Admin Comm Wal-Mart v. Varco, Clara ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-3879, 02-1124 & 02-1143
ADMINISTRATIVE COMMITTEE OF THE
WAL-MART STORES, INC. ASSOCIATES’
HEALTH AND WELFARE PLAN,
Plaintiff-Appellant/Cross-Appellee,
v.
CLARA VARCO,
Defendant-Appellee/Cross-Appellant.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 8277—Joan Humphrey Lefkow, Judge.
____________
ARGUED SEPTEMBER 10, 2002—DECIDED JULY 29, 2003
____________
Before FLAUM, Chief Judge, and BAUER and MANION,
Circuit Judges.
MANION, Circuit Judge.
I.
Clara Varco, a Wal-Mart employee, incurred medical
expenses due to a car accident, which were paid by Wal-
Mart’s health and welfare benefit plan. After Varco recov-
ered damages for her injuries in a state court action, the
Wal-Mart Plan Committee sought restitution for the med-
ical expenses it had paid from Varco and her attorney,
2 Nos. 02-3879, 02-1124 & 02-1143
Laurence Dunford. The district court granted a preliminary
injunction in favor of the Committee, preventing Varco and
her attorney from disbursing those funds or further adjudi-
cating the matter in state court. Varco and Dunford ap-
pealed the preliminary injunction. The district court then
granted summary judgment in favor of the Committee,
ordering that the medical expenses be remitted to the
Committee, less its proportional share of Dunford’s attor-
ney’s fees pursuant to Illinois’ common fund doctrine. The
Committee appealed the order diminishing its reimburse-
ment due to the application of the common fund doctrine.
The cases were consolidated. We affirm in part and reverse
in part.
II.
On September 24, 2000, Clara Varco sustained injuries
in an automobile collision in Orland Park, Illinois. At that
time she was employed by Wal-Mart Stores, Inc. (“Wal-
Mart”), which provides its employees benefits through the
Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan
(the “Plan”). The Plan is a self-funded employee welfare
benefit plan governed by the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461 and
administrated by the Administrative Committee of the
Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan
(the “Committee”). Pursuant to the terms of the Plan,
$18,865.72 in medical benefits was immediately paid on
behalf of Varco following the accident.
Significantly, for the purposes of appeal, the Plan in-
cludes a provision stating that the Committee has a right to
“recover or subrogate 100 percent of the benefits paid or to
be paid by the Plan on your behalf and/or your dependents
to the extent of . . . [a]ny judgment, settlement or any
payment made or to be made, relating to the accident, in-
cluding but not limited to other insurance.” The Plan
Nos. 02-3879, 02-1124 & 02-1143 3
further provides that it “does not pay for nor is responsible
for the participant’s attorney’s fees. Attorney’s fees are to be
paid solely by the participant.”
The procedural intricacies of this case began when Varco
retained Laurence J. Dunford to represent her against
Kristopher Lapsis, the other driver responsible for her
injuries, and to make a claim against All-State Insurance
Company, her insurer. She contracted with Dunford to pay
him a contingency fee of one-third of any recovery. Varco
then filed a tort action in Illinois state court against Lapsis.
In October 2001, in contemplation of settlement, Varco
sought adjudication of various liens on the lawsuit, includ-
ing that of the Plan. In response, the Committee asked the
state court to postpone adjudication of its lien and filed a
notice for removal in federal court. The district court
promptly remanded the case back to state court finding no
subject matter jurisdiction. Varco v. Lapsis, 172 F. Supp. 2d
985, 988-92 (N.D. Ill. 2001).1 Not content with this course of
events, the Committee filed a second action in federal court
on October 29, 2001, asserting claims under § 502(a)(3)(B),
29 U.S.C. § 1132(a)(3), for “appropriate equitable relief”
including an injunction, declaration of rights, specific
performance, imposition of a constructive trust and restitu-
tion against Varco and Dunford. The Committee also moved
to have related matters in state court stayed and Varco and
Dunford enjoined from proceeding with further state court
litigation.
While these suits were proceeding, Varco, through her
attorney, received settlement proceeds of $100,000. The
settlement proceeds were disbursed by Dunford to Varco,
1
In remanding the case, Judge Alesia presciently noted that
“there may be federal jurisdiction over the Wal-Mart Committee’s
independent action if the complaint states a claim under ERISA’s
civil enforcement provision, § 502(a)(3).” Lapsis, 172 F. Supp. 2d
at 991 n.7.
