Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-00481/USCOURTS-azd-2_12-cv-00481-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Norstan, Inc., d/b/a Black Box Network

Services; Black Box Network Services

Employee Health Plan, 

Plaintiffs, 

vs.

Jennifer N. Lancaster, in her capacity as

Personal Representative of the Estate of

James Joseph Lancaster, et al., 

Defendants. 

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No. CV-12-481-PHX-GMS

ORDER

Pending before the Court is Plaintiffs’ Application for Temporary Restraining Order

and Preliminary Injunctive Relief. (Doc. 4). For the reasons discussed below, the application

for emergency relief as it applies to the Estate’s claims against the hospital has been settled

and is moot. The application is denied without prejudice as to the remaining claims.

BACKGROUND

This case involves three actions related to the health care costs of decedent Joseph

Lancaster: the instant action in this Court, a state court tort action, and a state court probate

action regarding Lancaster’s Estate. Joseph Lancaster was a member of an ERISA health care

plan (the “Plan”) that he obtained through his employer, Plaintiff Norstan, Inc. (Doc. 4 at 2).

On May 15, 2009, Mr. Lancaster underwent a medical procedure at Banner Heart Hospital

and suffered injury, resulting in his total incapacitation. (Id. at 6). He was in a near vegetative

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state for months. (Doc. 20 at 2). On January 20, 2010, a medical malpractice suit was filed

on his behalf by his guardian ad litem in Maricopa County Superior Court (the “state court

tort action”). (Doc. 20 at 2). On September 7, 2010, Mr. Lancaster died. (Doc. 4 at 6).

Between May 11, 2009 and Lancaster’s death, the Plan paid $1,144,862 for medical services

provided to him. 

On December 16, 2010, an amended complaint was filed in the state court tort action.

(Doc. 20-2, Ex. 1). The amended complaint apparently asserted survivor and wrongful death

claims on behalf of Joseph Lancaster’s Estate, parents, and four adult children. That

complaint names Jonathon A. Feuer, M.D., Valley Anesthesiology Consultants, Ltd., and the

Banner Heart Hospital as defendants. (Id.). At some point, all plaintiffs in the state court tort

action, including the Estate, entered into a settlement agreement. That agreement apparently

purports to extinguish plaintiffs’ claims against the Hospital, but does not affect the

plaintiffs’ claims against Feuer or Valley Anesthesiology. On November 17, 2011, the Estate

moved for the probate court’s approval of the Estate’s dismissal as a plaintiff in the tort

action. (Doc. 4, Ex. 2-C). On December 11, 2011, Norstan filed an opposition to the Estate’s

motion. (Doc. 20-2, Ex. 2). In its opposition, Norstan contends that the probate court should

deny the motion to approve dismissal because “[u]nder the terms of the Plan, the Decedent

and his Estate have assigned to the Plan all rights of recovery against third parties to the

extent of reasonable value of services and benefits the Plan provided, [and have] agreed to

cooperate with the Plan in protecting its legal rights as subrogee to the rights of the Decedent

and his Estate.” (Doc. 20-2, Ex. 2 at 2). The probate court has yet to rule on the estate’s

motion.

On March 8, 2012, Plaintiffs Norstan and Black Box Network Services Employee

Health Plan filed the Complaint in the instant action, bringing a claim against the Estate for

breach of contract. (Doc. 1). The Complaint also brings claims against the Estate and the

attorneys that represent the estate in the state court actions for declaratory judgment pursuant

to 29 U.S.C. § 1132(a)(3), constructive trust, and injunctive relief. (Id.). Also on March 8,

Plaintiffs filed the instant Motion for Temporary Restraining Order and Preliminary

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Injunctive Relief. (Doc. 4). In this motion, Plaintiffs ask the Court to 1) enjoin the Estate

from dismissing itself as a party in the state court action; and 2) order the preservation and

placement in trust of the Plan’s reimbursement interest of $1,144,862 from any settlement

that the Estate and/or its representative and attorneys may receive from the state court action.

(Doc. 4). The Court held a hearing on the matter on March 27, 2012. 

DISCUSSION

I. Legal Standard

A plaintiff must establish four elements in order to be granted a preliminary

injunction, including “that he is likely to succeed on the merits, that he is likely to suffer

irreparable harm in the absence of preliminary relief, that the balance of equities tips in his

favor, and that an injunction is in the public interest.” Winter v. Nat't Res. Def. Council, 555

U.S. 7, 20 (2008), see FED. R. CIV. P. 65. The Ninth Circuit considers all of the elements

except for irreparable injury using a sliding scale approach, where “the elements of the

preliminary injunction test are balanced, so that a stronger showing of one element may

offset a weaker showing of another.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d

1127, 1131 (9th Cir. 2011). The element of irreparable injury is not subject to balance; the

moving party must “demonstrate that irreparable injury is likely in the absence of an

injunction.” Winter, 555 U.S. at 23 (emphasis in original).

