Plaintiffs Frank Cognetta, George Orlando, Matthew Matassa, and Roy Kohn are trustees of the Wine, Liquor & Distillery Workers Union Local 1-D Major Medical Plan (the "Plan" or the "Fund"), an employee benefit plan, as defined in Section 3 of the Employee Retirement Income Security Act ("ERISA"),
Plaintiffs are trustees of the Plan. George Orlando Aff. ¶ 1, ECF No. 19 ("Orlando Aff."); Pls.' Mem. of Law in Supp. of Their Mot. for Declaratory J. 1, ECF No. 17 ("Pls.' Mem. of Law"). The Plan provides health benefits to employees and their dependents. Orlando Aff. ¶ 3. According to evidence plaintiffs adduce, the Plan is self-funded, which means that the Plan does not purchase insurance from an insurance company to satisfy its obligations to Plan participants.
Among its provisions, the Plan's Summary Plan Description (SPD), its operative document, contains a clause entitled, "Fund's Right to Subrogation, Assignment to Rights and Reimbursement." Compl. ¶ 13, ECF No. 1; Orlando Aff. ¶ 8. Under that clause, a Plan member agrees to reimburse the Plan for benefits paid if the member recovers on a claim in a liability action against a third party. Compl. ¶ 13; Orlando Aff. ¶ 8. The SPD states:
Where the Fund has or may provide benefits to you or your dependent(s) in connection with or arising from an accident or other occurrence for which some other party or parties may be responsible ("Claims"), the Fund has the right, under the Plan, to subrogation, assignment and reimbursement to all Claims, rights, causes of action, or other interests that you or your dependent(s) has/have, or which may accrue against any party or parties ... arising out of said accident or occurrence to the extent of any benefits paid by the Fund to you and/or your dependent(s) arising from said accident or occurrence....
The Fund shall have an equitable lien on any amount received from any Claims from some other party or parties, to the extent of any benefits paid by the Fund to you and/or your dependent(s) ..., and such amount received ... shall be held in constructive trust for the sole benefit of the Fund until paid to the Fund.
Compl. ¶ 13; Orlando Aff. ¶ 8. If a Plan member or a dependent seeks a benefit payment as a result of an accident, that person must execute a Subrogation, Assignment of Rights, and Reimbursement Agreement ("Agreement") before he or she will receive any benefits. Compl. ¶ 13; Orlando Aff. ¶ 8. The Agreement, which "affirm[s] the Fund's rights of assignment, reimbursement and subrogation," states:
I hereby subrogate, assign and transfer to the Plan all claims, rights, causes of action, or other interests ... that I may have or which may accrue against any party or parties (including my own insurer) arising out of the [a]ccident to the extent of the benefits paid by the Plan on my or my dependent(s) behalf in connection with the [a]ccident.
I agree to immediately reimburse the Plan, before all others, for the full amount of all benefits paid on my or my dependent(s) behalf by the Plan if there is a recovery of any amount in connection with the [a]ccident from any party or parties (including any insurance company), whether such recovery is full or partial and no matter how such recovery is characterized, why or by whom it is paid, or the type of expense for which it is paid.... I agree that, if less than the full amount paid by the Plan is receivedfrom any party or parties, the Plan shall be paid the full amount received. I understand that the Plan shall have a lien on any amount received, as a result of the [a]ccident, by me or my representatives (including my attorney), that is due to the Plan under this Agreement and any such amount shall be deemed to be held in trust either by me or by them, for the sole benefit of the Plan until paid either by me, or them, to the Plan.
Compl. ¶¶ 13, 21.
Defendant Nicole Bonavita is an active participant in the Plan. Orlando Aff. ¶ 6. Her husband, James Bonavita, was a "Covered Person" under the terms of the Plan when he was seriously injured in an automobile accident on September 12, 2013.
On or about March 28, 2014, the Bonavitas filed an action in the Supreme Court of the State of New York, County of New York, alleging that the negligence of third parties caused the accident that resulted in James's injuries, his related medical expenses, and Nicole's loss of services. Defs.' Mem. of Law at 1; Orlando Aff. ¶ 9. On September 6, 2016, the Supreme Court of the State of New York granted the Bonavitas summary judgment on the issue of liability, leaving the issue of damages to be determined at trial. Orlando Aff. Ex. 2, at 1. Two of the three parties found liable, Quibble Cab Corp. and Mahmamoudou Siby, are insured by Fiduciary Insurance Company of America. Defs.' Mem. of Law 2. Fiduciary was placed into liquidation on July 25, 2017.