4 Nos. 02-3879, 02-1124 & 02-1143
himself, and other lienholders. In anticipation of litigation,
Varco established a reserve bank account in her name in
the amount of $34,034.55 (the initial amount the parties
believed to have been spent in medical bills under the Plan)
to pay the Committee when the courts resolved the question
of what amount was due and owing. Dunford, meanwhile,
took his full portion of attorney’s fees from the settlement
fund ($22,000) when he disbursed the monies, thereby
leaving all of the disputed monies in Varco’s possession.
Administrative Committee of Wal-Mart Stores, Inc. v. Varco,
No. 01 C 8277, 2002 WL 31189717 *2, n. 5 (N.D. Ill., Oct.
02, 2002) (“Varco III”). At the end of December 2001,
Dunford and Varco returned to state court and filed a
motion to adjudicate Wal-Mart’s lien. In response, the
Committee filed yet another motion in federal court pur-
suant to the Anti-Injunction Act, 28 U.S.C. § 2283, the All
Writs Act, 28 U.S.C. § 1651, and “the Princess Lida doc-
trine” to enjoin the state court from adjudicating the liens.
The Committee was successful in both of its motions
before the district court. On December 24, 2001, it obtained
a temporary restraining order from the district court and
a preliminary injunction preventing Varco and Dunford
from disbursing the $34,035.55 until “the rights of [the
Committee] have been determined by [the district
court].”Administrative Committee of Wal-Mart Stores, Inc.
Associates’ Health and Welfare Plan v. Varco, No.
1:01-CV-8277, 2001 WL 1772318, *3 (N.D. Ill., Dec 21,
2001) (“Varco I”).2 On January 14, 2001, the court entered
an injunction barring Varco from proceeding with further
2
During the course of the litigation, the parties discovered that
Blue Cross/Blue Shield of Illinois, the Plan’s third-party adminis-
trator, was able to obtain discounts on Varco’s medical expenses.
As a result, the court granted Varco’s motion to amend the
preliminary injunction by reducing the amount subject to it to
$18,865.72.
Nos. 02-3879, 02-1124 & 02-1143 5
adjudication of the Committee’s lien in state court. Admin-
istrative Committee v. Varco & Dunford, No. 01 C 8277,
2002 WL 47159, *3-4 (N.D. Ill. Jan. 14, 2002) (“Varco II”).
The court also dismissed all of the Committee’s claims for
equitable relief with the exception of its “claim for the
imposition of constructive trust on particular property
in the hands of the defendants and for the pendent state
law claims.” Id. at *4. After the district court stayed the
state court proceedings and enjoined Dunford and Varco
from proceeding in state court, the Committee removed for
the second time Varco’s personal injury action, as all of the
liens on the settlement, except for the Committee’s, had
been paid. The district court found that it properly had jur-
isdiction to adjudicate the Committee’s claim this time, for
reimbursement as “equitable relief” under § 502(a)(3)(B),
because the Committee was seeking a constructive trust
over Varco’s reserve account. Varco and Dunford then filed
a timely interlocutory appeal of the injunctions arguing, in
relevant part, that the district court lacked jurisdiction over
the claims because the Committee was seeking legal relief
based on the language of the Plan.
While the injunction was pending on appeal, the district
court proceeded to address the merits of the case. On
October 2, 2002 the district court granted the Committee’s
motion for summary judgment, holding that the Plan was
due reimbursement of the paid medical expenses. Varco III
at *4-6. The court also held that, pursuant to Illinois’
common fund doctrine, the Committee must bear its
proportional share of Dunford’s attorney fee. Based on this
doctrine, the court determined that the Committee was
entitled to restitution of the paid medical expenses,
$18,865.72, less its proportional share of Dunford’s legal
expenses for a total of $12,378.04. In rendering this deci-
sion, the district court issued an order noting that by
adjudicating the merits of the claim, the preliminary in-
6 Nos. 02-3879, 02-1124 & 02-1143
junctions entered in the case expired by their own terms.3
As Varco notes, the district court’s order on October 29,
2002, effectively mooted the cross-appeals filed by Varco
and Dunford insofar as the appeals contested the merits
underlying the preliminary injunctions.4 However, Varco’s
challenge to the district court’s jurisdiction to hear the case
remains. The Committee then filed a timely appeal from the
district court’s order on the merits arguing that the common
fund doctrine is preempted by ERISA. We consolidated
these cases on appeal. Because of the district court’s grant
of summary judgment, and dismissal of Dunford as a
litigant, the only remaining issues that survive on appeal
are whether the district court had subject matter jurisdic-
tion over the Committee’s claims and, if so, whether the
Committee must reimburse Varco for her payments to her
attorney pursuant to Illinois common fund doctrine.
