If the language of the Plan was the sole reference point, this case would be over. The
Plan would win because there is nothing with which Hummell could oppose its dictates. But
there is something other than the Plan here —the Illinois common fund doctrine. This doctrine
provides that where an attorney’s work generates a fund, the attorney is entitled to be paid from
that fund. The beneficiaries of the fund are only entitled to the net proceeds of their
proportionate share of the legal expense. If the Plan provisions here in issue did not exist, then
the Illinois common fund rule would give victory to Hummell. But this case is more complex
because the issue is which rule prevails in the.context of ERISA, which both sides agreed must
govern.

The Seventh Circuit has expressly declined to decide the question presented here. See
Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Wells, 213 F.3d 398 (7" Cir. 2000).
It has, however, refused to foreclose common fund applications in cases in which the Plan does
not itself explicitly foreclose it. Blackburn v. Sundstrand Corp., 115 F.3d 493 (7" Cir. 1997).
This Plan does explicitly foreclose the use of. the common fund to reduce the reimbursement to
which the Plan would be entitled. In contrast, the Supreme Court of Illinois has held that even
specific plan language cannot preempt application of common fund rules. Bishop v. Burgard,
764 N.E.2d 24 (Ill. 2002). In fact, that Court had earlier said that the common fund rules create a

separate state law cause of action unrelated to ERISA, a claim for guantum meruit existing

that the Plan will be better off if it does not pay a share of the contingency lawyer fees. I think
this is so because the medical expense reimbursement amount is, in most cases, a fairly small
fraction of the total recovery sought in personal injury actions. There is enough economic
incentive in these cases to motivate injured persons and their lawyers to proceed even at reduced
rewards which follow enforcement of Plan provisions. I do not vouch for this conclusion
because economic analysis often contradicts what we think are logical conclusions.

4



were it my role to do so, I would agree with the proposition that the Plan ought to pay its share of
attorneys’ fees), I cannot concur with it. Apart from the deference argument offered in Varco
there is no justification for the merits of the Fesult in that case.

Therefore, I agree with Judge Reinhard.on the merits. There is too much support for the
proposition that state law cannot void explicit and lawful provisions in ERISA plans. See, e.g,
Cutting v. Jerome Foods, Inc. 993 F.2d 1293 (7th Cir. 1993); Ryan by Capria-Ryan v. Federal

Express Corp., 78 F.3d 123 (3rd Cir. 1997).

For the reasons above, the plaintiff's Motion for Summary Judgment [7-1] is GRANTED.

The defendant’s Motion for Summary Judgment [8-1] is DENIED.

ENTER:

_— es Fak
United States District fudge

DATE: C4 Shiba Coe


Note: The Plan has first priority with respect to reimbursement of its subrogation lien.

request to take action, give information, and execute documents to aid the Plan in its enforcement
of its right to recovery:

Subrogation is when Wal-Mart pays your medical charges relating

to your accident while waiting for.the responsible party to settle.

Repayment to the Plan of 100%, will be made at the time the

settlement is received by the associate, dependent, or their attorney.

The problem here is subject to two characterizations. On one hand, lawyers for covered
employees say that Plans which refuse to pay the contingency fee are “free riders” seeking funds
recovered by dint of a lawyer’s efforts without paying the lawyer his due. On the other hand, the
Plans say that paying the lawyers increases the. costs of the Plan to its participants or reduces the
benefits. Also, the Plan is not contracting with the lawyer and thus should not be bound by its
participants’ agreements with lawyers of their choosing. Furthermore, they say, a lawyer, who
should know of the possible constraints on fees, can get a copy of the Plan and, if it precludes
fees, can tell the prospective client that recovery will be reduced by costs and by reimbursement
to the plan, and that the fee will be one-third of: what remains. Finally, their answer to the “free
rider” claim is that the Plan conditions its coverage on the understanding that the covered

employee, not the Plan, pays the attorney’s fees — that is its “agreement” with its covered

employees.!

