Administrative Committee of Wal-Mart Stores v. Varco

• Decision Date: 29 July 2003
• Docket Number: No. 02-1124.,No. 02-1143.,No. 02-3879.,02-3879.,02-1124.,02-1143.
• Citation: 338 F.3d 680
• Parties: ADMINISTRATIVE COMMITTEE OF THE WAL-MART STORES, INC. ASSOCIATES' HEALTH AND WELFARE PLAN, Plaintiff-Appellant/Cross-Appellee, v. Clara VARCO, Defendant-Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

338 F.3d 680

ADMINISTRATIVE COMMITTEE OF THE WAL-MART STORES, INC. ASSOCIATES' HEALTH AND WELFARE PLAN, Plaintiff-Appellant/Cross-Appellee, v. Clara VARCO, Defendant-Appellee/Cross-Appellant.

No. 02-3879.

No. 02-1124.

No. 02-1143.

United States Court of Appeals, Seventh Circuit.

Argued September 10, 2002.

Decided July 29, 2003.

Petition for rehearing En Banc is Denied August 22, 2003.

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Thomas H. Lawrence (argued), Lawrence & Russell, Memphis, TN, for Plaintiff-Appellant, Administrative Committee of Wal-Mart Stores, Inc. Associates' Health and Welfare Plan.

Laurence J. Dunford (argued), Timothy I. McArdle, McArdle, Frost & Klapacz, Chicago, IL, for Defendant-Appellant, Clara Varco.

Howard T. Brinton (argued), Chicago, IL, for Defendant-Appellant, Laurence Dunford.

Before FLAUM, Chief Judge, and BAUER and MANION, Circuit Judges.

MANION, Circuit Judge.

I.

Clara Varco, a Wal-Mart employee, incurred medical expenses due to a car accident, which were paid by Wal-Mart's health and welfare benefit plan. After Varco recovered damages for her injuries in a state court action, the Wal-Mart Plan Committee sought restitution for the medical expenses it had paid from Varco and her attorney, Laurence Dunford. The district court granted a preliminary injunction in favor of the Committee, preventing Varco and her attorney from disbursing those funds or further adjudicating the matter in state court. Varco and Dunford appealed the preliminary injunction. The district court then granted summary judgment in favor of the Committee, ordering that the medical expenses be remitted to the Committee, less its proportional share of Dunford's attorney's fees pursuant to Illinois' common fund doctrine. The Committee appealed the order diminishing its reimbursement due to the application of the common fund doctrine. The cases were consolidated. We affirm in part and reverse in part.

II.

On September 24, 2000, Clara Varco sustained injuries in an automobile collision in Orland Park, Illinois. At that time she was employed by Wal-Mart Stores, Inc. ("Wal-Mart"), which provides its employees benefits through the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan (the "Plan"). The Plan is a self-funded employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 and administrated by the Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan (the "Committee"). Pursuant to the terms of the Plan, $18,865.72 in medical benefits was immediately paid on behalf of Varco following the accident.

Significantly, for the purposes of appeal, the Plan includes a provision stating that the Committee has a right to "recover or subrogate 100 percent of the benefits paid or to be paid by the Plan on your behalf and/or your dependents to the extent of... [a]ny judgment, settlement or any payment made or to be made, relating to the accident, including but not limited to other insurance." The Plan further provides that it "does not pay for nor is responsible for the participant's attorney's fees. Attorney's fees are to be paid solely by the participant."

The procedural intricacies of this case began when Varco retained Laurence J. Dunford to represent her against Kristopher Lapsis, the other driver responsible for her injuries, and to make a claim against All-State Insurance Company, her insurer. She contracted with Dunford to pay him a contingency fee of one-third of any recovery. Varco then filed a tort action in Illinois state court against Lapsis. In October 2001, in contemplation of settlement, Varco sought adjudication of various liens on the lawsuit, including that of the Plan. In response, the Committee asked the state court to postpone adjudication of its lien and filed a notice for removal in federal court. The district court promptly remanded the case back to state court finding no subject matter jurisdiction. Varco v. Lapsis, 172 F.Supp.2d 985, 988-92 (N.D.Ill.2001).¹ Not content with this course of events, the Committee filed a second action in federal court on October 29, 2001, asserting claims under § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3), for "appropriate equitable relief" including an injunction, declaration of rights, specific performance, imposition of a constructive trust and restitution against Varco and Dunford. The Committee also moved to have related matters in state court stayed and Varco and Dunford enjoined from proceeding with further state court litigation.

