# Opposition Brief — Memorial-Hermann Healthcare Systems v. Ethridge

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2005
- **Citation:** 546 U.S. 936

## Text

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 PP» WO WwW w wo Nd

>i a) as

qo

App. 103

2.21. Home Health Care Agency

2.22. Hospital

ests, MEMOMIOING BUT Si 5c 5s cladsiccasacaes sgdciwcoeaagaves sunk
2.24. Medical Records

2.25.

2.26.

2.21.

2.28.

2.29.

2.30.

2.31. Plan Administrator

2.32. Plan Sponsor

2.33. Plan Year

2.34. Pre-Existing Condition

2.35. Preferred Provider

2.36.

2.37.

2.38. Skilled Nursing Facility ,
2.39. Third Party Administrator ........... Ye ye
2.40. Total Disability

2.41. Usual and Customary Charge

2.42. Wage Continuance
ARTICLE III. ELIGIBILITY

3.1. Commencement

3.2. Cessation
3.3.

SR en cee a eee te ee ee ene eee a ee ee

App. 104

a.4;. - Continuation of Benefits... ...0.65.
3.5. Eligibility Limited to Periods Of Active Ser-

fn SONS Eah RIE De goE SERENE NEES DL CCRT aR EE
Rk IONE EBCPIIMIDA SION oo ioe ccs aks coarse

ARTICLE IV. INCIDENT REPORTING AND
BET Per BRAT E RIAN ie ea rssh gdenh Sokys ste ccssynsaietodadgnaoonesos

4.1. Employee's Responsibilities...................00......
4.2. Employees Responsibilities .................00.......
ARTICLE V. DRUG AND ALCOHOL TESTING........
ARTICLE Vi.) RELEASES 62) GioenSe cack
ARTICLE VII. APPROVED MEDICAL PROVID-

ARTICLE VIII. BENEFIT AWARDG..........................
8.1. Administrative Committee Review ...............

8.2. Death or Dismemberment; Schedule of

9 SIRS Sa IRs ee OE Te DR Soe a TEP IO NO
ids 5 WS CORIO R ooS iia cccnicsticessccaveed consis
8.4. Pitts TOTTI ae ea

ARTICLE IX. EXCLUSIONS FROM COVERAGE ...
ARTICLE X. COMMENCEMENT OF BENEFITS ...
PICTICUE KE SUBOCIA LION oso s cscnssenca2scceicecsezssshnss
11.1. Plan’s Right of Subrogation...
11.2. Employee's Agreement To Subrogation ESE
11.3. Limitation To Plan’s Subrogation Rights ......

11.4. Subrogation Rights Not Affected By Pay-
= 2 2 Gane MeSH rapt Evin eae lay keg Bee ROE Ra aap ergy

to. ee Ok PI ee

16
17
20
20

App. 105

ARTICLE XII. INTERPRETATION AND DETER-

PRAIRIE MRP ac ssccpiesendcscasvuasiisécepnasesivcckicosusascapeeuiasias 23
ARTICLE XIV. CLAIMS PROCEDURES .................. 23
16-2: RORCS OER oie OR occa cecoasesiens 23
14.2. Claims Review Procedure.....................::00000 24
14.3. Effect of Fiduciary Action ..........0..0000... eee 24
ARTICLE XV. ERISA RIGHTS ......2..0..00.0500.00...00.0000. 25
ARTICLE XVI. ERISA INFORMATION.................... 26
ARTICLE XVII. MISCELLANEOUS...........0000. 27
LTA. PRROOARIAO inns ai cintic casio 27
17.2. No Admission of Liability .............00 ee. 27
Ei.0.:: -Eeamnit Olt LAGI 58 cic ences 27
17.4. Plan Not a Contract of Employment............. 27
17.5. Plan Not Workers’ Compensation Insurance.. 28
LID... See OO 55a cakacbgstiosses 28
17.7. No Guarantee of Tax Consequences .............. 28
17D. : TCO fi ovis corinne 28
LT. SN i SB ARG ec dicen 28
1a OVREIROR BIBW iss oie beeetehinds 28
eG saiisthivciss Employee’s Agreement To Subrogation
Employee, on behalf of himself and each beneficiary 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 ar-
rangement, and (ii) to include all Benefit paid or payable
under the Plan in any liability or other claim against a third
party. Furthermore, Employee and said _ beneficiaries
promise and agree to take such action, to furnish such
information and assistance, to execute and deliver any

App. 145

assignments, reimbursement agreements and other instru-
ments as the Plan Administrator may require to facilitate
enforcement of the Plan’s subrogation rights, and not to
prejudice, or in any way detrimentally affect, such rights.
The Plan’s subrogation rights shall not be affected by any
release, including a partial release, that is entered into
without the consent of the Plan Administrator. The Plan’s
subrogation rights shall extend to (a) all conceivable
sources of recovery, other than the Plan itself, including,
by way of example and not limitation, any and all automobile
insurance coverage (including uninsured/underinsured motor-
ist coverage), no-fault coverage, medical insurance cover-
- age, school insurance coverage, disability coverage and
personal injury awards or settlements, and (b) all types of
payments made by or on behalf of a third party, regardless
of how designated, including, without limitation, pay-
ments for medical expenses, disability, accidental death or
dismemberment, past or future wages or loss of earning
capacity, pain and suffering, mental anguish, loss or
consortium or companionship, and exemplary damages of
any kind. For purposes of clarity and not limitation, to the
extent that a recovery from a third party is obtained by an
attorney for the Participant, the full amount that the Plan
is entitled to recover hereunder shall not be offset or
otherwise reduced by any attorney’s fees or other costs of
recovery that were not specifically approved in advance in
writing by the Plan Administrator.

