MedCath Inc. Employee Health Care Plan v. Stratton
79 F. Supp. 3d 1046
| D. Ariz. | 2015Background
- MedCath Employee Health Care Plan (the Plan) is an ERISA-governed, self-funded employee welfare benefit plan; it paid $506,769.62 for medical care provided to employee Tracie Stratton.
- Tracie Stratton sued for professional negligence in Arizona state court; the Plan notified counsel of its subrogation/reimbursement rights and counsel acknowledged those rights.
- After Tracie’s death, her son Dustin Stratton (Defendant) prosecuted a wrongful-death action on behalf of her children and mother under A.R.S. § 12-612; the wrongful-death suit seeks statutory damages for survivors’ losses, not damages belonging to the decedent’s estate.
- MedCath sued in federal court under ERISA seeking equitable relief (constructive trust and declaratory relief asserting an equitable subrogation lien) and also asserted state-law contract/restitution claims.
- The Plan’s Summary Plan Description contains subrogation/reimbursement and assignment language applying to recoveries for the Covered Person’s injuries (i.e., recoveries compensating the Covered Person for medical expenses).
- The district court dismissed Counts 1 and 2 (ERISA equitable claims) with prejudice for failure to state a claim, and declined supplemental jurisdiction over the state-law claim (Count 3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal jurisdiction under ERISA exists for Plan’s claims | Plan asserts ERISA § 1132(a)(3) equitable claims (constructive trust; declaratory subrogation lien) to enforce plan terms | Defendant contends Plan asserts only contractual subrogation rights and the dispute is purely state-law (wrongful-death allocation) | Court: Counts 1–2 arise under ERISA but ultimately fail on the merits (no cognizable ERISA relief) |
| Whether Plan’s subrogation/reimbursement applies to wrongful-death proceeds distributed to statutory beneficiaries | Plan contends its assignment and reimbursement language entitles it to recover from any recovery related to the Covered Person’s injuries | Defendant contends wrongful-death recoveries for survivors compensate their own losses and are protected from decedent’s liabilities under A.R.S. § 12-613 | Court: Plan documents permit recovery only from proceeds compensating the Covered Person’s injuries, not survivors’ wrongful-death recoveries; ERISA claims fail |
| Whether the decedent’s estate or wrongful-death action proceeds are subject to Plan’s equitable lien | Plan alleges estate/settlement funds are subject to equitable lien under ERISA and plan terms | Defendant points to statutory separation between survival (estate) and wrongful-death (survivors) claims and § 12-613 protection for survivors’ recoveries | Court: Plan did not plead facts showing estate recovered proceeds for decedent’s injuries; wrongful-death proceeds for beneficiaries are not subject to Plan’s asserted subrogation rights |
| Whether amendment should be permitted after dismissal | Plan sought leave to amend earlier; generally leave freely given | Defendant opposed futility | Court: Further amendment of federal claims would be futile; dismissal with prejudice granted; state claims dismissed for lack of supplemental jurisdiction |
Key Cases Cited
- Leite v. Crane Co., 749 F.3d 1117 (9th Cir. 2014) (distinguishes facial and factual Rule 12(b)(1) attacks and burden on plaintiff for factual attacks)
- U.S. Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (U.S. 2013) (ERISA relief is limited to appropriate equitable relief to enforce plan terms)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: plausibility on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept legal conclusions or conclusory allegations)
- Wilmot v. Wilmot, 203 Ariz. 565 (Ariz. 2002) (wrongful-death action is a consolidated statutory action by survivors distinct from survival claims)
- Gartin v. St. Joseph’s Hosp. & Med. Ctr., 156 Ariz. 32 (Ct. App. 1988) (separates survival claims for decedent’s losses from wrongful-death claims for survivors’ losses)