Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-00481/USCOURTS-azd-2_12-cv-00481-3/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 Incorporated, d/b/a Black Box 

Network Services; et al., 

Plaintiffs, 

vs. 

Jennifer N. Lancaster, in her capacity as 

Personal Representative of the Estate of 

James Joseph Lancaster; et al., 

Defendants. 

No. CV-12-00481-PHX-GMS

ORDER 

 Pending before the Court are Motions for Summary Judgment from Plaintiffs 

(Doc. 109) and Defendants (Doc. 100). For the following reasons, Plaintiffs’ Motion is 

granted and Defendants’ Motion is denied. 

BACKGROUND 

 Plaintiffs in this action are fiduciaries of a self-funded employee welfare ERISA 

plan (the “Plan”), in which James Joseph Lancaster participated. (Doc. 109 at 2.) The 

Plan provides for payment of a covered person’s medical expenses but grants the Plan a 

right of subrogation and reimbursement in the event that a third party is legally 

responsible for the payment of the medical expenses paid by the Plan. (Id. at 3; Doc. 110 

at ¶ 7.) The Plan provides that its right of subrogation is “first dollar recovery,” giving it 

a right to recovery before payment for any other claim, including attorney’s fees, general 

damages, or other damages other than medical expenses. (Doc. 109 at 3; Doc. 110 at 

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¶ 8.) The Plan also provides for reimbursement to the Plan if the third-party payment 

comes through the covered person’s estate, anyone acting on behalf of the covered 

person, or anyone who has had benefits paid by the Plan. (Doc. 110 at ¶ 7–8.) The Plan 

requires that a covered person or their estate or representative must assign rights of 

recovery to the Plan and take other affirmative steps in order to avoid prejudicing the 

Plan’s right to reimbursement. (Id. at ¶ 9.) 

 Plaintiffs seek to recover $1,144,862.20 paid on behalf of Mr. Lancaster for 

injuries he suffered as a result of medical procedures at Banner Heart Hospital (the 

“Hospital”). (Id.) Mr. Lancaster filed suit in Arizona state court, via his guardian ad 

litem, against the Hospital, Dr. Jonathan A. Feuer, and Valley Anesthesiology for 

recovery for his injuries (the “Malpractice Litigation”). Mr. Lancaster died before 

resolution of his claim (Id.; Doc. 101 at ¶ 13–14.), after which the Estate of Mr. 

Lancaster, through Defendant Jennifer N. Lancaster, as Personal Representative, was 

substituted into the Malpractice Litigation to pursue recovery. (Doc. 109 at 2; Doc. 101 

at ¶ 21, 23.) 

 On October 4, 2011, the Estate, along with Mr. Lancaster’s surviving children and 

parents, who were asserting their own claims, settled a portion of the Malpractice 

Litigation with the Hospital (the “First Settlement”). (Doc. 110 at ¶ 19; Id. at Ex. A.) 

The Plan was not consulted regarding the First Settlement. (Id. at ¶ 22.) After the First 

Settlement, the Personal Representative of the Estate asked for approval from the Probate 

Court to have the Estate dismissed from the Malpractice Litigation. (Doc. 117 at ¶ 24.) 

The Plan objected to the Estate being dismissed from the Malpractice Litigation on the 

grounds that it would impair the Plan’s right to reimbursement. (Doc. 110 at ¶ 25.) The 

Plan also filed the instant lawsuit for breach of contract, recognition of a constructive 

trust, and declaratory and injunctive relief, all pursuant to Section 502(a)(3) of ERISA. 

(Doc. 1.) The Plan also filed a motion for a Temporary Restraining Order (TRO) to 

enjoin the Estate from dismissing itself from the Malpractice Litigation and to preserve in 

trust from any settlement proceeds the Plan’s reimbursement interest in $1,144,862.20. 

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(Doc. 37.) As a stipulation filed on March 8, 2012 before this Court, Defendants agreed 

to sequester any and all settlement proceeds recovered or to be recovered in the 

Malpractice Litigation. (Doc. 35 at ¶ 2.) 

 On April 23, 2012, the Estate, along with Mr. Lancaster’s surviving parents and 

children, entered into a preliminary settlement memorandum with Dr. Feuer and Valley 

Anesthesiology in the Malpractice Litigation (the “Second Settlement”), which provided 

the basic terms of the agreement but stated that “formal settlement documents” would be 

executed at a later date. (Id. at ¶ 27–28.) On May 1, 2012, the Plaintiffs contacted the 

Defendants to request that they recognize the Plan’s right of recovery against third 

parties, and formalize this assignment of interest so that the Plan could “intervene in the 

[Malpractice Litigation] to pursue its right of recovery.” (Doc. 117 at ¶ 29; Doc. 110 at ¶ 

29.) The next day, counsel for Defendants informed Plaintiffs that the Malpractice 

Litigation had settled. (Doc. 117 at ¶ 30; Doc. 110 at ¶ 30.) 

