Petition for Writ of Certiorari — Wal-Mart Stores, Inc. v. Wells

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(D FILED

00-386 SEP 1 22000

No.00- fire». ieee

IN THE

Supreme Court of the Gnited States

WAL-MART STORES, INCORPORATED ASSOCIATES’ HEALTH

AND WELFARE PLAN; AND ADMINISTRATIVE COMMITTEE,

ADMINISTRATOR OF THE PLAN,

Petitioners,

DENISE WELLS,

Respondent.

On Writ of Certiorari to the United States Court

of Appeals for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

PHIL PESEK CARTER G. PHILLIPS*

RANAE BARTLETT VIRGINIA A. SEITZ

WAL-MART LEGAL TEAM TIMOTHY D. HAWKES

922 W. Walnut, Suite C SIDLEY & AUSTIN

Rogers, AR 72756 1722 Eye Street N.W.

(501) 621-2055 Washington D.C. 20006

(202) 736-8000

THOMAS H. LAWRENCE

HALE, HEADRICK, DEWEY,

WOLF, GOLDEN, THORTON &

CHANCE, PLLC

1727 Kirby Parkway, Suite 150

Memphis, TN 38120

(901) 888-4006

Counsel for Petitioner

September 12, 2000 * Counsel of Record

ML TTS. ARTE. RKC SETS

Wilson-Epes Printing Co., Inc. — (202) 789-0096 - Washington, D. C. 20001

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QUESTION PRESENTED

Whether federal common law — here, the common fund

doctrine — overrides the clear language of an ERISA plan

provision requiring a participant to reimburse the plan for all

medical benefits paid if he or she recovers those benefits from

a third party unless the plan expressly states that the common

law doctrine does not apply.

(i)

All parties to the proceeding are listed in the caption of the

case. Wal-Mart Stores, Inc. does not have a parent company;

nor does any publicly held company own 10% or more of

Wal-Mart’s stock. Wal-Mart currently owns more than 60%

of Wal-Mart de Mexico, S.A. de C.V., a separateiy traded

stock on BOLSA, the Mexican stock exchange. See Sup. Ct.

R. 29.6.

PARTIES TO THE PROCEEDING

_—

TABLE OF CONTENTS

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REASONS FOR GRANTING THE PETITION ...........

II.

III.

THE SEVENTH CIRCUIT’S DECISION CRE-

ATES A CONFLICT AMONG THE COURTS

I ret Aiiaek eo Gandia cba dn end ines ans

THE QUESTION WHETHER COMMON LAW

DOCTRINES OVERRIDE CLEAR PROVIS-

IONS OF AN ERISA PLAN IS IMPORTANT

THE SEVENTH CIRCUIT ERRED WHEN IT

USED COMMON LAW PRINCIPLES TO

OVERRIDE THE EXPRESS TERMS OF AN

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(iii)

TABLE OF AUTHORITIES

CASES Page

Alessi v. Raybestos-Manhattan, Inc., 451 US.

I I so cank cs ceuventcdarindcayanstotnsuncnneeidaeacs 9,19

Barnes v. Independent Auto. Dealers Ass'n, 64

FO LIP Oe Gl. PI iv ikiicitecisracecn 13

Bollman Hat Co. v. Root, 112 F.3d 113 (3rd Cir.

| ER Te OR RUN CRM et ns os Done ae 8, 11

Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997)... 13

Collins v. American Cast Iron Pipe Co., 105 F.3d

RE UNE, HTD sisi siovccksnschiscisesceudataaecas 18

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S.

ids PROC IS oeR ERM Siem See Me Fa 4,9, 18

FMC Corp. v. Holliday, 498 U.S. 52 (1990)......... 16

Firestone Tire & Rubber Co. v. Bruch, 489 US.

Pe cases, oaccaasiacn Vecaageenenten aan! 14

Fort Halifax Packing Co. v. Coyne, 482 US. 1

2: BIRRRree ea pa airy Porat SURDOR SMart A 4,8, 16, 17, 18

Health Cost Controls v. Isbell, 139 F.3d 1070

Ae. : MRR em Ree Seeman eral ye 11, 13

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

by RRR ON MMe Sn EMR mong Rit VICEA Ine 3, 16, 17, 18

Lockheed Corp. v. Spink, 517 U.S. 882 (1996)...... 9

Marshall v. Employer Health Ins. Co., Nos. 96-

6063, 96-6112, 1997 WL 809997 (6th Cir. Dec.

FE TI sinsceonhusviecsd tetas rea unennars 1}

~ Metropolitan Life Ins. Co. v. Massachusetts, 471

BE: WON UM iscce ihicacanieiamebinas ated 8

Pilot Life Ins. Co. v. Dedeaux, 481 US. 41

EE viiiintinescatignet sce aakmeraaee eae ae 9

Provident Life & Accident Ins. Co. v. Waller, 906

Fe ee Ce, FIN ois simatic 18

Ryan v. Federal Express Corp., 78 F.3d 123 (3rd

Sos: I ciara: a class Pedsesinhcccvinisesatunsaacaeneanei oats 1]

