Scholtens v. Schneider

• Decision Date: 19 September 1996
• Docket Number: No. 79686,79686
• Citation: 173 Ill.2d 375,671 N.E.2d 657,219 Ill.Dec. 490
• Parties: , 219 Ill.Dec. 490, 65 USLW 2219, 20 Employee Benefits Cas. 2379, Pens. Plan Guide (CCH) P 23930B Randy SCHOLTENS, Appellee, v. Jeffrey SCHNEIDER et al. (Electrical Insurance Trustees, Appellant).
• Court: Illinois Supreme Court

Page 657

671 N.E.2d 657

173 Ill.2d 375, 219 Ill.Dec. 490, 65

USLW 2219,

20 Employee Benefits Cas. 2379,

Pens. Plan Guide (CCH) P 23930B

Randy SCHOLTENS, Appellee, v. Jeffrey SCHNEIDER et al. (Electrical Insurance Trustees, Appellant).

No. 79686.

Supreme Court of Illinois.

Sept. 19, 1996.

Edwin H. Conger, and David R. Shannon, Chicago (Tenney & Bentley, of counsel), for appellant.

Michael J. Kane and Louis B. Garippo of Kane, Obbish, Propes & Garippo, Chicago, and Michael D. Walsh, Palos Hills, for appellee.

James L. Coghlan, John A. Kukankos, Anita M. D'Arcy and Francis E. Stepnowski of Coghlan, Joyce, Kukankos & D'Arcy, Chicago, and William J. Nellis, of Rosemont, for amicus curiae Trustees of the Central States, Southeast & Southwest Areas Health & Welfare Fund.

Terrence K. Hegarty and Dennis A. Rendleman, Springfield (David C. Nelson, of counsel), for amicus curiae Illinois State Bar Association.

Stewart D. Stoller and Steven E. Garstki, of Stoller & Garstki, of Chicago, for amicus curiae Illinois Trial Lawyers Assn.

Chief Justice BILANDIC delivered the opinion of the court:

Electrical Insurance Trustees (Trustees) appeal from an appellate court judgment that affirmed a circuit court order holding the Trustees liable under the common fund doctrine for attorney fees and costs expended in recouping the Trustees' subrogation lien. The Trustees claim that section 514 of the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1144 (1982)) preempts application of the common fund doctrine to self-funded employee welfare benefit plans. We hold that ERISA does not preempt application of the common fund doctrine.

The plaintiff, Randy Scholtens, an electrician, was a participant in an employee benefit plan as a member of the Illinois Brotherhood of Electrical Workers, Local 134. It is undisputed that the plan is a welfare benefit plan within the meaning of ERISA (29 U.S.C. § 1001 et seq. (1982)). The appellant, Trustees, administers the plan pursuant to a trust agreement between Local 134 and the Electrical Contractor Association of the City of Chicago. The plan is a self-funded benefit plan which provides medical and disability benefits to union electrical workers.

On December 22, 1989, Scholtens was injured in a non-work-related automobile accident. The accident occurred when a vehicle in which Scholtens was a passenger was struck by another vehicle. Scholtens' injuries required hospitalization and surgery. Pursuant to the plan, the Trustees paid medical bills and disability benefits totalling $42,921.75 to Scholtens for those injuries.

Scholtens subsequently retained an attorney to pursue a cause of action for damages arising out of the automobile accident. Scholtens filed a lawsuit against the two drivers involved in the accident, Jeffrey Schneider and L.C. O'Banner. Prior to trial, Scholtens settled his claim against the two defendants for $100,000.

The Trustees never made an independent effort to seek reimbursement of the benefits paid to Scholtens from Schneider or O'Banner, nor did they attempt to intervene in Scholtens' pending litigation against those defendants. Following Scholtens' settlement of the lawsuit, however, the Trustees demanded full reimbursement of all of the benefits paid to Scholtens. The Trustees premised their demand on the subrogation clause contained in the benefit plan and a subrogation agreement that Scholtens signed on January 3, 1990, shortly after the accident.

The subrogation clause, which appears in the booklet explaining plan benefits to participants, provided:

"In some circumstances, such as an automobile accident, a third party may ultimately pay medical expenses for you or an enrolled dependent through an insurance settlement or otherwise. In that case, you must reimburse benefits paid by the Plans to the extent they are paid by the third party."

The subrogation agreement that Scholtens signed after his accident provided, in part:

"The undersigned hereby agrees, in consideration of money paid or to be paid by the Electrical Insurance Trustees to me as an employee under a Plan of benefits maintained by the Trustees, or to another on my behalf as such employee, because of loss or damage for which I or my dependent may have a cause of action against a third party who caused this loss or damage, the Trustees shall be subrogated, to the extent of such payment, to any and all recovery by me or my dependent, and such right shall be assigned to the Trustees by me as a condition of the payment of such money by the Trustees."

