Schrempf, Kelly, Napp & Darr, Ltd v. The Carpenters' Health and Welfare Trust Fund

Rule 23 order filed 2015 IL App (5th) 130413
May 26, 2015;
Motion to publish granted NO. 5-13-0413
July 8, 2015.
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
________________________________________________________________________
SCHREMPF, KELLY, NAPP & DARR, LTD., ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Madison County.
)
v. ) No. 09-MR-745
)
THE CARPENTERS' HEALTH AND WELFARE )
TRUST FUND and THE TRUSTEES OF THE )
CARPENTERS' HEALTH AND WELFARE TRUST )
FUND OF ST. LOUIS, ) Honorable
) Barbara L. Crowder,
Defendants-Appellants. ) Judge, presiding.
________________________________________________________________________
PRESIDING JUSTICE CATES delivered the judgment of the court, with opinion.
Justices Goldenhersh and Schwarm concurred in the judgment and opinion.
OPINION
¶1 The plaintiff, Schrempf, Kelly, Napp & Darr, Ltd., was granted summary
judgment by the circuit court of Madison County for attorney fees and costs it claimed
were due pursuant to the Illinois common fund doctrine. The defendants, the Carpenters'
Health and Welfare Trust Fund and the trustees of the Carpenters' Health and Welfare
Trust Fund of St. Louis, appeal. We affirm.
¶2 On May 4, 2006, James Corey Miller (Miller) was injured when he fell from a
ladder. Miller was a participant in the Carpenters' Health and Welfare Trust Fund of St.
1
Louis (the Plan). The Plan is a self-funded, multi-employer, employee welfare benefit
plan subject to the provisions of the Employee Retirement Income Security Act of 1974,
as amended, 29 U.S.C. § 1001 et seq. (ERISA) and applicable regulations issued
thereunder.
¶3 The defendants became aware that Miller's injuries were "sustained due to the act
or omission of a third party when Miller applied for disability benefits because he was no
longer able to work." As a part of his benefit coverage, the Plan was "not obligated to
pay any benefits" for an injury or sickness where "a third party [was] legally liable to
make payment or does make payment." The Plan documents contained a subrogation
clause, however, which provided that when the Plan paid benefits for a covered injury,
"the Plan [was] subrogated, to the extent of the benefits paid, to all rights and claims of
the [employee] against any third party who may be liable." As a part of the written
subrogation terms, the Plan reserved, for itself, the option to institute and prosecute a
legal action in the name of the injured employee against any potentially liable third party.
In the event of a recovery, the Plan was to be indemnified not only for the Plan benefits
paid to the employee, but also for any attorney fees and costs incurred by the Plan to
obtain the reimbursement. In the event the defendants chose not to pursue recovery, and
the employee successfully, on his own, prosecuted his claim, then the Plan was entitled to
immediate reimbursement for all of the Plan benefits paid to the employee. The Plan
documents mandated that the rate of reimbursement was 100%, without any reduction
whatsoever. Further, if the employee retained his own attorney to recover the Plan
benefits, "the Plan [was] not obligated to pay or contribute to or be charged for any part
2
of any attorney fees or other expenses incurred by [the employee] to obtain [the] third-
party recovery, and all such fees and expenses [were] the obligation of the [employee]
alone." In other words, the Plan received 100% reimbursement for the benefits extended
to the employee, without any deduction for attorney fees or costs incurred to create the
fund of money used to reimburse the Plan.
¶4 Miller retained the law firm of Schrempf, Kelly, Napp & Darr, Ltd. (the plaintiff),
to represent Miller and his wife in a personal injury action for the damages they suffered
as a result of Miller's fall from the ladder. The Millers agreed to pay the plaintiff a one-
third contingency fee for the legal work performed on their behalf, and also agreed to
reimburse the plaintiff for any costs incurred. As a condition for payment of Plan
benefits, Miller and his attorney were required by the Plan to complete and sign a
"Subrogation Agreement–Right To Reimbursement" form to warrant that they would
adhere to the requirements of the Plan in the event of any third-party recovery on account
of Miller's injuries. The written agreement acknowledged the Plan's right to subrogation
and reaffirmed Miller's obligation to reimburse the Plan up to 100% of the payments
made, without any deduction, whatsoever. There were no additional terms set forth in the
letter agreement not previously set forth in the Plan document. The subrogation
agreement made no mention, specifically, of attorney fees or placed any obligations on
the Millers' attorneys, other than acknowledgment of the terms of the subrogation
agreement.
