Administrative Comm. of Wal-Mart Stores v. Shank

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: Colloton
• Citation: Administrative Comm. of Wal-Mart Stores v. Shank, 500 F.3d 834 (8th Cir. 2007)
• Decision Date: 31 August 2007
• Docket Number: No. 06-3531.,06-3531.
• Parties: ADMINISTRATIVE COMMITTEE OF the WAL-MART STORES, INC. ASSOCIATES' HEALTH AND WELFARE PLAN, Appellee, v. James A. SHANK, as Trustee of Deborah J. Shank Irrevocable Trust; Deborah J. Shank; Deborah J. Shank Irrevocable Trust, Appellants.

500 F.3d 834

ADMINISTRATIVE COMMITTEE OF the WAL-MART STORES, INC. ASSOCIATES' HEALTH AND WELFARE PLAN, Appellee, v. James A. SHANK, as Trustee of Deborah J. Shank Irrevocable Trust; Deborah J. Shank; Deborah J. Shank Irrevocable Trust, Appellants.

No. 06-3531.

United States Court of Appeals, Eighth Circuit.

Submitted: April 13, 2007.

Filed: August 31, 2007.

Rehearing and Rehearing En Banc. Denied October 29, 2007.^*

Maurice B. Graham, argued, Erica L. Airsman, on the brief, St. Louis, MO, for appellants.

Christopher R. Hedican, argued, Heidi Guttau-Fox, on the brief, Omaha, NE, for appellee.

Before WOLLMAN, BEAM, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

The Administrative Committee of the Wal-Mart Associates' Health and Welfare Plan ("the Committee") brought suit under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), against James A. Shank, Deborah J. Shank, and the Deborah J. Shank Irrevocable Trust ("the Shanks"). The Committee sought reimbursement for $469,216 it had paid in medical expenses on behalf of Deborah Shank. The district court¹ granted summary judgment for the Committee, and the Shanks appeal. We affirm.

I.

Deborah Shank ("Shank") was a Wal-Mart employee and a member of the Associates' Health and Welfare Plan ("the Plan"), a self-funded employee benefit plan regulated by ERISA. In May 2000, Shank was severely injured in a car accident, and was eventually adjudicated an incompetent. Pursuant to the terms of the Plan, the Committee paid for the full amount of Shank's medical expenses related to the accident, a total of $469,216. Shank eventually filed a lawsuit against the parties responsible for her injuries, and in 2002, she obtained a settlement of $700,000. After deducting attorney's fees and costs, the district court placed the remaining $417,477 from the settlement into a special needs trust, with Shank as the beneficiary and her husband, James Shank, the trustee.

The Plan contains a subrogation and reimbursement clause that grants the Committee first priority over any judgment or settlement Shank received relating to the accident, so the Committee may recover in full the amount it paid on Shank's behalf. After the Committee learned of Shank's settlement agreement, it sought to enforce the Plan's reimbursement provision, bringing suit under section 502(a)(3) of ERISA against Deborah Shank, James Shank, and the special needs trust. The district court granted summary judgment for the Committee and imposed a constructive trust on the funds in the special needs trust, in an amount not to exceed $469,216. The Shanks appeal the judgment of the district court. Reviewing the district court's decision de novo, we affirm.

II.

Section 502(a)(3) of ERISA authorizes a civil action by a plan "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." 29 U.S.C. § 1132(a)(3). The parties agree that the Committee is a fiduciary and that it brought suit to enforce the terms of the Plan. The applicable Plan provision obligates Shank to reimburse the Committee from any judgment or settlement that she receives, up to the full amount the Committee paid on her behalf. At issue in this appeal is whether the Committee's claim for full reimbursement sought "appropriate equitable relief" as authorized by section 502(a)(3).

In their brief, the Shanks argued that the Committee sought money damages, a form of legal rather than equitable relief. See Mertens v. Hewitt Assocs., 508 U.S. 248, 255, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). They contended that this court lacks subject matter jurisdiction because the Committee's claim does not fall under section 502(a)(3). The Shanks appeared to abandon this assertion at oral argument, and we reject it.

