Primax Recoveries v. Sevilla, Richard ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-1229, 02-1435
PRIMAX RECOVERIES, INC.,
Plaintiff-Appellant, Cross-Appellee,
v.
RICHARD SEVILLA,
Defendant-Appellee, Cross-Appellant.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 C 6869—William J. Hibbler, Judge.
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ARGUED NOVEMBER 8, 2002—DECIDED APRIL 1, 2003
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Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. This procedurally intricate ERISA
case had its origins more than a decade ago, when Richard
Sevilla, injured in an auto accident, incurred medical costs
that were covered by his employer’s ERISA welfare ben-
efits plan. The plan entitled the employer (actually the
employer’s insurer, but we can ignore that detail) to reim-
bursement should the employee obtain compensation
from a third party, which Sevilla did. The insurer of the
driver of the other car involved in the accident settled
with Sevilla for $22,000. Primax Recoveries (then called
2 Nos. 02-1229, 02-1435
Health Cost Controls), to which the employer’s right of
reimbursement had been assigned, claimed $2,483.71, the
amount of the medical benefits that had been paid to
Sevilla under the plan. The driver’s insurer issued a check
for that amount payable to Sevilla, Sevilla’s lawyer, and
Primax. The lawyer was the one to whom the check was
actually delivered, and he in turn delivered it to Primax,
requesting the latter to endorse the check, so that the law-
yer could cash it. He added that he was intending to de-
duct one-third of the amount of the check for his fee
under Illinois’s “common fund” doctrine, with the conse-
quence that he would be remitting only two-thirds to
Primax. Unwilling to accept this reduction, Primax re-
fused to endorse the check and instead sued the lawyer
and his client in an Illinois state court for reimbursement
of the entire $2,483.71. Primax contended in that suit that
the ERISA plan did not permit any deduction from the
reimbursement to which Primax was entitled by virtue
of recovery from a third party, merely to compensate
Sevilla’s lawyer for the expense in time and effort that
he had incurred to obtain that recovery. Sevilla counter-
claimed on behalf of a class consisting of other employees
whose lawyers Primax had similarly refused to allow to
deduct from reimbursable third-party recoveries fees to
which the lawyers claimed to be entitled by virtue of the
common fund doctrine.
Four years into the state court suit, Primax wrote
Sevilla’s lawyer that it “irrevocably waived and released
any and all rights and claims to subrogation and/or reim-
bursement [that Primax] may have had, now have, or here-
after acquire concerning an accident involving Richard
Sevilla.” On the basis of this release, Primax moved to
dismiss the state court suit as moot. But under state as
under federal law, the mooting of the named plaintiff’s
claim in a class action by the defendant’s satisfying the
claim does not moot the action so long as the case has been
Nos. 02-1229, 02-1435 3
certified as a class action, County of Riverside v. McLaughlin,
500 U.S. 44, 51 (1991) (federal law); Sosna v. Iowa, 419
U.S. 393, 400-01 (1975) (ditto); Hillenbrand v. Meyer Medical
Group, S.C., 720 N.E.2d 287, 296 (Ill. App. 1999) (Illinois
law), or, as in this case, so long as a motion for class certifi-
cation has been made and not ruled on, unless (as is not
the case here) the movant has been dilatory. Susman v.
Lincoln American Corp., 587 F.2d 866, 870 (7th Cir. 1978); see
also Parks v. Pavkovic, 753 F.2d 1397, 1403 (7th Cir. 1985). The
qualification is important. Without it, the defendant could
delay the action indefinitely by paying off each class
representative in succession.
It makes no difference that the class action plaintiff
here was actually a counterclaimant. Sevilla wanted one-
third of $2,438.71 of the reimbursement claimed by Primax,
and by releasing its entire claim Primax actually gave
Sevilla three times what he was seeking. Incidentally (but
this point will become important later), the proper coun-
terclaimant was not Sevilla, but his lawyer. Although
requests for awards of attorneys’ fees are normally, and
even in some common fund cases, such as Kline v. Eyrich,
69 S.W.2d 197 (Tenn. 2002), made in the name of the client
rather than the lawyer, Evans v. Jeff D., 475 U.S. 717, 730
n. 19 (1986); Benitez v. Collazo-Collazo, 888 F.2d 930, 932-33
(1st Cir. 1989), in Illinois the attorney owns the claim for
reimbursement for his services in creating a common
fund. Bishop v. Burgard, 764 N.E.2d 24, 30-32 (Ill. 2002).
Having failed to get rid of the counterclaim, Primax
filed the present suit in federal court, basing federal juris-
diction on ERISA. The suit seeks a declaration that the plan
overrides the common fund doctrine. The district court
dismissed the suit for want of jurisdiction, ruling first that
Primax was seeking a form of relief not authorized to
an ERISA fiduciary, namely money damages, and in the
alternative that the case was moot because Primax had
4 Nos. 02-1229, 02-1435
released its claim for reimbursement. Primax appeals,
arguing that the claim is alive because Sevilla rejected its
release and that in any event it is entitled to a declaration
of its right under ERISA to reimbursement out of recov-
eries against third parties without a deduction for com-
mon fund fees to the lawyers who make the recoveries
possible. Sevilla cross-appeals from the refusal of the dis-
trict judge to impose sanctions on Primax for filing what
Sevilla claims is an utterly frivolous suit.
