Opposition Brief — Memorial-Hermann Healthcare Systems v. Ethridge
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but also by ERISA plans, and, in particular, claims involv-
ing an ERISA plan’s assertions of purported reimbursement
and subrogation rights. Sunbeam-Oster Co. Group Benefits
Plan v. Whitehurst, 102 F.3d 1368, 1373 (5th Cir. 1996).
A two step analysis is typically utilized. Gooselink,
272 F.3d at 726; Threadgill, 145 F.3d at 292; Wildbur, 974
F.2d at 631; Bourgeois, 308 F. Supp. 2d at 763. First, a
court determines whether the administrator gave the plan
the legally correct interpretation. Jd. To determine
whether the administrator’s interpretation was legally
correct, a court considers:
1. whether the administrator has given the
plan a uniform construction;
2. whether the administrator’s interpretation
is consistent with the fair reading of the
plan; and
3. whether different interpretations of the plan
will result in unanticipated costs.
Id.
If a court concludes that the administrator did not
give a legally correct interpretation, a court next deter-
mines whether the interpretation constitutes an abuse of
discretion. Jd. In making that analysis, three factors are
particularly important:
1. the internal consistency of the plan under
the administrator’s interpretation;
2. any relevant regulations; and
3. the factual background of the determination
and inferences of lack of good faith.
Id.
8
These three factors, however, are non-exclusive and do
not apply to every case. Gooselink, 272 F.3d at 726-27;
_ Threadgill, 145 F.3d at 292 n. 12; Duhon v. Texaco, Inc., 15
F.3d 1302, 1307-08 & n. 3 (5th Cir. 1994); Bourgeois, 308
F. Supp. 2d at 763-64. Consequently, when an administra-
tor interprets a plan in a way that directly contradicts the
plain meaning of the plan language, the administrator
abuses his discretion even if there is neither evidence of
bad faith nor a violation of any pertinent administrative
regulations. Gooselink, 272 F.3d at 727.
Moreover, other factors, such as conflict of interest,
should be considered when applicable. See Vega v. Na-
tional Life Ins. Sucs., 188 F.3d 287, 297 (5th Cir. 1999);
Bourgeois, 308 F.Supp. 2d at 763-64. The greater the
evidence of conflict of interest, the less deferential the
abuse of discretion standard will be. Jd.
MHHS’ attempt to have this Court apply a different
standard under the auspices of Firestone Tire & Rubber
Co. v. Bruch is erroneous. Firestone did not specifically
address.the abuse of discretion standard, but instead
concerned the de novo standard of review in the context of
denial of benefits and the interpretation of the term
“benefit.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 108 (1989). In Firestone, the Court discussed some
similarities of trust terminology with ERISA such as the
terms beneficiary, fiduciary, trustee, and fiduciary duties.
Id. at 110. The Court, however, did not adopt trust princi-
ples across the board. Instead, the Court commented that
it was guided by principles of trust law. Jd. at 111.
Moreover, the standard that petitioner would have
this Court adopt is not, as of this date, effective. Peti-
tioner’s authority of the RESTATEMENT (THIRD) OF TRUSTS
9
§ 87 is a tentative draft. Petitioner’s request to ignore
years of precedent concerning the abuse of discretion
standard and adopt the standard in the RESTATEMENT
(THIRD) OF TRUSTS should clearly be rejected.
The bottom line is petitioner demands the carte
blanche right to do whatever it wants without any regard
for the individual rights of a participant’s grieving widow.
Carol Pittman tragically had her husband taken from her,
and petitioner claims it can also take her individual cause
of action for this loss. Common sense, and public policy
dictate otherwise.
2. The Plan Language was Consistent
The pertinent provisions of the Plan are as follows:
8.2. Death or Dismemberment; Schedule of Benefits.
In the event of the Death of an Eligible Em-
ployee, any Death Benefits payable hereunder
shall be paid to the personal representative
of the estate of the deceased Eligible Employee
after the Administrative Committee receives
appropriate directions. In the event that no ad-
ministration is had on the Eligible Employee’s
estate, any Death Benefits payable hereunder
shall be paid to the Eligible Employee’s heirs at”
law, as such heirs are determined by the Admin-
istrative Committee in its discretion. Each re-
cipient of a Death Benefit_may be required to
sign an appropriate release of claims under the
Plan as determined by the Administrative Com-
mittee.
11.1. Plan Right of Subrogation. In the event of any
Benefit payment made under the Plan to or on
behalf of any Employee, the Plan shall, to the
11.2.
10
extent of such payments be subrogated to all
the rights of recovery and other rights of the
Employee arising out of any claim or cause of
action which may accrue. ... Employee, by par-
ticipation in the Plan agrees that his estate,
and the legal representative of his estate
shall likewise be obligated and that the Plan
shall be fully subrogated to any recovery or
right of recovery that the estate may have
against any third party....
The employee, or the legal representative or
beneficiaries of Employee shall notify the Plan
Administrator of any claim or lawsuit against a
third party or insurance carrier within thirty
(30) days of the date that the claim is made or
the lawsuit is filed. The Plan Administrator, on
behalf of the Plan, also has the right to pursue
any action to enforce its subrogation rights
against a third party.
Employee’s Agreement To Subrogation. Em-
ployee, on behalf of himself and each benefi-
ciary of a payment made on Employee’s
behalf, by accepting Benefits under the Plan,
consents and agrees (i) that the Plan shall be
promptly reimbursed for any payments made
to or on the Employee’s behalf under the Plan
out of any monies recovered as the result of any
lawsuit, judgment, order, award, settlement,
compromise, arbitration or other arrange-
ment.... Furthermore, Employee and said
beneficiaries promise and agree to take such
action, to furnish such information and assis-
tance, to execute and deliver any assignments,
reimbursement agreements and other instru-
ments as the Plan Administrator may require to
facilitate enforcement of the Plan’s subrogation
11
rnghts, and not to prejudice, or in any way det-
rimentally affect, such rights.
11.3 Limitation to Plan’s Subrogation Rights. The
Plan’s subrogation rights (a) shall extend only
to the recovery by the Plan of (i) the Benefits
that it has paid or will pay to or on behalf of the
Employee and (ii) the cost of prosecuting the
claim including attorney’s fees and court and
collection costs and (b) shall fully apply even if
the Participant or beneficiary thereof has only
received a partial recovery from a third party.
(Emphasis added) (App., 101 at 133-34, 143, 144-45).
According to the Administrative Committee, pursuant
to §§ 11.1 and 11.2 of the Plan, the Administrative Com-
mittee had the right to require Carol Pittman to assign all
of her claims to the Plan, and the Plan had the right to
control the prosecution of any claims she or the estate of
John Pittman may have against third parties. As the Fifth
Circuit held, this language means only that the Pittman
Estate, via Pittman as the Estate Representative, is
subject to MHHS’ subrogation rights. The language does
not mean that Carol Pittman must surrender the wrongful
death claims she independently possesses as John
Pittman, Jr.’s wife simply because she also served as the
Executrix of the Pittman Estate.
MHHS should not be allowed to profit by now claim-
ing there is an inconsistency in a document it drafted. The
Texas Wrongful Death Statute and Survival Statute set
forth the relevant causes of action. See TEX. Civ. PRAC. &
REM. CODE §§ 71.002-71.004 & 71.021(b) (Vernon 2005).
Even petitioner concedes that this statute, like almost all
wrongful death statutes, provides that an estate can never
12
have a wrongful death claim. This Court should not allow
MHHS to benefit from its own mistake.
Il. THE FIFTH CIRCUIT’S OPINION DOES NOT
EMASCULATE CONGRESS’ RULINGS PRO-
TECTING CERTAIN POLICIES
As opposed to petitioner's assertion, the Fifth Circuit's
opinion does not prohibit a plan administrator from
exercising discretion. Instead, it requires a plan adminis-
trator not to abuse his discretion. (App., 1). As explained
supr., this is the well-reasoned standard established
many years ago. Adopting petitioner’s position would allow
a plan administrator to make a decision without any basis
when the plan has some inconsistent language. This
contention is untenable.
IV. THE FIFTH CIRCUITS OPINION DOES NOT
THREATEN THE CONTINUED EFFICACY OF
CONGRESS’ ERISA POLICY AND THIS COURT'S
RULINGS PROTECTING THAT POLICY
MHHS contends that it should be allowed to usurp
Carol Pittman’s individual claim under the guise that it is
necessary to ensure that plan assets are soundly managed
for the benefit of current and future beneficiaries. MHHS
further alleges that it should, as a practical matter, be able
to steal Carol Pittman’s wrongful death claim to accu-
rately assess the future benefits expenses MHHS will be
required to pay. This position is absurd. Instead of indi-
vidual participants seeking to exploit ambiguities in a
plan, it is MHHS who is attempting to exploit individual
rights. In this case, most importantly, these rights do not
belong to a participant or beneficiary. The rights belong to
13
Carol Pittman individually. MHHS obviously should not be
allowed to fleece these individual nghts.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted,
LAWRENCE D. THOMPSON
TBN: 19930000
PHILLIP C. SUMMERS
TBN: 19506600
SHANNON L. RANKIN
TBN: 16546250
LORANCE & THOMPSON, P.C.
2900 North Loop West, Suite 500 :
Houston, Texas 77092
(713) 868-5560
Counsel for Respondent
Carol Ann Pittman, also
known as Carol Ann Peterson,
Independent Executrix of the
Estate of John Linwood
Pittman, Jr. Deceased and
Individually and as Beneficiary
of John Linwood Pittman, dr.
APPENDIX
Page
RPRPOCUREE RAIITE TIBOCTGAO RR 555 oi, das ccc viak co sedonisoens te nsvcacensvens App. 1 :
Order of District Court Denying Pittman’s Motion
for Partial Summary Judgment... App. 16
Order of District Court Granting MHHS Motion for
Partial Summary Judgment ...................ccccsseeeeeees App. 29
Agreed Final Judgment of Probate Court of Galves-
Ma ices cca vonnce a nsactie ss caneuanikGeeahe nel tysunvddsauneyvencees ts App. 44
Denial of Petition for Rehearing En Banc................. App. 48
oo EE BON ASE 0” SAA Brea ice niin Rome ned feo App. 50
Tex. Civ. Prac. & Rem. Code § 71.001-71.004........... App. 72
Tex. Civ Prac. & Rem. Code § 71.021....................008 App 76
Restatement (Third) of Trusts (Tentative Draft)
DOA co veclviisiicarant rdlshie Binsoicsdonedsseatasbepsswotavaned darsndastaes te App. 77
Restatement (Second) of Trusts § 183..................... App. 100
RAY SOME OPE ME TOUE sca foc sans sadasssnensviantsr incr evndansuessontes App. 101
MJHS Letter Re: Decision of Administrative
RAUNT opi chiesccccasedouaencephacives vosoeaactecoastuveacuupnn sone App. 163
-
App. 1
No. 04-20349
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
CHARLES ATTEBERRY, SR, ET AL,
Plaintiffs
V.
MEMORIAL-HERMANN HEALTHCARE SYSTEMS,
On Behalf and for the Benefit of The Estates,
Heirs, Devisees, Legatees, Spouses, Children
and/or Parents of Charles Atteberry, Jr.,
Plaintiffs-Appellees
Vv
MEMORIAL-HERMANN HEALTHCARE SYSTEM;
MEMORIAL-HERMANN HOSPITAL SYSTEM,
Plaintiffs-Appellants-Appellees
V.
BEN ETHRIDGE,
Intervenor-Plaintiff-Appellee
V.
DALINDA SHELTON; CAROL ANN PITTMAN,
also known as Carol Ann Peterson, Independent
Executrix of the Estate of John Linwood Pittman, Jr.,
Deceased and Individually as Beneficiary of
John Linwood Pittman, Jr.,
Intervenor-Plaintiffs-Appellants
V.
EUROCOPTER DEUTSCHLAND, GMBH, ET AL,
Defendants
April 1, 2005, Filed
JUDGES: Before GARWOOD, BENAVIDES and STEW-
ART, Circuit Judges.
App. 2
OPINION BY: BENAVIDES
OPINION: BENAVIDES, Circuit Judge:
I. INTRODUCTION
This action arises from the crash of a Life Flight
helicopter owned and operated by Memorial-Hermann
Healthcare System and Memorial-Hermann Hospital
System (collectively “MHHS”). All three MHHS employees
aboard the helicopter — Charles Atteberry, Jr., John
Pittman, Jr., and Silvia Lynn Ethridge — perished in the
crash. At the time of their deaths, the employees were
covered by MHHS’ ERISA Occupational Benefits Plan (the
“Occupational Benefits Plan”) which essentially provided
death benefits of $1,000,000 to the estate of the deceased
employee or, in the absence of a will, to the employee's
heirs at law.
This appeal involves the claims of three separate
appellants, Dalinda Shelton (“Shelton”), MHHS, and Carol
Pittman (“Pittman”). Each of the disputes centers on the
scope and extent of MHHS’ claimed subrogation rights
following the payment of death benefits pursuant to
MHHS’ Occupational Benefits Plan. More specifically,
Shelton appeals the district court’s grant of summary
judgment against her and its conclusion that MHHS’
subrogation right gives MHHS the right to control the
prosecution and settlement of the claims of the Estate of
Silvia Lynn Ethridge (the “Ethridge Estate”). MHHS
appeals the district court’s denial of its motion for sum-
mary judgment with respect to Ben Ethridge and its
conclusion that MHHS is not subrogated to Ben Ethridge's
wrongful death claim arising from the death of his daugh-
ter Silvia Ethridge. Pittman appeals the district court’s
App. 3
grant of partial summary judgment against her — as well
as its subsequent denial of her motion for partial summary
judgment against MHHS - and its conclusion that MHHS
is subrogated to her claims, both as an individual and as
the independent executrix of the Estate of John Linwood
Pittman, Jr. (the “Pittman Estate”).
Having reviewed the record and considered the briefs
and arguments on appeal, we uphold the district court’s
grant of summary judgment against Shelton and its denial
of MHHS’ motion for summary judgment with-respect to
Ben Ethridge. However, we reverse the district court’s
grant of summary judgment against Pittman in her
individual capacity.
Il. STANDARD OF REVIEW
The parties agree that MHHS’ ERISA Occupational _
Benefits Plan Administrative Committee (the “Adminis-
trative Committee”) had discretionary and final authority
to interpret MHHS’ Occupational Benefits Plan and make
all necessary factual findings. When a plan administrator
has such discretionary authority, this Court applies an
abuse of discretion standard. Pickrom v. Belger Cartage
Serv., Inc., 57 F.3d 468, 471 (5th Cir. 1995). This Court
reviews de novo the district court’s holdings regarding
whether a plan administrator has abused its discretion.
Threadgill v. Prudential Sec. Group, Inc., 145 F.3d 286,
292 (5th Cir. 1998).
App. 4
Ill. DISCUSSION 7
A. Dalinda Shelton and Ben Ethridge
1. Factual and procedural history
On December 23, 1999, MHHS paid a death benefit
under its Occupational Benefits Plan in the amount of
$1,050,816 to the Ethridge Estate through Dalinda Shel-
ton; Shelton is Silvia Ethridge’s same-sex domestic part-
ner, the personal representative and independent
executrix of the Ethridge Estate, and the principal benefi-
ciary under Silvia Ethridge’s will. Payment of the death
benefit to the estate representative is consistent with
Article 8.2 of MHHS’ Occupational Benefits Plan which
states that “in the event of the Death of an Eligible Em-
ployee, any Death Benefits payable hereunder shall be
paid to the personal representative of the estate of the
deceased Eligible Employee after the Administrative
Committee receives appropriate directions.”
At the time the death benefit was paid, Shelton and
the Occupational Benefits Plan Administrator for MHHS
entered into an Acknowledgment of Receipt of Benefits,
Subrogation Rights and Confidentiality Agreement (the
“Agreement”). As part of the Agreement, Shelton recog-
nized that she received funds from MHHS’ Occupational
Benefits Plan and acknowledged that MHHS was subro-
gated to the Ethridge Estate’s claims and causes of action.
The Administrative Committee subsequently determined
that MHHS'’ subrogation rights gave it the right to pursue
and settle the Ethridge Estate's claims without the par-
ticipation of Shelton as ihe Ethridge Estate representa-
tive.
Ben Ethridge, for his part, denies receiving Occupa-
tional Benefits Plan death benefits. In his deposition
App. o
testimony, Ben Ethridge acknowledged receipt of a share
of the Occupational Benefits Plan death benefit, but stated
that he received that money not from the Occupational
Benefits Plan, but as a gift from Shelton. Although Ben
Ethridge did not receive Occupational Benefits Plan death
benefits, he did receive other insurance proceeds resulting
from his daughter’s death; those proceeds were paid to
him through separate insurance policies that are different
from the Occupational Benefits Plan that is at the heart of
the instant dispute. Specifically, Ben Ethridge received life
insurance and accidental death and dismemberment
insurance proceeds pursuant to a Beneficiary Designation
Form, on which Silvia Ethridge designated both Ben
Ethridge and Dalinda Shelton as her designated benefici-
aries. At oral argument, it was conceded by MHHS that
while the Beneficiary Designation Form determined how
the life insurance and accidental death and dismember-
ment insurance proceeds were to be paid out in the event
of Silvia Ethridge’s death, it did not set forth how the
death benefit under MHHS’ Occupational Benefits Plan
was to be disbursed.
The Administrative Committee determined that the
Beneficiary Designation Form governed the disbursement
of the death benefit under MHHS’ Occupational Benefits
Plan and that Ben Ethridge was a designated beneficiary
who received Occupational Benefits Plan monies, albeit
indirectly from Shelton. The Administrative Committee
concluded that because Ben Ethridge was a beneficiary of
Occupational Benefits Plan death benefits, his wrongful
death cause of action was subrogated to MHHS, which
could then sue third parties on Ben Ethridge’s behalf.
