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 ORDER

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HONORABLE RONALD B. LEIGHTON

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT TACOMA

PROVIDENCE HEALTH SYSTEMWASHINGTON, a Washington nonprofit

corporation, doing business as

PROVIDENCE HORIZON HOUSE,

Plaintiff,

v.

JAMES H. BUSH, in his role as Trustee of

the Sarah Block Special Needs Trust, and

TERRI BLOCK, in her role as Guardian of

the Person and Estate of SARAH BLOCK,

Defendants.

Case No. C06-5268 RBL

ORDER

This matter comes before the Court on competing motions to dismiss pursuant to Fed. R Civ. P.

12(b)(6), and motions for summary judgment. [Dkt. #s. 10, 12, 16 and 34]. The material facts are not in

dispute and having reviewed the written and oral presentations of the parties, the Court hereby renders the

following decision. 

FACTUAL AND PROCEDURAL BACKGROUND

On or about September 12, 2005, defendant Terri Block’s daughter, Sarah Block, was seriously

injured in an automobile accident in Pierce County, Washington. Complaint ¶ 8 [Dkt. #1]. Defendant

Block is an employee of Providence and at all relevant times has been a participant in an employee welfare

benefit plan for health coverage maintained by Providence under ERISA. Id. at ¶ 2. As a result of the

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As set forth in Providence’s separately filed summary judgment motion, since the date the complaint was filed, this

amount has increased to $801,664.72. See Declaration of Diane Ramsey ¶ 3 [Dkt. #36].

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injuries sustained by Block in the accident, and as required by the Plan, Providence has paid $801,664.72. 

This amount is projected eventually to equal $1 million. Id. at ¶ 8.1

The Plan constitutes a contract between Providence and Terri Block. It includes the following

provision.

Third-Party Liability - If someone else is legally responsible or agrees to

compensate you for injuries suffered by you or a family member, you will need to

reimburse the plan for up to 100% of any benefits the plan paid in connection with

those injuries. This reimbursement may be reduced in the same proportion by

which the settlement, judgment or other recovery is reduced for payment of costs

and attorneys’ fees reasonably incurred in obtaining that recovery.

Plan at page 5-5, Ex. 1 to Complaint. Under the terms of this provision of the Plan, Providence argues that

defendant Block is obligated to repay it for any recovery from any insurance company, in an amount equal

to the full value of the benefits provided, less a proportionate share of reasonable attorneys’ fees. Id.;

Complaint ¶ 10.

Several months after the accident, Farmer’s Insurance Company agreed to settle Sarah Block’s

underinsured motorist claims for $2,100,000 (“the Settlement Funds”). Complaint ¶ 9. Due to Sarah

Block’s incapacity, defendant Block was appointed guardian in a state proceeding entitled In re the

Guardianship of Sarah Block, an Alleged Incapacitated Person, Pierce County (Washington) Case No.

05-4-01531-7 ("the Guardianship Proceeding”). Id. 

On March 23, 2006, defendant Block moved in the Guardianship Proceeding for an order creating

a “Special Needs Trust,” which by its terms contains a “spendthrift” clause purporting to bar Providence

from making a claim against the settlement funds. Id. at ¶ 11. Providence intervened in the Guardianship

Proceeding to protect its interest in the Settlement Funds, but a court commissioner on March 31, 2006

entered an order approving the creation of the Special Needs Trust. Id. On Providence’s motion for

revision and over Providence’s objections that its claim must first be determined before placing the

settlement funds beyond its reach, the Superior Court confirmed creation of the Special Needs Trust on

April 21, 2006. Id. That order was timely appealed by Providence to the Washington Court of Appeals. 

Id. 

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Pursuant to the March 31, 2006 order of the Pierce County Superior Court, defendant Bush was

appointed trustee of the Special Needs Trust. He therefore has possession and control of the Settlement

Funds, minus certain sums paid to Block’s attorneys pursuant to that same court order. Complaint ¶ 12. 

