Culp, Inc. v. Cain
| Decision Date | 14 February 2006 |
| Docket Number | No. 2:03CV1015-MHT.,2:03CV1015-MHT. |
| Citation | 414 F.Supp.2d 1118 |
| Parties | CULP, INC., Health Care Plan, and Benefit Management Services, Inc., as fiduciary of the Culp, Inc. Health Care Plan, Plaintiffs, v. Laura H. CAIN, Defendant. |
| Court | U.S. District Court — Middle District of Alabama |
Ashley Heron Hattaway, Michael L. Lucas, Burr & Forman LLP, Birmingham, AL, Byrum Ellsworth Tudor, III, Tudor Law Firm PC, Nashville, TN, for Plaintiffs.
G. William Gill, Law Office of G. William Gill, Montgomery, AL, for Defendant.
In this equitable proceeding brought pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), § 502(a)(3), as amended, 29 U.S.C. § 1132(a)(3), an ERISA plan and its third-party administrator seek to be reimbursed from settlement proceeds obtained by a beneficiary in a prior negligence lawsuit arising out of an automobile accident. The plaintiffs are Culp, Inc. Health Care Plan ("the Plan") and Benefit Management Services, Inc. ("BMS"); the defendant is Laura Cain ("Cain"). The court's jurisdiction is proper under 29 U.S.C. § 1132(e)(1).
This matter was heard in a non jury trial conducted on September 12, 2005. The parties filed supplemental briefs addressing several issues raised by the court during trial. After considering the parties' arguments and the evidence adduced at trial, the court finds in favor of the Plan and BMS, in part, and in favor of Cain, in part.
Culp, Inc. ("Culp") sponsored the Plan, a group health plan, and engaged BMS as the Plan's third-party administrator.1 At all times relevant here, Cain was an employee of Culp and a Plan participant within the meaning of ERISA, 29 U.S.C. § 1002(7). The Plan's summary description ("summary description") contains a subrogation provision.2
On November 18, 1999, Cain suffered injuries from an automobile accident. Approximately one month later, BMS, on behalf of the Plan, notified Cain in writing of the Plan's subrogation and reimbursement provisions and asked Cain to sign a Subrogation Reimbursement Agreement to acknowledge these provisions. The law firm of McPhillips, Shinbaum & Gill, L.L.P. ("McPhillips") was primarily responsible for representing Cain in a state-tort lawsuit she filed against the driver of the other car. McPhillips wrote to BMS that it would honor any subrogation rights to which BMS and the Plan were entitled under state and federal law.3
The Plan subsequently paid at least $ 45,353.51 in medical claims to or on behalf of Cain, of which $ 36,178.70. was related to neck, back, and leg injuries, while the remainder was related to a rotator cuff injury. BMS asked McPhillips to place any funds received as a result of the yet-unsettled tort action into a trust until the Plan's subrogation interests had been severed from Cain's interests.4
During her deposition in the state-tort lawsuit, Cain stated that the "majority of the pain [from her back, legs, shoulder and neck] started after November the 19th, 1999,"5 the date of the accident. She also claimed that, because of the accident, the pain in her neck, back, shoulders, and legs was so severe that she could not return to work. Although Cain indicated that she had neck surgery prior to the accident, she stated in her deposition that post-surgery and pre-accident, "my neck was like normal ... except for a little soreness from the incision."6 Cain also stated that she used a cane after the accident to assist in walking and needed treatment for depression.7
In response to written interrogatories, Cain reiterated that she suffered from back, leg, neck, and shoulder pain, as well as frequent headaches, since the date of the car accident.8 When asked to give an itemized account of all losses and expenses that she suffered as a' result of the accident, Cain's itemized list totaled $ 56,-082.41.9
Cain settled her tort action for $ 340,-000. McPhillips informed the Plan of the settlement and indicated that the Plan had a subrogation claim only as to $ 8,506.05, minus a pro-rata share of attorneys' fees and litigation expenses. After commencement of the current action and in response to the Plan's filing of a petition for a temporary restraining order, McPhillips transferred the amount of $ 36,178.7010 from Cain's settlement to the court, pending the resolution of this case.11
At a non-jury trial conducted on September 12, 2005, the plaintiffs presented only one witness. Tonya Brignac, a supervisor at BMS, testified that BMS authorized payment of Cain's expenses because of McPhillips's assurance that Cain would comply with the subrogation agreement. She also stated that, although BMS originally believed that Cain's shoulder injury was unrelated to the car accident, her review of Cain's deposition testimony from the state-tort action led her to conclude that all of Cain's injuries were caused by the car accident. Finally, Brignac testified that BMS had consistently interpreted the subrogation agreement to require Plan participants to reimburse the Plan for the full amount of recovery, not an amount reduced by a pro-rata share of attorneys' fees and costs. Cain testified at trial that the attorneys' fees associated with the state-tort action were 40% of any recovery; she did not discuss the cause of her injuries. Both parties also submitted considerable documentary evidence.
