ADMINISTRATIVE COMMITTEE OF THE WAL-MART STORES, INC. ASSOCIATES’ HEALTH AND WELFARE PLAN, Plаintiff-Appellant/Cross-Appellee, v. Clara VARCO, Defendant-Appellee/Cross-Appellant.
No. 02-3879. No. 02-1124. No. 02-1143.
United States Court of Appeals, Seventh Circuit.
Argued September 10, 2002. Decided July 29, 2003.
Petition for rehearing En Banc is Denied August 22, 2003.
338 F.3d 680
Laurence J. Dunford (argued), Timothy I. McArdle, McArdle, Frost & Klapacz, Chicago, IL, for Defendant-Appellant, Clara Varco.
Howard T. Brinton (argued), Chicago, IL, for Defendant-Appellant, Laurence Dunford.
Before FLAUM, Chief Judge, and BAUER and MANION, Circuit Judges.
MANION, Circuit Judge.
I.
Clara Varco, a Wal-Mart employee, incurred medical expenses due to a car accident, which were paid by Wal-Mart‘s health and welfare benefit plan. After Varco recovered damages for her injuries in a state court action, the Wal-Mart Plan Committee sought restitution for the medical expenses it had paid from Varco and her attorney, Laurence Dunford. The district court granted a preliminary injunction in favor of the Committee, preventing Varco and her attorney from disbursing those funds or further adjudicating the matter in state court. Varco and Dunford appealed the preliminary injunction. The district court then granted summary judgment in favor of the Committee, ordering that the medical expenses be remitted to the Committee, less its proportional share of Dunford‘s attorney‘s fees pursuant to Illinois’ common fund doctrine. The Committee appealed the order diminishing its reimbursement due to the application of the common fund doctrine. The cases were consolidated. We affirm in part and reverse in part.
II.
On September 24, 2000, Clara Varco sustained injuries in an automobile collision in Orland Park, Illinois. At that time she was employed by Wal-Mart Stores, Inc. (“Wal-Mart“), which provides its employees benefits through the Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan (the “Plan“). The Plan is a self-funded employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA“),
Significantly, for the purposes of appeal, the Plan includes a provision stating that the Committee has a right to “recover or subrogate 100 percent of the benefits paid or to be paid by the Plan on your behalf and/or your dependents to the extent of... [a]ny judgment, settlement or any payment made or to be made, relating to the accident, including but not limited to other insurance.” The Plan further provides that it “does not pay for nor is responsible for the participant‘s attorney‘s fees. Attorney‘s fees are to be paid solely by the participant.”
The procedural intricacies of this case began when Varco retained Laurence J. Dunford to represent her against Kristopher Lapsis, the other driver responsible for her injuries, and to make a claim against All-State Insurance Company, her insurer. She contracted with Dunford to pay him a contingency fee of one-third of any recovery. Varco then filed a tort action in Illinois state court against Lapsis. In October 2001, in contemplation of settlement, Varco sought adjudication of various liens on the lawsuit, including that of the Plan. In response, the Committee asked the state court to postрone adjudication of its lien and filed a notice for removal in federal court. The district court promptly remanded the case back to state court finding no subject matter jurisdiction. Varco v. Lapsis, 172 F.Supp.2d 985, 988-92 (N.D.Ill.2001).1 Not content with this course of events, the Committee filed a second action in federal court on October 29, 2001, asserting claims under
The Committee was successful in both of its motions before the district court. On December 24, 2001, it obtained a temporary restaining order from the district court and a preliminary injunction preventing Varco and Dunford from disbursing the $34,035.55 until “the rights of [the Committee] have been determined by [the district court].” Administrative Committee of Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan v. Varco, No. 1:01-CV-8277, 2001 WL 1772318, *3 (N.D. Ill., Dec 21, 2001) (”Varco I“).2 On January 14, 2001, the court entered an injunction barring Varco from proceeding with further adjudication of the Committee‘s lien in state court. Administrative Committee v. Varco & Dunford, No. 01 C 8277, 2002 WL 47159, *3-4 (N.D.Ill. Jan.14, 2002) (”Varco II“). The court also dismissed all of the Committee‘s claims for equitable relief with the exception of its “claim for the imposition of constructive trust on particular property in the hands of the defendants and for the pendent state law claims.” Id. at *4. After the district court stayed the state court proceedings and enjoined Dunford and Varco from proceeding in state court, the Committee removed for the second time Varco‘s personal injury aсtion, as all of the liens on the settlement, except for the Committee‘s, had been paid. The district court found that it properly had jurisdiction to adjudicate the Committee‘s claim this time, for reimbursement as “equitable relief” under