In this action, Providence seeks to establish a constructive trust or equitable lien over the funds

contained within the special needs trust. Providence relies on the terms and conditions of its plan,

provisions of the Employee Retirement Income Security Act of 1974 (ERISA), specifically, § 502(a)(3),

(29 U.S.C.A. § 1132(a)(3)); and recent case law handed down by the United States Supreme Court and

lower federal courts. Defendants challenge the Court’s jurisdiction and, alternatively, urge the Court to

interpret language of the plan in such a way that allows, under various theories, the special needs trust to

keep the funds intact. 

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when, viewing the facts in the light most favorable to the

nonmoving party, there is no genuine issue of material fact which would preclude summary judgment as a

matter of law. Once the moving party has satisfied its burden, it is entitled to summary judgment if the

non-moving party fails to present, by affidavits, depositions, answers to interrogatories, or admissions on

file, “specific facts showing that there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317,

324 (1986). “The mere existence of a scintilla of evidence in support of the non-moving party’s position is

not sufficient.” Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). Factual

disputes whose resolution would not affect the outcome of the suit are irrelevant to the consideration of a

motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In other

words, “summary judgment should be granted where the nonmoving party fails to offer evidence from

which a reasonable [fact finder] could return a [decision] in its favor.” Triton Energy, 68 F.3d at 1220. 

RULE 12(b)(6) STANDARD

Under FRCP 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief

can be granted for one of two reasons: (1) lack of cognizable legal theory or (2) insufficient facts under a

cognizable legal theory. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L.Ed.2d 80 (1975);

accord, Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). For purposes of a motion

to dismiss, all allegations of material fact in the complaint are taken as true and construed in the light most

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Providence argues that its action for imposition of a constructive trust is directed only against James Bush, trustee of

the special needs trust. Because Terri Block has never had possession of the funds, Providence contends she lacks standing to

argue against the imposition of such a trust. As guardian of the person and estate of Sarah Block, Terri Block has a distinct and

personal interest in the issue before this Court. She has standing to participate in the debate over the issue of what constitutes

appropriate equitable relief under § 503(a)(3). See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 1055 S. Ct. 2965, 2972 (1985).

 ORDER

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favorable to the nonmoving party. NOW v. Scheidler, 510 U.S. 249, 256, 114 S. Ct. 798, 127 L.Ed.2d 99

(1994); Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). 

I. Subject Matter Jurisdiction

Defendants2 argue that this Court lacks subject matter jurisdiction because the funds which are the

subject of this dispute are in a trust and not within the possession of a beneficiary of the Plan. It is argued

that “[u]nder Ninth Circuit jurisprudence, Providence did not have a claim to the settlement proceeds prior

to the time those funds were disbursed to the Trust” and “[n]ow that those funds reside in the Trust, they

are outside of the possession and control of a beneficiary of the Providence Plan, and therefore Providence

cannot establish that it is entitled to equitable relief” under applicable law. Bush Motion to Dismiss 12:21-

25 ]Dkt. #10]. 

ERISA authorizes a civil action “by a . . . fiduciary (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 violation or

(ii) to enforce any provisions of . . . the terms of the plan.” 29 U.S.C. § 1132(a)(3). [§ 502(a)(3)]. 

The United States Supreme Court distinguished between legal and equitable remedies in GreatWest Life and Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S. Ct. 708 (2002). In Great-West the

ERISA plan sought specific performance of a reimbursement obligation imposed by the plan on a

beneficiary who had recovered from a third party tortfeasor after receiving plan payments for medical

expenses. The Supreme Court held that § 502(a)(3) did not authorize the suit against the beneficiary

because the settlement funds had already been distributed to a special needs trust for the beneficiary’s care. 

Id. at 214. Because the action was directed against the beneficiary and sought to impose personal liability

for the benefits she had received from the plan, the remedy sought (a money judgment) was deemed to be

legal and not equitable, and therefore beyond the subject matter jurisdiction conferred upon the federal

courts by ERISA.

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The Court did say that a plan could seek restitution in equity by pursuing a constructive trust or an

equitable lien “where money or property identified as belonging in good conscience to the plaintiff could

clearly be traced to particular funds or property in the defendant’s possession.” Id. at 213. Because the

funds were no longer in the possession of the defendant-beneficiary, the Court held that petitioners were

seeking legal relief not authorized by § 502(a)(3). 

