Scholastic Corp. v. Najah Kassem & Casper & De Toledo, 3:04CV1752(MRK).

Citation389 F.Supp.2d 402
Decision Date19 September 2005
Docket NumberNo. 3:04CV1752(MRK).,3:04CV1752(MRK).
CourtUnited States District Courts. 2nd Circuit. United States District Court (Connecticut)
PartiesSCHOLASTIC CORP., Plaintiff, v. NAJAH KASSEM & CASPER & DE TOLEDO LLC, Defendants.

Carl F. Yeich, Skelley Rottner, P.C., Hartford, CT, John D. Kolb, Sharps & Associates, PSC, Louisville, KY, for Plaintiff.

Harold R. Burke, Stewart M. Casper, Casper & De Toledo, Stamford, CT, for Defendants.

MEMORANDUM OF DECISION

KRAVITZ, District Judge.

In the 1930s most lawyers undoubtedly cheered when the drafters of the Federal Rules of Civil Procedure jettisoned the distinction between law and equity by fusing the two systems and seemingly ending the days of the divided bench. As was true with Mark Twain, however, rumors of the demise of the law/equity distinction appear to have been greatly exaggerated. For beginning in 1993 in Mertens v. Hewitt Associates, 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), and continuing in 2002 in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), the Supreme Court breathed new life into the law/equity distinction. The Supreme Court did so in the context of the Employee Retirement and Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., holding in Mertens that § 502(a)(3) of ERISA authorizes only civil actions seeking remedies "that were typically available in equity," Mertens, 508 U.S. at 256, 113 S.Ct. 2063 (emphasis in original), and holding in Great-West that not all relief characterized as "restitution" was typically available in equity or is (therefore) authorized by ERISA. Great-West, 534 U.S. at 213, 122 S.Ct. 708. As the Second Circuit recently noted, Great-West "reconfigured the legal landscape of restitution." Pereira v. Farace, 413 F.3d 330, 340 (2d Cir.2005).1

Though often criticized, the Supreme Court's decision in Mertens and reaffirmation in Great-West that Congress intended in ERISA to thrust the courts back into the business of making law/equity distinctions is the governing law. Yet, despite Justice Scalia's cheery assurance that the dissenters in Great-West "greatly exaggerate[d] ... the difficulty of th[e] task" of determining the types of remedies typically available in equity, Great-West, 534 U.S. at 217, 122 S.Ct. 708, the Supreme Court's decision has created real challenges for those of us who have little training, let alone experience, in the subtleties of ancient writs. So challenging has it been that no less than six circuits have provided markedly different answers to the identical question posed by this case. See generally Mid Atl. Med. Servs., LLC v. Sereboff, 407 F.3d 212 (4th Cir.2005); Admin. Comm. of Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d 1119 (10th Cir.2004); Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir.2004); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer et al., 354 F.3d 348 (5th Cir.2003); Admin. Comm. of Wal-Mart Stores, Inc. Assocs.' Health & Welfare Plan v. Varco, 338 F.3d 680 (7th Cir.2003); Westaff (USA) Inc. v. Arce, 298 F.3d 1164 (9th Cir.2002). To date, at least, the Supreme Court has declined to grant a writ of certiorari despite the clear circuit conflict.

The question presented by this case is as follows: Does an ERISA plan seek relief typically available in equity when it sues to recover by constructive trust or equitable lien funds for medical expenses disbursed to a plan participant, injured in an accident, who has received a settlement from a third party tortfeasor, part of which has been placed in a trust held by the plan participant's counsel pending resolution of the Plan's claim to those funds? If so, the Court can proceed to determine the rights of the respective claimants to the fund. If not, the Court must dismiss this action. The truth is, the answer is not entirely clear. Moreover, and in any event, the ultimate answer to this question must await definitive word from the Second Circuit or the Supreme Court. Doing the best it can to divine the true nature of the remedy Plaintiff seeks and the meaning of Mertens and Great-West, the Court concludes (though not without doubt) that Plaintiff seeks a remedy typically available in equity, and thus one that is available under ERISA. Accordingly, the Court DENIES Defendants' Motion to Dismiss [doc. # 13].

I.