MHHS filed suit against the third-party helicopter
manufacturer on behalf of, inter alios, Ben Ethridge and
App. 6
the Ethridge Estate. The district court subsequently
permitted Shelton and Ben Ethridge to intervene in the
action. Shelton claimed that as executrix of the Ethridge
Estate, she had the right to control the prosecution and
settlement of Silvia Ethridge’s survival action. Ben Eth-
ridge contended that his wrongful death cause of action
was not subrogated to MHHS because he was not a recipi-
ent of Occupational Benefits Plan death benefits and that,
therefore, MHHS could not sue the helicopter manufac-
turer on his behalf.
MHHS moved for summary judgment against Shelton,
as executrix and beneficiary, and against Ben Ethridge.
The district court granted MHHS’ motion for summary
judgment with respect to Shelton and concluded that
MHHS, as subrogee, has the authority to prosecute and
settle the claims of the Ethridge Estate without the
consent or participation of the Ethridge Estate representa-
tive. The district court denied MHHS’ motion for summary
judgment with respect to Ben Ethridge and concluded that
Ben Ethridge’s claims were not subrogated to MHHS
because he had not received Occupational Benefits Plan
death benefits. Shelton and MHHS subsequently appealed
the judgment of the district court.
2. Shelton’s claims
Because it is undisputed that MHHS is subrogated to
the Ethridge Estate’s causes of action, the sole issue of
contention between Shelton and MHHS is the meaning of
the term “subrogation” as used in the Occupational Bene-
fits Plan. Shelton contends that the Administrative Commit-
tee’s interpretation of the meaning of subrogation amounts to
an abuse of discretion because MHHS’ subrogation rights do
App. 7
not allow MHHS the right to exclusively control the
Ethridge Estate’s causes of action without the consent or
participation of the Ethridge Estate representative.
We conclude that the Administrative Committee’s
interpretation of the meaning of subrogation is legally
correct under both an ordinary meaning analysis and the
three-part test this Court employs to determine the legal
correctness of an ERISA plan administrative committee’s
determination.
a. Ordinary meaning analysis
Subrogation is not defined in the Occupational Bene-
fits Plan and its meaning cannot: be unambiguously
discerned from the Occupational Benefits Plan language.
However, as it is ordinarily understood, “subrogation
simply means substitution of one person for another; that
is, one person is allowed to stand in the shoes of another
and assert that person’s rights.” Black’s Law Dictionary
1468 (8th ed. 2004). Put differently, “[iln a subrogation
action, it is well established that there is only one cause of
action for the insured’s injuries .... {and t]he insurer can
assert its subrogation claim independently of the insured.”
Prudential Prop. and Cas. Co. v. Dow Chevrolet-Olds, Inc.,
10 S.W.3d 97, 100 (Tex. App. Texarkana 1999). Moreover,
under Texas state law, “the subrogees stand in the shoes of
the one whose rights they claim.” Jnterstate Fire Ins. Co. v.
First Tape, Inc., 817 S.W.2d 142, 145 (Tex. App. Houston
1991). Therefore, if there is only one cause of action for an
insured’s injuries, and in a subrogated action that cause of
action belongs to the insurance company subrogee, it
follows that the insurance company subrogee has the right
to control the subrogated cause of action.
App. 8
As applied to the instant case, the Ethridge Estate
has a cause of action on behalf of Silvia Ethridge. How-
ever, under the clear terms of the Occupational Benefits
Plan, by accepting Occupational Benefits Plan death
benefits, the Ethridge Estate has subrogated its cause of
action to MHHS, which then stands in the shoes of the
Ethridge Estate. Because there is only one cause of action,
and MHHS received from the Ethridge Estate the right to
control that cause of action, as the party in control MHHS
is entitled to prosecute and settle the Ethridge Estate's
claims without séeking approval from the Ethridge Estate
representative. :
b. Legally correct interpretation
Moreover, the Administrative Committee gave the
meaning of subrogation in the Occupational Benefits Plan
a legally correct interpretation under the three-part test
employed by this Court to determine the legal correctness
of an ERISA administrative committee’s determination.
Pickrom v. Belger Cartage Serv., Inc., 57 F.3d 468, 471 (5th
Cir. 1995). Under the three-part test, this Court considers:
(1) whether the administrative committee has given the
plan a uniform construction; (2) whether the administra-
tive committee’s interpretation is consistent with a fair
reading of the plan; and (3) whether different interpreta-
tions of the plan will result in unanticipated costs. Id.
Regarding the first factor, when there is no evidence
in the record as to whether an administrative committee
has given the plan a uniform construction, this Court
should proceed to the other two factors. See id. Because
there is no evidence in the record that the Administrative
Committee previously had to construe the scope of the
App. 9
Occupational Benefits Plan’s subrogation rights, our
analysis necessarily turns to the remaining two factors.
Regarding the second factor, the Administrative
Committee’s interpretation of the term “subrogation” is
consistent with a fair reading of the Occupational Benefits
Plan. The Occupational Benefits Plan language limits
MHHS’ recovery to the extent of “any Benefit payments
made under the Plan,” but does not limit MHHS’ right of
subrogation. The Occupational Benefits Plan language, in
fact, grants MHHS a broad subrogation right since it
states that MHHS “has the right to pursue any action to
enforce its subrogation rights against a third party.”
Therefore, a plain reading of the Occupational Benefits
Plan language gives MHHS the right of subrogation to all
of the Ethridge Estate’s claims, with MHHS’ right of
recovery in any action against a third party limited to the
amount of the death benefit paid to the Ethridge Estate.
Regarding the third factor, a different interpretation
of the Occupational Benefits Plan than the one adopted by
the Administrative Committee would result in unantici-
pated costs to MHHS. If, as Shelton argues, MHHS should
not be permitted to prosecute or settle any subrogated
claims without the consent of an employee's estate as
subrogor, MHHS would be at the mercy of the estate.
Pursuant to Article 11.3 of the Occupational Benefits Plan,
MHHS has priority over an employee's estate with respect
to all funds recovered from third parties, up to the amount
of benefits MHHS has paid plus the costs of recovery. If
MHHS is not permitted to independently prosecute and
settle the claims of an employee's estate, MHHS runs the
risk that the estate — having already received funds from
MHHS - will hold up settlement negotiations in the hopes
of obtaining a larger recovery. An estate that has received
App. 10
funds from MHHS has no incentive to settle its claims for
any amount that does not exceed that already paid to it by
MHHS, irrespective of how reasonable the settlement offer
may be. Adopting an alternate reading of the term “subro-
gation” would result in unanticipated costs to MHHS,
namely the increased costs of recovering from third par-
ties. Accordingly, we conclude that the Administrative
Committee has given a legally correct interpretation to the
term “subrogation” as it appears in the Occupational
Benefits Plan.
Therefore, for the foregoing reasons, we affirm the
judgment of the district court upholding the Administra-
tive Committee’s interpretation of MHHS’ subrogation
rights with respect to any claims of the Ethridge Estate,
and rejecting Shelton’s argument that she should control
or share in the control of the prosecution of any actions
brought on behalf of the Ethridge Estate.
3. MHHS'’ claims
MHHS appeals the district court's denial of MHHS'
motion for summary judgment and its holding that Ben
Ethridge retained his wrongful death cause of action
against third parties because he was not a beneficiary of
MHHS’ Occupational Benefits Plan death benefits. MHHS
contends that the Administrative Committee's determina-
tion was not an abuse of discretion for the following
reasons: (1) because Silvia Ethridge designated Ben
Ethridge as a beneficiary of her Life Insurance and Acci-
dental Death & Dismemberment Insurance Plans, Ben
Ethridge also should be considered a designated benefici-
ary of Occupational Benefits Plan death benefits; (2) under
Article 8.2 of the Occupational Benefits Plan, MHHS must
App. 11
pay the Occupational Benefits Plan death benefit as the
designated Occupational Benefits Plan _ beneficiaries
request; (3) at the request of Ben Ethridge and Shelton,
MHHS made the death benefit check payable to Shelton as
the personal representative of the Ethridge Estate; and (4)
Ben Ethridge did receive money from Shelton.
We conclude that the Administrative Committee’s
determination that Ben Ethridge received Occupational
Benefits Plan death benefits and was therefore required to
comply with the Occupational Benefits Plan’s subrogation
and assignment provisions is legally incorrect under the
first prong of the abuse of discretion standard articulated
supra.
MHHS has not demonstrated that Ben Ethridge was a
recipient of Occupational Benefits Plan death benefits.
Although Ben Ethridge did receive life insurance and
accidental death and dismemberment insurance proceeds,
which are not at issue in the instant case, he did not
receive from MHHS any portion of the Occupational
Benefits Plan death benefit, nor was he a designated
beneficiary of Occupational Benefits Plan benefits. The
entire amount of the death benefit was made payable to ©
Dalinda Shelton as the personal representative of the
Ethridge Estate; Ben Ethridge did not receive any money
directly from MHHS’ Occupational Benefits Plan. More-
over, the money Ben Ethridge did receive from Shelton
was a gift to Ben Ethridge and was drawn from Shelton’s
own funds.
Therefore, because the Administrative Committee’s
determination that Ben Ethridge received Occupational
Benefits Plan death benefits is inconsistent with a fair
reading of the Occupational Benefits Plan, we conclude
App. 12
that the Administrative Committee’s determination is
legally incorrect. See Gosselink v. Am. Tel. & Tel., Inc., 272
F.3d 722, 727 (Sth Cir. 2001) (holding that it is an abuse of
discretion if an administrative committee interprets a plan
in a way that directly contradicts the plain meaning of the
plan language). Accordingly, we agree with the decision of
the district court denying MHHS’ motion for summary
judgment as it relates to Ben Ethridge.
B. Carol Pittman
1. Factual and procedural history
Both Carol Pittman, common law wife of the deceased
John Pittman, Jr., and John Pittman III and Jennifer
Pittman (collectively, the “Pittman children”), the surviv-
ing children of the deceased, asserted to MHHS that the
$1,000,000 death benefit under the Occupational Benefits
Plan be paid to them. Unsure who it should pay, on De-
cember 21, 2000, MHHS filed a Petition in Interpleader
against Pittman and the Pittman children asking that the
probate court administering the Pittman Estate determine
who, as between Pittman and the Pittman children, was
the appropriate payee. MHHS then deposited the
$1,000,000 death benefit into the court registry. The
probate court subsequently issued an Agreed Final Judg-
ment ordering that the funds be released to the “personal
representative of the Estate of John Linwood Pittman, Jr.”
The probate court further determined that Pittman was
the duly authorized personal representative of the
Pittman Estate.
After Pittman accepted the death benefit provided
under the Occupational Benefits Plan, she filed a declara-
tory judgment action in probate court in which Pittman
App. 13
sought to avoid the subrogation provisions of the Occupa-
tional Benefits Plan. MHHS removed Pittman’s claim to
federal court and Pittman filed a motion to remand. The
district court denied Pittman’s motion to remand and
consolidated the removed action with MHHS’ action
against the third-party helicopter manufacturer on behalf
of, inter alios, Carol Pittman and the Pittman Estate.
On July 30, 2003, MHHS filed with the district court a
motion for partial summary judgment against Pittman in
her capacity as executrix and beneficiary of the Pittman
Estate. MHHS contended that summary judgment was
appropriate because the Administrative Committee
concluded that Pittman had accepted death benefits under
the Occupational Benefits Plan and that MHHS had a
right of subrogation to the amounts paid by it plus the
costs of prosecuting the claim. Pittman also filed with the
district court a motion for partial summary judgment
against MHHS.
The district court granted MHHS’ motion for partial
summary judgment and denied Pittman’s motion for
partial summary judgment. Pittman appeals those ad-
verse judgments against her.
2. Pittman’s claims
Pittman concedes that the claims of the Pittman
Estate are subject to subrogation because the Pittman
Estate received Occupational Benefits Plan death benefits
from MHHS. Moreover, as the Pittman Estate’s personal
representative, Carol Pittman admits she accepted Occu-
pational Benefits Plan death benefits, but did so only on
behalf of her deceased husband and not on her own behalf
as his wife. As such, Pittman contends that her claims as
App. 14
an individual are not subject to subrogation because she as
an individual did not receive Occupational Benefits Plan
death benefits, nor did she as an individual contractually
assign her claims to MHHS by executing an Acknowledg-
ment of Receipt of Benefits, Subrogation Rights and
Confidentiality Agreement.
The Administrative Committee read the Occupational
Benefits Plan language to mean that Pittman, upon
receipt of Occupational Benefits Plan death benefits,
subrogated all of her rights, in whatever capacity, to
MHHS. We conclude that this interpretation amounts to
an abuse of discretion because the Administrative Com-
mittee, in reaching its conclusion, ignored the plain
language of the Occupational Benefits Plan.
Article 11.1 of the Occupational Benefits Plan states
that “in the event of any Benefit payments made under the
Plan to or on behalf of any Employee, the Plan shall, to the
extent of such payments, be subrogated to all the rights of
recovery ... of the Employee.” Article 11.1 further states
that by participating in the Occupational Benefits Plan, an
employee also obligates the legal representative of his
estate and that “the Plan shall be fully subrogated to any
recovery or right of recovery that the estate may have
against any third party.” The quoted language plainly
means that when an employee or his estate accepts Occu-
pational Benefits Plan benefits, the employee or his estate
must surrender to MHHS all of its rights against third
parties.
As applied to the instant case, the Occupational
Benefits Plan language means only that the Pittman
Estate, via Pittman as the estate representative, must
surrender its claims to MHHS. The language does not
App. 15
mean that Pittman must surrender the wrongful death
claims she independently possesses as John Pittman, Jr.’s
wife merely because she also served as the representative
of the Pittman Estate. Because Pittman took Occupational
Benefits Plan death benefits as the Pittman Estate repre-
sentative — and not in her individual capacity — she cannot
be made to subrogate to MHHS the wrongful death claims
she independently possesses in her individual capacity as
the decedent’s wife. In other words, MHHS acquired no
subrogation rights nor control of any of Pittman’s individ-
ual claims. Accordingly, we reverse the judgment of the
district court insofar as it granted MHHS’ motion for
summary judgment with respect to Pittman in her indi-
vidual capacity, and remand the case to the district court
for proceedings not inconsistent with this opinion.
IV. CONCLUSION
For the foregoing reasons, the judgment of the district
court is AFFIRMED in part and REVERSED and RE-
MANDED in part.
App. 16
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CHARLES ATTEBERRY,SR., § CIVIL ACTION NO.
ET AL. § H-02-3689
Plaintiffs, ;
versus §
EUROCOPTER DEUTSCHLAND §
GMBH, ET AL. :
Defendants. §
ORDER
(Filed Dec. 1, 2003)
Pending before this Court is the Plaintiff's Motion for
Partial Summary Judgement (Instrument No. 125).
Based on the parties’ submissions and applicable law, the
Court finds that Plaintiffs Motion (Instrument No. 125)
is DENIED.
I.
On July 17, 1999 a Eurocopter BK-117 helicopter,
owned and operated by Memorial Hermann Healthcare
and Memorial Hermann Hospital Systems (*“MHHS"”) as a
Life Flight emergency aircraft, crashed near Fresno,
Texas. All MHHS employees aboard the helicopter were
killed. At the time of their deaths, the employees were
covered by MHHS’ ERISA Occupational Benefits Plan (the
“Plan”), which provided death benefits of $1,000,000.00 to
each employee's beneficiaries. John Linwood Pittman, Jr.
was the pilot of the helicopter and one of the employees
who died.
App. 17
On August 1, 2003 Plaintiff Carol Ann Pittman, a.k.a
Carol Ann Peterson, Independent Executrix of the Estate
of John Linwood Pittman, Jr., Deceased and Individually
as Beneficiary of John Linwood Pittman, Jr. filed a motion
for summary judgment requesting that the Court find that
MHHS' subrogation claims are barred by res judicata or in
the alternative that MHHS’ claims are not equitable
claims authorized under ERISA. (Instrument No. 125).
The Court recognizes that this motion for summary
judgment also serves as a response to MHHS’ earlier
motion for partial summary judgment. (Instrument No.
121).
Plaintiff argues that the re-litigation of _MHHS’
subrogation claim is barred under the doctrine of res
judicata as it was already decided in May 2000, when the
Probate Court of Galveston County entered an “Agreed
Final Judgment” in MHHS’ Interpleader Action. (Instru-
ment No. 126, at 2). Plaintiff contends that MHHS filed a
“Petition in Interpleader” in the Probate Court in Galves-
ton County, affirmatively asking for MHHS to be “dis-
charged from any further obligation with regard to
decedents death [and] that Memorial Hermann has a right
of subrogation. ... ” (Id., Exh. 2 at 4). The Probate Court
signed an Agreed Final Judgment that granted MHHS’
request to be discharged from any further obligation and
“ORDERED, ADJUDGED AND DECREED that any and
all relief not specifically granted herein is denied.” (Id.,
Exh. A, at 2). Therefore, Plaintiff asserts that the Probate
Court was “implicitly addressing Memorial's affirmative
subrogation claims... ” (Id., at 9).
According to Plaintiff, whether one looks at MHHS’
subrogation claim as an action barred by issue preclusion
(collateral estoppel), which prevents re-litigation of issues
App. 18
that have already been resolved in a prior suit, or claim
preclusion (res judicata), which bars re-litigation of claims
or causes of action that have already been adjudicated or
should have been adjudicated, the elements for each are
satisfied. (Instrument No. 125, at 7-8).
Alternatively, Plaintiff claims that the Supreme Court
has recently held that an ERISA plan administrator may
not seek to enforce a contractual obligation for the pay-
ment of money in federal court because ERISA only
permits suits that seek to obtain “appropriate equitable
relief.” Plaintiff refers to Great-West Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204 (2002) and Bahaus USA, Inc.
vu. Copeland, 292 F.3d 439 (5th Cir. 2002) to support her
position. (Id.).
