Sargeant v. Local 478 Health Benefits & Ins. Fund, Civ. No. H-89-457 (PCD).

• Decision Date: 17 September 1990
• Docket Number: Civ. No. H-89-457 (PCD).
• Parties: Sandra SARGEANT v. INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL UNION 478 HEALTH BENEFITS AND INSURANCE FUND.
• Court: U.S. District Court — District of Connecticut

746 F. Supp. 241

Sandra SARGEANT v. INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL UNION 478 HEALTH BENEFITS AND INSURANCE FUND.

Civ. No. H-89-457 (PCD).

United States District Court, D. Connecticut.

September 17, 1990.

Ross T. Lessack, Edward T. Dodd, Jr., Waterbury, Conn., for plaintiff.

Norman Zolot, New Haven, Conn., for defendant.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DORSEY, District Judge.

I. Facts and Procedural History

On February 29, 1984, plaintiff, spouse of Richard Sargeant, a member of the defendant's health benefit plan (the "Fund"), received injuries as a result of a slip and fall at a Burger King. Plaintiff's Statement of the Facts, ¶ 1; Defendant's Statement of the Facts, ¶ 8. The Fund, a self-insured plan subject to federal regulation in accordance with 29 U.S.C. § 1001, et seq. (Employee Retirement Income Security Act ("ERISA")), paid a total of $31,067.82 for the plaintiff's medical, surgical, hospital, and related expenses. Defendant's Statement, ¶ 16; McParland Affidavit, ¶ 4.¹ The Fund's rules provide that it "is not liable for any health expenses caused by the negligence of third parties," but that it would pay such expenses provided that the member or dependent sign the Fund's Reimbursement Agreement. Plaintiff's Exhibit K; Defendant's Statement, ¶ 7.

On August 11, 1986, plaintiff executed a reimbursement agreement pursuant to the terms of the Fund. The agreement provided that, if the Fund provides benefits as a result of the February 29, 1984 accident, which are later determined to be the legal responsibility of a third party, it shall have the right to "recover the full cost of such benefits from me without any deductions of any type, including attorney fees."² Plaintiff's Exhibit J; Defendant's Statement, ¶ 13. Plaintiff sued Burger King and its parent, Pillsbury Corp., alleging negligence on the part of Burger King. Plaintiff's Statement, ¶ 1; Defendant's Statement, ¶ 11. Plaintiff settled that civil action for $175,000. Plaintiff's Statement, ¶ 2; Defendant's Statement, ¶ 18. Defendant asserts that plaintiff then agreed to pay the $31,076.82 claimed by the defendant, Defendant's Statement, ¶ 25 and Exhibit B-1; but when the Fund informed plaintiff that it would not pay any future expenses related to the injuries as to which settlement was reached, plaintiff refused to pay the $31,076.82. Defendant's Statement, ¶ 26-27. Plaintiff claims that the Fund does not have a right to be reimbursed and seeks a declaratory judgment that the Fund be denied some or all reimbursement out of the settlement sum. Plaintiff also seeks a declaration that the Fund is liable for future medical expenses related to the fall injuries. The Fund has counterclaimed for reimbursement and costs of collection.

II. Standard of Review

Summary judgment motions must be resolved in accordance with Fed.R.Civ.P. 56(c), which provides, in part, that summary judgment shall be rendered only when "there is no genuine issue as to any material fact." In deciding a motion for summary judgment, "the court cannot try issues of fact; it can only determine whether there are issues to be tried." Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1319-20 (2d Cir.1975). However, "the mere existence of factual issues — where those issues are not material to the claims before the court — will not suffice to defeat a motion for summary judgment." Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir.1985) (per curiam). "Properly used, summary judgment allows the court to dispose of meritless claims before becoming entrenched in a frivolous and costly trial." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57-58 (2d Cir.1987).

III. Applicable Law

A. ERISA Preemption

Plaintiff urges application of state law in the resolution of her motion and argues that any amount the Fund should receive out of the settlement proceeds should be based on equitable considerations. Plaintiff's Memorandum at 2-3. Plaintiff asserts that she settled her claims against Burger King for "less than 50% of the full value of the case so she was not made whole by the settlement." Id. at 2. Plaintiff argues that the Fund should accept fifty cents on the dollar for its claim for reimbursement and deduct one-half of the costs, plus one-third of the fees claimed as costs of collection.

