Southern Council of Industrial Workers v. Ford ( 1996 )

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No. 95-2446
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Southern Council of Industrial *
Workers; Southern Council of *
Industrial Workers Trust Fund, *
*
Appellants, * Appeal from the United States
* District Court for the
v. * Eastern District of Arkansas.
* [PUBLISHED]
Jacqueline F. Ford, Morris W. *
Thompson, Valley Forge *
Insurance Company, *
*
Appellees. *
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Submitted: April 10, 1996
Filed: May 14, 1996
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Before BOWMAN, WOLLMAN, and HANSEN, Circuit Judges.
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PER CURIAM.
The Southern Council of Industrial Workers and the Southern Council
of Industrial Workers Trust Fund (Southern Council) appeal from the
district court's order dismissing for lack of subject matter jurisdiction
their action under 29 U.S.C. § 1132 of the Employee Retirement Income
Security Act (ERISA), 29 U.S.C. §§ 1001-1461. We affirm in part and
reverse in part and remand for further proceedings.
I.
Southern Council's complaint alleged the following: It maintained
an employee benefit plan that provided health insurance; the plan contained
a subrogation clause providing that Southern Council would be subrogated,
to the extent of payments it had made,
to the rights of a beneficiary to receive or claim indemnification from a
third party. Jacqueline F. Ford was a beneficiary under the plan. She
sustained injuries after falling in a supermarket and received $39,971.35
in medical benefits paid for by the plan. Ford retained attorney Morris
Thompson to represent her in her personal injury claim against the
supermarket. Ford's claim was settled for $150,000 paid to her by the
supermarket's insurer, Valley Forge Insurance (Valley Forge). Prior to the
settlement, Ford and Thompson signed a subrogation agreement providing that
they would reimburse the fund from the proceeds of any recovery received
for Ford's injuries, and an agent of Valley Forge indicated to Southern
Council that the subrogation agreement would be honored. The settlement
proceeds were released by Valley Forge and Thompson to Ford, who paid the
fund $10,000 in reimbursement. Seeking to recover the balance of the
amount it had paid for Ford's medical benefits, Southern Council claimed
that by failing to reimburse the fund, (1) Valley Forge and Thompson
breached their fiduciary duty owed to the plan; (2) Ford and Thompson
violated the plan's subrogation clause and the subrogation agreement; and
(3) Ford, Thompson, and Valley Forge appropriated and converted the assets
of the plan.
Southern Council attached to its complaint a copy of the subrogation
agreement signed by Ford and Thompson, which acknowledges subrogation to
Southern Council of "my (our) rights" to recover or claim from a third
party any "indemnification, damage or other payment with respect to [an]
injury or sickness," and which further states, "I (we) agree and understand
that the fund will not pay nor share in any legal fees or expenses which
may be incurred in connection with such recovery."
After the parties filed cross-motions for summary judgment, the
district court determined that neither Thompson nor Valley Forge was a
fiduciary of the plan. Noting that Ford did not contest subject matter
jurisdiction, the court nevertheless
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concluded that because there was no claim under ERISA against any
defendant, the court did not have jurisdiction, no federal question being
raised and the amount in controversy being insufficient to confer diversity
jurisdiction. The court also dismissed the pendent state law claims.
II.
Because the district court did not consider matters outside the
pleadings, we review de novo the dismissal for lack of subject matter
jurisdiction. See Osborn v. United States, 918 F.2d 724, 730 (8th Cir.
1990).
A. Fiduciary Duty Claims
We conclude that the district court correctly determined that the
complaint failed to state a claim against either Thompson or Valley Forge
for violation of a fiduciary duty owed to the plan. Under ERISA, federal
district courts have exclusive jurisdiction over civil actions for breach
of duty by a fiduciary of a plan. 29 U.S.C. §§ 1132(a)(2) & (e)(1); 1109.
A person is a fiduciary of a plan to the extent that person "exercises any
. . . authority or control respecting management or disposition of [the
plan's] assets." 29 U.S.C. § 1002(21)(A).
Thompson did not become a plan fiduciary merely by representing Ford
or by related control over the settlement proceeds. See Chapman v.
Klemick, 3 F.3d 1508, 1509-11 (11th Cir. 1993), cert. denied, 114 S. Ct.
1191 (1994); see also Witt v. Allstate Ins. Co., 50 F.3d 536, 537 (8th Cir.
