Plaintiff-Appellee Defendants-Appellants
Transcript of Plaintiff-Appellee Defendants-Appellants
Nos. 11-35127; 11-35128
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CGI TECHNOLOGIES AND SOLUTIONS, INC., in its capacity as Sponsor and
Fiduciary for CGI TECHNOLOGIES AND SOLUTIONS, INC. WELFARE BENEFIT PLAN,
Plaintiff-Appellee,
v.
RHONDA ROSE, and NELSON LANGER ENGLE PLLC, Defendants-Appellants.
Appeal from the U.S. District Court for the Western District of Washington No. 2:20-cv-00298-RSM
APPELLANTS’ OPENING BRIEF
Matthew W.H. Wessler PUBLIC JUSTICE, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600 mwessler@publicjustice,net
Michael Nelson Nelson Langer Engle PLLC 1015 N.E. 113TH
STREET Seattle, WA 98125 (206) 623-7520
Leslie A. Brueckner PUBLIC JUSTICE, P.C. 555 12th Street, Suite 1620 Oakland, CA 94607 (510) 622-8150
Paul L. Stritmatter Stritmatter Kessler Whelan Coluccio 438-8th Street Hoquiam, WA 98550 (800) 540-7364
Counsel for Defendants-Appellants
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CORPORATE DISCLOSURE STATEMENT
Defendant-Appellant Nelson Langer Engle PLLC is a privately held
corporation. It has no parent corporation and does not issue stock.
Dated: May 23, 2011 Respectfully Submitted,
/s/ Matthew W.H. Wessler________
Matthew W.H. Wessler Public Justice, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600
Counsel for Defendants-Appellants
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STATEMENT REGARDING ORAL ARGUMENT
Pursuant to Federal Rule of Appellate Procedure 34, Defendants-Appellants
Rhonda Rose and Nelson Langer Engle PLLC respectfully request that the Court
hear oral argument. This case presents an important and unresolved issue of first
impression for beneficiaries of Employee Retirement Income Security Act
(“ERISA”) health insurance plans: whether, under Section 502(a)(3) of ERISA, a
seriously injured tort victim who recovered only a fraction of her damages from a
third-party tortfeasor must pay 100% of a reimbursement claim made by a health
insurance plan sponsored through her employer simply because the plan language
so provides, or whether the insurance plan is limited to seeking “appropriate
equitable relief” pursuant to Section 502(a)(3).
This is an issue with enormous implications for the over 177 million
employees nationwide who receive health coverage through a self-funded
employee benefit plan. The lower court enforced the ERISA plan language as
written, granting the insurer 100% reimbursement notwithstanding the limiting
language of the statute. Under the district court’s reasoning, insured employees
would be categorically subject to whatever conditions insurers write into their
contracts, even if it means that an insurer will reap a profit by invading a
beneficiary’s compensation for unrelated damages, compensation that a beneficiary
often desperately requires for even the most basic life needs. In permitting this
result, the district court not only contravened the plain language of the statute, but
also violated ERISA’s core purpose, which is to protect the interests of
beneficiaries, not insurers.
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This case also has serious implications for personal-injury victims’ access to
justice. This suit was filed against both the beneficiary (who was seriously injured
in a car crash) and her attorney, and both have been required to mount a full-scaled
defense of her right to retain at least a fair share of the limited recovery she
obtained. By rewarding the insurer with 100% reimbursement of its medical
expenses, the lower court has increased the likelihood that future injury victims
will be unable to obtain representation to hold wrongdoers accountable for illegal
or tortious conduct. The likelihood that an attorney will become a defendant in a
federal lawsuit, and the accompanying consequences that flow therefrom, create a
powerful economic disincentive to take on the representation of a client who
received anything more than a trivial amount of medical insurance from an ERISA
plan. By chilling injury victims’ ability to obtain representation, this approach
would unavoidably exculpate tortfeasors from liability while denying injury
victims just compensation for their injuries.
In light of the important issues presented by this case and the complex nature
of the statutory interpretation question raised on appeal, Appellants respectfully
request that the Court hear oral argument.
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TABLE OF CONTENTS
STATEMENT REGARDING ORAL ARGUMENT ................................................ ii
TABLE OF AUTHORITES .................................................................................. vi-ix
JURISDICTIONAL STATEMENT ............................................................................ 1
STATEMENT OF THE ISSUES................................................................................. 2
STATEMENT OF PERTINENT STATUTORY PROVISIONS ............................... 3
STATEMENT OF THE CASE .................................................................................... 4
A. Introduction ............................................................................................. 4
B. Course of Proceedings and Disposition Below ....................................... 5
STATEMENT OF THE FACTS ................................................................................. 6
A. History of Subrogation/Reimbursement ................................................. 6
B. Rhonda Rose’s Accident and Injuries ...................................................11
C. CGI’s Employee Benefit Plan ...............................................................13
D. The Lawsuit ...........................................................................................13
E. The Decision Below ..............................................................................14
SUMMARY OF ARGUMENT ................................................................................. 16
STANDARD OF REVIEW ....................................................................................... 18
ARGUMENT ............................................................................................................. 19
I. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH THE PLAIN LANGUAGE OF THE STATUTE ............................................................................................... 19
A. The Use of the Term “Appropriate” in Section 502(a)(3) Vests Courts with Discretion to Fashion Equitable Relief. ............................19
B. CGI’s Right to Relief Is Controlled by Equitable Principles of Unjust Enrichment. ................................................................................20
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C. Principles of Unjust Enrichment Restrict CGI to Recovering only the Portion of Ms. Rose’s Recovery that is Reasonably Allocable to Medical Expenses .............................................................23
D. The District Court’s Award of 100% Reimbursement Violated the Statutory Requirements of Section 502(a)(3) By Failing to Adhere to Equitable Principles of Unjust Enrichment. .........................28
1. Those Cases Categorically Prohibiting an Award Fashioned upon Equitable Limitations Are Not Controlling and, in any Event, Wrongly Decided. .....................28
2. The Lower Court Erred in Assuming that Sereboff Mandated an Award of 100% Reimbursement. ..........................30
II. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH BOTH THE STRUCTURE AND PURPOSES OF ERISA. ........................................................................ 34
III. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT IS CONTRARY TO PUBLIC POLICY.......................................................... 38
A. Permitting 100% Reimbursement Would Deter Tort Victims from Holding Wrongdoers Accountable. ..............................................39
B. The District Court’s Approach also Undermines the Public Policy in Favor of Settlements. .............................................................40
C. Permitting 100% Reimbursement Would Only Benefit Insurers, Not Other Beneficiaries. ........................................................................43
CONCLUSION .......................................................................................................... 43
STATEMENT OF RELATED CASES AND PROCEEDINGS .............................. 44
CERTIFICATES OF COMPLIANCE ....................................................................... 45
CERTIFICATE OF FILING AND SERVICE .......................................................... 46
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TABLE OF AUTHORITIES
Cases
A.C. Houston Lumber Co. v. William L. Berg, et al., 2010 WL 5439786 (9th Cir. Dec. 29, 2010) ...............................................................................................16
Adams v. Gov’t Emp. Ins. Co., 383 N.Y.S.2d 319 (N.Y.A.D. 1976) ......................26
Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834 (8th Cir. 2007) .......................................... 28, 29, 42
Aetna Life & Cas. Co. v. Nelson, 492 N.E.2d 386 (N.Y. 1986) ..............................25
Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006) ........................................................................................................... passim
Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003) .................................................... 9
Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010) ...................................... passim
Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115 (9th Cir. 2010) ..........23
CIGNA v. Amara, -- U.S. --, 2011 WL 1832824 (U.S. May 16, 2011) ........... passim
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) .................................................19
Flanigan v. Dep’t of Labor and Inds., 869 P.2d 14 (1994) .....................................41
Florence County Sch. Dist. v. Carter, 510 U.S. 7 (1993) ........................................19
Frost v. Porter Leasing Corp., 436 N.E. 2d 387 (Mass. 1982) ............................... 24
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) ........... passim
Harris Trust & Sav. Bank v. Solomon Smith Barney, Inc., 530 U.S. 238 (2000) ...................................................................................................................19
Harris v. Harvard Pilgrim Health Care, Inc., 208 F.3d 274 (1st Cir. 2000) ..........29
Hotel Employees & Restaurant Employees Int’l Union Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir. 1995) ..................................................................16
Hudson v. Lazarus, 217 F.2d 344 (D.C. Cir. 1954) ................................................... 7
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Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127 (9th Cir. 1994) ...............18
Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985) ....... 35, 36, 37, 38
Maxwell v. Allstate Ins. Cos., 728 P.2d 812 (Nev. 1986) .......................................... 8
McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994) .................................................40
McKinney ex rel. Gage v. Philadelphia Housing Auth., 2010 WL 3364400 (E.D. Pa. Aug. 24, 2010) ......................................................................................26
Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008) ..................................35
Miller v. Liberty Mut. Fire Ins. Co., 264 N.Y.S. 2d 319 (1965), aff’d mem., 289 N.Y.S.2d 726 (1968) ..................................................................................... 25
Mills v. London Grove Twnshp., 2007 WL 2085365, *3 (E.D. Pa. July 19, 2007) ....................................................................................... 42
Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004) ...................................... 9
Ryan by Capria-Ryan v. Fed. Express Corp., 78 F.3d 123 (3d Cir. 1996) .. 9, 29, 30
Sch. Comm. of Burlington v. Dep’t of Educ. of Mass., 471 U.S. 359 (1985) ..........20
Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010) ...............................8, 9
Sereboff v. Mid Atlantic Medical Servs., Inc., 547 U.S. 356 (2006) ............... passim