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

App. 146

Participant or beneficiary thereof has only received a
partial recovery from a third party. Upon the advice of
legal counsel, the Plan Administrator shall create a trust
in connection with the Plan to hold any monies recovered,
pursuant to the provisions of this Article, which constitute
“plan assets” under ERISA.

11.4. Subrogation Rights Not Affected By Pay-
ment. The Plan’s subrogation rights shall not be affected
if Benefits are paid before the Plan Administrator obtains
any additional agreement from the Employee (or from any
other pavee) or if the Plan Administrator does not request
any such agreement. In addition, the failure or refusal of
an Employee (or other payee) to sign an agreement at the
request of the Plan Administrator recognizing the Plan’s
subrogation rights shall result in a forfeiture of all Bene-
fits payable to that Employee (or other payee) even if such
Benefits have already been paid, and the Plan Administra-
tor shall retain a right to recover paid Benefits which are
forfeited in such a manner; moreover, any such failure or
refusal shall not affect the enforceability of the Plan's
subrogation nghts.

11.5. Lien on Proceeds. The Plan Administrator,
on behalf of the Plan, shall have a lien against the pro-
ceeds of any settlement, award or judgment that results
from a claim or lawsuit by or on behalf of an Employee
who received Benefits under the Plan. Notice of the lien is
sufficient to establish the Plan’s lien against the third
party or insurance carrier. The Plan Administrator shall
be entitled to (i) deduct the amount of the lien from any
future claims payable to or on behalf of the Employee if (A)
the lien is not repaid or otherwise recovered by the Plan
Administrator or (B) the Employee or other claimant fails
to promptly notify the Plan Administrator of a payment

App. 147

received from a third party or insurance carrier that is
subject to the Plan’s subrogation rights, and (ii) to other-
wise take any action that the Plan Administrator deems
necessary or appropriate to enforce the Plan’s subrogation
rights.

ARTICLE XII. COORDINATION OF BENEFITS

This Plan is not intended to provide any duplicate
payments to or on behalf of any Employee. In order to
prevent duplicate payments which exceed 100% of the
Eligible Expenses or other allowable Benefits, this Article
establishes a priority for payments from the Plan and from
other sources. If any Eligible Employee (or his estate or
beneficiaries) is entitled to payment from one or more
Primary Plans (described below) as a result of a Bodily
Injury, Disease or Cumulative Trauma, the Benefits
payable shall be reduced (from the amount otherwise
payable hereunder) by the total of all such payments from
Primary Plans, if any, but cannot be reduced to less than
zero. For purposes of this Article, a source of payment
shall be considered a Primary Plan if it meets one of the
following tests: (i) if that source does not have a coordina-
tion of benefits provision, it is a Primary Plan, or (ii) if
that source does have a coordination of benefits provision
and has covered the Employee as a person other than a
dependent for a longer cumulative period than the Em-
ployee has been covered under the Plan, it is a Primary
Plan.

When used in this Article, the term “Primary Plan”
includes any policy, contact, plan or other arrangement

App. 148

providing benefits or services for or by reason of medical or
accident care or treatment, which benefits or services are
provided by:

(1) group, blanket, or franchise insurance;

(2) any arrangement or coverage for individuals
in a group whether on an insured or unin-
sured basis, including without limitation,
Blue Cross and Blue Shield group plans;

any coverage under governmental programs,
and any coverage required or provided by
any statute, except benefits paid under the
Medical Assistance Act;

any group or individual automobile insur-
ance policy;

any Health Maintenance Organization cov-
erage on a group basis; or

Part A or Part B of Title XVIII of the Social
Security Act, as amended (“Medicare”) as
long as the Eligible Employee is eligible to
enroll under Medicare and, to the full extent
permitted by Medicare or other applicable
law, regardless of whether the Employee has
actually applied for Medicare coverage.

Any reduction in Benefits under this Article shall be
based only on the total of other payments or other benefits
to which an Eligible Employee is actually entitled under
all Primary Plans. Any coordination of benefits provisions
in Primary Plans shall be taken into consideration in
computing any reduction of Benefits under this Article. If
there are no Primary Plans providing payment for a given

Bodily Injury, Disease or Cumulative Trauma, there shall

App. 149

be no reduction of Benefits under the Plan pursuant to
this Article. ,

When medical payments are available under vehicle
insurance, the Plan shall pay excess benefits only, without
reimbursement for vehicle plan deductibles. This Plan
shall always be considered the secondary payer regardless
of the individual’s election under PIP (personal injury
protection) coverage with the vehicle insurance carrier.

If the Primary Plan is determined to be Medicare, a
military program (CHAMPUS) or any other federal pro-
gram, then any valid and enforceable coordination of
benefits rules that are prescribed under applicable federal
law or regulation that apply to such federal program will
be followed hereunder.

In order to carry out the provisions of this Article, the
Employer may obtain or release any relevant information
to or from (i) any insurance carrier or plan administrator,
(ii) any person making a claim under this Plan, or (iii) any
other person or entity, all without the consent of or notice
to the Employee or any other person or entity.

If payments for claims made hereunder are more than
the amount payable under the Plan, the Plan Sponsor may
recover the overpayment. The Plan Sponsor may seek
recovery from one or more of: (i) any Employee to or for
whom Benefits were paid; (ii) any insurance carrier; (iii)
any Health Care Facility, Physician or other provider of
care or services; or (iv) any other person or entity. The
Plan Sponsor shall be entitled to deduct the amount of any
such overpayments from any future claims payable to or
on behalf of the Employee.

App. 150

When any Benefits which would have been provided
under the Plan have been provided under another plan or
arrangement, the Plan has the right to pay the other plan
the amount that the Administrative Committee deter-
mines will satisfy the intent of this Section. Any such
payment made will be considered the payment of Benefits
under the Plan and will satisfy any obligation to pay
benefits under the Plan to the extent of such payments.

