Clardy v. ATS, Inc., Civil Action No. 1:95cv135-D-D (N.D. Miss. 3/__/1996), Civil Action No. 1:95cv135-D-D.

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Mississippi
Docket NumberCivil Action No. 1:95cv135-D-D.
Decision Date01 March 1996

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Civil Action No. 1:95cv135-D-D.
United States District Court, N.D. Mississippi, Eastern Division.
March __, 1996.


Presently before the court is the motion of the defendants for the entry of partial summary judgment on their behalf. Finding the motion not well taken, the same shall be denied.

Factual Summary1

The plaintiff Kenneth Clardy received serious injuries as a result of an automobile crash which occurred on August 19, 1993. Another individual, while pursued by law enforcement officials, crashed the automobile he was driving at the time into a utility pole. Kenneth was a passenger in this vehicle. As a result of his injuries, Kenneth Clardy incurred substantial hospital and related medical bills. The plaintiffs Earnest and Nadine Clardy made a claim against their insurer, ATS, Inc. Employee Welfare Benefit Plan ("ATS"), for payment of these medical expenses. Both sides concede that the ATS Employee Welfare Benefit Plan is governed by ERISA, 29 U.S.C. § 1001 et seq., and that Advanced Administrative Companies is the administrator of this ERISA plan. ATS denied the plaintiffs' claim for coverage.2 The plaintiff Kenneth Clardy, through his Guardian, also instituted an action against the driver of the vehicle for his role in producing his

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injuries. That action was settled by the parties to that action for the amount of $105,000.00 on May 26, 1994. The bulk of this amount consisted of the policy limit of the driver's applicable insurance policy, $100,000.00. From that policy amount, $33,333.34 was paid to Kenneth Clardy, $33,333.33 was paid to the plaintiff's attorney as his fee, and the remaining $33,333.33 was paid to the Regional Medical Center in Memphis, Tennessee ("The Med") in settlement of its claim against the defendants in that action.3

The plaintiffs later filed suit against ATS in the Chancery Court of Lee County, Mississippi, on November 28, 1994, seeking the payment of medical expenses for Kenneth Clardy under their employee benefit plan. The defendants subsequently removed the action to this court on April 25, 1995. The terms of the plaintiffs' benefit plan provide in relevant part:

11. Right of Reimbursement: If a covered person is injured through the act or omission of another person, the Plan shall provide the benefits only on condition that the employee shall agree in writing:

a. To reimburse the Plan to the extent of benefits provided, immediately upon collection of damages by him, whether by legal action, settlement, or otherwise, and including but not limited to motor vehicle insurance;

. . .

b. The employee's agreement is binding on his covered dependents also.

On February 14, 1994, the plaintiffs Earnest and Nadine Clardy executed a written agreement to reimburse ATS for benefits, subject to a reasonable cost of collection. This agreement was not signed by Kenneth Clardy, nor was it signed on his behalf with approval of a state court Chancellor.

The defendants have now filed their motion for partial summary judgment, seeking a ruling from this court that pursuant to the reimbursement agreement signed by Earnest and Nadine Clardy, they are entitled to a set-off against any judgment assessed against them in light of the settlement against the defendants in the prior state court action.


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Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." F.R.C.P. 56(c). The party seeking summary judgment carries the burden of demonstrating that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once a properly supported motion for summary judgment is presented, the burden shifts to the non-moving party to set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511, 91 L.Ed.2d 202 (1986); Brothers v. Klevenhagen, 28 F.3d 452, 455 (5th Cir. 1994). "Where the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986); Federal Sav. & Loan Ins. v. Krajl, 968 F.2d 500, 503 (5th Cir. 1992). The facts are reviewed drawing all reasonable inferences in favor of the party opposing the motion. Matagorda County v. Russel Law, 19 F.3d 215, 217 (5th Cir. 1994).


