In re Estate of Sheppard

• Decision Date: 20 April 1987
• Docket Number: No. 87-3008.,87-3008.
• Citation: 658 F. Supp. 729
• Parties: In re The ESTATE OF James A. SHEPPARD, A Minor. The ESTATE OF James A. SHEPPARD, A Minor, Plaintiff, v. CATERPILLAR, INC., Allstate Insurance Co., and Mennonite Hospital, Defendants.
• Court: U.S. District Court — Central District of Illinois

658 F. Supp. 729

In re The ESTATE OF James A. SHEPPARD, A Minor.

The ESTATE OF James A. SHEPPARD, A Minor, Plaintiff, v. CATERPILLAR, INC., Allstate Insurance Co., and Mennonite Hospital, Defendants.

No. 87-3008.

United States District Court, C.D. Illinois, Springfield Division.

April 20, 1987.

Loren Thomsen, Bloomington, Ill., for plaintiff.

Francis Brady, Jr., Bloomington, Ill., guardian ad litem.

Timothy F. Haley, Maureen A. Gorman, Chicago, Ill., Theodore R. Johnson, Nancy L. Snowden, Peoria, Ill., for Caterpillar, Inc.

John L. Morel, Bloomington, Ill., for Allstate Ins. Co.

William B. Lawrence, Bloomington, Ill., Mennonite Hosp.

OPINION ORDER

MILLS, District Judge:

The employer here may not enter the federal court by the back stairs when the main door to the courthouse is locked.

Can the mere fact that ERISA is involved in this suit confer federal jurisdiction?

No.

The Estate of James Sheppard originally brought this suit in the Circuit Court of Illinois, McLean County. In re Estate of Sheppard, No. 86-P-309 (Cir.Ct. McLean Co., filed Nov. 12, 1986). Therein, the estate sought, inter alia, a declaration that a $54,000 lien placed by Caterpillar upon the proceeds of its proposed settlement with a tortfeasor was invalid.

Sheppard, a minor, sustained serious injury when a vehicle in which he was riding overturned. Under the terms of a group insurance plan entered into with his father (a Caterpillar employee) the company covered a portion of the child's medical expenses. Subsequently, the estate reached a tentative structured settlement with the auto driver's insurance company, Fireman's Fund. The insurer, however, indicated it would put the names of Caterpillar and other claimants on the initial $175,000 payment check to protect itself, unless the liens were adjudged null as to the settlement — a settlement thus giving rise to the present litigation.¹

Caterpillar now petitions this Court pursuant to 28 U.S.C. § 1441(a), (c) for removal of the state probate proceeding.² The company contends that since the policy under which it made payments to the minor is an "employee benefit plan" regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1002(1), (3), 1003(a), the Plaintiff's claim arises under ERISA and so is more properly addressed to a federal tribunal.³

The estate, in turn, petitions for remand to the Eleventh Circuit of Illinois, asserting neither ERISA's provisions nor federal common law governs the controversy; it urges, rather, that state substantive law and the terms of Defendant's plan are dispositive.

In compliance with 28 U.S.C. § 636(b)(1)(B), the United States Magistrate has entered a recommendation to remand the cause. Relying upon Golen v. Chamberlain Mfg. Corp., 139 Ill.App.3d 53, 93 Ill.Dec. 677, 487 N.E.2d 121 (1st Dist.1985), he suggests that Plaintiff's action only tangentially concerns ERISA.⁴ Hence, he concludes that the conflict is for an Illinois court to decide as a matter of state law. See also Local Union 212 Int'l Bhd. of Elec. Workers Vacation Trust Fund v. Local 212 IBEW Credit Union, 549 F.Supp. 1299 (S.D.Ohio 1982), aff'd, 735 F.2d 1010 (6th Cir.1984).

Having carefully reviewed the record, as well as the status of applicable law, the Court finds the procedural posture of this case and the jurisdictional problem it presents both complex and confusing. Nevertheless, it is convinced that to decide the validity of Caterpillar's lien would be to act "improvidently and without jurisdiction." 28 U.S.C. § 1447(c). Consequently, the Court adopts the Magistrate's recommendation, albeit upon a different course of reasoning.

Before proceeding with an analysis, however, further clarification of the parties' respective positions is in order.

The Controversy

Caterpillar asserts its lien on the settlement proceeds through an alleged right of subrogation contained in the ERISA governed insurance policy. Thus, the estate's action purportedly seeks a declaration of rights under the employee benefit plan pursuant to 29 U.S.C. § 1132(a)(1)(B):

A civil action may be brought by a participant or beneficiary to recover benefits due 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.

In other words, the minor, a beneficiary, requests a determination of the propriety of the employer's subrogation claim — a suit over which, Defendant alleges, state and federal courts exercise concurrent jurisdiction. 29 U.S.C. § 1132(e)(1).