Shaw v. Delta Airlines, Inc., 463 US. 85

4g: | PRO URE et pe IRN SREP ENS lui ire rnun 18

TABLE OF AUTHORITIES - continued

Page

Singer v. Black & Decker Corp., 964 F.2d 1449

eRe. SBR ARRl apes naim creer free ter eon ie 19

Trujillo v. Cyprus Amax Minerals Ret. Plan

Comm. , 203 F.3d 733 (10th Cir. 2000) .............. 10

United McGill Corp. v. Stinnet, 154 F.3d 168 (4th

eS SARRRREIESARRG Hees Sine ole ite en ayer RT ee 8, 11, 13

Wal-Mart Stores, Inc. Assocs.’ Health and

Welfare Plan v. Scott, 27 F. Supp. 2d 1166

4 BR A WADE rater eem cee ene eerie ke 15

Walker v. Wal-Mart Stores, Inc., 159 F.3d 938

Ie I isos oor in es corks daw en tases 6, 8, 11, 15

Waller v. Hormel Foods Corp., 120 F.3d 138 (8th

A _ : RSS Ra RN pop pneernse “sears e teoary 14

Ward v. Wal-Mart Stores, Inc. Assocs.’ Health

and Welfare Plan, Nos. 98-1285, 98-1346,

1999 WL 801532 (6th Cir. Sept. 30, 1999)...11, 13, 15

STATUTES

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OTHER AUTHORITY

1 Dan B. Dobbs, Dobbs on the Law of Remedies

Ds SI oo leis vases tiers selenide 3

IN THE

Supreme Court of the Gited States

No. 00-

WAL-MART STORES, INCORPORATED ASSOCIATES’ HEALTH

AND WELFARE PLAN; AND ADMINISTRATIVE COMMITTEE,

ADMINISTRATOR OFTHE PLAN q

Petitioners,

DENISE WELLS,

Respondent.

On Writ of Certiorari to the United States Court

of Appeals for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

Petitioners, Wal-Mart Stores, Inc. Associates’ Health and

Welfare Plan (the “Plan”) and the Administrative Committee

of the Plan, respectfully petition for a writ of certiorari to

review the judgment of the United States Court of Appeals for

the Seventh Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. la-9a) was

entered on May 17, 2000, and is reported at 213 F.3d 398 (7th

Cir. 2000). The order denying the petition for rehearing and

rehearing en banc (App. 25a) was entered on June 14, 2000,

and is not reported. The opinion of the United States District

Court for the Northern District of Indiana (App. 10a-24a) was

entered on March 26, 1999, and is not reported.

JURISDICTION

The court of appeals entered its decision and judgment on

May 17, 2000. Petitioners timely filed a petition for rehearing

and a suggestion for rehearing en banc on May 31, 2000, and

rehearing was denied on June 14, 2000. This Court has

jurisdiction pursuant to 28 U.S.C. § 1254(1).

STATUTE INVOLVED

The statute involved in this case is the Employee

Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001

et seq. Petitioners invoked section 502(a)(3), 29 U.S-C.

§ 1132(a)(3), to enforce the terms of an ERISA plan:

(a) Persons empowered to bring a civil action

A civil action may may be brought —

(3) by a participant, beneficiary, or fiduciary (A) to

enjoin any act or practice which violates any provision

of this subchapter 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

subchapter or the terms of the plan... .

INTRODUCTION

In this case, the court of appeals held that federal common

law — here, the common fund doctrine — overrides an ERISA

plan provision requiring a participant to reimburse the plan

for all medical benefits paid if he or she recovers those bene-

fits from a third party. Applying the common fund doctrine,

the court allowed the participant to deduct from the required

ono

amount of reimbursement a portion of the attorneys’ fees

incurred in her action against the third party.

This decision conflicts with decisions of the courts of

appeals for the Third, Fourth, Fifth, Sixth and Tenth Circuits,

holding that similar or identical plan language must be

enforced as written and therefore requiring participants who

recover benefits from third parties to reimburse their plans in

full without any reduction for attorneys’ fees. In this case, as

the court of appeals explained, “[t]he plan documents entitle

the plan to reimbursement of 100 percent of any benefits paid

to a participant to the extent of ‘any payment .. . by any

person or persons considered responsible for the condition

giving rise to the medical expense or by their insurers.”

App. 2a. Despite this clear language, the court of appeals

refused “[t]o read the Wal-Mart plan literally” and applied the

common fund doctrine to reduce the Plan’s right to reim-

bursement by a proportionate amount of attorneys’ fees. The

other courts of appeals cited above would have applied this

language as written and ordered full reimbursement of the

Plan; indeed, two of these courts have done so in cases

involving the Wal-Mart Plan.

The resolution of this conflict among the courts of appeals

is critically important for the fair, just and effective

administration of ERISA plans. This Court has often recog-

nized that the uniform interpretation of ERISA is vital to the

achievement of its purposes. See, e.g., Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 142 (1990) (explaining that

ERISA’s preemption provision is “intended to ensure that

plans and plan sponsors would be subject to a uniform body

of benefits law . . . to minimize the administrative and

financial burden of complying with conflicting directives

' Where a lawyer hired by one party creates a fund in which others are

entitled to share, those other beneficiaries may be required to pay some

attorneys’ fees under the common fund doctrine. See 1 Dan B. Dobbs,

Dobbs on the Law of Remedies § 3.10(2) (2d ed. 1993).

among States or between States and the Federal Govern-

ment”). That concern is particularly apropos where, as here, a

national employer is attempting to administer an ERISA plan

whose provisions now have one meaning and effect for its

employees in some states and regions and a different meaning

and effect for employees in others. Such an outcome is

fundamentally unfair to a plan’s participants and bene-

ficiaries. The conflict by itself creates sign'ficant uncertainty

and administrative burdens for employers. The holding,

which would require plan sponsors to foreclose by name all

common law doctrines they did not wish to apply, exacerbates

these harms. These consequences might well have a negative

effect on the substantive benefits provided by ERISA plans.

See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 10 (1987)

(“[t]he employer therefore was required to accommodate

conflicting regulatory schemes in devising and operating a

system for processing claims and paying benefits — precisely

the burden that ERISA pre-emption was intended to avoid”);

id. (“[s]uch a situation would produce considerable ineffici-

encies, which the employer might choose to offset by lower-

ing benefit levels”).

This question is not only important, it is also recurring, as

the substantial number of cases addressing the issue demon-

strates. Many, if not most, ERISA plans contain reimburse-

ment provisions. The question whether these provisions

should be enforced as written or whether common law

doctrines, such as the common fund doctrine, are presumed to

have continuing application and to override a _plan’s

reimbursement requirement will arise continuously until this

Court resolves the conflict among the courts of appeals.

