Opinion
CV-N-03-0134-HDM (VPC)
August 20, 2003
ORDER
PROCEDURAL BACKGROUND
Plaintiff Leslie Schulenberg ("Plaintiff") filed this action alleging violation of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., violation of the Federal Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., violation of federal common law fraud and violation of Civil Racketeering Influenced Corrupt Organization ("RICO") 18 U.S.C. § 1961 et seq. against Defendant Rawlings ("Defendant"). Plaintiff's FDCPA claim has been voluntarily dismissed. Plaintiff is the beneficiary of an ERISA plan under Hometown Health Plan ("Plan"). Defendant was retained to initiate reimbursement claims against Plan participants on behalf of the Plan. Defendant now brings this Motion to Dismiss (#11). Neither party has petitioned the court to certify the class under Fed.R.Civ.P. 23, and the court declines to do so now. Further, under Rule 12(b)(6), the court may convert the Motion to Dismiss to one for summary judgment or "take judicial notice of `matters of public record'" without converting the motion to dismiss. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). As the determination of this Motion mandates review of matters outside of the pleadings, and finding that further discovery would not assist the court in reaching its decision, Defendant's Motion to Dismiss is converted into one for Summary Judgment and is disposed of as provided in Fed.R.Civ.P. 56.
FACTUAL BACKGROUND
The facts of the case arise out of an ERISA plan and are not in dispute. Plaintiff was injured in a car accident on September 20, 1999 by a third-party tortfeasor. Plaintiff hired an attorney and filed an action against the third-party on August 2, 2001. The contract between the Plan and Plaintiff provided that Plaintiff would reimburse the medical expenses if recovered from a third-party. Accordingly, the Plan paid for Plaintiff's medical bills. Between March 27, 2000, and May 9, 2000, Plaintiff was twice contacted by Defendant informing her that Defendant was asserting a lien for reimbursement on any recovery from the third-party for the amount paid in medical expenses by the Plan. Between May 9, 2000 and January 21, 2003, Defendant contacted Plaintiff's attorney ten times regarding the same lien on reimbursement.
On October 28, 2002, Plaintiff accepted a settlement of $25,000 from the third-party. Plaintiff set aside a trust account in the amount of the lien as a result of the demands from Defendant. Plaintiff alleges that pursuant to a 1997 Ninth Circuit decision, reimbursements under ERISA are unenforceable. Based on the fact that the communications between the parties did not mention the alleged unenforceability of the lien, Plaintiff has filed this action.
ANALYSIS
I. STANDARD OF REVIEW.
The court grants summary judgment if no genuine issues of material fact remain in dispute and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Summary judgment allows courts to avoid unnecessary trials where no material factual disputes exist.Northwest Motorcycle Ass'n v. U.S. Dep't of Agriculture, 18 F.3d 1468, 1471 (9 Cir. 1994).
In deciding whether to grant summary judgment, the court must view the evidence and any inferences arising from the evidence in the light most favorable to the nonmoving party, Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9 Cir. 1996). Judgment as a matter of law is appropriate where there is no legally sufficient evidentiary basis for a reasonable jury to find for the nonmoving party. Fed.R.Civ.P. 50(a). Where reasonable minds could differ on the material facts at issue, however, summary judgment should not be granted. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9 Cir. 1995), cert. denied, 516 U.S. 1171 (1996).
The moving party bears the burden of informing the court of the basis for its motion, and submitting evidence which demonstrates the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the party opposing the motion may not rest upon mere allegations or denials in the pleadings but must set forth specific facts showing that there exists a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Only evidence which might be admissible at trial may be considered by the court in ruling on a motion for summary judgment. Fed.R.Civ.P. 56(c); Beyene v. Coleman Security Services, Inc., 854 F.2d 1179, 1181 (9 Cir. 1988). Evidence without a proper foundation cannot support a motion for summary judgment. Canada v. Blain's Helicopters, Inc., 831 F.2d 920, 925 (9 Cir. 1987).
Material facts are facts that might affect the outcome of the case; the Court determines materiality by reference to the substantive law that controls the case. Anderson, 477 U.S. at 248. Disputes over irrelevant or unnecessary facts should not be considered. Id. If, given the evidence submitted, a reasonable jury could hold for the nonmoving party, the dispute over material fact is "genuine."Id. Where there is a complete failure of proof on an essential element of the case for the nonmoving party, all other facts become immaterial, and the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323.
II. ERISA.
As an initial matter, ERISA preempts any state laws that "relate to . . . employee benefit plan[s]." 29 U.S.C. § 1144 (a). Section 1144(b)(2)(B) provides a savings clause that exempts state laws from preemption. Under the savings clause, laws that "regulate insurance" are not preempted by ERISA Id. To wit, there is no Nevada statute that would fall within the exemptions provided by the savings clause. Accordingly, ERISA preempts any state law remedies that may be available in the instant matter.