On August 20, 2003, Memorial Hermann Healthcare
and Memorial Hermann Hospital Systems filed its Re-
sponse to Carol Ann Peterson Pittman’s Motion for Sum-
mary Judgment. (Instrument No. 132). MHHS argues that
the Agreed Final Judgment signed by the Galveston
Probate Court on May 5, 2000 was not a ruling by the
court regarding the assignment of claims or subrogation
rights pursuant to the terms and provisions of the Plan.
(Id., at 5). MHHS notes that it is Carol Ann Pittman who
filed an Original Petition for Declaratory Judgment in the
Galveston Probate Court on August 1, 2000, seeking to
have the rights and obligations of the parties with respect
to MHHS’ subrogation rights and right to require assign-
ment of all claims against third party action resulting
from the helicopter crash, determined by declaratory
judgment. (Id., at Exh. C). It is this same declaratory
judgment action that was removed to federal court by
MHHS on September 11, 2000 by MHHS and ultimately
App. 19
consolidated with this present case on August 7, 2000 by
Judge Samuel! B. Kent. (Id., at Exh. E).
MHHS alleges that ERISA regulates employee benefit
plans such as the occupational benefits program at issue
in this case. (See 29 U.S.C. Section 1001; NGS America,
Inc. v. Barnes, 998 F.2d 296, 298 (5th Cir. 1993). ERISA
includes a preemption provision that states that it shall
“supercede any and all State laws.” 29 U.S.C. section
1144(a). MHHS argues that caselaw supports their posi-
tion, that under ERISA, when an occupation benefit plan
vests its administrator with discretionary and final au-
thority to determine eligibility and interpret the plan, the
Court reviews the administrator’s, decisions for abuse of
discretion. (Instrument No. 132, at 6).
According to MHHS, the Plan Administrative Com-
mittee met to interpret and construe the Plan. The Com-
mittee determined that John Pittman, Jr. was an eligible
employee under the Plan and that his estate was eligible
for benefits under the Plan. MHHS also claims that the
Committee concluded that the estate and beneficiaries
were subject to the Plan’s terms and conditions. MHHS
asserts that it is apparent that the Administrator con-
strued the Plan uniformly and in a manner consistent
with a fair reading of the Plan’s plain language, thus the
effect of a beneficiary’s acceptance of benefits is clearly
established by the Plan as set out in Article XI, section
11.2 quoted above. (Instrument No. 132, at 7).
In Article XI of Section 11.2 of the Plan provides:
Employee's Agreement to Subrogation. Employee
on behalf of himself and each beneficiary of pay-
ment made on Employee’s behalf, by accepting
Benefits under the plan consents and agrees (1)
App. 20
that the Plan shall be promptly reimbursed for
any payments made to or on the Employee's be-
half under the Plan out of any monies recovered
as the result of any lawsuit, judgment, order,
award, settlement, compromise, arbitration or
other arrangement.... Furthermore, Employee
and said beneficiaries promise and agree to take
such action, to furnish such information and as-
sistance, to execute and deliver any assignments,
reimbursement agreements and other instru-
ments as the Plan Administrator may require to
facilitate enforcement of the Plan’s subrogation
rights. ...
(Instrument No. 132, Exh. A, Art. XI, Sect. 11.2)
MHHS' Benefit Plan contains a subrogation provision
at Article XI, § 11.2 which MHHS’ Administrative Commit-
tee claims has only one reasonable interpretation which 1s
“that anyone who receives benefits paid under the Plan 1s
required, upon the request of the administrator to assign
to the Plan any claims which he or she may have.” (In-
strument No. 132, at 8).
On May 15, 2000, Judge Gladys B. Burwell signed an
Agreed Final Judgment, ordering that the funds previ-
ously placed in the registry of the court be paid to the
personal representative of the Estate of John Linwood
Pittman, Jr. The court further found that Carol Ann
Pittman is the duly authorized personal representative of
the Estate of John Linwood Pittman, Jr. (Instrument No.
132, at Exh. B).
According to MHHS, the Agreed Final Judgment was
entered after, Carol Pittman and her attorney had been
provided the Plan and had ample time and opportunity to
study its provisions before she accepted the benefits.
App. 21
MHHS asserts that Carol Ann Pittman “indisputable, [sic]
knowingly, and voluntarily accepted benefits” and because
she “accepted benefits under the Plan, MHHS is entitled,
as the Administrative Committee found, to require her,
individually, to assign any and all rights of recovery she
may have to MHHS.” (Instrument No. 132, at 8). Addi-
tionally, MHHS argues that the cases Carol Ann Pittman
relies on are distinguishable. (Id., at 9).
IT.
Summary judgment is appropriate if no genuine issue
of material fact exists and the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56. A fact is
“material” if its resolution in favor of one party might
affect the outcome of the suit under governing law. See
Anderson v. Liberty Lobby, Inc., 47 U.S. 242, 247 (1986);
see also United States v. Arron, 954 F. 2d 249, 251 (5th Cir.
1992). An issue is “genuine” if the evidence is sufficient for
a reasonable jury to return a verdict for the nonmoving
party. See Anderson, 47 U.S. at 247. If the evidence rebut-
ting the motion for summary is only colorable or not
significantly probative, summary judgment should be
granted. Id. at 247-48; see also Thomas v. Barton Lodge,
Ltd., 174 F. 3d 636, 644 (5th Cir. 1999). The summary
judgment procedure, therefore, enables a party “who
believes there is no genuine issue as to a specific fact
essential to the other side’s case to demand at least one
sworn averment of that [specific] fact before the lengthy
process continues.” See Lujan v. Natl Wildlife Fed’n, 497
U.S. 871, 888-89 (1990).
Under Rule 56(c), the moving party bears the initial
burden of informing the district court of the basis for its
App. 22
belief that there is an absence of a genuine issue for trial, —
and for ider.tifying those portions of the record that dem-
onstrate such absence. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986); see also
Burge v. Parish of St. Tammany, 187 F. 3d 452, 464 (5th
Cir. 1999).
Where the moving party has met its Rule 56 (c)
burden, the nonmovant “must do more than simply show
that there is some metaphysical doubt as to the material
facts ... [T]he nonmoving party must come forward with
‘specific facts showing that there is a genuine issue for
trial.” See Matsushita, 475 U.S. at 586 (quoting Fed. R.
Civ. P. 56 (e)) (emphasis in original); see also Celotex Corp
v. Catrett, 477 U.S. 317, 321-22 (1986); Engstrom v. First
Nat'l Bank, 47 F. 3d 1459, 1462 (5th Cir. 1995). To sustain
the burden, the nonmoving party must produce evidence
admissible at trial. See Anderson, 47 U.S. at 256-57; see
also Thomas v. Price, 975 F. 2d 231, 235 (5th Cir. 1992)
(“To avoid a summary judgment, the nonmoving party
must adduce admissible evidence which creates a fact
issue.”),
The Court reviews the facts in the light most favor-
able to the nonmovant and draws all reasonable inferences
in favor of the nonmovant. See Brown v. Bunge Corp., 207
F. 3d 776, 781 (5th Cir. 2000). “The mere existence of a
scintilla of evidence in support of plaintiff’s position will
be insufficient; there must be evidence on which the jury
could reasonably find for the plaintiff.” Anderson, 47 U.S.
at 252.
Plaintiff claims that MHHS’ subrogation claim is an
action barred by issue preclusion (collateral estoppel),
which prevents re-litigation of issues that have already
been resolved in a prior suit, or claim preclusion (res
judicatar), which bars re-litigation of claims or causes of
action that have already been adjudicated or should have
been adjudicated. However, the subrogation claims Carol
Ann Pittman is requesting summary judgment on, stem
from the declaratory action that she filed on August 1,
2000, in Galveston County Probate Court and was then
removed to federal court and consolidated into this case,
and is an entirely new lawsuit from MHHS’ Interpleader
Action which was decided in May 2000. This demonstrates
to the Court that Carol Ann Pittman did not believe that
the Agreed Final Judgment signed by the Galveston
County Probate Court on May 15, 2000 and ended MHHS’
Interpleader Action resolved the subrogation issues, since
she proceeded to file a declaratory action the following
August. Therefore, the evidence in the record does not
support Plaintiff Carol Ann Pittman’s assertion that res
judicata or collateral estoppel applies.
hate
Plaintiff Carol Ann Pittman also claims that the_
Supreme Court holds that an ERISA plan administrator
may not seek to enforce a contractual obligation for the
payment of money in federal court because ERISA only
permits suits that seek to obtain “appropriate equitable
relief” Ms. Pittman argues that the Supreme Court
outlines this proposition in Great-West Life & Annuity Ins.
App. 24
Co. v. Knudson, 534 U.S. 204 (2002) and that the Fifth
Circuit supports it in Bahaus USA, Inc. v. Copeland, 292
F.3d 439 (5th Cir. 2002).
In Great-West Life & Annuity Ins. Co. v. Knudson, 534
U.S. 204 (2002) Respondent Janette Knudson was injured
in a car accident in June 1992 in California. The health
plan of Petitioner Earth Systems, Inc., the employer of Ms.
Knudson’s former husband, covered $411,157.11 of her
medical expenses, most of which was paid by petitioner
Great-West Life & Annuity Insurance Co. The Plan's
reimbursement provision gave it the right to recover from
a beneficiary any payment for benefits paid by the Plan
that the beneficiary is entitled to recover from a third
party. A separate agreement assigned Great-West the
Plan's rights to any reimbursement provision claim. After
the Knudsons filed a state-court tort action to recover from
the manufacturer of their car, they negotiated a settlement
which allocated the bulk of the recovery to attorney’s fees
and to a trust for Janette’s medical care, and earmarked
$13,828.70 (the portion of the settlement attributable to
past medical expenses) to satisfy Great-West’s reimburse-
ment claim. After approving the settlement, the state
court ordered the defendants to pay the trust amount
directly and the remainder to respondents’ attorney, who,
in turn, would tender checks to Great-West and other
creditors. Instead of cashing its check, Great-West filed a
federal action under § 502(a\3) of ERISA codified at 29
U.S.C. § 1132(aX3) to enforce the Plan’s reimbursement
provision by requiring the Knudsons to pay the Plan
$411,157.1.1 of any proceeds recovered from third parties.
App. 25
In relevant part, 29 U.S.C.§ 1132(a)(3) states:
(a) Persons empowered to bring a civil action. A
civil action may be brought —
(3) by a participant, beneficiary, or fiduciary (A)
- to enjoin any_act or practice which violates any
provision of this title or 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 this title or the terms of the plan.
The Knudsons filed a motion for summary judgment
whick the district court granted, holding that the terms of
the Plan limited its right of reimbursement to the
$13,828.70 determined by the state court. The Court of
Appeals affirmed on different grounds, holding that
judicially decreed reimbursement for payments made to a
beneficiary of an insurance plan by a third party is not
“equitable relief” authorized by § 502(a)(3). The Supreme
Court held that because petitioners Great-West Life &
Annuity Insurance Co. and Earth Systems, Inc. were
seeking legal relief — the imposition of personal liability on
respondents for a contractual obligation to pay money —
§ 502(a\(3) did not authorize the action. See id. at 221.
The Fifth Circuit concluded that the facts in Bahaus
USA, Inc. v. Copeland were indistinguishable in principle
from Great- West. 292 F .3d 439 (5th Cir. 2002).
Both cases involve ERISA-governed em-
ployee benefit plans that include reimbursement
provisions allowing the plans to recover from any
settlement proceeds any amount the plans ad-
vanced for medical expenses resulting from third
party wrong-doing. Third-party tortfeasors injured
App. 26
the plan beneficiaries in both cases, and the
plans advanced funds to the beneficiaries for
medical expenses. In both cases, the plan benefi-
claries made tort settlements with third-party
tortfeasors following suit in state court. In both,
the plan administrator or assignee filed suit in
the federal district court seeking declaratory re-
lief that it was entitled to repayment of the bene-
fits it had conferred.‘\In the instant case, the
settlement proceeds are in the registry of the
Mississippi Chancery Court. In Great-West,. the
proceeds of the settlement were placed in a pri-
- vate Special Needs Trust outside the possession
and control of the plan beneficiary. Nevertheless,
the defendants in this case, like the. Knudsons in
- Great-West, are not in possession of the disputed
funds, a fact that Justice Scalia found extremely
important in Great-West.
The Court in Great-West characterized the
suit in that case as “[{a] claim for money due and
owing under a contract” and that such a suit is
“quintessentially an action at law.” Because the
facts in today’s case are, in principle, indistin-
guishable from those in Great-West, we are bound
by that decision and hold that § 502(a\3) does
not authorize Bauhaus’ suit.
Bahaus USA, Inc., 292 F.3d 439, 445.
However, the facts of this case are wholly different. In
this case, MHHS is seeking equitable subrogation. Equita-
ble subrogation, “is not dependent upon contract but arises
by operation of law or by implication in equity to prevent
injustice.” Id.; see also 11 John Alan Appleman & Jean
Appleman, Insurance Law § 6501 (1981) (“Legal subroga-
tion has been defined as the right to be subrogated to the
creditor’s position, arising from the mere fact of payment
App. 27
by a surety.”). Under Texas law, equitable subrogation has
been defined as “‘a legal fiction by force of which an
obligation, extinguished by payment made by a third
person, is treated as still subsisting for his benefit’” or
“‘the procedure by which the equitable rights of one
person are worked out through the legal rights of an-
other.’” Texas Co. v. Miller, 165 F.2d 111, 115 (5th Cir.
1947) (citations omitted); see also 73 AM. JUR. 2D Subroga-
tion §§ 2, 3 (1964).
MHHS’ Benefit Plan contains a subrogation provision
at Article XI, § 11.2 which MHHS’s Administrative Com-
mittee claims has only one reasonable interpretation
which is “that anyor 2 who receives benefits paid under the
Plan is required, upon the request of the administrator to
assign to the Plan any claims which he or she may have.”
(Instrument No. 133, at 11). ERISA also allows for a civil
action “to obtain other appropriate equitable relief ... or
to enforce any provisions of this title or the terms of the
plan.” See 29 U.S.C.§ 1132(a)(3).
MHHS has provided the Court with evidence that it
paid death benefit monies pursuant to the Plan to Carol
Ann Pittman and has a subrogation interest in her wrong-
ful death claim. The documentation provided to the Court
by MHHS including the Agreed Final Judgement which
clearly states that the-parties MHHS, Carol Ann Pittman
and the Pittman Children agreed that the funds previ-
ously placed in the Galveston County Probate Court’s
registry by MHHS “shall be paid to the personal represen-
tative of the Estate of John Linwood Pittman. Jr. Further, ~
the Court finds that Carol Ann Pittman, a k a Carol Ann
Peterson is the duly authorized personal representative of
the Estate of John Linwood Pittman, Jr.” (Instrument No.
133, at Exh. D). Additionally, the December 1, 2000 letter
App. 28
authored by Carrol E. Aulbaugh of the Administrative
Committee, support the Pittman Children’s contention
that-it was Carol Ann Pittman who has accepted benefits
of the Occupational Benefits Plan. (Instrument No. 133,
Exh. C). In fact, this Court granted, in its Order dated
November 21, 2003, MHHS’ Motion for Partial Summary
Judgment as to Carol Ann Pittman, granting MHHS
subrogation rights and the exclusive and sole authority to
direct prosecution of Carol Ann Pittman’s wrongful death - -
claims.
Because MHHS, in this case, is seeking an equitable
relief the caselaw cited by Plaintiff does not apply. MHHS
is not asking Carol Ann Pittman to pay any monies, only
for the equitable relief of subrogation provided for by
ERISA and MHHS'’ Plan.
IV.
Based on the foregoing, the Court DENIES Plaintiff’s
Motion for Summary Judgment (Instrument No. 125).
The Clerk shall enter this Order and provide a copy to
all parties.
SIGNED on this the 28th day of November, 2003, at
Houston, Texas.
/s/ Vanessa D. Gilmore
VANESSA D. GILMORE
UNITED STATES
DISTRICT JUDGE
App. 29
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CHARLES ATTEBERRY, SR.,
ET AL.
Plaintiffs,
CIVIL ACTION NO.
H-02-3689
EUROCOPTER DEUTSCHLAND
GMBH, ET AL.
Defendants.
§
§
$
8
versus §
§
§
§
§
ORDER
(Filed Feb. 26, 2004)
Pending before this Court is Memorial Hermann’s
Motion for Partial Summary Judgement (Instrument No.
178).
I.
On July 17, 1999 a Eurocopter BK-117 helicopter,
owned and operated by Memorial Hermann Healthcare
and Memorial Hermann Hospital Systems (“MHHS”) as a
Life Flight emergency aircraft, crashed near Fresno,
Texas. All MHHS employees aboard the helicopter were
killed. At the time of their deaths, the employees were
covered by MHHS’ ERISA Occupational Benefits Plan (the
“Plan”), which provided death benefits of $1,000,000.00 to
each employee's beneficiaries. Charles Atteberry, Jr. was
one of the employees who died.
On August 7, 2000, Charles Atteberry, Sr. and Judy
Atteberry, Individually and as Co-Administrators of the
Estate of Charles Atteberry Jr., and MHHS on behalf and
App. 30
for the benefit of the Estates, Heirs, Devisees, Legatees,
Spouses, Children and/or Parents of Charles Atteberry, Jr.,
Lynn Ethridge and John Pittman’ filed an Original Com-
plaint in this Court claiming that Eurocopter is liable for
all claims including but not limited to negligence and/or
strict liability, related to the design, testing, manufacture,
quality control, and marketing of the BK-117-B2, the
helicopter at issue. (Instrument No. 1).
