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ERISA - subrogation: restitution vs. make-whole as "appropriate" equitable relief; written contract primary

United States Court of Appeals
No. 06-3531
Administrative Committee of the *
Wal-Mart Stores, Inc. Associates *
Health and Welfare Plan, *
Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
James A. Shank, as Trustee of *
Deborah J. Shank Irrevocable Trust; *
Deborah J. Shank; Deborah J. Shank *
Irrevocable Trust, *
Appellants. *
Submitted: April 13, 2007
Filed: August 31, 2007
Before WOLLMAN, BEAM, and COLLOTON, Circuit Judges.
COLLOTON, Circuit Judge.
The Administrative Committee of the Wal-Mart Associates Health and Welfare
Plan (the Committee) brought suit under section 502(a)(3) of ERISA, 29 U.S.C.
1132(a)(3), against James A. Shank, Deborah J. Shank, and the Deborah J. Shank
Irrevocable Trust (the Shanks). The Committee sought reimbursement for 9,216
1The Honorable Lewis M. Blanton, United States Magistrate Judge for the
Eastern District of Missouri, to whom the case was referred for final disposition by
consent of the parties pursuant to 28 U.S.C. 636(c).
it had paid in medical expenses on behalf of Deborah Shank. The district court1
granted summary judgment for the Committee, and the Shanks appeal. We affirm.
Deborah Shank (Shank) was a Wal-Mart employee and a member of the
Associates Health and Welfare Plan (the Plan), a self-funded employee benefit plan
regulated by ERISA. In May 2000, Shank was severely injured in a car accident, and
was eventually adjudicated an incompetent. Pursuant to the terms of the Plan, the
Committee paid for the full amount of Shanks medical expenses related to the
accident, a total of 9,216. Shank eventually filed a lawsuit against the parties
responsible for her injuries, and in 2002, she obtained a settlement of 0,000. After
deducting attorneys fees and costs, the district court placed the remaining 7,477
from the settlement into a special needs trust, with Shank as the beneficiary and her
husband, James Shank, the trustee.
The Plan contains a subrogation and reimbursement clause that grants the
Committee first priority over any judgment or settlement Shank received relating to
the accident, so the Committee may recover in full the amount it paid on Shanks
behalf. After the Committee learned of Shanks settlement agreement, it sought to
enforce the Plans reimbursement provision, bringing suit under section 502(a)(3) of
ERISA against Deborah Shank, James Shank, and the special needs trust. The district
court granted summary judgment for the Committee and imposed a constructive trust
on the funds in the special needs trust, in an amount not to exceed 9,216. The
Shanks appeal the judgment of the district court. Reviewing the district courts
decision de novo, we affirm.
Section 502(a)(3) of ERISA authorizes a civil action by a plan 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. 29 U.S.C. 1132(a)(3). The parties agree that the
Committee is a fiduciary and that it brought suit to enforce the terms of the Plan. The
applicable Plan provision obligates Shank to reimburse the Committee from any
judgment or settlement that she receives, up to the full amount the Committee paid on
her behalf. At issue in this appeal is whether the Committees claim for full
reimbursement sought appropriate equitable relief as authorized by
section 502(a)(3).
In their brief, the Shanks argued that the Committee sought money damages,
a form of legal rather than equitable relief. See Mertens v. Hewitt Assocs., 508 U.S.
248, 255 (1993). They contended that this court lacks subject matter jurisdiction
because the Committees claim does not fall under section 502(a)(3). The Shanks
appeared to abandon this assertion at oral argument, and we reject it.