The Nevada Supreme Court has held that subrogation/reimbursement clauses for medical payments paid under an insured's policy is void as violative of public policy. Maxwell v. Allstate Insurance Cos. 728 P.2d 812 (Nev. 1986). However, this decision does not fall within ERISA's savings clause.
ERISA provides for a federal cause of action for civil claims aimed at enforcing the provisions of an ERISA plan. 29 U.S.C. § 1132 (e)(1). In order to make such a claim, however, a plaintiff must fall within one of ERISA's nine specific civil enforcement provisions, each of which details who may bring suit and what remedies are available. See 29 U.S.C. § 1132(a)(1)-(9). Injunctive and "other appropriate equitable relief" is available under ERISA. 29 U.S.C. § 1132(a)(3). Here, Plaintiff's claim is predicated on the theory that Defendant is barred from; (1) including plan provisions that provide for reimbursement to Defendant for medical expenses paid on behalf of beneficiaries, and (2) demanding that beneficiaries reimburse Defendant for medical expenses paid on behalf of beneficiaries.
The Supreme Court and Ninth Circuit cases interpreting § 1132(a) (3) reflect a steadily shrinking field of "appropriate equitable relief" available to plan fiduciaries. Mertens v. Hewitt Assocs., 508 U.S. 248 (1993); Honolulu Joint Apprenticeship and Training Committee of United Ass'n. Local Union No. 675 v. Foster, 332 F.3d 1234 (9 Cir. 2003). In Great West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), the Supreme Court addressed the issue of whether an action to recover the overpayment of benefits under the reimbursement provision of an insurance policy qualified as "equitable relief" under § 602(2)(3) of ERISA. In that case, the beneficiary sustained serious injuries and incurred medical expenses as a result of an automobile accident. The agreement between the beneficiary and her insurance company contained a provision which gave the plan "the right to recover from the [beneficiary] any payment for benefits paid by the Plan that the beneficiary is entitled to recover from a third party."Great West, 534 U.S. at 207. After settlement of the tort action, Great West received only $13,828.70 of the $330,000.00 in medical expenses it had paid. Great West filed suit in federal court to recover all monies advanced for the medical expenses. The court held that such a claim does not qualify as an action "to obtain appropriate equitable relief" under ERISA. Id. The court stated that "[a] claim for money due and owing under a contract is ` quintessentially' an action at law." Id. at 207. (citation omitted) (emphasis in original). The Court held that whether a claim is legal or equitable depends on the basis for the plaintiff's claim and the nature of the underlying remedies sought.Id. at 213. For restitution to lie in equity, the action generally must not seek to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession. Id. The basis for petitioners' claim inGreat West was not that respondents held particular funds that, in good conscience, belong to petitioners, but that petitioners are contractually entitled to some funds for benefits that they conferred. Therefore, this type of restitution was not equitable, but legal.Id.
In FMC Medical Plan v. Owens, 122 F.3d 1258 (9 Cir. 1997), an ERISA fiduciary brought suit against Owens, an FMC employee and beneficiary of an ERISA plan, to enforce a contractual reimbursement provision under the plan. Prior to paying the benefits, FMC also required that Owens sign an additional agreement restating his reimbursement obligation. Owens, nonetheless, refused to reimburse FMC for the benefits he had received. FMC brought suit in federal court seeking to obtain "equitable reimbursement." Owens, 122 F.3d at 1259. TheOwens court concluded that the relief FMC sought was not equitable within the meaning of § 1132(a)(3). Id. at 1262. The court opined that actions by ERISA fiduciaries seeking to enforce an ERISA plan's contractual reimbursement provisions do not fall within § 1132(a)(3). Citing to Mertens v. Hewitt Assocs., 508 U.S. 248 (1993, the court explained that restitution of "ill-gotten" plan assets or profits is a limited way to get monetary relief under this section, but found that this circumstance was not applicable inOwens. Id. at 1261.
Most recently, the Ninth Circuit, in Honolulu Joint Apprenticeship and Training Comm. of United Ass'n, Local No. 675 v. Foster, 332 F.3d 1234 (9 Cir. 2003), found that equitable restitution is available under ERISA where specific res or funds can be identified and attached by an equitable lien or a constructive trust, but not where the plaintiff seeks to impose personal liability as a remedy for monetary obligations.Id. at 1238. The court supported this conclusion by noting that the agreement between the parties explicitly provided for remedies sought to be recovered, which reinforces the conclusion that the action was essentially one at law for breach of contract. Id. See alsoReynolds Metals Co v. Ellis, 202 F.3d 1246, 1248 (9 Cir. 2000) ("action by ERISA fiduciaries seeking to enforce an ERISA plan's contractual reimbursement provisions do not fall within § 1132(a) (3)").