While the injunction was pending on appeal, the district court proceeded to address the merits of the case. On October 2, 2002 the district court granted the Committee‘s motion for summary judgment, holding that the Plan was due reimbursement of the paid medical expenses. Varco III at *4-6. The court also held that, pursuant to Illinois’ common fund doctrine, the Committee must bear its proportional share of Dunford‘s attorney fee. Based on this doctrine, the court determined that the Committee was entitled to restitution of the paid medical expenses, $18,865.72, less its proportional share of Dunford‘s legal expenses for a total of $12,378.04. In rendering this decision, the district court issued an order noting that by adjudicating the merits of the claim, the preliminary injunctions entered in the case expired by their own terms.3 As Varco notes, the district court‘s order on October 29, 2002, effectively mooted the cross-appeals filed by Varco and Dunford insofar as the appeals contested the merits underlying the preliminary injunctions.4 However, Varco‘s challenge to the district court‘s jurisdiction to hear the case remains. The Committee then filed a timely appeal from the district court‘s order on the merits arguing that the common fund doctrine is preempted by ERISA. We consolidated these cases on appeal. Because of the district court‘s grant of summary judgment, and dismissal of Dunford as a litigant, the only remaining issues that survive оn appeal are whether the district court had subject matter jurisdiction over the Committee‘s claims and, if so, whether the Committee must reimburse Varco for her payments to her attorney pursuant to Illinois common fund doctrine.
On appeal, Varco asserts that the district court erred in finding subject matter jurisdiction to hear the case under
A. Subject Matter Jurisdiction
Under
In Great-West Life, the Court considered a case with facts similar to this case and therefore bears scrutiny. Janette Knudson, a beneficiary of an ERISA-governed employee welfare benefit plan, was injured in a car accident. Great-West Life, 534 U.S. at 207, 122 S.Ct. 708. The emplоyee benefit plan included a reimbursement provision that provided the plan with “the right to recover from the [beneficiary] any payment for benefits paid by the Plan that the beneficiary is entitled to recover from a third party.” Id. In particular, the Great-West plan had “‘a first lien upon any recovery, whether by settlement, judgment or otherwise,’ that the beneficiary receives from the third party, not to exceed ‘the amount of benefits paid [by the Plan] ... [or] the amount received by the [beneficiary] for such medical treatment....‘” Id. According to this provision, the Great-West plan covered $411,157.11 of Knudson‘s medical expenses, of which all except $75,000 wаs paid by Great-West. Id. Great-West then sought to obtain restitution of the medical expenses it had paid on Knudson‘s behalf out of her damages recovery. Id. at 208, 122 S.Ct. 708. The Court looked at the substance of plaintiff‘s complaint to determine whether it fell into “those categories of relief that were typically available in equity.” Great-West Life, 534 U.S. at 210, 122 S.Ct. 708 (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 256, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993)). Restitution, the court noted, is “‘not an exclusively equitable remedy,’ and whether it is legal or equitable in a particular case (and hence whether it is authorized by § 502(a)(3)(B)) remains dependent on the nature of the relief sought.” Id. at 215, 122 S.Ct. 708 (citing Reich v. Continental Casualty Co., 33 F.3d 754, 756 (7th Cir. 1994)). The Court contrasted legal restitution, which is not allowed under
[A] plaintiff could seek restitution in equity, ordinarily in the form of а constructive trust or an equitable lien, where 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. (citations omitted) A court of equity could then order a defendant to transfer title (in the case of the constructive trust) or to give a security interest (in the case of the equitable lien) to a plaintiff who was, in the eyes of equity, the true owner. But where “the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff‘s] claim is only that of a general creditor,” and the plaintiff “cannot enforce a constructive trust of or an equitable lien upon other property of the [defendant].“... Thus, for restitution to lie in equity, the action generally 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.