Suttles v. Ry. Mail Ass’n, 141 N.Y.S. 1024 (N.Y. App. Div. 1913) .......................... 7
Thiringer v. Am. Motors Ins. Co., 588 P.2d 191 (Wash. 1978) ...........................9, 14
Tobin v. Dep’t of Labor & Indus., 239 P.3d 544 (Wash. 2010) ..............................25
United McGill Corp. v. Stinnett, 154 F.3d 168 (4th Cir. 1998) ...............................30
U.S. Healthcare, Inc. v. O’Brien, 868 F. Supp. 607 S.D.N.Y. (1994) .................... 24
Varity Corp. v. Howe, 516 U.S. 489 (1996) .................................................... passim
Wal-Mart Stores, Inc. Assocs. Health and Welfare Plan v. Wells, 213 F.3d 398 (7th Cir. 2000) ...............................................................................................39
Werner v. Latham, 752 A.2d 832, 835 (N.J. App. Div. 2000) ................................25
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Western Sur. Co. v. Bank of Southern Oregon, 257 F.3d 933 (9th Cir. 2001) ........18
Wilson v. Wall, 73 U.S. (6 Wall.) 83 (1867) ............................................................20
Zurich Amer. Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010) ............ 28, 29, 42
Statutes
28 U.S.C. § 1291 ........................................................................................................ 1
28 U.S.C. § 1331 ........................................................................................................ 1
29 U.S.C. § 1001(a) .................................................................................................35
29 U.S.C. § 1132(a)(1)(B) ................................................................................ 17, 36
29 U.S.C. § 1132(a)(3) ..................................................................................... passim
29 U.S.C. § 1132(e)(1) ............................................................................................... 1
29 U.S.C. § 1132(e)(2) ............................................................................................... 1
Other Authorities
G. Palmer, Law of Restitution ......................................................................... passim
16 Couch on Ins. § 222:8 .........................................................................................23
46A C.J.S. Insurance § 1993 ....................................................................................23
73 Am. Jur. 2d Subrogation § 6 (2007) ..................................................................... 6
Andrew H. Koslow, “Appropriate Equitable Relief” in Wal-Mart v. Shank: Justice for Whom?, 12 Quinnipiac Health L.J. 277 (2009) .................................43
Brendan S. Maher & Radha A. Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 Loy. U. Chi. L.J. 49 (2008) ................... passim
D. Dobbs, Law of Remedies (2d ed. 1993) ..................................................... passim
Johnny C. Parker, The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 Mo. L. Rev. 723 (2005) ...................................................................................................................43
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Kristin L. Huffaker, Note, Where the Windfall Falls Short: “Appropriate Equitable Relief” After Sereboff v. Mid Atlantic Medical Services, Inc., 61 Okla. L. Rev. 233 (2008) .....................................................................................14
Mark Galanter, The Hundred-Year Decline of Trials and the Thirty Years War, 57 Stan. L. Rev. 1255 (2005) ......................................................................42
Restatement of Restitution § 160 .............................................................................23
Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.10(7) (1988) ....................23
Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure¸ 41 S.D. L. Rev. 237 (1996) ...........................................................................................7, 43
Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings, Wall St. J., Nov. 20, 2007 .............................................................................................11
Rules
Federal Rule of Civil Procedure 56 ........................................................................... 1
Federal Rule of Appellate Procedure 4 ...................................................................... 1
Federal Rule of Appellate Procedure 34 ................................................................... ii
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JURISDICTIONAL STATEMENT
This is an action under 29 U.S.C. § 1132(a)(3). The United States District
Court for the Western District of Washington had federal question jurisdiction
under 28 U.S.C. § 1331 and exclusive subject matter jurisdiction under 29 U.S.C. §
1132(e)(1). The district court was a proper venue for the action because it is where
the Defendants may be found. 29 U.S.C. § 1132(e)(2).
The Court of Appeals for the Ninth Circuit has jurisdiction under 28 U.S.C.
§ 1291 because this is an appeal from a final judgment granting in part Plaintiff’s
motion for summary judgment and granting in part Defendants’ motion for
summary judgment under Federal Rule of Civil Procedure 56. See Excerpts of
Record (“ER”) 3. The judgment was entered on January 19, 2011. ER3.
Defendants and Plaintiff filed their respective Notices of Appeal on February 11,
2011. ER1; Fed. R. App. P. 4(a)(1)(A).
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STATEMENT OF THE ISSUES
1. Whether, under Section 502(a)(3) of the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1132(a)(3), a seriously injured tort
victim who recovered only 21.44% of her damages from a third-party
tortfeasor must pay 100% of a reimbursement claim made by a health
insurance plan sponsored through her employer simply because the plan
language so provides, or whether the insurance plan is limited to seeking
“appropriate equitable relief” pursuant to Section 502(a)(3).
2. Whether principles of equity limit the measure of an award for an equitable
claim for reimbursement to that portion of a beneficiary’s underlying
recovery that is reasonably allocable to the medical expenses paid by the
insurance plan.
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STATEMENT OF PERTINENT STATUTORY PROVISIONS
29 U.S.C. § 1132(a)
(a) Persons empowered to bring a civil action
A civil action may be brought—
(1) by a participant or beneficiary—
(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary
(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;
(4) by the Secretary, or by a participant, or beneficiary for appropriate relief in the case of a violation of 1025(c) of this title;
(5) except as otherwise provided in subsection (b) of this section, by the Secretary
(A) to enjoin any act or practice which violates any provision of this subchapter, or
(B) to obtain other appropriate equitable relief
(i) to redress such violation or (ii) to enforce any provision of this subchapter.
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STATEMENT OF THE CASE
A. Introduction
The plaintiff in this particular case, CGI Technologies and Solutions Inc.
Employee Health Plan (“CGI” or the “Plan”), argues that it is entitled to 100%
reimbursement, without any reduction for collection costs, of all the medical
expenses it paid out to its beneficiary, defendant Rhonda Rose, even though (1)
Ms. Rose paid recurring premiums for that coverage, (2) has only been
compensated for, at most, 21.44% of her injuries, and (3) is not herself in
possession of the disputed funds.
CGI’s claim for relief rests on a fundamentally flawed premise: that an
ERISA plan’s subrogation/reimbursement provision must be enforced as written
under rules of contract law, without regard to principles of equity, ignoring the
extent to which a beneficiary has recovered for her injuries, and irrespective of the
location of the funds to which the ERISA plan claims it is entitled. This premise
ignores that the governing statutory provision under which CGI claims relief –
ERISA Section 502(a)(3) – limits an insurer to seeking “appropriate equitable
relief” from a plan beneficiary.1
Under the governing principle of unjust enrichment, CGI is limited, at most,
to recovering that portion of the underlying recovery reasonably allocable to the
1 A fiduciary, like CGI, may bring a civil action under Section 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).
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medical expenses paid by the Plan, minus its proportionate share of costs and fees.
This approach achieves an equal – and “equitable” – balance between CGI and Ms.
Rose, whereby each party both (1) recovers a proportion of the underlying
recovery that corresponds to their claims, and (2) contributes proportionally to the
costs of obtaining that recovery.
By granting CGI 100% of its advanced medical expenses based solely on the
terms of the plan, the district court allowed CGI to recover dollars that Ms. Rose
did not obtain and that CGI did not pay. Under the lower court’s enforce-the-plan
approach, an employer may reach into an injured employee’s pocket and take, by
claim of reimbursement, the employee’s own recovery for pain and suffering
damages, lost wages, and even medical bills paid for by the employee herself.
Such an invasion of an employee’s other tort entitlements violates both the plain
language of the statute and its overriding purposes, and should not be endorsed by
this Court.
B. Course of Proceedings and Disposition Below
This suit was filed against both Rhonda Rose and the law firm that
represented her, Nelson Langer Engle PLLC (“NLE”). ER45-46. CGI sought
summary judgment on the ground that its plan entitles it to 100% reimbursement of
the medical expenses it paid to Ms. Rose, without any deduction for costs or fees.
ER4. The district court granted CGI’s motion against Ms. Rose and awarded CGI
100% reimbursement, ER10, but the court denied CGI’s claim that it could take its
reimbursement without contributing to the costs of collection. ER8.
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In its final order, the district court entered a judgment against Ms. Rose for
the total amount of CGI’s reimbursement claim, $31,581.09, but ordered NLE to
deduct its fees and costs from that amount before returning the difference to CGI.
ER3. This appeal followed (as did CGI’s appeal). ER1.
STATEMENT OF THE FACTS
A. History of Subrogation/Reimbursement. Because this case hinges on
the equitable principles governing subrogation/reimbursement, it is important to
understand both the historical underpinnings of, and the time-honored equitable
limitations on, these types of claims.2
Although ERISA is a modern statute, the equitable doctrines of subrogation
and reimbursement are as old as the law itself, with roots in Roman, Talmudic,
French, and, more recently, British law. See Brendan S. Maher & Radha A.
Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 Loy.
U. Chi. L.J. 49, 60 (2008) (hereinafter “Maher & Pathak, Understanding Tort
Subrogation”). At their most fundamental level, the doctrines embody a desire to
ensure parity between three related parties – a tortfeasor, an injured beneficiary,
and an insurer – by allowing the insurer to recoup money it paid out to its
beneficiary, either by suing the tortfeasor directly or (as in this case) seeking
2 Historically, “subrogation” allowed one party to “stand in the shoes” of another for the purpose of recovering money that the former had paid to the latter, while “reimbursement” allowed an insurer to directly pursue repayment against an insured. See 1 D. Dobbs, Law of Remedies § 4.3(4) (2d ed. 1993). Today, however, the two doctrines have become functionally intertwined, and, for purposes of this case, are governed by the same controlling principles. See 73 Am. Jur. 2d Subrogation § 6 (2007). Hereinafter, the terms are used interchangeably.
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reimbursement from the beneficiary in the event s/he recovers damages from the
tortfeasor. The doctrines have twin purposes: to ensure that tortfeasors do not
escape liability, and to avoid “unjust enrichment” of beneficiaries vis-à-vis insurers
by preventing beneficiaries from recovering twice for one injury. Id. at 55.
