Lead Opinion
OPINION
Oregon Teamster Employers Trust (“OTET”) appeals the grant of summary judgment in favor of Defendants Hillsboro Garbage Disposal, Inc. (“Hillsboro Garbage”), Robert Henderson (“Henderson”), and the Estate of Darrol Jackson (“Jackson”). The district court, adopting the findings of. a magistrate judge, granted summary judgment in favor of Defendants on (1) OTET’s breach of contract claims because the court found those claims to be preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”); and (2) OTET’s restitution and specific performance claims because the court concluded that those claims were not cognizable under ERISA as they sought legal — not equitable — relief.
The issues presented are:
1. Whether OTET, an Employer Health and Benefit Plan, governed by ERISA, can recover damages, on a breach of contract claim, against a business which received health care benefits for two ineligible employees.
2. Whether OTET’s claims for restitution and specific performance are permitted.
3.Whether the district court abused its discretion in refusing to allow OTET to amend its complaint to allege fraud. We affirm the district court’s judgment.
I. Facts & Procedural History
OTET is an Employer Health and Benefit Plan governed by ERISA. OTET provides health and welfare benefits to the employees whose employers have entered into collective bargaining agreements with Joint Council No. 37 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America, and local union affiliates.
In September 2003, Hillsboro Garbage and Teamsters Local Union No. 305 (“Union”) entered into a collective bargaining agreement (“CBA”) which made Hillsboro Garbage a subscriber to OTET, effective March 1, 2003, through February 28, 2007.
Under the terms of the Subscription Agreements, Hillsboro Garbage and the Union agreed to be bound by the provisions of the Trust Agreement governing OTET, chose the Health & Welfare Plan F/W (“Plan”) for eligible employees and their dependents, and agreed that Hillsboro Garbage would be subject to periodic audits to detect unauthorized contributions.
The Trust Agreement also authorized OTET’s Trustees to enter into special agreements with Hillsboro Garbage under which OTET would provide health and welfare benefits for the company’s non-bargaining unit employees (the “NBU Agreements”). The NBU Agreements specify that only individuals with a bona
Starting in 2003, OTET received contributions for health care benefits coverage for Henderson and Jackson, purportedly as employees of Hillsboro Garbage. In fact, Henderson and Jackson were not employed by Hillsboro Garbage, but by a separate company, RonJons Unlimited, Inc. (“RonJons”), which had common ownership with Hillsboro Garbage.
In 2006, an audit revealed that Hillsboro Garbage had made unauthorized contributions on behalf of Henderson and Jackson. OTET sent Hillsboro Garbage a letter on August 21, 2006, enclosing a copy of the 2006 audit, stating that the audit uncovered $70,000 in unauthorized contributions, and advising Hillsboro Garbage that it had six months to make a written refund request.
Following the 2006 audit, OTET continued to accept contributions from Hillsboro on behalf of Henderson and Jackson and to pay medical claims for their benefit. In 2011, after another audit, OTET removed the two men from the plan and filed this lawsuit seeking recovery of benefits paid in excess of the contributions received from Hillsboro Garbage on their behalf. Count I of OTET’s second amended complaint seeks restitution from all Defendants, Count II seeks specific performance against Hillsboro Garbage to repay the benefits wrongly paid, and Counts III and IV assert common law breach of contract claims against Hillsboro Garbage.
After discovery, OTET moved for partial summary judgment. The magistrate judge recommended that OTET’s motion be denied and that the district court instead grant summary judgment in favor of Defendants. The magistrate judge concluded that Counts III and IV of OTET’s second amended complaint, the common law breach of contract claims, were preempted by ERISA. The magistrate also concluded that the claims for legal restitution and specific performance were not cognizable under ERISA. After supplemental briefing and argument, the district judge approved the magistrate judge’s recommendation, granting summary judgment to Defendants and dismissing the case with prejudice.