At the time of its writing, the Knudson decision seemed to affirm the narrow reading of § 502(a)(3)

which the Ninth Circuit had given in prior cases. The Circuit had repeatedly ruled that ERISA does not

provide a cause of action for legal actions for monetary damages disguised as suits in equity. In Watkins v.

Westinghouse Hanford Co., 12 F.3d 1517 (9th Cir. 1993), the Court explained that “[i]t makes no

difference that the Watkinses’ claim is equitable in nature,” rather, the critical factor was the “substance of

the remedy sought (i.e. injunction versus damages) rather than the label placed on that remedy.” Id. at

1527-28 n.5. See also, McLeod v. Oregon Lithoprint, Inc., 46 F.3d 956, 960 (9th Cir. 1995).

In keeping with its narrow construction of “appropriate equitable relief” as used in § 502(a)(3), the

Ninth Circuit in FMC Medical Plan v. Owens, 122 F.3d 1258 (9th Cir. 1997) acknowledged that an action

to impose a constructive trust was an allowable ERISA remedy but observed that “a constructive trust is

born of some form of ill-gotten gain of another’s property.” Id. at 1261. Moreover, the Court required

that “in order to allow a claim for constructive trust under ERISA, a breach of fiduciary duty must be

present.” Id.

The Ninth Circuit summarized its understanding of the requirements for stating a cause of action

under § 502(a)(3) as follows: 

“An ERISA plan must demonstrate (1) that it is an ERISA fiduciary,

and (2) that it is seeking equitable, rather than legal, relief. Actions by

ERISA fiduciaries seeking to enforce an ERISA plan’s contractual

reimbursement provisions do not fall within § 1132(a)(3). The remedies

of restitution and the imposition of a constructive trust are available

under § 1132(a)(3), but only as true equitable remedies and provided

the traditional requirements of fraud or wrong-doing are satisfied.”

[internal citations omitted] Carpenters Health and Welfare Trust for Southern California v. Vonderharr,

384 F.3d 667 (9th Cir. 2004).

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Recently, the United States Supreme Court decided Sereboff v. Mid Atlantic Medical Services,

Inc., 126 S. Ct. 1869 (2006). The Court held there that an ERISA plan, acting under § 502(a)(3), could

recover amounts paid for medical expenses from a plan beneficiary where the constructive trust was sought

over a specifically identifiable fund. The funds were in the possession of the beneficiary and the source of

the funds was a third party tortfeasor. The action therefore sought appropriate equitable relief under

ERISA.

Here, the one possessing the traceable funds is not the beneficiary of the plan (Terri or Sarah

Block) but rather James Bush, the trustee of the special needs trust. Defendants argue that “appropriate

equitable action” under § 502(a)(3) can only be taken against a participant in the plan. Defendants are

wrong. The Sereboff decision acknowledges a “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 1877. 

The action which Providence pursues against the Trustee targets a readily traceable fund and does

not seek to impose personal liability on the Trustee. The trustee has possession of the funds and he took

possession of the funds knowing that an equitable lien had been asserted by the plaintiff. This Court has

subject matter jurisdiction over plaintiff’s equitable action to impose a constructive trust over these funds. 

II. Make Whole Doctrine

Defendants next argue that Providence is nevertheless not entitled to reimbursement, because Sarah

Block has not been made whole by the payment of UIM benefits by Farmers. For purposes of this motion,

no party asserts that the $2.1 million in UIM payments fully compensates Sarah Block for her injuries. 

Providence claims that the make whole doctrine, present in the common law of many states is not

applicable because it does not assert subrogation rights under state law. Rather, it seeks relief under

federal law (ERISA) and it claims that federal common law preempts state common law on the subject.

A. Federal Preemption.

In enacting ERISA, Congress sought to “uniformly regulate the wide universe of employee benefit

plans.” LaRue v. DeWolff, Boberg & Assoc., Inc., 450 F.3d 570 (4th Cir. 2006). Congress broadly

preempted previously available state-law causes of action and established an exclusive list of civil actions 

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Because of the inherently unequal bargaining position between Plan Administrators and those they represent on the one

hand (employers and insurers), and plan beneficiaries on the other hand, some critics urge adoption of the make whole doctrine,

as a universal, non-negotiable feature of federal common law. See for example, 55 Mercer L. Rev. 595; 9 Empl. Rts. & Employ.

