The Fund v. Brewster

• Decision Date: 21 November 2007
• Docket Number: No. 568, 2006.,568, 2006.
• Citation: 940 A.2d 935
• Parties: ASBESTOS WORKERS LOCAL UNION NO, 42 WELFARE FUND, Plaintiff Below-Appellant, v. Thomas. L. BREWSTER, Sr., Candace L. Brewster, and Charles Snyderman, Esq., Defendants Below-Appellees.
• Court: United States State Supreme Court of Delaware

940 A.2d 935

ASBESTOS WORKERS LOCAL UNION NO, 42 WELFARE FUND, Plaintiff Below-Appellant, v. Thomas. L. BREWSTER, Sr., Candace L. Brewster, and Charles Snyderman, Esq., Defendants Below-Appellees.

No. 568, 2006.

Supreme Court of Delaware.

Submitted: August 22, 2007.

Decided: November 21, 2007.

Court Below: Superior. Court of the State of Delaware in and for New Castle County, C.A. No.: 04C-08-210.

Upon appeal from the Superior Court. AFFIRMED.

Claiborne S. Newlin, Esquire, of Meranze and Katz, P.C., Wilmington, Delaware and David A. Gaudioso, Esquire (argued), of Meranze and Katz, P.C., Philadelphia, Pennsylvania, for Appellant.

Charles Snyderman, Esquire, of Charles Snyderman, P.A., Wilmington, Delaware, for Appellees.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY, Justices, constituting the Court en banc.

RIDGELY, Justice.

This appeal arises from a subrogation action brought by Appellant Asbestos Workers Local No. 42 Welfare Fund (the "Fund") against Appellees Thomas L. Brewster, Sr., Candace L. Brewster, and Charles Snyderman, Esquire. The Fund was established under the Employment Retirement Income Security Act of 1974 (ERISA)¹ for the benefit of the members of Asbestos Workers Local No. 42 ("Local 42") and their dependents. It operates pursuant to a Summary Plan Description (the "Plan") and the provisions of ERISA. Mr. Brewster is a member of Local 42 and Mrs. Brewster qualifies as his dependent. Mrs. Brewster was injured in an automobile accident and sought to have her medical expenses paid by the Fund. Mr. Snyderman, who was their counsel, also achieved third-party settlements from the tortfeasor and from the Brewsters' automobile insurance company.

The Plan expressly required repayment of benefits from any money received from a third party for expenses paid by the Fund. The Fund paid Mrs. Brewster's medical expenses, after she signed a subrogation agreement (as required by the Plan) promising to repay to the Fund an amount equal to the benefits she received from the Fund. The Brewsters through their counsel, Mr. Snyderman, recovered the same medical expenses from a third party settlement, but did not repay the Fund after being requested to do so.

The Fund filed suit under ERISA in the United States District Court for the District of Delaware seeking a declaration of its subrogation rights and a constructive trust over the settlement proceeds. The Fund's complaint was dismissed by the U.S. District Court for lack of subject matter jurisdiction over the claim under ERISA. The Fund did not appeal that ruling. A second lawsuit brought by the Fund in the Court of Chancery was also dismissed for lack of jurisdiction. The Court of Chancery transferred the case to the Superior Court, which granted summary judgment in favor of the Brewsters and Mr. Snyderman after concluding that the Fund's claim was preempted by federal law.

We hold that the Fund's state law claim is preempted by § 514 of ERISA because that claim "relates to" the Plan. The Fund's claim also duplicates or supplements a civil enforcement remedy available to the Fund under § 502(a)(3) of ERISA.² Because there is federal jurisdictional preemption of the Fund's subrogation claim in this case, we affirm the judgment of the Superior Court.

I.

The Fund is a multiemployer employee benefit plan (the "Plan") as defined by 29 U.S.C. § 1002(37)(A) of ERISA. The Fund was established for the benefit of the members of Local 42 and operates pursuant to both the Plan and the provisions of ERISA. Mr. Brewster is a member of Local 42 and a "participant" under the Plan. Mrs. Brewster is a dependent of a "plan participant" as defined by the Plan and 29 U.S.C. § 1002(8).

The Plan gave express subrogation rights to the Fund. Specifically, it provided:

When injury or injuries and/or death (for which any benefits would otherwise be payable under this) are caused under circumstances which create a legal liability with some other person or party, any payment made by the Plan to or on behalf of the participant shall be considered an advance only, and acceptance by the participant, dependent or provider shall constitute their agreement to repay the payments to the Plan in the event a recovery is made from the other person or party. In addition, the Fund shall be entitled to recover its lien directly from the third party.

Subrogation means that the Fund can regain, by legal action if necessary, benefits paid by it to the participant or that person's insurance company or other plan or from the participant or the parties responsible for the injury. . . .