On May 22, 2017, plaintiffs filed their complaint, requesting that the court "establish an equitable lien/constructive trust against the Defendants, joint and several, over that portion of the [state] Action Proceeds sufficient to reimburse the Plan for its Paid Benefits" in addition to interest, attorneys' fees, and costs.
LEGAL STANDARD
Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A "genuine dispute" exists for the
DISCUSSION
In light of what plaintiffs characterize as a "proximate expectation of a settlement or judgment" favorable to the Bonavitas in their state action, plaintiffs seek a declaratory judgment that the Plan has an equitable lien or constructive trust over defendants' potential recovery in the amount of benefits that the Plan has paid. Pls.' Mem. of Law 2. Defendants oppose plaintiffs' motion on three grounds. First, they argue that Section 5-335 prevents the Plan from seeking reimbursement on a potential personal injury settlement. See Defs.' Mem. of Law 3-4; Napoli Decl. Ex. B ¶ 3. Second, defendants assert that, even if Section 5-335 does not apply to the Plan, plaintiffs' motion must be denied because there are "no identifiable funds [from] which the plan can recover," and the defendants must "be made whole before the plan can recover[ ]." Defs.' Mem. of Law 5-6. In other words, defendants contend that plaintiffs do not seek "appropriate equitable relief" under ERISA § 503(a)(3). Third, they argue that plaintiffs' lawsuit is premature and, thus, that a declaratory judgment would be inappropriate. See id. at 6. I will address each argument in turn.
I. ERISA preempts the application of Section 5-335 to the Plan because the Plan is self-funded.
Defendants first argue that plaintiffs' claim "is barred by" Section 5-335. Napoli Decl. Ex. B ¶ 3. According to defendants, this is because "[f]ully-funded ERISA plans are not entitled to reimbursement for New York State Settlements." Id. ¶ 4. Alternatively, defendants appear to argue that plaintiffs' claim is barred because the Plan is not self-funded and, therefore, that Section 5-335 is not preempted by ERISA. See Defs.' Mem. of Law 3-4. Plaintiffs argue that the Plan is self-funded and, consequently, that ERISA preempts the application of Section 5-335 to the Plan. Pls. Mem. of Law 3-7. I agree with plaintiffs.
A. ERISA Preemption
"The purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans." Aetna Health Inc. v. Davila ,
Even where a state law "relate[s] to" an employee benefit plan, however, ERISA does not expressly preempt that law if it "regulates insurance."
Whether a state law that regulates insurance applies to a plan or is preempted by ERISA depends on whether the plan purchases insurance. See FMC Corp. ,
B. Section 5-335
Section 5-335 provides that "no person entering into [a personal injury] settlement shall be subject to a subrogation claim or claim for reimbursement by an insurer and an insurer shall have no lien or right of subrogation or reimbursement against any such settling person ..., with respect to those ... expenses that have been ... paid or reimbursed by said insurer." N.Y. Gen. Oblig. Law 5-335(a). As the Second Circuit recently explained, "[w]hen section 5-335 is applied, it effectively bars an insurer from reducing the benefits owed to an insured by the amounts the insured receives from a personal injury settlement." Arnone ,
C. Application
Defendants' argument that fully funded ERISA plans are not entitled to reimbursement on New York settlement claims fails as a matter of law. As the Supreme Court conclusively held in FMC Corp. , ERISA "exempt[s] self-funded ... plans from state laws that 'regulat[e] insurance.' "
Defendants have provided no evidence to rebut plaintiffs' evidence that the Plan is self-funded. Instead, defendants appear to advance an argument about ERISA's
Defendants' argument is unpersuasive. Under
Because the record evidence on the issue is undisputed, I find that the Plan is self-funded and, therefore, that ERISA preempts the application of Section 5-335 to the Plan. See Gallo v. Prudential Residential Servs., L.P. ,
II. Plaintiffs seek "appropriate equitable relief."
Having found that the Plan is self-funded, I now address whether plaintiffs' request for a declaratory judgment that the Plan has an equitable lien or constructive trust over defendants' potential settlement or damages judgment constitutes appropriate equitable relief under ERISA § 502(a)(3). As detailed below, I conclude that it does.
