Dakotas & Western Minnesota Electrical Industry Health & Welfare Fund Ex Rel. Stainbrook v. First Agency, Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 16-1846
No. 16-3319
No. 16-3375
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Dakotas and Western Minnesota Electrical Industry Health and Welfare Fund,
by Randy Stainbrook and Edward Christian as Trustees
lllllllllllllllllllll Plaintiff - Appellee/Cross Appellant
v.
First Agency, Inc.; Guarantee Trust Life Insurance Company
lllllllllllllllllllll Defendants - Appellants/Cross Appellees
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Appeals from United States District Court
for the District of North Dakota - Fargo
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Submitted: February 8, 2017
Filed: August 3, 2017
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Before LOKEN, COLLOTON, and KELLY, Circuit Judges.
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LOKEN, Circuit Judge.
Jacob Plassmeyer incurred medical expenses after injuring his knee during a
collegiate baseball practice in February 2014. Jacob’s college provided its student
athletes insurance covering accidental injuries under a blanket policy issued by First
Agency, Inc., as appointee of Guarantee Trust Life Insurance Company (collectively
referred to as “FA”). Jacob’s father is also an insured participant in the Dakotas and
Western Minnesota Electrical Industry Health and Welfare Fund (“Dakotas”), an
employee welfare benefit plan. Jacob is covered under this ERISA plan as a
dependent of his father. Jacob timely filed claims with both insurers. Though it is
undisputed his baseball injuries are covered by both policies, both insurers refused
to pay. FA claimed that Dakotas must pay first because FA’s policy is “excess only.”
Dakotas claimed that, under the plan’s coordination of benefits (“COB”) provision,
FA’s coverage is primary. Jacob’s claim remains unpaid.
The trustees of Dakotas brought this declaratory judgment action against FA
under § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), seeking an order enforcing the
COB provisions in the Dakotas plan by declaring that FA’s policy provides primary
coverage of Jacob’s claim for medical expenses already incurred. The district court1
denied FA’s motion to dismiss and granted Dakotas’ motion for summary judgment,
concluding that (i) § 502(a)(3) “allows ERISA plan trustees to bring a declaratory
judgment action to determine the extent of the plan’s liability,” and (ii) under the
plan’s COB provision FA has primary responsibility for Jacob’s covered medical
expenses. Dakotas & Western Minn. Elect. Indus. Health & Welfare Fund v. First
Agency, Inc., 2016 WL 1736619, at *4 (D.N.D. Mar. 11, 2016). FA appeals those
rulings. Reviewing de novo, we affirm. In a separate Order, the district court granted
Dakotas a reduced award of attorneys’ fees and non-taxable costs. FA appeals the
award; Dakotas cross appeals the reduced award. Reviewing for abuse of discretion,
we reverse the award of attorneys’ fees and non-taxable costs.
1
The Honorable Ralph R. Erickson, then Chief Judge of the United States
District Court for the District of North Dakota.
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I. The ERISA Remedy Issue.
ERISA is a “comprehensive legislative scheme” that includes “an integrated
system of procedures for enforcement” that are “essential to accomplish Congress’
purpose of creating a comprehensive statute for the regulation of employee benefit
plans.” Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004) (quotation omitted).
“The six carefully integrated civil enforcement provisions found in § 502(a) of
[ERISA] provide strong evidence that Congress did not intend to authorize other
remedies that it simply forgot to incorporate expressly.” Mass. Mut. Life Ins. Co. v.
Russell, 473 U.S. 134, 146 (1985) (emphasis in original). “[A]ny state-law cause of
action that duplicates, supplements, or supplants the ERISA civil enforcement remedy
. . . is therefore preempted. . . . [C]auses of action within the scope of the civil
enforcement provisions of § 502(a) are removable to federal court.” Davila, 542 U.S.
at 209 (quotation omitted). This appeal concerns one provision, § 502(a)(3):
A civil action may be brought --
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or
practice which violates any provision of this subchapter or the terms of
the plan, or (B) to obtain other appropriate equitable relief (i) to redress
such violations or (ii) to enforce any provisions of this subchapter or the
terms of the plan.
