Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00046/USCOURTS-caed-2_06-cv-00046-0/pdf.json

Parties Involved:
Arthrotek, Inc.
Defendant
Biomet, Inc.
Defendant
Bruce D. Gradine
Plaintiff
The Benefits Committee of the Biomet, Inc. Employee Benefit Plan
Defendant

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Defendant Arthrotek is a wholly owned subsidiary of 1

Defendant Biomet, Inc. (“Biomet”).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

BRUCE D. GRADINE,

NO. 2:06-cv-0046-MCE-PAN

Plaintiff,

v. MEMORANDUM AND ORDER

BIOMET, INC., ARTHROTEK, INC.,

and the BENEFITS COMMITTEE OF

THE BIOMET, INC. EMPLOYEE

BENEFIT PLAN,

Defendants.

----oo0oo----

Plaintiff Bruce D. Gradine (“Plaintiff”), an employee of

Defendant Arthrotek, Inc. (“Arthrotek”) , instituted the present 1

action after his employer’s benefit plan, the Biomet, Inc.

Employee Benefit Plan (“Plan”), and its administrator, Defendant

Benefits Committee of the Biomet, Inc. Employee Benefit Plan

(“Benefits Committee”) asserted alleged rights of subrogation and

reimbursement following a medical malpractice settlement reached

by Plaintiff. 

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All further references to “Rule” or “Rules” are to the 2

Federal Rules of Civil Procedure unless otherwise noted.

2

That settlement stemmed from allegedly unnecessary medical care

paid for by the Plan, and Plaintiff alleges claims sounding under

the Employment Retirement Income Security Act of 1974, 29 U.S.C.

§ 1001, et seq. (“ERISA”), as well as additional claims founded

on California law. Defendants now move to dismiss Plaintiff’s

Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6),2

on grounds that two of the named Defendants, Arthrotek and

Biomet, are not proper parties against which a cognizable claim

can be pursued. Defendants further request that this action be

transferred in its entirety to the Northern District of Indiana

to permit consolidation with a case filed there by the Benefits

Committee against Plaintiff and nineteen health care providers. 

Finally, with respect to the issue of subrogation and

reimbursement in the context of an ERISA claim, Defendants argue

that even if neither dismissal nor transfer is ordered the Court

should, at the very minimum, stay Plaintiff’s action pending the

issuance of a Supreme Court decision that Defendants contend

could prove dispositive of the action. For the reasons set forth

below, while Defendants’ request for dismissal of Arthrotek and

Biomet will be granted, the remainder of Defendants’ Motion is

denied.

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3

BACKGROUND

On January 9, 2006, Plaintiff filed the instant action

against Biomet and Arthrotek. Plaintiff subsequently amended his

Complaint to include the Benefits Committee as a Defendant on

February 24, 2006.

According to the First Amended Complaint, Plaintiff received

negligent care for heart problems experienced in 1999 and 2000,

including unnecessary surgery. Am. Comp., § 26. He thereafter

sued various health care providers involved in his care and

ultimately obtained a settlement. The Plan subsequently sought

reimbursement for medical expenses it paid (in excess of

$200,000) out of the proceeds of that settlement. Id. at ¶ 29.

Plaintiff alleges that the Plan and its Benefits Committee 

are legally precluded from obtaining such reimbursement given the

limited equitable relief available under ERISA, as interpreted by

the Ninth Circuit in Westaff v. Arce, 298 F.3d 1164 (9th Cir.

2002). Further subjects of contention include 1) enforceability

of the Plan’s provisions pertaining to deduction of attorney’s

fees from any amount that may be owed the Plan; 2) whether or not

in any event the Plan is barred under the doctrine of “unclean

hands” from recovering from Plaintiff damages he received for

treatment “encouraged and authorized” by the Plan; and 3) whether

the Plan acted wrongfully by allegedly threatening to terminate

Plaintiff’s coverage unless reimbursement was provided. Id. at ¶

24.

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Plaintiff has requested that this Court take judicial 3

notice of that lawsuit, entitled The Benefits Committee of the

Biomet, Inc. Employee Benefit Plan v. Gradine, et al., Case No.

3:06CV0124 MS. That request was unopposed and is hereby granted.

4

On February 15, 2006, just over a month after Plaintiff’s

lawsuit was commenced, the Plan instituted its own action in the

Northern District of Indiana by suing Plaintiff along with

nineteen health care providers. Through that lawsuit, the 3

Benefits Committee not only seeks to impose a constructive trust

against the proceeds of Plaintiff’s lawsuit but also, with

respect to the health care providers, demands restitution for

monies paid by the Plan for unnecessary and/or fraudulent

procedures.

