ACS Recovery Servs., Inc. v. Griffin

• Decision Date: 07 May 2013
• Docket Number: No. 11–40446.,11–40446.
• Citation: 723 F.3d 518
• Parties: ACS RECOVERY SERVICES, INC.; FKI Industries, Inc., Plaintiffs–Appellants v. Larry GRIFFIN; Willie Earl Griffin; Larry Griffin Special Needs Trust; Judith Griffin, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

723 F.3d 518

ACS RECOVERY SERVICES, INC.; FKI Industries, Inc., Plaintiffs–Appellants

v.Larry GRIFFIN; Willie Earl Griffin; Larry Griffin Special Needs Trust; Judith Griffin, Defendants–Appellees.

No. 11–40446.

United States Court of Appeals,Fifth Circuit.

May 7, 2013.

David Alan Belofsky, David A. Belofsky & Associates, Ltd., Chicago, IL, Jared Ross Barrett, Esq., Bull & Barrett, L.L.P., Longview, TX, for Plaintiff–Appellant.

Leland Alan Reinhard, Esq., Cleburne, TX, Gerald W. Livingston, Dallas, TX, for Defendant–Appellee.

David I. Schiller, James C. Ho, Daniel L. Geyser, Russell H. Falconer, Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, for IBEW–NECA Southwestern Health and Benefit Fund, as Amicus Curiae.

Appeal from the United States District Court for the Eastern District of Texas.

Before STEWART, Chief Judge, and REAVLEY, JOLLY, DAVIS, JONES, SMITH, DENNIS, CLEMENT, PRADO, OWEN, ELROD, SOUTHWICK, HAYNES, GRAVES, and HIGGINSON, Circuit Judges.^*

EDITH H. JONES, Circuit Judge, joined by STEWART, Chief Judge, and JOLLY, DAVIS, SMITH, CLEMENT, OWEN, SOUTHWICK, GRAVES, and HIGGINSON, Circuit Judges:

ERISA § 502(a)(3)(B) authorizes actions by fiduciaries “... to obtain other appropriate equitable relief ... to enforce ... the terms of the [ERISA] plan.” 29 U.S.C. § 1132(a)(3)(B). The question this court deems enbancworthy is whether ACS Recovery Services, Inc., the administrator, and FK Industries, Inc., the sponsor (collectively, “ACS”), of the ERISA plan (“Plan”) that covered employee Larry Griffin, can sue Griffin, Griffin's Special Needs Trust, or his ex-wife Judith, for reimbursement of medical expenses incurred by the Plan after Griffin received a tort settlement for his injuries. To what extent, in other words, does ACS's suit seek “appropriate equitable relief” to enforce the Plan's reimbursement provision? Parting company with this court's panel decision, we hold that ACS may recover from the Special Needs Trust the costs the Plan bore on Larry's behalf: the Trust is a proper ERISA defendant; the Trust received funds directly traceable to Larry Griffin's tort recovery; and the Plan held a pre-existing equitable lien by agreement on the proceeds of the recovery after the Plan paid Griffin's medical bills. Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). Under the circumstances of this case, however, we need not rule on whether ACS can recover from Larry, and ACS did not offer evidence to sustain a judgment against Judith. The district court judgment to the contrary is reversed in part, affirmed in part, and remanded.

BACKGROUND

While Griffin worked for FK Industries, he participated in the company's ERISA welfare benefit plan. The Plan paid over $50,000 in medical expenses for his treatment following a serious automobile accident in 2006. Larry and Judith sued Ashley E. Smith and J–Co Production Management, Inc., the company responsible for the accident, and reached a settlement to pay “cash and periodic payments with a present value sum” just over $294,000.

At the time of the settlement, the Plan provided it “will have a first lien upon any recovery, whether by settlement, judgment, arbitration or mediation” to repay the medical expenses, and it required Larry not to take action that might prejudice the Plan's right to reimbursement. ACS had notified Larry's attorney of these provisions shortly after he filed suit. Rather than help Larry comply with the Plan, his attorney devised an artful attempt to insulate the settlement proceeds from the reimbursement provision. His attorney admitted that he structured the settlement “in an effort to legally avoid any equitable lien asserted by the Group Medical Plan....” Accordingly, the settlement first segregated money for attorneys' fees, some additional medical expenses, and for Judith Griffin pursuant to the couple's divorce settlement. The remaining funds (having a “present sum value” of about $148,000) were paid by SAFECO, the defendant's insurer, to Hartford CEBSCO, which was authorized to purchase an annuity from Hartford Life and therewith to make monthly payments of $843.42 for twenty years to a statutory Special Needs Trust,¹ whose trustee is Willie Griffin, Larry's brother. The Trust is authorized to make monthly payments for Larry's benefit.