A. Plaintiffs' request for a declaratory judgment constitutes "appropriate equitable relief" under ERISA § 502(a)(3).
Defendants argue that plaintiffs cannot recover under ERISA § 502(a)(3) because the funds that the Plan seeks are not identifiable and not in their possession. See Defs.' Mem. of Law 5. Plaintiffs contend that the Plan has "an equitable lien/constructive trust"
i. ERISA § 502(a)(3) and "appropriate equitable relief"
Under ERISA § 502(a)(3), fiduciaries, such as plaintiffs, can bring a civil suit "(A) to enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan, or (B) to obtain other appropriate equitable relief ... to enforce ... the terms of the plan."
The Supreme Court has gone to great lengths to clarify what constitutes "appropriate equitable relief" in the context of ERISA § 502(a)(3). In Great-West , an employee benefit plan sought injunctive and declaratory relief under ERISA § 502(a)(3) to enforce the reimbursement provision of the plan against settlement proceeds that beneficiaries of the plan had recovered from third parties.
The Supreme Court held that the plan could not enforce the provision because it was seeking legal, not equitable, relief.
In Sereboff , the Supreme Court faced the same issue: an employee benefit plan sought reimbursement from beneficiaries who had settled a tort action in state court.
The Supreme Court reinforced its holdings in Great-West and Sereboff in Montanile . There, the trustees of an employee benefit plan similarly sought reimbursement for benefits the plan had paid to a participant after he obtained a settlement in a negligence action. Montanile ,
Here, the basis of plaintiffs' claim is plainly equitable. As in Sereboff and Montanile , plaintiffs base their claim for an equitable lien or constructive trust on the
Whether the remedy plaintiffs seek is equitable poses a more difficult question. As defendants argue, they do not currently possess the funds that the Plan ultimately seeks. See Defs.' Mem. of Law 5-6. Unlike the plan beneficiaries in the aforementioned Supreme Court cases who secured settlements in their state cases before the respective plans sought relief, the Bonavitas have been granted summary judgment on the issue of liability but have received neither a settlement offer nor a judgment as to damages. There are, therefore, no funds derived from the accident against which the Plan can enforce the lien at this time.
Contrary to defendants' arguments, however, the absence of funds does not mean that plaintiffs are without a remedy. Plaintiffs seek declaratory relief regarding hypothetical future funds-they do not demand that defendants immediately hand over funds that do not exist. To the extent that both parties in their briefing characterize the remedy sought in the context of possession, and, thus, in the context of restitution, see Montanile ,
ii. Declaratory judgments and "appropriate equitable relief"
Courts have interpreted ERISA § 502(a)(3) as creating a cause of action for a declaratory judgment. See, e.g., Franchise Tax Bd. v. Constr. Laborers Vacation Tr. ,
When determining whether to characterize a declaratory judgment as legal or equitable, courts take two approaches. First, they examine the "nature of the underlying controversy." Transamerica Occidental Life Ins. Co. v. DiGregorio ,
With regard to the first approach, the nature of the underlying controversy in this case is equitable. As previously discussed, plaintiffs are trustees of the Plan who seek to enforce the Plan's subrogation, assignment, and reimbursement provision against the specific proceeds of defendants' state action. In contrast to the plaintiffs in Great-West and Montanile , plaintiffs do not bring this suit to recover from defendants' general assets-a claim at law.
Were declaratory relief not available, the underlying nature of this suit would not change-only the timing would. Plaintiffs would have to wait until the precise moment defendants recovered and then move immediately for an injunction requiring defendants to transfer the funds and preliminarily enjoining them from dissipating or comingling the funds.