As stated above, in addition to arguing that Arthrotek and

Biomet are improper parties and should be dismissed, Defendants

also contend that this action should be transferred, for the

convenience of the parties and witnesses under 28 U.S.C. §

1404(a), to the Northern District of Indiana. In response,

Plaintiff argues that Defendants have made no showing whatsoever

that Indiana is a more convenient forum for adjudication of this

dispute than California. In fact, Plaintiff contends that

exactly the opposite is true since the majority of the witnesses

and documents at issue in the two cases (which both parties agree

should be consolidated, see Defs.’ Mem. P. & A. at 1:23-24, 7:6-

8, and Pl.’s Opp’n, 5:5-6) are located within the Eastern

District. Moreover, because the instant action was filed first,

Plaintiff claims that case law supports deference to his choice

of forum. 

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On November 28, 2005, the Supreme Court granted certiorari 4

in Mid Atlantic Med. Services, LLC v. Sereboff, 407 F.3d 212,

(4th Cir. 2005). 

5

Finally, with respect to Defendants’ request that the entire

matter be stayed pending a potential upcoming pronouncement from

the Supreme Court on the split of authority in the circuit courts

with respect to ERISA subrogation rights, Plaintiff contends 4

that the issues raised by the case extend beyond mere subrogation

rights, as enumerated above.

STANDARD

Motion to Dismiss. Turning first to Defendants’ request

that Arthrotek and Biomet be dismissed, on a motion to dismiss

for failure to state a claim under Rule 12(b)(6), all allegations

of material fact must be accepted as true and construed in the

light most favorable to the nonmoving party. Cahill v. Liberty

Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). A claim will

not be dismissed for failure to state a claim “‘unless it appears

beyond doubt that plaintiff can prove no set of facts in support

of [his or] her claim that would entitle [him or] her to

relief.’” Yamaguchi v. Dep’t of the Air Force, 109 F.3d 1475,

1480 (9th Cir. 1997) (quoting Lewis v. Tel. Employees Credit

Union, 87 F.3d 1537, 1545 (9th Cir. 1996)).

If the court grants a motion to dismiss, it must then decide

whether to grant leave to amend. 

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6

The Court should "freely give[]" leave to amend when there is no

"undue delay, bad faith[,] dilatory motive on the part of the

movant, . . . undue prejudice to the opposing party by virtue of

. . . the amendment, [or] futility of the amendment. . . ." Fed.

R. Civ. P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962). 

Generally, leave to amend is only denied when it is clear that

the deficiencies of the complaint cannot be cured by amendment. 

DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.

1992).

Motion to Transfer. Turning next to Defendants’ request

that this matter be transferred under 28 U.S.C. § 1404 even aside

from the question of dismissal, under § 1404 a federal district

court may transfer an action it determines may be more

conveniently tried elsewhere:

“For the convenience of parties and witnesses, in the

interest of justice, a district court may transfer any civil

action to any other district or division where it might have

been brought.”

The court has broad discretion in determining whether the

factors enumerated in § 1404 mandate transfer under the

particular circumstances present in each case. E.& J. Gallo

Winery v. F.& P.S.p.A., 899 F. Supp. 465, 466 (E.D. Cal. 1994). 

Motions to transfer should not be liberally granted (Stewart

Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988)), with the

burden of establishing a need to transfer falling squarely on the

moving party. Commodity Futures Trading Comm’n v. Savage, 611

F.2d 270, 279 (9th Cir. 1980).

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7

Unless the balance of convenience is strongly in favor of

the defendant, plaintiff’s choice of forum should generally not

be disturbed. E.& J. Gallo, 899 F. Supp. at 466. The balance of

convenience must clearly weigh in favor of transfer is

plaintiff’s choice of venue is to be disturbed, and transfer is

not warranted if the result is merely to shift inconvenience from

the one party to the other. Harris v. Nat’l R.R. Passenger

Corp., 979 F.Supp. 1052, 1053-54 (E.D. Pa. 1997). In order to

meet its heavy burden in demonstrating inconvenience, affidavits

or declarations are required to both identify key witnesses and

provide a generalized statement of their anticipated testimony. 

E.& J. Gallo, 899 F.Supp. at 466.