¶5 The plaintiff filed a lawsuit against the third party allegedly responsible for
causing Miller's fall. As a result of this litigation, Miller and his wife ultimately settled
3
their claims for the lump sum amount of $500,000. Prior to the settlement, the
defendants had advanced benefits under the Plan for Miller in the amount of $86,709.73.
Pursuant to the terms of the Plan, Miller reimbursed the full amount of $86,709.73 to the
defendants, without any deduction for attorney fees or costs. The plaintiff then made a
demand on the Plan for payment of attorney fees in the amount of $28,903.25,
representing one-third of the Plan benefits ($86,709.73) Miller had returned to the Plan as
a result of the settlement. The plaintiff also requested costs in the amount of $3,020.09.
The defendants refused payment, which led to the filing of this separate action based
upon the Illinois common fund doctrine.
¶6 Once served with the plaintiff's complaint, the defendants filed suit in the United
States District Court for the Southern District of Illinois and sought an injunction to stay
the plaintiff's state court action for attorney fees and costs. The federal district court
entered a temporary restraining order and made it permanent by way of an injunction
pursuant to the Anti-Injunction Act (28 U.S.C. § 2283 (2006)). Consequently, the state
court action was stayed. The plaintiff appealed this ruling to the Seventh Circuit,
claiming that the federal court lacked jurisdiction where a state court defendant raises
ERISA preemption as a basis for federal jurisdiction under the well-pleaded complaint
rule. Trustees of Carpenters' Health & Welfare Trust Fund of St. Louis v. Darr, 694 F.3d
803, 806 (7th Cir. 2012). The plaintiff also claimed the federal court had no authority to
enter an injunction under the Anti-Injunction Act (Act), 28 U.S.C. § 2283, to prohibit the
plaintiff from pursuing its claim in state court under the Illinois common fund doctrine.
The Seventh Circuit dispensed with the jurisdiction argument, recognizing the right of the
4
defendants to "bring claims under § 502(a)(3)(A) of ERISA to enjoin any act or practice
which violates any provision of this subchapter or the terms of the plan. 29 U.S.C.
§ 1132(a)(3)." (Internal quotation marks omitted.) Trustees, 694 F.3d at 807. Having
found a basis for jurisdiction, the court next considered whether the district court had the
authority, pursuant to the Act (28 U.S.C. § 2283 (2006)), to enter the injunction
enjoining the state court action. To answer that question, the Seventh Circuit first looked
at the Act, which states: "A court of the United States may not grant an injunction to stay
proceedings in a State court except as expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C.
§ 2283 (2006). The court then examined whether the lawsuit filed by the plaintiff in
state court was expressly preempted by some mandate contained within ERISA's
statutory scheme. The court questioned whether the plaintiff's state law claim, brought
pursuant to the Illinois common fund doctrine, would interfere with the enforcement,
administration, or other core concepts covered by ERISA's comprehensive statutory
scheme. In doing so, the court acknowledged that "run-of-the-mill state court lawsuits,
'although obviously affecting and involving ERISA plans and their trustees, are not pre-
empted by ERISA' when they involve unpaid rent, a failure to pay creditors, or even
commonplace torts. [Citation.] [The plaintiff's] common fund suit, although certainly
involving the Fund's finances, [did] not directly involve the recovery of benefits."
Trustees, 694 F.3d at 808. The Seventh Circuit therefore concluded that ERISA did not
preempt the plaintiff's lawsuit because the common fund doctrine claim was merely
tangential to those core federal interests preempted by ERISA. Thus, the state law claim
5
was not a sufficient basis for an injunction "simply because the state law claim [might]
trigger a liability the plan intended to place on beneficiaries." Trustees, 694 F.3d at 810.
The Seventh Circuit therefore vacated the district court's injunction, allowing this
litigation to proceed.
¶7 The defendants continued their refusal to pay the plaintiff's attorney fees and costs.
