Moore v. Capitalcare, Inc.

• Decision Date: 29 August 2006
• Docket Number: No. 04-7121.,No. 04-7122.,04-7121.,04-7122.
• Citation: 461 F.3d 1
• Parties: William MOORE, Individually and as Parents and Guardians of Alistaire Moore; Judith Moore, Individually and as Parents and Guardians of Alistaire Moore, Appellants, v. CAPITALCARE, INC. et al., Appellees William Moore, Individually and as Parents and Guardians of Alistaire Moore; Judith Moore, Individually and as Parents and Guardians of Alistaire Moore, et al. Appellees, v. CapitalCare, Inc. et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

461 F.3d 1

William MOORE, Individually and as Parents and Guardians of Alistaire Moore; Judith Moore, Individually and as Parents and Guardians of Alistaire Moore, Appellants, v. CAPITALCARE, INC. et al., Appellees William Moore, Individually and as Parents and Guardians of Alistaire Moore; Judith Moore, Individually and as Parents and Guardians of Alistaire Moore, et al. Appellees, v. CapitalCare, Inc. et al., Appellants.

No. 04-7121.

No. 04-7122.

United States Court of Appeals, District of Columbia Circuit.

Argued November 1, 2005.

Decided August 29, 2006.

COPYRIGHT MATERIAL OMITTED

Appeals from the United States District Court for the District of Columbia (No. 94cv01326).

Martin H. Freeman argued the cause for the appellants/cross-appellees.

Jacqueline Marie Saue argued the cause for the appellees/cross-appellants. Charles J. Steele entered an appearance.

Before: HENDERSON, Circuit Judge, and Edwards^* and WILLIAMS, Senior Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

KAREN LECRAFT HENDERSON, Circuit Judge.

Alistaire Moore, the daughter of William and Judith Moore (collectively, Moores), was severely injured in an automobile accident and as a result required extensive medical care. She is the beneficiary of a health insurance plan administered by CapitalCare, Inc. and Blue Cross & Blue Shield of the National Capital Area (BCBS) (collectively, CC/BCBS). CC/BCBS paid over $200,000 in accident-related benefits on Alistaire's behalf. Alistaire also recovered a $1.3 million settlement for her injuries from a personal injury lawsuit. In 1994, the Moores instituted this action under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq., alleging that CC/BCBS failed to pay benefits due under the plan. CC/BCBS countersued under ERISA, claiming that, pursuant to a subrogation clause in the plan, it was entitled to reimbursement because Alistaire received compensation from a third party for her injuries. The district court awarded the Moores $72,083.52 in unpaid benefits, awarded CC/BCBS an equitable lien of $194,274.72 against the settlement funds and denied both parties' motions for prejudgment interest and attorney's fees. The Moores appeal the grant of the equitable lien against the settlement proceeds claiming that, because Alistaire was not "made whole" for her injuries, CC/BCBS are not entitled to reimbursement. We disagree, concluding that Alistaire's health insurance plan expressly provides for reimbursement in the event of partial recovery from a third party. Both the Moores and CC/BCBS appeal the denial of prejudgment interest and attorney's fees, which we reverse and remand as to all parties.

I.

In 1991, the Moores purchased a group benefit plan (ERISA plan) from BCBS and its wholly-owned subsidiary, CapitalCare. The ERISA plan included various contracts that together provided "dual option coverage." The ERISA plan's dual option coverage allowed an insured to seek medical attention at his option either from the HMO side through CapitalCare or from the indemnity side through BCBS. The ERISA plan also included a subrogation clause, by which an injured beneficiary agreed to reimburse CC/BCBS for medical expenses the ERISA plan paid if he recovered compensation from a third party for his injuries.¹

On September 10, 1992, Alistaire Moore sustained life-threatening injuries when the chauffeured car in which she was a passenger crashed. Her resulting medical care was lengthy and expensive. She is a beneficiary under the ERISA plan. After several years of wrangling with CC/BCBS over Alistaire's healthcare expenses, the Moores initiated this lawsuit against CC/BCBS in 1994.² The suit, brought under section 502(a)(1)(B) of ERISA, see 29 U.S.C. § 1132(a)(1)(B),³ sought unpaid benefits allegedly due under the ERISA plan.

During discovery, CC/BCBS learned that Alistaire had obtained a $1.3 million settlement from a personal injury suit that was filed on her behalf against the chauffeur and his insurers. CC/BCBS believed that the proceeds of the settlement were held in an irrevocable trust for the benefit of Alistaire M. Moore (Trust) with Judith Deitz as the named trustee.⁴ CC/BCBS then filed a counterclaim against the Moores, asserting their subrogation claim. CC/BCBS also filed a third party complaint against Alistaire M. Moore, the Trust and Judith Deitz Moore as trustee, seeking reimbursement for the benefits they had paid for Alistaire's care. The Moores never responded to CC/BCBS's counterclaim. The third party defendants admitted that the Trust had been created with and/or contained funds from the settlement. Pls.' Answer to Third Party Compl. ¶ 3, reprinted at Supplemental Appendix (SA) 124.

