Electro-Mechanical Corp. v. Ogan

• Decision Date: 03 November 1993
• Docket Number: No. 92-6256,ELECTRO-MECHANICAL,92-6256
• Citation: 9 F.3d 445
• Parties: 17 Employee Benefits Cas. 1784 CORPORATION, Plan Administrator for the Employee Benefit Plan of Line Power Manufacturing Corporation, Plaintiff-Appellee, v. Douglas L. OGAN, Karen E. Ogan, individually and as next friends of Nathan Douglas Ogan, a minor, Hamilton Bank of Upper East Tennessee, Special Guardian, and Hamilton Bank of Upper East Tennessee, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 445

9 F.3d 445

17 Employee Benefits Cas. 1784

ELECTRO-MECHANICAL CORPORATION, Plan Administrator for the Employee Benefit Plan of Line Power Manufacturing Corporation, Plaintiff-Appellee, v. Douglas L. OGAN, Karen E. Ogan, individually and as next friends of Nathan Douglas Ogan, a minor, Hamilton Bank of Upper East Tennessee, Special Guardian, and Hamilton Bank of Upper East Tennessee, Defendants-Appellants.

No. 92-6256.

United States Court of Appeals Sixth Circuit.

Argued July 1, 1993.

Decided Nov. 3, 1993.

William C. Bovender (argued and briefed), Hunter, Smith & Davis, Kingsport, TN and C. Thomas Davenport, Jr., Bristol, VA, for plaintiff-appellee.

Olen G. Haynes (argued and briefed) Hicks, Arnold, Haynes & Sanders, Johnson City, TN, for defendant-appellant.

Before: RYAN and BOGGS, Circuit Judges; and ECHOLS, District Judge. ^*

ECHOLS, District Judge.

In this appeal, Defendants-Appellants, Douglas L. and Karen E. Ogan ("the Ogans"), individually and as next friends of their son, Nathan Douglas Ogan, and Hamilton Bank of Upper East Tennessee ("Hamilton Bank"), challenge the district court's grant of summary judgment in favor of the Plaintiff-Appellee, Electro-Mechanical Corporation ("Electro-Mechanical"), 820 F.Supp. 346, the Plan Administrator for the employee benefit plan of Line Power Manufacturing Corporation. By granting Electro-Mechanical's Motion for Summary Judgment, the district court declared that Electro-Mechanical was entitled to recoup the full amount of its subrogation claim against the settlement proceeds of the medical malpractice action brought by the Ogans on behalf of their son, Nathan Ogan, as well as any future medical expenses it will pay on Nathan's behalf. For the reasons more fully outlined herein, we affirm the district court's decision.

Douglas L. Ogan has been an employee of Line Power Manufacturing Company ("Line Power") for seventeen years, the last twelve years of which he has served in the position of a supervisor. He is a participant in Line Power's employee health benefit plan ("the plan") which covers both employees and their dependents. It is undisputed that the plan is governed by the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1002(1) (1988) ("ERISA").

Prior to August 1987, the plan was funded by insurance purchased from various outside providers. During this time, the plan did not contain a subrogation provision. On August 22, 1988, Line Power created a new employee benefit plan which was self-funded and which included a subrogation clause which read as follows:

If any payment is made under this Plan, the Plan Administrator will be subrogated to all the rights of recovery of the covered person to whom or for whose benefit the payment was made, to the extent of the amount paid. The covered person will execute and deliver instruments and papers and do whatever else is necessary to secure these rights and will do nothing to prejudice such rights.

On January 1, 1992, this new plan was further amended to clarify the language of the subrogation clause as follows:

If any payment is made under this Plan, the Plan Administrator will be subrogated to all the rights of recovery of the covered person for whom benefits are paid.

If you or your Dependents recover damages from a third party(ies) which related to a condition for which the Plan incurred expenses, the Plan shall be entitled to reimbursement to the extent of any such expenses incurred. You and your dependents must notify the Plan of this possibility and must cooperate fully with the Plan in this regard and must do nothing that may prejudice the Plan's rights.

This amendment was retroactively effective to October 1, 1991.