Finally, the decision below is wrong. Under ERISA, emp-

loyers are not required to provide any particular benefits, and

no provision of ERISA establishes substantive requirements

for welfare plans, such as the one at issue. See Curtiss-

Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995).

ERISA protects only those benefits provided in the plan; and,

‘in interpreting a plan, federal courts are to resort to federal

common law only where necessary to fill in gaps in the plan

or otherwise effectuate ERISA’s statutory scheme. Where, as

here, an ERISA plan provides for full reimbursement, there is

neither a gap to fill nor a legitimate ERISA purpose served by

the application of the common fund doctrine specifically or

federal common law generally. To the contrary, fulfillment

of ERISA’s purposes requires enforcement of ERISA plans as

written.

This Court should grant certiorari to resolve the conflict

among the courts of appeals on this important and recurring

question of federal law that was wrongly decided by the court

below.

STATEMENT OF THE CASE

1. Wal-Mart Stores, Inc. has established an ERISA weifare

plan for its employees: the Wal-Mart Stores, Inc. Associates’ '

Health and Welfare Plan (the “Plan”). Petitioner Adminis-

trative Committee (the “Committee”) oversees and administ-

ers the Plan. Respondent Denise Wells is a Wal-Mart em-

ployee and Plan participant. The Plan provides that:

[t]he PLAN shall have the right to reduce benefits other-

wise payable by the PLAN or recover benefits previous-

ly paid by the PLAN to the extent of . . . [aJny payment

resulting from a judgment or settlement, or other pay-

ment or payments, made or to be made by any person or

persons considered responsible for the condition giving

rise to the medical expense or by their insurers... .

[App. 28a. ]

2. In 1993, Wells was injured in an automobile accident.

The Plan paid $10,982.61 in medical benefits on her behalf.

Subsequently, in a civil suit, Wells obtained a $75,000 settle-

ment from the insurer of the driver of the other car involved

in the accident. Wells requested that the Committee reduce

the Plan’s reimbursement by a pro rata portion of her attor-

neys’ fees. The Committee considered Wells’ request, but

ultimately decided that the Plan required full reimbursement

without reduction for attorneys’ fees. Nevertheless, Wells

refused to reimburse the Plan.”

3. The Plan and its Administrative Committee brought suit

in the United States District Court for the Northern District of

Indiana, seeking reimbursement and an injunction prohibiting

Wells from violating the terms of the Plan by instructing or

permitting her lawyer to withhold the $10,982.61 check. The

district court granted the plaintiffs’ motion for summary

judgment and held that the Committee acted within its

discretion when it determined that the Plan was entitled to full

reimbursement. App. 23a-24a.

Wells invoked two common law doctrines to support her

argument that she should be allowed to reduce the amount

reimbursed to the Plan by a pro rata share of her attorneys’

fees: the “make-whole” doctrine (an insurance doctrine that

operates to deny the enforcement of subrogation rights until

the injured party has been fully compensated for all losses)

and the “common fund” doctrine (which permits a party that

increases the value of a fund in which others have an interest

to recover from the others a reasonable proportion of the

litigation expenses). After an exhaustive discussion of Sev-

enth Circuit precedent and an examination of the specific lan-

guage of the Plan, the district court held that “federal com-

mon law [did] not apply,” and that the Administrative Com-

mittee’s decision to decline Wells’ request for a pro rata

reduction “was not arbitrary and capricious.” App. 17a-23a.

Accordingly, Wells was required to reimburse the Plan in full.

In so doing, the District Court also found it significant that

in Walker v. Wal-Mart Stores, Inc., 159 F.3d 938, 939 (Sth

? Wells’ attorney currently has a check for $10,982.61, payable to the

attorney, Wells, her husband (who was also involved in the accident), and

“Wal-Mart as subrogee of Denise Wells.” App. 2a. The attorney has re-

fused to endorse the check over to the Plan.

Cir. 1998), the Fifth Circuit had addressed the precise Plan

provisions at issue and concluded that the Plan language

requiring full reimbursement was unambiguous, and that the

Administrative Committee’s interpretation of that language

was entitled to deferential arbitrary and capricious review.

App. 20a. :

4. The Seventh Circuit reversed. The court held that, even

though “the plan documents entitle the plan to reimbursement

of 100 percent of any benefits paid to the participant” as the

result of a favorable settlement or judgment, Wells was

entitled to deduct a pro rata portion of her attorneys’ fees

from the amount she was required to reimburse the Plan.

App. 2a, 4a-7a.

The court repeatedly acknowledged that the provision on its

face required full reimbursement. See App. 2a (“[t]he plan

documents entitle the plan to reimbursement of 100 percent of

any benefits paid to a participant”); id. at 4a (“[t]he language

from the plan document . . . seems clear, and clearly to favor

the plan’s claim”); id. at Sa (recognizing that the Plan requires

the result sought by the Committee if it is read “literally’).

Nevertheless, the court reasoned that “a background of

common-sense understandings and legal principles . . . oper-

ate as default rules to govern in the absence of a clear expres-

sion of the parties’ intent that they not govern.” /d. Because

the Plan did not “expressly repudiate common-fund princi-

ples” or otherwise specifically address the issue of shared

attorneys’ fees, the court would “interpolate those principles

to avoid wreaking unintended consequences.” /d. at 6a.

In electing to create a default rule incorporating common

fund principles, the court emphasized policy considerations:

“ft]o read the Wal-Mart plan literally would allow the plan to

free ride on the efforts of the plan participant’s attorney,

contrary to the equitable concept of ‘common fund’... . It

would also gratuitously deter the exercise of the tort rights of

plan participants.” App. 5a. The court also observed that in

theory the Plan’s interpretation of the reimbursement

provision could leave a Plan participant “worse off’ than if

she had not sued, in the event that the recovery from a third

party was less than the amount of benefits paid out by the

fund. /d. at Sa-6a.

