Court Opinion

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Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

3-14-1996

Ryan v. Fed Express Corp
Precedential or Non-Precedential:

Docket 95-5180

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Recommended Citation
"Ryan v. Fed Express Corp" (1996). 1996 Decisions. Paper 217.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/217

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                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                             No. 95-5180

     THERESA LYN RYAN, An infant by her Guardian Ad Litem,
      ALBERTA CAPRIA-RYAN; GREGORY L. RYAN, JR., An infant
         by his Guardian Ad Litem, ALBERTA CAPRIA-RYAN;
        BRIGID RYAN, An infant by her Guardian Ad Litem,
    ALBERTA CAPRIA-RYAN; ALBERTA CAPRIA-RYAN, Individually;
                  GREGORY L. RYAN, Individually

                                  v.

                  FEDERAL EXPRESS CORPORATION,

                                       Appellant

         On Appeal from the United States District Court
                 for the District of New Jersey
                      (D.C. No. 94-cv-01467)

         Submitted Pursuant to Third Circuit LAR 34.1(a)
                        January 25, 1996

            BEFORE: COWEN and McKEE, Circuit Judges
                   and POLLAK, District Judge*

                     (Filed March 14, 1996)

Leonard A. Wolkstein
Gutterman, Wolkstein, Klinger &
 Yohalem
240 East Grove Street
P.O. Box 2850
Westfield, New Jersey 07091

     COUNSEL FOR APPELLEES

                                  1
*Honorable Louis H. Pollak, Senior United States District Judge
for the Eastern District of Pennsylvania, sitting by designation.

                               2
Elizabeth C. Smith
Federal Express Corporation
1980 Nonconnah Boulevard
3rd Floor
Memphis, TN 38132

      COUNSEL FOR APPELLANT

                                 OPINION

COWEN, Circuit Judge.

      In this case we must decide the extent of the power of

federal courts to develop federal common law in cases involving

the Employee Retirement Income Security Act of 1974 ("ERISA"), 29

U.S.C. §§ 1001-1461.      Specifically, is such power sufficiently

broad to permit the district court to override a subrogation

provision in an ERISA-regulated plan on the ground that the plan

would be unjustly enriched if it were to be enforced as written.

In the instant case the district court granted the motion by

Alberta,   Gregory,   Brigid   and   Theresa   Ryan   ("the   Ryans")   for
summary judgment, ruling that appellant Federal Express--despite

having paid the plaintiffs over $190,000.00 under the terms of

its   health   plan   before   plaintiffs   settled   their    malpractice

claims--was not entitled to full reimbursement.               The district

court ruled that the health plan's subrogation provision could

not be given effect because Federal Express would receive an

"unjust benefit" if it were not required to deduct from its

subrogation lien a pro rata share of the attorneys' fees that the

                                     3
plaintiffs      had   incurred    in        obtaining     their      malpractice

settlement.

       In granting the Ryans' motion for summary judgment, the

district court failed to articulate how its effective revision of

the terms of the Federal Express Plan served to validate an

important statutory policy of ERISA.               Such a determination is a

necessary antecedent to overriding an express provision of a

benefits plan within the purview of ERISA.               Because the district

court interpreted the authority of federal courts to develop

federal common law under ERISA too broadly, we will reverse the

February

15, 1995, order of the district court granting the Ryans summary

judgment

.

                                              I.

       Alberta Capria-Ryan and Gregory L. Ryan are employees of

Federal Express.      Theresa Lyn Ryan is their infant daughter.              The

Ryans are beneficiaries under the Federal Express Group Health

Plan

("the Plan"), which is a self-funded employee welfare benefit

plan within the meaning of ERISA.           29 U.S.C. § 1002(1).

       Article 11, Section 11.2 of the Plan provides, in relevant

part,    that    "[e]ach     Covered       Participant     shall     be   deemed

conclusively     to   have   agreed    to    and    accepted   the    terms   and

conditions of the Plan when he becomes a Covered Participant."

App. at 192.     The Plan also contains a subrogation/reimbursement

                                       4
clause which requires full reimbursement of all benefits paid by

the Plan if the amount of a covered employee's net recovery

exceeds the amount of benefits paid by the Plan.              Article 8,

Section 8.5 of the Plan provides in pertinent part that
     if benefits are paid on account of an illness resulting
     from the intentional actions or from the negligence of
     a third party, the Plan shall have the right to
     recover, against any source which makes payments or to
     be reimbursed by the Covered Participant who receives
     such benefits, 100% of the amount of covered benefits
     paid. (Subrogation in connection with the Insured
     Options shall be governed by the provisions of those
     Options.)   If the 100% reimbursement provided above
     exceeds   the   amount   recovered   by   the   Covered
     Participant, less legal and attorney's fees incurred by
     the Covered Participant in obtaining such recovery (the
     Covered Participant's "Net Recovery"), the Covered
     Participant shall reimburse the Plan the entire amount
     of such Net Recovery.