In Sereboff v. Mid Atlantic Medical Servs., Inc., ___ U.S. ___, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006), the Supreme Court concluded that "equitable relief" under section 502(a)(3) includes a claim for restitution, in the form of a constructive trust or equitable lien, where the plaintiff seeks to recover "specifically identifiable" funds, that are due the plaintiff under the terms of the plan, and that are within the defendant's "possession and control." Id. at 1874; see also Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S.Ct. 708, 151. L.Ed.2d 635 (2002). In Sereboff, the plan administrator, much like the Committee in this case, sought reimbursement of medical expenses from an investment account that contained funds the Sereboffs had obtained in a tort settlement. The Court held that the reimbursement provision of the plan "specifically identified a particular fund, distinct from the Sereboff's general assets . . . and a particular share of that fund to which Mid Atlantic was entitled." Sereboff, 126 S.Ct. at 1875. Therefore, the Court concluded, "Mid Atlantic could rely on a `familiar rul[e] of equity' to collect for the medical bills it had paid on the Sereboff's behalf." Id. (quoting Barnes v. Alexander, 232 U.S. 117, 121, 34 S.Ct. 276, 58 L.Ed. 530 (1914)).

The Committee's claim meets Sereboff's requirements for equitable restitution: it seeks (1) the specific funds it is owed under the terms of the plan—i.e., the money it paid to cover Shank's medical expenses; (2) from a specifically identifiable fund that is distinct from the Shank's general assets—i.e., the special needs trust; and (3) that is controlled by defendant James Shank, the trustee. See Admin. Comm. of Wal-Mart Assocs. Health and Welfare Plan v. Willard, 393 F.3d 1119, 1122-1125 (10th Cir.2004); Admin. Comm. of Wal-Mart Stores, Inc. v. Varco, 338 F.3d 680, 687-688 (7th Cir.2003); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot, & Wansbrough, 354 F.3d 348, 356-358 (5th Cir.2003). Therefore, we conclude that the Committee's suit seeks equitable relief under section 502(a)(3).²

The remaining issue is whether the relief the Committee sought was "appropriate." The Supreme Court in Sereboff declined to expound on the meaning of this term, because Sereboff's argument on that point had not been raised in the court below. 126 S.Ct. at 1877 n. 2. The Shanks contends that full reimbursement to the Committee is not "appropriate" under section 502(a)(3), and asks us to apply either the "make-whole" doctrine or a pro rata share requirement as a rule of federal common law in order to reach this conclusion. According to the make-whole doctrine, the Committee would not be permitted to enforce its contractual right to reimbursement unless Shank were first made whole, that is, fully compensated for her injuries. See 16 Lee R. Russ et. al., Couch on Insurance § 223:134 (3d ed. 2000). Under a pro rata share model, the Committee would receive only partial reimbursement equal to the share of Shank's settlement that compensates her for medical expenses. See Sunbeam-Oster Co., Inc. v. Whitehurst, 102 F.3d 1368, 1373-1374 (5th Cir.1996).

We are not persuaded that the Committee's full recovery according to the terms of the plan is not "appropriate" relief within the meaning of ERISA. The Supreme Court has recognized that Congress intended for the federal courts "to develop a federal common law of rights and obligations under ERISA-regulated plans." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (internal quotation omitted). But the Court nonetheless has proven "reluctant to tamper with an enforcement scheme crafted with such evident care as the one in ERISA," and has declined to create remedies beyond those Congress expressly authorized. Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). In view of this cautious approach, we generally adopt new rules of federal common law only if they are necessary to fill gaps left by the express provisions of ERISA and to effectuate the purposes of the statute. See, e.g., Varco, 338 F.3d at 691; Waller v. Hormel Foods Corp., 120 F.3d 138, 141 (8th Cir.1997); see also Bollman Hat Co. v. Root, 112 F.3d 113, 118 (3d Cir.1997) (federal courts may adopt a common law principle under ERISA "only if necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted in the large by Congress") (internal quotation omitted).

In Waller, for example, we held that make-whole is not a rule of federal common law that governs our interpretation of the written provisions of ERISA-regulated benefit plans. 120 F.3d at 139-40. We concluded that the terms of the written plan in that case entitled the administrator to full subrogation, regardless of whether the employee had been fully compensated for his injuries. Waller recognized that the make-whole doctrine originated in the law of insurance, where the overriding purpose of an insurance policy is to fully compensate the insured in case of loss, but that many ERISA-regulated benefit plans do not share that purpose. We thus concluded that the make-whole doctrine does not carry over from the insurance context to ERISA. Waller did not involve an interpretation of section 502(a)(3)'s reference to "appropriate equitable relief," but nothing in that provision counsels a different result.

The Supreme Court has directed that when courts consider the meaning of "appropriate" equitable relief, they should "keep in mind the special nature and purpose of employee benefit plans." Varity Corp. v. Howe, 516 U.S. 489, 515, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (internal quotation omitted). Among the primary purposes of ERISA is to ensure the integrity of written plans and to protect the expectations of participants and beneficiaries. See, e.g., United McGill Corp. v. Stinnett, 154 F.3d 168, 172 (4th Cir.1998); Duggan v. Hobbs, 99 F.3d 307, 309-310 ...