 On May 30, 2012, the Court granted Plaintiffs’ renewed request for a TRO (Doc. 

48) preventing the Estate from dismissing its claims in the Malpractice Litigation and 

enjoining the Estate from accepting any settlement offer that does not fully compensate 

the Plan without the Plan’s written approval. (Doc. 48 at 7.) On August 3, 2012, the 

Court ruled that the TRO should remain in effect as a Preliminary Injunction and that the 

Estate was enjoined from dismissing its claims against Feuer and Valley Anesthesiology 

in the Malpractice Litigation, as well as from accepting any settlement of its claims 

against Feuer and Valley Anesthesiology that does not fully compensate the Plan without 

the Plan’s written approval. (Doc. 62 at 9 -10.) Defendants challenged the Preliminary 

Injunction in the Ninth Circuit on the grounds that the Court did not have jurisdiction and 

the Estate was not a “covered person” under the terms of the Plan. The Ninth Circuit 

affirmed the Court’s decision.” (Doc. 91-2 at 3.) 

 Both parties have now moved for summary judgment. Plaintiffs seek equitable 

relief in the amount of $1,144,862.20, plus costs, interest and attorneys’ fees. Defendants 

seek to have this action dismissed. 

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DISCUSSION 

I. Legal Standard

 Summary judgment is appropriate if the evidence, viewed in the light most 

favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to 

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 

P. 56(a). Substantive law determines which facts are material and “[o]nly disputes over 

facts that might affect the outcome of the suit under the governing law will properly 

preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 

242, 248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury 

could return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 

281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the 

nonmoving party must show that the genuine factual issues “‘can be resolved only by a 

finder of fact because they may reasonably be resolved in favor of either party.’” Cal. 

Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th 

Cir. 1987) (original emphasis omitted) (quoting Anderson, 477 U.S. at 250). 

II. Analysis

 There are no major facts in dispute. Section 502(a)(3) allows an ERISA plan to 

obtain appropriate equitable relief to enforce the terms of the plan. 29 U.S.C. § 

1132(a)(3).1

 Equitable relief for reimbursement under § 502(a)(3) does not include 

“personal liability” for the benefits conferred by a plan to a participant, but does include 

rights to reimbursement of “specifically identifiable funds that were within the possession 

and control of the [beneficiaries].” Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 

362–63 (2006) (internal citations omitted). Sereboff held that where, as part of an ERISA 

plan, a beneficiary agrees to convey funds to the plan before the funds are acquired, “the 

familiar rule of equity” applies to make the beneficiary “a trustee as soon as he gets title 

 

1

 During her argument for permission to dismiss the Estate from the Malpractice Litigation, the Estate’s Personal Representative argued that to gain relief, the Plan would 

need to seek equitable relief pursuant to Section 502(a)(3) of ERISA. (Doc. 46-1 at 19). 

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to” the funds. Id. at 363–64. 

 Here, Mr. Lancaster entered into the Plan agreeing to reimburse the Plan for 

medical expenses from any third-party recovery gained by Mr. Lancaster, by Mr. 

Lancaster’s representatives operating on his behalf, or by his estate. (Doc. 109 at 8.) 

The Plan’s subrogation provision states: 

If a covered person receives a benefit payment from the plan 

for an injury caused by a third party, and the covered person 

later receives any payment for the same condition or injury 

from another person, organization or insurance company, the 

plan has the right to recover payments made by the plan to the 

covered person. 

(Doc. 110 at ¶ 6.) The Plan defines “covered person” as: 

[A]ny individual who at the time an eligible expense is 

incurred is covered under the plan and for which the plan is 

obligated to provide coverage, and (2) any individual who has 

had benefits paid by the plan. Covered person also includes 

any person acting on behalf of the covered person, including 

but not limited to the covered person’s attorney and the 

covered person’s estate. 

 (Id. at ¶ 7.) The text of these provisions is not in dispute. (Doc. 117 at ¶ 7–8.) 

 However, Defendants argue that the Estate is not bound by the Plan because the 

Estate itself did not enter into any agreement with the Plan. (See, e.g., Doc. 100 at 5.) 

Defendants argue that under contractual principles, “a contract cannot bind a nonparty.” 

(Id. at 10 (quoting EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002).)2

 This 

argument misses the mark. The language of the Plan bound Mr. Lancaster as well as his 

estate to reimburse the Plan in the event of recovery. It is well established law that 

“parties to a contract bind not only themselves but their personal representatives,” 

binding those who administer their estates after their death. U.S. ex rel. Wilhelm v. 

Chain, 300 U.S. 31, 35 (1937). Even more compelling is that the Ninth Circuit rejected 

 

2

 Defendants also argue that Minnesota contract law applies to the Plan in arguing that the Estate is not bound by the Plan. However, Minnesota law is in accord with 

ERISA and nothing particular about Minnesota contract law forbids the Estate from being bound by the Plan. 