'No one has referred to any definitive study of the actual economic consequences of the
policy here. Ifa Plan has to pay lawyers, it may have to increase contributions to the Plan or
decrease benefits. But if the Plan does not pay lawyers then it may significantly decrease the
amount of money it gets in reimbursement or, in the alternative, pay its own lawyers to secure
reimbursement and still have to offer less value to its participants. I suspect, but do not know,

3



entirely apart from the federal law. It is a right of the attorney to sue. The attorey’s rights are
not created by or dependent in any way on the ERISA plan. Scholtens v. Schneider, 671 N.E.24
657 (Ill. 1996). Bishop was a reconsideration of the Court’s prior ruling in light of Egelhoff'v.
Egelhoff, 532 U.S. 141 (2001), which held that ERISA can and does preempt even state laws of
general application — in that case a state law which automatically revoked designation of a spouse
as a beneficiary of a non-probate asset when.a decree of divorce is entered. Obviously, the
Supreme Court of Illinois thought Zgelhoff did,not alter the preemption principles on which it
had relied.

The judges of this Court are split on the subject. Judge Reinhard, who having served for
many years in trial and appellate courts of Illinois has substantial familiarity with Illinois law,
said that:

[bJecause the common fund doctrine operates to modify
unambiguous and bargained for provisions in the employee benefit
plans, [I am] unable to agree with the conclusion of the Illinois
Supreme Court that any effect,the doctrine has upon employee

benefit plans is ‘simply too tenuous, remote or peripheral to
warrant a finding that the doctrine relates to such plans.’

position, see Great West Life and Annuity Ins..Co. v. Moore, 133 F. Supp. 2d 677 (N.D. TH 2001),
as did then Magistrate Judge Lefkow, see McCotter v. Longo, No. 95 C 5985, 1997 WL 158325
(N.D. II] March 31, 1997). However, Judge Lefkow reconsidered her view in Administrative

Committee of Wal-Mart Stores, Inc. v. Varco, No. 01 C 8277, 2002 WL 31189717 (N.D.IIL. Oct

preempted . . . Scholtens v. Schneider ... holds that [ERISA] does not preempt the common-



Minute Order Form (06/97)

, ‘ ‘ ( United States District Court, Northern District of Illinois

Ni f Assigned Jud; Sit i
rye Magistrate Judge James B. Zagel ‘than Anigned Judge
CASE NUMBER 02 C 5691 DATE 2/24/2003
CASE WAL-MART STORES vs. JEAN HUMMELL
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintifY, defendant, 3rd party plaimtitf, and (b) state briefly the nature
of the motion being presented.)

MOTION: —

DOCKET ENTRY: 7

() Oo Filed motion of { use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) ima} Answer brief to motion due, . Reply to answer brief due.

(4) Oo Ruling/Hearing on set for

(5) o Status hearing[held/continued to] [set for/re-set for]on__—sset for at__
(6) a Pretrial conference[held/continued to] [set for/re-set for]on__setfor__—at_
(o) o Trial[set for/re-set for]on____at

(8) ao [Bench/Jury trial] [Hearing] held/continued to.

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) (CLocaj Rule 41.1 OOFRCP41(a)(1) OO FRCP41(a)(2).

qo) wf {Other docket entry] Plaintiff’s motion, for summary judgment is denied. Defendant’s motion
for summary judgment is granted. Ente¥’summary judgment in favor of defendant and against
plaintiff.

(dl) @ [For further detail see order attached to the original minute order-]

No notices required, advised in open court. Document

Number

=>

No notices required. number of notices

FEB 27 2003

dave docketed,

Notices mailed by judge’s staff.

Notified counsel by telephone.

Y | Docketing to mail notices. wt

v Mail AO 450 form.