Policy J. 247; 2000 B.Y.U.L. Rev. 427. 

 ORDER

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available to parties aggrieved by a statutory violation. See Aetna Health, Inc. v. Davila, 542 U.S. 200,

208-209 (2004).

As the Supreme Court pointed out in Mertens v. Hewitt Assoc., 408 U.S. 248, 262, 113 S. Ct.

2063 (1993), ERISA is “an enormously complex and detailed statute that resolves innumerable disputes

between powerful competing interests - not all in favor of potential plaintiffs.” The Court further observed

that ERISA’s civil enforcement provision attempts to settle “a tension between the primary ERISA goal of

benefiting employees and the subsidiary goal of containing pension costs.” Id. at 262-263. Section

502(a)(3) represents an “interlocking, interrelated and interdependent remedial scheme” that “provide[s]

strong evidence that Congress did not intend to authorize other remedies that it simply forgot to

incorporate expressly.” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146, 105 S. Ct. 3085 (1985).

More to the point, our Circuit Court has repeatedly acknowledged that “ERISA contains one of the

broadest preemption clauses ever enacted by Congress.” PM Group Life Ins. v. Western Growers Assur.

Trust, 953 F.2d 543, 545 (9th Cir. 1992). With few exceptions, Courts have consistently held that any gaps

in ERISA’s text must be filled by application of federal common law rather than the law of any particular

state. Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d

348 (5th Cir. 2003). Accordingly, the Court will look to federal common law for guidance in its evaluation

of defendants’ request for application of the make whole doctrine. 

B. Federal Common Law

In Barnes v. Independent Automobile Dealers Ass’n. of Cal. Health & Welfare Plan, 64 F.3d 1389

(9th Cir. 1995), the Ninth Circuit Court of Appeals adopted as federal common law the generally accepted

rule that, in the absence of a clear contract provision to the contrary, an insured must be made whole

before an insurer can enforce its right to subrogation. Id. at 1395. The Court adopted this principle of

insurance law as a rule of interpretation. The Court stated:

No one doubts3

 that the beneficiary of an insurance policy

or (as here) an employee welfare or benefits plan can if he

wants sign away his make-whole right. The right exists

only when the parties are silent. It is a gap filler. 

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[citation omitted]. Id. at 1394.

In adopting the make whole doctrine as a “gap filler” rule of federal common law, the court noted

that it is supported by substantial authority in existing insurance law, and it is consistent with ERISA’s

purpose of protecting participants in employee benefit plans. Id. at 1394-95.

The plan language in this case states as follows:

Situations may arise in which health care expenses are also

covered by a source other than the plan. If so, the plan won’t

provide benefits that duplicate the other coverage. For

example, the plan won’t provide benefits that duplicate those

available to a covered person under No-Fault motor vehicle or

similar insurance, or through a state-sponsored program such as

DSHS. If another plan is the primary payor, a copy of the other

plans’ Explanation of Benefits (EOB) should be included with

the claim you submitted to Providence Health Plan.

Third-Party Liability - If someone else is legally responsible

or agrees to compensate you for injuries suffered by you or a

family member, you will need to reimburse the plan for up to

100% of any benefits the plan paid in connection with those

injuries. This reimbursement may be reduced in the same

proportion by which the settlement, judgment or other recovery

is reduced for payment of costs and attorneys’ fees reasonably

incurred in obtaining that recovery.

. . .

Recovery of Excess Payments - Whenever payments have been

made in excess of the amount necessary to satisfy the provisions

of this plan, the plan has the right to recover those excess

payments from any individual, insurance company, or other

organization to whom the excess payments were made. . . .

Plan at pages 5-4 - 5-5, Ex. 1 to Complaint [Dkt. #1]. From this language, Providence argues that the plan

pays only when no other benefits are available, and the right to recover excess payments means that when

the Plan pays for expenses prior to a third-party recovery, the plan has the right to recover each dollar

paid, to the extent of 100% of what was paid, if that money is subsequently recovered from a third party. 