The argument of the defendants is simple. They contend that pursuant to the policy provisions dictating reimbursement, they are entitled to receive "credit" toward any judgment for the proceeds already received by the plaintiffs in settlement of the previous state court action.


The plaintiffs' initial response to the defendants motion is that the "reimbursement agreement" signed by Earnest and Nadine Clardy is invalid as it has not been approved by the Chancery Court. Under Mississippi law, Chancery Court approval is required in order to validly assign a minor's right to insurance proceeds. Methodist Hosps. of Memphis v. Marsh, 518 So.2d 1227, 1228 (Miss. 1988); McCoy v. Preferred Risk Ins. Co., 471 So.2d 396, 398 (Miss. 1985). Using this rationale, the plaintiffs argue that a Chancellor must likewise approve any assignment of

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litigation proceeds. The defendants counter that this Mississippi state rule of law as enunciated in Methodist Hospitals and McCoy is preempted by ERISA as the rule of state law "relates to" an ERISA-governed plan. The defendants would have this court hold that, in this case, the reimbursement agreement is valid notwithstanding the absence of a Chancellor's approval.

ERISA "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C. § 1144(a). Preemption under ERISA is "deliberately expansive." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). "A law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to the plan." Shaw v. Delta Airlines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983); Hook v. Morrison Milling Co., 38 F.3d 776, 781 (5th Cir. 1994). A state law may "relate to" a plan "even if that law was not designed to affect such plans, and even if its effect is only indirect." Rokohl v. Texaco, Inc., ___ F.3d ___, 1996 WL 77703, *3 (5th Cir. 1996) (citing Rozzell v. Security Servs., Inc., 38 F.3d 819, 821 (5th Cir. 1994). Nonetheless, ERISA preemption is not all-encompassing, and state actions which affect employee benefit plans in "too tenuous, remote, or peripheral a manner" will not justify a finding that the law "relates to" a plan. Shaw, 463 U.S. at 100 n.21, 103 S.Ct. at 2901 n.21.

Preemption of a state law concerning domestic relations is uncommon, even under ERISA. The United States Supreme Court has repeatedly noted that in enacting ERISA, "Congress [did] not intend to preempt areas of traditional state regulation." E.g., FMC Corp. v. Holliday, 498 U.S. 52, 62, 112 L.Ed.2d 356, 367, 111 S.Ct. 403 (1990). "The whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States." Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 99 S.Ct. 802, 808 (1979) (quoting In re Burrus, 136 U.S. 586, 593-94, 10 S.Ct. 850, 853, 34 L.Ed.2d 500 (1890)). "Because domestic relations matters are primarily matters of state law, we have consistently recognized that Congress, when it passes general legislation, rarely intends to displace state authority in this area." Mansell v. Mansell, 490 U.S. 581, 587, 109 S.Ct. 2023, 2028 (1989). As a consequence, federal law will only

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preempt a state law pertaining to domestic relations if: 1) Congress has positively expressed its intent to preempt the state law and 2) the state law does major damage to a clear and substantial federal interest. Boggs v. Boggs, 849 F. Supp. 462, 469 (E.D. La. 1994) (citing Hisquiedo, 439 U.S. at 581, 99 S.Ct. at 808).

ERISA does indeed state its intent to preempt state law by positive enactment. 29 U.S.C. § 1144(a). However, this court can find no damage to any clear and substantial federal interest in this case which would justify preemption of this state law of domestic relations. Indeed, it is the opinion of this court that the opposite is true. The most fundamental concern of Congress in enacting ERISA was "the continued well-being and security of employees and their dependents." 29 U.S.C. § 1129(a). Displacing this state law requirement which polices the disposition of a minor's rights would take away a protection from the dependents of an employee, rather than ensure their continued well-being and security.

There is, however, a federal interest in maintaining a uniform legal scheme for the enforcement of ERISA:

The courts have, however, recognized that ERISA broadly preempts state law because Congress was primarily concerned with requiring all pension plans to operate under uniform legal scheme and to eliminate the threat of...

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