Dakotas’ trustees, who are ERISA fiduciaries, are authorized to bring an action
under § 502(a)(3) to obtain “other appropriate equitable relief . . . to enforce . . . the
terms of the plan.”2 The action may be brought against FA, a private insurer, because
§ 502(a)(3) does not limit “the universe of possible defendants.” Lyons v. Philip
2
“A suit to enforce a coordination-of-benefits provision is a suit to enforce the
plan in which the provision appears.” Winstead v. J.C. Penney Co., 933 F.2d 576,
579 (7th Cir. 1991).
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Morris Inc., 225 F.3d 909, 913 (8th Cir. 2000) (quotation omitted). The action
presents a ripe controversy to determine which insurer has primary coverage for
Jacob’s claims for reimbursement of medical expenses he has already incurred. See
Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941).3 However, FA
argues on appeal, as it did in the district court, that Dakotas did not assert a claim
seeking “appropriate equitable relief,” the only relief available under § 502(a)(3)(B).
The comprehensive nature of § 502(a)’s remedies has made the Supreme Court
“reluctant to tamper with an enforcement scheme crafted with such evident care.”
Russell, 473 U.S. at 147; see Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’
Health & Welfare Plan v. Shank, 500 F.3d 834, 837 (8th Cir. 2007). Thus, in Mertens
v. Hewitt Assocs., 508 U.S. 248, 256 (1993), the Court held that “equitable relief” in
§ 502(a)(3) is limited to “those categories of relief that were typically available in
equity (such as injunction, mandamus, and restitution, but not compensatory
damages).” In Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204,
210 (2002), an ERISA plan gave the plan a right to recover benefits paid if the
beneficiary recovered from a third party. The plan brought a § 502(a)(3) action to
enforce this provision by ordering a beneficiary to pay settlement proceeds from her
general assets. The Court denied relief, rejecting the contention that this was a claim
for equitable restitution within the purview of § 502(a)(3) because “suits seeking
(whether by judgment, injunction, or declaration) to compel the defendant to pay a
sum of money to the plaintiff are suits for ‘money damages,’ . . . since they seek no
more than compensation for loss resulting from the defendant’s breach of legal duty.”
Id. (quotation omitted).
3
In the district court, FA argued that none of Dakotas’ claims are ripe. Dakotas
conceded that claims for future unpaid medical expenses are not ripe. See Cent.
States, Se. & Sw. Areas Health & Welfare Fund v. Student Assur. Servs., Inc., 797
F.3d 512, 515 (8th Cir. 2015).
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By contrast, in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356,
362-63 (2006), the Court held that a § 502(a)(3) claim to recover restitution from a
specifically identifiable fund was a claim for “appropriate equitable relief” because
recovery of a specific asset is appropriately characterized as equitable restitution.
Most recently, in Montanile v. Board of Trustees of the National Elevator Industry
Health Benefit Plan, 136 S. Ct. 651, 658 (2016), where the plan allowed a settlement
fund to be dissipated before suing to recover benefits it had paid, the Court followed
Knudson and denied § 502(a)(3) relief because “a personal claim against the
defendant’s general assets . . . is a legal remedy, not an equitable one.” The Court
explained that, “[t]o determine how to characterize the basis of a plaintiff’s claim and
the nature of the remedies sought, we turn to standard treatises on equity, which
establish the basic contours of what equitable relief was typically available in
premerger equity courts.” Id. at 657 (quotation omitted).
A number of recent circuit court decisions involved cases in which injured
student athletes had overlapping coverages from an ERISA plan and a private insurer.
In each case, the ERISA plan paid the insured’s claim, then sued the non-ERISA
insurer to recover plan benefits paid by enforcing the plan’s COB provisions. Though
the plans asserted § 502(a)(3) equitable-sounding claims for restitution, an equitable
lien, a constructive trust, or a declaratory judgment seeking reimbursement of ERISA
benefits already paid, the courts uniformly applied the Knudson-Montanile analysis
and denied relief because, no matter how the claim was styled, each plaintiff sought
to recover money damages from the defendant insurer’s general assets.4
4
See Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Am. Int’l Grp.,
Inc., 840 F.3d 448 (7th Cir. 2016); Student Servs., 797 F.3d at 515; Cent. States, Se.
& Sw. Areas Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150 (2d Cir.
2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. First Agency, Inc.,
756 F.3d 954 (6th Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund
v. Health Special Risk, Inc., 756 F.3d 356 (5th Cir. 2014); Cent. States, Se. & Sw.