Faced with the demand for complete reimbursement by the Trustees, Scholtens' attorney filed a petition to adjudicate the Trustees' subrogation lien in the court where Scholtens' tort action was pending. The trial court applied the common fund doctrine and directed that the amount Scholtens owed to the Trustees would be reduced in accordance with the attorney fees and costs incurred in the litigation from $42,921.75 to $28,286.76. The trial court stated that it did not adjudicate the Trustees' rights under the terms of either the ERISA plan or the subrogation agreement, but simply applied the common fund doctrine to the facts before it.

The appellate court affirmed, rejecting the Trustees' claim that ERISA preempted the application of the common fund doctrine. We allowed the Trustees' petition for leave to appeal. 155 Ill.2d R. 315. Amicus briefs were filed on behalf of both the appellant and the appellee.

ANALYSIS

The issue in this appeal is whether section 514 of ERISA (29 U.S.C. § 1144 (1982)) preempts application of the common fund doctrine to self-funded employee benefit plans. The question of whether a federal statute, such as ERISA, preempts a particular state law is one of congressional intent. Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 738, 105 S.Ct. 2380, 2388, 85 L.Ed.2d 728, 739 (1985). Congress' intent to preempt state law may be explicitly stated in the statute's language or implicitly contained in its structure and purpose. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490, 500 (1983). In analyzing claims of preemption, however, the Supreme Court has "never assumed lightly that Congress has derogated state regulation." New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645, ----, 115 S.Ct. 1671, 1676, 131 L.Ed.2d 695, 704 (1995). Instead, the Court instructs that the analysis should begin with the presumption that Congress did not intend to supplant state law. Travelers, 514 U.S. at ----, 115 S.Ct. at 1676, 131 L.Ed.2d at 704.

In ascertaining congressional intent, the inquiry necessarily begins with an analysis of the language of the statute. Travelers, 514 U.S. at ----, 115 S.Ct. at 1677, 131 L.Ed.2d at 704. The text of ERISA's preemption provision, section 514(a), is expansive. Section 514(a) provides, with some exceptions not relevant here, that:

"the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." (Emphasis added.) 29 U.S.C. § 1144(a) (1982).

A brief discussion of the manner in which the Supreme Court has interpreted this provision and the progression of law relating thereto is helpful in resolving the question presented here.

A

Prior to 1995, the Supreme Court cases analyzing preemption claims under ERISA relied heavily upon the language of the preemption provision and dictionary definitions of the phrase "relate to" as the primary guides to determining whether a particular state law was preempted. While acknowledging that ERISA's preemption provisions were not models of legislative drafting, the Supreme Court found that section 514(a) was "conspicuous for its breadth." FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356, 364 (1990). The Court rejected an attempt to limit the scope of preemption to state laws relating to specific subjects covered by ERISA or specifically designed to affect employee benefit plans. Shaw, 463 U.S. at 98, 103 S.Ct. at 2900, 77 L.Ed.2d at 501. Instead, the Court stated that the phrase "relate to" must be given a " 'broad common-sense meaning' " Metropolitan Life Insurance Co., 471 U.S. at 739, 105 S.Ct. at 2389, 85 L.Ed.2d at 740, and that a state law "relates to" an employee benefit plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2900, 77 L.Ed.2d at 501.

For more than one decade, the Court relied upon the text of section 514(a) and, particularly, this definition of the phrase "relate to" as the basis for deciding preemption claims. Applying this analysis, the Court determined that any state law which singles out plans encompassed by ERISA for special treatment "relates to" such plans and is preempted, even if consistent with ERISA's substantive requirements. Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 829, 108 S.Ct. 2182, 2185, 100 L.Ed.2d 836, 843-44 (1988) (garnishment statute that specifically referred to ERISA plans was preempted, but general garnishment statute did not "relate to" ERISA plans and was not preempted). The Court also determined that a state law may "relate to" an employee benefit plan " 'even if the law is not specifically designed to affect such plans, or the effect is only indirect.' " District of Columbia v. Greater Washington Board of Trade, 506 U.S. 125, 130, 113 S.Ct. 580, 583, 121 L.Ed.2d 513, 520 (1992), quoting Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139, 111 S.Ct. 478, 483, 112 L.Ed.2d 474, 484. Accordingly, state laws that required that employee benefits plans be structured in a particular manner were found to "relate to" such plans and were preempted. See, e.g., Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2900, 77 L.Ed.2d at 501 (state statute that prohibited...