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this very argument from Defendants when Defendants appealed this Court’s granting of 

the Preliminary Injunction. (Doc. 91.) The Ninth Circuit’s decision stated that 

Defendant’s argument that the Estate is not a “covered person” under the terms of the 

Plan was “without merit.” (Doc. 91-2 at 2.) The decision quoted the language above and 

stated that “the plan documents’ definition of ‘covered person’ clearly includes the 

Estate.” (Id. at 3.) 

 Because the Estate is a “covered person” under the Plan, the question then 

becomes whether or not there are “specifically identifiable funds” “within the possession 

and control of the [beneficiary]” to reimburse the Plan for its payment of medical 

expenses. Sereboff, 547 U.S. at 362–63. Defendants have already obtained funds from 

the Hospital as part of the First Settlement, and have agreed to hold those funds in trust. 

(Doc. 35.) The Second Settlement with the medical providers has yet to be finalized,3

 but 

attaching an equitable lien to specific future funds yet to be acquired by the Estate is in 

harmony with the equitable relief available under the Plan. (Doc. 115 at 29.) The 

equitable relief agreed to in the Plan, and approved in Sereboff, applies to “any payment 

for the same condition or injury” from a third party, past or present. (Doc. 110 at ¶ 6.) 

Sereboff forbade ERISA plans from attaching “personal liability for a contractual 

obligation to pay money.” Sereboff, 547 U.S. at 363. An ERISA plan is allowed to seek 

“its recovery through a constructive trust or equitable lien on a specifically identified 

fund, not from the [beneficiary’s] assets generally” Id. However, Sereboff explicitly held 

that “the fund over which a lien is asserted need not be in existence when the contract 

containing the lien provision is executed.” 547 U.S. at 366. This follows “the same 

‘familiar rule of equity that a contract to convey a specific object even before it is 

acquired will make the contractor a trustee as soon as he gets a title to the thing.’” Id. at 

 

3

 The Second Settlement purports to disclaim the Estate’s interest in the Second 

Settlement funds, which would thus, at least theoretically, disqualify the Plan from participation in the Second Settlement. (Id. at 30.) This aspect of the Second Settlement Agreement is in violation of the Estate’s contractual obligations to the Plan (Doc. 110 at ¶ 6–7) and has already been enjoined by the Court’s order (Doc. 62 at 9–10). 

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367 (quoting Barnes v. Alexander, 232 U.S. 117, 121 (1914)). In Sereboff, this allowed 

an ERISA plan to “rely on a ‘familiar rule of equity’ to collect for the medical bills it had 

paid by following a portion of the recovery ‘into the [beneficiary’s] hands’ ‘as soon as 

the settlement fund was identified,’ and imposing on that portion a constructive trust or 

equitable lien.” Id. at 364 (quoting Barnes, 232 U.S. at 123). The Plan cannot be granted 

a judgment to be executed generally upon any assets acquired by the Estate, but can be 

granted an equitable lien over an identified sources of funds to be paid out for the “same 

condition or injury” from third parties. (Doc. 110 ¶ 6.) Therefore, an equitable lien is 

available to the Plan against pending settlements or judgments in the Malpractice 

Litigation. 

 In their motion, Defendants acknowledge but do not challenge the amount of 

$1,144,862.20 claimed by Plaintiffs for medical expenses paid by the Plan. (Doc. 100 at 

4.) The Plan’s right to reimbursement is also explicitly “first dollar recovery,” meaning 

that its right overrides payment of any other claims or fees, including attorneys’ fees. 

(Doc. 110 at ¶ 10.) Because the Second Settlement is not yet final, and to ensure that 

sufficient funds are available to satisfy Plaintiffs’ lien, the Court’s Preliminary Injunction 

(Doc. 62) will remain in effect. Therefore, 

IT IS HEREBY ORDERED that Plaintiffs’ Motion for Summary Judgment 

(Doc. 109) is granted in part. 

IT IS FURTHER ORDERED that Defendants’ Motion for Summary Judgment 

(Doc. 100) is denied. 

IT IS FURTHER ORDERED granting Plaintiffs an equitable lien in the amount 

of $1,144,862.20 over any settlements or judgments obtained by the Estate of Mr. 

Lancaster from Lancaster, et al. v. Feuer, et al., CV2010-001614. 

IT IS FURTHER ORDERED maintaining the Court’s Preliminary Injunction 

(Doc. 62) requirement that the Estate not dismiss its claims in the Lancaster, et al. v. 

Feuer, et al., CV2010-001614, and that Defendants receive written approval from the 

Plan of any settlement with Dr. Feuer and Valley Anesthesiology that does not fully 

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satisfy the Plan’s equitable lien. 

 Dated this 25th day of June, 2014. 

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