On December 1, 2003, MHHS filed a Motion for
Partial Summary Judgment. (Instrument No. 178). MHHS
seeks summary judgment on the issue of its right and —
authority to. settle this lawsuit. MHHS has reached a
settlement agreement with Defendants Eurocopter
Deutschland, GMBH, Eurocopter SA, Eurocopter Holding
SA and Honeywell International Inc. (collectively “Defen-
dants”). However, MHHS claims that the settlement has
been frustrated by a dispute that has arisen between
MHHS and one of the Plaintiff families, Charles Atteberry,
Sr. and Judy Atteberry (“Atteberrys”), concerning MHHS’
subrogation rights and its authority to settle this lawsuit.
MHHS argues that their ERISA Occupational Benefits
Plan contains unambiguous provisions requiring that_
anyone receiving benefits on behalf of an employee under
the Plan assign to MHHS all rights of recovery that the
employee’s estate may have against third parties who are
potentially liable for an employee’s death. Specifically,
\
' Charles Atteberry, Sr. and Judy Atteberry dispute MINIS’
assertion that it filed suit on their behalf. Charles Atteberry, Sr. and
Judy Atteberry contend that “the complaint clearly reflects that |the]
suit was filed by them on their own behalf, with Memoria] Hermann as
a plaintiff, seeking to recover damages because of their subrogation
rights.” (Instrument No. 187, at 5).
App. 31
_
MHHS cites Article 11.1 of the ERISA Plan which provides
‘in relevant part:
In the event of any Benefit payments made un-
der the Plan to or on behalf of any Employee, the
Plan shall, to the extent of such payments, be
subrogated to all the rights of recovery and other
rights of the Employee arising out of any claim or
cause of action which may accrue because of the
alleged accidental, negligent, intentional, or tor-
tious conduct, act, or omission of another person
or entity.... Employee, by participation in the
Plan agrees that his estate, and the legal repre-
sentative of his estate, shall likewise be obligated
and that the Plan shall be fully subrogated to
any recovery or right of recovery that the estate
may have against any third party on account of,
arising out of, the Employees’s bodily Injury, Dis-
ease or Commutative Trauma, including without
limitation, any wrongful death claim or ac-
tion... . The Plan Administrator, on behalf of the
Plan, also has the right to pursue any action to
enforce its subrogation rights against a third
party. ...
Article 11.2 provides:
Employee’s Agreement to Subrogation. Employee
on behalf of himself and each beneficiary of pay-
ment made on Employee's behalf, by accepting
Benefits under the plan consents and agrees (i)
that the Plan shall be promptly reimbursed for
any payments made to or on the Employee’s be-
half under the Plan out of any monies recovered
as the result of any lawsuit, judgment, order,
award, settlement, compromise, arbitration or
other arrangement....
App. 32
Furthermore, Employee and said beneficiaries promise
and agree to take such action, to furnish such information
and assistance, to execute and deliver any assignments,
reimbursement agreements and other instruments as the
Plan Administrator may require to facilitate enforcement
of the Plan’s subrogation rights. ...
(Instrument No. 178, at Exh. A)
MHHS argues that the Plan’s Administrative Com-
mittee confirms that the construction given by the Com-
mittee to the above provisions is that the effect of a
beneficiary's acceptance of Plan benefits is that the Plan
acquires subrogation rights and has the right to control
the settlement of all claims against third parties who are
potentially liable for the death of the employee. (Instru-
ment No. 187, at 4). MHHS also argues, that “this Court
recently held that the acceptance of Plan monies by a
beneficiary gives MHHS-the sole authority to direct
prosecution of that beneficiary's subrogation claims.” (Id.).
MHHS states that the Atteberrys’ have received and
accepted benefits pursuant to MHHS’ ERISA Plan. As well
as MHHS claims that the Atteberrys executed an agree-
ment with the Plan Administrator, specifically acknow]-
edging their receipt of benefits under the ERISA plan, as
well as MHHS’ subrogation rights. The Acknowledgment
of Receipt of Benefits, Subrogation Rights and Confidenti-_
ality Agreement (“Agreement”) states in relevant part:
WHEREAS, Claimants and Memorial Hermann
desire to resolve fully and finally all claims of en-
titlement to occupational employee injury bene-
fits arising out of or related to the Incident
and/or any benefits to be paid as a result thereof;
App. 33
Subrogation. Claimants further acknowledge and
agree to protect the subrogation rights of Memo-
rial Hermann to any monies that might be recov-
ered from any third party either by judgment,
order, award, settlement, compromise, arbitra-
tion, or other arrangement a reflected in but not
limited The Occupational Benefits Plan for the
Employees of Memorial Hermann Healthcare
System. Claimants agree that the right of subro-
gation by Memorial Hermann is primary to any
recovery to the extent of any payments made by
Memorial Hermann.... Memorial Hermann and
Claimants agree that the Memorial Hermann
shall be entitled only to the first $1 million dol-
lars in gross recovery from any third party.
Claimants further agree to cooperate fully with
Memorial Hermann and its attorneys in the
prosecution of its subrogation claims and will do
nothing to impede, jeopardize or prejudice those
rights and/or claims. Memorial Hermann agree
that it will not settle the subrogation litigation
without consulting with Claimants.
(Instrument No. 178, Exh. C, at 2-3). MHHS argues that
the Plan and the Acknowledgment give MHHS the subro-
gation rights as well as the authority to prosecute and to
settle the Atteberrys’ subrogation claims. MHHS contends
that because the Atteberrys actually received benefits
under the Plan, they are subject to the Plan’s subrogation _
provisions, which require them to execute any assignment
necessary to facilitate the enforcement of the Plan’s
subrogation rights.
However, according to MHHS, the Atteberrys have
sought to avoid these documents in order to frustrate the
App. 34
settlement agreement reached between MHHS and De-
fendants. (Instrument No. 178, at 6). The agreement
between MHHS and the Defendants is contingent upon
either the presentation of a release agreement executed by
the Atteberrys — and the Atteberrys have refused to sign
such a release — or on a Court Order finding that Memo-
rial Hermann has the right to settle the Atteberrys’ claims.
Therefore, MHHS requests that the Court to declare that,
because the Atteberrys accepted Plan benefits and ac-
knowledged MHHS’ right to prosecute their subrogation
claims, MHHS owns the Atteberrys’ subrogation claims
and may settle the claims on the Atteberrys’ behalf with-
out their signature. (Id.).
On December 22, 2003, Charles and Judy Atteberry
filed a Response in Opposition to Memorial Hermann’s
Motion for Partial Summary Judgment. (Instrument No.
187). The Atteberrys assert that MHHS is not entitled to
partial summary judgment because MHHS has no plead-
ing supporting a judgment, its ERISA Plan limits its
rights only to the extent of payment, and the subsequent
agreement between MHHS and the Atteberrys limit
MHHS’ right to subrogation to only receive payment of
monies received, not to force the Atteberrys to settle or
assign to MHHS all of their rights, claims and causes of
action against the Defendants. (Id., at 1).
The Atteberrys contend that Rule 56(a) of the Federal
Rules of Civil Procedure, “requires that a movant have
pleadings supporting the requested judgment.” (Id., at 8).
The Atteberrys argue that notwithstanding MHHS’ motion
for partial summary judgment, MHHS had not filed any
pleadings asserting any claims against the Atteberrys or
that support its right to ask the Court to enter a declara-
tory judgment in its favor. (Id.).
App. 35
The Atteberrys also claim that the January 27, 2000
Agreement between MHHS and the Atteberrys supercedes
the ERISA Plan and “does not grant MHHS the power or
right to force the Atteberrys to assign all of their rights,
claims and causes of action to Memorial Hermann or grant
Memorial Hermann the power to settle the Atteberrys’
claims against the defendants.” (Id., at 8). The Agreement
contains a merger clause that states — “This agreement
sets forth the entire agreement between the parties
hereto, and fully supercedes any and all prior agreements,
representations, promises or understandings, written or
oral, between the parties hereto pertaining to the subject
matter hereof. This Agreement cannot be changed, modi-
fied, or altered except in writing, signed by both Claimants
and Memorial Hermann,” (Id., at 9). Accordingly, the
Atteberrys argue that the Court should disregard the
ERISA Plan and only look to the Agreement to determine
whether MHHS has the legal right to force an assignment
or settle the Atteberrys’ claims.
The Atteberrys contend that the Agreement does not
require <n assignment and in fact limits MHHS'’ rights to
subrogation to $1,000,000. (Instrument No. 187, at 10).
According to the Atteberrys, the “lalgreement clearly
contemplates that the Atteberrys had the right to prose-
cute their claims against the defendants.” (Id.). Further,
the Atteberrys recognize that the Agreement contemplates
that MHHS has the right to settle its subrogation claim,
but is required to consult with the Atteberrys before doing _
so. The Atteberrys do not object to MHHS settling its
subrogation claims so long as the settlement does not
preclude the Atteberrys from continuing their claims
against the defendants, “especially in light of the fact that
App. 36
the current offer does not contemplate compensating the
Atteberrys.” (Id., at 12).
The Atteberrys also argue that even if the Court finds
that the Agreement does not supercede MHHS’ ERISA
Plan, the Plan does not provide MHHS with the power or
right to require the Atteberrys to assign all of their rights,
claims and causes of action to MHHS or to allow MHHS to
settle both its subrogation claims but also the Atteberrys’
claims. The Atteberrys maintain that the Plan “by its own
terms limits Memorial Hermann’s right only to the
amount paid.” (Id., at 13). The Plan provides the following:
11.1 Plan's Right of Subrogation. In the event of
any Benefit payments made under the Plan to or
on behalf of any Employee, the Plan shall, to the
extent of such payments, be subrogated to all the
rights of recovery and other rights of the Em-
ployee arising out of any claim or cause of action
which may accrue because of the alleged acciden-
tal, negligent, intentional, or tortious conduct,
act, or omission of another person or entity. ...
Employee, by participation in the Plan agrees
that his estate, and the legal representative of
his estate, shall likewise be obligated and that
the Plan shall be fully subrogated to any recov-
ery or right of recovery that the estate may have
against any third party on account of, arising out
of, the Employees’s Bodily Injury, Disease or
Commutative Trauma, including without limita-
tion, any wrongful death claim or action. ... The
Plan Administrator, on behalf of the Plan, also
has the right to pursue any action to enforce its
subrogation rights against a third party. ...
11.3 Limitations To Plan's Subrogation Rights.
The Plan’s subrogation rights (a) shall extend only
to the recovery by the Plan of (i) the Benefits that
App. 37
it has paid or will pay to or on behalf of the Em-
ployee and (ii) the cost of prosecuting the claims
including attorney’s fees and court and collection
costs and (b) shall fully apply even if Participant
or beneficiary thereof has only received a partial
recovery from a third party.
(Instrument No. 178, Exh. A). The Atteberrys argue that
the Court should deny MHHS’ motion for partial summary
judgment, because MHHS is only entitled to seek recovery
of subrogation up to amounts paid and that no where do
the documents grant MHHS the right or power to settle all
of the Atteberrys’ claims or causes of action. (Instrument
No. 187, at 14).
II.
Summary judgment is appropriate if no genuine issue
of material fact exists and the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56, A fact is
“material” if its resolution in favor of one party might
affect the outcome of-the suit under governing law. See
Anderson v. Liberty Lobby, Inc., 47 U.S. 242, 247 (1986);
see also United States v. Arron, 954 F. 2d 249, 251 (5th Cir.
1992). An issue is “genuine” if the evidence is sufficient for
a reasonable jury to return a verdict for the nonmoving
party. See Anderson, 47 U.S. at 247. If the evidence rebut-
ting the motion for summary is only colorable or not
significantly probative, summary judgment should be
granted. Id. at 247-48; see also Thomas v. Barton Lodge,
Ltd., 174 F. 3d 636, 644 (5th Cir. 1999). The summary
judgment procedure, therefore, enables a party “who
believes there is no genuine issue as to a specific fact
essential to the other side’s case to demand at least one
sworn averment of that [specific] fact before the lengthy
App. 38
process continues.” See Lujan v. Nat! Wildlife Fed'n, 497
U.S. 871, 888-89 (1990).
Under Rule 56 (c), the moving party bears the initial
burden of informing the district court of the basis for its
belief that there is an absence of a genuine issue for trial,
and for identifying those portions of the record that dem-
onstrate such absence. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986); see also
Burge v. Parish of St. Tammany, 187 F. 3d 452, 464 (5th
Cir. 1999).
Where the moving party has met its Rule 56 (c)
burden, the nonmovant “must do more than simply show
that there is some metaphysical doubt as to the material
facts ... [T]he nonmoving party must come forward with
‘specific facts showing that there is a genuine issue for
trial.” See Matsushita, 475 U.S. at 586 (quoting Fed. R.
Civ. P. 56 (e)) (emphasis in original); see also Celotex Corp
v. Catrett, 477 U.S. 317, 321-22 (1986); Engstrom v. First
Natl Bank, 17 F. 3d 1459, 1462 (5th Cir. 1995). To sustain
the burden, the nonmoving party must produce evidence
admissible at trial. See Anderson, 47 U.S. at 256-57: see
also Thomas v. Price, 975 F. 2d 231, 235 (5th Cir. 1992“To
avoid a summary judgment, the nonmoving party must
adduce admissible evidence which creates a fact issue.”).
The Court reviews the facts in the light most favor-
able to the nonmovant and draws all reasonable inferences
in favor of the nonmovant. See Brown v. Bunge Corp., 207
F. 3d 776, 781 (5th Cir. 2000). “The mere existence of a
scintilla of evidence in support of plaintiff’s position will
be insufficient; there must be evidence on which the jury
could reasonably find for the plaintiff” See Anderson, 47
US. at 252.
App. 39
Il.
Subrogation was first recognized as a right in equity
to prevent the unjust enrichment of a party who was owed
a claim that had been satisfied by another party. Later the
equitable right was preserved and sometimes extended by
incorporating it into the contract between the claim-debtor
and the party who, although not ultimately liable for the
claim, satisfied it. Whether subrogation is equitable or
conventional or both, the subrogee does not obtain redress
in its own right but only as successor to the rights of the
subrogor. Accordingly, a subrogee can obtain no greater
rights than its subrogor had. See In re Complaint of
Admiral Towing & Barge Co., 767 F.2d 243, 250 (5th Cir.
1985)
The January 27, 2000 Agreement between MHHS and
the Atteberrys was clearly meant to supercede the ERISA
Plan. The language is clear that the parties intended for
the Agreement to “set[{] forth the entire agreement be-
tween the parties hereto, and fully supercede[] any and all
prior agreements, representations, promises or under-
standings, written or oral, between the parties hereto
pertaining to the subject matter hereof” (Instrument No.
178, Exh. C, at 5). Therefore, the Court finds that the
Agreement supercedes MHHS’ ERISA Plan and will focus
on its language in the analysis.
_ MHHS interprets the Agreement to give MHHS the
subrogation rights as well as the authority to prosecute
and to settle the Atteberrys’ claims, and requires the
Atteberrys to execute any assignment necessary to facili-
tate the enforcement of the Plan’s subrogation rights. The
Atteberrys contend that the Agreement does not require
App. 40
an assignment and in fact limits MHHS' rights to subroga-
tion to $1,000,000.
This issue is but a disagreement over contract inter-
pretation. The primary objective in contract interpretation
is to give effect to the intent of the contracting parties as
revealed by the language they chose to use. In a contract
dispute a motion for summary judgment may be granted
only where the agreement’s language is unambiguous and
conveys a definite meaning. If the language is susceptible
to different reasonable interpretations, and where there is
relevant extrinsic evidence of the parties’ actual intent,
then the contract's meaning becomes an issue of fact
precluding summary judgment. Savers v. Rochester Tel.
Corp. Supplemental Management Pension Plan, 7 F.3d
1091, 1094 (2d Cir. 1993) (internal citations and quota-
tions omitted).
Ascertaining whether or not a writing is ambiguous is
a question of law for the trial court. See td. “Contract
language is ambiguous if it is capable of more than one
‘meaning when viewed objectively by a reasonably intelli-
gent person who has examined the context of the entire
integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood
in the particular trade or business. No ambiguity exists
when contract language has a definite and precise mean- »
ing, unattended by danger of misconception in the purport
of the contract itself, and concerning which there is no
reasonable basis for a difference of opinion.” /d. (internal
citations, quotations, and alterations omitted). In inter-
preting the terms of a contract, the Court must consider
the entirety of the agreement, including any references
therein, and “safeguard against adopting an interpretation
App. 41
that would render any individual provision superfluous.
Id.
The Atteberrys’ argument rests on the fact that the
Agreement states that MHHS “shall be entitled only to the
first $1,000,000 in gross recovery from any third party.”
(Instrument No. 178, Exh. C at 3). According to the Atte-
berrys, the Agreement clearly contemplates that they have
the right to prosecute their claims against the defendants,
because the Agreement provides that the Atteberrys were
responsible for attorney’s fees for all recoveries over and
above the first $1,000,000. The Agreement also provides
that MHHS “will not settle the subrogation litigation
without consulting with Claimants,” which the Atteberrys
read as confirmation that MHHS does not have the right
to force them to assign all of their rights, claims and
causes of action against the defendants.
The language in the subrogation section of the Agree-
ment first acknowledges “that the right of subrogation by
Memorial Hermann is primary to any recovery....” Itis a
common in ERISA plans to have subrogation clauses.
However,
[w]hile they vary widely in precise operation and
effect, they-share the goal of limiting the total
expenditure of plan assets. Subrogation accom-
plishes this by permitting the plan to “stand in
the shoes” of the beneficiary with respect to tort
or other recoveries to which the beneficiary is en-
titled on account of the injuries for which the plan
has paid benefits. This prevents the beneficiary
from recovering twice-once from the plan, and
once from the tortfeasor. ... Subrogation is fre-
quently confused with reimbursement, owing per-
haps to the frequency with which both provisions
are included in ERISA plans, The key distinction
App. 42
is that subrogation in effect assigns (or requires
assignment of) the tort claim to the subrogee (the
plan). Reimbursement simply requires the suc-
cessful owner of the tort claim (the beneficiary)
to repay the plan’s advances.