Copy to judge/magistrate judge.

dare mailed notice
courtroom

DW deputy's 0s 3G Hd 97 9343 3)
initials 3% :
ORETES US | on enen



fund doctrine. We agree with Scholtens,” 115 F. 3d at 495. She recognized that the decision in
Bishop would allow an attorney to sue in quasi-contract and recover a share of fees from the
amount to be reimbursed to a Plan. She then. noted that under Great-West Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204 (2002), a Plan could not sue a beneficiary under ERISA to secure
reimbursement. Absent diversity (or other unusual circumstances), the reimbursement claims
would be made in state courts. Finally she reasoned:

It would be anomalous, however, for this court in this rare case in

federal court to adhere to the view that the common fund doctrine

does not apply where the “run_of the mine” case of this sort will be

decided in the Illinois courts and governed by Bishop. If Bishop

was wrongly decided, only the United States Supreme Court or the

legislature can overrule it.
2002 WL 31189717 at *6.

The policy underlying this holding is one that lay at the heart of Erie R. Co. v. Tompkins,

304 U.S. 64, 74-77 (1938). Where the law goveming similar cases is radically different
depending on the accident of federal versus state jurisdiction, most would think this wrong, and,
perhaps, aggravated by the fact that all but a few cases would be decided by one of the two
jurisdictions. These anomalies do exist throughout the law. I suspect most federal judges with
but a few cases would try to harmonize their ordinary legal rules with those of the state courts
deciding many such cases, but the issue here is not one of common law as defined in Swift v.
Tyson. 41 U.S. 1 (1842). The judges in this Court are being asked to decide the ambit of a

federal statute, and I do not think that we can defer to a state court construction of a federal

statute on the grounds that the state courts will apply that law in the far larger number of cases.

See Erie R. Co. v. Tompkins, 304 U.S. at 78.. While I respect Judge Lefkow’s reasoning (and,



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

ADMINISTRATIVE COMMITTEE OF
THE WAL-MART STORES, INC.
ASSOCIATES’ HEALTH AND WELFARE
FUND,

No. 02 C 5691

Plaintiff, Judge James B. Zagel

JEAN HUMMELL,
DOCKETED

FEB 2 7 2003

Defendant.

MEMORANDUM OPINION AND ORDER

These are cross-motions for summary judgment in a dispute between a Wal-Mart health
Hummell was injured in an accident, and the Plan paid $16,698.10 in medical benefits on her
behalf. She subsequently retained a lawyer to prosecute a personal injury case. The attorney,
working on a one-third contingency fee, secured a settlement (after the second day of a jury trial)
in the amount of $150,000. The lawyer offered to reimburse the Plan for its expenses but only
after deducting one-third of the amount to compensate him for securing the recovery. The offer
was refused, but there was agreement by Hummell’s lawyer to keep the full amount in his client
trust fund account until a final judicial decision was made on the question of the lawyer’s
entitlement to any part of the amount now held in the trust account. This issue has arisen from
time to time in this and other courts.

The Plan provides that it has the right,to.recover 100 percent of the benefits it previously

\3



paid to the extent of any and all of the following payments:

Any judgment, settlement, or any payment made or to be made by a person
considered responsible for the ‘condition giving rise to the medical expense or by
their insurers.

Any auto or recreational vehicle insurance coverages or benefits including, but
not limited to, uninsured motorist coverage.

Business and homeowners medical liability insurance coverage or payments
Attorney’s fees.

The Plan also requires cooperation from covered employees to effectuate its right to

recover:

The Plan requires that you . . cooperate to guarantee
reimbursement to the Plan from third party benefits. Failure to
comply with this request will entitle the Plan to withhold benefits
due you under the Plan Document. You or your covered
dependents may not do anything to hinder reimbursement of
overpayment to the Plan after you have accepted benefits.

Note: All attorney’s fees and court costs are the responsibility of
the participant, not the Plan.

These rights apply regardless of whether such payments are designated as payment for,

but not limited to:

Pain and suffering

Medical benefits

Other specified damages

Whether the participant has been made whole (i.e. fully compensated for his/her
injuries).

Additionally, the Plan has the right to file suit on your behalf against any person
or entity considered responsible for the.condition giving rise to the medical
expenses to recover benefits paid or to be paid by the Plan

Note: If you reside in a state where personal injury protection or medical payment as
offered under your automobile/homeowner’s policy is mandatory, the Plan takes
secondary status.