The court sought to distinguish two “superficially” con-

flicting cases, United McGill Corp. v. Stinnet, 154 F.3d 168,

172-73 (4th Cir. 1998), and Bollman Hat Co. v. Root, 112

F.3d 113, 116-18 (3rd Cir. 1997). It stated that while those

cases “refuse to invalidate a plan provision interpreted to bar

the application of common-fund principles; we pose the issue

as one not of validity but of sound application of principles of

contract interpretation.” App. 6a. The court recognized that

another case, Walker v. Wal-Mart Stores, Inc., 159 F.3d 938

(Sth Cir. 1998), was “[m]Jore problematic,” (App. 6a), though

distinguishable because it “upheld a literal reading of

identical language — but did so as a matter of deference to the

interpretation by the plan’s administrator.” Jd The court

found that the Plan language here did not confer discretion

upon the Plan administrator. /d. at 7a.”

REASONS FOR GRANTING THE PETITION

ERISA “comprehensively regulates employee pension and

welfare plans.” Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724, 732 (1985). Indeed, ERISA broadly preempts

state regulation of ERISA plans so that ERISA plans are

subject only to a unified federal regime. Fort Halifax, 482

U.S. at 9. However, “[nJothing in ERISA requires employers

to establish employee benefit plans .. . [nJor does ERISA

mandate what kind of benefit employers must provide if they

> The court further concluded that a 1996 amendment to the Plan that

specified that the Plan would not pay any part of a participant’s attorneys’

fees did not apply in Wells’ case because she had received her benefits

well before the date of the amendment. App. 6a. Petitioners do not seek

review of the court of appeals’ decision that the 1996 plan amendment is

not retroactive.

choose to have such a plan.” Lockheed Corp. v. Spink, 517

U.S. 882, 887 (1996). See also Curtiss-Wright Corp., 514

U.S. at 78.* The questions whether benefits will be provided

and, if so, what kind of benefits they will be, are left to “the

private parties creating the plan.” Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 511 (1981). Where there are

gaps in the comprehensive statutory scheme created by

ERISA, Congress expected that “a federal common law of

rights and obligations under ERISA-regulated plans would

develop” to fill those gaps. Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41, 56 (1987).

In this case, the court of appeals held that despite its “clear”

and “literal[]” language, the Plan’s literal meaning was

overcome by “a background of common-sense understandings

and legal principles” — here, the federal common law doctrine

of the common fund - and thus limited the Plan’s right of

reimbursement by application of the common fund doctrine.

App. 5a. There is, however, no gap for federal common law

to fill where, as here, the ianguage of an ERISA plan is

unambiguous.

The court of appeals’ decision exacerbates an already wide

conflict among the courts of appeals concerning when

common law doctrines, such as the common fund doctrine,

apply to ERISA plans. The conflict, by itself, undermines

ERISA’s overriding purposes of ensuring uniformity and

providing plan sponsors and participants with clear rules. The

holding also contravenes ERISA’s requirement that private

parties are to decide the nature and scope of the benefits

provided by an ERISA plan, creating damaging uncertainty in

the interpretation and administration of ERISA plans. We

turn to an elaboration of these points.

* Instead of creating substantive rules for welfare plans, ERISA seeks

to ensure that “employees will not be left empty-handed once employers

have guaranteed them certain benefits.” Lockheed Corp., 517 U.S. at 887.

I. THE SEVENTH CIRCUIT’S DECISION CREATES

A CONFLICT AMONG THE COURTS OF

APPEALS.

A. The Seventh Circuit’s decision in this case conflicts

with the decisions of other courts of appeals which hold that

the same or strikingly similar plan language requiring

reimbursement of benefits means what it says and must be

enforced accordingly. The Seventh Circuit correctly found

that the Plan language — “[t]he Plan shall have the right to . .

recover benefits previously paid by the PLAN to the extent of

_[a]ny payment resulting from a judgment or settlement, or

other payment or payments, made or to be made by any

person or persons considered responsible for the condition

giving rise to the medical expense or by their insurers,” App

28a — was clear. Indeed, it observed, infer alia, that the

reimbursement provision by its terms “entitle[s] the plan to

reimbursement of 100 percent.” /d. at 2a. See also id. at 4a,

Sa (quoted supra at 7). Despite this language, the court held

that the common fund doctrine, a federal common law princi-

ple, applied and that it precluded the Plan from obtaining full

reimbursement and required the Plan to a¢écept a pro rata re-

duction for attorneys’ fees. In the court’s view, the common

fund doctrine applied because the Plan language, although

clear, did not explicitly “repudiate common-fund principles.”

Id. at 6a.

This holding stands in direct conflict with decisions of the

Third, Fourth, Fifth, Sixth, and Tenth Circuits, holding that

identical or similar plan provisions that require reimburse-

ment of the amount of benefits paid must be enforced as

written. Compare App. 6a with 7rujillo v. Cyprus Amax Min-

erals Ret. Plan Comm., 203 F.3d 733, 736 (10th Cir. 2000)

(reducing disability retirement benefits to a plan participant

without regard to attorneys’ fees expended by the participant

in obtaining worker’s compensation benefits where the plan

provided that “[t]he Disability Retirement Benefits payable to

any Member shall be reduced by the amount of any worker’s

compensation benefits . . . payable to him with respect to his

disability”); Walker, 159 F.3d at 940 (construing the exact

plan language at issue in the instant case to require reim-

bursement of “100% recovery (all) of the funds received by

the plaintiff in the settlement, up to the full amount of the

benefits paid” and not allowing any reduction for attorneys’

fees); United McGill, 154 F.3d at 170, 173 (allowing no

reduction of reimbursement for attorneys’ fees where the plan

required a refund to the plan of “‘the amount of benefits . . .

paid’”) (emphasis in original omitted); Bollman Hat Co. v.