On July 23, 1986, Nathan Ogan was born with severe neurological damage which resulted in serious and permanent disabilities. His medical expenses were covered by Line Power's employee health benefit plan. In August 1987, the Ogans filed a medical malpractice action on behalf of Nathan against certain medical professionals involved with his birth. The Ogans settled their medical malpractice action for a total of $1,100,000.00 on May 11, 1990. This settlement was divided as follows: 1) $200,000.00 was paid directly to Douglas L. Ogan and Karen E. Ogan; 2) $321,789.77 was approved and allocated for costs and attorneys' fees; and 3) the balance of $578,210.23 was paid to the Sullivan County Court for the benefit of the minor, Nathan Ogan. ¹

After receiving notice of this settlement, Electro-Mechanical notified the Ogans that, under the plan's subrogation provision, they were required to reimburse the plan for the costs of the medical expenses which the plan had paid on Nathan's behalf. ² When the Ogans failed to reimburse the plan, Electro-Mechanical instituted this action, seeking a declaratory judgment as to the validity of its subrogation rights, and requesting full enforcement of those rights against the Ogans. Shortly thereafter, both parties filed Cross-Motions for Summary Judgment. The district court granted Electro-Mechanical's Motion for Summary Judgment and denied the Ogans' Motion for Summary Judgment.

The parties have presented two issues on appeal. The first issue is whether the district court erred in finding that the Tennessee Medical Malpractice statute is preempted by ERISA and, therefore, inapplicable to the issues raised in this action. The second issue is whether the district court erred in finding that Electro-Mechanical did not breach its fiduciary duty by failing to provide the Ogans with an explanation of the subrogation clause contained within the new plan, as well as the clause's effect upon any recovery the Ogans might obtain from a third party tortfeasor.

Our review of a district court's grant of summary judgment is governed by the same general standards employed by the district court initially. See Hines v. Joy Mfg. Co., 850 F.2d 1146, 1149 (6th Cir.1988) (citing 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Sec. 2716 (1983); and Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir.1987)). Therefore, this Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). A party may obtain summary judgment if the evidentiary material on file shows "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." Fed.R.Civ.P. 56. The moving party bears the initial burden of satisfying the court that the standards of Rule 56 have been met. See Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir.1986). Once the moving party has satisfied the initial burden, the non-moving party "may not rest upon the mere allegations or denials of the adverse party's pleadings, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-moving party's failure to "make a sufficient showing to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial" will result in dismissal of the non-moving party's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The court must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. at 251-252, 106 S.Ct. at 2512. The ultimate inquiry is whether there exists any genuine issue of material fact which is disputed. Id. at 248, 106 S.Ct. at 2510. If so, summary judgment dismissal is inappropriate.

The Ogans first contend that since the Tennessee Medical Malpractice Act, Tenn.Code Ann. Sec. 29-26-119 (1980), precludes them from recovering Nathan's medical expenses in their malpractice action because his expenses were paid by insurance or self-funded benefits provided by the employer, the settlement proceeds paid by the health professionals did not include any such medical expenses. Therefore, the district court erred in finding that the Tennessee statute, which limited their recovery in their malpractice action, was preempted by ERISA and, therefore, inapplicable to this case. The Tennessee statute upon which the Ogans rely provides:

Damages.--In a malpractice action in which liability is admitted or established, the damages awarded may include (in addition to other elements of damages authorized by law) actual economic losses suffered by the claimant by reason of the personal injury, including, but not limited to cost of reasonable and necessary medical care, rehabilitation services, and custodial care, loss of services and loss of earner income, but only to the extent that such costs are not paid or payable and such losses are not replaced, or indemnified in whole or in part, by insurance provided by an employer either governmental or private, by social security benefits, service benefit programs, unemployment benefits, or any other source except the assets of the claimants or of the members of the claimants' immediate family and insurance purchased in whole or in part, privately or individually.

Tenn.Code Ann. Sec. 29-26-119 (1980) (emphasis added).

Under the statute, if the plaintiff's medical expenses are paid by insurance provided by the employer or by any other source except the assets of the plaintiff or his immediate family or by private insurance, the plaintiff may not recover the costs of those medical expenses from the third party tortfeasor. In essence, this statute prohibits a tort plaintiff from receiving a double recovery, once from the medical benefit plan and again from the tortfeasor.

In this case, it is undisputed that Nathan Ogan's...