In contrast, the estate's position as set forth on the face of its state petition is two-fold. First, it contends that the Illinois Family Expense Statute, Ill.Rev.Stat. ch. 40, § 1015 (1985), renders only parents liable for the medical expenses of their minor children: "Thus, the obligation to pay the medical expenses is on the parent, and the cause of action to recover for the medical expenses lies in the parent, not in the child." Estate of Hammond v. Aetna Casualty, 141 Ill.App.3d 963, 965, 96 Ill.Dec 270, 272, 491 N.E.2d 84, 86 (1st Dist.1986). Since the minor is not primarily liable for the hospital bills, his estate believes Caterpillar cannot enforce a right of subrogation against it.

Furthermore, Plaintiff asserts the lien is invalid because the settlement is not for past expenses, but rather for the minor's pain, disability and suffering. The subrogation clause of the plan states:

The Employer ... shall be subrogated to all right of recovery of the Employee or Dependent with respect to any expenses included in any ... settlement only to the extent that said ... settlement is expressly identified as a payment for services....

The estate, however, cites neither ERISA nor the clause in its claim for relief.

Countering the petition, the corporation argues Plaintiff may not assert state law against it.⁵ It maintains the subrogation right is an integral part of the plan's administration. Therefore, any Illinois statute purporting to override that right must be preempted by § 514 of ERISA, 29 U.S.C. § 1144: "The provisions of this subchapter ... shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan...." See Shaw v. Delta Air Lines, 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). The estate's suit, then, necessarily arises under ERISA. Removal of an action is proper where the real nature of the claim is federal, regardless of Plaintiff's characterization. Mitchell v. Pepsi-Cola Bottlers, Inc., 772 F.2d 342 (7th Cir.1985), cert. denied, ___ U.S. ___, 106 S.Ct. 1266, 89 L.Ed.2d 575 (1986); Waycaster v. AT & T Technologies, Inc., 636 F.Supp. 1052 (N.D. Ill.1986).

Admittedly, the artful pleading exception allows the Court to review Defendant's removal petition in addition to the complaint in determining whether Plaintiff actually pleads a federal cause of action. Having done so, however, the Court finds both parties somewhat misguided in their analyses.

Discussion

As Caterpillar correctly notes, Plaintiff's state petition in essence requests a declaratory judgment that the employer's lien is of no force against the settlement. See Ill.Rev.Stat. ch. 110, ¶ 2-701 (1985). Thus, upon removal, this Court must consider the estate's action as originating under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201.⁶ Illinois ex rel. Barra v. Archer Daniels Midland Co., 704 F.2d 935, 939 (7th Cir.1983). Consequently, we review the jurisdictional question in light of the act's purpose and construction.

I

An historic function of the declaratory judgment suit is to enable a potential defendant to avoid inconvenience by accelerating a plaintiff's action. Thomas v. Shelton, 740 F.2d 478, 485 (7th Cir.1984). For example, the Seventh Circuit in Wisconsin v. Baker, 698 F.2d 1323, 1329-30 (7th Cir.), cert. denied, 463 U.S. 1207, 103 S.Ct. 3537, 77 L.Ed.2d 1388 (1983), allowed removal of the state's declaratory count alleging members of an Indian tribe had no federal right under a treaty to restrict access to navigable waters:

The State's federal claim is well-pleaded. True, it is anticipatory in that it is a defense to a coercive action defendants could have brought in federal court. But it is precisely this kind of anticipation that the Declaratory Judgment Act was intended to allow.

Id. at 1329;⁷ see also Sticker Indus. Supply Corp. v. Blaw-Knox Co., 367 F.2d 744, 746-47 (7th Cir.1966). The operation of the act then is procedural only: "Congress enlarged the range of remedies available in the federal courts but did not extend their jurisdiction." Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878-79, 94 L.Ed. 1194 (1950). Accordingly, where a declaratory judgment plaintiff seeks in substance to assert defenses to an adversary's imminent action, it is the character of the threatened action, not the defenses, which determines federal question jurisdiction. Public Service Comm'n v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952); see generally Stone & Webster Eng'g Corp. v. Ilsley, 690 F.2d 323, 327 (2d Cir.1982).

In this instance, Plaintiff's petition merely precipitates Caterpillar's subrogation action against it. The estate had no other choice but to seek a declaratory judgment when the tortfeasor's insurance company threatened to place the alleged lien-holder's name on the settlement check. Its complaint raises only defenses — namely, that Illinois law and the plan's subrogation clause negate the employer's lien on the settlement proceeds.⁸

Thus, jurisdiction cannot be premised upon § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132. As previously mentioned, that section allows a beneficiary to enforce his rights under the plan. But here, the minor's estate attempts to shield itself from a subrogation right asserted by the corporation. Seeking a declaration of liability does not "enforce" the plan. Gulf Ins. Co. v. Arnold, 809...