The Supreme Court, consistent with an earlier decision
by this court, Wal-Mart Stores, Inc. Associates’ Health &
Welfare Plan v. Wells, 213 F.3d 398, 400-01 (7th Cir. 2000),
has now made clear that although an ERISA fiduciary
(which Primax is correctly acknowledged to be, Health
Cost Controls of Illinois, Inc. v. Washington, 187 F.3d 703,
709 (7th Cir. 1999)) may not sue a plan participant or plan
beneficiary under ERISA unless it is seeking equitable re-
lief, such relief includes not just an injunction but also the
imposition of a constructive trust on money claimed to be
wrongfully withheld from the plaintiff. Great-West Life &
Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210, 213-14 (2002);
see also Clair v. Harris Trust & Savings Bank, 190 F.3d 495,
498-99 (7th Cir. 1999). Whether the fiduciary can sue for
damages for breach of contract under state law without
running afoul of ERISA’s broad preemption provisions,
29 U.S.C. §§ 1144(a), 1144(c)(1); see Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 138-39 (1990), was left open in
Knudson. See 534 U.S. at 220.
Setting to one side the release, let us consider whether
Primax’s claim to be entitled to the entirety of the $2,431.78,
with no deduction based on the common fund doctrine,
is an equitable claim. It is not. Primax wants (remember
that we’re ignoring the release for the moment) $2,431.78
from Sevilla. It is true that Primax is holding on to the
Nos. 02-1229, 02-1435 5
check from the third party’s insurer, but the check is
worthless without the endorsement of Sevilla’s lawyer
(presumably he can endorse his client’s signature as well
as his own, though that is another detail we can elide),
and while one could imagine construing Primax’s suit as
a suit for an injunction commanding the lawyer to do that,
this would distort the reality of the claim. Primax doesn’t
want the check as such; it wants the money, and it claims
that under the plan Sevilla owes the money to it. That is
a claim of breach of contract, which is a classic legal claim.
Almost any legal claim can be given the form of an equi-
table claim (that is, a claim seeking an order to do or
not do something), but such games with form should be
discouraged. Id. at 211 n. 1; Wal-Mart Stores, Inc. v. Wells,
supra, 213 F.3d at 401.
Primax argues that the $2,431.78 should be thought of
as a fund, a res, held by the third party’s insurer and
claimed by Primax but wrongfully withheld because of
the lawyer’s refusal to endorse the check. The insurer is
not a defendant, however, and the defendant is not in
possession of the fund. It is true that when some months
before filing this suit Primax decided to release its claim
against Sevilla, it told the insurer to issue a new check
payable only to Sevilla and his lawyer. The insurer did
that, but the check has never been cashed, because Sevilla
and his lawyer fear that by doing so they might some-
how moot their state court suit (remember that the mo-
tive for the release was to bring about precisely that
result). So to this day the fund remains in the hands of the
insurer, who is not a defendant. You can impose a construc-
tive trust only on a defendant, Jones v. Felix, 23 N.E.2d
706, 708-09 (Ill. 1939), or someone in privity with the
defendant. Cf. Parklane Hosiery Co. v. Shore, 439 U.S. 322,
327 n. 7 (1979); Hansberry v. Lee, 311 U.S. 32, 40-41 (1940).
6 Nos. 02-1229, 02-1435
So the district court had no jurisdiction over this
case—and for two additional reasons. The first is that,
as Primax realized when it filed its claim against Sevilla
initially in state court, its dispute with him over the ap-
plicability of the common fund doctrine does not arise
under ERISA. Primax is seeking declaratory relief, and
where as in this case such relief is sought in order to
block an expected suit by the declaratory-relief defen-
dant, the jurisdiction of the district court depends on
whether the court would have jurisdiction over that suit.
Public Service Commission v. Wycoff Co., 344 U.S. 237, 248
(1952); Ameritech Benefits Plan Committee v. Communication
Workers of America, 220 F.3d 814, 818-19 (7th Cir. 2000). So
we must consider whether if Primax had not released its
claim, and therefore Sevilla were suing Primax to force it
to endorse the check, the case would arise under ERISA.
It would not; it would arise under the common fund doc-
trine of Illinois. Bishop v. Burgard, supra, 764 N.E.2d at 30-
33; Speciale v. Seybold, 147 F.3d 612, 617 (7th Cir. 1998);
Blackburn v. Sundstrand Corp., 115 F.3d 493, 495 (7th Cir.
1997); cf. Rice v. Panchal, 65 F.3d 637, 646 (7th Cir. 1995).