Request for Stay. The party requesting a stay must make a

clear case of inequity or hardship in being required to move

forward, particularly if staying the action might inure to the

other party’s detriment. Landis v. N. Am. Co., 299 U.S. 248,

254-55 (1936).

ANALYSIS

1. Arthrotek and Biomet are not proper parties to this lawsuit.

Plaintiff seeks a declaration from the Court with respect to

his obligation to reimburse Defendants pursuant to 29 U.S.C. §§

1132(a)(1)(B) and 1132(e) of ERISA. The law is clear, however,

that ERISA permits claims pertaining to the recovery of benefits

only against the benefit plan itself or the plan administrator as

its fiduciary. 

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8

Madden v. ITT Long Term Disability Plan for Salaried Employees,

914 F.2d 1279, 1287 (9th Cir. 1990); Ford v. MCI Comm. Corp.

Health and Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005).

Plaintiff does not dispute that Arthrotek is an improper

party and should be dismissed. He argues, however, that Biomet

should remain in this litigation, not because he takes issue with

the weight of the above-cited authority but instead because he

argues that Biomet should be bound by a letter from counsel for

the Plan suggesting that Biomet is in fact the Plan’s

administrator. (See December 22, 2005 Letter from Tara Sciscoe,

p. 2, attached as Ex. A to Pl.s’ First Am. Compl.).

Although Ms. Sciscoe’s letter may well blur the distinction

between Biomet itself and its Health Benefit Plan, the Plan

documents make it clear that the Biomet’s Health Benefit Plan is

part of the Biomet Employee Benefit Plan, with the provisions of

the overall benefit plan applying equally to its health

component. The Employee Benefit Plan states unequivocally that

it shall be administered by an appointed Benefits Committee. 

(Employee Benefit Plan, p. 6, attached as Ex. B to Defs’ Mtn.). 

The Benefits Committee is a named Defendant in this lawsuit.

While the three entities (Biomet, its Employee Benefit Plan and

the Benefits Committee as the Plan’s Administrator) may be

closely aligned, they nonetheless have an independent legal

status recognized by the case law. While the Plan and the Plan

Administrator, are subject to suit, the employer, as insurer of

the Plan, is not. Ford, 399 F.3d at 1081.

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9

While Plaintiff also argues that Biomet is a proper party to

the state law causes of action, for violation of the Consumer

Legal Remedies Act, California Civil Code § 1770, et seq., and

for unfair business practices as proscribed by California

Business and Professions Code § 17200, et seq., Plaintiff makes

no showing that those claimed violations stem from anything other

than the activities of the Plan, a separate legal entity, and its

administrator, the Benefits Committee. Plaintiff has not

demonstrated that Biomet itself is a proper party. 

2. As the first filed action, Plaintiff’s choice of forum is

entitled to deference.

The parties do not dispute that as a matter of comity, in

cases where parties file parallel lawsuits in different

districts, the court which first acquired jurisdiction should try

the lawsuit. Pacesetter Sys, Inc. v. Medtronic, Inc., 678 F.2d

93, 95 (9th Cir. 1982). This so-called “first filed” rule is

preferred unless its adherence would prove unjust or inefficient. 

Serco Services Co., L.P. v. Kelley Co., Inc., 51 F.3d 1037, 1039

(Fed. Cir. 1995). 

In the present case, the “first filed” rule would point to a

conclusion that the matter should remain in the Eastern District

since the instant lawsuit was filed here by Plaintiff more than a

month before Defendants’ Indiana lawsuit. Defendants nonetheless

contend that Plaintiff’s status as first filer should be

disregarded because his institution of the present action simply

amounted to a “preemptive strike” in anticipation of Defendants’

own lawsuit. 

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10

Defendants also suggest that Plaintiff’s intent was to secure a

venue within the Ninth Circuit, which has ruled against the

availability of reimbursement under ERISA (in Westaff v. Acre,

supra, 298 F.3d at 1167), as opposed to the Seventh Circuit’s

decision in Adm. Comm. of the Wal-Mart Stores, Inc. v. Varco, 338

F.3d 680, 687-88 (7th Cir. 2003), which would apply in Indiana.

No showing sufficient to overcome the “first filed” rule has

been made herein. Plaintiff convincingly points out that the

Plan’s threat to cancel his health coverage unless reimbursement

was tendered made it necessary for him to file immediately in

order to protect his rights. 

3. Defendants have not demonstrated entitlement to transfer

this action on grounds of convenience.

