek equitable relief by a
constructive trust in the amount of benefit overpayment to enforce the plan terms. Central
States argues that defendants hold funds that in equity and good conscience belong to
Central States because the Insurer Defendants have not paid the medical expenses of the
injured Insureds, which they should have paid.
-6-
IV
A
The court first addresses Central States’s request for a declaratory judgment. Central
States specifically seeks a
declar[ation] that the COB provisions of Central States[’s] Plan
may and should be enforced against the Defendants, by
requiring the Defendants pay covered medical expenses of the
eleven Covered Individuals as primary and to fully reimburse
Central States for payments already made by Central States on
behalf of the eleven Covered Individuals for their covered
medical expenses.
Compl. ¶ 42. In Knudson, however, the Supreme Court rejected the plaintiffs’ similar
attempt to recast their claims as equitable, holding that “an injunction to compel the payment
of money” was a legal claim for money and “was not typically available in equity.”
Knudson, 534 U.S. at 210-11. Otherwise, the Court noted, “a statutory limitation to
injunctive relief would be meaningless, since any claim for legal relief can, with lawyerly
inventiveness, be phrased in terms of an injunction.” Id. at 211 n.1; see also Amschwand v.
Spherion Corp., 505 F.3d 342, 348 n.7 (5th Cir. 2007) (“attempts to recharacterize a desired
§ 502(a)(3) remedy as a purely equitable form of relief, like an injunction, have been
consistently rejected.” (citing cases)). Central States’s request for declaratory judgment
relief is essentially indistinguishable from a demand for payment and does not constitute the
type of equitable relief § 502(a)(3) requires. See Knudson, 534 U.S. at 210-11; Amschwand,
505 F.2d at 348 n.7.
-7-
B
Central States’s requests for restitution in the form of an equitable lien and imposition
of a constructive trust likewise do not change the legal nature of its claims. In Knudson,
Sereboff, and Bombardier the ERISA plans sought to recover medical benefits that the plans
had paid after the beneficiaries received settlements from third-party tortfeasors. See
Knudson, 534 U.S. at 207-08; Sereboff, 547 U.S. at 359-60; Bombardier, 354 F.3d at 350-51.
In all three cases, the plans contained reimbursement provisions that required the plan
beneficiaries to reimburse the plans for medical expenses recovered from third parties. See
Knudson, 534 U.S. at 207; Sereboff, 547 U.S. at 359; Bombardier, 354 F.3d at 350. And in
all three cases, whether the claims were characterized as legal or equitable depended on
whether the “money or property identified as belonging in good conscience to the plaintiff
could clearly be traced to particular funds or property in the defendant’s possession.”
Knudson, 534 U.S. at 213-14 (emphasis added) (holding that relief sought was not equitable
because the settlement funds had been paid into a special needs trust and thus were not in the
possession of the plan beneficiaries); Sereboff, 547 U.S. at 362-63 (concluding that equitable
lien had been created by agreement by plan terms, and, because the settlement funds had
been placed in an investment account until the court resolved the coverage issues, the
impediment to recovery in Knudson was not present); Bombardier, 354 F.3d at 356 (holding
that plan beneficiaries had “constructive possession” of disputed funds where funds that Plan
was seeking to recover belonged to participant and were simply being held in bank account
-8-
in name of participant’s attorneys, who were indisputably the participant’s agent ). This is
because “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.” Knudson, 534 U.S. at 214. Where the plan sought “in essence, to impose
personal liability on respondents for a contractual obligation to pay money,” this was “relief
that was not typically available in equity.” Id. at 210.
In the instant case, Central States paid the Insureds’ covered medical expenses
directly to the Insureds’ physicians, hospitals, or other providers. Central States argues that
because the Plan’s COB provisions placed primary responsibility for providing benefits on
the Insurer Defendants, the money Central States paid on behalf of the Insureds should have
been paid by defendants. But the funds Central States seeks to recover are not, as in
Knudson, Sereboff, and Bombardier, funds that have been paid to the defendants that, in
good conscience, belong to Central States. Rather, the money at issue here has been paid by
Central States to the third party health care providers. As defendants point out, “no
Defendant received any money or property from the Fund, and no Defendant received the
specific sums of money that are at issue in th[e] Complaint.” Ds. Br. 8. Central States’s
claims against defendants are essentially claims for money damages. Central States is not
trying to make a claim to a specific fund or to property that is in defendants’ possession;
instead, it is seeking to impose personal liability on defendants for their failure to honor the
Plan’s COB provisions. It is clearly established that money damages constitute legal relief:
-9-
Almost invariably . . . suits seeking (whether by judgment,
injunction, or declaration) to compel the defendant to pay a sum
of money to the plaintiff, are suits for ‘money damages,’ as that
phrase has traditionally been applied, since they seek no more
than compensation for loss resulting from the defendant’s
breach of a legal duty. And money damages are, of course, the
classic form of legal relief.
Knudson, 534 U.S. at 210 (citations, brackets, and some quotation marks omitted; emphasis
in original).
Because the nature of Central States’s claims is legal, not equitable, Central States
cannot recover under ERISA § 502(a)(3). Accordingly, the court dismisses Central States’s
claims.7
V
Although the court is granting defendants’ motion to dismiss, it will permit Central
States to replead. See, e.g., In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d 552,
7
Central States argues that, under Auto Owners Insurance Co. v. Thorn Apple Valley,
Inc., 31 F.3d 371 (6th Cir. 1994), when an ERISA plan and a private insurance policy each
contain conflicting COB clauses, and both the plan and policy cover an individual who incurs
medical expenses as a result of an automobile accident, and both COB clauses are facially
valid, since the ERISA plan’s clause is bolstered by the preemptive effect of ERISA, the
COB clause in the ERISA plan must be given full effect. In Thorn Apple Valley, however,
which is not binding on this court and which pre-dates the Supreme Court’s decision in
Knudson, the non-ERISA plan was the party that had paid the insured’s benefits and sought
to recover from the ERISA plan. Id. at 372-73. Because the court determined that the
ERISA plan’s COB provisions must be given full effect, and thus the non-ERISA plan was
not entitled to reimbursement, it did not address whether an ERISA plan can recover nonequitable relief under § 502(a)(3). Id. at 375. Winstead v. Indiana Insurance Co., 855 F.2d
430 (7th Cir. 1988), also does not affect this court’s decision because it is not binding on this
court, it pre-dates the Supreme Court’s opinion in Knudson, and § 502(a)(3) is not discussed
in the opinion.
- 10 -
567-68 (N.D. Tex. 2005) (Fitzwater, J.) (noting that district courts often afford plaintiffs at
least one opportunity to cure pleading deficiencies before dismissing case, unless it is clear
that defects are incurable or plaintiffs advise court that they are unwilling or unable to amend
in a manner that will avoid dismissal). Because there is no indication that Central States
cannot, or is unwilling to, cure the defects that the court has identified, the court grants it 30
days from the date this memorandum opinion and order is filed to file an amended
complaint.
*
*
*
For the foregoing reasons, the court grants defendants’ motion to dismiss Central
States’s complaint. Central States may file an amended complaint within 30 days of the date
this memorandum opinion and order is filed.
SO ORDERED.
May 4, 2012.
_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE
- 11 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?