ARTICLE XIII.
INTERPRETATION AND DETERMINATIONS

The Administrative Committee reserves the absolute
and unilateral right and power to administer and to
interpret, construe and construct the terms and provisions
of the Plan, including, without limitation, correcting any
error or defect, supplying any omission, and reconciling
any inconsistency. The Administrative Committee also
reserves the absolute and unilateral right and power to
make all decisions that may impact eligibility or a claim
for Benefits, including findings of fact. Subject to the
claims review procedure in Section 14.2, any Determina-
tion, decision, computation, or interpretation made by the
Administrative Committee under the Plan shall be final,
binding and conclusive on all persons and entities.

ARTICLE XIV. CLAIMS PROCEDURES

14.1. Notice of Claim. In the event that an Eligib!e
Employee, Dependent, beneficiary or other person or
entity (collectively referred to as the “Claimant”) has a
claim for any Benefit provided under the Plan, the Claim-
ant must file a claim with the Administrative Committee
on a form provided for such purpose. If the Claimant fails

App. 151

to file a claim for Benefits, the Administrative Committee
may take whatever steps are necessary to dispose of the
Claimant’s potential Benefits under the Plan, and shall be
held harmless by Claimant and all other persons and
entities in the performance of same.

Prior to authorizing any Benefits hereunder, the
Administrative Committee or its designees may require
the Claimant to provide Proof of Loss and other requested
information, and to complete any releases, documents or
forms which it deems to be necessary or appropriate for
the proper administration of the Plan, including filing of
all claims and requests for payment from any other source.
In accordance with the applicable provisions of the Plan,
the Administrative Committee shall make the Determina-
tion as to the right of any Claimant to any Benefit under
the Plan.

14.2, Claims Review Procedure. If any claim for
Benefits filed by a Claimant is wholly or partially denied,
the Administrative Committee, or its designees will notify
the Claimant of its decision in waiting. Such notification
will be written in a manner calculated to be understood by
the Claimant, and will contain (i) specific reasons for the
denial, (ii) specific reference to pertinent Plan provisions,
(iii) a description of any additional material or information
necessary for the Claimant to perfect such claim and an
explanation of why such material or information is neces-
sary, and (iv) information as to the steps to be taken if the
Claimant wishes to submit a request for review. Such notifi-
cation will be given within sixty (60) days after the claim is
received by the Administrative Committee (or within one-
hundred twenty (120) days if special circumstances require
an extension of time for processing the claim, and if written
notice of such extension and circumstances is given to the

App. 152

Claimant within the initial sixty (60) day period). If such
notification is not given within such period, the claim will
be considered denied as of the last day of such period and
the Claimant may then request a review of the claim in a
written request directed to the Administrative Committee.

Within sixty (60) days after the date on which a
Claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days after the date on which
such denial is considered to have occurred) the Claimant

(or his duly authorized representative) may (i) file a
written request (including pertinent documents) with the
Administrative Committee for a review of the denied
claim, and (i1) submit written issues and comments to the
Administrative Committee. The Administrative Commit-
tee or its designee will review the claim and notify the

Claimant of its decision in writing. Such notification will
be written in a manner calculated to be understood by the
Claimant and will contain specific reasons for the decision,
as well as specific references to pertinent Plan provisions.
The decision on review will be made within sixty (60) days
after the request for review is received by the Administra-
tive Committee, or within one-hundred twenty (120) days
if special circumstances require an extension of time for
processing the request, such as a decision by the Adminis-
trative Committee to hold a hearing, provided that written
notice of such extension and circumstances is given to the
Claimant within the initial sixty (60) day period. If the
decision on review is not made within such period, the
claim will be considered denied as of the last day of such
period. All final Determinations concerning claims made
pursuant to this claims review procedure shall not be
subject to further review by anyone, but shall be final,

App. 153

conclusive and binding on the Claimant and all other
persons and entities.

14.3. Effect of Fiduciary Action.

(a) The Plan shall be interpreted by the Admin-
istrative Committee in accordance with the terms of
the Plan and their intended meanings. However, the
Administrative Committee shall have the discretion
to make any findings of fact needed in the admini-
stration of the Plan, and shall have the discretion to
interpret or construe ambiguous, unclear or implied
(but omitted) terms in any fashion it deems to be ap-
propriate in its sole judgment. The validity of any
such finding of fact, interpretation, construction or
decision shall not be given de novo review if chal-
lenged in court, by arbitration or in any other forum,
and shall be upheld unless clearly arbitrary or capri-
cious.

(b) To the extent the Administrative Committee
or another Plan fiduciary has been granted discre-
tionary authority under the Plan, the prior exercise of
such authority by the Administrative Committee or
other Plan fiduciary shall not obligate it to exercise
its authority in a like fashion thereafter.

(c) If, due to errors in drafting any Plan provi-
sion does not accurately reflect its intended meaning,
as demonstrated by consistent interpretations or
other evidence of intent, or as determined by the Ad-
ministrative Committee in its sole and exclusive judg-
ment, the provision shall be considered ambiguous
and shall be interpreted by the Administrative Com-
mittee in a fashion consistent with its intent, as de-
termined by the Administrative Committee. The Plan
may be amended retroactively to cure any such ambi-
guity, notwithstanding anything in the Plan to the
contrary.

App. 154°

(d) This Section may not be invoked by any per-
son to require the Plan to be interpreted in a manner
which is inconsistent with its interpretation by the
Administrative Committee or by any other Plan fidu-
ciaries. All actions taken and all determinations made
in good faith by the Administrative Committee or by
other Plan fiduciaries shall be final and binding upon
all persons claiming any interest in or under the Plan.

ARTICLE XV. ERISA RIGHTS

As a participant in the Plan, each Eligible Employee is
entitled to certain rights and protections under ERISA.
ERISA provides that all Plan participants shall be entitled
to:

1. Examine, without charge, at the Plan Admin-
istrator’s main office, all Plan documents including
copies of all documents filed by the Plan with the U'S.
Department of Labor.