Root, 112 F.3d 113, 114 (3rd Cir. 1997) (allowing no

reduction where the plan provided subrogation “to the extent

of such payment” and required the plan participant to agree

“to reimburse the Plan for any [benefit] payments made . . .

out of any monies recovered” from a third party); Health Cost

Controls v. Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997)

(enforcing as written the terms of a provision characterized by

the court as expressly requiring “full reimbursement of the

Plan for medical benefits when the beneficiary recovers

sufficient damages from a third party tortfeasor”); Ryan v.

Federal Express Corp., 78 F.3d 123, 124 (3rd Cir. 1996)

(allowing no reduction where the plan provided a right “to be

reimbursed by the Covered Participant . . . 100% of the

amount of covered benefits paid’), Ward v. Wal-Mart Stores,

Inc. Assocs.’ Health and Welfare Plan, Nos. 98-1285, 98-

1346, 1999 WL 801532, at *4 (6th Cir. Sept. 30, 1999)

(unpublished opinion) (construing the exact plan language at

issue in this case to require “full reimbursement . . . without a

deduction for attorneys’ fees expended to obtain a settle-

ment”); Marshall v. Employer Health Ins. Co., Nos. 96-6063,

96-6112, 1997 WL 809997 (6th Cir. Dec. 30, 1997) (per

curiam) (unpublished opinion). In each of these cases, the

court considered the same policy arguments and common law

principles relied on by the Seventh Circuit here; concluded

that, under ERISA, it was required to apply the language of

the plan; and refused to reduce the reimbursement due the

plan by a percentage of the litigation expenses incurred by the

plan participant.

The Seventh Circuit did not discuss most of these

conflicting cases, but attempted unsuccessfully to distinguish

two of them as follows. The court claimed that United

McGill and Bollman Hat were only “superficially in conflict”

with this case, because those courts “refuse[d] to invalidate a

plan provision interpreted to bar the application of common-

fund principles,” while the issue in the instant case was “one

not of validity but of sound application of principles of

contract law.” App. 6a. Expressed more plainly, the court of

appeals said that the other courts accepted the clear language

of the plan provisions requiring reimbursement, but that it

chose to look beyond the clear language of the Plan at issue

here and interpret the Plan in light of the common law,

specifically the common fund doctrine. This does not disting-

uish these cases from the instant case, but rather confirms the

existence of a conflict: a plan provision is either enforceable

according to its terms, or it is not. The other courts of appeals

cited above applied the clear language of the plan provisions

at issue, while the court of appeals here recognized that the

Plan language had a clear meaning, see supra at 7, and none-

theless refused to accept that literal meaning and instead

imported common law principles. Far from distinguishing the

cited cases, the court of appeals has merely begged the

question that now divides the Circuits.

Put differently, the Seventh Circuit’s central premise is that

common law principles “operate as default rules” that will

trump conflicting plan language unless expressly excluded.

App. 5a. Under that reasoning, common fund principles

negate plan language that requires “100 percent” reimburse-

ment, id. at 2a, because the Plan does not “expressly repudi-

ate” those principles. /d. at 6a. This approach cannot be

reconciled with the decisions from other circuits that have

addressed identical or indistinguishable plan language and

reached the opposite conclusion. The “default” rule in these

cases is that the clear language of the plan provisions governs.

For example, in Ward, the Sixth Circuit considered the

precise language at issue here and concluded that “when a

plan is clear and unambiguous, we cannot apply a common-

law rule of interpretation but, inste[a]Jd must give the plain

language of the plan its natural meaning.” 1999 WL 801532,

at *4. Accord Walker, 159 F.3d at 940 (“{t]he Plan’s

unambiguous language does not include a provision for

reduction of its subrogation lien for payment of attorneys’

fees or costs”); United McGill, 154 F.3d at 173 (“[w]here, as

here, the language of the plan does not qualify the right to

reimbursement by reference to the cost associated with

recovery, we are bound to enforce the contractual provisions

as drafted”); /sbell, 139 F.3d at 1072 (“[a] primary purpose of

ERISA is to ensure the integrity and primacy of written plans.

Thus, the plain language of an ERISA plan should be given

its literal and natural meaning”) (citations omitted).

While the court of appeals’ decision conflicts with those of

the Third, Fourth, Fifth, Sixth, and Tenth Circuits, the

Seventh Circuit is not entirely alone. The Ninth and Eleventh

Circuits — when faced with similar conflicts between the

language of an ERISA plan provision and a principle of

common law — appear to have taken the position that common

law principles govern unless they are explicitly disclaimed.

Specifically, where the question is whether the federal

common law doctrine denominated the “make-whole” doc-

trine overrides plan provisions requiring full reimbursement,

two courts of appeals have held that the make-whole doctrine

applies unless the plan expressly states that it does not. See

Cagle v. Bruner, 112 F.3d 1510, 1521 (11th Cir. 1997)

(adopting the make-whole rule as a “default” rule in spite of a

subrogation provision that gives an ERISA fund “the right to

be reimbursed” for “the amount of medical expense paid by

the Fund”); Barnes v. Independent Auto. Dealers Ass'n, 64

F.3d 1389, 1393 (9th Cir. 1995) (adopting the make-whole

rule in the absence of an express disavowal despite a plan

provision subrogating the plan “fo all rights of recovery to the

extent of its payment’).> Cagle and Barnes, like Wells and in

conflict with the cases cited supra at 10-11, hold that a com-

mon law doctrine may be applied to override the clear langu-

age of an ERISA plan unless the plan states expressly that the

doctrine does not apply. These rulings merely reinforce the

profound need to decide how to interpret ERISA plans in light

of common law doctrines not in accord with the language of

the plan.