3
The first injunction, which required Varco to hold the disputed
funds, expired when “the trial court decided the rights of the
parties with reference to the funds claimed by the [Committee].”
Varco I at *4. The second injunction, which prevented further
litigation in state court, expired when all of the remaining actions
in the case were removed and then resolved by the district court.
4
The district court also noted that Wal-Mart’s claims against
Dunford were voluntarily dismissed pursuant to F.R.C.P. 41(a)(2).
The court then dismissed Dunford’s counterclaim against
Wal-Mart for attorney’s fees, and dismissed Dunford as a defen-
dant in the case, as he had received full compensation for his
services and all of the disputed funds were in the possession of
Varco. Because the issues involving Dunford were mooted by the
district court’s order disbursing the attorney’s fees, he was not
included with Varco as an appellant by Wal-Mart. Dunford did not
file his own appeal from the court’s decision on the merits of the
action and thus he has nothing further left at stake in the present
appeal. We therefore order Dunford’s appeal (02-1143) dismissed
as moot.
Nos. 02-3879, 02-1124 & 02-1143 7
III
On appeal, Varco asserts that the district court erred in
finding subject matter jurisdiction to hear the case under 28
U.S.C. § 1331. Varco argues that the district court lacked
subject matter jurisdiction because the Committee’s claim
was for money due and owing under contract, which is
essentially a legal remedy, and ERISA creates jurisdiction
in federal court only for “other appropriate equitable relief”
under § 502(a)(3)(B). Varco argues that the creation of a
constructive trust over the disputed funds falls outside of
this jurisdictional grant.
A. Subject Matter Jurisdiction
Under 28 U.S.C. § 1331, federal courts have jurisdiction
over “all civil actions arising under the Constitution, laws,
or treaties of the United States.” A case arises under the
laws of the United States within the meaning of § 1331 only
when the claim for relief depends in some way on federal
law as stated in a well pleaded complaint, “unaided by any-
thing alleged in anticipation or avoidance of defenses which
it is thought the defendant may interpose.” Taylor v.
Anderson, 234 U.S. 74, 75-76 (1914); Vorhees v. Naper Aero
Club, Inc., 272 F.3d 398, 401 (7th Cir. 2001). ERISA
§ 502(a)(3) 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 violations or (ii) to enforce any provisions
of . . . the terms of the plan.” 29 U.S.C. § 1132(a)(3). In this
case the district court held, relying on the Supreme Court’s
reasoning Great-West Life & Annuity Ins. Co. v. Knudson,
534 U.S. 204 (2002), that the Committee was seeking
equitable relief as required by ERISA in the form of a
constructive trust over the funds held in Varco’s reserve
account, and, therefore, it had jurisdiction to adjudicate the
merits of the Committee’s claim. Varco II, at *2-3.