2. Obtain copies of all Plan documents and
other Plan information upon written request to the
Plan Administrator. The Plan Administrator may
make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual fi-
nancial report if the Plan Administrator is required to
prepare such a summary annual report under ERISA.
If applicable, the Plan Administrator is required by
law to furnish each participant with a copy of the
summary annual report.

In addition to creating rights for Plan participants,
ERISA imposes duties upon the people who are responsi-
ble for the operation of the Plan. The people who operate
the Plan, called “fiduciaries” of the Plan, have a duty to do
so prudently and in the interest of Plan participants and

App. 155

beneficiaries. No one, including his Employer, may fire an
Eligible Employee or otherwise discriminate against him
to prevent such Employee from requesting a Benefit or
exercising his rights under ERISA.

If a claim for Benefits is denied in whole or in part, the
participant must receive a written explanation of the denial
in accordance with the Plan’s claims review procedures. The
participant has the right to have the Plan review and
reconsider the denied claim.

Under ERISA there are steps Plan participants can
take to enforce the above rights. For example, if the
participant requests materials from the Plan and does not
receive them within thirty (30) days, he may file suit in a
federal court. In such a case, the court may require the
Plan Administrator to provide the materials and pay the
participant up to $100 a day until he receives the materi-
als, unless the. materials were not sent because of reasons
beyond the control of the Plan Administrator. If the par-
ticipant has a claim for Benefits which is denied or ig-
nored, in whole or in part, he may file suit in a state or
federal court. If it should happen that Plan fiduciaries
misuse the Plan’s money, or if a participant is discrimi-
nated against for asserting his rights, he may seek assis-
tance from the U. S. Department of Labor or may file suit
in federal court. The court will decide who should pay for
legal costs and fees. If the participant is successful in his
lawsuit, the court may require the other party to pay the
participants legal costs, including attorneys’ fees. If the
participant loses, the court may order that he pay these
costs and fees, for example, if it finds that the participant’s
claim is frivolous.

App. 156

If participants have any questions about the Plan,
they should contact the Plan Administrator. If participants
have any questions about this statement or about their
rights under ERISA, they should contact the nearest area
office of the U.S. Labor-Management Services Administra-
tion, Department of Labor.

ARTICLE XVI. ERISA INFORMATION

Plan Sponsor: Memorial Hermann Healthcare System
7737 Southwest Freeway, Suite 415
Houston, Texas 77074
(713) 776-5664

Plan Administrator: The Plan Sponsor

Agent for Service of Legal Process: Chairperson of

the Administrative Committee

Plan Name: Occupational Benefits Plan for the Employ-
ees of Memorial Hermann Healthcare System

Plan Type: Employee Welfare Benefits Plan as defined
in Section 3(1) of ERISA

Plan Number: 504
Third Party Administrator: WorkLink

Financing of the Benefit Plan: Self-funded from the
Employer’s general as-
sets. No employee con-
tributions are required.

IRS Identification Number of Plan Sponsor:
74-1152597

ARTICLE XVII. MISCELLANEOUS

17.1. Incapacitation. Every person receiving or
claiming any Benefit under the Plan shall be presumed to

App. 157

be mentally and physically competent and of age unless
and until the Administrative Committee receives a written
notice, in a form and manner acceptable to such Commit-
tee, that such person is mentally or physically incompe-
tent or a minor, and that a guardian, conservator or other
person legally vested with his care has been appointed. If,
however, the Administrative Committee should determine
that, in its opinion, any person to whom a Benefit is
payable under the Plan is unable to care for his affairs
because of any mental or physical incapacity or incompe-
tency or because he is a minor, any payment due (unless a
prior claim therefor was made by a duly appointed legal
representative of such person) may, in the discretion of the
Administrative Committee, be paid to the spouse, a child,
a parent, or a brother or sister, or to any person with
whom he is residing, or to any other person or institution
deemed by the Administrative Committee to have incurred
expense for such person otherwise entitled to payment. In
the event that a guardian, conservator or other person
legally vested with the care of any person receiving or
claiming a Benefit under the Plan is appointed by a court
of competent jurisdiction, payments shall be made to such
guardian, conservator or other person, provided that
proper proof of appointment is furnished in a form and
manner acceptable to the Administrative Committee. To
the full extent permitted by law, any payment made in
accordance with this paragraph shall be a complete
discharge of any liability therefor.

17.2. No Admission of Liability. Any Benefits
awarded under the Plan shall not in any way constitute an
admission of liability or responsibility by the Employer, or
any other person or entity, for any Bodily Injury, Disease
or Cumulative Trauma.

App. 158

17.3. Limit on Liability. Nothing contained in the
Plan shall impose on any member of the Administrative
Committee nor on any Employee or member of the Board,
any liability for the payment of Benefits under the Plan.
The liability of an Employer for Benefits hereunder if any,
shall not exceed that expressly provided for in the Plan.

17.4. Plan Not a Contract of Employment.
Nothing contained in the Plan shall be construed as (1) a
contract of employment between an Employer and any
Employee, (ii) a right of any Employee to be continued in
the employment of an Employer, (iii) consideration or
inducement for employment with an Employer, (iv) a
condition of employment between an Employer and any
Employee, or (v) a limitation of the right of an Employer to
discharge any Employee, with or without cause, at any
lime. All Employees shall be subject to discharge to the
same extent as if the Plan had never been adopted.