In their answer to the plaintiff's first amended complaint, the defendants again claimed,
among other defenses, that ERISA preempted the plaintiff's state law claim pursuant to
the Illinois common fund doctrine. The plaintiff subsequently filed a motion for
summary judgment pursuant to section 2-1005 of the Code of Civil Procedure (735 ILCS
5/2-1005 (West 2012)) against the defendants. The trial court allowed the parties the
opportunity to fully brief the issues, held a formal hearing on the motion, and granted the
plaintiff's motion for summary judgment. In its order, the court found that "ERISA does
not pre-empt Illinois law where, as here, those seeking to apply the common fund
doctrine are not parties to the plan." The court concluded that the common fund doctrine
applied to the plaintiff's claim and entered judgment for the plaintiff in the amount of
$28,903.25, plus prejudgment interest and costs. This appeal followed.
¶8 The defendants argue on appeal that they should not have to pay the plaintiff any
attorney fees or costs because the Illinois common fund doctrine is preempted by ERISA
in the case of a self-funded employee benefit plan.
¶9 Analysis
¶ 10 We initially note that summary judgment is appropriate when the pleadings,
depositions, and admissions on file, together with any affidavits, show that there is no
6
genuine issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law. Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 43, 809 N.E.2d
1248, 1256 (2004). When presented with either a grant or denial of a summary judgment
motion, we apply a de novo standard of review. Hernandez v. Alexian Brothers Health
System, 384 Ill. App. 3d 510, 519, 893 N.E.2d 934, 941 (2008). Under the facts
presented here, the plaintiff was entitled to a judgment in its favor as a matter of law.
¶ 11 "The common fund doctrine is an exception to the general American rule that,
absent a statutory provision or an agreement between the parties, each party to litigation
bears its own attorney fees and may not recover those fees from an adversary. ***
Underlying the doctrine is the equitable concept that the beneficiaries of a fund will be
unjustly enriched by the attorney's services unless they contribute to the costs of the
litigation." Wendling v. Southern Illinois Hospital Services, 242 Ill. 2d 261, 265, 950
N.E.2d 646, 648 (2011). Consequently, the common fund doctrine is a "quasi-contractual
right to payment of fees for services" that "rest[s] *** upon equitable considerations of
quantum meruit and the prevention of unjust enrichment." Scholtens v. Schneider, 173
Ill. 2d 375, 390, 671 N.E.2d 657, 665 (1996).
¶ 12 It is well settled in Illinois that an attorney's claim pursuant to the Illinois common
fund doctrine is not preempted by the terms of a self-funded ERISA plan. See Bishop v.
Burgard, 198 Ill. 2d 495, 505-07, 764 N.E.2d 24, 31-32 (2002); Scholtens v. Schneider,
173 Ill. 2d 375, 397, 671 N.E.2d 657, 668 (1996). An action by an attorney under the
common fund doctrine is an independent action invoking the attorney's right to the
payment of fees for services rendered and is wholly unrelated to the Plan itself. The
7
Plan's contractual provisions cannot govern the relationship between an independent
entity, i.e., the attorney whose efforts created the common fund, and the Plan itself.
Therefore, it is not preempted by ERISA. See Bishop, 198 Ill. 2d 495, 764 N.E.2d 24;
Scholtens, 173 Ill. 2d 375, 671 N.E.2d 657. Here, Miller was the Plan beneficiary who
was bound by the contractual terms of the Plan. His lawyers were not parties to the
contract and the contractual provisions did not govern the relationship between the Plan
and the plaintiff, an independent entity. The fact that the Plan's terms attempted to shift
the payment of attorney fees to the beneficiary had no effect on the claim by the plaintiff.
There is nothing in the record that would allow us to conclude that the plaintiff agreed to
forego payment of its attorney fees and costs for conferring a benefit on the Plan.