In Sereboff v. Mid Atlantic Medical Servs., Inc., 126 S.Ct. 1869 (2006), the
Supreme Court concluded that equitable relief under section 502(a)(3) includes a
claim for restitution, in the form of a constructive trust or equitable lien, where the
plaintiff seeks to recover specifically identifiable funds, that are due the plaintiff
under the terms of the plan, and that are within the defendants possession and
control. Id. at 1874; see also Great-West Life & Annuity Ins. Co. v. Knudson, 534
U.S. 204, 213 (2002). In Sereboff, the plan administrator, much like the Committee
in this case, sought reimbursement of medical expenses from an investment account
that contained funds the Sereboffs had obtained in a tort settlement. The Court held
that the reimbursement provision of the plan specifically identified a particular fund,
2In their brief, the Shanks also argued that the Summary Plan Description
(SPD), which contains the subrogation and reimbursement clauses at issue in this case,
was not part of the 2001 Plan Wrap Document that governed the dispute. The Shanks
abandoned this claim at oral argument, and it is foreclosed by our decision in Admin.
Comm. of the Wal-Mart Stores, Inc. v. Gamboa, 479 F.3d 538 (8th Cir. 2007), which
held that the SPD is part of the 2001 Plan Wrap Document. Id. at 540, 544-545.
distinct from the Sereboffs general assets . . . and a particular share of that fund to
which Mid Atlantic was entitled. Sereboff, 126 S.Ct. at 1875. Therefore, the Court
concluded, Mid Atlantic could rely on a familiar rul[e] of equity to collect for the
medical bills it had paid on the Sereboffs behalf. Id. (quoting Barnes v. Alexander,
232 U.S. 117, 121 (1914)).
The Committees claim meets Sereboffs requirements for equitable restitution:
it seeks (1) the specific funds it is owed under the terms of the plan i.e., the money
it paid to cover Shanks medical expenses; (2) from a specifically identifiable fund
that is distinct from the Shanks general assets i.e., the special needs trust; and (3)
that is controlled by defendant James Shank, the trustee. See Admin. Comm. of Wal-
Mart Assocs. Health and Welfare Plan v. Willard, 393 F.3d 1119, 1122-1125 (10th
Cir. 2004); Admin. Comm. of Wal-Mart Stores, Inc. v. Varco, 338 F.3d 680, 687-688
(7th Cir. 2003); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer,
Poirot, & Wansborough, 354 F.3d 348, 356-358 (5th Cir. 2003). Therefore, we
conclude that the Committees suit seeks equitable relief under section 502(a)(3).2
The remaining issue is whether the relief the Committee sought was
appropriate. The Supreme Court in Sereboff declined to expound on the meaning
of this term, because Sereboffs argument on that point had not been raised in the
court below. 126 S. Ct. at 1877 n.2. The Shanks contends that full reimbursement to
the Committee is not appropriate under section 502(a)(3), and asks us to apply
either the make-whole doctrine or a pro rata share requirement as a rule of federal
common law in order to reach this conclusion. According to the make-whole doctrine,
the Committee would not be permitted to enforce its contractual right to
reimbursement unless Shank were first made whole, that is, fully compensated for her
injuries. See 16 Lee R. Russ et. al., Couch on Insurance 223:134 (3d ed. 2000).
Under a pro rata share model, the Committee would receive only partial
reimbursement equal to the share of Shanks settlement that compensates her for
medical expenses. See Sunbeam-Oster Co., Inc. v. Whitehurst, 102 F.3d 1368, 1373-
1374 (5th Cir. 1996).
We are not persuaded that the Committees full recovery according to the terms
of the plan is not appropriate relief within the meaning of ERISA. The Supreme
Court has recognized that Congress intended for the federal courts to develop a
federal common law of rights and obligations under ERISA-regulated plans.
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) (internal quotation
omitted). But the Court nonetheless has proven reluctant to tamper with an
enforcement scheme crafted with such evident care as the one in ERISA, and has
declined to create remedies beyond those Congress expressly authorized. Mass. Mut.
Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985). In view of this cautious approach,
we generally adopt new rules of federal common law only if they are necessary to fill
gaps left by the express provisions of ERISA and to effectuate the purposes of the
statute. See, e.g., Varco, 338 F.3d at 691; Waller v. Hormel Foods Corp., 120 F.3d
138, 141 (8th Cir. 1997); see also Bollman Hat Co. v. Root, 112 F.3d 113, 118 (3d
Cir. 1997) (federal courts may adopt a common law principle under ERISA only if
necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted
in the large by Congress) (internal quotation omitted).