B. In addition to the conflict just described, there is also a

conflict among the courts of appeals on the question whether

the arbitrary and capricious standard of review applies to the

Wal-Mart Plan’s interpretation of its reimbursement clause.

The Plan administrator determined that the language of the

Plan did not permit anything less than full reimbursement,

and it is well established that this interpretation of the Plan is

entitled to deference so long as the Plan gives “the admin-

istrator or fiduciary discretionary authority to determine elig-

ibility for benefits or to construe the terms of the plan.” Fire-

stone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)

(emphasis added). In fact, the Plan gives its administrator the

broadest possible discretion:

The PLAN herein expressly gives the ADMINIST-

RATIVE COMMITTEE discretionary authority to re-

solve all questions concerning the administration, inter-

pretation or application of the PLAN, including, without

Similarly, in Waller vy. Hormel Foods Corp., 120 F.3d 138 (8th Cir.

1997), the Eighth Circuit considered a subrogation provision that the court

understood to allow the plan to recover “up to the amount of medical

benefits the Plan has paid.” /d. at 140. Because the plan did not

specifically address the amount that the plan could recover or the question

of attorneys’ fees, the court refused to require the participant fully to

reimburse the plan and instead applied the common fund doctrine and

reduced the plan’s recovery by the amount of a reasonable attorneys’ fee.

See id. at 141 (‘the Plan’s subrogation clause contains no provision

regarding attorneys’ fees”).

limitation, discretionary authority to determine elig-

ibility for benefits or to construe the terms of the PLAN

in conducting the review of the appeal. [App. 3la (em-

phasis added). ] ;

Despite this language, the Seventh Circuit applied a de

novo standard of review, saying that the provision requiring

deference applies only to “benefits determination.” App. 7a.

This is plainly wrong as the language applies to “all questions

concerning . . . interpretation . . . of the Plan, including,

without limitation . . . benefits.” Due to the national coverage

of the Wal-Mart Plan, that interpretive decision, in fact,

conflicts with the decisions of other courts of appeals

construing this precise plan. See Ward, 1999 WL 801532, at

*2 (applying arbitrary and capricious review because the

parties agreed that the Plan language gives discretion to the

Administrative Committee); Walker, 159 F.3d at 939 (“[t]his

provision clearly vested the Administrative Committee with

the discretionary authority to interpret the terms of the Plan,

therefore, the proper standard of review in this case is for

abuse of discretion”). See also Wal-Mart Stores, Inc. Assocs. '

Health and Welfare Plan v. Scott, 27 F. Supp. 2d 1166, 1172

(W.D. Ark. 1998) (because “it is undisputed that the plan

gives the administrator ‘discretionary authority,’” the court’s

review is “limited to the question of whether the administrator

abused his discretion in deciding that the Plan’s provisions

call for full reimbursement with no reduction for attorneys’

fees and costs’).

** * &

The critical point for purposes of this petition is that,

whatever standard of review applies, there is a conflict among

the courts of appeals on the question whether a common law

doctrine, such as the common fund doctrine, can override the

clear meaning of an ERISA plan provision requiring full

reimbursement of the plan after a participant receives

compensation from a third party. Whether a plan interp-

retation of the language at issue or similar language is

reviewed de novo, as in Ryan, Bollman Hat, Isbell, and the

instant case, or to determine whether it is arbitrary or caprici-

ous, as in Ward, Walker, Scott, and Trujillo, five Circuits

would hold that such language provides for full reim-

bursement and that common law doctrines cannot override

that clear language. Two other courts of appeals apparently

would hold that the common law doctrine applies unless its

application is expressly excluded. The Seventh Circuit’s

decision thus broadens an already mature conflict on the

question presented, and therefore this Court’s review of this

case 1s warranted.

Il. THE QUESTION WHETHER COMMON LAW

DOCTRINES OVERRIDE CLEAR PROVISIONS

OF AN ERISA PLAN IS IMPORTANT AND

RECURRING.

The extant conflict among the courts of appeals contravenes

one of the primary purposes of ERISA — the establishment of

a uniform and settled set of rules governing the administration

of ERISA plans. This purpose is most clearly manifested in

ERISA’s broad preemption of all state laws related to ERISA

plans. See ERISA section 514(a), 29 U.S.C. § 1141(a).

Congress preempted state law in order to ensure “that plans

and plan sponsors would be subject to a uniform body of

benefits law; the goal was to minimize the administrative and

financial burden of complying with conflicting directives

among States or between States and the Federal

Government.” McClendon, 498 U.S. at 142; accord Fort

Halifax, 482 U.S. at 11 (recognizing that Congress included

the preemption clause to “afford employers the advantages of

a uniform set of administrative procedures governed by a

single set of regulations”); FMC Corp. v. Holliday, 498 U.S.

52, 60-61 (1996) (holding that ERISA preempts state insur-

ance laws concerning an ERISA plan’s subrogation rights).

A continuing conflict among the courts of appeals on an

important question of ERISA plan administration undermines

these statutory goals just as the application of conflicting state

laws would. Employers cannot enjoy “the advantages of a

uniform set of administrative procedures,” Fort Halifax, 482

U.S. at 11, when the courts of appeals are divided on the issue

of whether it is appropriate to use common law equitable

principles to alter the meaning or effect of an express pro-

vision of an ERISA plan. This point is effectively illustrated

by this case. Wal-Mart’s Plan is national in scope, and its

provisions should have the same meaning in Pennsylvania

and Virginia as they do in Indiana or Illinois. As a result of

the conflict among the courts of appeals reflected in the

decision below, however, Wal-Mart Plan participants have

differing rights and obligations depending upon the location

of their workplace. This creates unnecessary and costly diffi-

culties for Plan administrators, and inconsistent results result-

ing in fundamental unfairness to participants. “(Different

substantive standards applicable to the same employer con-

duct[] requir[e] the tailoring of plans and employer conduct,

to the peculiarities of each jurisdiction. Such an outcome is

fundamentally at odds with the goal of uniformity that Con-

gress sought to implement.” McClendon, 498 US. at 142.

