Opinion ID: 198862
Heading Depth: 2
Heading Rank: 1

Heading: The HPHC Appeal

Text: 11 HPHC claims that the district court erred in adopting, as federal common law, the rule that an ERISA-plan subrogee is liable for its proportionate share of the attorney fees expended by a plan member in generating the settlement fund. It argues that ERISA requires deference to the plain language of the subrogation clause contained in the ERISA plan, which in this instance neither mentions attorney fees specifically, nor qualifies its general language that HPHC is entitled to recover the value of services provided, arranged, or paid for. 3 12 The issue thus presented is one of first impression in this circuit. Among the courts of appeals which have considered it, the majority view is that an ERISA plan need not contribute to attorney fees where its plain language gives it an unqualified right to reimbursement. See, e.g., Walker v. Wal-Mart Stores, Inc., 159 F.3d 938, 940 (5th Cir. 1998); United McGill Corp. v. Stinnett, 154 F.3d 168, 172-73 (4th Cir. 1998); Health Cost Controls v. Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997); Bollman Hat Co. v. Root, 112 F.3d 113, 116-17 (3d Cir. 1997); Ryan v. Federal Express Corp., 78 F.3d 123, 127-28 (3d Cir. 1996). Since one of the primary functions of ERISA is to ensure the integrity of written, bargained-for benefit plans[,] United McGill, 154 F.3d at 172, generally speaking ERISA does not mandate that a covered plan include particular substantive provisions. Thus, the plain language of an ERISA plan must be enforced in accordance with 'its literal and natural meaning.' Id. (citation omitted). 13 The majority of courts construing state laws which regulate non-ERISA insurance contracts have read the common-fund doctrine into contractual clauses giving insurers an unqualified right to reimbursement from their insureds. See, e.g., York Ins. Group of Maine v. Hall, 704 A.2d 366, 368 n.3 (Me. 1997). Typically, these courts have read the reimbursement clauses' silence on the issue of attorney fees as an ambiguity, then based their holdings on the prevailing state-law principle that ambiguities in insurance policies must be construed in the insured's favor. See id. at 369. 14 By contrast, however, ERISA creates precisely the opposite presumption: unqualified plan provisions need not explicitly rule out every possible contingency in order to be deemed unambiguous. ERISA merely requires that covered plans be 'sufficiently accurate and comprehensive to reasonably apprise such [average plan] participants and beneficiaries of their rights and obligations under the plan.' Walker, 159 F.3d at 940 (quoting 29 U.S.C. § 1022(a)(1) (summary plan description)). It therefore follows that an ERISA plan which unambiguously requires its members to reimburse the plan for all benefits paid does preclude offsets for attorney fees. See id. 4 15 Notwithstanding the great weight of contrary authority, the district court was persuaded -- mistakenly in our view -- by the decision in Waller v. Hormel Foods Corp., 120 F.3d 138 (8th Cir. 1997). Waller dealt with a plan markedly different from the provisions construed in the cases we have cited. See supra note 4. The Waller plan merely provided: In the event of any payment by the [plan] for health care expenses, the [plan] shall be subrogated to all rights of recovery which you or your dependent, receiving such payment, may have against any person or organization. Waller, 120 F.3d at 139. Thus, the Waller plan neither defined the term subrogation, nor vested the plan with a direct right of reimbursement to all benefits paid in behalf of the plan member. 16 Furthermore, reimbursement and subrogation are distinct remedies. Subrogation empowers the plan to stand in the shoes of its member, and thus to enforce the plan member's rights and remedies against third parties through litigation. By contrast, reimbursement affords the plan a direct right of recovery against the plan member. See Provident Life & Accident Ins. Co. v. Williams, 858 F. Supp. 907, 911 (W.D. Ark. 1994). Thus, Waller held simply that a plan member might interpret the term subrogation to mean that the Plan will pay reasonable fees and expenses so as to encourage beneficiaries to press claims to which the Plan will be partially subrogated. Waller, 120 F.3d at 141. No such inference would be compelled, however, were the plan to seek recovery, not through subrogation, but independently, based on its own right to direct reimbursement. 17 The Harrises rely as well on several district court decisions which have held that the common-fund, fee-sharing doctrine may be read into otherwise unqualified ERISA subrogation provisions. See, e.g., Hartenbower v. Electrical Specialties Co. Health Benefit Plan, 977 F. Supp. 875, 885 (N.D. Ill. 1997); Carpenter v. Modern Drop Forge Co., 919 F. Supp. 1198, 1205-06 (N.D. Ind. 1995); Martz v. Kurtz, 907 F. Supp. 848, 855-56 (M.D. Pa. 1995), rev'd per curiam, 92 F.3d 1172 (3d Cir. 1996); Provident Life, 858 F. Supp. at 912; Serembus v. Mathwig, 817 F. Supp. 1414, 1423-24 (E.D. Wis. 1992). However, these decisions were based on the problematic premise that the common-fund doctrine would serve one of the congressional goals in enacting ERISA: 'to ensure that plan funds are administered equitably, and that no one party, not even the plan beneficiaries, should unjustly profit.' Martz, 907 F. Supp. at 856 (citation omitted). Assuming, without deciding, that the courts may supplement ERISA by formulating federal common law when 'necessary to effectuate the purposes of ERISA,' United McGill, 154 F.3d at 171 (citation omitted); see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987), in our view forefending against unjust enrichment is too amorphous a concept to warrant wholesale importation of the common-fund doctrine into an otherwise unambiguous ERISA plan. We explain. 18 A primary purpose of ERISA is to ensure the integrity and primacy of the written plans . . . [so that] the plain language of an ERISA plan should be given its literal and natural meaning. Health Cost Controls, 139 F.3d at 1072 (citing Burnham v. Guardian Life Ins. Co., 873 F.2d 486, 489 (1st Cir. 1989)) (emphasis added). Against this plain legislative purpose, if the ERISA plan expressly provides that its members are obligated to reimburse the plan for the value of services provided, arranged, or paid for, we do not think it can be considered unfair to require plan members to abide by the agreement. See Ryan, 78 F.3d at 127 ('Enrichment is not unjust where it is allowed by the express terms of the . . . plan.') (citation omitted); cf. Pierce v. Christmas Tree Shops, Inc., 706 N.E.2d 633, 636 n.5 (Mass. 1999) (rejecting same argument, under Massachusetts law); cf. also Health Cost Controls, 139 F.3d at 1072 (noting that defendant has not identified to this Court that application of a set-off under a[n] equitable common fund doctrine would advance any explicit statutory purpose of ERISA). 19 Nor does the rule we adopt today threaten to undermine any other ERISA goal. At least in cases like the present, where the settlement amount exceeds the sum total of the attorney fees incurred by the plan member and the plan's reimbursement claim, the member will have a continuing incentive to pursue settlements to his own net financial benefit, even assuming the plan will not be contributing to the attorney fees. See Bollman, 112 F.3d at 117 (refusing to reach hypothetical situation where a plan participant's third party recovery is less than the plan's subrogation claim plus attorney fees, since [this] third party settlement fully financed [] attorney's fees and the subrogation claim). 20 For the foregoing reasons, the district court order directing HPHC to defray a pro rata share of the Harrises' attorney fees must be vacated. 5