The plaintiffs argued that they should recover $ 45,353.57, plus prejudgment interest, under the Plan's subrogation agreement because the car accident caused all of Cain's injuries. Cain countered that the plaintiffs were entitled to only $ 8,506.05 because some of her injuries were not caused by the accident12 and that any subrogation recovery should be reduced by a pro-rata share of attorneys' fees.
In addition to the arguments presented at trial by the parties, the court raised several issues sua sponte. First, the court asked what standard of review applies to BMS's determination that payments for certain injuries were subject to the subrogation agreement; second, the court noted that the subrogation provision seemed ambiguous as to whether a beneficiary could reduce the subrogation reimbursement by a pro-rata share of the attorneys' fees spent to recover the money. When the plaintiffs stated that BMS had consistently interpreted that provision to mean that subrogation payments are unreduced by attorneys fees, the court asked what standard of review should apply to the Plan administrator's interpretation of the Plan's subrogation provisions.
This case involves two decisions made by a plan administrator: BMS's determination that all of Cain's injuries were caused by the car accident, and BMS's interpretation of the subrogation provision. The plaintiffs maintain that this court should defer to both determinations.
"Although it is a comprehensive and reticulated statute, ERISA does not set out the appropriate standard of review for actions under [its various remedial provisions]." Firestone Tire and Rubber Co. v. Brach, 489 U.S. 101, 108, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (internal quotations and citation omitted). To fill this gap, the Supreme Court applied a de novo standard of review to actions brought by ERISA plan participants who challenge the denial of benefits under 29 U.S.C. § 1132(a)(1)(B), but explained that an abuse-of-discretion standard of review applies if the plan vests the plan administrator with discretionary authority to make benefit-eligibility determinations or construe the plan's terms. Id. at 115, 109 S.Ct. 948.
Building on Firestone, the Eleventh Circuit Court of Appeals has developed the following standards of review for ERISA denial-of-benefits cases: (1) de novo, if the plan administrator is not afforded discretion; (2) arbitrary and capricious, if the plan grants the administrator discretion; and (3) heightened arbitrary and capricious, if the administrator has discretion but operates under a conflict of interest. Brown v. Blue Cross & Blue Shield of Ala., Inc., 898 F.2d 1556, 1561 (11th Cir. 1990), cert. denied, 498 U.S. 1040, 111 S.Ct. 712, 112 L.Ed.2d 701 (1991); see also HCA Health Servs. of Ga., Inc. v. Employers Health Ins. Co., 240 F.3d 982, 993 (11th Cir.2001).
Under Firestone and its progeny, the critical inquiry in determining the appropriate standard of review is whether the administrator making the challenged decision is vested with discretion. An administrator is vested with discretion only if the plan instrument, in this case the summary description, explicitly grants discretion to the administrator over specific activities. Firestone, 489 U.S. at 112-13, 109 S.Ct. 948. Thus, a court may look only to the terms of the plan instrument to determine if the plan administrator is vested with discretion over a certain matter. Id.
Firestone involved 29 U.S.C. § 1132(a)(1)(B) (), while this case involves 29 U.S.C. § 1132(a)(3) (). This distinction is significant because the holding in Firestone was limited to actions under § 1132(a)(1)(B): The Court explicitly reserved judgment on the appropriate standards of review for actions under all other remedial provisions of ERISA. Firestone, 489 U.S. at 108, 109 S.Ct. 948.
The Supreme Court has not revisited that question, and the Eleventh Circuit has not applied Firestone outside the denial-of-benefits context. Accordingly, what the appropriate standards of review for decisions by plan administrators are in § 1132(a)(3) cases remains an open question in this circuit. However, nearly every federal court that has addressed that question has concluded that Firestone applies to administrator interpretations of ambiguous plan provisions in actions brought under § 1132(a)(3). Sunbeam-Oster Co., Inc. Group Benefits Plan...
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