Following a bench trial, the district court concluded that CC/BCBS had failed to pay the Moores benefits due under ERISA but that CC/BCBS also had a subrogation right to the settlement proceeds to the extent they had paid benefits to Alistaire or on her behalf. See Moore v. Capitalcare, Inc., 70 F.Supp.2d 9 (D.D.C. 1999). Thereafter, the Moores moved for reconsideration of the subrogation ruling, which motion the court denied. See Moore v. CapitalCare, Inc., No. 94-1326 (D.D.C. June 1, 2000). The court also ordered an accounting to determine the amount each party was due. See id. Following the accounting, the Moores first claimed that the settlement proceeds had dissipated and therefore could not be subject to an equitable lien. Pls.' Reply Mem. in Supp. of Pls.' Mot. for Recons. on Issue of Reimbursement/Subrogation ¶ 7, R. Doc. No. 200. CC/BCBS moved for another accounting. Defs.' Mot. for Accounting & Declaratory & Equitable Remedies under Section 502(a)(3) of ERISA & Mem. of P. & A. in Supp. Thereof, R. Doc. No. 204. Without addressing the Moores' dissipation claim, the court directed CC/BCBS to pay the Moores $72,083.52 due under the ERISA plan and granted CC/BCBS an equitable lien "in the amount of $194,274.72 upon the proceeds of any recovery from any third party by reason of the injury to Alistaire Moore that is the subject of this action in aid of defendants' subrogation rights under ERISA." Moore v. CapitalCare, Inc., No. 94-1326, slip op. at 1-2 (D.D.C. July 20, 2004). It also denied without prejudice CC/BCBS's motion for a second accounting as well as all parties' petitions for prejudgment interest and attorney's fees. Id. The Moores appeal the reimbursement award,⁵ arguing that CC/BCBS's subrogation claim is legal, not equitable, and therefore barred by ERISA and, alternatively, that CC/BCBS are not entitled to reimbursement because Alistaire was not "made whole" by her settlement. The Moores also appeal the denial of their petitions for prejudgment interest and attorney's fees. CC/BCBS cross-appeal, similarly arguing that they are entitled to prejudgment interest and attorney's fees.⁶

II.

A.

We turn first to the Moores' challenge of the district court's subrogation ruling. Originally, the Moores had argued that the award was improper under ERISA section 502(a)(3), see 29 U.S.C. § 1132(a)(3), because CC/BCBS seek legal relief, not the "other appropriate equitable relief" authorized therein. ERISA section 502(a)(3) authorizes the ERISA plan fiduciary "(A) to enjoin any act or practice which violates . . . 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 . . . the terms of the plan." Id. (emphasis added).

At the time of oral argument on November 1, 2005, the circuits were split regarding an ERISA fiduciary's subrogation right under section 502(a)(3).⁷ Shortly after oral argument, the United States Supreme Court granted certiorari in Mid Atlantic Medical Services, LLC v. Sereboff, 407 F.3d 212 (4th Cir.). In that case, the Sereboffs, beneficiaries of a health insurance plan administered by Mid Atlantic Medical Services obtained a settlement from a third party for injuries they sustained in an accident. Mid Atlantic brought suit under section 502(a)(3) seeking reimbursement pursuant to the "Acts of Third Party" provision of the Sereboffs' ERISA plan, under which the Sereboffs agreed to reimburse Mid Atlantic for medical expenses the latter paid if they recovered from a third party for their injuries. The district court found in favor of Mid Atlantic. The Sereboffs appealed and the Fourth Circuit affirmed, concluding that Mid Atlantic sought equitable restitution.

The High Court affirmed the Fourth Circuit. It first considered whether the type of relief Mid Atlantic sought was equitable or legal. See Sereboff v. Mid Atlantic Med. Servs., Inc., ___ U.S. ___, 126 S.Ct. 1869, 1873-74, 164 L.Ed.2d 612 (2006). The Court determined that Mid Atlantic sought an "equitable lien," properly characterized as equitable because the funds were specifically identifiable and remained in the possession and control of the Sereboffs. Id. at 1874. The Court next analyzed whether the basis for Mid Atlantic's claim was equitable, applying "`the familiar rul[e] of equity that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing.'" Id. at 1875 (quoting Barnes v. Alexander, 232 U.S. 117, 121, 34 S.Ct. 276, 58 L.Ed. 530 (1914)) (alteration in Sereboff.) The Court found that the "`Acts of Third Parties' provision in the Sereboffs' plan specifically identified a particular fund, distinct from the Sereboffs' general assets — `[a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise)' — and a particular share of that fund to which Mid Atlantic was entitled—'that portion of the total recovery which is due [Mid Atlantic] for benefits paid.'" Id. (alteration in original) (citation omitted). Mid Atlantic therefore "could rely on a `familiar rul[e] of equity' to collect for the medical bills it had paid on the Sereboffs' behalf." Id. (citing Barnes, 232 U.S. at 121, 34...