The Fund contends that, as an employee welfare benefit plan, state law is preempted by federal law and the resolution should be governed by ERISA. Defendant's Memorandum at 13. The "Health Benefits and Insurance Plan for Active Members" is an employee welfare benefit plan as defined by ERISA, 29 U.S.C. § 1002(1), and is also covered by ERISA's governing provisions, 29 U.S.C. § 1003(a). Section 1144(a), 29 U.S.C., provides that "the provisions of ERISA shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan." This provision is qualified by two exceptions which may exempt a state law from preemption. 29 U.S.C. §§ 1144(b)(2)(A)-(B). The issue is whether state law, statutory or common, governing subrogation rights of an employee welfare benefit plan, is preempted or is excepted from preemption. However, there is no need to decide the preemption question.³

Absent preemption, state law would govern. And, even if preemption applies, for the reasons noted below, federal common law would apply state law. Thus, in either instance, state law would govern.

B. Adoption of State Law as Federal Common Law

Assuming that ERISA preempts state law, a federal common law remedy is necessary, because ERISA does not provide an explicit remedy for this subrogation-rights dispute. A "federal common law of rights and obligations under ERISA-regulated plans" must be developed for issues not directly addressed by ERISA. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557, 95 L.Ed.2d 39 (1986); see also, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989); Franchise Tax Bd v. Construction Laborers Vacation Trust, 463 U.S. 1, 24 n. 26, 103 S.Ct. 2841, 2854 n. 26, 77 L.Ed.2d 420 (1983) ("`a body of Federal substantive law will be developed by the courts to deal with issues involving rights and obligations under private welfare and pension plans,'" quoting 129 Cong.Rec. 29942 (1974) (remarks of Sen. Javits)).

In developing a remedy, federal courts may look to state law and may even "adopt" state law as the appropriate principle. See United States v. Yazell, 382 U.S. 341, 358, 86 S.Ct. 500, 510, 15 L.Ed.2d 404 (1966). "Whether to adopt state law or to fashion a nationwide federal rule is a matter of judicial policy `dependent upon a variety of considerations always relevant to the nature of the specific governmental interests and to the effects upon them of applying state law.'" United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 1458, 59 L.Ed.2d 711 (1979), quoting United States v. Standard Oil Co., 332 U.S. 301, 310, 67 S.Ct. 1604, 1609, 91 L.Ed. 2067 (1947). "When there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision." Id. ERISA, designed primarily to provide for secure pension payments to participants, Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 2713, 81 L.Ed.2d 601 (1984), does not necessitate national uniformity in non-core ERISA matters such as subrogation rights. "Apart from considerations of uniformity, we must also determine whether application of state law would frustrate specific objectives of the federal program.... Finally, our choice of law inquiry must consider the extent to which application of a federal rule would disrupt commercial relationships predicated on state law." Kimbell, 440 U.S. at 728-29, 99 S.Ct. at 1458-59. The adoption of state law in this area would not undermine or threaten the primary regulatory aim of ERISA. In addition, the adoption of an alternative to state law would result in a potential in-state inconsistency in subrogation rights under ERISA-regulated plans. Those that are self-insured would be subject to a federal common law rule different than the state law, while insured plans would still be subject to indirect state regulation and, therefore, the state law.⁴ The potential incongruity of subrogation rights within one state may adversely impact on commercial relationships under state law. Such an incongruity may affect the choice of an employer to establish or not establish an employee welfare benefit plan. These foreseeable results may ultimately disrupt ERISA's specific goals of secure employee retirement welfare. See Wahl v. Northern Telecom, Inc., 726 F.Supp. 235, 242 n. 4 (E.D.Wis. 1989) (concluding that federal common law should adopt state law in the subrogation rights field for reasons of in-state consistency). With no overriding federal concern involved, and given the potential adverse impact on ERISA-regulated plans which an alternative rule would entail, state law pertaining to subrogation rights will be adopted as the federal common law.⁵Wahl, 726 F.Supp. at 242 n. 4 ("federal common law should state that a self-insured plan can have no greater rights to subrogation against an insured than provided by state law").

IV. Analysis

Whether applied directly or by adoption as federal common law, the state law is the same and dictates the same result.

A. Subrogation Claim

Connecticut law governing subrogation rights, involving a personal injury action, is grounded in contract and equity and allows recovery of the benefactor's amounts paid.⁶ "The proposition is well established that an insurer's right to subrogation ... includes a claim against any judgment secured by the insured against the party at fault for the amount paid by the insurer in satisfaction of the insured's damages claim under the policy." Automobile Ins. Co. v. Conlon, 153 Conn. 415, 419, 216 A.2d 828 (1966...