In re Guardianship of Holmes, 2006-CA-00465-SCT.

Decision Date27 September 2007
Docket NumberNo. 2006-CA-00465-SCT.,2006-CA-00465-SCT.
PartiesIn re GUARDIANSHIP OF Reshan Danielle HOLMES, A Minor. Bauhaus USA, Inc. v. Lillie Regina Holmes Copeland, Natural Guardian and Next Friend of Reshan Danielle Holmes, A Minor, Bancorpsouth Bank and Bill Benson, Chancery Clerk.
CourtMississippi Supreme Court

Thomas H. Lawrence, Polly Montgomery Haley, C.R. Montgomery, attorneys for appellant.

Roy O. Parker, Jr., Les Alvis, Gary L. Carnathan, Tupelo, attorneys for appellees.


GRAVES, Justice, for the Court.


¶ 1. Rashan Danielle Holmes, a minor, was injured in an automobile accident on June 1, 1996. Holmes was covered under the Bauhaus Group Employee Benefit Plan (the Plan) as a dependent of her mother and guardian, Lillie Regina Holmes Copeland.1 The Plan advanced payments for Holmes' medical expenses of more than $46,000.2

¶ 2. The Plan contains a reimbursement and subrogation clause, which states:

Medical care benefits are not payable to or for a person covered under this Plan when the injury or illness to the Covered Person occurs through the act, omission or alleged negligence of another person or which arises out of any claim or cause of action which may accrue against any third party for responsible injury, illness or death. . . .

However, the plan may elect to advance payment for Medical Care expenses incurred for an injury or illness in which a third party may be liable if the Covered Person agrees to the following:

The Covered Person will reimburse the Plan out of the Covered Person's recovery for all benefits paid by the Plan. The Plan will be reimbursed prior to the Covered Person receiving any monies recovered from a Third Party or their insurer as a result of judgment, settlement or otherwise. . . .

¶ 3. Copeland, on behalf of Holmes, filed suit against third-party tortfeasors and subsequently entered into a settlement agreement for $750,000. Bauhaus asserted a subrogation lien on the advance payments of medical benefits to Holmes.

¶ 4. Copeland then filed a Petition for Authority to Settle Doubtful Claim of Minor, requesting approval of the final settlement offer. Copeland agreed that the portion of the settlement over which rights were contested, $78,161.47, would be deposited into the registry of the Lee County Chancery Court until resolution of rights by the court. Further, Copeland asked the court to find the subrogation claim invalid since Holmes was not made whole by the settlement. Subsequently, the chancery court approved the final settlement and released the tortfeasors but left the $78,161.47 in the court registry.

¶ 5. Bauhaus filed a motion for summary judgment on January 15, 2004, asserting that Mississippi law is pre-empted by the Employee Retirement Income Security Act of 1974 (ERISA) and that the plan provides Bauhaus with the right of full reimbursement. The chancery court denied Bauhaus' motion on June 4, 2004, finding that ERISA does not pre-empt Mississippi law. Specifically, the court held: "After reviewing the briefs of the parties, and the pertinent case law, including the federal law in this case, the Court finds that the case law in regard to this matter has been well settled, and that the administration of a minor's estate is entirely a matter of state law, and is not pre-empted by ERISA."

¶ 6. By opinion issued on October 7, 2005, and subsequent order on March 7, 2006, the chancery court granted Copeland's petition to settle doubtful claim and ordered disbursement to Holmes of the funds held in the registry. Thereafter, Bauhaus filed this appeal, raising the following issues: 1) Whether the chancery court incorrectly held that Mississippi's made-whole rule applied to cases involving minors despite the Mississippi Supreme Court's ruling in Yerby v. United Healthcare Insurance Co., 846 So.2d 179 (Miss. 2002); and 2) whether the chancery court incorrectly held that ERISA does not pre-empt Mississippi's common law rule requiring chancery court approval to assign a minor's right to insurance proceeds. This Court finds that ERISA does not pre-empt state law in the instant case and affirms the judgment of the Lee County Chancery Court.3