II. Legal Analysis

A. Likelihood of Success

Plaintiffs contend that they are likely to succeed on the merits of their claim for

declaratory relief under 29 U.S.C. § 1132(a)(3). Section 1132(a)(3) states that:

A civil action may be brought . . . by a participant, beneficiary,

or fiduciary [of an ERISA health care plan] (A) to enjoin any act

or practice which violates . . . 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. 

Plaintiffs are apparently the fiduciaries of the Plan. Accordingly, Plaintiffs may bring suit

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against the Estate to obtain the “appropriate equitable relief” to enforce the terms of the Plan.

See id. The Supreme Court has held that “appropriate equitable relief” includes the

enforcement of any subrogation clause an Erisa plan contains. See Sereboff v. Mid Atlantic

Medical Services, 547 U.S. 356, 368 (2006) (stating that the enforcement of a subrogation

clause in an ERISA plan constitutes “equitable relief” under Section 1132(a)(3) because it

is indistinguishable from the enforcement of an equitable lien). Such subrogation must,

however, be sought from a “specifically identifiable fund” that is “within the possession and

control” of the Estate. See id. at 362–63. Plaintiffs cannot, under Section 1132(a)(3), bring

a general damages claim for breach of contract against the estate. See id.

The Plan’s subrogation clause is contained in a document entitled the Plan Document.

(Doc. 4, Ex. 1-A). This clause states that if a “covered person”—defined as Lancaster or any

person acting on his behalf, such as his estate or attorney—“receives a benefit payment from

the plan for an injury caused by a third party, and the covered person later receives any

payment for that same condition or injury from another person, organization or insurance

company, the plan has the right to recover any payments made by the plan to the covered

person.” (Doc. 4, Ex. 1-A at 88). The Plan Document further states that the Plan is entitled

to “[f]irst dollar recovery,” or in other words that the Plan is to “be reimbursed from any

recovery before any other existing claims or payments to any other persons, including . . .

attorney fees.” (Id.). And the Plan Document states that “‘recovery’ is not limited to a court

award [but] includes any award . . . . [or] settlement.” (Id.). It appears, therefore, that under

the Plan Document, the Plan is entitled to reimbursement for any recovery obtained by the

Estate for health care expenses incurred by Lancaster—capped at the $1,144,820 paid by the

Plan towards Lancaster’s health costs.

B. Irreparable Injury

Plaintiffs also contend that they will suffer irreparable injury unless the Court 1)

enjoins the Estate from dismissing itself as a party in the state court tort action; and 2) orders

the preservation and placement in trust of $1,144,862 of any settlement that the Estate and/or

its representative and attorneys have recovered from the state court action. (Doc. 4).

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Plaintiffs first contend that they will be irreparably harmed if the Court declines to

enjoin the Estate from dismissing itself as a party in the tort action. The Estate, however, has

a pending motion in the probate court, which seeks that court’s approval for the Estate’s

dismissal of itself in the state court tort action. (Doc. 4, Ex. 2-C). Accordingly, the Estate is

not likely to dismiss itself in the tort action unless the probate court grants the Estate

approval to do so. And should it receive such approval, the Estate would still have to take the

step of moving for such dismissal in the tort action. Plaintiffs have already appeared in the

probate court and have submitted a motion there opposing the Estate’s motion for approval.

(Doc. 20-2, Ex. 2). Accordingly, it is possible that the probate court will resolve the issue.

Moreover, even assuming the probate court were not to rule in the Plan’s favor, the parties

may be able to negotiate a solution that permits the Plan to pursue its remaining claims in the

state tort action or take other steps that would alleviate the need for emergency relief. In

short, Plaintiffs have not yet been able to demonstrate that they will be irreparably harmed

if the Court declines to enjoin the Estate from dismissing itself as a party in the tort action.

In their motion, Plaintiffs also request that the Court place in trust any settlement

received by the Estate and its attorneys from the tort action. This request, however, was

rendered moot by a stipulation entered into by the Parties during the March 27, 2012 motion

hearing. At the hearing, Plaintiffs attested that all funds from the settlement between the

Hospital and all plaintiffs in the state court tort action have been placed into an escrow fund.

The Parties further stipulated that “no amounts will be paid out of that fund absent the

approval of [Defendants] or the Court.” This stipulation renders moot Plaintiffs’ request that

the Court order the placement of the funds in trust.

CONCLUSION

Plaintiffs’ request that the Court enjoin the Estate from dismissing itself as a party in

the state court action is denied without prejudice because Plaintiffs have, thus far, failed to

establish irreparable harm. Plaintiffs’ request that the Court order that the settlement proceeds

from the state court action be placed in trust is denied as moot given the Parties’ stipulation

at the TRO hearing.

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IT IS THEREFORE ORDERED that Plaintiffs’ Application for Temporary

Restraining Order and Preliminary Injunctive Relief (Doc. 4) is denied in part without

prejudice.

DATED this 29th day of March, 2012.

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