8 Nos. 02-3879, 02-1124 & 02-1143
In Great-West Life, the Court considered a case with facts
similar to this case and therefore bears scrutiny. Janette
Knudson, a beneficiary of an ERISA-governed employee
welfare benefit plan, was injured in a car accident. Great-
West Life, 534 U.S. at 207. The employee benefit plan
included a reimbursement provision that provided the plan
with “the right to recover from the [beneficiary] any pay-
ment for benefits paid by the Plan that the beneficiary is
entitled to recover from a third party.” Id. In particular, the
Great-West plan had “ ‘a first lien upon any recovery,
whether by settlement, judgment or otherwise,’ that the
beneficiary receives from the third party, not to exceed ‘the
amount of benefits paid [by the Plan] . . . [or] the amount
received by the [beneficiary] for such medical treat-
ment. . . .’ ” Id. According to this provision, the Great-West
plan covered $411,157.11 of Knudson’s medical expenses, of
which all except $75,000 was paid by Great-West. Id. Great-
West then sought to obtain restitution of the medical
expenses it had paid on Knudson’s behalf out of her dam-
ages recovery. Id. at 208. The Court looked at the substance
of plaintiff’s complaint to determine whether it fell into
“those categories of relief that were typically available in
equity.” Great-West Life, 534 U.S. at 210 (quoting Mertens
v. Hewitt Associates, 508 U.S. 248, 256 (1993)). Restitution,
the court noted, is “ ‘not an exclusively equitable remedy,’
and whether it is legal or equitable in a particular case (and
hence whether it is authorized by § 502(a)(3)(B)) remains
dependent on the nature of the relief sought.” Id. at 215
(citing Reich v. Continental Casualty Co., 33 F.3d 754, 756
(7th Cir. 1994)). The Court contrasted legal restitution,
which is not allowed under § 502(a)(3)(B), from equitable
restitution holding:
[A] plaintiff could seek restitution in equity, ordinarily
in the form of 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
Nos. 02-3879, 02-1124 & 02-1143 9
particular funds or property in the defendant’s posses-
sion. (citations omitted) A court of equity could then
order a defendant to transfer title (in the case of the
constructive trust) or to give a security interest (in the
case of the equitable lien) to a plaintiff who was, in the
eyes of equity, the true owner. But where “the property
[sought to be recovered] or its proceeds have been
dissipated so that no product remains, [the plaintiff’s]
claim is only that of a general creditor,” and the plain-
tiff “cannot enforce a constructive trust of or an equita-
ble lien upon other property of the [defendant].” . . .
Thus, for restitution to lie in equity, the action gener-
ally must seek not to impose personal liability on the
defendant, but to restore to the plaintiff particular
funds or property in the defendant’s possession.
Id. at 213-14.(internal citations omitted)
In Great-West Life, the Court then noted that the proceeds
of the settlement to which Great-West maintained it was
entitled were not in the Knudson’s possession, but instead
were in a Special Needs Trust. Id. at 214. Therefore, under
the Mertens standard, the Court concluded that Great-West
was not seeking equitable relief under § 502(a)(3)(B), be-
cause it was not claiming “particular funds that, in good
conscience, belong to petitioners, but that petitioners are
contractually entitled to some funds for benefits that they
conferred.” Id.
Against this backdrop, we proceed to the Committee’s
claim against Varco. The Committee, as a fiduciary, was
seeking to impose a constructive trust on the funds held in
Varco’s reserve bank account. Unlike the legal action
addressed in Great-West Life, the funds at issue here are
identifiable, have not been dissipated, and are still in the
control of a Plan participant due to the fact that Dunford
placed them in a reserve account in Varco’s name when
they were disbursed. Finally those funds, “in good con-
10 Nos. 02-3879, 02-1124 & 02-1143
science,” belong to the Committee. The Plan clearly states
that Varco’s rights to recover benefits may be subrogated
when there is a settlement and that “[t]he Plan has first
priority with respect to its right to reduction, reimburse-
ment and subrogation.” Under similar facts, we have held
that a suit to impose a constructive trust “nestles comfort-
ably” within ERISA’s concept of equity. Wal-Mart Stores,
Inc. Associates’ Health and Welfare Plan v. Wells, 213 F.3d
398, 401 (7th Cir. 2000); see also 1 Dan B. Dobbs, Dobbs on
the Law of Remedies: Damages-Equity-Restitution § 4.3 pp.
591 (2d ed. 1993) (“[The asset subject to a constructive
trust] may even be a fund of money like a bank account.”).
In response, Varco argues that this is essentially a legal
claim asserted by the Committee in order to enforce its
contract rights under the Plan because “a claim for money
due and owing under a contract is ‘quintessentially an
action at law.’ ” Wells, 213 F.3d at 401 (citing Atlas Roofing
Co. v. Occupational Safety & Health Review Comm’n, 430
U.S. 442, 459 (1977)). Varco would have a valid argument
under traditional principles of equity if an identifiable res
did not exist to which the Committee could claim a legally
recognized right. See generally Dobbs § 4.3(2) at 591.
Similarly, an argument would exist if the Committee could
not trace its property to a specific fund of money. Id. at 592.
Neither of those situations, however, is presented here.
Thus, under Great-West Life, the reimbursement action by
the Committee in this unique case is equitable because the
funds the Committee seeks to recover are identifiable, are
in the control of a defendant, and the Committee is right-
fully entitled to the monies under the terms of the Plan.