Id. at 213-14, 122 S.Ct. 708. (internal citations omitted)
In Great-West Life, the Court then noted that the proceeds of the settlement to which Great-West maintained it was entitled were not in the Knudson‘s possession, but instead were in a Special Needs Trust. Id. at 214, 122 S.Ct. 708. Therefore, under the Mertens standard, the Court concluded that Great-West was not seeking equitable relief under
In response, Varco argues that this is essentially a legal claim asserted by the Committee in order to enforce its contract rights under the Plan because “a claim for money due and owing under a contract is ‘quintessentially an action at law.‘” Wells, 213 F.3d at 401 (citing Atlas Roofing Co. v. Occupational Safety & Health Review Comm‘n, 430 U.S. 442, 459, 97 S.Ct. 1261, 51 L.Ed.2d 464 (1977)). Varco would have a valid argument under traditional principles of equity if an identifiable res did not exist to which the Committee could claim a legally recognized right. See generally Dobbs § 4.3(2) at 591. Similarly, an argument would exist if the Committee could not trace its property to a specific fund of money. Id. at 592. Neither of those situations, however, is presented here. Thus, under Great-West Life, the reimbursement action by the Committee in this unique case is equitable because the funds the Committee seeks to recover are identifiable, are in the control of a defendant, and the Committeе is rightfully entitled to the monies under the terms of the Plan. Because those elements are met here, the Committee‘s claim is equitable under
B. Common Fund Doctrine
We turn next to the question of whether the district court properly applied Illinois’ common fund doctrine to the settlement proceeds. Under the common fund doctrine, a lawyer who recovers a sum of money (or “fund“) for the benefit of others beyond his client is entitled to reasonable attorney‘s fees from the fund as a whole. See Country Mutual Insurance Co. v. Birner, 293 Ill.App.3d 452, 228 Ill. Dec. 161, 688 N.E.2d 859, 861-62 (1997). It is a common law “equitable exception” to the general, or “American” rule, that each party to litigation bears its own attorney‘s fees, absent a fee-shifting statute. See Scholtens v. Schneider, 173 Ill.2d 375, 219 Ill.Dec. 490, 671 N.E.2d 657, 662 (1996). To be entitled to fees under the common fund doctrine, an attorney must show “(1) that the fund was created as a result of legal services he performed; (2) that the subrogee did not participate in creating the fund; and (3) that the subrogee benefitted out of the fund.” Birner, 228 Ill.Dec. 161, 688 N.E.2d at 862. When these conditions are satisfied, fees and expenses incurred in setting up the fund are typically apportioned among those who benefitted from its creation. Id. And, finally, “in Illinois, the attorney owns the claim for reimbursement for his services in creating a common fund.” Primax v. Sevilla, 324 F.3d 544, 549 (7th.Cir.2002) (citing Bishop v. Burgard, 198 Ill.2d 495, 261 Ill.Dec. 733, 764 N.E.2d 24, 30-32 (2002)).