II. The District Court Properly Dismissed Counts III and IV (Common Law Breach of Contract) as Preempted by ERISA
A. ERISA Preemption
The district court found OTET’s state law claims preempted by ERISA because they are “premised on the existence of an ERISA plan, and the existence of the plan is essential to the claim[s’] survival” and they have a “genuine impact ... on a relationship governed by ERISA” — that between the plan and the employer. See Providence Health Plan v. McDowell,
Under 29 U.S.C. § 1144(a), ERISA’s provisions “supersede any and all State laws insofar as they ... relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.” A common law claim “relates to” an ERISA plan “if it has a connection with or reference to such a plan.” McDowell,
OTET’s primary argument is that the district court’s preemption ruling is contrary to this court’s McDowell opinion. McDowell was a breach of contract action by a health insurer against two plan participants who were injured in an automobile accident, seeking reimbursement of benefits paid on the participants’ behalf out of a settlement in a tort action.
The district court distinguished McDowell, finding that the key question in this case was the eligibility of Henderson and Jackson to participate in the- OTET plan. OTET contends McDowell -is controlling because adjudication of its breach of contract claims does not require an interpretation of the plan or any distribution of benefits. There is no need to interpret the plan, OTET argues, because there is no dispute that Henderson and Jackson were not employees of Hillsboro Garbage and or that Ron Jons never entered into a CBA .with a labor organization specified in the plan’s Trust Agreement.
The district court properly rejected this argument. McDowell did not turn on whether the beneficiaries were eligible plan participants. Cf. Peralta v. Hispanic Bus., Inc.,
B. Potential Liability Under the Labor Management Relations Act
The Labor Management Relations Act (“LMRA”), 29 U.S.C. § 186, bars employers from contributing to a trust fund on behalf of individuals who are not employees of the contributing employer. 29 U.S.C. § 186(c)(5); see also Davidian v. S. Cal. Meat Cutters Union & Food Emps. Benefit Fund,
OTET’s assertion that the district court’s finding of preemption would subject it to LMRA liability is entirely speculative. “The dominant purpose of [§ ] 302 is to prevent employers from tampering with the loyalty of union officials and to prevent union officials from extorting tribute from employers.” Turner v. Local Union No. 302,
Moreover, to the extent that there is an LMRA . violation, OTET bears at least some responsibility. OTET learned in 2006 that Hillsboro Garbage had allowed Henderson and Jackson to enroll and had made contributions on their behalf, but OTET took no action to address the issue until after a second audit in 2010.
III. The District Court Properly Dismissed Counts I and II
A. Restitution and Specific Performance Under ERISA § 502(a)(3)
Section 502(a)(3) of ERISA authorizes civil suits “by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates ... 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 ... the terms of the plan.” 29 U.S.C. § 1132(a)(3).
Great-West Life & Annuity Insurance Co. v. Knudson,
The Supreme Court rejected this claim. The Court explained that only “those categories of relief that were typically available in equity” are permitted under § 502(a)(3), but Great-West sought, “in essence, to impose personal liability on respondents for a contractual obligation to pay money — relief that was not typically available in equity” but only in an action at law. Id. at 210,
In Sereboff v. Mid Atlantic Medical Services, Inc., the Court “eonsider[ed] again •the circumstances in which a fiduciary under [ERISA] may sue a beneficiary for reimbursement of medical expenses paid by the ERISA plan, when the beneficiary has recovered for its injuries from a third party.”
The Supreme Court held, in contrast to Knudson, that the relief “Mid Atlantic sought” was equitable because it was directed at “specifically identifiable funds ... within the possession and control of the Sereboffs — that portion of the tort settlement due Mid Atlantic under the terms of the ERISA plan, set aside and preserved [in the Sereboffs’] investment accounts.” Id. at 362-63,
The Court characterized Mid Atlantic’s claim as indistinguishable from an “equitable hen by agreement,” which arises where two parties “contract to convey a specific object even before it is acquired,” making the defendant a trustee over the property after he or she obtains it from a third party. Id. at 363-64,
In Bilyeu v. Morgan Stanley Long Term Disability Plan, we vacated a district court judgment reimbursing a plan administrator’s overpayments of long-term disability benefits to a beneficiary because it did not constitute equitable relief under § 502(a)(3).