As to the second approach, the remedy that plaintiffs seek also closely resembles other remedies traditionally available in equity. See CIGNA Corp v. Amara ,
Plaintiffs' action also could be likened to a proceeding known as a bill or petition for instructions. See Dakotas ,
The fiduciary who is in doubt must set forth the particular portion of the instrument concerning which he requests the determination of the court, and the facts on which he grounds his right to relief, showing that he has a present interest in a definitive adjudication of the question raised and supplying the names of any other parties who may be affected by the determination. The court, if it sees fit to grant the application, will then cite such parties as it deems requisite to show cause why the determination requested by the fiduciary should not be made. Whatever decree is then made,unless reversed or modified, is thereafter conclusive on all parties to the proceeding and compliance with instructions given relieves the fiduciary from liability.
Executors' and Trustees' Bills for Instructions ,
Much like these two remedies typically available in equity, the declaratory relief that plaintiffs seek is protective. By declaring that the Plan imposes a lien on any third-party recovery in the amount of benefits paid-and thus, that any funds defendants recover actually belong to the Plan-a declaratory judgment in this case would operate coercively to enjoin defendants from squandering the state action proceeds if-or more likely when-they obtain possession of them. In essence, plaintiffs are attempting to avoid the pitfalls faced by the plans in Great-West and Montanile . Equity allows them to do so. See William Q. de Funiak, Handbook of Modern Equity , at 24 (2d ed. 1956) ("[I]t is clear that it has been the policy of equity to prevent a disobedience which appears reasonably probable.").
Based on the foregoing, I conclude that defendants' non-possession of the anticipated state proceeds does not preclude relief and find that plaintiffs' declaratory judgment action is an equitable claim seeking remedies typically available in equity and therefore available under ERISA § 502(a)(3).
B. Under the terms of the Plan, defendants need not be "made whole" before plaintiffs can recover.
Defendants next argue that they must be "made whole" before the Plan can recover "despite a subrogation clause to the contrary." Defs.' Mem. of Law 5. Plaintiffs do not address this argument. In the likely event that defendants recover in their state action, the terms of the Plan and the Agreement allow plaintiffs to recover regardless of whether defendants have been made whole.
The make-whole doctrine is a federal common law rule of contract interpretation. See World Trade Ctr. Props. LLC v. QBE Int'l Ins. Ltd. ,
As the Supreme Court made clear in US Airways, Inc. v. McCutchen , equitable defenses, such as the make-whole rule, "give way when a court enforces an equitable lien by agreement" that repudiates the defense.
In this case, defendants do not allege that the Plan is silent or ambiguous on the issues of subrogation or reimbursement-nor could they. Under the Plan's Subrogation, Assignment to Rights, and Reimbursement provision, the Plan puts participants on notice that, if they recover from a third party, the Plan has the right to recover "any amount received ... to the extent of any benefits paid ..., arising from said accident," regardless of the participants' other expenses-and, therefore, regardless of whether the participants have been made whole. Compl. ¶ 13. The Agreement that defendants signed is similarly unambiguous and states: "I agree to immediately reimburse the Plan, before all others, for the full amount of all benefits paid on my or my dependent(s)['] behalf by the Plan if there is a recovery of any amount in connection with the [a]ccident ... whether such recovery is full or partial and no matter how such recovery is characterized, why or by whom it is paid, or the type of expense for which it is paid." Id. ¶ 21. Although the SPD and the Agreement do not expressly refer to the make-whole doctrine, their plain language-particularly the sentence in the Agreement requiring beneficiaries to "immediately" repay the Plan "before all others ... whether such recovery is full or partial"-indicates that the Plan has first priority over defendants' recovery, whether that recovery fully or partially covers defendants' expenses. As such, defendants have waived their right to be made whole. See Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency Inc. ,
Finally, defendants' reliance on New York law is misplaced. See Defs.' Mem. of Law 5. This case is not based on diversity jurisdiction. Therefore, even if defendants are correct that "New York has applied and adheres to the existence of the Made Whole Doctrine,"
Because the terms of the SPD and the Agreement clearly reject application of the make-whole doctrine, I will not apply it to preclude plaintiffs from recovering from the anticipated proceeds from defendants' state action.
III. Plaintiffs' action is not premature and a declaratory judgment is appropriate.
Finally, defendants argue that a declaratory judgment would be inappropriate
The Declaratory Judgment Act provides that, "[i]n a case of actual controversy within its jurisdiction ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought."