As a preliminary matter, the Court notes that courts apparently differ on whether motions to dismiss under the circumstances presented by this case are properly characterized as motions to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure or motions to dismiss for failure to state a claim under Rule 12(b)(6). Compare Qualchoice, 367 F.3d at 642 (analyzing similar circumstances as a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction), Bombardier, 354 F.3d at 352 (same), and Varco, 338 F.3d at 686 (same), with Sereboff, 407 F.3d at 217 & n. 5 (analyzing similar circumstances as a Rule 12(b)(6) motion to dismiss for failure to state a claim), and Westaff, 298 F.3d at 1167 (same). Happily, the Court concludes that it need not decide that issue in this case. For Defendants have brought their motion to dismiss under both Rule 12(b)(1) and Rule 12(b)(6), see Defs.' Mot. to Dismiss [doc. # 13] at 1. Furthermore, "the standards for dismissal under 12(b)(6) and 12(b)(1) are substantively identical." Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir.2003); but see Thompson v. County of Franklin, 15 F.3d 245, 249 (2d Cir.1994) (noting that the party invoking the jurisdiction of the court has the burden of proof in a 12(b)(1) motion, in contrast to a 12(b)(6) motion, in which the defendant has the burden of proof).

On a motion to dismiss under either Rule 12(b)(1) or Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court "must accept as true all material factual allegations in the complaint," J.S. ex rel. N.S. v. Attica Central Schools, 386 F.3d 107, 110 (2d Cir.2004), although it should not "draw inferences from the complaint favorable to plaintiffs." Id. (citing Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir.1998)). "A complaint should not be dismissed ... `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Todd v. Exxon Corp., 275 F.3d 191, 197-98 (2d Cir.2001) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Thus, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996).

On a motion to dismiss under Rule 12(b), "[a] complaint is deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are integral to the complaint." Sira v. Morton, 380 F.3d 57, 67 (2d Cir.2004) (internal citations and quotations omitted). Both Scholastic's self-funded employee welfare benefit plan (the "Plan") and a ruling of the Connecticut Superior Court in the related tort action between Defendant Najah Kassem and a third party tortfeasor, Kassem v. Vanzanten, No. CV010343818S, 2004 WL 1888850 (Conn.Super.Jul.22, 2004), were attached as exhibits to Scholastic's Complaint, and are integral to the claims asserted therein. See Compl.[doc. # 1] Ex. B, C. Therefore, the Court concludes that it may take notice of the Plan and the ruling of the Connecticut Superior Court without transforming Defendants' motion to dismiss under Rule 12(b) into a motion for summary judgment under Rule 56. See id. at 153-54.

II.

The following facts from Scholastic's Complaint are accepted as true for purposes of the pending motion to dismiss. Scholastic maintains a self-funded employee welfare benefit plan for its employees, which is governed by ERISA. See Compl. [doc. # 1] at ¶ 2; see also id. at Ex. B (excerpt of the summary of the Plan). Ms. Kassem was an employee participant in the Plan, and on October 14, 2000, Ms. Kassem was injured in a motor vehicle accident. See Compl.[doc. # 1] at ¶¶ 4, 8. Scholastic extended benefits to Ms. Kassem under the Plan in the amount of $28,514.77 to cover her medical expenses from the accident. Id. at ¶ 9. The Plan contains the following subrogation provision that is at the center of this lawsuit:

Subrogation. In the event a Covered Person suffers an injury or Sickness as a result of an allegedly negligent or wrongful act or omission of a third party, the Plan has the right to pursue subrogation against any person or insurer. The Plan will be subrogated and succeed to the Covered Person's right of recovery against any person or insurer. The Plan may use this right to the extent of the benefits under this Plan. The Covered Person agrees to help the Plan use this right when requested.

Id. at Ex. B (excerpt of Plan summary).

Ms. Kassem later filed a lawsuit in Connecticut Superior Court against the third party allegedly responsible for the motor vehicle accident, a suit that she ultimately settled for $75,000. See Compl. [doc. # 1] at ¶ 11. In an order regarding the funds that are the focus of this action, the Connecticut Superior Court directed a portion of the funds commensurate with Scholastic's claim to be held in a client trust account under the supervision of Defendant Casper & de Toledo, LLC, Ms. Kassem's attorneys. See id. at ¶¶ 3, 12. The Connecticut Superior Court specifically stated it

intends that the funds which might be payable to [Scholastic] be held in a proper account in order that all involved persons and entities, [Ms. Kassem], defendant, [Casper & de Toledo] and defendant carrier, be protected. This is to say, disbursement to [Ms. Kassem] must be limited so as to preserve a residue sufficient to fully meet any obligation emanating from resolution of the ERISA dispute.

Kassem, 2004 WL...

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