These cases did not hold, however, that the assertion of reimbursement claims violated any law or were otherwise improper. Rather, they held that the remedies sought in those cases could not be pursued in federal court under ERISA because the remedies amounted to monetary damages, while ERISA provides only for equitable relief. Those cases did not specifically foreclose all possible federal or state remedies; nor did they render the underlying debt void. In dicta, the Great West Court stated that "there may have been other means for petitioners to obtain the essentially legal relief that they seek . . . petitioners could have intervened in the state-tort action . . . or . . . [initiated] a direct action by petitioners against respondents asserting state-law claims such as breach of contract." Great-West, 534 U.S. at 220. Similarly, the Owens court did not hold that claims for reimbursement were unenforceable by any means. To the contrary, the court specifically noted that it was not foreclosing other potential remedies: "FMC will have to pursue its claims under the Plans in state court if it wishes to receive the reimbursement it is allegedly owed by Owens." Owens, 122 F.3d at 1262, n. 2.
As noted, the Nevada Supreme Court has precluded this type of relief. Maxwell, 728 P.2d 812 (Nev. 1986).
Here, there is no evidence that the settlement was an "ill-gotten" asset or profit under Mertens. Plaintiff reached a settlement in a third party tort action and placed the proceeds in a fund pending the resolution of the instant matter. No proceeds have been paid to Defendant. Defendant has placed a lien on the fund and has issued numerous demand letters giving Plaintiff notice of the lien. None of these letters, however, make a demand for payment pursuant to the plan provisions or even make reference to a contractual right to reimbursement. Further, Defendant has made no attempt, by filing suit or otherwise, to collect from Plaintiff on their demand for reimbursement. There is no bar to plan provisions requiring reimbursement or to demands for reimbursement. As Plaintiff is not a representative of any potential class member who has paid money pursuant to an agreement, summary judgment is appropriate as to this claim.
The decision of this court should not be read to necessarily preclude an action brought by a class representative of members who, in response to a demand letter that references plan provisions, paid proceeds to an administrator of a plan. That issue is not before the court.
Accordingly, Defendant's Motion (#11) is granted as to this claim.
III. ENFORCEMENT OF RIGHTS UNDER 29 U.S.C. § 1001, et seq.
Plaintiff alleges that she is entitled to the right of payment of medical expenses without a legal obligation to provide reimbursement from the proceeds recovered from the third party. ERISA provides that a participant or beneficiary may bring an action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the plan." 29 U.S.C. § 1132 (a)(1)(B).
Here, Schulenberg argues that she has not received the benefits of a full recovery of her tort settlement held in trust due to the lien placed upon the trust by Rawlings. "Essentially, plaintiff's seek to regain the whole benefit provided them . . ." Carducci, et al. v. Aetna U.S. Healthcare, 204 F. Supp.2d 796 (D.N.J. 2002). Under 29 U.S.C. § 1132 (a)(1)(B), Schulenberg, as well as Rawlings, have the right to have this court declare their rights under the plan and clarify any future rights and benefits the parties may have. Accordingly, Defendant's Motion (#11) on the enforcement of rights claim under ERISA is denied.
IV. BREACH OF FIDUCIARY DUTY UNDER 29 U.S.C. § 1104(A)(1).
Plaintiff's second cause of action alleges breach of fiduciary duty under 29 U.S.C. § 1104, 1109. Under 29 U.S.C. § 1109, "[t]he fiduciary duties imposed . . . run only to the plan, and not the individual beneficiaries." Russell v. Northrop Grumman Crop., 921 F. Supp. 143, 150 (E.D. N.Y. 1996). Plaintiff states that Defendant is "liable to make good to Plaintiff's and class members' plans all losses resulting from each breach of fiduciary duty" and that it is "also liable to restore to Plaintiff's and class members plans any profits of [Rawlings] which have been made through the use of assets of the plans by [Rawlings]." Plaintiff has not alleged that the plan suffered any loss. See McDonald v. Provident Indemnity Life Ins. Co., 60 F.3d 234, 237 (5 Cir. 1995). She alleges only harm to individual beneficiaries. Further, if Defendant were to collect the sums allegedly owed to it by individual participants, the plan itself would experience a monetary benefit.