Under the Plan's subrogation provision, a participant has the following obligations in order to be entitled to receive the advance which is provided under this Section:

1. To sign the Standard Subrogation Agreement of the Plan and to take such action and cooperate with Plan representatives as may be necessary or appropriate to recover from any third party, as damages those payments made by the Flan. (Even if, however, a participant fails to sign the Standard Subrogation Agreement, she/he will still be responsible to repay the Plan in the event of a recovery.)

2. To immediately pay to the Plan any money recovered from third persons for expenses paid by the Plan.

3. To not do anything to impair, prejudice or discharge the Plan's right of subrogation.

4. To assign to the Plan the right to bring an action against any third party responsible for the injuries sustained if the Participant fails to bring such action. . . .

The Plan can withhold future benefits to a Participant for failure to comply with these rules.

In 1996, Mrs. Brewster sustained extensive injuries in an automobile accident. Mr. Brewster applied to the Fund for payment of her medical bills. As a precondition for payment, Mrs. Brewster signed the standard subrogation agreement, contemplated by the Plan, entitled "Asbestos Workers Union Local 42 Welfare Fund Subrogation Agreement" (the "Agreement"). Under the Agreement, Mrs. Brewster assigned to the. Fund benefits paid or payable with respect to the same injury in an amount equal to the benefits received by her from the Fund.³ After Mrs. Brewster completed the form, the Fund paid medical expenses of $42,852.44 relating to Mrs. Brewster's accident.

In 1998, Mr. Snyderman, on behalf of the Brewsters, settled their claim against the driver of the other vehicle involved in the accident for $15,000—the limit of the other driver's insurance policy, Mr. Snyderman also negotiated and settled an underinsured motorist claim against the Brewster's own automobile insurance company for $100,000. Mr. Snyderman notified the Fund of the settlements and requested that the Fund provide him with the amount of its subrogation claim.

The Fund requested that the Brewsters reimburse all monies it paid to or on behalf of Mrs. Brewster under the Agreement. In response, Mr. Snyderman questioned the Fund's ability to enforce the Agreement. Sometime thereafter, he distributed $30,000 to the Brewsters and deducted one-third of the $115,000 for his attorneys' fees and related expenses. According to the Fund, Mr. Snyderman put the remainder in escrow to reimburse the Fund, but then later distributed that amount to the Brewsters as well.

In 2001, the Fund filed a Complaint for Declaratory Judgment in the United States District Court for the District of Delaware under § 502(a)(3) of ERISA,⁴ seeking a declaration of its subrogation rights and an equitable lien and constructive trust over the Brewsters' settlement proceeds. The Fund filed a parallel action in the Court of Chancery, which was stayed pending the outcome of the federal action. The District Court dismissed the federal action in reliance upon Great-West Life & Annuity Insurance. Co. v. Knudson,⁵ concluding that it did not have subject matter jurisdiction under § 502(a)(3) of ERISA because that section authorized only equitable remedies. The District Court reasoned that the Fund was trying to recharacterize an effort to recover a money judgment against the Brewsters, which Great-West had classified as a legal remedy.⁶

Thereafter, the Court of Chancery dismissed the parallel action for lack of equitable jurisdiction.⁷ The case was then transferred to Superior Court pursuant to 10 Del. C. § 1902.⁸ In the Superior Court, the parties filed cross motions for summary judgment. The Superior Court granted summary judgment in favor of the Brewsters and denied the Fund's cross motion, concluding that, as a matter of law, the Fund's claim "relates to" an ERISA employee benefit plan under § 514(a) of ERISA.⁹ In reaching this conclusion, the Superior Court stated that the Fund "appears to be without a legal mechanism thru [sic] which to obtain reimbursement of the monies paid to or on behalf of Mrs. Brewster."¹⁰ This appeal followed.

II

The Fund argues that there is no federal preemption of its state law subrogation claim. Specifically, it contends that the Superior Court erred as a matter of law and misinterpreted the term "relates to" within § 514 of ERISA. It also argues that the Superior Court erred as a matter of law by holding (as had the District Court) that the litigation was not an equitable action under § 502(a)(3), yet finding that the Fund's action could still be preempted by § 514 of ERISA. We review a grant of summary judgment de novo.¹¹ Issues of subject matter jurisdiction involve questions of law that are also reviewed de novo.¹²

A.

The Brewsters argue that the Fund's claim is completely preempted by ERISA. Moore's Manual on Federal Practice and Procedure aptly summarizes the variety of categories that have been used to describe preemption:

Complete preemption applies only in the extremely limited circumstance that Congress intends in a particular area to supersede both the substantive and remedial provisions of state law and create a federal remedy for violation of the law that is exclusive, even when a claimant attempts to rely...