Waller v. Hormel Foods, 950 F. Supp. 941, 944 (D. Minn.
1996).
The Agreement language limits MHHS’ recovery, to
“the extent of any payments made by Memorial
Hermann,” not their nght of subrogation. The intent of the
language is clear, MHHS has the right to subrogate all of
the Atteberrys’ claims, thus they “stand in the shoes” of
the beneficiary, but they are limited to receiving only the
amount they actually paid to the Atteberrys, $1,000,000.
Therefore, if MHHS received more than the $1,000,000
paid to the Atteberrys, the remainder would go to the
Atteberrys. The Atteberrys’ interpretation would render
the terms of the Agreement superfluous and meaningless.
MHHS would not have the ability to settle, thus their
right of subrogation would not be “primary to any recov-
ery” as set out in the Agreement.
The Agreement also refers to the Plan to provide exam-
ples of the ways in which MHHS would be able to recover
monies from a third party. The Agreement states that “any
monies that might be recovered from any third party either
by judgment, order, award, settlement, compromise, arbitra-
tion, or other arrangement as reflected in but not limited to
The Occupational Benefits for the Employees of Memorial
Hermann Healthcare System.” The Plan states that it “also
has the right to pursue any action to enforce its subrogation
rights against a third party.” (Instrument No. 178, Exh. A, at
11.1). Now that MHHS has the right to “stand in the shoes”
of the Deceased’s beneficiaries, due to the payment of
App. 43
benefits and the terms of the Agreement, “any action” would
include the ability to settle the claims of the Deceased. In
addition, “any action” would also include seeking a declara-
tory judgment as to MHHS’ subrogation rights.
Therefore, after reading the Agreement in its entirety,
the Court does not find the provision at issue to be rea-
sonably susceptible to differing interpretations. Section 3
of the Acknowledgment of Receipt of Benefits, Subrogation
Rights and Confidentiality Agreement constitutes the
subrogation, in effect the “assignment,” of all claims,
causes of action, rights and recoveries to MHHS. See Ulico
Cas. Co. v. Clover Capital Mgmt., Inc., 146 F. Supp. 2d
163, 169 (ND NY 2001). Thus, because the Atteberrys
— accepted Plan benefits and acknowledged MHHS’ right to
prosecute their subrogation claims, MHHS owns the
Atteberrys’ subrogation claims and may settle the claims
on the Atteberrys’ behalf without their signature.
IV.
Based on the foregoing, IT IS HEREBY ORDERED
that Memorial Hermann’s Motion for Partial Summary
Judgment (Instrument No. 178) is GRANTED.
The Clerk shall enter this Order and provide a copy to
all parties.
SIGNED on this the 25th day of February, 2004, at
Houston, Texas.
/s/ Vanessa D. Gilmore
VANESSA D. GILMORE
UNITED STATES
DISTRICT JUDGE
~ VS,
App.-44
CAUSE NO. 62,827-C
MEMORIAL HERMANN § PROBATE COURT OF
HEALTHCARE SYSTEM AND §
MEMORIAL HERMANN §
HOSPITAL SYSTEMS
CAROL ANN PITTMAN, a.k.a.
CAROL ANN PETERSON,
Independent Executrix of the
Estate of JOHN LINWOOD
PITTMAN, JR., Deceased and
Individually as beneficiary of
the Estate of JOHN LINWOOD
PITTMAN, JR., Deceased,
JOHN LINWOOD PITTMAN,
III, Individually as adult child
and heir-at-law of JOHN
LINWOOD PITTMAN, JR.,
Deceased, and JENNIFER
LYNN PITTMAN, Individually §
as adult child and heir-at-law of § GALVESTON COUNTY,
JOHN LINWOOD PITTMAN, § _.
JR., Deceased — § TEXAS
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
AGREED FINAL JUDGMENT
(Filed May 15, 2000)
ON THIS DAY, came Interpleader-Defendant, Carol
Ann Pittman, a k a Carol Ann Peterson, Independent
Executrix of the Estate of John Linwood Pittman, Jr.,
Deceased and Individually as Beneficiary of the Estate of
John Linwood Pittman, Jr., Deceased, Interpleader-
Plaintiffs, Memorial Hermann Healthcare System and
Memorial Hermann Hospital Systems, and Interpleader-
App. 45
\
Defendants, John L Pittman, III and Jennifer Pittman by
and through their attorneys of record, and announced to
the Court that the parties have entered into the following
Final Agreed Judgment. It is therefore,
ORDERED, ADJUDGED AND DECREED that
pursuant to the terms of Paragraph 8.2 of the Occupation
Benefits Plan for The. Employee of Memorial Hermann
Healthcare System and Memorial Hermann Hospital ~
System, the funds previously placed in the registry of the
Court shall be paid to the personal representative of the
Estate of John Linwood Pittman, Jr. Further, the Court
finds that Carol Ann Pittman, a k a Carol Ann Peterson is
the duly authorized personal representative of the Estate
of John Linwood Pittman, Jr., and it is further
ORDERED, ADJUDGED AND DECREED that the
Interpleader Plaintiffs, Memorial Hermann Healthcare
System and Memorial Hermann Hospital Systems are
hereby discharged from this Interpleader action, and that
Interpleader Plaintiffs have voluntarily relinquished any
request for attorney fees in prosecuting this Interpleader
action, and it is further
ORDERED, ADJUDGED AND DECREED that all
cross-claims, including cross-claims for declaratory judg-
ment, and counter-claims are dismissed with prejudice;
and it is further
ORDERED, ADJUDGED AND DECREED that any.
and all relief not specifically granted herein is denied
SIGNED this the 15th day of May, 2000.
/s/ Gladys B. Burwell
JUDGE PRESIDING
App. 46
APPROVED AS TO FORM:
LORANCE & THOMPSON, P.C.
/s/ Phil Summers
Larry D. Thompson
TBN: 19930000
Phillip C. Summers
TBN: 19506600
2900 North Loop W., Suite 500
Houston, Texas 77092
(713) 868-5560
(713) 864-4671 (FAX)
‘Attorneys for Interpleader-Defendant,
Carol Ann Pittman a.k.a. Carol Ann
Peterson, Independent Executrix of
_ the Estate of John Linwood Pittman,
Jr., Deceased and Individually as
Beneficiary of the Estate of John
Linwood Pittman, Jr., Deceased
CRAIN, CATON & JAMES
/s/ (Illegible]
Helen B. Wils
TBN: 21665350
Sarah Patel Pachco
TBN: 00788164
Christopher A. Prine
TBN: 16329450
909 Fannin, Suite 3300
Houston, TX 77010-1079
~ 713/658-2323
713/658-1921 fax
Attorneys for Interpleader-Defendants
John L. Pittman, III and Jennifer
Pittman
App. 47
HANEN, ALEXANDER, JOHNSON &
SPALDING, L.L.P.
/s/ (Illegible]
Joseph R. Alexander, Jr.
TBN: 00995150
Craig A. Choate
TBN: 00790461
910 Travis Street, Suite 1700
Houston, TX 77002
713/222-2323
713/222-2226 fax
Attorneys for Interpleader-Plaintiffs,
Memorial Hermann Healthcare
System and Memorial Hermann
Hospital Systems
App. 48
No. 04-20349
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
CHARLES ATTEBERRY SR, ET AL,
Plaintiffs
¥.
MEMORIAL-HERMANN HEALTHCARE SYSTEMS,
On Behalf and for the Benefit of The Estates,
Heirs, Devisees, Legatees, Spouses, Children
and/or Parents of Charles Atteberry Jr.,
Plaintiffs — Appellees
¥.
MEMORIAL-HERMANN HEALTHCARE
SYSTEM; MEMORIAL-HERMANN HOSPITAL SYSTEM,
Plaintiffs - Appellants - Appellees
V.
: BEN ETHRIDGE,
Intervenor - Plaintiff-Appellee
v.
DALINDA SHELTON; CAROL ANN PITTMAN,
also known as Carol Ann Peterson,
[Independent Executrix of the Estate of
John Linwood Pittman, Jr., Deceased and
Individually as Beneficiary of
John Linwood Pittman, Jr.,
Intervenor - Plaintiffs - Appellants
V.
EUROCOPTER DEUTSCHLAND, GMBH, ET AL,
Defendants
Filed 5/3/2005
App. 49
Appeals from the United States District Court
for the Southern District of Texas, Houston
ON PETITION FOR REHEARING EN BANC
Before GARWOOD, BENAVIDES, and STEWART, Circuit
Judges. PER CURIAM:
Treating the Petition for Rehearing En Banc as a Petition
for Panel Rehearing, the Petition for Panel Rehearing is
DENIED. No member of the panel nor judge in regular
active service of the court having requested that the court
be polled on Rehearing En Banc (FED. R. APP. P. and 5TH
CIR. R. 35), the Petition for Rehearing En Banc is DE-
NIED.
ENTERED FOR THE COURT:
United States Circuit Judge
Judge Jones and Judge Clement did not participate in the
consideration of the rehearing en banc.
App. 50
29 U.S.C. § 1002. Definitions
For purposes of this title:
(1) The terms “employee welfare benefit plan” and
“welfare plan” mean any plan, fund, or program which was
heretofore or is hereafter established or maintained by an
employer or by an employee organization, or by both, to
the extent that such plan, fund, or program was estab-
lished or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of
insurance or otherwise, (A) medical, surgical, or hospital
care or benefits, or benefits in the event of sickness,
accident, disability, death or unemployment, or vacation
benefits, apprenticeship or other training programs, or day
care centers, scholarship funds, or prepaid legal séfvices,
or (B) any benefit described in section 302(c) of the Labor
Management Relations Act, 1947 {29 USCS § 186ic)]
(other than pensions on retirement or death, and insur-
ance to provide such pensions).
(24A) Except as provided in subparagraph (B), the
terms “employee pension benefit plan” and “pension plan”
mean any plan, fund, or program which was heretofore or
is hereafter established or maintained by an employer or
by an employee organization, or by both, to the extent that
by its express terms or as a result of surrounding circum-
stances such plan, fund, or program —
(i) provides retirement income to employees,
or
(ii) results in a deferral of income by em-
ployees for periods extending to the termination of covered
employment or bevond,
App. 51
regardless of the method of calculating the contribu-
tions made to the plan, the method of calculating the
benefits under the plan or the method of distributing
benefits from the plan.
(B) The Secretary may by regulation prescribe
rules consistent with the standards and purposes of this Act
providing one or-more exempt categories under which —
(i) severance pay arrangements, and
(ii) supplemental retirement income pay-
ments, under which the pension benefits of retirees or
their beneficiaries are supplemented to take into account
some portion or all of the increases in the cost of living (as
determined by the Secretary of Labor) since retirement,
shall, for purposes of this title, be treated as welfare
plans rather than pension plans. In the case of any ar-
rangement or payment a principal effect of which is the
evasion of the standards or purposes of this Act applicable
to pension plans, such arrangement or payment shall be
treated as a pension plan.
(3)- The term “employee benefit plan” or “plan”
means an employee welfare benefit plan or an employee
pension benefit plan or a plan which is both an employee
welfare benefit plan and an employee pension benefit plan.
(4) The term “employee organization” means any
labor union or any organization of any kind, or any agency
or employee representation committee, association, group,
or plan, in which employees participate and which exists
for the purpose, in whole or in part, of dealing with em-
ployers concerning an employee benefit plan, or other
matters incidental to employment relationships; or any
App. 52
employees’ beneficiary association organized for the
purpose in whole or in part, of establishing such a plan.
(5) The term “employer” means any person acting
directly as an employer, or indirectly in the interest of an
employer, in relation to an employee benefit plan; and
includes a group or association of employers acting for an
employer in such capacity.
(6) The term “employee” means any individual em-
ployed by an employer.
(7) The term “participant” means any employee or
former employee of an employer, or any member or former
member of an employee organization, who is or may
become eligible to receive a benefit of any type from an
employee benefit plan which covers employees of such
employer-or members of such organization, or whose
beneficiaries may be eligible to receive any such benefit.
(8) The term “beneficiary” means a person desig-
nated by a participant, or by the terms of an employee
benefit plan, who is or may become entitled to a benefit—
thereunder.
(9) The term “person” means an individual, partner-
ship, joint venture, corporation, mutual company, joint-
stock company, trust, estate, unincorporated organization,
association, or employee organization.
(10) The term “State” includes any State of the
United States, the District of Columbia, Puerto Rico, the
Virgin Islands, American Samoa, Guam, Wake Island, and
the Canal Zone. The term “United States” when used in
the geographic sense means vhe States and the Outer
Continental Shelf lands defined in the Outer Continental
Shelf Lands Act (43 U.S.C. 1331-1343).
App. 53
(11) The term “commerce” means trade, traffic,
commerce, transportation, or communication between any
State and any place outside thereof.
(12) The term “industry or activity affecting com-
merce” means any activity, business, or industry in com-
merce or in which a labor dispute would hinder or obstruct
commerce or the free flow of commerce, and includes any
activity or industry “affecting commerce” within the
meaning of the Labor Management Relations Act, 1947, or
the Railway Labor Act.
(13) The term “Secretary” means the Secretary of
Labor.
(14) The term “party in interest” means, as to an
employee benefit plan —
(A) any fiduciary (including, but not limited to,
any administrator, officer, trustee, or custodian), counsel,
or employee of such employee benefit plan;
(B) a person providing services to such plan;
(C) an employer any of whose employees are
covered by such plan;
(D) an employee organization any of whose
members are covered by such plan;
(E) an owner, direct or indirect, of 50 percent or
more of —
(i) the combined voting power of all classes
of stock entitled to vote or the total value of shares of all
classes of stock of a corporation. [,]
App. 54
(ii) the capital interest or the profits inter-
est of a partnership, or
(iii) the beneficial interest of a trust or
unincorporated enterprise, which is an employer or an
employee organization described in subparagraph (C) or
(D);
(F) a relative (as defined in paragraph (15)) of
any individual described in subparagraph (A), (B), (C), or
(E);
(G) acorporation, partnership, or trust or estate
of which (or in which) 50 percent or more of —
(i) the combined voting power of all classes
of stock entitled to vote or the total value of shares of all
classes of stock of such corporation,
(ii) the capital interest or profits interest of
such partnership, or
(ili) the beneficial interest of such trust or
estate, is owned directly or indirectly, or held by persons
described in subparagraph (A), (B), (C), (D), or (E);
(H) an employee, officer, director (or an individ-
ual having powers or responsibilities similar to those of
officers or directors), or a 10 percent or more shareholder
directly or indirectly, of a person described in subpara-
graph (B), (C), (D), (E), or (G), or of the employee benefit
plan; or
(I) a 10 percent or more (directly or indirectly in
capital or profits) partner or joint venturer of a person
described in subparagraph (B), (C), (D), (E), or (G).
App. 55
The Secretary, after consultation and coordination
with the Secretary of the Treasury, may by regulation
prescribe a percentage lower than 50 percent for subpara-
graph (E) and (G) and lower than 10 percent for subpara-
graph (H) or (I). The Secretary may prescribe regulations
for determining the ownership (direct or indirect) of profits
and beneficial interests, and the manner in which indirect
stockholdings are taken into account. Any person who is a
party in interest with respect to a plan to which a trust
described in section 501(c)(22) of the Internal Revenue
Code of 1986 [26 USC § 501(c)(22)] is permitted to make
payments under section 4223 [29 USC § 1403] shall be
treated as a party in interest with respect to such trust.
(15) The term “relative” means a spouse, ancestor,
lineal descendant, or spouse of a lineal descendant.
(16A) The term “administrator” means —
(i) the person specifically so designated by
the terms of the instrument under which the plan is
operated;
(ii) if an administrator is not so designated,
the plan sponsor; or
(iii) in the case of a plan for which an
administrator is not designated and a plan sponsor cannot
be identified, such other person as the Secretary may by
regulation prescribe.
(B) The term “plan sponsor” means (i) the
employer in the case of an employee benefit plan estab-
lished or maintained by a single employer, (ii) the em-
ployee organization in the case of a plan established or
maintained by an employee organization, or (iii) in the
case of a plan established or maintained by two or more
App. 56
employers or jointly by one or more employers and one or
more employee organizations, the association, committee,
joint board of trustees, or other similar group of represen-
tatives of the parties who establish or maintain the plan.
(17) The term “separate account” means an account
established or maintained by an insurance company under
which income, gains, and losses, whether or not realized,
from assets allocated to such account, are, in accordance
with the applicable contract, credited to or charged against
-such_account without regard to other income, gains, or
losses of the insurance company.
(18) The term “adequate consideration” when used in
part 4 of subtitle B [29-USCS §§ 1101 et seq.] means (A) in
the case of a security for which there is a generally recog-
nized market, either (i) the price of the security prevailing
on a national securities exchange which is registered
under section 6 of the Securities Exchange Act of 1934 [15
USCS § 78f], or (ii) if the security is not traded on such a
national securities exchange, a price not less favorable to
the plan than the offering price for the security as estab-
lished by the current bid and asked prices quoted by
persons independent of the issuer and of any party in
interest; and (B) in the case of an asset other than a
security for which there is a generally recognized market,
the fair market value of the asset as determined in good
faith by the trustee or named fiduciary pursuant to the
terms of the plan and in accordance with regulations
promulgated by the Secretary.
(19) The term “nonforfeitable’ when used with
respect to a pension benefit or right means a claim ob-
tained by a participant or his beneficiary to that part of an
immediate or deferred benefit under a pension plan which
App. 57
arises from the participant’s service, which is unconditional,
and which is legally enforceable against the plan. For
purposes of this paragraph, a right to an accrued benefit
derived from employer contributions shall not be treated
as forfeitable merely because the plan contains a provision
described in section 203 (a)(3) [29 USCS § 1053(a)(3)].