Because those elements are met here, the Committee’s
claim is equitable under § 502(a)(3)(B) of ERISA, and the
district court properly exercised federal question subject
matter jurisdiction under 28 U.S.C. § 1331.
Nos. 02-3879, 02-1124 & 02-1143 11
B. Common Fund Doctrine
We turn next to the question of whether the district court
properly applied Illinois’ common fund doctrine to the
settlement proceeds. Under the common fund doctrine, a
lawyer who recovers a sum of money (or “fund”) for the
benefit of others beyond his client is entitled to reasonable
attorney’s fees from the fund as a whole. See Country
Mutual Insurance Co. v. Birner, 688 N.E.2d 859, 861-62 (Ill.
1997). It is a common law “equitable exception” to the
general, or “American” rule, that each party to litigation
bears its own attorney’s fees, absent a fee-shifting statute.
See Scholtens v. Schneider, 671 N.E.2d 657, 662 (Ill. 1996).
To be entitled to fees under the common fund doctrine, an
attorney must show “(1) that the fund was created as a
result of legal services he performed; (2) that the subrogee
did not participate in creating the fund; and (3) that the
subrogee benefitted out of the fund.” Birner, 688 N.E.2d at
862. When these conditions are satisfied, fees and expenses
incurred in setting up the fund are typically apportioned
among those who benefitted from its creation. Id. And,
finally, “in Illinois, the attorney owns the claim for reim-
bursement for his services in creating a common fund.”
Primax v. Sevilla, 324 F.3d 544, 549 (7th. Cir. 2002) (citing
Bishop v. Burgard, 764 N.E.2d 24, 30-32 (Ill. 2002)).
The district court held that even though the Plan specifi-
cally provided that the plan participant was responsible for
all attorney’s fees, the common fund doctrine would still
apply, and that in this case the Committee was responsible
for one-third of Dunford’s fees. The court reasoned that the
Plan language would only apply if the Illinois doctrine
conflicted with and was preempted by § 514(a) of ERISA (29
U.S.C.§ 1141(a)).5 Varco II, at *4. The district court then
5
ERISA provides two types of preemption: complete preemption
(continued...)
12 Nos. 02-3879, 02-1124 & 02-1143
held, and Varco argues here, that ERISA does not preempt
the common fund doctrine pursuant to the law as inter-
preted by the Illinois Supreme Court. Id. at *5 (citing
Bishop, 764 N.E.2d at 34). In Bishop, the Illinois Supreme
Court held that despite an ERISA plan’s contractual
language requiring 100% reimbursement, the common fund
doctrine requires the plan to bear its proportionate share of
the participant’s attorney’s fee.6 The district court, and
Varco, also rely on Blackburn v. Sundstrand Corp., 115
F.3d 493, 497 (7th Cir. 1997). There we held that the
Illinois common fund doctrine was not preempted by ERISA
5
(...continued)
under § 502(e) and conflict preemption under § 514. See Rice v.
Panchal, 65 F.3d 637, 640 (7th Cir. 1995). Section 502(e), by
providing a civil enforcement cause of action, completely preempts
any state cause of action seeking the same relief. Id. We have held
that the common fund doctrine is not preempted under § 502(e).
Speciale v. Seybold, 147 F.3d 612, 617 (7th Cir. 1998). See also
Primax 324 F.3d at 549 (stating that in the complete preemption
context “. . . we have held that ERISA does not preempt common
fund claims”). Section 514, in contrast, provides for ordinary
conflict preemption dependent on the relationship between the
law in question and the language of the plan. Section 514(a)
specifically provides that ERISA “shall supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan . . . .” 29 U.S.C. § 1144(a).
6
The court put a special emphasis on the holding in Bishop
noting that, “[i]t 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.” Varco III at *6.
However, while this case may be the rare case that finds jurisdic-
tion in federal court under this cause of action, that does not mean
we should defer to a state court determination of federal law
unless that determination is also correct.
Nos. 02-3879, 02-1124 & 02-1143 13
to the extent that it allowed ERISA plan beneficiaries to
reduce their obligation to repay medical expenses by one-
third pursuant to a subrogation provision based on beneficia-
ries’ payment of attorney’s fees. Id.; accord Primax at 549;
Wells, 213 F.3d at 403. The plan at issue in Blackburn did
not expressly require beneficiaries to pay their own attor-
ney’s fees. In this case, the Plan specifically provides that
it “does not pay for nor is responsible for the participant’s
attorney’s fees. Attorney’s fees are to be paid solely by the
participant.”