Areas Health & Welfare Fund v. Bollinger, Inc., 573 F. App’x 197 (3d Cir. 2014).
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FA argues this case is controlled by these precedents. We disagree. As the
district court noted, in this case “[t]he medical expenses incurred by the common
insured have not been paid. The [ERISA] plan does not seek to recover any
payments, past or future.” Dakotas, 2016 WL 1736619, at *2. Thus, we must consult
“standard treatises on equity” and other relevant sources to determine whether
Dakotas’ request for a declaratory judgment enforcing the COB terms of its plan is
an equitable claim seeking remedies typically available in equity. To our knowledge,
this is a case of first impression, but we note that the Supreme Court in Sereboff
commented, “ERISA provides for equitable remedies to enforce plan terms,”
precisely Dakotas’ claim in this case, 547 U.S. at 363 (emphasis in original).5
“ERISA abounds with the language and terminology of trust law.” Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). “[A] benefit determination
is part and parcel of the ordinary fiduciary responsibilities connected to the
administration of a plan.” Davila, 542 U.S. at 219. Since the seventeenth century,
chancery courts in England and the United States have entertained a proceeding,
known as a bill for instructions, in which trustees may obtain a judicial ruling as to
the proper course to pursue in handling property for the benefit of others, so as to
immunize the trustees from liability when the issue is doubtful. See Executors’ and
Trustees’ Bills for Instructions, 44 Yale L. J. 1433, 1433-35 (1935). “The court, if
it sees fit to grant the application, will then cite such parties as it deems requisite to
show cause why the determination requested by the fiduciary should not be made.”
Id. at 1436. “This power to grant instructions to trustees has long been viewed . . . as
inherent in the equitable powers of courts having jurisdiction over trusts, although
5
In the Sixth Circuit’s Central States case, the district court granted a
declaratory judgment under § 502(a)(3) declaring that FA had primary liability for
future student losses, and the Sixth Circuit upheld the primary liability ruling while
reversing the award of money damages as inappropriate § 502(a)(3) relief under
Knudson. First Agency, 756 F.3d at 957-61.
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this authority is generally now based on declaratory-judgment legislation.”
Restatement (Third) of Trusts § 71, cmt. a (2007).
Passed just four years prior to the merger of law and equity, the federal
Declaratory Judgment Act, 28 U.S.C. § 2201, legitimized a previously controversial
remedy which “is neither strictly equitable nor legal, though it has historical roots in
equity.” Edwin M. Borchard, Declaratory Judgments and Insurance Litigation, 34 Ill.
L. Rev. 245, 259 (1939). Federal courts sitting in equity had considered declaratory
actions to determine the liability of parties under insurance contracts. See Garrison
v. Memphis Ins. Co., 60 U.S. 312 (1856); London Guar. & Acc. Co. v. Shafer, 35 F.
Supp. 647, 648 (S.D. Ohio 1940). The Supreme Court, usually in determining
whether the Seventh Amendment’s right to jury trial applied to a cause of action, has
treated the declaratory judgment action as “neither legal nor equitable,” analyzing
instead what claim would have been brought were a declaratory judgment not
available. Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 284
(1988); see Northgate Homes, Inc. v. City of Dayton, 126 F.3d 1095, 1099 (8th Cir.
1997) (“To determine whether there is a right to a jury trial in a declaratory judgment
action, it is necessary first to determine the nature of the action in which the issue
would have arisen absent the declaratory judgment procedure.”).
In our view, this historical context establishes that the district court correctly
held that Dakotas’ declaratory judgment action is an equitable claim seeking remedies
typically available in equity and therefore available under § 502(a)(3). Dakotas’
trustees seek a judicial ruling on an uncertain question critical to proper performance
of their fiduciary duties in administering plan assets and paying beneficiary claims --
a ruling traditionally available in courts of equity by a bill for instructions. Replacing
that proceeding with a declaratory judgment action after the merger of law and equity
hardly alters its essentially equitable nature. The declaratory relief Dakotas seeks,
like the historical bill for instructions, operates coercively to enjoin FA from denying
primary coverage, like coercive remedies traditionally available in equity, and unlike
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the execution of a money judgment at law against the defendant’s property. See 1 D.