(20) The term “security” has the same meaning as
such term has under section 2(1) of the Securities Act of
1933 (15 U.S.C. 77b(1)).
(21)A) Except as otherwise provided in subpara-
graph (B), a person is a fiduciary with respect to a plan to
_the extent (i) he exercises any discretionary authority or
discretionary control respecting management of such plan
or exercises any authority or control respecting manage-
ment or disposition of its assets, (ii) he renders investment
advice for a fee or other compensation, direct or indirect,
with respect to any moneys or other property of such plan,
or has any authority or responsibility to do so, or (ili) he
has any discretionary authority or discretionary responsi-
bility in the administration of such plan. Such term
includes any person designated under section 405(c)(1)(B)
[29 USCS § 1105(c)(1)(B)].
(B) If any money or other property of an em-
ployee benefit. plan is invested in securities issued by an
investment company registered under the Investment
Company Act of 1940, such investment shall not by itself
cause such investment company or such investment
company’s investment-adviser or principal underwriter to
be deemed to be a fiduciary or a party in interest as those
terms are defined in this title, except insofar as such
investment company or its investment adviser or principal
underwriter acts in connection with an employee benefit
App. 58
plan covering employees of the investment company, the
investment adviser, or its principal underwriter. Nothing
contained in this subparagraph shall limit the duties
imposed on such investment company, investment adviser,
or principal underwriter by any other law.
(22) The term “normal retirement benefit” means the
greater of the early retirement benefit under the plan, or
the benefit under the plan commencing at normal retire-
ment age. The normal retirement benefit shall be deter-
mined without regard to —
(A) medical benefits, and
(B) disability benefits not in excess of the
qualified disability benefit.
For purposes of this paragraph, a qualified disability
benefit is a disability benefit provided by a plan which
does not exceed the benefit which would be provided for
the participant if he separated from the service at normal
retirement age. For purposes of this paragraph, the early
retirement benefit under a plan shall be determined
without regard to any benefit under the plan which the
Secretary of the Treasury finds to be a benefit described in
section 204(b)(1G) (29 USCS § 1054(b)( 1 G)].
(23) The term “accrued benefit” means —
(A) in the case of a defined benefit plan, the
individual's accrued benefit determined under the plan
and, except as provided in section 204(c3) [29 USCS
§ 1054(c)(3)], expressed in the form of an annual benefit
commencing at normal retirement age, or
(B) in the case of a plan which is an individual
account plan, the balance of the individual's account.
App. 59
The accrued benefit of an employee shall not be less
than the amount determined under section 204(c)(2)(B) [29
USCS § 1054(c)\(2)(B)] with respect to the employee’s
accumulated contribution.
(24) The term “normal retirement age” means the
earlier of —
(A) the time a plan participant attains normal
retirement age under the plan, or
(B) the later of -—
(i) the time a plan participant attains age
65, or
(ii) the 5th anniversary of the time a plan
participant commenced participation in the plan.
(25) The term “vested liabilities” means the present
value of the immediate or deferred benefits available at
normal retirement age for participants and their benefici-
aries which are nonforfeitable.
(26) The term “current value” means fair market
value where available and otherwise the fair value as
determined in good faith by a trustee or a named fiduciary
(as defined in section 402(a)(2) [29 USCS § 1102(a)(2)])
pursuant to the terms of the plan and in accordance with
regulations of the Secretary, assuming an orderly liquida-
tion at the time of such determination.
(27) The term “present value”, with respect to a
liability,-means the value adjusted to reflect anticipated
events. Such adjustments shall conform to such regula-
tions as the Secretary of the Treasury may prescribe.
App. 60
(28) The term “normal service cost” or “normal cost”
means the annual cost of future pension benefits and
administrative expenses assigned, under an actuarial cost
method, to years subsequent to a particular valuation date
of a pension plan. The Secretary of the Treasury may
prescribe regulations to carry out this paragraph.
(29) The term “accrued liability” means the excess of
the present value, as of a particular valuation date of a
pension plan, of the projected future benefit costs and
administrative expenses for all plan participants and
beneficiaries over the present value of future contributions
for the normal cost of all applicable plan participants and
beneficiaries. The Secretary of the Treasury may prescribe
regulations to carry out this paragraph.
(30) The term “unfunded accrued liability” means
the excess of the accrued liability, under an actuarial cost
method which so provided, over the present value of the
assets of a pension plan. The Secretary of the Treasury
may prescribe regulations to carry out this paragraph.
(31) The term “advance funding actuarial cost
method” or “actuarial cost method” means a recognized
actuarial technique utilized for establishing the amount
and incidence of the annual actuarial cost of pension plan
benefits and expenses. Acceptable actuarial cost methods
shall include the accrued benefit cost method (unit credit
method), the entry age normal cost method, the individual
level premium cost method, the aggregate cost method, the
attained age normal cost method, and the frozen initial
liability cost method. The terminal funding cost method
and the current funding (pay-as-you-go) cost method are
not acceptable actuarial cost methods. The Secretary of
App. 61
the Treasury shall issue regulations to further define
acceptable actuarial cost methods.
(32) The term “governmental plan” means a plan
established or maintained for its employees by the Gov-
ernment of the United States, by the government of any
State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing. The term “gov-
ernmental plan” also includes any plan to which the
Railroad Retirement Act of 1935 or 1937 applies, and
which is financed by contributions required under that Act
and any plan of an international organization which is
exempt from taxation under the provisions of the Interna-
tional Organizations Immunities Act (59 Stat. 669).
(33)(A) The term “church plan” means a plan estab-
lished and maintained (to the extent required in clause (1i)
of subparagraph (B)) for its employees (or their beneficiar-
ies) by a church or by a convention or association of
churches which is exempt from tax under section 501 of
the Internal Revenue Code of 1986 [26 USCS § 501].
(B) The term “church plan” does not include a plan —_
(i) which is established and maintained
primarily for the benefit of employees (or their beneficiar-
ies) of such church or convention or association of churches
who are employed in connection with one or more unre-
lated trades or businesses (within the meaning of section
513 of the Internal Revenue Code of 1986 [26 USCS
§ 513]), or
(ii) if less than substantially all of the
individuals included in the plan are individuals described
in subparagraph (A) or in clause (ii) of subparagraph (C)
(or their beneficiaries).
App. 62
(C) For purposes of this paragraph —
(i) A plan established and maintained for its
employees (or their beneficiaries) by a church or bya
convention or association of churches includes a plan
maintained by an organization, whether a civil law corpo-
ration or otherwise, the principal purpose or function of
which is the administration or funding of a plan or pro-
gram for the provision of retirement benefits or welfare
benefits, or both, for the employees of a church or a con-
vention or association of churches, if such organization is
controlled by or associated with a church or a convention
or association of churches.
(ii) The term employee of a church or a
convention or association of churches includes —
(I) a duly ordained, commissioned, or
licensed minister of a church in the exercise of his minis-
try. regardless of the source of his compensation;
(II)- an employee of an organization,
whether a civil law corporation or otherwise, which is
exempt from tax under section 501 of the Internal Reve-
nue Code-of 1986 [26 USCS § 501] and which is controlled
by or associated with a church or a convention or associa-
tion of churches; and
(III) an individual described in clause
Cy}.
(iii) A church or a convention or association
of churches which is exempt from tax under section 501 of
the Internal Revenue Code of 1986 [26 USCS § 501] shall
be deemed the employer of any individual included as an
employee under clause (ii).
App. 63
(iv) An organization, whether a civil law
corporation or otherwise, is associated with a church or a
convention or association of churches if it shares common
religious bonds and convictions with that church or con-
vention or association of churches.
(v) If an employee who is included in a
church plan separates from the service of a church or a
convention or association of churches or an organization,
whether a civil law corporation or otherwise, which is
exempt from tax under section 501 of the Internal Reve-
nue Code of 1986 [26 USCS § 501] and which is controlled
by or associated with a church or a convention or associa-
tion of churches, the church plan shall not fail to meet the
requirements of this paragraph merely because the plan —
(I) retains the employee’s accrued
benefit or account for the payment of benefits to the
employee or his beneficiaries pursuant to the terms of the
plan; or
(II) receives contributions on _ the
employee’s behalf after the employee’s separation from
such service, but only for a period of 5 years after such
separation, unless the employee is disabled (within the
meaning of the disability provisions of the church plan or,
if there are no such provisions in the church plan, within
the meaning of section 72(m)(7) of the Interna! Revenue
Code of 1986 [26 USCS § 72(m\7)] at the time of such
separation from service.
(D)G) If a plan established and maintained for
its employees (or their beneficiaries) by a church or by a
convention or association of churches which is exempt
from tax under section 501 of the Internal Revenue Code
of 1986 [26 USCS § 501] fails to meet one or more of the
App. 64 _
requirements of this paragraph and corrects its failure to
meet such requirements within the correction period, the
plan shall be deemed to meet the requirements of this
paragraph for the year in which the correction was made
and for all prior years,
(ii) If a correction is not made within the
correction period, the plan shall be deemed not to meet the
requirements of this paragraph beginning with the date on
which the earliest failure to meet one or more of such
requirements occurred.
(iii) For purposes of this subparagraph, the
term “correction period” means —
(I) the period ending 270 days after the
date of mailing by the Secretary of the Treasury of a notice
of default with respect to the plan’s failure to meet one or
more of the requirements of this paragraph; or
(II) any period set by a court of compe-
tent jurisdiction after a final determination that the plan
fails to meet such requirements, or, if the court does not
specify such period, any reasonable period determined by
the Secretary of the Treasury on the basis of all the facts
and circumstances, but in any event not less than 270
days after the determination has become final; or
(III) any additional period which the
Secretary of the Treasury determines is reasonable or
necessary for the correction of the default, whichever has
the latest ending date.
(34) The term “individual account plan” or “defined
contribution plan” means a pension plan which provided
for an individual account for each participant and for
benefits based solely upon the amount contributed to the
App. 65
participant’s account, and any income, expenses, gains and
losses, and any forfeitures of accounts of other participants
which may be allocated to such participant’s account.
(35) The term “defined benefit plan” means a pen-
sion plan other than an individual account plan; except
that a pension plan which is not an individual account
plan and which provided a benefit derived from employer
contributions which is based partly on the balance of the
separate account of a participant —
(A) for the purposes of section 202 [29 USCS
§ 1052], shall be treated as an individual account plan,
and
(B) for the purposes of paragraph (23) of this
section and section 204 [29 USCS § 1054], shall be treated
as an individual-aceount plan to the extent benefits are
based upon the separate account of a participant and as a
defined benefit plan with respect to the remaining portion
of benefits under the plan.
(36) The term “excess benefit plan” means a plan
maintained by an employer solely for the purpose of
providing benefits for certain employees in excess of the
limitations on contributions and benefits imposed by
section 415 of the Internal Revenue Code of 1986 [26
USCS §415] on plans to which that section applies,
without regard to whether the plan is funded. To the
extent that a separable part of a plan (as determined by
the Secretary of Labor) maintained by an employer is
maintained for such purpose, that part shall be treated as
a separate plan which is an excess benefit plan.
App. 66
(37)A) The term “multiemployer plan” means a plan —
(i) to which more than one employer is
required to contribute,
(ii) which is maintained pursuant to one or
more collective bargaining agreements between one or more
employee organizations and more than one employer, and
(iii) which satisfies such other requirements
as the Secretary may prescribe by regulation.
(B) For purposes of this paragraph, all trades or
businesses (whether or not incorporated) which are under
common control within the meaning of section 4001(b)(1)
{29 USCS § 1301(b)(1)] are considered a single employer.
(C) Notwithstanding subparagraph (A), a plan is
a multiemployer plan on and after its termination date if
the plan was a multiemployer plan under this paragraph
for the plan year preceding its termination date.
(D) For purposes of this title, notwithstanding
the preceding provisions of this paragraph, for any plan year
which began before the date of the enactment of the Mul-
tiemployer Pension Plan Amendments Act of 1980 [enacted
Sept. 26, 1980], the term “multiemployer plan” means a plan
described in section 3(37) of this Act [para. (37) of this
section] as in effect immediately before such date.
(E) Within one year after the date of the enact-
ment of the Multiemployer Pension Plan Amendments Act
of 1980 lenacted Sept. 26, 1980], a multiemployer plan
may irrevocably elect, pursuant to procedures established
by the corporation and subject to the provisions of sections
- 4403 [4303](b) and (c) [29 USCS § 1453(b) and (c)], that
the plan shall not be treated as a multiemployer plan for
App. 67
all purposes under this Act or the Internal Revenue Code
of 1954 [26 USCS §§ 1 et seq.] if for each of the last 3 plan
years ending prior to the effective date of the Multiem-
ployer Pension Plan Amendments Act of 1980 —
(i) the plan was not a multiemployer plan
because the plan was not a plan described in section
3(37)(AXiii) of this Act [para. (37)(A)(iii) of this section]
and section 414(f)(1)C) of the Internal Revenue Code of
1954 [26 USCS § 414(f)(1)(C)] (as such provisions were in
effect on the day before the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980
[enacted Sept. 26, 1980]); and
(ii) the plan had been identified as a plan
that was not a multiemployer plan in substantially all its
filings with the corporation, the Secretary of Labor and
the Secretary of the Treasury.
(F)(i) For purposes of this title a qualified
football coaches plan —
(I) shall be treated as a multiemployer
plan to the extent not inconsistent with the purposes of
this subparagraph; and
(II) notwithstanding section 401(k)(4)(B)
of the Internal Revenue Code of 1986 [26 USCS
§ 401(k4)(B)], may include a qualified cash and deferred
arrangement.
(ii) For purposes of this subparagraph, the
term “qualified football coaches plan” means any defined
contribution plan which is established and maintained by
an organization —
App. 68
(I) which is described in section 501(c)
of such Code [26 USCS § 501(c));
(II) the membership of which consists
entirely of individuals who primarily coach football as full-
time employees of 4-year colleges or universities described
in section 170(b) (1)(A)ji) of such Code [26 USCS
§ 170(b)( 1 Ai); and
(III) which was in existence on Septem-
ber 18, 1986.
(38) The term “investment manager” means any
fiduciary (other than a trustee or named fiduciary, as
defined in section 402(a)(2) [29 USCS § 1102(a\(2)}) —
(A) who has the power to manage, acquire, or
dispose of any asset of a plan;
(B) who (i) is registered as an investment
adviser under the Investment Advisers Act of 1940 [15
USCS §$§ 80b-1 et seq.]; (ii) is not registered as an invest-
ment adviser under such Act by reason of paragraph (1) of
section 203A(a) of such Act [15 USCS § 80b-3a(aX1)], is
registered as an investment adviser under the laws of the
State (referred to in such paragraph (1)) in which it
maintains its principal office and place of business, and, at
the time the fiduciary last filed the registration form most
recently filed by the fiduciary with such State in order to
maintain the fiduciary’s registration under the laws of
such State, also filed a copy of such form with the Secre-
tary; (ili) is a bank, as defined in that Act [15 USCS
§§ 80b-1 et seq.]; or (iv) is an insurance company qualified
to perform services described in subparagraph (A) under
the laws of more than one State; and
App. 69
(C) has acknowledged in writing that he is a
fiduciary with respect to the plan.
(39) The terms “plan year” and “fiscal year of the
plan” mean, with respect to a plan, the calendar, policy, or
fiscal year on which the records of the plan are kept.
(40(A) The term “multiple employer welfare ar-
rangement” means an employee welfare benefit plan, or
any other arrangement (other than an employee welfare
benefit plan), which is established or maintained for the
purpose of offering or providing any benefit described in
paragraph (1) to the employees of two or more employers
(including one or more self-employed individuals), or to
their beneficiaries, except that such term does not include
any such plan or other arrangement which is established
or maintained —
(i) under or pursuant to one or more agree-
ments which the Secretary finds to be collective bargain-
ing agreements,
(ii) by a rural electric cooperative, or
(iii) by a rural telephone cooperative asso-
ciation.
(B) For purposes of this paragraph —
(i) two or more trades-or businesses,
whether or not incorporated, shall be deemed a single
employer if such trades or businesses are within the same
control group,
(ii) the term “control group” means a group
of trades or businesses under common control,
App. 70
(iii) the determination of whether a trade or
business is under “common control” with another trade or
business shall be determined under regulations of the
Secretary applying principles similar to the principles
applied in determining whether employees of two or-more
trades or businesses are treated as employed by a single
emplover under section 4001(b) [29 USCS § 1301(bf,
except that, for purposes of this paragraph, common
control shall not be based on an interest of less than 25
percent,
(iv) the term “rural electric cooperative”
(I) any organization which is exempt
from tax under section 501(a) of the Internal Revenue
Code of 1986 [26 USCS § 501(a)] and which is engaged
primarily in providing electric service on a mutual or
cooperative basis, and
(II) any organization described in
paragraph (4) or (6) of section 50l(c) of the Internal
—Revenue Code of 1986 [26 USCS § 501(c)4) or (6)] which is
exempt from tax under section 501(a) of such Code [26
USCS § 501(a)] and at least 80 percent of the members of
which are organizations described in subclause (I), and
(v) the term “rural telephone cooperative
association” means an organization described in para-
graph (4) or (6) of section 501(c) of the Internal Revenue
Code of 1986\[26 USCS § 501(c)4) or (6)| which is exempt
from tax under section 501(a) of such Code [26 USCS
§ 501(a)] and at least 80 percent of the members of which
are organizations engaged primarily in providing tele-
phone service to rural areas of the United States on a
mutual, cooperative, or other basis.
App. 71
(41) Single-employer plan. The term “single-employer
plan” means an employee benefit plan other than a mul-
tiemployer plan.
{(42)]}(41) The term “single-employer plan” means a
plan which is not a multiemployer plan.
App. 72
Tex. Civ. Prac. & Rem. Code § 71.001 (2005)
§ 71.001. Definitions
In this subchapter:
(1) “Corporation” means a municipal, private,
public, or quasi-public corporation other than a
county or a common or independent school dis-
trict.