We have as yet not had the opportunity to rule, either as
a matter of state or federal common law, that the common
fund doctrine defeats the terms of an ERISA plan that
expressly requires participants to pay their own legal fees.
See Blackburn, 115 F.3d at 496. In Blackburn, we found
that although the common fund doctrine applied where the
plan did not specifically require the participant to bear her
own attorney’s fees, we commented that “a plan might have
a better argument if its governing documents expressly
required participants to pay their own legal fees . . . and to
remit the gross rather than the net proceeds from litiga-
tion.” We cautioned that such a provision would likely give
the injured person “every reason to disclaim any demand for
medical expenses in tort suits, throwing on plans the
burden and expense of collection,” if not someone else. Id.
at 496. Furthermore, we have stated that “[b]ecause ERISA
supersedes any and all state laws relating to covered
plans, . . . [the Illinois common fund] doctrine is not avail-
able to [the beneficiary] [where] the terms of the plan
require reimbursement of the entire amount without the
deduction of any attorney’s fees.” Land v. Chicago Truck
Drivers, Helpers and Warehouse Workers Union (Independ-
ent) Health and Welfare Fund, 25 F.3d 509, 510 (7th Cir.
1994). This dicta in Land did not settle the matter as
recognized in Blackburn, wherein we specifically noted that
“[t]he status of the state’s common fund doctrine is a
recurring question that should be clarified. . . .” Blackburn,
14 Nos. 02-3879, 02-1124 & 02-1143
115 F.3d at 495. This case presents the opportunity to
answer that question in determining whether the Illinois
common fund doctrine relates to and conflicts with the
terms of the Plan.
“[A] state law relates to an ERISA plan ‘if it has a
connection with or reference to such a plan.’ ” Egelhoff, 532
U.S. at 147 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S.
85, 97 (1983)). The requisite connection exists under 514(a)
if a law mandates employee benefit structures or their
administration or provides alternative enforcement mecha-
nisms to ERISA. New York Conf. of Blue Cross v. Travelers
Ins. Co., 514 U.S. 645, 658 (1995). In this analysis, a court
“look[s] both to the objectives of the ERISA statute as a
guide to the scope of the state law that Congress understood
would survive as well as to the nature of the effect of the
state law on ERISA plans.” California Div. of Labor Stan-
dards Enforcement v. Dillingham Constr., N.A., 519 U.S.
316, 325 (1997) (internal citations and punctuation omit-
ted). In Egelhoff, for example, the Court found conflict
preemption and noted that the “the statute at issue here
directly conflicts with ERISA’s requirements that plans
be administered, and benefits be paid, in accordance with
plan documents.” Egelhoff, 532 U.S. at 150. Justice Scalia,
in his concurrence, notes that while he remained unsure
“as to what else triggers the ‘relate to’ provision”, the
“pre-emptive provision of the Employee Retirement Income
Security Act of 1974 (ERISA) is assuredly triggered by a
state law that contradicts ERISA.” Id. at 152 (J. Scalia,
concurring).
In this case, much like Egelhoff, state law contradicts the
terms of the Plan and therefore contravenes ERISA’s
requirements that plans be administered, and benefits be
paid, in accordance with plan documents. See also Melton v.
Melton, 324 F.3d 941, 945 (7th Cir. 2003). Varco seeks to
invoke a state law doctrine to her advantage in determining
her recovery as a beneficiary under an ERISA-regulated
Nos. 02-3879, 02-1124 & 02-1143 15
employee benefits plan. If the Illinois common fund doctrine
were applied, the Committee would receive less than total
reimbursement of Varco’s medical benefits from her settle-
ment through the deduction of her attorney’s fees in
contravention of the clear mandate of the Plan. Conflict
preemption, therefore, is appropriate in this case where
“Congress has made its preemption intention clear in the
language of the statute, the Supreme Court has affirmed
that intent, and we have applied the rule in similar cases.”
Melton, 324 F.3d at 945 (citing 29 U.S.C. § 1144(a) and
Egelhoff, 532 U.S. at 151). Because the Plan controls in this
case, the Committee is due the full amount of the medical
expenses paid on Varco’s behalf, or $18,865.72.