The district court awarded reimbursement, id. at 1088, but we reversed, holding that the district court had improperly awarded legal relief unavailable under ERISA, id. at 1096. We explained that Sereboff “established] at least three criteria for securing an equitable lien by agreement in an ERISA action”:
First, there must be a promise by the beneficiary to reimburse the fiduciary for benefits paid under the plan in the event of a recovery from a third party. Second, the reimbursement agreement must specifically identify a particular fund, distinct from the beneficiary’s general assets, from which the fiduciary will be reimbursed. Third, the funds specifically identified by the fiduciary must be within the possession and control of the beneficiary.
Id. at 1092-93 (alterations, citations, and internal quotation marks omitted).
Unum’s claim met the first element because Bilyeu had promised to reimburse the plan for any overpayment resulting from Social Security benefits she received. Id. at 1093. But we found Unum’s argument that the claim met the second element “problematic” because the “overpaid disability benefits are not a particular fund, but a specific amount of money en-compassed within a particular fund — the long-term disability benefits Unum paid to Bilyeu.” Id. And, even if the overpaid benefits qualified as a “particular fund,” Unum had not established the funds were within Bilyeu’s “possession or control” because “Bilyeu ha[d] spent the overpaid benefits.” Id. at 1094. Moreover, we held that an equitable lien cannot “be enforced against general assets when the specifically identified property has been dissipated.” Id. at 1095. “Nothing in Sereboff suggests that a fiduciary can enforce an equitable lien against a beneficiary’s general assets when specifically identified funds are no longer in a beneficiary’s possession.” Id.
In McDowell, we evaluated a claim for reimbursement of medical expenses pursuant to an ERISA plan’s reimbursement provision after the beneficiary received a settlement relating to injuries from an automobile accident.
C. Analysis
1. Specific Performance
In support of its specific performance claim, OTET relies on the statement in Sereboff that “ERISA provides for equitable remedies to enforce plan terms, so the fact that the action involves a breach of contract can hardly be enough to prove relief is not equitable.”
But OTET’s claim for “specific performance of the reimbursement provisions of the plan” is squarely foreclosed by Knudson and McDowell. Knudson held that specific performance is typically a legal remedy unless it is “sought to prevent future losses that either were incalculable or would be greater than the sum awarded.”
2. Restitution
OTET also characterizes the reimbursement provision of the plan as an equitable lien by agreement, allowing for recovery under Sereboff. See id. at 363-65,
OTET likewise cannot meet the “three criteria for securing an equitable lien by agreement in an ERISA action” that we have interpreted Sereboff to require. See Bilyeu,
OTET contends in its appeal that the district court abused its discretion in denying OTET leave to amend its complaint to allege fraud. We review the district court’s denial of leave to amend for abuse of discretion. Sharkey v. O’Neal,
OTET included a fraud count in its first amended complaint but voluntarily abandoned that claim when it filed the second amended complaint because it “believed” its “breach of contract claims were not preempted,” and thus the fraud claim “was superfluous.” Because OTET was given two opportunities to amend its complaint and unilaterally decided to eliminate the fraud count, it cannot establish abuse of discretion in denying the motion to amend, as it does not contend that it acquired any new knowledge or that there was any misconduct by Defendants that caused it to omit the fraud claim from the second amended complaint. See Royal Ins. Co. of Am. v. Sw. Marine,
V. Conclusion
The judgment of the district court is AFFIRMED.
Notes
. OTET is a self-funded plan which provides health and welfare benefits to bargaining unit (and, in some cases, non-bargaining unit) employees. OTET contracts with Regence Blue Cross (“Blue Cross”) to process and pay claims.
. OTET expressly disclaims any argument that the LMRA preempts ERISA, and we would reject such an argument had it been advanced. See Saridakis v. United Airlines,
. Although we indicated in Guthart that an ERISA trust’s payments to an employee . would be unlawful under the LMRA absent a written agreement, that case did not address "‘the availability of remedies under, or in light of” ERISA.