The district court held that evеn though the Plan specifically provided that the plan participant was responsible for all attorney‘s fees, the common fund doctrine would still apply, and that in this case the Committee was responsible for one-third of Dunford‘s fees. The court reasoned that the Plan language would only apply if the Illinois doctrine conflicted with and was preempted by
“[A] state law relates to an ERISA plan ‘if it has a connection with or reference to such a plan.‘” Egelhoff, 532 U.S. at 147, 121 S.Ct. 1322 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983)). The requisite connection exists under 514(a) if a law mandates employee benefit structures or their administration or provides alternative enforcement mechanisms to ERISA. New York Conf. of Blue Cross v. Travelers Ins. Co., 514 U.S. 645, 658, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). In this analysis, a court “look[s] both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive as well as to the nature of the effect of the state law on ERISA plans.” California Div. of Labor Standards Enforcement v. Dillingham Const., N.A., 519 U.S. 316, 325, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (internal citations and punctuation omitted). In Egelhoff, for example, the Court found conflict preemption and noted that the “the statute at issue here directly conflicts with ERISA‘s requirements that plans be administered, and benefits be paid, in accordance with plan documents.” Egelhoff, 532 U.S. at 150, 121 S.Ct. 1322. Justice Scalia, in his concurrence, notes that while he remained unsure “as to what else triggers the ‘relate to’ provision“, the “pre-emptive provision of the Employee Retirement Income Security Act of 1974 (ERISA) is assuredly triggered by a state law that contradicts ERISA.” Id. at 152, 121 S.Ct. 1322 (J. Scalia, concurring).
In this case, much like Egelhoff, state law contradicts the terms of the Plan and therefore contravenes ERISA‘s requirements that plans be administered, and benefits be paid, in accordance with plan documents. See also Melton v. Melton, 324 F.3d 941, 945 (7th Cir.2003). Varco seeks to invoke a state law doctrine to her advantage in determining her recovery as a beneficiary under an ERISA-regulated employee benefits plan. If the Illinois common fund doctrine were applied, the Committee would receive less than total reimbursement of Varco‘s medical benefits from her settlement through the deduction of her attorney‘s fees in contravention of the clear mandate of the Plan. Conflict prеemption, therefore, is appropriate in this case where “Congress has made its preemption intention clear in the language of the statute, the Supreme Court has affirmed that intent, and we have applied the rule in similar cases.” Melton, 324 F.3d at 945 (citing
Pursuant to this characterization, Varco would only have standing to bring this claim under Illinois law if this case involves a dispute which can be fairly characterized as an independent action by the attorney to enforce his right to payment for services rendered. As we previously noted, Varco‘s attorney Dunford has been dismissed from this action and all of the disputed funds remain in Varco‘s sole possession in a reserve account in her name. The Committee in this case is therefore seeking to assert its rights under the Plan, through an equitable action, to monies held in their entirety by Varco. Dunford has already been completely compensated, and perhaps over-compensated, with other funds derived from the settlement. What Varco is rеally seeking is reimbursement from the Committee for the fees that she has already paid to Dunford in anticipation of the application of the Illinois common fund doctrine. However, as Illinois courts have held, the common fund doctrine operates independently of a plan document. The relationship between Varco and the Plan is controlled completely by the terms of the Plan, see Egelhoff, 532 U.S. at 147-48, 121 S.Ct. 1322, and those terms dictate that the Plan is not responsible for attorney‘s fees. If Dunford had not compensated himself fully, and, as a result, still had a stake in the action based on the outcome of this case, then the district court could have properly сategorized the action as one by an attorney to enforce his rights and therefore appropriately brought by Varco under Illinois state law. But because Dunford has no stake in the outcome of this case, this action by Varco is not for appropriate equitable relief pursuant to the Illinois common fund doctrine.
Our conclusion that the Illinois common fund doctrine conflicts with, and therefore is preempted by, the terms of the Plan in this case does not completely foreclose the possibility of Varco asserting a claim. As Varco argues, the federal common fund doctrine, which is similar to, but not identical in application to the Illinois doctrine, has existed independently in the federal system since 1882. See Boeing v. Van Gemert, et al., 444 U.S. 472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980). Although primarily used only in situations involving class action law suits, federal courts have interpreted the doctrine to apply in single-party ERISA disputes despite the absence in the suit of the affected attorney. See McIntosh v. Pacific Holding Co., 120 F.3d 911, 912 (8th Cir.1997); Waller v. Hormel Foods Corp., 120 F.3d 138, 141 (8th Cir. 1997). But see Harris v. Harvard Pilgrim Health Care, Inc., 208 F.3d 274, 278-79 (1st Cir.2000).