Furthermore, it is not readily apparent that Varco has
standing to raise the claim for attorney’s fees under the
Illinois common fund doctrine. In Bishop, the Illinois
Supreme Court noted that the right of the common fund
doctrine is a “quasi-contractual right to payment of fees for
services rendered [and] belongs to the attorney who ren-
dered the services and does not affect the contractual
relationship between the plan participant and the plan.”
Bishop at 31 (citing Scholtens v. Schneider, 671 N.E.2d 657(1996)); Primax, 344 F.3d at 547. Common fund claims are
therefore considered “wholly independent of a benefit plan
under Illinois law, and [are] to be brought by a third party,
the attorney who represented the participant, to enforce the
attorney’s quasi-contractual right to payment for services
rendered in recovering [for the plan’s benefit].” Hillenbrand
v. Meyer Medical Group, S.C., 720 N.E.2d 287, 294 (1999).
For example, in Bishop, although the named parties to the
action were the plan and the plan participant, the court
viewed “the motion for adjudication . . . [as] an independent
action by the attorney, which is unrelated to the benefit
plan and does not alter the contractual relationship of the
parties thereto.” Id. at 34. Because of this characterization,
the court determined that the parties properly had standing
to maintain the cause of action and ruled that neither
16 Nos. 02-3879, 02-1124 & 02-1143
conflict preemption, under § 514(a), nor complete preemp-
tion, under § 502(e), applied to the claim due to the lack of
a relationship between the plan and the claimant. Id.
Pursuant to this characterization, Varco would only have
standing to bring this claim under Illinois law if this case
involves a dispute which can be fairly characterized as an
independent action by the attorney to enforce his right to
payment for services rendered. As we previously noted,
Varco’s attorney Dunford has been dismissed from this
action and all of the disputed funds remain in Varco’s sole
possession in a reserve account in her name. The Commit-
tee in this case is therefore seeking to assert its rights
under the Plan, through an equitable action, to monies held
in their entirety by Varco. Dunford has already been
completely compensated, and perhaps over-compensated,
with other funds derived from the settlement. What Varco
is really seeking is reimbursement from the Committee for
the fees that she has already paid to Dunford in anticipa-
tion of the application of the Illinois common fund doctrine.
However, as Illinois courts have held, the common fund
doctrine operates independently of a plan document. The
relationship between Varco and the Plan is controlled
completely by the terms of the Plan, see Egelhoff, 532 U.S.
at 147-48, and those terms dictate that the Plan is not
responsible for attorney’s fees. If Dunford had not compen-
sated himself fully, and, as a result, still had a stake in the
action based on the outcome of this case, then the district
court could have properly categorized the action as one by
an attorney to enforce his rights and therefore appropri-
ately brought by Varco under Illinois state law. But because
Dunford has no stake in the outcome of this case, this
action by Varco is not for appropriate equitable relief
pursuant to the Illinois common fund doctrine.
Our conclusion that the Illinois common fund doctrine
conflicts with, and therefore is preempted by, the terms of
Nos. 02-3879, 02-1124 & 02-1143 17
the Plan in this case does not completely foreclose the
possibility of Varco asserting a claim. As Varco argues, the
federal common fund doctrine, which is similar to, but not
identical in application to the Illinois doctrine, has existed
independently in the federal system since 1882. See Boeing
v. van Gemert, et al., 444 U.S. 472, 478 (1980). Although
primarily used only in situations involving class action law
suits, federal courts have interpreted the doctrine to apply
in single-party ERISA disputes despite the absence in the
suit of the affected attorney. See McIntosh v. Pacific
Holding Co., 120 F.3d 911, 912 (8th Cir. 1997); Waller v.
Hormel Foods Corp., 120 F.3d 138, 141 (8th Cir. 1996). But
see Harris v. Harvard Pilgrim Health Care, Inc., 208 F.3d
274, 278-79 (1st Cir. 2000).
Courts that have applied the federal common fund
doctrine have done so pursuant to the rule that courts may
fashion federal common law when “necessary to effectuate
the purposes of ERISA.” Singer v. Black & Decker Corp.,
964 F.2d 1449, 1452 (4th Cir. 1992) (citations omitted).
However, in reviewing ERISA-related disputes, “[r]esort to
federal common law generally is inappropriate when its
application would conflict with the statutory provisions of
ERISA, discourage employers from implementing plans
governed by ERISA, or threaten to override the explicit
terms of an established ERISA benefit plan.” Id. (citations
omitted).