(2) “Person” means an individual, association of
individuals, joint-stock company, or corporation
or a trustee or receiver of an individual, associa-
tion of individuals, joint-stock company, or corpo-
ration.
(3) “Death” includes, for an individual who is an
unborn child, the failure to be born alive.
(4) “Individual” includes an unborn child at
every stage of gestation from fertilization until
birth.
os
§ 71.002. Cause of Action
(a) An action for actual damages arising from an
injury that causes an individual’s death may be brought if
liability exists under this section.
(b) A person is liable for damages arising from an
injury that causes an individual's death if the injury was
caused by the person’s or his agent’s or servant's wrongful
act, neglect, carelessness, unskillfulness, or default.
(c) A person is liable for damages arising from an
injury that causes an individual's death if:
App. 73
(1) the person is a proprietor, owner, charterer,
or hirer of an industrial or public utility plant or
of a railroad, street railway, steamboat, stage-
coach, or other vehicle for the transportation of
goods or passengers; and
(2) the injury was caused by the person’s or his
agent’s or servant's wrongful act, neglect, care-
lessness, unskillfulness, or default.
(d) A person is liable for damages arising from an
injury that causes an individual’s death if:
(1) the person is a receiver, trustee, or other
person in charge of or in control of a railroad,
street railway, steamboat, stagecoach, or other
vehicle for the transportation of goods or passen-
gers, of an industrial or public utility plant, or of
other machinery; and
(2) the injury was caused by:
(A) the person’s wrongful act, neglect, care-
lessness, unskillfulness, or default;
(B) the person’s servant’s or agent’s wrong-
ful act, neglect, carelessness, unfitness, un-
skillfulness, or default; or
(C) a bad or unsafe condition of the rail-
road, street railway, or other machinery un-
der the person’s control or operation.
(e) A person is liable for damages arising from an
injury that causes an individual’s death if:
(1) the person is a receiver, trustee, or other per-
son in charge of or in control of a railroad, street
railway, steamboat, stagecoach, or other vehicle for
the transportation of goods or passengers, of an
App. 74
industrial or public utility plant, or of other ma-
chinery; and
(2) the action could have been brought against
the owner of the railroad, street railway, or other
machinery if he had been acting as operator.
§ 71.003. Application; Certain Conduct Excepted
(a) This subchapter applies only if the individual
injured would have been entitled to bring an action for the
injury if the individual had lived or had been born alive.
(b) This subchapter applies whether the injury
occurs inside or outside this state.
(c) This subchapter does not apply to a claim for the
death of an individual who is an unborn child that is
brought against:
(1) the mother of the unborn child;
(2) a physician or other licensed health care pro-
vider, if the death is the intended result of a lawful
medical procedure performed by the physician or
health care provider with the requisite consent;
(3) a person who dispenses or administers a
drug in accordance with law, if the death is the
result of the dispensation or administration of
the drug; or
(4) a physician or other health care provider li-
censed in this state, if the death directly or indi-
rectly is caused by, associated with, arises out of, or
relates to a lawful medical or health care practice
App. 75
or procedure of the physician or the health care
_ provider. i
§ 71.004. Benefitting From-and Bringing Action
(a) An action to recover damages as provided by this
subchapter is for the exclusive benefit of the surviving
spouse, children, and parents of the deceased.
(b) The surviving spouse, children, and parents of
the deceased may bring the action or one or more of those
individuals may bring the action for the benefit of all.
(c) If none of the individuals entitled to bring an
action have begun the action within three calendar
months after the death of the injured individual, his
executor or administrator shall bring and prosecute the
action unless requested not to by all those individuals.
App. 76
Tex. Civ. Prac. & Rem. Code § 71.021 (2005)
§ 71.021. Survival of Cause of Action
(a) A cause of action for personal injury to the
health, reputation, or person of an injured person does not
abate because of the death of the injured person or be-
cause of the death of a person liable for the injury.
(b). A personal injury action survives to and in favor
of the heirs, legal representatives, and estate of the
injured person. The action survives against the liable
person and the person’s legal representatives.
(c) The suit may be instituted and prosecuted as if
the liable person were alive.
App. 77
Restatement of the Law, Third, Trusts
(Tentative Draft No. 4, April 5, 2005)
Part 6 — Trust Administration
Chapter 16 — Extent and Exercise of Trustees’ Powers
§87 Judicial Control of Discretionary Powers
‘When a trustee has discretion with respect to the
exercise of a power, its exercise is subject to super-
vision by a court only to prevent abuse of discre-
tion.
COMMENTS & ILLUSTRATIONS: Comments:
a. Scope of Section; cross-references. A trustee generally
has discretion (i.e., is to use fiduciary judgment) with
respect to the exercise of the powers of the trusteeship.
That is, a power is discretionary except to the extent its
exercise is directed by the terms of the trust or compelled
by the trustee’s fiduciary duties. Even in cases of what are
often called “mandatory” powers or provisions, for which
trustee compliance is required except as provided in § 66
(equitable deviation in unanticipated circumstances), the
trustee often has some discretionary authority and re-
sponsibility in important matters of implementation. For
example, the terms of a trust may require the sale of
certain real property but then, by failing to provide more,
leave the trustee to exercise fiduciary judgment with
respect to the timing (on which see § 92, Comment b),
price, and other terms of the sale. Similarly, room for
fiduciary judgment and responsibility may well remain in
situations in which a trustee is directed to take action by
the holder of a directory power (see § 75, Comment 38,
Illustration 1) or by the settlor of a revocable trust (§ 74,
Comment B, Illustration 3).
App. 78
The most important of the discretionary powers in most
trusts are those having to do with various aspects of the
investment function, together with, in many trusts, those
having to do with discretionary distributions, such as a
power to invade principal for an income beneficiary or the
power to distribute income to a beneficiary or among a
class of beneficiaries. These matters are dealt with in
considerable detail in Chapter 17 (§§ 90-92, on “Invest-
ment of Trust Funds”) and in §50 (“Enforcement and
Construction of Discretionary Interests”). See also Chapter
23 on discretionary powers in principal-income accounting.
The rule of this Section and the principles described in its
commentary apply not only to these matters but also to
discretionary powers regarding other aspects of trust
administration.
This Section applies to discretionary authority that is
ordinarily implicit in the powers of trustees (supra) as well
as to discretionary authority that is expressly stated in the
terms of a trust. Express grants of discretion and accom-
panying language, however, often present issues of inter-
pretation or effect, sometimes beginning with a question of
whether a settlor’s “grant” of discretion with regard to a
power is merely redundant or confers a broader degree of
authority than would normally be implicit in the particu-
lar power. See Comment d.
b. Judicial review and control of trustee’s discretion.
When judicial intervention is required, the court may
(ordinarily upon petition by a beneficiary) assert control
over the exercise of a discretionary power by directing the
trustee to act or refrain from acting or by setting aside a
transaction in which the trustee has already acted. Or the
court may hold the trustee liable for the adverse conse-
quences of improper conduct, as in other breaches of
App. 79
fiduciary duty. The court may also, or instead: issue
instructions clarifying the trustee’s duties in exercising
the discretionary power (cf. § 71) or otherwise establish
safeguards against future abuse;-deny or diminish the
trustee’s compensation; or even remove the trustee if there
has been repeated or_serious abuse of the discretionary
power (see § 37, Comments e and g). Further discussion of
remedies is beyond the scope of this Section, but see
Chapters 18 (especially § 95) and 19; also see § 50, Com-
ment b.
A court will not interfere with a trustee’s exercise of a
discretionary power (including a decision not to exercise
the power) when that exercise is reasonable, not based on
an improper interpretation of the terms of the trust, and
not otherwise inconsistent with the trustee’s fiduciary
duties (see particularly §§ 76-79). Thus, judicial interven-
tion is not warranted merely because the court would have
differently exercised the discretion.
On the other hand, a court may be called upon to inter-
vene for the purpose of preventing a trustee’s abuse
(including by misinterpretation) of discretionary authority.
What constitutes an abuse of discretion depends on the
terms and purposes of the trust, and particularly on the
terms and purposes of the power and any standards or
guidance provided for its exercise, as well as on applicable
principles of fiduciary duty. See Comment c. Also relevant
is the extent of the discretion conferred upon the trustee.
See Comment d. Sis
c. Abuse of discretion: in general. An abuse of discretion
may result from the exercise of discretionary authority in
bad faith. or from improper motive. Thus, a discretionary
power is abused if a trustee acts dishonestly, such as when
App. 80
the trustee receives an improper inducement for exercising
the power in question. Similarly, an abuse of discretion
occurs when a trustee acts from an improper even though
not dishonest motive, such as when the act is undertaken
in good faith but for a purpose other than to further the
purposes of the trust or, more specifically, the purposes for
which the power was granted. See, e.g., § 50, Comment
5(2), that a discretionary power to make distributions for a
beneficiary's “support” does not permit the trustee to make
well-intentioned, even otherwise reasonable, distributions
that are not support-related.
When the exercise of a discretionary power is left to the
judgment of a trustee, an abuse of discretion may result
from the trustee’s improper failure to exercise that judg-
ment. An abuse of this type results if the trustee, arbitrar-
ily or without knowledge of or inquiry into relevant
circumstances, fails to exercise the discretion. So also, the
court will interpose where a trustee fails to exercise or
otherwise abuses discretionary authority because of
mistaken interpretation of the terms of the trust or mis-
understanding of fiduciary law.
Perhaps most of the litigation in which it is concluded that
a trustee has committed an abuse of discretion involves a
finding that the trustee, in exercising a power, has acted
unreasonably — that is, beyond the bounds of a reasonable
_ judgment. In some cases there is an objective standard by
which the reasonableness of the trustee’s conduct can be
measured, but expressed standards are not necessary in
order for a good-faith decision of a trustee to be found
unreasonable; a court may apply what has sometimes been
called “a general standard of reasonableness,” taking
account of other terms and purposes of the trust. In either
event, judicial intervention on the ground of abuse is
App. 81
called for, not because the court would have exercised the
discretion differently, but because the trustee’s decision is
one that would not be accepted as reasonable by persons of
prudence. Thus, a court may properly interpose if it finds
that the trustee’s conduct, in exercising a discretionary
power, fails to satisfy the applicable standard of care and
skill (§ 77). 3
For example, if discretionary power is conferred upon a
designated trustee to appoint a successor or additional
trustee, and the designated trustee appoints an unfit
person, the court will remove the person so appointed.
Other common examples, and many reported cases, of
allegedly unreasonable or otherwise abusive exercise of
discretion involve either investment management (see
commentary and illustrations in §§ 90-92, and Reporters
Notes thereto) or discretionary distributions to beneficiar-
ies (see commentary and illustrations in § 50, and Re-
porter’s Note thereto).
Illustrations:
1. The corpus of S’s revocable trust passed on.
her death to T, as her successor trustee, to pay
the trust income to S’s daughter D during her
lifetime, remainder thereafter to go by right of
representation to the issue of D who survive her.
The terms directed T to sell the real property
that had served as S’s home and to reinvest the
proceeds, “unless T, in his discretion, decides to
retain that property for D’s use as her residence,
which T is hereby authorized to do if and for as
long as he believes this to be an appropriate and
reasonable use of that property.” Shortly after S’s
death, T received and accepted an offer from P to
purchase that residential property (upon terms
App. 82
’
that no one challenges as unsatisfactory or im-
prudent if a sale is to made); but T had made no
effort to ascertain D’s interest or personal or fi-
nancial circumstances, or otherwise to investi-
gate or consider whether her use of the property
as a residence would be “appropriate and reason-
able.” By failing to exercise his judgment, T has
abused his discretionary power regarding reten-
tion of the residential property for D’s benefit.
2. The same facts as in Illustration 1, except
that in the years between S’s creation of the
revocable trust and her death, D's husband died
and her children became adults, left home, and
married. T exercised his judgment, deciding that
the residential property was not appropriate to
D's needs and circumstances and also finding
that D had no desire for the property to be re-
tained for her use. Upon inquiry and investiga-
tion, T reached the further conclusion that the
residential property would be just right for one of
D’s sons and his growing family. T therefore de-
cided that the property should be retained and
entered into a rental agreement with the son,
setting a reasonable rent that could be paid to D
as trust income. Absent other facts (e.g., showing
grounds for equitable deviation under § 66), T
has abused his discretion, even if in good faith,
by exercising it for an improper motive — that is,
for a purpose other than that for which he was
granted discretionary power to retain the prop-
erty, rather than sell it as otherwise directed.
d. Extended discretion: limitations, interpretation, and
effects. Ordinarily, a mere grant of discretion in the terms of
the trust, or an express reference to the discretionary
character of a power or of powers generally, does not au-
thorize the trustee to act beyond the bounds of reasonable
App. 83
judgment. See, e.g., discussion in §90, Comments
g-g(2). A settlor may, however, manifest an intention to
grant greater than ordinary latitude in the trustee’s
exercise of discretionary judgment. :
Once it is determined that the power in question is held in
the role of trustee, words such as “absolute” or “sole and
uncontrolled” or “unlimited” are not interpreted literally.
It is contrary to sound policy, and a contradiction in terms,
to permit the settlor to relieve a trustee of all accountabil-
ity. See § 50, Comment a, and cf. § 75, Comment c. Even
under the broadest grant of fiduciary discretion, a trustee
must act honestly and (as cases have sometimes quoted
from prior Restatements) “in a state of mind contemplated
by the settlor.” What this means is that courts will inter-
vene to prevent trustees from acting in bad faith or with-
out regard to the terms and purposes of the trust and the
interests of its beneficiaries, or for some purpose or motive
other than the accomplishment of the purposes of the
discretionary power. Except to the extent the power is for
the personal benefit of a beneficiary-trustee, the court may
also be called upon to prevent the trustee from failing to
act, whether capriciously, arbitrarily, or from a misunder-
standing of the trustee’s powers or duties.
Within these limits, it is a matter of interpretation to
determine the degree to which a settlor’s use of language
of extended discretion (e.g., “absolute discretion”) mani-
fests an intention to modify the normal duties of the
trustee and the normal grounds of judicial intervention in
the exercise of a discretionary power. A primary question
is whether and to what extent the settlor’s language may
authorize the trustee to act beyond the bounds of what
would otherwise be a reasonable judgment.
App. 84
Examination of the overall tenor of language granting
powers and other terms of trusts may lead to diverse,
refined interpretations on a case-by-case basis. For exam-
ple, a court may conclude that the language of extended
discretion and other evidence before it manifests a settlor
intention to authorize the particular trustee to act with a
lesser degree of caution (e.g. to accept a greater degree
compensated risk), but not a lesser degree of care, than
would otherwise be appropriate to the particular trust and
its circumstances under the duty of prudence (§ 77). Cf., in
the investment -context, § 91, Comment g(1), and § 90,
Comment g. Similarly, on the possibility of a “one-sided”
liberalization of discretionary authority with regard to
distributions (and on likely reasons for granting extended
discretion), see § 50, Comment c (text following Illustra-
tions 3 and 4).
Illustrations: —
3. The same facts as in Illustration 2 (in Com-
ment c, above), except that the quoted terms of
the trust began “unless T, in his absolute discre-
tion, decides to retain.... ” The addition of the
word “absolute” would not affect the result stated
in Illustration 2, because T is still not authorized
to retain the property for a purpose other than
that for which the extended discretion was
granted.
4. The same facts as in Illustration 3, above,
except that the language there quoted continues
by allowing T to retain “that property for a bene-
ficiary’s use as a residence, which T is authorized
to do if, and for so long and upon such terms as,
T believes appropriate and reasonable.” T’s ac-
tions in retaining the property and in leasing it
to D's son are within the range of the authorized
App. 85
discretion (and would appear to be so even with-
out the extended discretion).
5. The same trust as in the foregoing Illustra-
tions (essentially, a trust for D for life, remainder
to her issue who survive her), except that the
terms of the trust grant T “absolute and binding
discretion, in the event of any controversy or un-
certainty, to construe and finally determine the
meaning of the trust provisions.” Upon the death
of D, T distributes the corpus in three equal
shares to D’s two then surviving children and the
surviving spouse of D’s other child, who died
shortly before D. This is an abuse even of T’s ex-
tended discretion, there being no “uncertainty” in
(or reasonable grounds for “controversy” over) a
disposition (Illustration 1 wording) “to the issue
of D who survive her” that would justify a con-
struction including the spouse of a deceased
child. (Such a broad grant of discretion, however,
should ordinarily be interpreted as allowing T to
so construe the remainder to D’s “issue” as to in-
clude her deceased child’s adopted or nonmarital
child, even if such a traditionally troublesome
question of construction would, at the time, have
been subject to a different presumption under
applicable case law or statutory rule of construc-
tion.)
With grants of extended discretion, contrast $96 on
exculpation clauses. An exculpatory provision is not
intended to broaden the authority of the trustee, or to
encourage or authorize breach of trust, or even to narrow
the grounds of judicial intervention, but to relieve the
trustee of liability (to the extent provided in the clause and
allowed by law) should a breach of trust occur.
App. 86
REPORTERS NOTES: REPORTER’S NOTES ON § 87
The earlier counterpart of the material in this Section was
Restatement Second, Trusts § 187. The principles stated
here are consistent with those of the earlier edition except
for the narrow variation indicated in the Reporter’s Note
to Comment d. The present Section is relatively brief due
to the elaborate treatment of discretionary distribution
provisions in § 50 (which had only a modest counterpart in
the commentary of prior § 128) and the extensive treat-
ment of discretion in investment matters in §§ 90-92; also
see consideration of discretionary powers regarding
principal-income accounting in Chapter 23.
See also III William F. Fratcher, Scott on Trusts §§ 187-
187.5 (4th ed. 1988); and George G. Bogert & George T.
