Diamond Crystal Brands, Inc. v. Wallace

• Decision Date: 22 January 2008
• Docket Number: Civil Action No. 1:07-CV-3172-JTC.
• Citation: 531 F.Supp.2d 1366
• Parties: DIAMOND CRYSTAL BRANDS, INC., in its capacity as fiduciary of Plan 501 of the Diamond Crystal Brands, Inc. Health Care Plan, Plaintiff, v. James W. WALLACE, Sr., in his capacity as the Administrator of The Estate of Deborah L. Hayes, Tamara Hayes, individually, and Houck, Ilardi & Regas, L.L.C., as Trustee of the Hayes Settlement Funds, Defendants.
• Court: U.S. District Court — Northern District of Georgia

531 F.Supp.2d 1366

DIAMOND CRYSTAL BRANDS, INC., in its capacity as fiduciary of Plan 501 of the Diamond Crystal Brands, Inc. Health Care Plan, Plaintiff, v. James W. WALLACE, Sr., in his capacity as the Administrator of The Estate of Deborah L. Hayes, Tamara Hayes, individually, and Houck, Ilardi & Regas, L.L.C., as Trustee of the Hayes Settlement Funds, Defendants.

Civil Action No. 1:07-CV-3172-JTC.

United States District Court, N.D. Georgia, Atlanta Division.

January 22, 2008.

COPYRIGHT MATERIAL OMITTED

John V. Kuruvilla, Kuruvilla Law Firm, P.C., Atlanta, GA, for Plaintiff.

Charles M. Cork, III, Law Office of Charles M. Cork, III, Macon, GA, for Defendants.

ORDER

JACK T. CAMP, District Judge.

Pending before the Court is the Motion for Preliminary Injunction [# 6] filed by Plaintiff Diamond Crystal Brands, Inc. ("Diamond"). Plaintiff brings this action against James W. Wallace, Sr., in his capacity as the Administrator of the Estate of Deborah L. Hayes, Tamara Hayes, and Houck, Mardi & Regas, L.L.C., as Trustee of the Hayes Settlement Funds, for equitable relief pursuant to Section 502(a)(3) of the Employment Retirement Income Security Act of 1974 ("ERISA"). The Court held a preliminary injunction hearing on January 3, 2008. After considering the argument of counsel and the evidence, the Court GRANTS in part and DENIES in part Plaintiff's Motion for Preliminary Injunction [# 6].

I. Procedural Background

Plaintiff initiated this action on December 20, 2007, filing a motion for a temporary restraining order the same day. Plaintiff, relying on Section 502(a)(3) of ERISA, sought to prohibit Defendants from disbursing or transferring settlement proceeds in their possession. The Court granted Plaintiffs motion for a temporary restraining order and scheduled a preliminary injunction hearing. (Order, Dec. 20, 2007.) On January 3, 2008, the Court held a hearing and heard evidence on Plaintiff's motion for preliminary injunction. At the hearing, the Court directed both parties to file supplemental briefs and extended the temporary restraining order to give the parties and the Court time to address legal issues raised at the hearing. Both parties have filed supplemental briefs, and the motion is ripe for decision.

II. Factual Background

The facts in this case are largely undisputed, and the parties stipulated to most of the evidentiary facts.

Plaintiff Diamond is the fiduciary of Diamond Crystal Brands, Inc. Health Care Plan ("Plan 501" or the "Plan"). Plan 501 is a self-funded ERISA plan providing healthcare benefits. The Plan contains a subrogation and reimbursement provision requiring a Plan "Recipient," as defined by the Plan, to reimburse it for medical expenses paid on behalf of a covered individual where the Recipient receives payment from a third party responsible for the medical expenses.

While receiving medical treatment in 2006, Deborah Hayes suffered injuries alleged to result from negligent medical care. These injuries ultimately led to her death. At the time of her death, Deborah Hayes was a covered individual under the Plan, which paid $261,863.58 for her medical expenses incurred as a result of her injuries.

Defendants James W. Wallace, Sr., as the Administrator of the Estate of Deborah Hayes, and Tamara Hayes, the adult daughter of Deborah Hayes, brought a medical malpractice and wrongful death action against Tanner Medical Center, Inc. ("Tanner Medical"). The Malone Law Office, P.C. represented both the Estate and Tamara Hayes in the medical malpractice action. The medical malpractice plaintiffs reached a settlement with Tanner Medical for $900,000.00.

In drafting the settlement agreement, Defendants allocated approximately $63,000.00 to the Estate for recovery of Deborah Hayes's medical expenses. Defendants allocated the remaining $837,000.00 of the settlement proceeds to Tamara Hayes for her claim for the value of the decedent's life. Plaintiff, as fiduciary of Plan 501, initiated this action to recover the $261,863.58 in medical expenses incurred by the Plan from the total settlement proceeds.

On December 27, 2007, Tanner Medical issued the settlement check in the amount of $900,000.00 and mailed it the next day to Defendant Houck, Ilardi & Regas. (Pl.'s Ex. B2 to Mot. for Prelim. Inj. at p. 2-3.) Upon receiving the check, Defendant Houck, Ilardi & Regas returned the check to Tanner Medical and requested that it issue two checks, one to the Estate and one to Tamara Hayes.