¶ 7. The deciding issue in this case is whether ERISA pre-empts the right of the state court with regard to assigning a minor's rights to insurance proceeds. This issue has previously been addressed by this Court. See Cooper Tire & Rubber Co. v. Striplin, 652 So.2d 1102 (1995). In Striplin, this Court held that ERISA does not pre-empt state law requiring court approval for contracts affecting a minor's estate with regard to subrogation rights of the ERISA plan to insurance proceeds due to the child. The Court found:

It is clear that state courts have traditionally regulated minors' business. Miss. Const. Art. 6 § 159 ("The chancery court shall have full jurisdiction in the following matters and cases, viz: (d) Minor's business"); Alack v. Phelps, 230 So.2d 789 (Miss.1970) (minors are under the disability of age and cannot legally act for themselves, therefore, state equity courts are required to protect their interest). For these reasons, Cooper Tire's pre-emption argument is without merit.

Id. at 1104. Further, this Court reiterated the necessity of court approval prior to assigning a child's rights to insurance proceeds. See Methodist Hosps. of Memphis v. Marsh, 518 So.2d 1227 (1988) (mother had no legal authority, absent prior chancery court approval, to execute any document granting a lien against the estate of an injured minor); and McCoy v. Preferred Risk Ins. Co., 471 So.2d 396 (1985) (parents had no authority to assign uninsured motorist benefits to hospital).

¶ 8. The United States District Court for the Northern District of Mississippi found that ERISA does not pre-empt state law in the instant case.4 The Fifth Circuit Court of Appeals affirmed the district court's dismissal of the suit as not authorized by ERISA but did not reach the pre-emption argument.5

¶ 9. In the factually similar case of Clardy v. ATS, Inc. Employee Welfare Benefit Plan, 921 F.Supp. 394 (N.D.Miss. 1996), the District Court set out the following standard: "[F]ederal law will only 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." Id. at 398 (citing Boggs v. Boggs, 849 F.Supp. 462, 465 (E.D.La.1994), rev'd, 520 U.S. 833, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997), and Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979)). The District Court set out that the "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." The District Court further found:

ERISA does indeed state its intent to preempt state law by positive enactment. [. . .] 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." [. . .] 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.

Clardy, 921 F.Supp. at 398 (citations omitted). The Clardy court further found:

[T]he state law under consideration today does not prevent subrogation of claims, nor does it even directly address the matter of subrogation. The administration of a minor's estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA plans. "[A] preemption provision designed to prevent state interference with federal control of ERISA plans does not require the creation of a fully insulated legal world that excludes these plans from regulation of any purely local transaction." [Citation omitted]. The defendants in this case would have this court preempt not a state law which impinges upon contractual subrogation rights under ERISA, but a state law of general application which has only an incidental effect upon an ERISA plan. The state law in question today relates to ERISA in "too tenuous, remote, or peripheral a manner" to be preempted in this case.

Id. at 399.

¶ 10. In Boggs v. Boggs, 520 U.S. 833, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997), the United States Supreme Court found that ERISA pre-empts a state law allowing a non-participant spouse to transfer by testamentary instrument an interest in undistributed pension plan benefits. Specifically, the Court in Boggs found:

In the face of this direct clash between state law and the provisions and objectives of ERISA, the state law cannot stand. Conventional conflict pre-emption principles require pre-emption "where compliance with both federal and state regulations is a physical impossibility, . . . or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." [Citations omitted]. It would undermine the purpose of ERISA's mandated survivor's annuity to allow Dorothy, the predeceasing spouse, by her testamentary transfer to defeat in part Sandra's entitlement to the annuity § 1055 guarantees her as the surviving spouse. This cannot be. States are not free to change ERISA's structure and balance.

Id. at 844, 117 S.Ct. 1754.

¶ 11. There is no direct clash between state law and the provisions of ERISA in the instant case. Moreover, compliance with both federal and state regulations is not a physical impossibility. Mississippi law does not absolutely prohibit assignment, but...

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