The continuing conflict also generates substantial uncert-

ainty for ERISA plan administrators. Administrators do not

know whether the Seventh Circuit’s view or that of the other

courts of appeals taking conflicting views will prevail in the

jurisdictions of the courts of appeals yet to decide this

question. Moreover, for an ERISA plan with national cover-

age, it may be unclear which jurisdiction’s law will govern

the reimbursement claim of a particular participant. Finally,

the Seventh Circuit’s rule appears to require a plan to name

any common law doctrine whose application it wishes to

exclude. There are myriad such doctrines, far too many for a

plan to be certain it has excluded every one, and the

requirement that a plan must attempt to do so is absurd. A

plan should be able to say in clear language what it means and

know that the courts will enforce those provisions as written.

The question presented is not only important, it is also

recurring. Virtually all ERISA welfare plans have reimburse-

ment provisions. Further, the question whether a common

law doctrine can override a clear plan provision arises not

only in cases involving the common fund doctrine, but also is

central in cases involving reimbursement when a participant

receives workers’ compensation or uninsured motorist bene-

fits and in cases invoking the doctrine of unjust enrichment.

See, e.g., Provident Life & Accident Ins. Co. v. Waller, 906

F.2d 985 (4th Cir. 1990) (unjust enrichment); Collins v.

American Cast Iron Pipe Co., 105 F.3d 1368 (11th Cir. 1997)

(workers compensation offset). The question of the relation-

ship between the clear language of ERISA plans and these

background common law principles will continue to arise and

consume plan and participant resources unless this Court

resolves it in this case.

The varying obligations and the concomitant uncertainty

created by the court of appeals’ decision is contrary to the

purposes of ERISA and ultimately may harm plan participants

and beneficiaries. Because “[e}mployers or other plan spon-

sors are generally free under ERISA, for any reason at any

time, to adopt, modify, or terminate welfare plans,” Curtiss-

Wright Corp., 514 U.S. at 78, any result that increases the

cost or difficulty of creating or administering an employee

benefit plan may result in reduced benefits. “A patchwork

scheme of regulation would introduce considerable ineffici-

encies in benefit program operation, which might lead those

employers with existing plans to reduce benefits, and those

without such plans to refrain from adopting them.” Fort

Halifax, 482 U.S. at 11. Accord Shaw vy. Delta Airlines, Inc.,

463 U.S. 85, 105 n.25 (1983) (recognizing that “the ineffici-

encies of such a system presumably would be paid for by

lowering benefit levels”). Review is warranted to ensure that

ERISA plans, plan sponsors, and participants remain subject

to “a uniform body of benefits law,” McClendon, 498 U.S. at

142, and to eliminate the daniaging and burdensome

uncertainty in plan administration caused by the court of

appeals’ decision.

Ill. THE SEVENTH CIRCUIT ERRED WHEN IT

USED COMMON LAW _ PRINCIPLES’ TO

OVERRIDE THE EXPRESS TERMS OF AN

ERISA PLAN

The court of appeals’ decision is wrong. ERISA is a

comprehensive statute, and resort to the federal common law

is appropriate only where ERISA or an ERISA plan leaves a

gap. In this case, the court of appeals’ application of federal

common law “overr[o]de the explicit terms of an established

ERISA benefit plan,” and thus conflicted with ERISA’s goals

and purposes. Singer v. Black & Decker Corp., 964 F.2d

1449, 1452 (4th Cir. 1992).

The Plan calls for full reimbursement without qualification,

see supra at 7, and yet the Seventh Circuit applied a common

law principle to frustrate the clear language of the Plan. In so

doing, the court-of appeals expressly invoked the undesirable

public policy consequences of a plan rule denying application

of the common fund doctrine. App. 8a. But, under ERISA,

the plan language governs, and the alleged public policy

benefits of a common law doctrine may not override the

private parties’ decision as embodied in the plan. ERISA

permits plan sponsors to offer, or plan participants to bargain

for, full reimbursement or partial reimbursement. See supra

at 8-9. As this Court has many times held, under ERISA, the

private parties define the substantive content of ERISA

welfare plans. See Alessi, 451 U.S. at 511; cases cited supra

at 9. Moreover, as explained above, the Seventh Circuit’s

refusal to enforce the Plan as written creates administrative

inefficiencies and uncertainties that may, in turn, reduce

benefits to plan participants. See supra at 18. Both conse-

quentes — the failure to abide by the private parties’ deter-

minations about the terms of the plan and the increase in the

burdens and uncertainty of plan administration — directly

contr: vene central purposes of ERISA.

In this case, the clear language of the Plan gives it a right to

full reimbursement of the benefits paid to Wells. For ERISA

to function as Congress intended, the plain language of the

Plan’s reimbursement provision must be enforced. The Court

Should grant certiorari to ensure that these objectives are

fulfilled.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

PHIL PESEK CARTER G. PHILLIPS*

RANAE BARTLETT VIRGINIA A. SEITZ

WAL-MART LEGAL TEAM TIMOTHY D. HAWKES

922 W. Walnut, Suite C SIDLEY & AUSTIN

Rogers, AR 72756 1722 Eye Street N.W.

(501) 621-2055 Washington D.C. 20006

(202) 736-8000 _

THOMAS H. LAWRENCE

HALE, HEADRICK, DEWEY,

WOLF, GOLDEN, THORTON &

CHANCE, PLLC

1727 Kirby Parkway, Suite 150

Memphis, TN 38120

(901) 888-4006

Counsel for Petitioner

September 12, 2000 * Counsel of Record

APPENDIX A

UNITED STATES COURT OF APPEALS

SEVENTH CIRCUIT

No. 99-2018

WAL-MART STORES, INCORPORATED ASSOCIATES’ HEALTH

AND WELFARE PLAN; AND ADMINISTRATIVE COMMITTEE,

ADMINISTRATOR OF THE PLAN,

Plaintiffs-Appellees,

DENISE WELLS,

Defendant-Appellant.