¶ 13 The facts presented here are almost identical to those considered by our supreme
court in Bishop v. Burgard, 198 Ill. 2d 495, 764 N.E.2d 24 (2002). In Bishop, the
employee was in an automobile accident and incurred medical expenses. She was a
participant in her employer's ERISA plan, which paid her medical benefits. Bishop
retained an attorney to represent her in her personal injury claim, which was ultimately
settled. Bishop's attorney filed a petition to adjudicate the medical lien. The plan
contained language very similar to the language here in that the responsibility for
payment of attorney fees rested with the beneficiary. The court viewed the motion for
adjudication of the lien as an independent action by the attorney, and held that despite the
language of Bishop's plan, the attorney was entitled to a fee from the common fund
created for the benefit of reimbursing the plan. The court found that the attorney who
settled Bishop's case from which the plan would be reimbursed "simply invoked his
8
quasi-contractual right to payment of fees for services rendered in recovering the plan's
subrogation lien. The quasi-contractual obligation he [sought] to impose upon the
Trustees arises independently of the benefit plan, resting instead upon equitable
considerations of quantum meruit and the prevention of unjust enrichment." (Internal
quotation marks omitted.) Bishop, 198 Ill. 2d at 504, 764 N.E.2d at 31. The Illinois
Supreme Court affirmed the trial court's reduction of the plan's reimbursement by one-
third to account for attorney fees and ordered reimbursement of costs incurred in the
personal injury action.
¶ 14 Here, as in Bishop, the intent of Miller's Plan was clearly designed to shift the
liability for payment of attorney fees to the beneficiary, where the beneficiary took action
to hold a third party liable for damages. As previously stated, the plaintiff was not a
party to the Plan contract, nor did the signature of one of its attorneys on the
"Subrogation Agreement–Right To Reimbursement" form create a contract between the
plaintiff and the Plan. The agreement requested Miller, not the plaintiff, to honor the
terms of the Plan. The plaintiff, through the signature of one of its attorneys, simply
acknowledged the Plan's subrogation requirement. From the language of the agreement,
the plaintiff did not agree to take any action on behalf of the Plan. The plaintiff never
agreed to waive its right to quantum meruit, and it certainly did not agree to unjustly
enrich the Plan. But for the efforts of the plaintiff, there would have been no fund from
which the Plan could have obtained reimbursement from Miller. Indeed, the plaintiff
successfully obtained a settlement that allowed for a 100% reimbursement of the benefits
paid to Miller. Given that the common fund doctrine rests upon the perception that
9
persons who obtain the benefit of a lawsuit without contributing to its costs are unjustly
enriched (Bishop, 198 Ill. 2d at 509, 764 N.E.2d at 33), and given that ERISA does not
preempt application of the common fund doctrine, the plaintiff had the right to pursue its
claim in state court under the Illinois common fund doctrine. Therefore, the trial court
properly entered summary judgment in favor of the plaintiff, granting the plaintiff one-
third of the monies recovered for the fund and costs incurred for the successful pursuit of
the litigation. To deny the plaintiff this remedy would have unjustly enriched the Plan,
allowing it to prey, like a parasite, on the efforts of its host, enjoying the fruits of the
reward without any effort.
¶ 15 Finally, the defendants have directed our attention to US Airways, Inc. v.
McCutchen, 569 U.S. ___, ___, 133 S. Ct. 1537, 1547 (2013), arguing that this 5-4
decision of the United States Supreme Court clearly holds "that the terms of the plan
document [can] not be altered by equitable doctrines." In our judgment, the defendants
have exceeded the limits of the Supreme Court's ultimate holding, as the issue in
McCutchen is distinguishable from the case before us. McCutchen was severely injured
when a driver lost control of her car, crossed the median, and struck the automobile
driven by McCutchen. There was limited insurance carried by the at-fault driver, and
because the accident killed or seriously injured three other people, McCutchen received
only $10,000 from the at-fault driver's insurance. However, McCutchen successfully
made a claim against his own carrier for the maximum amount of $100,000. After
paying attorney fees of $44,000, McCutchen was left with $66,000. McCutchen had
been covered by an ERISA plan through his employer, U.S. Airways, Inc. Upon learning
10
of McCutchen's recovery, U.S. Airways' plan administrator demanded reimbursement in
the amount of $66,866.66, which had been paid in medical expenses–more than
McCutchen had actually recovered after deduction of attorney fees. The plan
administrator made no adjustment in the demand for deduction of attorney fees.
McCutchen denied the plan was entitled to any reimbursement. The plan administrator
therefore sued McCutchen, its beneficiary, for reimbursement.