Bogert, The Law of Trusts and Trustees § 560 soaks 2d ed.,
1980), and cf. id., § 552.
Comment a:
In criticizing Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 109 S.Ct. 948, 103 L. Ed. 2d 80 (1989) (an
ERISA case), J. Langbein, “The Supreme Court Flunks
Trusts,” 1990 Supreme Ct. Rev. 207 (1991), stated (at 219):
“This distinction between trust powers that derive from
the background law of trusts, and those that derive from
the trust instrument, is fundamentally mistaken. It is
refuted in the very source that the Court treats as authori-
tative, section 187 of the Restatement [Second] of Trusts.
Official Comment a to section 187 says: ‘... The exercise
of a power is discretionary except to the extent to which its
exercise is required by the terms of the trust or by the
principles of law applicable to the duties of trustees.’ In
other words, discretion does not depend upon an explicit
grant in the instrument. The trustee has discretion unless
App. 87
the instrument or some particular doctrine of trust law
denies discretion. Discretion is the norm.”
The power trustees have to maintain lawsuits is discre-
tionary and not to be interfered with by courts at the
instance of beneficiaries without a showing of abuse.
Matter of Geffen’s Estate, 25 Misc. 2d 734, 202 N.Y.S.2d
599 (Sur. Ct. 1960). But where a trust purpose is to sell
trust realty, despite a trustee’s discretion regarding
timing, an allegation of unreasonable delay in the selling
is not demurrable. Hawkins v. Tanner, 243 Ala. 641, 11
So.2d 351 (1943).
That an express grant of simple “discretion” in the terms
of the trust is ordinarily to be construed as granting the
trustee no wider latitude than is already conferred by the
prudent investor rule (which itself authorizes flexible,
discretionary asset management), but that the settlor’s
use of that term is likely to expand the authority of a
trustee who would otherwise be subject to a more restric-
tive statutory or common-law body of default rules, see
§ 91, Comments c-c(2), and illustrations in id. Comment
c(3).
Comments 6 and c:
For a few of the cases citing or quoting prior Restatement
provisions similar to those in Comments 6 and c of this
Section, see Moench v. Robertson, 62 F.3d 553 (3d Cir.
1995), cert. denied, 516 U.S. 1115 (1996) noted 58 U. of
Pittsburgh L. Rev. 255 (1996), and 49 Rutgers L. Rev. 1231
(1997); and Raffety v. Parker, 241 F.2d 594 (8th Cir. 1957);
In re Trust Estate of Wills, 8 Ariz. App. 591, 448 P.2d 435
(1968); Takabuki v. Ching, 695 P.2d 319 (Haw. 1985);
Johnson v. Johnson, 242 Iowa 27, 45 N.W.2d 573 (1951)
(power of sale), noted 6 Arkansas L. Rev. 78; Jennings v.
App. 88
Murdock, 220 Kan. 182, 553 P.2d 846 (1976); Boston Safe
Deposit & Trust Co. v. Stone, 348 Mass. 345, 203-N.E.2d
547 (1964) (power to fix values); United States v.
O’Shaughnessy, 517 N.W.2d 574 (Minn. 1994); Yeates v.
Box, 198 Miss. 602, 20 So.2d 411 (1945) (power to termi-
nate trust); Matter of Heisserer, 797 S.W.2d 864 (Mo. App.
1990); In re Frances M. Johnson Trust, 211 Neb. 750, 320
N.W.2d 466 (1982); Hanford v. Clancy, 87 N.H. 458, 183 A.
271 (1936); Matter of Roberts, 61 N.Y.2d 782, 461 N.E.2d
300, 473 N.Y.S.2d 163 (1984); Little v. Wachovia Bank &
Trust Co. 252 N.C. 229, 113 S.E.2d 689 (1960) (principal-
income allocation power); Geron v. Kennedy, 381 Pa. 97,
112 A.2d 181 (1955); Krug v. Krug, 838 S.W.2d 191 (Tenn.
App. 1992) (power to remove and replace co-trustee),
appeal denied, 838 S.W.2d 197 (Tenn. 1992); Austin v. U.S.
Bank, 73 Wash. App. 293, 869 P.2d 404 (1994), review
denied, 124 Wash. 2d 1015, 880 P.2d 1005 (1994); and
Estate of Filzen, 252 Wis. 322, 31 N.W.2d 520 (1948)
(discretion to terminate).
See generally Scott on Trusts, supra, § 187:
... The court will not control |a trustee’s] exer-
cise of [discretion] as long as he does not exceed
the limits of the discretion conferred upon him.
The court will not substitute its own judgment
for his. Even where the trustee has discretion,
however, the court will not permit him to abuse
the discretion. This ordinarily means that so long
as he acts not only in good faith and from proper
motives, but also within the bounds of a reason-
able judgment, the court will not interfere; but
the court will interfere when he acts outside the
bounds of a reasonable judgment. In other words,
although there is a field, often a wide field,
within which the trustee may determine whether
App. 89
_ to act or not and when and how to act, beyond
that field the court will control him. How wide
that field is depends upon the terms of the trust,
the nature of the power, and all the circum-
stances....
In determining whether the trustee in exercising
or refraining from exercising a power is abusing
the discretion conferred upon him, much depends
of course upon the extent of the discretion in-
tended by the settlor to be conferred upon him
... [and] upon whether there was any standard
by which the trustee’s conduct can be judged... .
Compare Bogert & Bogert, supra, § 560 (pp. 194-195, 207):
Clearly, if the trustee who has the discretionary
power has failed or refused to exercise that
power or to consider its use, the court may com-
pel him to review the question of whether to ex-
ercise the power in light of all surrounding
circumstances and to make some decision... .
[P]So also, if the trustee has gone through the
formality of using his discretion but has not de-
liberately considered the arguments pro and con,
and has thus made a decision for no reason at all,
his conduct can be characterized as arbitrary and
capricious, ... [and] as not in performance of his
duty in regard to the discretionary power....
[P]On the other hand, a trustee who is author-
ized to retain oil investments will not be sub-
jected to court intervention with his discretion if
he has acted honestly, even though the securities
are returning a very small income and many
trustees would have sold them.
That, absent any standards in the terms of the trust for
the trustee’s (and court’s) guidance, a court will require a
trustee to follow a general standard of reasonableness in
App. 90
exercising a discretionary power, see, e.g., Rowe v. Rowe,
219 Ore. 599, 347 P.2d 968 (1959); and Rinker’s Adm'r. v.
Simpson, 159 Va. 612, 166 S.E. 546 (1932) (clear standard
or guide in terms of power not essential to finding good-
faith decision so unreasonable as to constitute an abuse of
discretion under language “as [trustee] deems best”), noted
in 81 U. of Pennsylvania L. Rev. 1008 (1933).
Various aspects of a trustees’ judgments in the mainte-
nance and general management of a farm were challenged
in Goodwine v. Goodwine, 819 N.E.2d 824 (Ind. App. 2004),
but the trial and appellate courts found that the trustees
had not acted in an unreasonable manner that would
constitute an abuse of their discretion. But in Alexander v.
Nelson, 825 S.W.2d 106 (Tenn. App. 1991), the court held it
improper for the trustee to sell property to a child of the
testator for a price significantly below its market value,
despite a trust provision granting power to sell trust
property to children of the settlor for a “price and upon
such terms as [the trustee] thinks best” (cf. § 79(1) on
impartiality); and cf. Keeler v. Lauer, 73 Kan. 388, 85 P.
541 (1906), that a trust provision relieving the trustee of
any duty to report to a court did not relieve the trustee
from accountability in court for mismanagement.
In re Watland, 211 Minn. 84, 300 N.W. 195 (1941), found it
unreasonable, and an abuse of discretion, for the trustee to
allocate to income the proceeds of the sale of trust securi-
ties. Also, on discretionary powers to make allocations
between income and principal, compare In re Clarenbach’s
Trust, 23 Wis. 71, 126 N.W.2d 614 (1964), with the much-
cited case of Dumaine v. Dumaine, 301 Mass. 214, 16
N.E.2d 625 (1938), 118 A.L.R. 834; both cases involved
discretionary allocation of capital gains. See also oft-cited
Old Colony Trust Co. v. Silliman, 352 Mass. 6, 223 N.E.2d
App. 91
504 (1967). And see Gimbel v. B.F. & A.B. Gimbel Founda-
tion, 95 N.J. Super. 418, 231 A.2d 389 (1974) (discretionary
principal-income power not to be used to alter substan-
tially the value of the interests of the income and remain-
der beneficiaries); Comment, “Principal and Income: The
Discretionary Allocation Clause,” 30 Baylor L. Rev. 343
(1978); and compare 1997 Revised Uniform Principal and
Income Act § 2 that “no inference of imprudence or partial-
ity arises from the fact that a trustee” with discretionary
authority “has made an allocation contrary to the provi-
sions of this Act.” On the possible adverse effects of ex-
tended discretion regarding principal-income accounting,
see Samuel P. Hunt Trust v. U.S., 93 A.F-T.R.2d 351 (D.
N.H. 2004) (gains not permanently set aside for charity).
A court found an abuse of discretion in Thomas v. Wood,
228 Ga. 206, 184 S.E.2d 561 (1971), in a situation in which
a trustee, having broad power to manage trust property as
he deemed appropriate, paid off a loan amount in excess of
the amount of the lien against trust realty even though
the testatrix (settlor) had no personal liability on the loan.
In Benadom v. Colby, 81 Md. App. 222, 567 A.2d 463
(1989), the court construed a provision in the trust agree-
ment as granting the trustees power to interpret the
trust’s dispositive provisions, and therefore held that the
trial court had erred by not deferring to the trustees’
interpretation of the distributive provision in question.
Compare Bogert & Bogert, supra, § 559 (p. 169): “Although
the settlor may give the trustee power to construe the
trust instrument in case of dispute or doubt, the trustee’s
decision will be subject to review by the court as to its
reasonableness.”
App. 92
“Discretion is the touchstone of trusteeship, and we invade ._
the province of the trustee only when he violates the
proper exercise of his discretion.” Lowry v. Bankers Life &
Casualty Retirement Plan, 865 F.2d 692, 694 (5th Cir.
1989) (ERISA case). And see (another ERISA case) Exbom
v. Central States Welfare Fund, 900 F.2d 1138, 1142 (7th
Cir. 1990): “Under the common law courts will not review
the discretionary decisions of trustees and other fiduciar-
ies de novo, but will look only for the trustee’s abuse of its
discretionary authority.”
For an example of judicial intervention based on a trus-
tee’s misinterpretation of trust terms, see Griffin v. Griffin,
463 So.2d 569 (Fla. App. 1985).
For an example of court intervention for nonexercise of
discretion, see Clark v. Mississippi Valley Trust Co., 357
Mo. 785, 211 S.W.2d 10 (1948). Cf. Matter of Osborn, 252
App. Div. 438, 299 N.Y.S. 593 (1937) (trustee responding to
demands of a beneficiary without exercise of independent
judgment); and Jacob v. Davis, 128 Md. App. 433, 738 A.2d
904 (1999), cert. denied 357 Md. 482, 75 A.2d 436 (2000).
For an example of the removal of a trustee for favoring one
beneficiary over others in exercising discretion (see § 79 on
duty of impartiality), see Jones v. Jones, 8 Misc. 660, 30
N.Y.S. 177 (1894); and cf. Wiggins v. PNC Bank, 988
S.W.2d 498 (Ky. App. 1998).
For an example of judicial intervention on behalf of per-
sons holding support judgments against the beneficiary of
a discretionary spendthrift trust, based on the trustee’s
abuse of his discretion by withholding discretionary
distributions, see Ventura County Dept. of Child Support
Services v. Brown, 116 Cal. App. 4th 144, 11 Cal. Rptr. 3d
App. 93
489 (2004). Cf. § 60, Comment.c, and also (on spendthrift
exception) § 59, Comment b.
For a refusal to intervene, finding no abuse of discretion or
other breach of fiduciary duty, where it was alleged that
the trustees (in exercising their broad discretion to amend
the trust) had violated their duties to plaintiff by modify-
ing the trust to eliminate her beneficial] interest, see
Rubinson v. Rubinson, 250 III. App. 3d 206, 620 N.E.2d
1271, 190 Ill. Dec. 10 (1993) (the court concluding that the
trustees’ action was consistent with the settlor’s intention
in granting the power).
Comment d:
Policy limits on settlor’s grant of extended discretion. In
Carrier v. Carrier, 226 N.Y. 114, 125, 123 N.E. 135, 138
(1919), the opinion (Cardozo, J.) acknowledged that the
trustee had very broad management powers and that his
discretion was to be “absolute and uncontrolled” but stated
that this does not mean “that it might be recklessly or
willfully abused,” adding: “He had made himself a trustee;
and in so doing had subjected himself to those obligations
of fidelity and diligence that attached to the office of
trustee.” And the court in Keating v. Keating, 182 lowa
1056, 1069, 165 N.W. 74, 77-78 (1917), stated: “We think
... that no trust has been or can be created in property
where the discretion of the trustee is so broad or illimit-
able that equity will not entertain a complaint by the
beneficiary that the trust has been or is being abused, or
that the property is being wrongfully diverted to the
destruction or defeat of the purpose for which the founder
established it.... And we think if the devise in this case
were to be construed in accordance with the defendant’s
App. 94
theory as being intended to give him absolute and uncon-
trolled discretion independent of any authority in the
court to control its arbitrary exercise, it would have to be
held, to that extent, void.”
Compare Armitage v. Nurse, [1998] Ch. 241 (CA), in which
Millot, L.J., stated (at 253-254): “There is an irreducible
core of obligations owed by the trustees to the beneficiaries
and enforceable by them which is fundamental to the
concept of a trust. If the beneficiaries have no rights
enforceable against the trustees there are no trusts....
The duty of the trustees to perform the trusts honestly and
in good faith for the benefit of the beneficiaries is the
minimum necessary to give substance to the trusts... .”
Effect and construction of language of extended discretion.
Comment j of Restatement Second, Trusts § 187 states
that the settlor may manifest an intention “that the
trustee’s judgment need not be exercised reasonably, even
when there is a standard by which the reasonableness of
the trustee’s conduct can be judged.” The Comment con-
tinues: “This may be indicated by a provision in the trust
instrument that the trustee shall have ‘absolute’ or ‘unlim-
ited’ or ‘uncontrolled’ discretion” — language that is “ordi-
narily construed as merely dispensing with the standard
of reasonableness” so that “the mere fact that the trustee
has acted beyond the bounds of a reasonable judgment is
not a sufficient ground for interposition by the court.” The
Comment adds, however: “The court will interfere if the
trustee acts in a state of mind not contemplated by the
settlor. Thus, the trustee will not be permitted to act
- dishonestly, or for some motive other than the accomplish-
ment of the purposes of the trust, or ordinarily to act
arbitrarily without an exercise of his judgment.” Id., Com-
ment k (“Limits of power of settlor to confer discretion”)
App. 95
further observes that, if a trust is created, it is “against
public policy to permit the settlor to relieve the trustee of
all accountability.”
Although the commentary here (to present § 87) does not
foreclose the possibility of an interpretation that dispenses
with the requirement of “reasonableness,” it does not
follow Trusts Second in its recognition of that result as the
ordinary construction of typical language of extended
discretion (i.e., “absolute,” “sole and uncontrolled,” and the
like), because that construction neither seems routinely
appropriate nor does case authority actually support that
generalization. It is difficult to find cases in which the
court has upheld an exercise of discretion that, in the
circumstances, truly appears to have been unreasonable.
Compare the segment specially entitled “Update: Absolute
or Uncontrolled Discretionary Powers of Trustees” in the
-2003 Supplement to § 560 of Bogert & Bogert, supra: “In
many cases it would appear that the same result is
reached regardless of which standard [i.e., extended or
simple discretion] is applied by the court.... There is
agreement that a trustee must act in good faith and
without an improper motive, and that a trustee must not
act arbitrarily or capriciously, that is, without any exercise
of his judgment. ... All courts probably would agree that
the trustee’s absolute discretion cannot be exercised to
defeat the settlor’s intent or the trust purposes....
[P]Sometimes the trustee is given the power to invest in
his absolute and uncontrolled discretion; in several recent
cases the court found that ... the grant of discretion did
not protect the trustee from liability for imprudent in-
vestments. Where the trustee is granted broad discretion
in making allocations of receipts and disbursements to the
principal and income accounts, some courts have held that
App. 96 ;
the trustee nevertheless must follow the applicable princi-
pal and income statute, while other courts have given
effect to the grants of discretion by construing that they
‘authorize the trustee to deviate from established principal
and income law, although holding that the exercise of
discretion remains subject to the standards of reasonable-
ness and good faith and that an exercise of the power must
not defeat the settlor’s intent or the trust purposes... .
[P]It would appear that the difference in the attitude of
the courts toward ‘simple’ discretionary powers, on the one
hand, and ‘absolute’ or ‘uncontrolled’ discretionary powers,
on the other hand, is one of degree rather than of kind.
The courts appear more likely to find an abuse of a simple
discretionary power than an abuse of an absolute or
uncontrolled discretionary power.... ” The orginal
version (of rev. 2d ed., 1980) of Bogert & Bogert, supra,
$ 560 (after quoting from a couple of leading cases (also
quoted, supra this Note) on the limits of discretion),
expressed some doubt about the Restatement Second
position and stated essentially (at 213-215) that the
difference between extended and simple discretion is one
of degree more than of kind, noting that even an “absolute
discretionary power must not be used in a ‘extravagantly
unreasonable’ or ‘arbitrary’ manner ... or for a purpose
other than a trust purpose” and then further observing (at
220-221) that it “may be concluded” that courts “are more
easily persuaded to find an abuse of a mere discretionary
power than to find an improper use of an absolute or
uncontrolled power.”
A case that at least appears supportive of the Restatement
Second position is In re Koos’ Estate, 269 Wis. 479, 69
N.W.2d 598 (1955),
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