Ryan v. Fed Express Corp , 78 F.3d 123 ( 1996 )

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Precedential or Non-Precedential: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
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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.
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