17.5. Plan Not Workers’ Compensation Insurance.
The Plan does not provide, nor is it intended to provide,
workers’ compensation insurance coverage under the
Texas Workers’ Compensation Act. Notwithstanding any
representations that may have been made to the contrary,
written, oral or implied, no representation, commitment or
guarantee is made by any Employer, nor any of its officers,
directors, Employees, agents or representatives, that any
Benefits provided under the Plan will, in all cases, be at
least equal to benefits that may have been provided
pursuant to an insured arrangement under the Texas
Workers’ Compensation Act. Furthermore, the mere
occurrence of an Occupational Injury, Disease or-Cumula-
tive Trauma will not automatically result in a Determina-
tion to pay Benefits under the Plan; all claims will be

App. 159

evaluated on an individual, case-by-case basis, taking into
account the exclusions described in Article IX hereof.

17.6. Non-Alienation. Benefits provided under the
Plan shall not be subject in any manner to alienation, sale,
transfer, assignment, pledge, encumbrance, charge,
garnishment, execution or levy of any kind, either volun-
tary or involuntary, including any liability which is for
alimony or other payments for the support of a spouse or
former spouse, or for any relative of the Eligible Employee,
prior to actually being received by the person entitled to
the Benefit under the Plan. Any attempt to alienate, sell,
assign, pledge, charge or otherwise transfer or encumber
any right to Benefits provided hereunder shall be void and
without effect

17.7. No Guarantee of Tax Consequences. No
representation, commitment or guarantee is made that
any amounts paid under the Plan will be excludable from
the recipient’s gross income for any tax purpose, or that
any other tax treatment will apply or be available to such
person. The Employer shall withhold from Wage Continu-
ance and other Benefits provided hereunder any taxes
which it is required to withhold pursuant to applicable law
or regulation.

17.8. Severability. In the event that any term or
provision of the Plan shall be held illegal or invalid for any
reason, such illegality or invalidity shall be fully severable
and shall not affect the remaining terms and provisions of
the Plan, and, furthermore, the Plan shall be construed
and enforced as if the illegal or invalid term or provision
had not been included herein.

17.9. Construction. Whenever the context of this
Plan so requires, the masculine gender includes the

\

App. 160

feminine gender, and words used in the singular or plural
will include the other. The words “herein,” “hereof,” “here-
under,” and other similar compounds of the word “here”
refer to the entire Summary and not to any particular
article, section or provision.

17.10. Governing Law. The terms, conditions and
provisions of the Plan shall be construed, governed and
enforced under the laws of the State of Texas, except as
may be superseded by ERISA or other controlling federal
law. This Plan is an “employee welfare benefit plan”, as
defined in Section 3(1) of ERISA, as a plan maintained for
the purpose of providing medical, hospital care, safety
training und other benefits as provided herein.

; CONCLUSION

Memorial Hermann Healthcare System is pleased to
sponsor the Plan for your benefit. We value your efforts on
behalf of our organization and hope that your participation
in the Plan will enable you to look with continued confi-
dence to your future with us.

Memorial Hermann Healthcare System intends to
continue the Plan indefinitely, but necessarily reserves the
right to amend or terminate the Plan at any time for any
reason. In the case of any conflict between the terms and.
provisions of the Plan and the terms and provisions of this
Summary, the Plan will control and govern.

App. 161

APPENDIX A

SCHEDULE OF BENEFITS FOR DEATH
OR DISMEMBERMENT OF EMPLOYEES

When the Administrative Committee has made a
Determination to approve Compensation for an Accidental
Death or Dismemberment resulting from a Bodily Injury,
the Administrative Committee is authorized to pay up to
the indicated multiple of the Employee’s annual wages
and/or salary measured in accordance with Section 8.3 of the
Plan as of the date on which the Accident occurs (i.e., the
“wage base” for that Employee). An Employee's full-time or
part-time work status shall be taken into account for
purposes of determining his wage base. All decisions
concerning (i) the actual amount of Compensation payable
for a given Accidental Death or Dismemberment, (ii) the
wage base for a particular Employee, and (iii) the schedule
of Compensation payments attributable to an Accidental
Death or Dismemberment, shall be made by the Adminis-
trative Committee in the exercise of its discretion. Unless
otherwise determined by the Administrative Committee in
its discretion, Compensation awarded for an Accidental
Death or Dismemberment shall be paid in 120 monthly
installments without interest.

Type of Occurrence Maximum Benefit

DEATH: Up to twenty (20) times wage
base, not to exceed $2,000,000.

~

DISMEMBERMENT:

Loss of one member Up to ten (10) times wage base,
not to exceed $1,000,000.

Loss of two or more members | Up to twenty (20) times wage
base, not to exceed $2,000,000.

App. 162

Spinal cord injury resulting| Up to ten (10) times wage
in permanent paraplegia | base, not to exceed $1,000,000.
within 365 days of a Bodily
Injury

Spinal cord injury result-| Up to twenty_(20) times wage
ing in permanent quadri-| base, not to exceed $2,000,000.
plegia within 365 days of
a Bodily Injury

“Member” means an eye, hand or foot. The Plan does
not provide for Accidental Death or Dismemberment
Benefits for more than one loss from a single Accident (if
such occurs, the Plan will pay only the larger benefit). This
Schedule of Benefits is subject to change by the Adminis-
trative Committee from time to time (see Section 8.2 of the
Plan). The Participant shall not be entitled to receive any
further Wage Continuance payments under the Plan for
any claims or injuries in any way attributable to, arising
out of, or related to his Bodily Injury that resulted in an
Accidental Death or Dismemberment award hereunder on
and after the date that he receives payment of the Acci-
dental Death or Dismemberment award for that Bodily
Injury, regardless of whether any such claim or injury was
known or unknown, or anticipated or unanticipated.

App. 163

Memorial Hermann
HEALTHCARE SYSTEM

December 1, 2000

Ms. Carol Ann Pittman

c/o Mr. Larry Thompson
Lorance & Thompson

2900 N. Loop West, Suit 500
Houston, Texas 77092

Ms. Pittman:

Please be advised the Administrative Committee has met
in response to the filing, by you, of a declaratory judgment
action in Galveston contesting the rights of subrogation
defined in the Occupational Benefits Plan for the Employ-
ees of Memorial Hermann Healthcare. The Committee has
found as follows:

‘.

