Administrative Com. of Wal-Mart Assoc. v. Willard

• Decision Date: 28 December 2004
• Docket Number: No. 04-3081.,04-3081.
• Citation: 393 F.3d 1119
• Parties: ADMINISTRATIVE COMMITTEE OF THE WAL-MART ASSOCIATES HEALTH AND WELFARE PLAN, Plaintiff-Appellee, v. Melvin WILLARD, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1119

393 F.3d 1119

ADMINISTRATIVE COMMITTEE OF THE WAL-MART ASSOCIATES HEALTH AND WELFARE PLAN, Plaintiff-Appellee, v. Melvin WILLARD, Defendant-Appellant.

No. 04-3081.

United States Court of Appeals, Tenth Circuit.

December 28, 2004.

Lori Bolton Fleming (Fred Spigarelli, and Thomas E. Hayes, with her on the briefs), The Spigarelli Law Firm, Pittsburg, KS, for Defendant-Appellant.

Christopher R. Hedican, (Heidi A. Guttau-Fox, with him on the brief), Baird, Holm, McEachen, Pedersen, Hamann & Strasheim, L.L.P., Omaha, NE, for Plaintiff-Appellee.

Before KELLY, Circuit Judge, McWILLIAMS, Senior Circuit Judge and LUCERO, Circuit Judge.

PAUL KELLY, JR., Circuit Judge.

Defendant-Appellant Melvin Willard appeals a judgment in favor of Plaintiff-Appellee Administrative Committee of the Wal-Mart Associates Health and Welfare Plan ("Plan Administrators"). The district court held that the relief sought by the Plan Administrators constituted "appropriate equitable relief" under § 502(a)(3) of ERISA. Admin. Comm. of the Wal-Mart Assocs. Health & Welfare Plan v. Willard, 302 F.Supp.2d 1267, 1276 (D.Kan.2004). On appeal, Mr. Willard argues that the relief sought is not "appropriate equitable relief" under § 502(a)(3) of ERISA, that the district court erred in interpreting and enforcing the reimbursement and subrogation provision in the Plan, and that the district court's decision to enforce the terms of the Plan violates public policy. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

Background

Melvin Willard suffered injuries when a pharmacy employee of Wal-Mart Stores, Inc. ("Wal-Mart") erroneously filled his prescription in June 2001. Mr. Willard was a covered beneficiary under the Wal-Mart Associates Health and Welfare Plan ("the Plan"). The Plan provided coverage for Mr. Willard's medical expenses in the amount of $534,919.68. In August 2002, Mr. Willard and Wal-Mart reached a confidential settlement agreement, which stipulated that Wal-Mart would retain the amount of Mr. Willard's medical expenses from the full tort settlement, pending determination of the ownership of the funds equivalent to the medical expenses.

On November 13, 2002, the Plan Administrators filed suit for equitable relief including an injunction, declaration of rights under the Plan, specific performance, mandamus, constructive trust, and equitable restitution against Willard to enforce the terms of the ERISA Plan.

The Summary Plan Description provided:

The plan has the right to ... recover or subrogate 100 percent of the benefits paid or to be paid by the Plan for covered persons to the extent of any and all of the following payments:

Any judgment, settlement, or payment made or to be made because of an accident or malpractice, including but not limited to other insurance.

II Jt.App. at 164. A note to the reimbursement language further stated: "The Plan's right to reduction, reimbursement, and subrogation applies to any funds recovered from another party or on behalf of the estate of any covered person." Id. at 165. Finally, in a separate section of the Plan entitled "Cooperation Required," the Plan stated that covered persons or their representatives must "cooperate in order to guarantee reimbursement to the Plan from third party benefits." Id. at 164.

The Plan also set forth the Administrators' discretion and authority. The Plan Wrap Document provided:

(a) The Plan Administrator shall have the sole discretion and authority to control and manage the operation and administration of the Plan.

(b) The Plan Administrator shall have complete discretion to interpret the provisions of the Plan....

III Jt.App. at 232.

The district court allowed Wal-Mart to intervene and deposit the portion of the settlement proceeds equivalent to the medical expenses into the court registry. Thus, Wal-Mart had possession of the funds until April 7, 2003, when they were deposited into the registry. Wal-Mart was later dismissed. In July 2003, Willard and the Plan Administrators agreed to distribute the proceeds to the Plan Administrators pending resolution of the case. The court allowed the funds to be distributed. Later, the court vacated the order to distribute the proceeds and ordered the Plan Administrators to return the disputed proceeds to the court registry. Mr. Willard has never had possession of the funds in question.