Plan at pages 5-4 - 5-5, Ex. 1 to Complaint; Declaration of Lisa R. Schmidt (“Schmidt Decl.”) ¶ 3. [Dkt.

#28]. 

The conclusion Providence draws from this language is that the make whole doctrine does not

qualify its right to reimbursement under the Plan. This Court does not agree.

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Neither the reference to reimbursement for “up to 100%” nor to “the plan won’t provide benefits that duplicate the other

coverage” is inconsistent with the proposition that a plan beneficiary reimburses nothing until a settlement or payment from a

third party compensates the beneficiary for his/her entire loss, including past and future medical payments, past and future

economic loss, and general damages. 

 ORDER

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Nowhere in the plan language is there a suggestion, let alone a clear statement, that a plan

beneficiary is signing away his or her make whole rights. Neither the make whole doctrine nor any

euphemism sounding like the make whole doctrine is mentioned in the plan. Similarly, application of the

make whole doctrine as a “gap filler” would not contravene any statement from the plan heretofore quoted

to the Court by the parties.4

 

In Beveridge v. Benefit Recovery, Inc., 2006 WL 2052696 (D. Ariz.) The ERISA plan in question

clearly stated that “[t]he Plan’s right of subrogation and repayment is not subject to the insured/injured

party first being made whole, that is, ‘make whole’ rule does not apply to the Plan.” Id. at 5. In the face

of such language, the plaintiff-beneficiary did not argue the applicability of the make whole doctrine.

In Moore v. Capital Care, Inc., 461 F.3d 1 (C.A. D.C. 2006), the plan language provided that the

“Participant shall pay the Corporation all amounts recovered by suit, settlement, or otherwise from any

suit, settlement, or otherwise from any third party or his insurer to the extent of the benefits provided by

this Contract.” Id. at 10. The Circuit Court found such language to be completely inconsistent with the

notion that the participant could retain all settlement funds to the extent necessary to make her whole. 

In Administrative Committee of Wal-Mart Stores, Inc. v. Shank, 2006 WL 2546797 (ED Mo.

2006), the plan in question made clear that “the plan has first priority with respect to its right to reduction,

reimbursement and subrogation.” Id. at 5. The plan language at issue in Beveridge, Moore and Shank is

indicative of the clear, direct language which forecloses application of the make whole doctrine adopted in

this Circuit as a principle of federal common law. In each plan the language either expressly mentioned

make whole and eliminated it or included provisions which clearly left no room for the make whole

doctrine (e.g. “First priority” to the funds or “Participant shall pay . . . all amounts recovered . . .”). No

such language exists in the plan which is the subject of this dispute. Silence on the subject invokes the gap

filler provisions of federal common law, in this case, the make whole doctrine. 

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C. Discretion of Plan Administrator to Interpret Terms of the Plan.

Providence argues that if the plan’s terms are not clear, the make whole doctrine still does not

apply because the plan administrator has determined that the language in the plan excludes application of

the doctrine. Reply in Support of Motion for Summary Judgment, 8:4-11 [Dkt. #35]. The plan

unambiguously confers discretion to the plan administrator to interpret the terms of the plan. When the

plan confers discretionary authority to interpret the terms of the plan upon the plan administrator, the

Court reviews the administrator’s interpretation of the plan’s terms for abuse of discretion, not de novo. 

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948 (1989). Abatie v. Alta Health

& Life Insurance Co., 458 F.3d 955, 963 (9th Cir. 2006).

Here, the plan administrator’s interpretation is either irrelevant, because it does not address the

question before this Court, or constitutes an abuse of discretion, because it is not reasonable on its face. 

The plan administrator asks the question: “is there any language in the plan which specifically

embraces or endorses the make whole doctrine within the plan terms?” Because the doctrine is nowhere

mentioned, she concludes that the reimbursement requirement is not limited by the make whole doctrine. 

Declaration of Lisa Schmidt, ¶3 [Dkt. #28]. As stated earlier, in the Ninth Circuit, the make whole

doctrine is included as a gap filler within the reimbursement language of a plan unless it is bargained away,

expressly or by clear implication. The plan administrator acknowledges that the plan language is silent on

the subject of the make whole doctrine and does not opine on whether the doctrine is inconsistent with

acceptance of federal common law on the point.