The existence of contingencies "does not necessarily defeat jurisdiction of a declaratory judgment action." E.R. Squibb & Sons ,
Even if a case or controversy exists, district courts have discretion to decide whether to entertain-or award relief in-a declaratory judgment action. See Wilton v. Seven Falls Co. ,
The case or controversy requirement has been met in this case. Defendants have already signed the Agreement, received benefits for their medical expenses, filed suit against third parties in state court, and won on the issue of liability. Given
Although it is true that the financial position of two of the state defendants is somewhat precarious, this fact does not render the controversy between the parties any less real. See Cent. States, Se. & Sw. Areas Health & Welfare Fund ex rel. Bunte v. Am. Int'l Grp., Inc. ,
In addition, I find both discretionary factors satisfied. First, I find that a judgment in this case "will serve a useful purpose in clarifying" the legal issues involved, namely that Section 5-335 does not apply to the Plan and that the relief plaintiffs seek is equitable under ERISA § 502(a)(3). Further development of the factual record would not change these conclusions. Second, a judgment in this case will "finalize the controversy and offer relief from uncertainty" by giving force to the equitable lien by agreement and thus foreclosing defendants' ability to dissipate the funds. See Borchard, supra , at 542 ("[A] claim of lien ... when declared, serves to impress the property with something like a trust, hence a protection to the claimant and a warning to the defendant not to deal with the property or the claimant's rights in disregard of his declared interest."); id. at 984 ("It [is] frequently necessary to safeguard an existing right, even though its exercise may have to be postponed until further facts have become established, or notwithstanding the fact that a condition precedent has not been literally fulfilled."); Dow Jones & Co. v. Harrods, Ltd. ,
Finally, I find that a declaratory judgment in this case is an appropriate remedy in light of ERISA's statutory purposes. As the Supreme Court commented in Sereboff , "ERISA provides for equitable remedies to enforce plan terms "-exactly the reason plaintiffs seek a declaratory judgment here.
CONCLUSION
For the foregoing reasons, plaintiffs' motion for summary judgment on their declaratory judgment action is granted. It is hereby declared that the Plan has an equitable lien to the extent of benefits that the Plan has paid on behalf of defendants over the proceeds of any recovery by way of settlement or adjudication in defendants' state case. It is further ordered that defendants hold such proceeds in trust for the benefit of the Plan.
SO ORDERED.
Notes
Plaintiffs filed a motion for declaratory judgment. See ECF No. 18. As I explained in the docket entry dated April 16, 2018, I have construed plaintiffs' motion as a motion for summary judgment. ECF Entry, April 16, 2018; see also Middlesex Ins. Co. v. Mara ,
Plaintiffs neither submit evidence pertaining to nor address in their briefs the issues of interest, attorneys' fees, or costs. See generally Pls.' Mem. of Law. I, therefore, decline to address those issues. Cf. Norton v. Sam's Club ,
In their brief, defendants include numerous other reporting requirements that are not actually contained in the statutory provision that they cite. Compare Defs.' Mem. of Law 3-4, with
A constructive trust and an equitable lien are different, albeit similar, types of relief. See 1 Dan B. Dobbs, Law of Remedies § 4.3(3), at 601 (2d ed. 1993) ("Where the constructive trust gives a complete title to the plaintiff, the equitable lien only gives him a security interest in the property."). Because it appears that plaintiffs seek either type of relief, the distinction is not relevant here.
In one of its section headings, plaintiffs' brief also states that the funds are "in the possession of defendants." Pls.' Mem. of Law 8. In the text of their brief, however, plaintiffs appear to acknowledge that the funds are not actually in defendants' possession and, instead, focus on the fact that they seek funds from the potential settlement or damages judgment that are distinct from the defendants' general assets. See
See also Edwin Borchard, Declaratory Judgments 238 (2d ed. 1941) ("[T]he power granted by ... declaratory judgment statutes is more strictly a direction to use an existing power than an authorization of new power.... [I]t is both historically and traditionally a power exercised primarily by courts of equity, and even where exercised by law courts it is largely equitable in nature.").
Such relief would be equitable, though, as demonstrated by Montantile , difficult to achieve in practice. See Montanile ,