You have accepted the benefits of the Occupational
Benefits Plan For the Employees of Memorial
Hermann Healthcare System, as amended and re-
stated effective March 1, 1998.

The Occupational Benefits Plan for the Employees of
Memorial Hermann Healthcare System, as amended
and restated effective March 1, 1998 covered John
Pittman, an employee, on the date of his birth. [death]

Article XI, section 11.1 of the Benefits Plan provides:

“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 hecause of the
alleged accidental, negligent, intentional, or tor-
tious conduct, act, or omission of another person
or entity...”

4,

App. 164

Article XI, section 11.2 provides:

“«

... Employee and said beneficiaries promise
and agree to make such action, to furnish such
information and assistance, to execute and de-
liver any assignments, reimbursement agree-
ments, and other instruments as the Plan
Administrator may require to facilitate enforce-
ment of the Plan’s subrogation rights.”

Article XI, section 11.3 limits the Plan’s right of
subrogation to amounts paid by the plan and costs of
prosecuting the claim including attorney’s fees.

The Committee determines that a reasonable construc-
tion of the Occupational Benefits Plan gives the Plan
the right to require you to assign any and all claims you
may have arising out of the death of John Pittman to
the Plan. Accordingly, the Committee determines that
the Administrator has the right to ae[re]quire you to
execute an assignment of such claims to the Plan.

The Committee also determines that the Plan’s right
to reimbursement or of any third party recovery shall
be hmited to the amount of the benefits paid, plus the
costs of prosecuting claims against third parties, in-
cluding attorney fees.

- The Committee finds that a reasonable interpretation

of the Plan is that the Plan’s right of reimbursement
is superior to your rights of recovery against any third
party, subject to the limitation set out in paragraph 7
of this ruling.

The Committee determines that the Plan has the
right to require you to assign all of your claims to the
Plan, and thus has the right to control the prosecu-
tion of any claims you or the estate of John Pittman
(employee), may have against any third party.

App. 165

10. The Committee determines that the Plan has the
right to control the settlement of any and all claims
against third parties who might be responsible, in
whole or in part, for the death of the employee, until
such time as the Plan has received the reimburse-
ments to which it is entitled under paragraph 7 of
this ruling, and subject to the Plan’s fiduciary obliga-
tions as set out in Article XV section 15.6 of the Plan.

Sincerely,

/s/ Carrol E. Aulbaugh
Carrol E. Aulbaugh
Sr. Vice President & CFO

CEA:vc

App. 166

House Report No. 93-533; 93d Congress, Ist Session; H.R. 2
EMPLOYEE BENEFIT SECURITY ACT OF 1973
OCTOBER 2, 1973.

House Report No. 93-533; 93d Congress, Ist Session;
H.R. 2

Mr. PERKINS, from the Committee on Education and
Labor, submitted the following

REPORT
together with

SUPPLEMENTAL, ADDITIONAL, AND INDIVIDUAL
VIEWS

(To accompany H.R. 2]

The Committee on Education and Labor, to whom was
referred the bill (H.R. 2) to revise the Welfare and Pension
Plans Disclosure Act, having considered the same, report
favorably thereon with an amendment and recommend
that the bill, as amended, do pass. The amendment substi-
tutes all after the enacting clause and inserts a substitute
text which appears in italic type in the reported bill.

I. SYNOPSIS

The Employee Benefit Security Act as reported by the
Committee is designed to remedy certain defects in the
private retirement system which limit the effectiveness of
the system in providing retirement income security. The
primary purpose of the bill is the protection of individual
pension rights, but the committee has been constrained to
recognize the voluntary nature of private retirement
plans. The relative improvements required by this Act
have been weighed against the additional burdens to be

App. 167

placed on the system. While modest cost increases are to
be anticipated when the Act becomes effective, the adverse
impact of these increases have been minimized. Addition-
ally, all of the provisions in the Act have been analysed on
the basis of their projected costs in relation to the antici-
pated benefit to the employee participant. In broad out-

line, the bill is designed to:

(1) establish equitable standards of plan administration;

(2) mandate minimum standards of plan design with
respect to the vesting of plan benefits;

(3) require minimum standards of fiscal responsibility by
requiring the amortization of unfunded liabilities;

(4) insure the vested portion of unfunded liabilities
against the risk of premature plan termination; and

(5) promote a renewed expansion of private retirement
plans and increase the number of participants receiving
private retirement benefits.

Provision is made for the imposition of criminal penalties
on those willfully violating their duties under the Act. The
Labor Department is given primary authority to adminis-
ter the provisions of the Act, but the Committee has placed
the principal focus of the enforcement effort on anticipated
civil litigation to be initiated by the Secretary of Labor as
well as participants and beneficiaries.

Il. BACKGROUND

The private pension system is a relatively modern eco-
nomic institution tracing’ its role as an important social
and economic factor only from the mid 1940’s. A variety of
converging financial and social trends in our society have

App. 168

created a favorable environment for the growth and
expansion of private deferred compensation schemes and
retirement programs in general. As our economy has
matured, an ever increasing number of employers have
recognized their responsibility for the physical and eco-
nomic welfare of their employees, even for the years
beyond retirement. Its development parallels and is a
response to the transition of the American life style from
its rural agrarian antecedents into its present urbanized,
wage earner society. The dynamic asset growth necessary
to meet its responsibilities has placed the private pension
system in a position to influence the level of savings, the
operation of our capital markets, and the relative financial
security of millions of consumers, three of the fundamental
elements of our national economic security.