Although subrogation and some forms of reimbursement are ancient
equitable remedies, the ability of insurers to bring claims for reimbursement
against insureds who are personal-injury victims is of only recent vintage.
Although frequently available in property insurance cases, before the mid-20th
century, courts almost universally prohibited this type of claim in the personal-
injury context, reasoning that personal-injury victims are never truly made whole
by money damages, let alone deemed to have obtained a double recovery. As one
court cogently observed, “[l]egal ‘compensation’ for personal injuries does not
actually compensate. Not many people would sell an arm for the average or even
the maximum amount that juries award for loss of an arm.” Hudson v. Lazarus,
217 F.2d 344, 346 (D.C. Cir. 1954); see also Suttles v. Ry. Mail Ass’n, 141 N.Y.S.
1024, 1027 (N.Y. App. Div. 1913).
In fact, because personal-injury victims have paid for their insurance
coverage and yet are never truly made whole by money damages, many critics of
insurer-based subrogation/reimbursement have argued that the practice actually
amounts to a windfall for the insurer, who gets to have its cake and eat it too. See,
e.g., Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure, 41 S.D. L.
Rev. 237, 242 (1996) (concluding that the “double recovery” rationale is “flawed”
and “proven to be duplicitous” because, in most cases, “the insurer who asserts that
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the insured will receive an unwarranted ‘double recovery’ is itself picking up a
windfall recovery if subrogation is permitted”).
Nevertheless, as World War II came to a close, medical insurance had
become a profitable and commonplace product, prompting insurers to begin
systematically including subrogation/reimbursement clauses in their insurance
agreements, and, in turn, aggressively pursuing recovery for advanced medical
expenses under a subrogation or reimbursement theory. See Maher & Pathak,
Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 73 (noting that “litigation
regarding these contractual subrogation clauses proliferated” after the Second
World War).
Courts were initially dismissive of these efforts, routinely rejecting insurers’
claims for reimbursement on the ground that equitable principles limit or outright
prohibit any attempt to recover from an injured insured.3 But a key turn came
when insurers realized that, by repackaging their arguments for reimbursement as
based not on equitable grounds, but as rooted in “freedom of contract,” they could
convince courts that the basis of the claim was contractual in nature, and therefore
3 See, e.g., Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010) (explaining that despite the fact that “the prohibition against the assignment of personal tort claims dates back to English Common law and the Middle Ages,” insurers “have repeatedly attempted to draft policy provisions or establish other requirements for the purposes of seeking reimbursement from the insured in such situations” and noting that “[s]uch provisions or other requirements have been regularly invalidated by appellate courts”); Maxwell v. Allstate Ins. Cos., 728 P.2d 812, 815 (Nev. 1986) (holding that subrogation “violates public policy” by ignoring ‘the fundamental principle that an insured is entitled to receive the insurance benefits for which he has paid a premium”).
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governed by rules of contract law, not equity. See Maher & Pathak,
Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 74. This shift, as recent
scholarship has explained, was the linchpin in the birth of these types of actions.
Id. at 74-75.
Still, not all courts accepted insurers’ attempts to refashion the law to their
liking, and many courts refused to permit reimbursement in the personal injury
context. See, e.g., Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010).
Relevant to this case, debate arose among federal courts about whether
reimbursement actions by self-funded insurance plans are permitted under ERISA.4
Some courts saw these actions as arising under, and authorized by, general federal
common law, but not under any specific provision of ERISA. See Ryan by Capria-
Ryan v. Fed. Express Corp., 78 F.3d 123 (3d Cir. 1996). Courts that viewed
reimbursement claims this way tended to apply general rules of contract law to
resolve them; in their view, if the plan language was clear, it should be enforced.
See id. at 127-28. Other courts viewed these claims as equitable, and therefore
governed by Section 502(a)(3)’s reference to “other appropriate equitable relief.”
See, e.g., Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004). Among these
latter courts, some held that reimbursement actions similar to CGI’s are not
4 For non self-funded insurance plans, ERISA’s “savings clause” ensures that state laws apply. See FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990). In this case, were the CGI plan considered not to be self-funded for purposes of ERISA, it would have no right to reimbursement. See Thiringer v. Am. Motors Ins. Co., 588 P.2d 191, 194 (Wash. 1978).
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“equitable” within the meaning of Section 502(a)(3) – and therefore not available
under ERISA – and other courts held to the contrary.5
Ultimately, that split led to the U.S. Supreme Court taking and deciding
Sereboff v. Mid Atlantic Medical Servs., Inc., where the question presented was
whether Section 502(a)(3) authorizes an ERISA plan to seek equitable
reimbursement from a beneficiary who has recovered from a third-party tortfeasor
and is in possession of the disputed funds. See 547 U.S. 356, 361 (2006) (granting
certiorari “to resolve the disagreement”). Sereboff held that an ERISA plan’s
action for reimbursement against a beneficiary who is in possession of the disputed
funds is equitable and therefore authorized by ERISA Section 502(a)(3). The
Supreme Court expressly declined, however, to reach the question of whether
Section 502(a)(3)’s reference to “appropriate” equitable relief places limitations
on the actual amount to which a plaintiff would be entitled for that reimbursement
remedy. See id. at 368 n.2 (“declin[ing] to consider” whether permitting 100%
reimbursement would be “appropriate” within the meaning of Section 502(a)(3)
because the issue had not been raised below).
This undecided question – which is now before this Court – has enormous
implications. Despite the fact that scholars and commentators (not to mention a
majority of states) have criticized the practice of insurance
5 Compare Qualchoice, 367 F.3d at 638 (holding that Section 502(a)(3) did not authorize a Plan’s action for reimbursement) with Bombardier Aerospace
Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003) (finding that Section 502(a)(3) did authorize recovery).
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subrogation/reimbursement as both inequitable and producing perverse
consequences for settlement and tort law, the subrogation industry is now a $1
billion a year profit center for ERISA insurance plans. See Maher & Pathak,
Understanding Tort Subrogation 40 Loy. U. Chi. L.J. at 77 n.133, 82-90. And,
because a majority of Americans with private health insurance receive it through
an ERISA plan, over 177 million Americans find themselves the potential
defendant in a federal lawsuit like this one. See id. at 77 n.133. In some cases,
victims have even been rendered unable to care for themselves and their families
because the ERISA plan’s reimbursement action stripped them of any means of
support. Id.; see also Vanessa Fuhrmans, Accident Victims Face Grab for Legal
Winnings, Wall St. J., Nov. 20, 2007, at A1 (detailing the plight of several injured
beneficiaries suffering this consequence as a result of their insurance plans’ pursuit
of reimbursement).
B. Rhonda Rose’s Accident and Injuries. This case provides an object
lesson in how ERISA subrogation works in practice. In October 2003, Rhonda
Rose, a single mother with two teenage children, was seriously injured in a car
accident when the vehicle she was driving collided with another car that had
stopped perpendicularly in the road. ER19. The driver of that vehicle, who had
been drinking, had stopped his car across a lane of oncoming traffic as he tried to
make a U-turn. ER19. Although Ms. Rose was driving below the speed limit, the
force of the impact deployed the airbags and sent her vehicle crashing into a ditch.
ER19. Both she and her son, who was also in the vehicle when it crashed, required
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emergency on-site medical treatment and were transported to a hospital for
emergency medical care. ER19.
Ms. Rose suffered serious nerve damage and neck and back trauma from the
accident, requiring multiple surgeries. ER19. Many of her injuries are persistent
and chronic: despite diligently pursuing physical therapy, she continues to
experience burning pain in her back that forces her to lie down frequently, and she
has been diagnosed with an accident-related sleep-disorder and depression that
causes her to wake several times each night from pain. ER20.
These injuries affect all aspects of her home life. At the time of the crash,
Ms. Rose was raising two children as a single parent. ER19. Her ability to
adequately handle this role has crumbled. ER20. Her depression and emotional
distress, brought on by her chronic pain, are incapacitating and lead to frequent
suicidal thoughts. ER20. She cannot complete even minor housekeeping chores,
and her relationship with her two sons has disintegrated. ER20
Ms. Rose’s injuries also adversely affect her ability to work. ER20. Before
the crash, she had worked full-time for CGI with positive reviews. ER21. She
believed it was the “perfect job.” ER21. But after the accident her work suffered
considerably. Her pain caused multiple absences and her performance declined,
which led to a warning that her excessive absenteeism would result in her firing.
ER21. In February of last year, she was terminated from CGI. ER22.
It is uncontested that, as a result of the accident, Ms. Rose suffered several
distinct categories of damages, including past and future care expenses, loss of
household services, past wage loss, future wage loss, and non-economic damages
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of pain and suffering, disability, and loss of ability to enjoy life. ER23; ER39. It is
also undisputed that her past total medical expenses amounted to $169,652.74.
ER39. CGI’s health benefit plan paid portions of her medical costs totaling
$30,581.09. ER44.6
C. CGI’s Employee Benefit Plan. During her time at CGI, Ms. Rose
participated in the company’s ERISA employee and welfare benefit plan, which
contained a subrogation/reimbursement provision asserting a “first priority” claim
over any recovery from or settlement with a tortfeasor. ER31-33; ER42-43. The
terms of the Plan, which were offered to Ms. Rose on a take-it-or-leave-it basis, not
only obligated her to reimburse it 100% in the event of a third-party recovery
regardless of what she recovered, but also to pay all the costs and fees associated
with such a recovery. ER31-33.
D. The Lawsuit. After the accident, Ms. Rose retained a law firm, co-
defendant Nelson Langer Engle PLLC, to represent her in a claim against the
6 The parties stipulated to a series of facts regarding Ms. Rose’s injuries and her distinct damage elements. See ER38-40. Uncontroverted evidence established that the total value of Ms. Rose’s personal injury claim, including both economic and non-economic damages, is at least $1,757,943.08. ER39. Specifically, it is undisputed that Ms. Rose suffered future damages of $541,906; loss of non-market services of $199,000; past wage losses of $23,683.59; future wage loss/impaired earning capacity of $395,000; and non-economic damages of $450,000. ER23; ER38. The total third party and UIM insurance coverage available in the underlying case (which had been reduced by other claims) was $376,906.84 and there were no other assets that could be recovered from the tortfeasor. ER39. The parties agree that, by receiving only $376,906.84, Ms. Rose did not receive a full recovery of her damages and instead was only compensated for 21.44% of her damages. ER39.