Counsel for Providence asks the Court to recognize a different rule of interpretation depending on

whether the subject plan gives discretion to the administrator to interpret plan terms and conditions. 

Where no such discretion is granted, the Barnes test should apply and the “gap” created by silence on the

subject would be filled by the make whole doctrine. Where, as here, the plan does give discretion to the

plan administrator, then it should be the administrator who fills the void and not the federal common law. 

Counsel contends that Judge Posner’s opinion in Cutting v. Jerome Foods, Inc., 993, F.2d 1293 (C.A. 7

1993) suggests such a result. This Court disagrees. The rule advocated by counsel would give the plan

administrator unfettered discretion to create terms and conditions never intended by the parties, no matter

how unreasonable. While the discretion conferred upon the plan administrator is necessarily broad, it

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cannot be exercised in such a way as to abrogate important rights of the beneficiary without so much as a

hint that the parties intended such an outcome. 

A trustee may be given power to construe disputed or doubtful terms, and in such circumstances

the trustee’s interpretation will not be disturbed if reasonable. G. Bogert & G. Bogert, Law of Trusts and

Trustees, § 559, at 169-171 (2d rev. ed. 1980); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111,

109 S. Ct. 948 (1989). Here, on the subject at hand, the terms of the plan are not doubtful and the

interpretation of the plan administrator is not reasonable. The make whole doctrine is clearly not

eliminated from the plan by virtue of its precise terms. Applying the ruling in Barnes to the facts of this

case, the trustee, acting on behalf of the plan beneficiary, does not have to reimburse the plan until the

beneficiary is fully compensated for her loss. 

III. First Party vs. Third Party Funds.

Defendants’ argue that the settlement funds paid to representatives of Sarah Block constitute first

party funds and therefore the plan, by its own terms, has no claim against them. The plan includes the

following provision:

Third Party Liability - If someone else is legally responsible agrees to

compensate you for injuries suffered by you or a family member, you

will need to reimburse the plan for up to 100% of any benefits the plan

paid in connection with those injuries.

Plan at 5-5, Ex. 1 to Ramsey Decl. [Dkt. #17].

The plan language is broad enough to include the payments made by Farmer’s Insurance

(“someone else”). Moreover, under Washington law, an UIM payment is treated as coming from the

tortfeasor (“third party”). See Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wash.2d 303, 308 (2004). 

Finally, the plan administrator has reasonably and correctly interpreted the language above as broad

enough to capture settlement payments such as that made by Farmer’s here. Schmidt Decl., ¶ 5

[Dkt. #28].

IV. Supplemental Jurisdiction Over Providence’s Breach of Contract Action.

As an alternative claim, Providence asserts a breach of contract action against defendant, Terri

Block. Defendant Block argues that Providence’s state law contract claim is precluded by the Ninth

Circuit’s decision in Providence v. McDowell, 385 F.3d 1168 (9th Cir. 2004). Defendant is wrong. The

Court of Appeals in Providence v. McDowell, supra held that Providence’s claim was not preempted by

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ERISA and that it could assert its breach of contract claim under state law in state court. The state court

claim may be brought in federal court pursuant to this Court’s supplemental jurisdiction over state claims

which form part of the same case or controversy as the federal claim alleged. 28 U.S.C. § 1367(a).

In light of the Court’s ruling on the make whole doctrine, the state breach of contract claim

becomes insignificant to the ultimate outcome of the dispute. If the make whole doctrine applies to the

reimbursement language contained within the plan, then whether under breach of contract principles or as

“appropriate equitable relief” provided under § 503(a)(3), the outcome is the same: no reimbursement of

the plan is required until the plan beneficiary has been fully compensated for her loss. 

V. Defendant Block’s Motion for Summary Judgment.

Defendant Terri Block asks this Court to rule as a matter of law that Sarah Block has not been

fully compensated by the $2.1 million insurance proceeds received to date. It is alleged that future

medical care alone is projected to equal or exceed $17,000,000. Although for purposes of these motions,

Providence does not assert that Block has been made whole, it does ask that the Court not rule on the

motion until the parties have had some opportunity to conduct basic discovery. Because the parties have,

by agreement, deferred discovery until the legal issues have been resolved, this Court will not grant the

summary judgment at this time. 