The growth of the private pension movement in the United
States proceeded slowly until the years preceding World
War II. As the full implications of the economic changes
sweeping the nation were felt, American beliefs and
attitudes regarding retirement security changed. The
passage of the Railroad Retirement Act and the Social
Security Act marked the turning point in American think-
ing, and dissatisfaction with those early governmental
programs contributed to an accelerated interest in private
retirement plans. The wage freezes imposed during World
War II and the Korean conflict focused increased during
World War II and the Korean conflict focused increased
attention on the deferred component of compensation as a
means of avoiding the freeze restrictions.

In 1947 a series of administrative proceedings and court
decisions under the National Labor Relations Act of 1935
held that pensions were a form of remuneration for the

App. 169

purposes of that Act, and they accordingly became manda-
tory subjects of collective bargaining. (Inland Steel Com-
pany v. NLRB, 170 f.2d 247 (7th Cir. 1948), cert. denied,
336 U.S. 960 (1949)). In the same time period a Presiden-
tial fact finding commission in presenting its report on the
steel industry labor dispute in 1949 stated that:

We think all industry in the absence of adequate Govern-
ment programs, owes an obligation to workers to provide
for maintenance of the human body in the form of medical
and similar benefits and full depreciation in the form of
old age retirement — in the same way as it now does for
plant and machinery.

In 1940, an estimated four million employees were covered
by private pension plans; in 1950, the figure had increased
to almost 10 million and in 1960 over 21 million were
covered. Currently, over 30 million employees or almost
one half of the private non-farm work force are covered by
these plans. This phenomenal expansion of coverage has
been matched by an even more startling accumulation of
assets to back the benefit structure. Today, in excess of
$150 billion in assets are held in reserve to pay benefits
credited to private plan participants.

This rapid growth has constituted the basis for legislative
efforts at both the federal and state levels to assure
equitable and fair administration of all pension plans.

Various aspects of pension plans have been affected to
some degree by most of the major labor legislation of the
twentieth century, including the National Labor Relations
Act (1935), the Labor Management Relations Act (1947),
and the Labor Management Reporting and Disclosure Act
(1959). However, not until 1958, with the enactment of the
Welfare and Pension Plans Disclosure Act, was legislation

App. 170

effected which was specifically designed to exercise regula-
tory coritrols over pension and welfare funds. Based upon
disclosure of malfeasance and improper activities by
pension administrators, trustees, or fiduciaries, the Act
was amended in 1962 to designate certain acts of conduct
as federal crimes when they occurred in connection with
welfare and pension plans. The amendments also con-
ferred investigatory and various regulatory powers upon
the Secretary over pension and welfare funds. In the
decade since the amendments were enacted, experience
has shown that, despite intermittent enforcement of the
reporting requirements and the criminal provisions, the
protection accomplished by statute has not been sufficient
to accomplish Congressional intent.

THE EXISTING LAW

The growth and development of the private pension
system in the past two decades has been substantial. Yet,
regulation of the private system’s scope and operation has
been minimal and its effectiveness a matter of debate. The
assets of private plans, estimated to be in excess of $150
billion, constitute the only large private accumulation of
funds which have escaped the imprimatur of effective
federal regulation.

At the federal level, there are essentially three federal
statutes which, although accomplishing different purposes
and vested within different federal departments for enforce-
ment, are all compatible in their regulatory responsibilities.
These are the Welfare and Pension Plans Disclosure Act (29
U.S.C. Sec. 301 et. seq.), the Labor Management Relations
Act (29 U.S.C. Sec. 141, et. seq.) and the Internal Revenue
Code I.R.C. of 1954, Secs. 401-404, 501-503).

App. 171

A complete description of the federal regulation affecting
the administration of private plans can be found in In-
terim Report of The Private Welfare and Pension Plan
Study, 1971, Senate Report No. 92-634 of the 92d Congress
2d Session.

After a comprehensive investigation of abuses in the
administration and investment of private fund assets,
Congress adopted the Welfare and Pension Plan Disclo-
sure Act in 1958. The policy underlying enactment of this
Act was purportedly to protect the interest of welfare and
pension plan participants and beneficiaries through
disclosure of information with respect to such plans. The
essential requirement of information with respect to such
plans. The eseential requirement of the Act was that the
plan administrator compile, file with the Secretary of
Labor, and send to participants and their beneficiaries
upon written request, a description and annual report of
the plan. It was expected that the knowledge thus dis-
seminated would enable participants to police their plans.
The Act was amended in 1962 to make theft, embezzle-
ment, bribery, and kickbacks federal crimes if they occur
in connection with welfare and pension plans. The 1962
amendments also conferred limited investigatory and
regulatory powers upon the Secretary of Labor, and
required bonding of plan officials.

Experience in the decade since the passage of the above
amendments has demonstrated the inadequacy of the
Welfare and Pension Plans Disclosure Act in regulating
the private pension system for the purpose of protecting
rights and benefits due to workers. It is weak in its limited
disclosure requirements and wholly lacking in substantive
fiduciary standards. Its chief procedura] weakness can be

App. 172

found in its reliance upon the initiative of the individual
employee to police the management of his plan.

The Labor Management- Relations Act, Sec. 302, provides
the fundamental guidelines for the establishment and
operation of pension funds administered jointly by an
employer and a union. The Act is not intended to establish
nor- does it provide st. dards for the preservation of
vested benefits, funding adequacy, security of investment,
or fiduciary conduct.

~ Tax deduction benefits accruing to employers are pre-
scribed by the Internal Revenue Code under which the
employer is granted a deduction within certain limits for
contributions made to a qualified plan, and the investment
earnings on such plans are made tax-exempt. To attain
“qualified status” under the Code, the plan must be (1) for
the exclusive benefit of the participants; (2) for the pur-
pose of distributing the corpus or income to the partici-
pants; (3) established in such a manner to make it
impossible for the employer to use or divert funds before
satisfying the plan’s liabilities; and (4) not discriminate in
favor of officers, stockholders, or highly-compensated or
supervisory employees.