As indicated above, the “first filed” rule supports

retention of the instant action in this district. Deviation from

the rule is nonetheless permitted, however, when “considerations

of judicial and litigant economy, and the just and effective

disposition of disputes, require otherwise.” Serco Services, 51

F.3d at 1039. Hence any transfer of Plaintiff’s lawsuit pursuant

to § 1404(a) requires that such a showing be made. As indicated

above, Defendants, as the moving parties, bear the burden of

proof in demonstrating the utility of transfer to another forum. 

Commodity Futures Trading Comm’n v. Savage, 611 F.2d at 279.

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In their Reply, Defendants claim for the first time that 5

these state law claims are preempted by ERISA and should be

disregarded. That argument, however, was not made in Defendants’

Motion and is consequently not properly before the Court at this

time.

11

In their initial papers, Defendants make no showing as to

why this action should be transferred to Indiana on grounds of

convenience other than to make a largely unsubstantiated argument

that “the majority of documents and witnesses are located in

Indiana.” (Defs.’ Mot., 7:4-5). Only in their reply do

Defendants flush out that argument somewhat by claiming that two

of the three members of the Benefits Committee reside in the

Northern District of Indiana, and by claiming that all

documentation concerning the Plan is located in Indiana.

While Defendants assert that the scope of this lawsuit is

exactly the same as the Indiana action, with both revolving

simply around interpretation of the Plan’s provisions concerning

subrogation and reimbursement rights, the Court disagrees. In

addition to raising the issue of subrogation and reimbursement, 

Plaintiff’s action also raises issues pertaining to the Plan’s

“unclean hands” in recommending and/or authorizing health care

providers ultimately determined to be fraudulent. Plaintiff, a

California resident, further takes issue with alleged threats

directed to him in California if he persisted in failing to

reimburse the Plan. Plaintiff further asserts state law claims

pertaining to the Plan’s alleged misconduct here in California. 

5

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12

All these issues raise California concerns, along with the

possibility of California witnesses, that mitigate against

transfer particularly in view of the strong showing of

inconvenience that must be made to warrant upsetting the

Plaintiff’s choice of forum. Decker Coal Co. v. Commonwealth

Edison Co., 805 F.2d 834, 843 (9th Cir. 1986). 

It should also be noted that both sides agree that the two

lawsuits filed in this matter should ultimately be consolidated. 

In light of that agreement, counsel for Plaintiff points out that

the Benefit Committee’s Indiana lawsuit includes restitution

claims against fifteen different California health care

providers. Establishing those claims would undoubtedly entail

the testimony of California residents and would militate against

retention of any combined action in Indiana. While Defendants

assert that the nature of the Indiana case should not be

considered in weighing the propriety of transferring the

California action to Indiana, that argument is unconvincing 

in view of the parties’ concession that the two actions should in

fact be tried together. 

4. A stay is not indicated in this matter.

The parameters of this dispute clearly extend beyond the

simple issue of whether subrogation and reimbursement claims can

be made within the confines of ERISA. That would appear to be

the only issue now before the Supreme Court following its grant

of certiorari in Mid Atlantic Med. Services, LLC v. Sereboff,

supra. 

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13

While a ruling from the Supreme Court in Mid Atlantic would

certainly bear directly upon the parties’ controversy, it would

not necessarily be dispositive given the fact that other areas of

dispute are present here as discussed above. Those areas of

dispute, and particularly any threat to Plaintiff’s continued

health benefits, have both independent viability and potentially

pressing time concerns. In this Court’s view, a stay is not

indicated. Defendants have not made the showing of inequity

and/or hardship required in order to justify such relief,

particularly given the potential harm to Plaintiff if his claims

are not timely adjudicated. Landis, 299 U.S. at 254-55.

CONCLUSION

Based on the foregoing, Defendants’ Motion to Dismiss

Arthrotek and Biomet is GRANTED. Because Plaintiff has agreed to

the dismissal of Arthrotek and inasmuch as the Court does not

believe that the deficiencies of Plaintiff’s claims against

Biomet can be cured by amendment, no leave to amend will be

permitted. Broughton v. Cutter Labs., 622 F.2d 458, 460 (9th

Cir. 1980). In addition, because no adequate showing justifying

transfer for convenience of the parties and witnesses has been

made, the request for transfer of the present action to the

Northern District of Indiana pursuant to 28 U.S.C. § 1404(a) is

DENIED. 

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A stay of these proceedings is also DENIED.

IT IS SO ORDERED.

DATED: April 20, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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