When a lawyer uses his professional skills to confer a
financial benefit on persons who are not his clients in
circumstances in which these incidental beneficiaries
would expect to have to pay for professional services, the
common fund doctrine entitles him to a share of that ben-
efit as a fee. Boeing Co. v. Van Gemert, 444 U.S. 472, 478
(1980); Hillenbrand v. Meyer Medical Group, S.C., supra, 720
N.E.2d at 291; Baksinski v. Northwestern University, 595
N.E.2d 1106, 1109-10 (Ill. App. 1992). And thus if a law-
yer is hired by one family member to establish the va-
lidity of a will and he succeeds in doing so and the will
leaves money to other members of the family as well, he
is entitled to a part of that money as his fee for establish-
Nos. 02-1229, 02-1435 7
ing their rights. In re Estate of Pfoertner, 700 N.E.2d 438, 439-
40 (Ill. App. 1998); see also Morris B. Chapman & Associates,
Ltd. v. Kitzman, 739 N.E.2d 1263, 1271-72, 1274 (Ill. 2000).
No one doubts that if Primax hired an investigator to
establish a claim for reimbursement, the investigator’s
right to compensation for services rendered would be
founded on state law rather than on ERISA. The fact that
the ERISA plan may have rejected the common fund
doctrine is irrelevant, since the lawyer whose claim to
restitution is at stake was not a party to the plan and
so is not bound by limitations in it of his legal rights.
Bishop v. Burgard, supra, 764 N.E.2d at 30-33; Scholtens v.
Schneider, 671 N.E.2d 657, 664-65 (Ill. 1996). And as the
Supreme Court made clear in Franchise Tax Board v. Con-
struction Laborers Vacation Trust, 463 U.S. 1, 16 (1983), the
fact that a defendant may be able to interpose ERISA
preemption as a defense to a suit under state law does
not confer federal jurisdiction over the suit; federal juris-
diction depends on the claim, not upon defenses, even
ERISA preemption defenses. Anyway we have held that
ERISA does not preempt common fund claims. Blackburn
v. Sundstrand Corp., supra, 115 F.3d at 495.
Finally, Primax has no standing to bring this suit, be-
cause it has no dispute with Sevilla. It has released its
claim against him. The suggestion that because Sevilla,
fearful that the release might moot his class action in state
court, repudiated the release creates a live controversy be-
tween the parties is ridiculous. You cannot force someone
to make a claim against you. Not only was the release
unequivocal, but Primax reiterated at the argument of its
appeal that it doesn’t want a penny back from Sevilla. It’s
written off the entire $2,431.78 even though Sevilla claims
an entitlement to only a third of it! Primax says that be-
cause Sevilla has not yet cashed the insurer’s check the
rights to the money remain in limbo. Maybe so, but it is
8 Nos. 02-1229, 02-1435
a limbo in which Primax has no legal interest. Just because
A and B have a dispute over some amount of money doesn’t
give C, who has no claim to it, standing to seek a declara-
tion of rights to that money.
It is not as if Sevilla were seeking anything in this
suit—except sanctions for Primax’s having filed a suit
over which the district court has no jurisdiction. He has
filed no counterclaim. And while he is the named counter-
plaintiff in the state court suit, which is still pending, he
is seeking no relief there; he is merely the class representa-
tive, and may well be replaced in that role, precisely be-
cause he has nothing to gain from the suit. Culver v. City
of Milwaukee, 277 F.3d 908, 912 (7th Cir. 2002); Reed v.
Bowen, 849 F.2d 1307, 1309, 1311 n. 4 (10th Cir. 1988). Any
relief obtained in it will go to other members of the class.
Although Primax’s real concern is with the claims of the
class, the only member of the class that it has sued is the
one whom for sure it has no claim against because he has
been paid in full (in three times full)—Sevilla. Primax
could have sued the other class members either individ-
ually or in gross—suits against classes are rare but are
explicitly authorized by Fed. R. Civ. P. 23(a), CIGNA
HealthCare of St. Louis, Inc. v. Kaiser, 294 F.3d 849, 853 (7th
Cir. 2002); Kaucky v. Southwest Airlines Co., 109 F.3d 349,
350 (7th Cir. 1997); Consolidated Rail Corp. v. Town of Hyde
Park, 47 F.3d 473, 482-85 (2d Cir. 1995)—though had it
done so the district court would undoubtedly have ab-
stained in favor of the state court suit, Wilton v. Seven
Falls Co., 515 U.S. 277, 286-90 (1995); Sta-Rite Industries,
Inc. v. Allstate Ins. Co., 96 F.3d 281, 287 (7th Cir. 1996);
Schneider National Carriers, Inc. v. Carr, 903 F.2d 1154, 1156-57
(7th Cir. 1990), which is so much more advanced, having
been filed six years before the federal suit. But this is on
the assumption that the district court would have juris-
diction of such a suit, which, as we have seen, it would not.
Nos. 02-1229, 02-1435 9
Primax’s suit has indeed been a travesty. Desperately
seeking to derail a counterclaim filed in the forum that
it itself had chosen for litigating its dispute with Sevilla,
it filed a suit in federal court over which the court had
no jurisdiction. Had Sevilla not muddied the waters by
refusing to accept the release of Primax’s claim against
it, we would consider Primax’s claim deserving of mon-
etary sanctions. As it is, let a sharp rebuke suffice.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-1-03