Dobbs, Law of Remedies § 1.4, 1.1, pp. 14-16, 7, 11 (2d ed. 1993). A declaration of
the insurers’ respective rights qualifies as “appropriate equitable relief,” unlike the
claims to recover money already paid from the other insurer’s general assets at issue
in Knudson and Montanile.6
The relief Dakotas seeks is consistent with the plain language of § 502(a)(3).
It is also consistent with the broad purposes of ERISA. “We do no semantic violence
to [§ 502(a)(3)] when we interpret it to allow an ERISA plan to bring a declaratory
judgment action to determine the extent of its liability, and we promote the goals of
ERISA by that interpretation.” Winstead, 933 F.2d at 580. FA argues that this is a
“run-of-the-mill contractual dispute” that should be resolved by Dakotas or the plan’s
beneficiary bringing an “ordinary state court” action. But a declaratory judgment
action by an ERISA plan in state court is very likely preempted (though that issue is
not definitively resolved). See Am. Int’l Grp., 840 F.3d at 454. Therefore:
The paradoxical result is that as an ERISA plan, [Dakotas] has fewer
remedies than it would if it were a non-ERISA plan, and its beneficiary,
through no fault of his own, is considerably worse off for having two
policies that coincidentally had conflicting language than he would be
if he had only one. One might think that the underlying purposes of
ERISA and of equitable relief generally would permit a court to fashion
an appropriate remedy.
6
We are mindful of the Supreme Court’s caution that limiting the relief
available under § 502(a)(3) to “whatever relief a common-law court of equity could
provide [for a breach of trust] would limit the relief not at all.” Mertens, 508 U.S. at
257. But the § 502(a)(3) relief sought in Mertens was compensatory damages from
a non-fiduciary. In this case, an ERISA fiduciary seeks declaratory relief “to enforce
. . . the terms of the plan,” relief that was historically available in courts of equity.
“Many claims in equity . . . had as their major purpose a declaration of rights, so that
the plaintiff might proceed with an intelligent understanding of what he could and
could not legally do.” 1 D. Dobbs, Law of Remedies § 2.1(2), pp. 61 (2d ed. 1993).
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Gerber, 771 F.3d at 159. Our conclusion that a declaratory judgment action to
enforce the Dakotas plan as it applies to Plassmeyer’s claim for benefits is both
consistent with the plain language of § 502(a)(3), construed in light of historical
equitable remedies available to trustees, and “avoids the anomaly of interpreting
ERISA so as to leave those Congress set out to protect -- the participants in ERISA-
governed plans and their beneficiaries -- with less protection than they enjoyed before
ERISA was enacted.” Mertens, 508 U.S. at 267 (White, J., dissenting, quoting
Firestone, 489 U.S. at 114).
II. Primary Liability.
FA argues that, even if Dakotas stated a claim under § 502(a)(3), the district
court erred in ruling that FA is primarily liable for payment of Jacob’s incurred
medical expenses. FA lost this contention on the merits in at least one other case.
See Central States, Se. & Sw. Areas Health & Welfare Fund v. First Agency, Inc., 848
F. Supp. 2d 805, 808-11 (W.D. Mich. 212), aff’d, 756 F.3d at 956-959. Perhaps for
that reason, its argument to this court is rather cryptic.
The parties appear to agree that the plan and FA’s policy include conflicting
COB provisions. “If an ERISA plan and an insurance policy contain conflicting
coordination of benefits clauses, then as a matter of federal common law the terms of
the ERISA plan, including its coordination of benefits clause, must be given full
effect.” First Agency, 756 F.3d at 957, quoting Auto Owners Ins. Co. v. Thorn Apple
Valley, Inc., 31 F.3d 371, 374 (6th Cir. 1994). FA argues generally that ERISA
should not apply to this dispute but does not challenge this principle as the district
court applied it, so we need not address the issue.
The district court concluded that FA’s coverage is primary because Section
10.6 of the Dakotas plan provides that “coverage under This Plan is secondary
coverage to any plan or policy of insurance which may pay medical expenses for a
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specific risk.” Dakotas, 2016 WL 1736619, at *4. FA argues that Section 10.6 does
not apply because FA’s policy “is a multiple risk policy that covers accidents incurred
during sports and conditioning activities, including travel.” We agree with the district
court’s interpretation of Section 10.6. Accord First Agency, 848 F. Supp. 2d at 810.