In Waller, for example, we held that make-whole is not a rule of federal
common law that governs our interpretation of the written provisions of ERISAregulated
benefit plans. 120 F.3d at 139-40. We concluded that the terms of the
written plan in that case entitled the administrator to full subrogation, regardless of
whether the employee had been fully compensated for his injuries. Waller recognized
that the make-whole doctrine originated in the law of insurance, where the overriding
purpose of an insurance policy is to fully compensate the insured in case of loss, but
that many ERISA-regulated benefit plans do not share that purpose. We thus
concluded that the make-whole doctrine does not carry over from the insurance
context to ERISA. Waller did not involve an interpretation of section 502(a)(3)s
reference to appropriate equitable relief, but nothing in that provision counsels a
different result.
The Supreme Court has directed that when courts consider the meaning of
appropriate equitable relief, they should keep in mind the special nature and
purpose of employee benefit plans. Varity Corp. v. Howe, 516 U.S. 489, 515 (1996)
(internal quotation omitted). Among the primary purposes of ERISA is to ensure the
integrity of written plans and to protect the expectations of participants and
beneficiaries. See, e.g., United McGill Corp. v. Stinnett, 154 F.3d 168, 172 (4th Cir.
1998); Duggan v. Hobbs, 99 F.3d 307, 309-310 (9th Cir. 1996). Ordinarily, courts are
to enforce the plain language of an ERISA plan in accordance with its literal and
natural meaning. United McGill, 154 F.3d at 172 (quoting Health Cost Controls v.
Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997)). We therefore do not apply common law
theories to alter the express terms of a written plan. See Varco, 338 F.3d at 692;
Health Cost Controls, 139 F.3d at 1072; Singer v. Black & Decker Corp., 964 F.2d
1449, 1452 (4th Cir. 1992); Van Orman v. Am. Ins. Co., 680 F.2d 301, 312 (3d Cir.
1982). This is especially true in the context of section 502(a)(3), which does not,
after all, authorize appropriate equitable relief at large, but only appropriate
equitable relief for the purpose of . . . enforc[ing] any provisions of ERISA or an
ERISA plan. Mertens, 508 U.S. at 253.
In this case, the Plan is clear about the rule of recovery. It states:
The Plan has the right to . . . recover or subrogate 100 percent of
the benefits paid by the Plan on your behalf . . . to the extent of .
. . [a]ny judgment, settlement, or any payment made or to be
made, relating to the accident . . . . These rights apply regardless
of whether such payments are designated as payment for . . .
[m]edical benefits [or] [w]hether the participant has been made
whole (i.e., fully compensated for his/her injuries). . . . The Plan
has first priority with respect to its right to reduction,
reimbursement and subrogation.
(App. 117-118).
To avoid this straightforward plan language, the Shanks argue that the makewhole
rule is necessary to achieve what the Supreme Court has called the principal
object of ERISA: to protect plan participants and beneficiaries. Boggs v. Boggs, 520
U.S. 833, 845 (1997). If the Committee is permitted full reimbursement, the Shanks
contend, beneficiaries whose tort settlements cover only a small fraction of their
injuries will be left without protection, and will be no better off than if they had not
joined the Plan.
We acknowledge the difficulty of Shanks personal situation, but we believe the
purposes of ERISA are best served by enforcing the Plan as written. Shank would
benefit if we denied the Committee its right to full reimbursement, but all other plan
members would bear the cost in the form of higher premiums. See Harris v. Harvard
Pilgrim Health Care, Inc., 208 F.3d 274, 280-81 (1st Cir. 2000). Reimbursement and
subrogation provisions are crucial to the financial viability of self-funded ERISA
plans, and, as a fiduciary, the Committee must preserve assets to satisfy future, as
well as present, claims, and must take impartial account of the interests of all
beneficiaries. Varity Corp., 516 U.S. at 514.