While these suits were proceeding, Varco, through her attorney, received settlement proceeds of $100,000. The settlement proceeds were disbursed by Dunford to Varco, himself, and other lienholders. In anticipation of litigation, Varco established a reserve bank account in her name in the amount of $34,034.55 (the initial amount the parties believed to have been spent in medical bills under the Plan) to pay the Committee when the courts resolved the question of what amount was due and owing. Dunford, meanwhile, took his full portion of attorney's fees from the settlement fund ($22,000) when he disbursed the monies, thereby leaving all of the disputed monies in Varco's possession. Administrative Committee of Wal-Mart Stores, Inc. v. Varco, No. 01 C 8277, 2002 WL 31189717 *2, n. 5 (N.D.Ill., Oct.02, 2002) ("Varco III"). At the end of December 2001, Dunford and Varco returned to state court and filed a motion to adjudicate Wal-Mart's lien. In response, the Committee filed yet another motion in federal court pursuant to the Anti-Injunction Act, 28 U.S.C. § 2283, the All Writs Act, 28 U.S.C. § 1651, and "the Princess Lida doctrine" to enjoin the state court from adjudicating the liens.

The Committee was successful in both of its motions before the district court. On December 24, 2001, it obtained a temporary restraining order from the district court and a preliminary injunction preventing Varco and Dunford from disbursing the $34,035.55 until "the rights of [the Committee] have been determined by [the district court]." Administrative Committee of Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Varco, No. 1:01-CV-8277, 2001 WL 1772318, *3 (N.D. Ill., Dec 21, 2001) ("Varco I").² On January 14, 2001, the court entered an injunction barring Varco from proceeding with further adjudication of the Committee's lien in state court. Administrative Committee v. Varco & Dunford, No. 01 C 8277, 2002 WL 47159, *3-4 (N.D.Ill. Jan.14 2002) ("Varco II"). The court also dismissed all of the Committee's claims for equitable relief with the exception of its "claim for the imposition of constructive trust on particular property in the hands of the defendants and for the pendent state law claims." Id. at *4. After the district court stayed the state court proceedings and enjoined Dunford and Varco from proceeding in state court, the Committee removed for the second time Varco's personal injury action, as all of the liens on the settlement, except for the Committee's, had been paid. The district court found that it properly had jurisdiction to adjudicate the Committee's claim this time, for reimbursement as "equitable relief" under § 502(a)(3)(B), because the Committee was seeking a constructive trust over Varco's reserve account. Varco and Dunford then filed a timely interlocutory appeal of the injunctions arguing, in relevant part, that the district court lacked jurisdiction over the claims because the Committee was seeking legal relief based on the language of the Plan.

While the injunction was pending on appeal, the district court proceeded to address the merits of the case. On October 2, 2002 the district court granted the Committee's motion for summary judgment, holding that the Plan was due reimbursement of the paid medical expenses. Varco III at *4-6. The court also held that, pursuant to Illinois' common fund doctrine, the Committee must bear its proportional share of Dunford's attorney fee. Based on this doctrine, the court determined that the Committee was entitled to restitution of the paid medical expenses, $18,865.72, less its proportional share of Dunford's legal expenses for a total of $12,378.04. In rendering this decision, the district court issued an order noting that by adjudicating the merits of the claim, the preliminary injunctions entered in the case expired by their own terms.³ As Varco notes, the district court's order on October 29, 2002, effectively mooted the cross-appeals filed by Varco and Dunford insofar as the appeals contested the merits underlying the preliminary injunctions.⁴ However, Varco's challenge to the district court's jurisdiction to hear the case remains. The Committee then filed a timely appeal from the district court's order on the merits arguing that the common fund doctrine is preempted by ERISA. We consolidated these cases on appeal. Because of the district court's grant of summary judgment, and dismissal of Dunford as a litigant, the only remaining issues that survive on appeal are whether the district court had subject matter jurisdiction over the Committee's claims and, if so, whether the Committee must reimburse Varco for her payments to her attorney pursuant to Illinois common fund doctrine.

III

On appeal, Varco asserts that the district court erred in finding subject matter jurisdiction to hear the case under 28 U.S.C. § 1331. Varco argues that the district court lacked subject matter jurisdiction because the Committee's claim was for money due and owing under contract, which is essentially a legal remedy, and ERISA creates jurisdiction in federal court only for "other appropriate equitable relief" under § 502(a)(3)(B). Varco argues that the creation of a constructive trust over the disputed funds falls outside of this jurisdictional grant.

A. Subject Matter Jurisdiction

Under 28 U.S.C. § 1331, federal courts have jurisdiction over "all civil actions arising...