VI. Attorney Fees.

Defendants have asked the Court to award attorney fees and costs expended in defending this

action. ERISA provides that “the Court in its discretion may allow a reasonable attorney’s fee and costs

of action to either party.” 29 U.S.C. § 1132(g)(1). To determine whether an award is appropriate, the

Court must consider the following factors: (1) the degree of the opposing parties’ culpability or bad faith;

(2) the ability of the opposing party to satisfy an award of fees; (3) whether an award of fees against the

opposing party would deter others from acting under similar circumstances; (4) whether the parties

requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a

significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions. Santa

Monica Culinary Welfare Fund v. Marimar Hotel Corp., 920 F.2d 1491, 1495 (9th Cir. 1990). A court

need not find that all five factors weigh in favor of the movant in order to direct an award of attorney’s

fees. McElwaine v. U.S. West, Inc., 176 F.3d 1167, 1173 (9th Cir. 1999).

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Defendants argue that this action represents the fourth attempt by Providence to secure a right of

reimbursement from the proceeds of the UIM settlement. The persistence of Providence, they assert, 

serves to dissipate the funds in the trust. That may be so, but until now, Providence has been unsuccessful

in its attempt to obtain a venue for consideration of its claim on the merits. Prior court appearances have

focused upon defendants’ attempts to move the settlement funds into a special needs trust, in part, to

avoid facing the claim of Providence for reimbursement. Only now has Providence had the opportunity to

advocate their claim for a constructive trust or equitable lien over these funds.

After consideration of the aforementioned factors, the Court agrees with Providence that no award

of fees and costs should be made under the circumstances of this case. There is no culpability or bad faith

on the part of any party to this dispute. Important issues within a rapidly evolving body of law have been

presented for the Court’s determination. Neither side should be criticized for their advocacy and certainly

no action to deter similar action in the future is warranted. 

Unfortunately, the Court in this circuit has previously ruled that the provision giving the Court

“discretion” to allow reasonable attorney’s fees and costs should be read broadly to mean that a plan

participant or beneficiary, if she prevails in her suit to enforce her rights under the plan, should ordinarily

recover an attorney’s fee “unless special circumstances would render such an award unjust.” See

Carpenters Health and Welfare Trust for Southern California v. Vonderharr, 384 F.3d 667, 674 (CA 9,

2004). The Court cannot readily identify any “special circumstances” making such an award unjust save

for perhaps its own out-dated devotion to principles from a bygone era, (1) the American rule that fees

and costs should not be awarded to the prevailing party absent a clear right through contract or statute

and (2) the word “discretion” should still mean “a public official’s power or right to act in certain

circumstances according to personal judgment and conscience” Black’s Law Dictionary (7th ed. 1999).

The Court will accept declarations supporting the amount of fees and costs prayed for as well as

briefing regarding the “special circumstances” exception to the Circuit’s rule on the award of fees and

costs. 

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CONCLUSION

For the foregoing reasons, the Court decides as follows:

1) The Court has subject matter over the dispute.

2) Defendant Bush’s Motion to Dismiss [Dkt. #10] is DENIED.

3) The make whole doctrine applies to the subject ERISA plan.

4) Plaintiff’s Motion for Summary Judgment [Dkt. #16] is DENIED.

5) Defendant Block’s Motion to Dismiss [Dkt. #12] and Motion for Summary Judgment

[Dkt. #34] are re-noted to January 20, 2007 to give the parties time to conduct discovery

and determine if Sarah Block has been made whole by the Farmer’s UIM settlement.

6) The request for attorney fees and costs is likewise re-noted for January 20, 2007.

7) The parties are instructed to submit all necessary materials in connection with the

application of the make whole doctrine and the request for fees and costs in accordance

with Court rule given the assigned noting date. 

DATED this 8th day of November, 2006.

ARONALD B. LEIGHTON

UNITED STATES DISTRICT JUDGE

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