Blackburn v. Sundstrand Corp.

• Decision Date: 01 July 1997
• Docket Number: No. 96-3158,96-3158
• Citation: 115 F.3d 493
• Parties: 21 Employee Benefits Cas. 1234 Ronald BLACKBURN and Barbara Blackburn, Plaintiffs-Appellants, v. SUNDSTRAND CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 493

115 F.3d 493

21 Employee Benefits Cas. 1234

Ronald BLACKBURN and Barbara Blackburn, Plaintiffs-Appellants, v. SUNDSTRAND CORPORATION, Defendant-Appellee.

No. 96-3158.

United States Court of Appeals, Seventh Circuit.

Argued April 2, 1997.

Decided June 3, 1997.

Rehearing and Suggestion for Rehearing En Banc Denied July 1, 1997.

Frank A. Perrecone (argued), Rockford, IL, Alfred W. Cowan, John S. Lowry, Brassfield, Cowan & Howard, Rockford, IL, for Plaintiffs-Appellants.

Patrick J. Winn (argued), Sundstrand Corporation, Rockford, IL, for Defendant-Appellee.

Dennis A. Rendleman, Athena T. Taite, Illinois State Bar Association, Staff Counsel, Springfield, IL, for Amicus Curiae Illinois State Bar Association.

Before WOOD, JR., COFFEY, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

Ronald and Barbara Blackburn were injured in an automobile accident. Sundstrand Corporation's welfare benefit plan, which is covered by ERISA, paid $25,831 toward the costs of the Blackburns' medical care. They filed suit in an Illinois court against the driver of the other car and accepted $105,000 in settlement. Two parties, in addition to the Blackburns, have claims against the $105,000 fund: the Blackburns' lawyer is entitled by a contingent-fee contract to a third of the money, plus costs, and Sundstrand is entitled by virtue of a subrogation clause in its medical-care plan to reimbursement from any judgment. The Blackburns filed in state court a petition to apportion the fund. They asked, in particular, that a portion of their attorney's fee and expenses be charged against the amount due to Sundstrand, so that a net payment of $17,048 would be deemed to satisfy its subrogation right. At this point Sundstrand removed the case to federal court, which entered a judgment directing the Blackburns to remit the full $25,831. 933 F.Supp. 724 (N.D.Ill.1996). According to the district court, the Illinois common-fund doctrine--under which attorneys who generate a fund are entitled to be paid from that fund, and the beneficiaries are entitled only to the proceeds net of legal expenses--is preempted by § 514(a) of ERISA, 29 U.S.C. § 1144(a).

The district court did not discuss the source of its subject-matter jurisdiction, and we conclude that it had none. Sundstrand removed the case under 28 U.S.C. § 1441(b), which covers "[a]ny civil action of which the district courts have original jurisdiction founded on a claim of right arising under the Constitution, treaties or laws of the United States". The "civil action" was the tort suit by the Blackburns against the other driver, which assuredly did not arise under the Constitution, treaties, or laws of the United States. Not even the most expansive reading of ERISA covers motor vehicle collisions, just because part of the recovery may inure to the benefit of a plan. The petition to apportion the fund invoked the ancillary jurisdiction of the state court and was part of that original, non-removable action.

Even if we were to treat the petition as inaugurating a separate "civil action", removal would have been improper. The fundamental claim--that the Blackburns should be credited, for purposes of their duty to reimburse Sundstrand, with sums paid to the attorney whose work produced the fund--arises under state law. Sundstrand has at most an argument that ERISA preempts application of the state's common-fund rule. Yet it has been understood for a very long time that a federal defense to a claim arising under state law does not create federal jurisdiction and therefore does not authorize removal. This is true of defenses under ERISA no less than of defenses under other federal statutes. Franchise Tax Board of California v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983); Rice v. Panchal, 65 F.3d 637 (7th Cir.1995). Rice holds that a claim of preemption under § 514(a), in particular, does not permit removal. Removal under the diversity jurisdiction and § 1441(a) also is impossible, for the amount in controversy is less than $9,000.

A separate doctrine, misleadingly called "complete preemption," does permit removal when the plaintiff's own claim depends on ERISA, and the effort to craft a claim under state law reflects artful pleading. See Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987); Bartholet v. Reishauer AG (Zurich), 953 F.2d 1073 (7th Cir.1992). Section 502 of ERISA, 29 U.S.C. § 1132, provides the sole authority for a participant's claim to benefits from a welfare or pension plan. Thus if the Blackburns had sought to require Sundstrand's plan to pay additional benefits, their claim would have arisen under ERISA, and Sundstrand could have removed it. But neither the original tort action nor the petition to adjudicate adverse claims to the settlement fund sought a payment from the plan. Section 502 is irrelevant; Sundstrand's arguments (and the district court's judgment) rest exclusively on § 514(a); and for the reasons developed in Rice defenses of this kind do not support removal under § 1441(b).

Yet another consideration shows that the district court lacked jurisdiction: the Illinois common-fund doctrine is not preempted, so even if § 514(a) sometimes supported removal, Sundstrand would not be assisted. The status of the state's common-fund doctrine is a recurring question that should be clarified, and the district court's decision creates a conflict between state and federal courts in the same jurisdiction. Scholtens v. Schneider, 173 Ill.2d 375, 219 Ill.Dec. 490, 671 N.E.2d 657 (1996), holds that § 514(a) does not preempt the common-fund doctrine. We agree with Scholtens.

Section 514(a) preempts state laws "insofar as they ... relate to any employee benefit plan". Illinois's common-fund doctrine, like its parallel in federal law, e.g., Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980), is not about employee benefit plans. The common-fund doctrine long predates not only ERISA but also employer-sponsored health plans. Most applications have nothing to do with health insurance in general, or employer-sponsored plans in particular. The doctrine could be thought "related" to an "employee benefit plan" only in the trivial sense that, "as many a curbstone...