Id. at 185-86 (emphasis added).          Similarly, pages fifty-five and

fifty-six     of   Your   Employee       Benefits,   the   summary   plan

description, entitled "SUBROGATION (THIRD-PARTY RESPONSIBILITY),"

provide that
     [i]f your illness or injury is caused by the actions of
     a third party, payment of your expenses is the
     responsibility of that third party. If you receive any
     payment from the third party, the Company expects 100%
     reimbursement for any plan benefits paid. However, if
     the payment you receive from the third party, less your
     attorneys' fees and other legal expenses, is not enough
     to reimburse benefit payments at 100%, you must
     reimburse the plan 100% of what is left after paying
     your attorneys' fees and other legal expenses.

Id. at 293.    The Ryans do not claim that Federal Express made any

representations to them about the requirements of the subrogation

provision other than those expressly set forth in the Plan.

                                     5
       The Ryans applied for benefits under the Plan after Mrs.

Ryan gave birth to Theresa Ryan.                  Theresa Ryan was born on

October 5, 1989, afflicted with cerebral palsy and severe brain

damage.     On February 27, 1991, the Ryans filed a malpractice

action in the New Jersey Superior Court, Law Division, Union

County.    Before the Ryans recovered any money from the parties

named in their malpractice action, they obtained over $190,000.00

under the Plan. The Ryans' malpractice case ultimately settled on

January   18,     1994.   The   Ryans'       recovery    under    the   settlement

agreement totaled $1,486,357.67.             Of that sum, the Ryans' lawyers

were awarded $273,635.77 in attorneys' fees, which amounted to

18.4% of the settlement award.

       After the settlement was finalized, Federal Express asserted

a subrogation lien against the Ryans' recovery for $191,793.65.

The Ryans offered to pay only part of the subrogation lien,

insisting that they be permitted to subtract a pro rata share of

counsel    fees    they   had    incurred       (18.4%    of     $273,635.77,     or

$35,290.03) in pursuing their malpractice claims in state court.

Federal Express rejected the Ryans' proposal, asserting that the

Plan    unambiguously     required   the       Ryans     to    remit    the   entire

$191,793.65 because their net recovery far exceeded this amount.

       On March 18, 1994, the Ryans filed a complaint in state

court, in which they sought a judgment directing Federal Express

to pay a pro rata share of their attorneys' fees.                        The Ryans

contended that they were entitled under state law to deduct a pro

rata share of reasonable attorneys' fees from the subrogation

lien and that Federal Express was prohibited from denying them

                                         6
benefits of any kind under the terms of the Plan.                  On March 30,

1994,   Federal   Express     removed   the    case   to   the   United    States

District Court for the District of New Jersey pursuant to 28

U.S.C. § 1441.

     Both   parties     moved    for   summary   judgment    and    the   Ryans'

arguments prevailed.        The district court refused to enforce the

Plan's subrogation clause, finding that the implementation of

this provision would confer an "unjust benefit" upon Federal

Express. App. at 25.            Since ERISA is silent on the issue of

subrogation agreements, the district court looked to common law

principles to provide plaintiffs with the remedy it fashioned.

In so doing, the court established a new federal common law right

of recovery under ERISA;         i.e., a right under federal common law

to deduct from a subrogation lien a pro rata share of attorneys'

fees incurred in pursuing a claim, despite explicit contrary

language    in   the   Plan's    subrogation     clause.     Federal      Express

appeals the order of the district court granting summary judgment

in favor of the Ryans.

                                       II.

     We have jurisdiction pursuant to 28 U.S.C. § 1291.                      The

district court exercised jurisdiction pursuant to 28 U.S.C. §

1331 and 29 U.S.C. § 1132.              Our review of the order of the

district court granting the Ryans' motion for summary judgment is

plenary.    Bixler     v.   Central    Pennsylvania    Teamsters      Health   &

Welfare Fund, 12 F.3d 1292, 1297 (3d Cir. 1993).                   Motions for

summary judgment must be granted if "there is no genuine issue as

                                        7
to any material fact and . . . the moving party is entitled to

judgment as a matter of law."             Fed. R. Civ. P. 56(c).       As there

are no material facts in dispute, the disposition of this case

rests upon whether the district court was empowered to tailor a

common-law rule under ERISA to cover this situation.