III. Preliminary Injunction Standard

Plaintiff seeks to enjoin Defendants from disbursing, disposing, dissipating, and/or transferring $261,863.58 of settlement funds until the Court decides Plaintiffs claim. In order to obtain a preliminary injunction, Plaintiff must demonstrate that:

(1) it has a substantial likelihood of success on the merits;

(2) irreparable injury will be suffered unless the injunction issues;

(3) the threatened injury to Plaintiff outweighs whatever damage the proposed injunction may cause Defendants; and

(4) if issued, the injunction would not be adverse to the public interest.

BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Servs., LLC, 425 F.3d 964, 968 (11th Cir.2005); Braswell v. Board of Regents, 369 F.Supp.2d 1362, 1366 (N.D.Ga.2005) (Thrash, J.); BlueCross BlueShield of S.C. v. Carillo, 372 F.Supp.2d 628, 638 (N.D.Ga.2005) (Murphy, J.). "The chief function of a preliminary injunction is to preserve the status quo until the merits of the controversy can be fully and fairly adjudicated." Northeastern Fla. Chapter of Ass'n of Gen. Contractors of Am. v. City of Jacksonville, Fla., 896 F.2d 1283, 1285 (11th Cir.1990). Moreover, the issuance of a preliminary injunction is an extraordinary remedy which a district court should not grant unless the moving party clearly carries the burden of persuasion as to the four elements. Id.

IV. Analysis

Plaintiff contends that it is entitled to equitable relief pursuant to 29 U.S.C. § 1132(a)(3) in the amount of $261,863.58 — the amount of money paid by the Plan for the medical bills of Deborah Hayes — because the express terms of the Plan require a plan participant to reimburse the Plan from any recovery from a third party tortfeasor. Defendants do not dispute that the Plan requires the reimbursement of the recovery for medical expenses by the Estate of the decedent in the amount of approximately $63,000.00. Defendants, however, contend that Plaintiff has no claim pursuant to ERISA for the recovery by the decedent's daughter for the value of her mother's life.

Specifically, Defendants contend that: (1) the Court may not enter a preliminary injunction under Rule 65 because Plaintiff has not perfected service on Defendants; (2) Plaintiff's action is premature as the settlement funds are not currently in the possession and control of Defendants; and (3) Plaintiff is only entitled to reimbursement from the Administrator of Deborah Hayes's Estate because the remainder of the settlement funds belong to Tamara Hayes who is not bound by the subrogation and reimbursement provisions of the Plan. Defendants' first two objections can be dealt with easily.

A. Service of Process

First, Defendants contend that the Court may not enter a preliminary injunction because Plaintiff did not properly serve Defendants.¹ Rule 65 of the Federal Rules of Civil Procedure, however, only requires that a party have notice of the motion and hearing; perfecting service on a defendant is not a prerequisite to the entry of a preliminary injunction order. Fed. R. Civ. 65(a)(1); Corrigan Dispatch Co. v. Casa Guzman, S.A., 569 F.2d 300, 302 (5th Cir.1978) ("Rule 65 does not require service of process."). Defendants had actual notice of the preliminary injunction hearing and appeared in Court. Accordingly, Plaintiff's motion is properly before the Court for consideration on the merits.

B. Equitable Relief Pursuant to ERISA

Pursuant to Section 502(a)(3) of ERISA, a fiduciary may bring a civil action to "(A) 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); see also Popowski v. Parrott, 461 F.3d 1367, 1372 (11th Cir.2006). It is undisputed that Diamond, is a fiduciary under ERISA and the suit before the Court is one to enforce the provisions of Plan 501. Defendants, however, contend, that the relief requested by Plaintiff is not equitable in nature because the settlement funds are not in the possession of Defendants.²

The Supreme Court has repeatedly explained that Section 1132(a)(3) authorizes only categories of equitable relief that were typically available in equity. Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 126 S.Ct. 1869, 1873, 164 L.Ed.2d 612, (2006); Great-West Life & Annuity Ins. Co., v. Knudson, 534 U.S. 204, 210, 122 S.Ct. 708, 712, 151 L.Ed.2d 635 (2002). A Claim for restitution under Section 1132(a)(3) is equitable where a plaintiff seeks to impose a constructive trust or equitable lien on "particular funds or property in the defendant's possession." Knudson, 534 U.S. at 213, 122 S.Ct. at 714; Sereboff, 126 S.Ct. at 1874; see also Amschwand v. Spherion Corp., 505 F.3d 342, 346 (5th Cir.2007) ("The crucial distinction between two historical species of restitution is that equitable restitution seeks only to restore to the plaintiff particular funds or property in the defendant's possession, while legal restitution imposed personal liability for breach of a legal duty.").

Here, like the ERISA fiduciary in Sereboff, Plaintiff seeks to impose a constructive trust or equitable lien on specifically identifiable funds within the possession and control of Defendants. Compare Sereboff, 126 S.Ct. at 1874 (plan fiduciary sought to impose constructive trust on settlement funds from tort action that were in the...