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driver who caused the accident. ER13. With the help of the NLE firm, she also
filed an insurance claim with her Underinsured Motorist Carrier, as the tortfeasor
had inadequate coverage. ER13. Both of these claims settled for the policy limits,
totaling $376,906.84. ER13. (A small portion of the available limits proceeded to
pay for Ms. Rose’s son’s injuries). It is stipulated that this amount represents only
21.44% of Ms. Rose’s total damages from the accident. ER13.
The money from these settlements came initially to NLE, who deposited it in
a trust account. ER13. Because Ms. Rose’s recovery was such a small fraction of
her total damages, NLE asked CGI to waive its asserted lien. CGI refused, and
demanded that it be reimbursed for 100% of the paid-for medical expenses. ER14.
NLE informed CGI that it would escrow the total dispute amount in its trust
account. The entire disputed amount remains in trust in NLE’s name. ER5.
CGI then sued both Ms. Rose and NLE in federal district court in the
Western District of Washington, seeking a “constructive trust or equitable lien”
over all of the money it had paid in medical expenses for Ms. Rose. ER46.
E. The Decision Below. The district court granted CGI’s request for 100%
reimbursement against Ms. Rose on the ground that the “language of the plan is
clear” in requiring 100% reimbursement. ER10. In so ruling, the court refused to
limit the amount of reimbursement “in the absence of any terms of language to the
contrary.” ER10.7
7 In response to a straw-man argument raised by CGI, the district court also rejected application of the so-called “make-whole” rule, which – under the laws of numerous states (including Washington) – bars insurers from obtaining any reimbursement in cases where the insured has not recovered 100% of her total
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In reaching this conclusion, the district court followed a two-step approach.
First, based on Sereboff, the district court concluded that the Plan could assert an
“equitable lien” against its beneficiary, Ms. Rose. ER9-10. The district court then
turned its attention to the scope of relief to which CGI was entitled under its
reimbursement claim. See ER10. Ms. Rose and NLE had argued that equitable
principles limit CGI to recovering, at most, that portion of the underlying recovery
that corresponds with those medical expenses paid by CGI, less the proportionate
cost of collection (attorney’s fees and costs).
The court rejected this argument without any discussion, holding instead that
where the plan language is unambiguous, it must be enforced as written,
notwithstanding the limiting language of Section 502(a)(3). See ER10. As a
result, the district court concluded that, because “the language of [CGI’s] plan is
clear,” CGI is entitled to 100% reimbursement from Ms. Rose. ER10.
The district court agreed with Ms. Rose and NLE, however, that CGI is
obligated to contribute its proportionate share of the fees and costs of collection of
the underlying recovery. Noting that nothing in Sereboff establishes “that a plan’s
damages. See Thiringer v. Am. Motors Ins. Co., 588 P.2d 191, 194 (Wash. 1978); see also Kristin L. Huffaker, Note, Where the Windfall Falls Short: “Appropriate
Equitable Relief” After Sereboff v. Mid Atlantic Medical Services, Inc., 61 Okla. L. Rev. 233, 235-36 (2008). This ruling, however, was unnecessary dicta, because appellants have never sought application of the make-whole rule to this case; instead, appellants have always exclusively advocated the proportionality rule embraced by both (1) the equitable principles governing the type of equitable remedy at issue here and (2) those courts sitting in equity that fashion similar relief. Accordingly, this aspect of the lower court’s ruling is not at issue on this appeal.
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equitable lien may be enforced against an attorney who is not a signatory to the
reimbursement agreement,” the district court found that controlling Ninth Circuit
authority “d[id] not favor allowing equitable relief to be sought against a
beneficiary’s attorney under § 502(a)(3)” where the attorney was not a signatory to
the reimbursement agreement. ER8 (citing Hotel Employees & Restaurant
Employees Int’l Union Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir. 1995) and
A.C. Houston Lumber Co. v. William L. Berg, et al., 2010 WL 5439786 (9th Cir.
Dec. 29, 2010)). The district court authorized NLE to deduct this amount before
returning the balance to CGI. ER11.8
SUMMARY OF ARGUMENT
In reflexively enforcing CGI’s employee benefit plan as written, the district
court erected a rule that squarely contradicts both the plain language of Section
502(a)(3), which commands courts to apply equitable principles in fashioning
relief under the statute, and the purposes and policies of ERISA, which, at their
most basic, seek to protect the interests of participants and beneficiaries of
employee benefit plans.
ERISA Section 502(a)(3) limits self-funded insurance plans to seeking
“appropriate equitable relief” from plan beneficiaries. 29 U.S.C. § 1132(a)(3).
Under well-established equitable principles, appropriate equitable relief is limited
by principles of unjust enrichment. The most CGI is entitled to recover, therefore,
8 This aspect of the lower court’s ruling is the subject of CGI’s cross-appeal, and will be addressed in Appellants’ Response and Reply brief.
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is the amount that Ms. Rose recovered for those medical expenses which CGI paid;
this is the only element of Ms. Rose’s damages paid for by CGI and the only
amount for which Ms. Rose has even arguably recovered twice. And, because it is
uncontroverted that Ms. Rose has only recovered for, at most, 21.44% of her total
damages, the portion of that recovery that is reasonably allocable to the medical
expenses paid by CGI is 21.44% of its total. Equity, therefore, demands that CGI’s
recovery be limited to recovering this portion of the medical expenses covered by
the Plan, less its proportional share of costs and attorneys’ fees.
Both the structure and purpose of ERISA confirm that CGI’s right to
reimbursement is subject to – and governed by – limiting principles of equity.
ERISA’s primary objective, as set forth in its “purpose clause,” is to protect the
interests of plan participants and beneficiaries against employer and fiduciary
abuses. As the Supreme Court has held, these objectives outweigh any other
subsidiary interests, including those associated with the enforcement of plan
documents. See Varity Corp. v. Howe, 516 U.S. 489 (1996). Allowing CGI to
enforce its plan’s terms without regard to the extent to which Ms. Rose has
recovered for her injuries would create a windfall for insurance plans at the direct
expense of beneficiaries, thereby undermining ERISA’s primary goal.
Categorically enforcing plan terms, even where doing so would
affirmatively harm beneficiaries, would also conflict with the structure of ERISA,
which excludes fiduciaries (like CGI) from the one statutory enforcement
provision in ERISA that affirmatively authorizes a plaintiff to “enforce his rights
under the terms of a plan.” 29 U.S.C. § 1132(a)(1)(B). Surely, if Congress had
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wanted to permit insurers to “enforce [their] rights under the plan,” it would have
included them in the only provision in the statute that confers such a right.
Finally, the district court’s decision to allow 100% reimbursement runs
contrary to public policy, curtailing the tort rights of injury victims, blocking
access to justice, and undermining the strong public policy favoring settlement.
These policy concerns have, in similar circumstances, convinced courts – including
the U.S. Supreme Court – that any equitable award to reimburse an insurer must be
limited to the portion of the underlying recovery that proportionally corresponds to
the amount of its lien. See Arkansas Dep’t of Health & Human Servs. v. Ahlborn,
547 U.S. 268 (2006); Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). In
allowing the insurer to share in damages for which it has provided no
compensation, the district court formulated a rule that is both “absurd and
fundamentally unjust.” Ahlborn, 547 U.S. at 288 n.19. It should not be permitted
to stand.
STANDARD OF REVIEW
The district court’s interpretation of 29 U.S.C. § 1132(a)(3) and grant of
summary judgment on that basis is subject to plenary review. See Western Sur.
Co. v. Bank of Southern Oregon, 257 F.3d 933, 935 (9th Cir. 2001); Jesinger v.
Nevada Federal Credit Union, 24 F.3d 1127, 1130-31 (9th Cir. 1994).
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ARGUMENT
I. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH THE PLAIN LANGUAGE OF THE STATUTE.
A. The Use of the Term “Appropriate” in Section 502(a)(3) Vests Courts with Discretion to Fashion Equitable Relief.
“[I]n every case involving construction of a statute,” the U.S. Supreme Court
has said, the “starting point . . . is the language itself.” Ernst & Ernst v. Hochfelder,
425 U.S. 185, 197 (1976). With regard to ERISA, the Court has repeatedly held
that Congress’s use of the word “appropriate” in Section 502(a)(3) is a term of
limitation, restraining the availability of relief based upon traditional equitable
principles. Varity Corp. v. Howe, 516 U.S. 489, 515 (1996) (holding that equitable
relief under the statute is not automatic, but instead must be “fashion[ed]” and may
be refused where “appropriate”).9
The Supreme Court has further instructed that, when Congress uses the term
“appropriate” in connection with an equitable remedy, a court has “broad
discretion” to “fashion[] discretionary equitable relief” through the careful
consideration of relevant equitable factors. Florence County Sch. Dist. v. Carter,
9 See also CIGNA v. Amara, -- U.S. --, 2011 WL 1832824 (U.S. May 16, 2011) (holding that “Section 502(a)(3) invokes the equitable powers of the District Court” and remanding to allow the lower court to decide whether it is “appropriate to exercise its discretion under §502(a)(3) to impose [a] remedy”); Great-West Life
& Annuity Ins. Co. v. Knudson, 534 U.S. 204, 211 n.1 (2002) (holding that ERISA 502(a)(3) “contain[s] the limitations upon its availability that equity typically imposes”); Harris Trust & Sav. Bank v. Solomon Smith Barney, Inc., 530 U.S. 238, 252 (2000) (interpreting ERISA Section 502(a)(3) “to incorporate common-law remedial principles”).