.To the extent that OTET complains that a finding of preemption would leave it without a remedy, the Supreme Court has made clear that ERISA preemption is appropriate even where ERISA would not provide a remedy for a state law complaint. See Pilot Life Ins. Co. v. Dedeaux,
. US Airways, Inc. v. McCutchen, —• U.S. -,
. OTET’s argument that it is entitled to restitution of "ill-gotten gains” is similarly unavailing. Even if it were possible to obtain restitution of "ill-gotten gains” without identifying a specific res, which we doubt, it has not shown the funds were obtained through “fraud or wrongdoing.” Cement Masons Health & Welfare Trust Fund for N. Cal. v. Stone,
Concurrence Opinion
concurring:
Oregon Teamster Employers Trust (“OTET”)’s primary argument on appeal is that the district court erred in concluding that its claim for breach of contract was preempted by ERISA. In particular, OTET argues that, like the trust in Providence Health Plan v. McDowell,
As the panel opinion observes, ERISA has a broad preemption clause, “one of the broadest preemption clauses ever enacted by Congress.” Security Life Ins. Co. of America v. Meyling,
In McDowell, we invented an exception to this rule that circumvents both the enforcement scheme Congress created and the accompanying preemption clause. The plaintiff in McDowell was an ERISA health plan fiduciary that had paid over $30,000 in medical expenses arising out of a car accident between two plan participants and a third party.
It is clear that a plan fiduciary has no remedy under ERISA in such a situation. An ERISA fiduciary cannot bring a damages suit to enforce an ERISA plan; it can sue only for equitable relief. See 29 U.S.C. § 1132(a)(3); Bilyeu,
As then-Judge Thomas explained in his dissent from our failure to rehear McDowell en banc, the panel’s conclusion was clearly wrong. See id. at 1175 (Thomas, J., dissenting from the denial of rehearing en banc). The fiduciary in McDowell was not merely trying to use state contract law to enforce a term in an unrelated contract. It was, in the panel’s own words, “attempting, through contract law, to enforce the reimbursement provision ... incorporated into the[J ERISA plan.” McDowell,
McDowell and this case can be distinguished in two ways, but neither finds significant support in ERISA. The result in McDowell depends on the panel’s claim that “[adjudication of [the fiduciary’s] claim does not require interpreting the plan or dictate any sort of distribution of benefits.” Id. In this case, by contrast, as the panel opinion explains, OTET’s breach of contract claim both requires interpreting the plan and turns on a provision that dictates the distribution of benefits. See Op. at 1156. But the first distinction is entirely illusory, and the second is a distinction without a difference.
First, while it is true that OTET’s contract claim requires interpreting the terms of the ERISA plan, the fiduciary’s contract claim in McDowell did, too. The thrust of the fiduciary’s claim in McDowell was that
The second distinction between this case and McDowell is hardly more convincing. The McDowell panel concluded that the reimbursement claim in that case was not preempted because the fiduciary was not attempting to enforce a provision that would “dictate any sort of distribution of benefits.” Id. at 1172. Here, by contrast, OTET is trying to enforce a provision that does implicate the payment of benefits. But I fail to see why this is a meaningful difference. It should not matter, if a litigant is attempting to enforce a provision in an employee benefits plan, whether the provision in question governs payments made from the trust to the participant (ie., a benefits provision) or payments made from the participant to the trust (ie., a reimbursement provision). Both are parts of the contract between the two parties. By arbitrarily deciding that a reimbursement provision may be enforced through a breach of contract damages suit, whereas a benefits provision may not, McDowell ignores the Supreme Court’s repeated instructions that we may not discard the explicit terms of an ERISA plan. See U.S. Airways, Inc. v. McCutchen, — U.S. -,
As Judge Thomas’s dissent explained, the rule McDowell establishes is deeply problematic. Under McDowell, “insurers may sue plan participants for reimbursement based on provisions in the insurance contract, but ... plan participants cannot file suits or counter-claims[ ] against insurers for breach of contract or bad faith in claim administration under the contract.” McDowell,
I concur in the panel’s opinion because I agree that McDowell is narrowly distinguishable (if unconvincingly) from this case, and because we must distinguish McDowell if McDowell remains the law and we are to reach the correct result in this case. But the underlying reality is that McDowell was wrongly decided. We should take the opportunity to rehear this case en banc and overrule McDowell.