As we have often recognized, one of ERISA’s primary
purposes is to ensure the integrity of written plans. Duggan
v. Hobbs, 99 F.3d 307, 309-10 (9th Cir. 1996); see also Van
Orman v. American Ins. Co., 680 F.2d 301, 312 (3d Cir.
1982) (“The Supreme Court has emphasized the primacy of
plan provisions absent a conflict with the statutory policies
of ERISA.”); Pohl v. National Benefits Consultants, Inc., 956
F.2d 126, 128 (7th Cir. 1992). Thus, we have held that to
ensure the integrity of pension and welfare plans courts
should confine the benefits to the terms of the plans as
18 Nos. 02-3879, 02-1124 & 02-1143
written. Pohl, 956 F.2d at 128. Therefore, it is inappropriate
to fashion a common law rule that would override the
express terms of a private plan unless the overridden plan
provision conflicts with statutory provisions or other
policies underlying ERISA. Id.In this case, applying federal common law to override the
Plan’s reimbursement provision would contravene, rather
than effectuate, the underlying purposes of ERISA because
the express terms of the Plan provide for the appropriate
distribution of attorney’s fees. See Coleman v. Nationwide
Life Ins. Co., 969 F.2d 54, 58 (7th Cir. 1992); Ryan by
Capria-Ryan v. Federal Express Corp., 78 F.3d 123, 127-28
(3d Cir. 1996) (holding that the federal common fund
doctrine may not be applied in contravention of a plan’s
terms).
Those cases which have applied the federal common fund
doctrine in the favor of individual ERISA participants have
done so, correctly, only in the absence of controlling plan
language. See McIntosh at 917; Waller, at 141. Accordingly,
we conclude that the Plan in this case controls the relation-
ship between Varco and the Committee, and because it does
not authorize the payment of her attorney’s fees, we do not
possess the authority to rewrite the Plan in her benefit.
Finally, Varco argues that by allowing the Committee to
recoup its medical payments even though it did not pay for
the legal prosecution of the action, we are essentially
awarding them unjust enrichment. However, the unambigu-
ous language of the Plan obligates her to repay the benefits
paid in full without a pro rata deduction for her legal
expenses, and thus any so-called enrichment is not unjust.
See Ryan, 78 F.3d at 127 (“Enrichment is not ‘unjust’ where
it is allowed by the express terms of the . . . plan.”) (quoting
Cummings by Techmeier v. Briggs & Stratton Retirement
Plan, 797 F.2d 383, 390 (7th Cir. 1986)). This type of plan
provision, involving the relinquishment by a plan partici-
Nos. 02-3879, 02-1124 & 02-1143 19
pant of certain legal rights, has previously been upheld in
Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1297-98 (7th
Cir. 1993). In Cutting, we explained the trade-off whereby
most covered persons—if given an option—would readily
give up a “common fund-type” reduction in exchange for
having their medical expenses paid up-front in third-party
liability situations instead of refusing the benefits (and
therefore not having to reimburse the plan) and paying
their medical expenses out of their settlement. “Assign-
ment, by shifting the insured’s tort rights to the insurance
company, reduces the price of insurance and thus enables
the insured to obtain more coverage, in effect trading an
uncertain bundle of tort rights for a larger certain right,
which is just the sort of trade that people seek through
insurance.” Id. at 1298. In this case, plan participants have
traded the possibility of having the Plan participate in
attorney’s fees for the guarantee that medical bills will be
paid immediately.
IV
In conclusion, the district court correctly accepted subject
matter jurisdiction under 502(a)(3)(B) because the Commit-
tee was seeking an equitable remedy to enforce the terms of
the Plan. However, the court improperly held that the
Illinois common fund doctrine applied in reducing the
amount owed to Committee from $18,865.72 to $12,378.04.
The federal common fund doctrine is inapplicable in this
case as its application would contravene the plain language
of the Plan. This case is AFFIRMED in part, REVERSED in
part, and REMANDED to the district court with instruc-
tions, to proceed in the manner provided.
20 Nos. 02-3879, 02-1124 & 02-1143
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-29-03