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510 U.S. 7, 16 (1993) (quoting Sch. Comm. of Burlington v. Dep’t of Educ. of
Mass., 471 U.S. 359, 374 (1985)). This Congressional command embodies the
fundamental principle that a district court, when sitting in equity, is a “court of
conscience” that enjoys broad discretion to afford a measure of equitable relief
where equity and justice demand. Wilson v. Wall, 73 U.S. (6 Wall.) 83, 90 (1867).
A district court’s task, then, when faced with an equitable reimbursement
claim under Section 502(a)(3), is to balance all the relevant equitable factors and
award only that relief that is “appropriate” in equity. Here, although the district
court acknowledged that CGI’s claim for reimbursement was governed by Section
502(a)(3), see ER6, it failed to apply any equitable principles in determining the
scope of the remedy. Instead, the court simply applied standard legal rules of
contract law, holding that CGI is entitled to enforce its plan as written without
regard to principles of equity. In so ruling, the lower court jettisoned its one
concrete responsibility required by Section 502(a)(3): to award only such relief as
is both “appropriate” and “equitable” within the meaning of the statute.
B. CGI’s Right to Relief Is Controlled by Equitable Principles of Unjust Enrichment.
Had the district court followed this express statutory command, it
necessarily would have concluded that the amount of relief afforded by CGI’s
equitable claim for reimbursement is based on – and governed by – the equitable
principles of unjust enrichment.
The Supreme Court’s decisions interpreting Section 502(a)(3) lead
inexorably to this result. In Sereboff, for example, the Court held that, when
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determining the “scope of remedial power conferred on district courts” by Section
502(a)(3), courts must be guided by the law as it stood during “the days of the
divided bench.” 547 U.S. at 361-62 (quoting Great-West Life & Annuity Ins. Co.
v. Knudson, 534 U.S. 204, 212 (2002)). In particular, the Court looked to the
leading treatise on restitution – George Palmer’s Law of Restitution10 – in
construing Section 502(a)(3) to authorize the specific remedy sought by the
insurer. Sereboff, 547 U.S. at 368; see also Knudson, 534 U.S. at 217 (explaining
that, when construing Section 502(a)(3), a court must examine “standard current”
treatises in equity, “such as Dobbs, Palmer, Corbin, and the Restatements” to
“make the answer clear”). Although “[r]arely will there be need for” anything
more, “[l]ike it or not,” this much is required. Knudson, 534 U.S. at 217.11
These authoritative treatises all reveal that, in this case, any award must be
controlled by principles of unjust enrichment. The type of reimbursement claim
10 Dobbs so termed Palmer’s treatise in 1 D. Dobbs, Law of Remedies, § 4.1(1), at 550 n.1, observing that “[t]he leading contemporary work [on restitution] is Professor George Palmer’s four-volume treatise.” 11 The Supreme Court recently confirmed this approach in CIGNA v. Amara, holding that the remedies available to a plaintiff under Section 502(a)(3) are limited to those “traditionally considered equitable remedies.” 2011 WL 1832824, at *12. And in determining what remedies fall within this “category,” the Court again looked to equitable treaties. See id. The Court explained that these equitable treatises are relevant not just for determining the type of appropriate remedy (and whether it was traditionally equitable or not), but also for identifying the principles governing the award of any relief afforded by the remedy. See id. at *13 (explaining that “[e]quity courts possessed the power to provide relief in the form of monetary ‘compensation’ . . . to prevent [a defendant’s] unjust enrichment”) (citing treatises on equity).
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sought by CGI is akin to a “constructive trust” or “equitable lien,” see Knudson,
534 U.S. at 213, both of which “are invoked for the same reasons, to prevent unjust
enrichment.” 1 D. Dobbs, Law of Remedies § 4.3(3), at 602 (emphasis added).
The leading equitable treatise relied on by the Court in Sereboff, Palmer’s Law of
Restitution, is equally clear that these remedies are “aimed at preventing unjust
enrichment.” 1 G. Palmer, Law of Restitution § 1.3 at 16-20.
Palmer goes on to explain why this is so. When “an insurer has a lien on the
proceeds of the insured’s recovery,” Palmer teaches, “principles of unjust
enrichment are controlling” because an “equitable lien is merely a remedy for
preventing unjust enrichment of the insured.” 4 G. Palmer, Law of Restitution §
23.18(d), at 470 (quoted in Sereboff, 547 U.S. at 368) (emphasis added). Similarly,
Dobbs explains that the “basis for restitution is that the defendant has been unjustly
enriched by receiving something, tangible or intangible, that properly belongs to
the plaintiff. Restitution rectifies unjust enrichment by forcing restoration to the
plaintiff.” 1 D. Dobbs, Law of Remedies § 4.1(2), at 557.
Importantly – as the treatises demonstrate – there is an important distinction
between an award measured by principles of a defendant’s unjust enrichment and
an award of money damages, “which measures the remedy by the plaintiff’s loss
and seeks to provide compensation for that loss.” 1 D. Dobbs, Law of Remedies at
§ 4.1(1), at 555. In other words, “restitution is not damages; restitution is a
restoration required to prevent unjust enrichment.” 1 D. Dobbs, Law of Remedies
at § 4.1(2), at 557 (internal emphasis omitted).
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If CGI were seeking a legal remedy for money damages, the district court
would have been correct to award CGI 100% reimbursement, because that is what
the plan specifies. Under Section 502(a)(3), however, the most a plaintiff is
entitled to is an amount equal to the defendant’s “unjust” gain. See, e.g.,
Restatement of Restitution § 160 (explaining that the goal of an equitable remedy
is to afford a plaintiff relief in the amount of a defendant’s unjust gain). CGI is
therefore limited to recovering only that amount of Ms. Rose’s third-party recovery
that resulted in her “unjust enrichment”– an amount that, as explained below, is
equivalent to that portion of her third-party recovery attributable to the medical
expenses paid by CGI.
C. Principles of Unjust Enrichment Restrict CGI to Recovering Only the Portion of Ms. Rose’s Recovery that is Reasonably Allocable to Medical Expenses.
To determine the extent of “unjust enrichment” in the context of an
insurance reimbursement action, a court must determine the extent to which an
insured has obtained a “double recovery.”12 It is a bedrock principle, moreover,
that a “double recovery” has only occurred where an insured has recovered twice
for the same injury. See, e.g., Couch on Ins. §222:8 (“[s]ubrogation has the
objective of preventing the insured from recovering twice for the same harm”); see
12 See 46A C.J.S. Insurance § 1993 (explaining that, in the insurance context, subrogation/reimbursement “prevents . . . unjust enrichment to the insured that would result from double recovery”); Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.10(7) (1988) (“Recognition and enforcement of a right to subrogation for health insurers is primarily premised on precluding duplicative recoveries”); see also Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1117-18 (9th Cir. 2010) (explaining that the purpose of subrogation is “to prevent the insured from obtaining a double recovery (and thus being unjustly enriched”).
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also Maher & Pathak, Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 58
n.32 (explaining that a double recovery occurs “where the insured receives a tort
recovery for medical damages while also collecting insurance for those damages”)
(emphasis added). Thus, when measuring an insurer’s equitable claim for
reimbursement, the critical question is how much of the underlying tort recovery is
allocable to the medical expenses paid by the insurer. See U.S. Healthcare, Inc. v.
O’Brien, 868 F. Supp. 607, 613-14 (S.D.N.Y. 1994) (explaining that, in order for
there to be double recovery and unjust enrichment, the underlying settlement must
“include recovery for medical expenses . . . for [the insured’s] health care
expenses”).
Palmer is unequivocal on this point: he teaches that an insurer has a “right .
. . to recover medical expense from the tortfeasor to the extent that the insurer has
paid such expense.” 4 G. Palmer, Law of Restitution § 23.18(d), at 470 (emphasis
added). And in a case where an “insured has recovered from the tortfeasor for
such expense, . . . this is the extent of the lien.” Id. at 470 (emphasis added); id. at
474 (“[T]he insurer’s claim should be limited to the net amount recovered by the
insured for medical expense”) (emphasis added). The italicized reference to “such
expense” is important: what Palmer is saying is that an insurer’s claim is limited to
only that portion of a recovery that is devoted to medical expenses and nothing
more.
The question, then, is what portion of Ms. Rose’s recovery is properly
allocable to the medical expenses paid by CGI. Although this amount is
sometimes difficult to measure, see, e.g., Frost v. Porter Leasing Corp., 436 N.E.
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2d 387, 390 (Mass. 1982), in this case the parties stipulated that Ms. Rose only
recovered for 21.44% of her injuries. See ER39. Thus CGI is, at most, only
permitted to recover 21.44% of its medical expenses. This amount corresponds to
that portion of Ms. Rose’s settlement that is allocable to her past medical expenses
for which CGI paid. To allow any more would improperly invade other damage
elements (e.g., pain and suffering, lost wages), and contradict the basic equitable
principles of unjust enrichment.
Courts that regularly sit in equity confirm the soundness of this approach.
The highest court of the State of New York, for example, has held that, “in cases
where an injured person, who has obtained reimbursement for medical expenses
from an insurer, is subsequently reimbursed by the tort-feasor for the same injuries,
a lien attaches on behalf of the insurer to that portion of the recovery.” Aetna Life
& Cas. Co. v. Nelson, 492 N.E.2d 386, 390 (N.Y. 1986) (emphasis added).13
Limiting reimbursement in this fashion is essential to ensure that
beneficiaries are not stripped of compensation that has been awarded for damages
unrelated to their medical expenses, such as pain and suffering. As one court put
it, allowing an insurer to recover anything more than the portion of an underlying
13 See also Tobin v. Dep’t of Labor & Indus., 239 P.3d 544 (Wash. 2010) (applying this approach to worker’s compensation and pension benefit claims); Werner v.