As we have often recognized, one of ERISA‘s primary purposes is to ensure the integrity of written plans. Duggan v. Hobbs, 99 F.3d 307, 309-10 (9th Cir.1996); see also Van Orman v. American Ins. Co., 680 F.2d 301, 312 (3d Cir. 1982) (“The Supreme Court has emphasized the primacy of plan provisions absent a conflict with the statutory policies of ERISA.“); Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992). Thus, we have held that to ensure the integrity of pension and welfare plans courts should confine the benefits to the terms of the plans as written. Pohl, 956 F.2d at 128. Therefore, it is inappropriate to fashion a common law rule that would override the express terms of a private plan unless the overridden plan provision conflicts with statutory provisions or other policies underlying ERISA. Id.
In this case, applying federal common law to override the Plan‘s reimbursement provision would contravene, rather than effectuate, the underlying purposes of ERISA because the express terms of the Plan provide for the appropriate distribution of attorney‘s fees. See Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 58 (4th Cir.1992); Ryan by Capria-Ryan v. Federal Express Corp., 78 F.3d 123, 127-28 (3d Cir.1996) (holding that the federal common fund doctrine may not be applied in contravention of a plan‘s terms).
Those cases which have applied the federal common fund doctrine in the favor of individual ERISA participants have done sо, correctly, only in the absence of controlling plan language. See McIntosh at 917; Waller, at 141. Accordingly, we conclude that the Plan in this case controls the relationship between Varco and the Committee, and because it does not authorize the payment of her attorney‘s fees, we do not possess the authority to rewrite the Plan in her benefit.
Finally, Varco argues that by allowing the Committee to recoup its medical payments even though it did not pay for the legal prosecution of the action, we are essentially awarding them unjust enrichment. However, the unambiguous language of the Plan obligates her to repay the benefits paid in full without a pro rаta deduction for her legal expenses, and thus any so-called enrichment is not unjust. See Ryan, 78 F.3d at 127 (“Enrichment is not ‘unjust’ where it is allowed by the express terms of the ... plan.“) (quoting Cummings by Techmeier v. Briggs & Stratton Retirement Plan, 797 F.2d 383, 390 (7th Cir.1986)). This type of plan provision, involving the relinquishment by a plan participant of certain legal rights, has previously been upheld in Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1297-98 (7th Cir.1993). In Cutting, we explained the trade-off whereby most covered persons—if given an option—would readily give up a “common fund-type” reduction in exchange for having their medical expenses paid up-front in third-party liability situations instead of refusing the benefits (and therefore not having to reimburse the plan) and paying their medical expenses out of their settlement. “Assignment, by shifting the insured‘s tort rights to the insurance company, reduces the price of insurance and thus enables the insured to obtain more coverage, in effect trading an uncertain bundle of tort rights for a larger certain right, which is just the sort of trade that people seek through insurance.” Id. at 1298. In this case, plan participants have traded the possibility of having the Plan participate in attorney‘s fees for the guarantee that medical bills will be paid immediately.
IV
In conclusion, the district court correctly accepted subject matter jurisdiction under 502(a)(3)(B) because the Committee was seeking an equitable remedy to enforce the terms of the Plan. However, the court improperly held that the Illinois common fund doctrine applied in reducing the amount owed to Committee from $18,865.72 to $12,378.04. The federal common fund doctrine is inapplicable in this case as its application would contravene the plain language of the Plan. This case is AFFIRMED in part, REVERSED in part, and REMANDED to the district court with instructions, to proceed in the manner provided.