1995) (citing Chapman with approval). Southern Council's argument that the
result here should be different because Thompson signed the subrogation
agreement is unpersuasive. "An attorney has an ethical obligation to his
or her client that does not admit of competing allegiances." Chapman, 3
F.3d at 1511. Accordingly, to impose fiduciary
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liability on Thompson would be to subject him to "unacceptable conflicts
of interest." Id. Moreover, the subrogation agreement did not by its
terms purport to make Thompson a fiduciary of the plan.
Likewise, Valley Forge, a third-party insurance company with no pre-
existing fiduciary relationship to the plan, was not a fiduciary merely
because it possessed or controlled assets to which the plan asserted a
claim. See Witt, 50 F.3d at 537. Valley Forge's alleged agreement to
honor Southern Council's subrogation rights did not impose a fiduciary duty
upon it. Valley Forge's duty to its own shareholders and clients could
very well conflict with any fiduciary duty owed to Southern Council and
subject Valley Forge to irreconcilable obligations. Cf. Useden v. Acker,
947 F.2d 1563, 1575-76 (11th Cir. 1991) (concluding that bank's duties to
shareholders and customers could conflict with fiduciary duty to plan-
borrower), cert. denied, 508 U.S. 959 (1993).
B. Claims Based on Subrogation Clause and Agreement
We conclude that the district court erred in determining there was
no subject matter jurisdiction over the claim that Ford violated the
subrogation clause. Federal courts have exclusive jurisdiction over civil
actions brought by fiduciaries for equitable relief to enforce, or redress
violations of, terms of ERISA plans. 29 U.S.C. § 1132(a)(3), (e)(1).
Southern Council's allegation that Ford admittedly failed to reimburse it
as required by the subrogation clause is a claim that Ford failed to comply
with a term of the plan. See Cooper Tire & Rubber Co. v. St. Paul Fire &
Marine Ins. Co., 48 F.3d 365, 369 (8th Cir.), cert. denied, 116 S. Ct. 300
(1995). Southern Council sought specific performance of Ford's obligation
under the subrogation clause. See Antoine v. United States, 637 F.2d 1177,
1182 (8th Cir. 1981) (specific performance is an equitable remedy).
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Because Thompson himself signed the subrogation agreement, we
conclude that the complaint also stated an ERISA claim against him for
violation of the subrogation clause. In Hotel Employees & Restaurant
Employees Int'l Union Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir. 1995)
(Lay, J., sitting by designation), the court addressed an attorney's
liability under section 1132(a)(3) for distributing settlement proceeds to
a client without reimbursing a fund, even though the attorney knew of a
subrogation agreement between the client and the fund. Id. at 719-21.
Noting that ERISA is silent on the issue, the court turned to state law to
fashion an appropriate federal common-law rule and concluded that an
attorney who is not a party to a subrogation agreement does not violate a
plan provision by failing to reimburse a fund. Id. at 721-22. The court
recognized that a subrogation agreement is enforceable against an attorney
who agrees with a client and a plan to honor the plan's subrogation right.
See id. at 721.
C. Pendent Claims
Finally, in light of our conclusion that jurisdiction exists as to
the ERISA claims against Ford and Thompson, the district court should not
have dismissed the pendent claims. "[I]n any civil action of which the
district courts have original jurisdiction, the district courts shall have
supplemental jurisdiction over all other claims that are so related to
claims in the action within such original jurisdiction that they form part
of the same case or controversy . . . ." 28 U.S.C. § 1367(a).
Supplemental jurisdiction exists over state-law claims where, as here, "the
federal-law claims and state-law claims in the case ``derive from a common
nucleus of operative fact' and are ``such that [Southern Council] would
ordinarily be expected to try them all in one judicial proceeding.'"
Kansas Public Employees Retirement Sys. v. Reimer & Koger, Assocs., Inc.,
77 F.3d 1063, 1067 (8th Cir. 1996) (quoted case omitted). Where original
jurisdiction exists, exercise of supplemental jurisdiction over all
adequately related
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claims is mandatory, absent certain exceptions that are inapplicable here.
See McLaurin v. Prater, 30 F.3d 982, 984-85 (8th Cir. 1994).
III.
The district court's judgment is affirmed in part and reversed in
part, and the case is remanded for further proceedings consistent with this
opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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