III. Attorneys’ Fees.
Section 502 of ERISA gives the district court discretion to “allow a reasonable
attorney’s fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). In Martin
v. Ark. Blue Cross & Blue Shield, 299 F.3d 966, 971 (8th Cir. 2002) (en banc), we
overruled our prior decision creating a presumption that attorneys’ fees should be
awarded to prevailing ERISA plaintiffs, agreeing with “the overwhelming majority
of circuits that have considered this issue.” Noting the Supreme Court’s admonition
that Congress “legislates against the strong background of the American Rule,”
Fogerty v. Fantasy, Inc., 510 U.S. 517, 533 (1994), and that ERISA has “neutral,
discretionary attorney fee language,” 299 F.3d at 971, we urged district courts to
apply the non-exclusive factors outlined in Lawrence v. Westerhaus, 749 F.2d 494,
496 (8th Cir. 1984), “and other relevant considerations as general guidelines for
determining when a fee is appropriate.” Id. at 972.
Here, the district court, applying the non-exclusive Westerhaus factors without
citing our en banc decision in Martin, granted Dakotas a reduced award of $9,100.00
in attorneys’ fees and $55.00 in non-taxable costs. Though declining to find that FA
litigated in bad faith, the court concluded that a fee award was appropriate because
the COB provisions in the Dakotas plan unambiguously state that FA has the primary
responsibility, and FA as a party to an action in which the Sixth Circuit made the
same determination was on notice that its arguments were not persuasive. See First
Agency, 756 F.3d at 957-58 (6th Cir. 2014). The court reduced the award because
it found the number of hours billed by Dakotas’ attorneys unreasonable.
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We conclude the court abused its discretion in awarding attorneys’ fees. While
FA’s primary coverage may be rather obvious if the ERISA plan’s COB provisions
apply, FA’s position that ERISA should not govern this dispute was not obviously
wrong, and its argument that Dakotas was not entitled to declaratory relief under
§ 502(a)(3) was virtually untested. Compare Eisenrich v. Mpls. Retail Meat Cutters
& Food Handlers Pension Plan, 574 F.3d 644, 651 (8th Cir. 2009).7 Because we
reverse the award of attorneys’ fees, we need not address whether the district court
abused its discretion in reducing the fee award.
The Order of the district court entered March 11, 2016 is affirmed, the Order
of the district court entered July 15, 2016 is reversed, and the case is remanded for
entry of an Amended Judgment consistent with this opinion.
COLLOTON, Circuit Judge, concurring in the judgment.
I agree with the court’s conclusion in Part I that historical evidence establishes
that “Dakotas’ declaratory judgment action is an equitable claim seeking remedies
typically available in equity and therefore available under § 502(a)(3)” of ERISA, 29
U.S.C. § 1132(a)(3). Ante, at 7. The court also cites two other apparent reasons for
its holding. First, the court adverts to the “paradoxical result” that would obtain if the
remedy sought here were unavailable, and opines that “[o]ne might think that the
underlying purposes of ERISA and of equitable relief generally would permit a court
to fashion an appropriate remedy.” Ante, at 8 (quoting Cent. States, Se. & Sw. Areas
Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150, 159 (2d Cir. 2014)).
Second, the court explains that the holding “avoids the anomaly of interpreting
7
We note that, long before ERISA was enacted, “a common way in which
disputes over which insurance carrier is liable to a particular claimant are resolved is
by a suit for a declaratory judgment brought by one of the carriers against the other.”
Winstead, 933 F.2d at 577. A district court should consider whether this is a relevant
“other consideration” in applying the non-exclusive Westerhaus factors.
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ERISA so as to leave those Congress set out to protect -- the participants in ERISA-
governed plans and their beneficiaries -- with less protection than they enjoyed before
ERISA was enacted.” Ante, at 9 (quoting Mertens v. Hewitt Assocs., 508 U.S. 248,
267 (1993) (White, J., dissenting)). As the decisions in Mertens and Gerber
themselves show, however, these concerns do not permit a court to fashion a remedy
that was not typically available in equity. Mertens, 508 U.S. at 261-62; Gerber, 771
F.3d at 159. Whether the relief sought was typically available in equity is dispositive
under ERISA. Avoiding the “paradox” mentioned in Gerber and the “anomaly” cited
in the Mertens dissent may be a salutary consequence of ruling for Dakotas, but it is
not a reason for the decision.
I also agree with the conclusions reached in Parts II and III, and I concur in the
judgment.
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