The settlement documents reflect Larry's approval of this arrangement. On October 24, 2008, the state court approved creating a tax-qualified Special Needs Trust pursuant to Texas Property Code § 142.007 based on the understanding that Larry is “incapacitated” under state law and disabled for federal Social Security purposes. That same day, the state court entered an Order Approving Settlement and of Dismissal (“Order”), signed by Larry and a guardian ad litem (among others), that delineated the exact payments to be made to each party including the Special Needs Trust.

The Order referenced the parties' contemporaneously executed Compromise Settlement Agreement (“Agreement”), designated as being by and between “Larry Griffin and Judith Griffin as Plaintiffs ...,” and Larry signed it as well. Both the guardian ad litem and the parties' attorneys signed the Agreement only “as to form.” This Agreement exchanged the plaintiffs' release of claims for (in pertinent part) the defendants' agreement to pay the Larry Griffin 142 Special Needs Trust (“Trust”) certain monthly payments “through annuity issuer, Hartford Life Insurance Company.” The Griffins and the Trust further agreed to an assignment of the defendants' liability to make the periodic payments to Hartford CEBSCO, such that Hartford's obligation to make the periodic payments “shall be no greater” than that of the defendants. Plaintiffs further consented to holding Hartford to be the “sole obligor” respecting the obligation. Hartford, as “sole owner of the annuity policy,” was to issue the monthly payments to the Trust, c/o Willie Griffin, Trustee. Finally, the plaintiffs warranted in the Agreement that “no part of the claim” has been assigned or transferred to any person or entity, and that not only have all medical costs been paid, but “any liens pertaining to said care have been released or satisfied.”

ACS and FKI, the Plan fiduciaries, were denied reimbursement by the design and intent of this settlement. They sued Larry Griffin, Judith Griffin, the Trust, and Willie Griffin as Trustee under ERISA § 502(a)(3)(B). Among other claims for relief, the fiduciaries sought a constructive trust upon “no less than $50,076.19 in funds intended to be paid to or received by the Defendants from any recovery made as compensation for injuries caused by the acts of a third party,” ² and they requested that the defendants be enjoined from interfering with the Plan's right of reimbursement.

The district court, approving a magistrate judge's report and recommendation, rejected the fiduciaries' claims for summary judgment and granted Larry Griffin's, Willie Griffin's, and the Trust's cross motions.³ A panel of this court expanded on the trial court rulings, but the fundamental analysis supporting the appellees rests on the following propositions. First, the Plan's claim seeks legal, not equitable relief as required by § 502(a)(3)(B), because Larry Griffin has neither possession nor control of the settlement funds now held in the annuity. Any judgment against Larry Griffin personally would be for money damages rather than for the enforcement of a constructive trust over the settlement proceeds. Likewise, the Trust cannot be sued for equitable relief for several reasons. It has no possession or control over the annuity, which Hartford owns. Because Larry has no control over the Trust, the Trust cannot be liable as his agent. Finally, since Larry lacked “even fleeting” possession or control over the settlement money that purchased the annuity that funds the Trust, equitable relief is pretermitted against the Trust. This reasoning purports to be compelled by the Supreme Court's decision in Great–West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), and this court's decision in Bombardier Aerospace Emp. Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348 (5th Cir.2003). Following an unfavorable appellate decision, ACS obtained en banc review.

DISCUSSION

1. Standard of Review

The panel decision adhered to our circuit precedent in concluding that ACS's failure to support a claim for equitable relief necessitated dismissal for lack of jurisdiction. See, e.g., Bauhaus USA Inc. v. Copeland, 292 F.3d 439, 445 (5th Cir.2002) (affirming the district court's dismissal for lack of subject matter jurisdiction because appellants failed to state a valid claim under § 502(a)(3)). Whatever the origin of this jurisdiction-based reasoning,⁴ it is inconsistent with Supreme Court precedent and the majority of sister circuits, for which the failure to state a claim cognizable under federal law is distinct from holding that a court lacks subject matter jurisdiction. The Supreme Court has long held that “the absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction, i.e., the courts' statutory or constitutional power to adjudicate the case.” Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 1010, 140 L.Ed.2d 210 (1998). Subject matter jurisdiction is not implicated unless the claim is “so insubstantial, implausible, foreclosed by prior decisions of [the Supreme Court], or otherwise completely devoid of merit as not to involve a federal controversy.” Oneida Indian Nation of N.Y. v. Cnty. of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 777, 39 L.Ed.2d 73 (1974); see also Adar v. Smith, 639 F.3d 146, 150–51 (5th Cir.2011) (en banc), cert. denied,––– U.S. ––––, 132 S.Ct. 400, 181 L.Ed.2d 257 (2011). Consistent with these principles, at least five other circuits have held that whether a claim for equitable relief...