Moreover, while ERISA is designed to protect the interests of plan participants
and beneficiaries, those interests are specified by the written plan. ERISAs
repeatedly emphasized purpose [is] to protect contractually defined benefits.
Russell, 473 U.S. at 148 (emphasis added). Thus, while some courts have adopted the
make-whole doctrine as a default rule of federal common law in the absence of
contractual terms that specify a rule of recovery, these courts recognize that such a
common-law rule is inapplicable in the face of clear plan language to the contrary.
See Copeland Oaks v. Haupt, 209 F.3d 811, 813 (6th Cir. 2000); Cagle v. Bruner,
112 F.3d 1510, 1521 (11th Cir. 1997); Barnes v. Indep. Auto. Dealers Assn of Cal.
Health & Welfare Benefit Plan, 64 F.3d 1389, 1395 (9th Cir. 1995).
The written Plan in this case confers benefits on both parties. Shank
contributed premium payments, plus a promise to reimburse the Committee for
medical expenses in the event she was injured and received a judgment or settlement
from third parties. In exchange, she received the certainty that the Committee would
pay her medical bills immediately if she was injured. See Varco, 338 F.3d at 692;
Cutting v. Jerome Foods, Inc., 993 F.3d 1293, 1298 (7th Cir. 1993). Nothing in the
statute suggests Congress intended that section 502(a)(3)s limitation of the
Committees recovery to appropriate equitable relief would upset these
contractually-defined expectations. Indeed, ERISAs mandate that [e]very employee
benefit plan shall be established and maintained pursuant to a written instrument, 29
U.S.C. 1102(a)(1), establishes the primacy of the written plan. Therefore, we reject
Shanks assertion that the make-whole doctrine limits the Committees contractual
right to recovery.
The Shanks pro rata theory fares no better. Citing Arkansas Department of
Health & Human Services v. Ahlborn, 126 S. Ct. 1752 (2006), the Shanks argue that
the Committees right of reimbursement is limited to the portion of her settlement that
covers her medical expenses. The Shanks claim that Deborah Shanks damages from
the accident were over million dollars, and reason that because her settlement of
0,000 amounted to only 5.4% of her total damages, the Committee likewise is
entitled to only 5.4% of the money it paid on her behalf, for a total of about ,000.
Ahlborn does not support this result. The Supreme Court there addressed a state
law that required Medicaid recipients who obtained a judgment or settlement against
a third party to reimburse the State for all payments made on their behalf. The Court
concluded that the state reimbursement statute squarely conflicts with the . . . federal
Medicaid laws, which entitled a State to only that portion of a judgment or settlement
that covered medical expenses. Id. at 1760, 1761-1763. Ahlborn thus turned on the
application of the federal Medicaid statute. ERISA, by contrast, does not limit the
Committees right to reimbursement. Some employee benefit plans explicitly provide
for pro rata reimbursement, see, e.g., Springs Valley Bank & Trust Co. v. Carpenter,
885 F.Supp. 1131, 1143 (S.D. Ind. 1993), but Shank and the Committee reached a
different bargain, agreeing that she would reimburse the Committee in full, and
granting the Committee first priority over any settlement or judgment she obtained.
The Shanks pro rata theory thus fails for the same reason as does her make-whole
theory: federal courts lack authority to fashion a rule of federal common law that
conflicts with the written plan and that is unnecessary to achieve the purposes of
ERISA. See Harris, 208 F.3d at 280-281; Sunbeam-Oster, 102 F.3d at 1375-1376.
ERISAs purposes of upholding the integrity of written plans and protecting the
interest and expectations of all participants and beneficiaries are best served by
enforcing the Committees contractual right to reimbursement. We thus hold that such
relief is appropriate under section 502(a)(3).
* * *
For these reasons, the judgment of the district court is affirmed.


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