On December 18, 2003, the Court heard oral argument on both parties' motions for summary judgment. Willard, 302 F.Supp.2d at 1269 n. 1. The parties agreed that a formal trial was unnecessary and that the dispute could be resolved on the cross motions for summary judgment. Id. Accordingly, the district court treated the memoranda on the cross motions for summary judgment as proposed findings of fact and conclusions of law and ruled as if the arguments and evidence had been submitted at a bench trial. Id. Ultimately, the district court entered judgment in favor of the Plan Administrators, holding that they were entitled to an equitable lien on the disputed funds. Id. at 1285.

Discussion

Because the parties agreed that the oral argument on cross motions for summary judgment could be treated as a bench trial, we "review the district court's factual findings for clear error and its legal conclusions de novo." Keys Youth Servs., Inc. v. City of Olathe, 248 F.3d 1267, 1274 (10th Cir.2001). The parties do not dispute the facts of this case. Aplee. Br. at 3-11; Aplt. Br. at 2-3.

ERISA § 502 authorizes a civil action "by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates ... the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of ... the terms of the plan." 29 U.S.C. § 1132(a)(3).

A. Appropriate Equitable Relief

The Supreme Court addressed the meaning of "appropriate equitable relief" under § 502(a)(3) of ERISA in Mertens v. Hewitt Associates, 508 U.S. 248, 251-63, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), and Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 209-21, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). In Mertens, the Court held that the term "appropriate equitable relief" in § 502(a)(3) allows only "those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages)." 508 U.S. at 256, 113 S.Ct. 2063.

Subsequently, in Great-West, the Court elaborated on the distinction between "legal" and "equitable" relief, stating that "a plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession." 534 U.S. at 213, 122 S.Ct. 708. On the other hand, reasoned the Court, if "the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff's] claim is only that of a general creditor, and the plaintiff cannot enforce a constructive trust of or an equitable lien upon other property of the [defendant]." Id. at 213-14, 122 S.Ct. 708 (alteration in original) (citation and internal quotation omitted). In such an instance the plaintiff is seeking a legal remedy — the imposition of personal liability on the defendant to pay a sum of money which the plaintiff is owed — so his claim falls outside § 502(a)(3)'s jurisdictional grant. Id. at 210, 122 S.Ct. 708.

Following Great-West, several other circuits have addressed whether a plan administrator may maintain an action for "appropriate equitable relief" to enforce a reimbursement provision after a plan beneficiary has received compensation from a third party. Identifying the key facts discussed and relied upon in Great-West, courts have applied a three-part test: "Does the Plan seek to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the plan, and (3) that are within the possession and control of the defendant beneficiary?" Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir.2003); see also Admin. Comm. of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Varco, 338 F.3d 680, 687 (7th Cir.2003).

a. Specific Identifiability

In the instant case, the funds are specifically identifiable. In Varco, the court found that where the defendant established a reserve bank account from the settlement proceeds in the expected amount of the medical bills, the funds had not been dissipated and were specifically identifiable. 338 F.3d at 684. Similarly, the Bombardier court found that the funds in question were specifically identifiable when the settlement proceeds were placed in a trust account by the beneficiary's law firm. 354 F.3d at 350.

In this case, as part of the settlement agreement, Wal-Mart withheld the amount of medical expenses from the agreed tort settlement and deposited the funds in the court registry. Later, by agreement of the parties, the funds were distributed to the Plan Administrators pending resolution of the case. Thereafter, the court vacated the order distributing the funds to the Plan Administrators, and the res was returned to the court registry. Thus, the proceeds of the settlement in contention in this case have not been dissipated and are specifically identifiable.

b. The Plan's Rights to the Funds

In Great-West, Bauhaus USA, Inc. v. Copeland, 292 F.3d 439, 441 (5th Cir.2002), Bombardier, and Varco, the terms of the plans, like the plan before us, contained express, unambiguous reimbursement provisions, which resulted in the conclusion that the disputed funds belonged in good conscience to the plan.

Here, the Plan gives the Administrators the right to "recover or subrogate," and also gives "first priority with respect to its right to reduction, reimbursement, and subrogation."...