The breach of fiduciary duty claim is likewise deficient in another respect. Plaintiff has not alleged conduct that would constitute a breach of fiduciary duty under ERISA. In Ince v. Aetna Health Management, Inc., 173 F.3d 672 (8 Cir. 1999), the court was faced with a similar claim. There, participants in ERISA plans sued an HMO and plan administrator for breach of fiduciary duty based upon, among other things, their sending of subrogation notices, which occasionally described the amount of the subrogation interest as the amount that the HMO paid, rather than what it actually was, the reasonable value of the services provided pursuant to the agreement. Id. at 676. The Ince court stated:
Plaintiff's have no authority for the proposition that ERISA fiduciary duties apply to this kind of communication between the Plan and a beneficiary who has a contractual obligation to reimburse the Plan for benefits provided. The Department of Labor's regulation prescribing claims procedures imposes no such duty. (Citation omitted). Second, even assuming that a fraudulent misrepresentation by the Plan in pursuing its right to subrogation is somehow actionable under ERISA, plaintiffs have no evidence of materiality, detrimental reliance, or damage to support such a claim.Id. at 676.
Rawlings' communications are in substance no different than those at issue in Ince. The court concludes that Plaintiff has failed to state a claim for breach of fiduciary duty. Accordingly, this claim is dismissed.
V. PROHIBITED TRANSACTION UNDER 29 U.S.C. § 11Q6(B) (2).
Under ERISA section 1106(b)(2), "[a] fiduciary with respect to a plan shall not . . . act in any transaction involving the plan on behalf of a party whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries." 29 U.S.C. § 1106(b) (2). The remedy for engaging in a prohibited transaction is restoration to the plan of monies taken or received.Kim v. Fujikawa, 871 F.2d 1427, 1430-31 (9 Cir. 1989). Rawlings is attempting to collect money for the plan and as such is not acting adverse to the plan. The remedy Plaintiff seeks is not available under § 1106(b)(2). Accordingly, Defendant's Motion (#11) is granted as to Schulenberg's prohibited transaction claim.
VI. RICO UNDER 18 U.S.C. § 1961, et sea.
To state a RICO claim under 18 U.S.C. § 1962 (c), Schulenberg must specifically allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (know as predicate acts) (5) causing injury to the plaintiff's "business or property.'" Brimmett v. Brown, 75 F.3d 506, 510 (9 Cir. 1996).
In Grauberger v. St. Francis Hospital, 169 F. Supp.2d 1172 (N.D. Cal. 2001), the plaintiff's health insurer had paid the hospital a reduced rate as payment "in full" for her care. Pursuant to the California hospital lien statute, when the patient sued the responsible tortfeasor, the hospital noticed a lien for its full reasonable and necessary charges. The plaintiff placed her recovery in escrow, then sued the hospital alleging a variety of causes of action, including RICO. The court held that plaintiff could not allege mail fraud, one of her claimed bases for characterizing the liens as predicate acts. The court stated:
Plaintiff asserts that the lien filed by St. Francis Hospital (through the mail) was a "fraudulent lien" because defendants knew the amount stated on the bill exceeded the amount that it had agreed to accept pursuant to Grauberger's insurance contract, and therefore was excessive and constituted double billing. While this is plaintiff's legal theory, it fails to demonstrate that defendants engaged in a scheme to defraud the plaintiff.Id. at 1176.
The court noted that, because the California statute authorized the lien even though plaintiff claimed that it did not, the plaintiff's claim was really an issue of statutory interpretation. "So far, state and federal trial courts have had differing opinions on this unsettled issue of state law, and there is no published state law precedent. Surely, Congress did not intend to turn garden variety disputes over statutory interpretation into criminal acts sufficient to justify a RICO claim."Id. at 1177 (citation omitted).
Here, although there is no statute involved, Schulenberg's claim is dependent on the assertion that Ninth Circuit law bars the Defendant from asserting a lien. As indicated above it does not. The alleged acts of mail and wire fraud simply represent a dispute over application of the law, which is an insufficient legal basis to assert a RICO claim. Accordingly, the Motion (#11) is granted as to Schulenberg's RICO claim.
IV. FEDERAL COMMON LAW FRAUD.
The comprehensive civil enforcement provisions found in section 1132(a) of ERISA "provides strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly."Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (9 Cir. 1987). Further, the Ninth Circuit has held, "we agree with the district court that to devise a federal common law remedy for Olson's claim would defeat the scheme created by Congress in ERISA."Olson v. General Dynamics Corp., 960 F.2d 1418, 1423 (9 Cir. 1991). In light of the Ninth Circuit's decision in Olson, Defendant's Motion (#11) on the claim for federal common law fraud is granted.
Similar in nature, the plaintiff in Olson claimed that the level of his retirement benefits was misrepresented to him.
CONCLUSION
For the reasons set forth above, Defendant's Motion for Summary Judgment (#11) is DENIED as to Schulenberg's declaration of rights claim. The Motion (#11) is GRANTED as to all other claims.
It is so ORDERED.