                                         III.

       ERISA     requires   that     all        employee    benefit   plans    be

"established and maintained pursuant to a written instrument,"

29     U.S.C.    §1102(a)(1),      and     that    plan     administrators    act

consistently with the Plan's written terms.                   Plan fiduciaries

must discharge their "duties with respect to a plan solely in the

interests of the participants and beneficiaries and . . . in

accordance with the documents and instruments governing the plan

. . . ."       Id. §1104(a)(1)(D).       It is uncontroverted that the Plan

met the requirements of ERISA.                It is also undisputed that the

Plan     administrators      did         not      violate     their   fiduciary

responsibilities.

       It is well established that federal courts have the power

under appropriate circumstances to apply common-law doctrines in

ERISA actions.       The Supreme Court has instructed federal courts

"to develop a `federal common law of rights and obligations under

ERISA-regulated plans' . . . guided by principles of trust law."

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.

Ct. 948, 954 (1989) (quoting Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 56, 107 S. Ct. 1549, 1558 (1987)).                 See also Heasley v.

Belden & Blake Corp., 2 F.3d 1249, 1257 n.8 (3d Cir. 1993)

                                          8
("Firestone      authorizes     the    federal     courts       to   develop   federal

common law to fill gaps left by ERISA.").                 In deciding whether it

is appropriate to apply principles of federal common law, "the

inquiry is whether the judicial creation of a right . . . is

`necessary to fill in interstitially or otherwise effectuate the

statutory pattern enacted in the large by Congress.'"                      Plucinski

v. I.A.M. Nat'l Pension Fund, 875 F.2d 1052, 1056 (3d Cir. 1989)

(citations omitted).           We have admonished district courts that

they   "should     not   easily      fashion     additional      ERISA   claims    and

parties outside congressional intent under the guise of federal

common law." Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d
226, 235 (3d Cir. 1994).               As the Supreme Court has explained,

"[t]he authority of courts to develop a `federal common law'

under ERISA . . . is not the authority to revise the text of the

statute."       Mertens v. Hewitt Assocs., 508 U.S. 248, ___, 113 S.

Ct. 2063, 2070 (1993).              The Supreme Court has held that "ERISA

does not create any substantive entitlement to employer-provided

health benefits or any other kind of welfare benefits.                     Employers

or other plan sponsors are generally free under ERISA, for any

reason    at    any   time,    to    adopt,     modify,    or    terminate     welfare

plans."        Curtiss-Wright Corp. v. Schoonejongen, ___ U.S. ___,

___, 115 S. Ct. 1223, 1228 (1995). As we stated in Hamilton v.

Air Jamaica, Ltd., 945 F.2d 74, 78 (3d Cir. 1991), cert. denied,

503 U.S. 938, 112 S. Ct. 1479 (1992), "[w]hile ERISA was enacted

to provide security in employee benefits, it protects only those

benefits provided in the plan. . . . `ERISA mandates no minimum

substantive      content      for    employee    welfare    benefit      plans,    and

                                          9
therefore   a   court   has   no    authority    to    draft   the   substantive

content in such plans.'"           (quoting Blau v. Del Monte Corp., 748
F.2d 1348, 1353 (9th Cir. 1984), cert. denied, 474 U.S. 865, 106
S. Ct. 183 (1985)).       Furthermore, notwithstanding "the ennobling

purposes which prompted passage of ERISA, courts have no right to

torture language in an attempt to force particular results . . .

the contracting parties never intended or imagined. To the exact

contrary, straightforward language . . . should be given its

natural meaning."       Burnham v. Guardian Life Ins. Co. of Am., 873
F.2d 486, 489 (1st Cir. 1989).              See Singer v. Black & Decker

Corp., 964 F.2d 1449, 1452 (4th Cir. 1992) ("[R]esort to federal

common law generally is inappropriate when its application would

. . . threaten to override the explicit terms of an established

ERISA benefit plan.").

     In Van Orman v. American Insurance Co., 680 F.2d 301 (3d

Cir. 1982), we discussed the question of what showing a party

(who would otherwise be bound by the language of the controlling

benefits plan) must make in order to establish a viable federal

common-law right premised upon unjust enrichment.                     Van Orman

involved a dispute over who was entitled to obtain an actuarial

surplus of approximately $12,000,000.00 upon the termination of a

benefits plan.    The plan provision specifically provided that the

employer "shall be entitled to the net assets of the Trust Fund

which   shall    remain    by      reason   of   the     erroneous    actuarial

computation during the life of the plan."              Id. at 304.     When the

plan was finally terminated, the employer sought to enforce its

right to obtain the actuarial surplus.                 The covered employees

                                       10
objected, arguing that a number of booklets and letters that they

had received from their employer had indicated that any actuarial

surplus would be held in trust for the employees and would become

their property upon the termination of the plan.