Latham, 752 A.2d 832, 835 (N.J. App. Div. 2000) (limiting a health insurer’s right of reimbursement “to that portion of the judgment or settlement reasonably attributable to medical expenses only”); Miller v. Liberty Mut. Fire Ins. Co., 264 N.Y.S. 2d 319, 324 (1965), aff’d mem., 289 N.Y.S.2d 726 (1968) (awarding an insurer reimbursement “only to the extent that [the insured] receives” a recovery for “that portion of his claim arising out of the medical expenses for which he has received reimbursement”).
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settlement that is allocable to medical expenses would “lead to the anomalous
result that the insured would be paying his own [insurance] benefits out of the
compensation for his pain and suffering, items specifically excluded from
[insurance] payments.” Adams v. Gov’t Emp. Ins. Co., 383 N.Y.S.2d 319, 321
(N.Y.A.D. 1976) (internal quotations omitted).
Federal courts, too, have increasingly adopted this approach. In fact, during
the very same term that Sereboff was decided, the U.S. Supreme Court followed
this approach in fashioning a measure of equitable relief under an equitable lien in
Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006), which
involved a claim for reimbursement by Medicaid against an injured beneficiary.
There, the Court limited an insurer to recovering no more than “that portion of a
settlement that represents payments for medical care.” Id. at 282. In refusing to
allow the insurer to “lay claim” to anything more, the Court rejected “[a] rule of
absolute priority” that would have permitted recovery of 100% reimbursement
because, it said, such a rule runs the very real risk of “preclud[ing] settlement in a
large number of cases,” and works dramatic inequities “to the recipient in others.”
Id. at 280, 288. Furthermore, the Court made clear that allowing an entity to
“share in damages for which it has provided no compensation . . . would be absurd
and fundamentally unjust.” Id. at 288 n.19.14
14 See also Bradley v. Sebelius, 621F.3d 1330, 1333-34 (11th Cir. 2010) (affirming that where an underlying tort settlement involves several distinct damage elements, a health insurer’s equitable remedy should be calculated by the specific “component’s contribution to the total full value, if such value were collectible”); McKinney ex rel. Gage v. Philadelphia Housing Auth., 2010 WL 3364400 (E.D. Pa. Aug. 24, 2010) (applying a similar measure of relief).
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Those concerns are equally applicable to reimbursement claims asserted
under ERISA. The controlling factor in the Ahlborn Court’s choice to adopt a
proportionality approach was not the language of the Medicaid statute, but rather
the perverse incentives encouraged by permitting 100% reimbursement. See
Ahlborn, 547 U.S. at 288. These concerns are just as relevant where, as here, the
plaintiff is a private insurer as opposed to the government. Just as in the Medicaid
context, endorsing the district court’s approach here would permit an insurer to
“share in damages for which it has provided no compensation.” Id. It would also
deter settlement, and permit dramatically inequitable results. Id. Indeed, even in
Ahlborn itself, the Court looked to contexts outside of Medicaid in reaching its
conclusion that a proportionality approach offers the fairest and most supported
method for measuring relief. See id. at 288 n.19 (looking to “cases involving the
recovery of workers’ compensation benefits”).
Neither CGI nor the lower court articulated any reason why the
proportionality approach should not control in the ERISA context, when it controls
in every other context that allows claims for equitable reimbursement. Indeed, the
argument for adopting this approach under ERISA is even more powerful than in
other contexts in light of Section 502(a)(3)’s explicit reference to “appropriate
equitable relief.” Language aside, the policy concerns motivating courts and
treatises to adopt proportionality in those contexts are the same in this ERISA
context: the risk of deterring settlement in a large number of cases and the
unfairness to the insured that flows from permitting an insurer to invade unrelated
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damage elements poses no less of a threat, and the principles apply with no less
force, in reimbursement cases (like this one) brought under ERISA.
D. The District Court’s Award of 100% Reimbursement Violated the Statutory Requirements of Section 502(a)(3) By Failing to Adhere to Equitable Principles of Unjust Enrichment.
None of the foregoing statutory commands or equitable principles was
applied by the district court in rendering the decision below. Instead, the court
merely deferred to the plan language in determining the measure of relief, thereby
applying traditional contract law principles that measure an award of damages
based upon the plaintiff’s total loss (as opposed to the defendant’s “unjust
enrichment”). This enforce-the-plan-as-written approach for measuring relief
under an equitable remedy was grounded in several key errors of law that led the
lower court astray.
1. Those Cases Categorically Prohibiting an Award Fashioned upon Equitable Limitations Are Not Controlling and, in any Event, Wrongly Decided.
Aside from simply asserting that the plan language should govern, CGI
urged the district court to follow two post-Sereboff cases that granted insurers’
100% reimbursement, thereby erecting a per se bar against any reduction in award.
See Zurich Amer. Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010); Admin.
Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500
F.3d 834 (8th Cir. 2007). This approach was based on these courts’ mistaken
conclusion that ERISA reimbursement actions are governed by “federal common
law” rather than Section 502(a)(3), and that “federal courts lack authority to
fashion a rule of federal common law that conflicts with the written plan and that is
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unnecessary to achieve the purposes of ERISA.” Shank, 500 F.3d at 839
(emphasis added); see also O’Hara, 604 F.3d at 1237 (refusing to “[a]pply[]
federal common law to override the Plan’s controlling language”) (emphasis
added). This conclusion ignores that it is the statute itself, as opposed to some
floating body of federal common law, that requires a court to balance and apply the
relevant equitable limitations on a claim for reimbursement under Section
502(a)(3). Neither court, moreover, despite the explicit teachings of the U.S.
Supreme Court, cited even a single equitable treatise when determining the correct
measure of relief afforded under the statute. This too reveals the degree to which
these courts misconceived the nature of the inquiry.15
In holding that the measure of reimbursement must be based on plan
language, these courts perpetuated the analytical errors made by pre-Sereboff
cases. Before the Supreme Court decided Sereboff, the majority of courts believed
that ERISA reimbursement claims were contractual in nature, and therefore
governed by normal rules of contract law. See, e.g., Harris v. Harvard Pilgrim
Health Care, Inc., 208 F.3d 274 (1st Cir. 2000); Ryan by Capria-Ryan v. Fed.
15 Both O’Hara and Shank also relied on the unsupported factual conclusion that “[r]eimbursement inures to the benefit of all participants and beneficiaries by reducing the total cost of the Plan.” See, e.g., O’Hara, 604 F.3d at 1237-38. This assumption lacks any basis in fact. In O’Hara itself, for instance, the insurance plan had actually stipulated that subrogation recoveries do not reduce the premiums paid by the employees. See Joint Stipulation of Facts, Zurich Amer. Ins.
Co. v. O’Hara et al., 07-01580-CV-RLV-1, dkt. #51 (N.D. Ga. filed Aug. 13, 2008). The panel simply disregarded this evidence in favor of a demonstrably false set of assumptions.
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Express Corp., 78 F.3d 123, 127 (3d Cir. 1996). These courts also held that, in the
absence of clear contractual language, federal common law could act as a “gap
filler,” supplying a rule where none could be discerned from the plan documents.
See, e.g., Ryan, 78 F.3d at 126. Importantly, however, this analytical framework
was based on the belief that ERISA plans’ claims for reimbursement under ERISA
were contractually – not equitably – governed. See United McGill Corp. v.
Stinnett, 154 F.3d 168 (4th Cir. 1998).
In Sereboff, however, the Supreme Court for the first time held that claims
for reimbursement are not free-floating contractual claims governed entirely by the
terms of the plan (or, to the extent the plan was ambiguous, “federal common
law.”). Rather, the Court explained, ERISA reimbursement actions are governed
by Section 502(a)(3), which contains the all-important reference to “appropriate
equitable relief.” See Sereboff, 547 U.S. at 369. Sereboff consequently overrode
the contract law approach taken by most courts and clarified that ERISA
reimbursement actions arise from, and are governed by, principles of equity.
2. The Lower Court Erred in Assuming that Sereboff Mandated an Award of 100% Reimbursement.
Not only did the district court fail to understand that Sereboff effected a sea
change in the law, it also appeared to be under the impression that, because the
Supreme Court held in Sereboff that the relief sought, though intended “to enforce
plan terms,” 547 U.S. at 363, was properly characterized as equitable in nature,
Sereboff itself authorized an award of 100% reimbursement. See ER9 (citing
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Sereboff in support of its conclusion that CGI’s relief should be based on the
enforcement of the plan as written).
This conclusion, however, reflects a fundamental misunderstanding of what
the Court actually held in Sereboff. Contrary to the district court’s belief, Sereboff
held that the plan language is only relevant for determining whether CGI has a
right to seek relief under ERISA, i.e., whether the plan terms “establish” a basis for
a cognizable equitable claim under Section 502(a)(3). 547 U.S. at 363. In
Sereboff, the Court actually addressed two related questions and left open a third:
first, whether, based on the terms of a health insurance plan, the insurer (Mid
Atlantic) had adequately characterized the restitutionary relief it sought as
equitable; second, if so, whether the basis for that claim qualified as “equitable”
within the meaning of Section 502(a)(3); and third, what the “appropriate” measure
of relief is for those claims that fall within Section 502(a)(3). See id. at 362-64.
As to the first question, the Court contrasted Mid Atlantic’s plan with the
plan in an earlier Supreme Court case, Great-West Life & Annuity Ins. Co. v.
Knudson, 534 U.S. 204 (2002), which held that an insurer could not maintain a
claim for equitable relief within the meaning of Section 502(a)(3) because the
terms of the plan were deficient insofar as they did not “specifically identif[y]”
funds in the hands of the defendant. See Sereboff, 547 U.S. at 362-63. Mid
Atlantic’s plan, by contrast, did not suffer the same “impediment.” Id. Looking to
the specific terms of the plan, the Court held that because the insurer sought its
recovery through a “specifically identifiable fund,” the relief sought, though
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intended “to enforce plan terms,” was properly characterized as equitable in nature.