¶ 16 Given that ordinary rules of contract construction are used to determine the intent
of an ERISA plan, the Supreme Court in McCutchen held that in the absence of a
contrary agreement, the common-fund rule would govern. The Supreme Court described
the common fund doctrine as having "deep roots in equity," as being "set in the soil of
unjust enrichment: To allow 'others to obtain full benefit from the plaintiff's efforts
without contributing [***] to the litigation expenses *** would be to enrich the others
unjustly at the plaintiff's expense.' " McCutchen, 569 U.S. at ___, 133 S. Ct. at 1547
(quoting Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392 (1970)). Indeed, the Court
recognized that the overwhelming majority of state courts have "routinely use[d] the
common-fund rule to allocate the costs of third-party recoveries between insurers and
beneficiaries." McCutchen, 569 U.S. at ___, 133 S. Ct. at 1550. After all, "[t]hird-party
recoveries do not often come free: To get one, an insured must incur lawyer's fees and
expenses. Without cost sharing, the insurer free rides on its beneficiary's efforts–taking
the fruits while contributing nothing to the labor." McCutchen, 569 U.S. at ___, 133 S.
Ct. at 1550. The Court then stated that "if U.S. Airways wished to depart from the well-
established common-fund rule, it had to draft its contract to say so–and here it did not."
11
McCutchen, 569 U.S. at ___, 133 S. Ct. at 1548. In light of the plan's silence on the
recovery of attorney fees, the Court applied the common fund doctrine to the U.S.
Airways plan and remanded the case to the district court for a determination of how much
the plan should pay in attorney fees.
¶ 17 Unlike McCutchen, where the plan was silent on the payment of attorney fees, the
plan in Bishop was quite clear: "The Plan does not pay for nor is responsible for the
participant's attorney's fees. Attorney's fees are to be paid solely by the participant."
(Internal quotation marks omitted.) Bishop, 198 Ill. 2d at 500, 764 N.E.2d at 28-29.
Despite the clear language of the plan in Bishop, our supreme court expressly stated that
"the quasi-contractual right to payment of fees for services rendered belongs to the
attorney who rendered the services and does not affect the contractual relationship
between the plan participant and the plan." Bishop, 198 Ill. 2d at 504, 764 N.E.2d at 31.
Unlike McCutchen, this case is an independent action filed by the Millers' attorney
against the Plan and its trustees. Miller has already reimbursed the Plan 100% of the
monies paid to Miller. Therefore, pursuant to Bishop, we conclude that the plaintiff is
entitled to its one-third share of the monies recovered for the fund for payment of its
attorney fees and costs. We recognize that the dicta of McCutchen may foreshadow a
different result than our supreme court has pronounced in the past. Given the strong and
clear pronouncements of our supreme court, however, we are unwilling to adopt such an
interpretation of McCutchen that could lead to the demise of a deeply rooted equitable
remedy in Illinois, the common fund doctrine, with respect to self-funded employee
benefit plans.
12
¶ 18 For the foregoing reasons, we affirm the judgment of the circuit court of Madison
County.
¶ 19 Affirmed.
13
2015 IL App (5th) 130413
NO. 5-13-0413
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
________________________________________________________________________
SCHREMPF, KELLY, NAPP & DARR, LTD., ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Madison County.
)
v. ) No. 09-MR-745
)
THE CARPENTERS' HEALTH AND WELFARE )
TRUST FUND and THE TRUSTEES OF THE )
CARPENTERS' HEALTH AND WELFARE TRUST )
FUND OF ST. LOUIS, ) Honorable
) Barbara L. Crowder,
Defendants-Appellants. ) Judge, presiding.
______________________________________________________________________________
Rule 23 Order Filed: May 26, 2015
Motion to Publish Granted: July 8, 2015
Opinion Filed: July 8, 2015
______________________________________________________________________________
Justices: Honorable Judy L. Cates, P.J.
Honorable Richard P. Goldenhersh, J., and
Honorable S. Gene Schwarm, J.,
Concur
______________________________________________________________________________
Attorneys John C. Grellner, 5205 Lindenwood Avenue, St. Louis, MO 63109;
for James E. Robertson, Millar, Schaefer, Hoffmann & Robertson, 230 South
Appellants Bemiston, Suite 1110, Clayton, MO 63105
______________________________________________________________________________
Attorney Lanny H. Darr II, Schrempf, Kelly, Napp & Darr, Ltd., 307 Henry
for Street, Suite 415, P.O. Box 725, Alton, IL 62002
Appellee
______________________________________________________________________________