       In the ensuing litigation the Van Orman plaintiffs asserted,

inter   alia,    that     if   defendants       were    permitted       to    retain     the

actuarial      surplus,    as     provided      by     the    plan,    they     would     be

unjustly enriched.         The district court found, however, that any

contrary representations that had been made in the booklets and

letters sent to the plaintiff employees were not binding upon

defendants, and hence not part of the plan, because they had

contained      disclaimers      asserting        that        only   the      actual     plan

document was to govern the rights of employees.                        We affirmed the

finding of the district court that the booklets and letters were

not part of the plan document. Id. at 306-07.                          Since the plan

expressly provided that the employer was entitled to the entire

actuarial surplus, we concluded that "the doctrine of unjust

enrichment is inapplicable under New Jersey law and as a matter

of   federal    common     law.    .   .   [because]         recovery     under       unjust

enrichment may not be had when a valid, unrescinded contract

governs the rights of the parties."                  Id. at 310.

       In rejecting the plaintiffs' argument in Van Orman that the

case    warranted    the       application       of     federal       common     law,    we

described the heavy burden that plaintiffs must satisfy in order

to nullify a bargained-for plan provision on the ground of unjust

enrichment. The court observed that

                                           11
       [w]here   Congress   has   established   an    extensive
       regulatory network and has expressly announced its
       intention to occupy the field, federal courts will not
       lightly create additional rights under the rubric of
       federal common law. . . . We are particularly reluctant
       to fashion a federal common-law doctrine of unjust
       enrichment when such a right would override a
       contractual provision. . . . The existence of a
       contract . . . requires a particularly strong
       indication that the unjust enrichment doctrine will
       vindicate an important statutory policy. . . .
       [D]espite the extensive regulatory scheme governing
       pension plans, Congress left many matters to the
       discretion of the parties.      The Supreme Court has
       emphasized the primacy of plan provisions absent a
       conflict with the statutory policies of ERISA.

Id. at 312-13.        Accord Luby v. Teamsters Health, Welfare, &

Pension Trust Funds, 944 F.2d 1176, 1186 (3d Cir. 1991);          cf.

Hamilton, 945 F.2d at 78 (ERISA's disclosure provisions "permit[]

employees to bargain further or seek other employment if they are

dissatisfied with their benefits.").

       As with many other substantive terms of welfare plans, ERISA

says     nothing   about   subrogation   provisions.   ERISA   neither

requires a welfare plan to contain a subrogation clause nor does

it bar such clauses or otherwise regulate their content.          See

Land v. Chicago Truck Drivers, Helpers & Warehouse Workers Union
(Independent) Health and Welfare Fund, 25 F.3d 509, 514 (7th Cir.

1994).     The language of the subrogation provision at issue here

unambiguously requires the Ryans to pay back all the money they

received from the Plan.      Since the Ryans have failed to establish

that the Plan "conflict[s] with the statutory policies of ERISA"

and have similarly failed to show that the common law right at

issue "is necessary to . . . effectuate a statutory policy,"      Van

                                    12
Orman, 680 F.2d at 312-13, we must reject the Ryans' attempt to

establish the common law right they would have us recognize.

      The Ryans' argument that the Plan would be unjustly enriched

if   it   was     not   required    to   pay    a    pro    rata    share   of   their

attorney's fees is entirely without merit.                     "Enrichment is not

`unjust' where it is allowed by the express terms of the . . .

plan."      Cummings v. Briggs & Stratton Retirement Plan, 797 F.2d
383, 390 (7th Cir.) (citing Craig v. Bemis Co., 517 F.2d 677, 684

(5th Cir. 1975)), cert. denied, 479 U.S. 1008, 107 S. Ct. 648

(1986).     Indeed, it would be inequitable to permit the Ryans to

partake of the benefits of the Plan and then, after they had

received a substantial settlement, invoke common law principles

to establish a legal justification for their refusal to satisfy

their end of the bargain.

                                         IV.

      The    subrogation     provision     at       issue   must    be   enforced   as

written     and   requires   that    the   disputed         funds   be   remitted   to

Federal Express.         The February 15, 1995, order of the district

court will be reversed and this matter remanded to the district

court with instructions to enter an order granting the cross-

motion of Federal Express for summary judgment.

                                         13