Id. at 363.
The mere fact that the Plan in Sereboff adequately characterized the relief
sought as equitable, however, did not end the matter. As the Court went on to
explain, “[w]hile Mid Atlantic’s case for characterizing its relief as equitable thus
does not falter . . . [,] Mid Atlantic still must establish that the basis for its claim is
equitable” within the meaning of Section 502(a)(3). Id. at 363. This second
question, the Court held, hinged on whether the relief sought qualified as a
category of relief “typically available in equity,” the only type of relief authorized
under Section 502(a)(3). Id. at 362 (explaining that “we [have] construed [Section
502(a)(3)] to authorize only ‘those categories of relief that were typically available
in equity’”) (emphasis in original). Reviewing the “case law from the days of the
divided bench,” the Court determined that Mid Atlantic’s claim was equivalent to
an “equitable lien established by agreement,” a type of relief typically available in
equity and therefore authorized under Section 502(a)(3). See id. at 363-68.
The Court stopped short, however, of deciding the third and final question –
the “appropriate” measure of relief available for a specific equitable remedy –
because it had not been raised below. See id. at 368 n.2. Yet the Court did provide
explicit instructions as to how future courts should decide this question: by
applying principles of equity. This is because “statutory reference to [an equitable]
remedy must, absent other indication, be deemed to contain the limitations upon its
availability that equity typically imposes.” Knudson, 534 U.S. at 211 n.1.
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Otherwise, “any claim for legal relief can, with lawyerly inventiveness, be phrased
in terms [of equity].” Id.
This is where the district court went astray. If, in fact, Sereboff had held that
the measure of relief was dictated by the terms of the plan, the Court would simply
have held, as to the third question, that the insurer was entitled to 100%
reimbursement (the plan in Sereboff was virtually identical to the plan in this case),
rather than expressly reserve for future decision the question of what relief is
“appropriate” under Section 502(a)(3). And the Court would not have bothered to
instruct future courts to consult equitable treatises when determining statutory
questions concerning the appropriate scope of the remedy under Section 502(a)(3).
These aspects of Sereboff further reveal that, contrary to the district court’s view,
Section 502(a)(3) requires a court to analyze reimbursement claims according to
principles of equity, rather than to categorically enforce the plan terms as written.
See also CIGNA, 2011 WL 1832824, at *14 (following Sereboff’s blueprint and
“looking to the law of equity” to identify the principles governing the application
of an equitable remedy).
Finally, and most fundamentally, the court’s reading of Sereboff as requiring
courts to measure equitable relief based solely on contractual language would
transform the basis of the remedy from equitable to legal, thereby contradicting the
fundamental limitation of Section 502(a)(3). The U.S. Supreme Court just
reaffirmed, in a case construing the exact same statute, that “[t]he power to reform
contracts (as contrasted with the power to enforce contracts as written) is a
traditional power of an equity court, not a court of law.” CIGNA, 2011 WL
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1832824, at *12 (emphasis added). In other words, the “power to enforce
contracts” – which is precisely the relief sought by CGI here – is the traditional
province of a court of law, not a court of equity. If any doubt remained as to the
meaning of Section 502(a)(3) in the wake of Sereboff, the U.S. Supreme Court has
just definitively laid it to rest by stating that a court sitting in equity is not duty
bound to enforce a contract as written where equity demands otherwise.16
II. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONCISTENT WITH BOTH THE STRUCTURE AND PURPOSES OF ERISA.
The lower court’s conclusion that the plan language controls the measure of
relief is also inconsistent with ERISA’s overall statutory scheme. The Supreme
Court has instructed courts to look to ERISA’s “basic purposes,” embodied in its
“purpose clause,” when measuring whether an award would be “appropriate”
within the meaning of Section 502(a)(3). Varity Corp. v. Howe, 516 U.S. 489, 513
(1996). In particular, the Court has directed the lower courts to “keep in mind the
16 The treatises themselves buttress this point. Dobbs explains that the terms of a contract are relevant only for the “substantive question” of “whether the plaintiff has a right at all, that is, whether the defendant is unjustly enriched by legal standards.” 1 D. Dobbs, Law of Remedies § 4.1(1), at 552 (emphasis added). Those terms, however, do not govern the scope of permissible remedy. Where a contract’s terms would create an inequitable result, for example by forcing the insured to “bear the cost of recovering medical payments for the carrier’s benefit,” Palmer teaches that the principle of unjust enrichment steps in to “limit[] the effect of the contract provision.” 4 Palmer, Law of Restitution § 23.18(d), at 472-73 & n.56. “Th[is] same principle,” according to Palmer, “should serve to limit the effectiveness of contract provisions which in terms provide for reimbursement out of the insured’s tort recovery without regard to whether, or the extent to which, that recovery includes medical expense.” Id. at 473-74.
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special nature and purpose of employee benefit plans, and [to] respect the policy
choices in the inclusion of certain remedies and the exclusion of others.” Id. at 515
(internal quotations omitted).
CGI’s bid for 100% reimbursement is directly contrary to the purposes and
“policy choices” underlying ERISA. In passing ERISA, “the crucible of
Congressional concern was misuse and mismanagement of plan assets by plan
administrators.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 n.8
(1985). ERISA was designed to protect plan participants and beneficiaries against
two principle hazards that had revealed themselves in pre-ERISA practice: first,
the risk that an employer (or other plan sponsor) might default on the pension
promise; and second, the concern that an entity responsible for managing plan
assets would abuse its authority. The primary goal, then, was to “protect . . . the
interests of participants in employee benefit plans . . . [by] providing for
appropriate remedies . . . .” 29 U.S.C. § 1001(a). These objectives, embodied in
ERISA’s purpose clause, are determinative for purposes of construing Section
502(a)(3). See Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 2349 (2008)
(finding that “Congress’ desire to offer employees enhanced protection for their
benefits” “outweighed” other considerations including reduction of costs
associated with plan); Varity, 516 U.S. at 513 (holding that, when construing
Section 502(a)(3), ERISA’s “basic purposes” of “protect[ing] the interests of
participants and beneficiaries” trump “the need for a sensible administrative
system,” which was, at most, a “subsidiary congressional purpose”).
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Given these objectives, it is difficult to imagine why Congress would want
to permit an approach affording relief that not only violates basic principles of
equity, but would also harm those individuals the statute was designed to protect.
See Varity, 516 U.S. at 513. Allowing CGI to enforce its plan’s terms without
regard to the extent to which Ms. Rose has recovered for her injury would foster
this result and undermine ERISA’s primary goals.
The argument that enforcing plan terms is categorically required, even where
doing so would affirmatively harm beneficiaries, is also contrary to Congress’s
decision to exclude fiduciaries (like CGI) from the one statutory enforcement
provision in the statute that affirmatively authorizes a plaintiff to “enforce his
rights under the terms of a plan.” 29 U.S.C. § 1132(a)(1)(B). ERISA includes a
set of “carefully integrated civil enforcement provisions,” whereby Congress
enumerated the universe of possible plaintiffs authorized to sue for violations of
the statute. Russell, 473 U.S. at 146. These enforcement provisions reflect a
“comprehensive scheme” that “deliberately target[s] specific problems with
specific solutions.” Varity, 516 U.S. at 519 (Thomas, J., dissenting). As the
Supreme Court has consistently held, this enforcement scheme “provide[s] strong
evidence that Congress did not intend to authorize other remedies that it simply
forgot to incorporate expressly.” Russell, 473 U.S. at 146 (emphasis in original).
Significantly, Congress included one express enforcement provision, 29
U.S.C. § 1132(a)(1)(B), designed specifically to remedy the precise harm CGI
claims it has suffered. This provision authorizes a plaintiff to, inter alia, “enforce
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his rights under the terms of the plan.”17 But Congress foreclosed this type of
relief for Plans, instead deciding that the only parties who may obtain this relief,
consistent with ERISA’s primary objectives, are beneficiaries and participants. If
Congress had intended to allow a Plan to secure precisely the type of relief
authorized under this provision, surely it would have made that clear in Section
1132(a)(1)(B) itself, the provision specifically enacted to redress the type of breach
claimed here. See Knudson, 534 U.S. at 217-18 (instructing that, when interpreting
ERISA, a court’s job is to “avoid rendering what Congress has plainly done (here,
limit the available relief) devoid of reason and effect”); Russell, 473 U. S. at 146
(“The assumption of inadvertent omission is rendered especially suspect upon
close consideration of ERISA’s interlocking, interrelated and interdependent
remedial scheme.”).
This is not to say that CGI is precluded from receiving some measure of
relief, as discussed above. Indeed, as the Supreme Court has explained, the fact
that one provision in ERISA provides a specific remedy does not compel a
conclusion that Congress could not have “provided yet other remedies . . . in
another, ‘catchall’ remedial section.” Varity, 516 U.S. at 512. Interpreting Section
502(a)(3), however, to authorize a measure of relief based solely on the terms of
the contract would “render[] the statute’s limitation of relief” to “other appropriate
17 Specifically, Section 1132(a)(1)(B) provides that a civil action may be brought by a participant or beneficiary “to recover his benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his right to future benefits under the terms on the plan.”
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equitable relief” “utterly pointless.” Knudson, 534 U.S. at 217. Section 502(a)(3)
is not a “catchall provision that authorizes all relief that is consistent with ERISA’s
purposes and is not explicitly provided elsewhere.” Id. at 221 n.5. Allowing a
fiduciary to achieve the functional equivalent of what Congress plainly said it
could not do would upset the “carefully crafted and detailed enforcement scheme
embodied in the text Congress has adopted.” Knudson, 534 U.S. at 221
Given the “evident care” with which ERISA was crafted, CGI’s end run
around this important limitation, by seeking the exact relief enjoyed by participants
and beneficiaries only under a different provision, is contrary to the structure and
purposes of ERISA. See Knudson, 534 U.S. at 218 (explaining that if Congress
had intended to exclude only damage awards from Section 502(a)(3), “it could
have simply said that”); Russell, 473 U.S. at 147 (holding that courts must be
“reluctant to tamper with [the] enforcement scheme” embodied in the statute). If
CGI is successful in obtaining the relief here that Congress specifically barred, this
prohibition will be perfectly obviated.
III. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT IS CONTRARY TO PUBLIC POLICY.
The district court’s decision to allow 100% reimbursement based solely on
the language of the Plan is also contrary to public policy and would not, contrary to
some insurers’ claim, inure to the benefit of other plan participants. See Varity,
516 U.S. at 514 (discussing the relevance of public policy concerns when
construing ERISA).
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A. Permitting 100% Reimbursement Would Deter Tort Victims from Holding Wrongdoers Accountable.
To begin with, CGI’s position is nothing short of a full-scale assault on the
ability of injury victims to obtain adequate compensation for their injuries. It is
axiomatic that twin objectives animate tort recovery: restitution and deterrence.
CGI’ approach, which would automatically entitle insurers to complete first-dollar
reimbursement from any third-party recovery, would “gratuitously deter the
exercise of the tort rights of plan participants.” Wal-Mart Stores, Inc. Assocs.
Health and Welfare Plan v. Wells, 213 F.3d 398, 402 (7th Cir. 2000) (Posner, J.).
As Judge Posner explained, the prospect that a plan will be entitled to 100%
reimbursement irrespective of either the amount of the underlying settlement or the
portion of that settlement that is allocable to medical expenses “might well deter a
suit likely to result in a judgment or settlement not much larger than the benefits
available under the plan.” Id. This result, he warns, “would produce
undercompensation for harms that were unrelated to the type of harm to which the
benefits pertain.” Id.
The district court’s approach would also have the real world effect of
deterring lawyers from representing an injured victim whose recovery would be
subject to a claim for 100% reimbursement by an ERISA plan. The possibility that
any recovery would be usurped by an ERISA plan – preventing both the victim and
the attorney from being compensated – creates a powerful economic disincentive
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to take on the representation of a client who received anything more than a trivial
amount of medical insurance from an ERISA plan. By chilling injury victims’
ability to obtain representation, this approach would unavoidably exculpate
tortfeasors from liability while denying injury victims just compensation for their
injuries. See Maher & Pathak, Understanding Tort Subrogation, 40 Loy. U. Chi.
L.J. at 86, 90 (noting that “first-dollar recovery provisions significantly undercut”
an insured’s incentive or ability to sue and “frustrate tort law’s goal of supplying
full compensation for tort victims”).
B. The District Court’s Approach also Undermines the Public Policy in Favor of Settlements.
Left to stand, the district court’s endorsement of CGI’s demand for 100%
reimbursement also threatens the strong public policy interest in the expeditious
resolution of lawsuits through settlement. See, e.g., McDermott, Inc. v. AmClyde,
511 U.S. 202, 215 (1994) (“public policy wisely encourages settlement”). Under
the district court’s view, an injury victim who acts reasonably to settle his tort
claim would automatically make himself liable for repayment of the total amount
of medical expenses irrespective of the actual amount of the settlement that is
allocable to those expenses. Under this regime, many injury victims would have
virtually no incentive to settle their claims. Instead, in many cases it would make
better economic sense to “roll the dice” in hopes of obtaining a sufficient recovery
through trial, thereby burdening the courts with cases that otherwise would have
settled.
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There is perhaps no clearer way to see these implications than by looking to
analogous contexts. In similar circumstances involving reimbursement claims
made by insurers, the same policy concerns at issue here have universally
convinced courts that any equitable award to reimburse an insurer must be limited
to the portion of the underlying recovery that proportionally corresponds to the
amount of its lien. See Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547
U.S. 268 (2006); Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). As the U.S.
Supreme Court explained in Ahlborn, “[a] rule of absolute priority” poses the very
real risk of “preclud[ing] settlement in a large number of cases,” and works
dramatic inequities “to the recipient in others.” Ahlborn, 547 U.S. at 288. Thus,
according to the Court, allowing an entity to “share in damages for which it has
provided no compensation . . . would be absurd and fundamentally unjust.” Id. at
288 n.19 (quoting Flanigan v. Dep’t of Labor and Inds., 869 P.2d 14, 17 (1994)).
The Eleventh Circuit reached a similar conclusion in Bradley, a very recent
case involving Medicare liens. There, the court held that where an underlying tort
settlement involves several distinct damage elements – medical expenses and costs
“along with” non-medical, tort damages – the measure of a health insurer’s
equitable lien under basic principles of equity should be calculated by the specific
“component’s contribution to the total full value, if such value were collectible.”
Bradley, 621 F.3d at 1334-37. In affirming an award based on these
considerations, the court observed that any approach to the contrary, i.e., one
allowing an insurer to obtain 100% reimbursement even in the face of an
underlying settlement representing a fraction of the total damages, “would have a
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chilling effect on settlement.” Id. at 1339. The court admonished the insurer for
refusing to agree to a prorated portion of its asserted right to recovery, warning that
this hard-line position “would compel plaintiffs to force their tort claims to trial,
[thereby] burdening the court system,” and creating “a financial disincentive” to
settlement that would “allow tortfeasors to escape responsibility.” Id.
The Bradley court further observed that, given the myriad potential costs of
trial, including the inherent risk of litigation and the possibility that a defendant
might not be able to pay full compensation, the “vast majority of tort lawsuits are
resolved by settlement,” which are “often for less than the full value of the
damages suffered by plaintiffs.” Id. at 1339 n.20. Allowing an insurer to obtain
100% reimbursement would defeat the “strong public interest in the expeditious
resolution of lawsuits through settlement,” which “[t]hroughout history, our law
has encouraged.” Id. at 1339; see also Mark Galanter, The Hundred-Year Decline
of Trials and the Thirty Years War, 57 Stan. L. Rev. 1255, 1272-74 (2005). With
the single exception of ERISA insurance plans’ efforts to seek reimbursement, this
practice is either prohibited or strictly circumscribed. Neither ERISA nor equity
supports its continued endorsement.18
18 It is worth noting that CGI’s approach also threatens the health of state and Federal assistance programs. As one court recently put it, where the damages to an injury victim are significant and life-long, “the real dispute . . . is between [the Plan] and the taxpayers who, in the future, will be called upon to bear the [injury victim’s] medical expenses. [The Plan] was paid premiums for its coverage; the taxpayers have not been.” Mills v. London Grove Twnshp., 2007 WL 2085365, *3 (E.D. Pa. July 19, 2007).
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C. Permitting 100% Reimbursement Would Only Benefit Insurers, Not Other Beneficiaries.
Nor could it be reasonably argued that 100% reimbursement is appropriate
because it benefits all the plan beneficiaries by reducing their costs in the form of
premium payments. This argument, which was adopted by both the Eighth and
Eleventh Circuits to justify enforcement of a plan’s claim for 100%
reimbursement, see O’Hara, 604 F.3d at 1237-38; Shank, 500 F.3d at 838, is
contrary to all available evidence. Numerous scholars and commentators have
concluded that insurance plans do not factor subrogation/reimbursement recoveries
into rate calculations, either historically or at present. See Maher & Pathak,
Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 58 n.31 (“[I]t is likely that
insurers will not offer lower subrogation adjusted rates even though they will grant
themselves a subrogation right”); Johnny C. Parker, The Made Whole Doctrine:
Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 Mo.
L. Rev. 723, 737 (2005) (“[S]ubrogation has not led to lower premium costs for the
insured.”); see also Andrew H. Koslow, “Appropriate Equitable Relief” in Wal-
Mart v. Shank: Justice for Whom?, 12 Quinnipiac Health L.J. 277, 279 (2009);
Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure¸ 41 S.D. L.
Rev. 237, 243-45 (1996).
In light of this authority, it is perhaps not surprising that CGI has not pressed
that argument in this case. This Court thus need not even address the specious
argument that ERISA reimbursement actions benefit beneficiaries – although it is
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useful to understand that those courts concluding otherwise had no basis for doing
so.
CONCLUSION
For the foregoing reasons, the decision of the district court granting in part
plaintiff’s motion for summary judgment court should be reversed.
Respectfully Submitted,
Dated: May 23, 2011 Respectfully Submitted,
/s/ Matthew W.H. Wessler________
Matthew W.H. Wessler Public Justice, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600 Leslie A. Brueckner Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, CA 94607 (510) 622-8205 Michael Nelson Nelson Langer Engle PLLC 1015 N.E. 113th Street Seattle, WA 98125 (206) 623-7520 Paul L. Stritmatter Stritmatter Kessler Whelan Coluccio 438-8th Street Hoquiam, WA 98550 (800) 540-7364
Counsel for Defendants-Appellants
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STATEMENT OF RELATED CASES AND PROCEEDINGS
This case has not been before this Court previously. Appellants are aware of no
other case or proceeding that is in any way related to this appeal.
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46
CERTIFICATES OF COMPLIANCE
1. With respect to the type-volume limitations of Fed. R. App. P. 32(a)(7)(B),
this brief contains 11,688 words, excluding the parts of the brief exempted by
Fed. R. App. P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Fed. R. App. 32(a)(5)
and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief
has been prepared in a proportionately spaced typeface using Microsoft Office
Word 2007 for Windows in Times New Roman 14-point font.
Dated: May 23, 2011 /s/ Matthew W.H. Wessler Matthew W.H. Wessler
Counsel for Defendants-Appellants
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CERTIFICATE OF FILING AND SERVICE
I hereby certify that, on this date, this Brief was filed electronically through
the Ninth Circuit’s CM/ECF system and served via the CM/ECF system.
I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished using the appellate CM/ECF system.
Dated: Washington, D.C., May 23, 2011
/s/ Matthew W.H. Wessler Matthew W. H. Wessler
Counsel for Defendants-Appellants
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