The Internal Revenue Code provides only limited safe-
guards for the security of anticipated benefit rights in
private plans since its primary functions are designed to
produce revenue and to prevent evasion of tax obligations.
The essence of enforcement under the Code lies in the
power of the Internai Revenue Service to grant or disallow
qualified status to a pension plan, thus determining the
availability of statutory tax advantages. The Internal
Revenue Service jurisdiction and enforcement capabilities
are solely to allow various tax advantages to accrue to

App. 173

employers who establish and maintain pension plans
which can qualify for such tax benefit privileges.

In the absence of adequate federal standards, the partici-
pant is left to rely on the traditional equitable remedies of
the common taw-—of trusts. A few states, including New
York, Washington, Wisconsin, Massachusetts, and Califor-
nia have codified existing trust principles and enacted
legislation which requires in many instances a degree of
disclosure similar to that required by federal statute.

The fact that statutory rules exist says little as to their
efficacy in adjusting inequities that are visited upon plan
participants, as evidenced by the hearings before this
Committee. In almost every instance, participants lose
their benefits not because of some violation of federal law,
but rather because of the manner in which the plan is
executed with respect to its contractual requirements of
vesting or funding. Courts strictly interpret the -plan
indenture and are reluctant to apply concepts of equitable
relief or to disregard technical document wording. Thus,
under present law, accumulated pension credits can be lost
even when separated employees are within a few months,
or even days, of qualifying for retirement.

The proposed bill would, therefore, establish minimum
standards of vesting, funding, and fiduciary and a system
of compulsory benefit insurance to protect the security of
pension rights.

As suggested by the President’s Cabinet Committee Report
of 1965; “As a matter of equity and fair treatment an
employee covered by a pension plan is entitled, after a
reasonable period of service, to protection of his future
retirement benefit against any termination of his employ-
ment.” Concern for loss of benefits by workers after long

App. 174

years of labor through circumstances beyond their control
was similarly expressed by President Richard M. Nixon on
December 8, 1971, when, in a message to the Congress he
said, “When a pension plan is terminated, an employee
participating in it can lose all or a part of the benefits
which he has long been relying on, even if his plan is fully
vested ... even one worker whose retirement security is
destroyed by the termination of a plan is one too many.”

III. MAJOR ISSUES

Although the need for legislative reform has been and
continues to be widely acknowledged among all persons
and sectors affected, federal mandation of essential im-
provements has been resisted due to the belief that such
legislation might impede plan growth. However, the
Committee's inquiries have revealed that the costs associ-
ated with the vesting and funding proposals in the Act are
sufficiently modest as not to constitute a major impedi-
ment to plan growth. Additionally, any added cost attrib-
utable to the imposition of vesting and funding standards
will innure directly to the benefit of the participants in
each plan in the form of increased availability of benefits
and added security.

The principal issues affecting the vital and basic needs for
legislation involve consideration of the essential elements
of pensions:

A. VESTING

One of the major private pension plan considerations
centers around the concept of vesting. Vesting refers to the
nonforfeitable right of interest which an employee partici-
pant acquires in the pension fund. The benefit credits may

App. 175

vest in the employee immediately, although in most cases
participants do not become eligible for vesting of benefits
until a stipulated age or period of service, or a combination
of both, is attained.

Upon compliance with the basic requirements of age or
service, many plans will grant their participants vested
rights to those benefits earned to that time. However,
should employment terminate prior to such time, the
employee will receive no benefits. Some pension plans,
however, specify “graded” vesting formulas, whereby only
a defined percentage of the accrued benefits earned will
vest upon fulfillment of minimum requirements, and such
percentage may increase periodically, as the employee
continues in his employment and completes additional
service.

Despite the recognized and acknowledged need for pension
plans to provide for vesting of earned benefits, if pension
promises are to be meaningful to workers, there is need for
federal statutory requirements which will compel an-
employer to grant such vesting benefits. The difficulties
and hardships resulting from non-existent or inadequate
plan provisions for vesting of benefits have been vividly
established by the Committee’s studies and hearings.

It is noteworthy that in 1965, the President’s Commission
on Public Policy and Private Pensions, while acknowledg-
ing that there had been some improvement in private
plans by increased adoption of vesting provisions, nonethe-
less found and recommended legislation to make minimum
vesting provisions mandatory. That Commission concluded
that “... the degree of retirement protection in private
pension plans varies widely and in many cases remains
quite inadequate.” (President’s Committee on Corporate

App. 176

Pension Funds and other Private Retirement and Welfare
Programs, Public Policy and Private Pension Programs: A
Report to the President on Private Employee Retirement
Plans, January, 1965, p. 39).

The vesting concept recommended by the Cabinet Com-
mittee suggested preference for deferred graded vesting. It
specifically favored a vesting formula under which 50
percent of an accrued pension would be vested in a plan
participant upon completion of 15 years of service, with
rights to full vesting of accrued pension credits to occur
after 20 years of service. In general, although there has
been some discernible progress to permit early vesting of
benefits to employees, some employers incline to defer
such vesting until the employee reaches a normal or early
retirement eligibility formula. This is essentially based
upon the belief that it will discourage and deter such
employee from leaving the job before reaching retirement
age.

Despite claims by opponents that progress made in pen-
sion plan provisions to provide vesting manifest movement
toward an eventual voluntary vesting system, plans
involving substantial numbers of workers. which contain
no vesting are still not uncommon. Opponents of manda-
tory vesting believe that compulsory vesting provisions
will discourage development of new plans and impede
flexibility and latitude in formulating employee benefits
because of excessive costs that are certain to resuit.
However, in the face of Committee findings relative to
projected costs to plans for imposed vesting, indications
are that the resistance of opponents to universal vesting is
essentially structured upon extreme reluctance to submit
to governmental regulatory measures co

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0051%3A2. Public record. Not legal advice.