Argued Feb. 15, 2000

Decided May 17, 2000

Before POSNER, Chief Judge, and EASTERBROOK and

DIANE P. WOOD, Circuit Judges.

POSNER, Chief Judge.

This is a suit by an ERISA welfare plan and _ its

administrator (only the latter is a fiduciary and hence a

proper plaintiff, ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);

Administrative Committee v. Gauf, 188 F.3d 767, 770 (7th

Cir.1999), but we’ll ignore that detail), for reimbursement of

$10,982.61 paid under the plan to a participant for medical

expenses that she incurred because of an automobile accident.

After receiving the money from the plan, she brought a

personal injury suit against the driver of the other car

involved in the accident and obtained from that driver’s

insurer a settlement of some $75,000, of which a third weut to

her lawyer. (Actually, the settlement was for claims by Wells

and her husband, but as the parties make nothing of the

husband’s participation in the settlement, neither shall we.)

The plan documents entitle the plan to reimbursement of 100

percent of any benefits paid to a participant to the extent of

“any payment resulting from a judgment or settlement, or

other payment or payments, made or to be made by any

person or persons considered responsible for the condition

giving rise to the medical expense or by their insurers.”

Wells claims that the plan should contribute a pro rata share

of her attorneys’ fees, since they were expended for the plan’s

benefit as well as her own. Her lawyer has a check from the

insurer, payable to him as well as to Wells and her husband

and to “Wal-Mart as subrogee of Denise Wells,” for the entire

$10,982.61 for which the plan seeks to be reimbursed. He

refuses to endorse the check over to the plan. As well as

seeking reimbursement, the plan asks that Wells be enjoined

from continuing to violate the plan’s rights by instructing or

permitting her lawyer to withhold the insurer’s check. It does

not, however, seek interest—just the amount of the check.

We must consider whether the relief sought by the plan is

equitable, because that is the only type of relief that ERISA

authorizes a fiduciary to obtain. ERISA § 502(a)(3), 29

U.S.C. § 1132(a)(3); Mertens v. Hewitt Associates, 508 U.S.

248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993); Health Cost

Controls of Illinois, Inc. v. Washington, 187 F.3d 703, 710

(7th Cir.1999). We can set to one side the claim for an

injunction, to which—were the claim legitimate—a claim for

damages could ordinarily be appended under the “clean-up”

doctrine of equity and, so appended, would be classified as

itself equitable, e.g., Burns v. First National Bank, 336 Ark.

406, 985 S.W.2d 747 (1999); American Appliance, Inc. v.

Brady, 712 A.2d 1001 (Del.1998); see also Medtronic, Inc. v.

Intermedics, Inc., 725 F.2d 440, 442 (7th Cir.1984); see —

generally | Dan B. Dobbs, Dobhs on the Law of Remedies:

Damages—Equity—Restitution § 2.7, pp. 180-81 (2d

ed.1993)—though possibly not in an ERISA case. For the

Supreme Court said in Mertens that only typical equitable

relief is available under that statute. 508 U.S. at 255-57, 113

S.Ct. 2063; see also Reich v. Continental Casualty Co., 33

F.3d 754, 756 (7th Cir.1994). However that may be, a

plaintiff cannot convert a claim of damages for breach of

contract into an equitable claim by the facile trick of asking

that the defendant be enjoined from refusing to honor its

obligation to pay the plaintiff what the plaintiff is owed under

the contract and appending to that request a request for

payment of the amount owed. A claim for money due and

owing under a contract is “quintessentially an action at law.”

Hudson View II Associates v. Gooden, 222 A.D.2d 163, 644

N.Y.S.2d 512, 516 (1996); see also Atlas Roofing Co. v.

Occupational Safety & Health Review Comm'n, 430 U.S.

442, 459, 97 S.Ct. 1261, 51 L.Ed.2d 464 (1977).

But there is more here. Wells’s lawyer is holding

$10,982.61 to which the plan claims to be entitled. Wells

wants the claim reduced to reflect the attorneys’ fees she

expended in obtaining the settlement of which the $10,982.61

is a part. But since she concedes that some (in fact the bulk)

of this amount is rightfully the plan’s, the lawyer’s

interception of the entire amount en route from the insurer to

the plan is clearly wrongful. In Health Cost Controls of

Illinois, Inc. v. Washington, supra, 187 F.3d at 710-11, a

similar case, we held that the plan was seeking to impose on

the money intercepted in transit a constructive trust—a classic

form of equitable relief against someone (not necessarily a

fiduciary, e.g., In re Estate of Cohen, 83 N.Y.2d 148, 608

N.Y.S.2d 398, 629 N.E.2d 1356, 1359 (1994); Schwartz v.

Horn, 31 N.Y.2d 275, 338 N.Y.S.2d 613, 290 N.E.2d 816,

817-18 (1972); Pope v. Garrett, 147 Tex. 18, 211 S.W.2d

559, 561-62 (1948)) who is holding property that is rightfully

the plaintiff's. Clair v. Harris Trust & Savings Bank, 190

F.3d 495, 498-99 (7th Cir.1999); Beatty v. Guggenheim

Exploration Co., 225 N.Y. 380, 122 N.E. 378 (1919)

(Cardozo, J.). In the Washington case the money was being

held in escrow pending the resolution of the dispute between

the plan and the participant. In this case the money is being

held by a lawyer, presumably also in an escrow account (a

lawyer is not permitted to commingle a client's funds with his

own), and the question is whether the beneficial owner is

Wells, by virtue of the settlement with the tortfeasor, or the

plan, by virtue of its contract with Wells.

Some cases, including our own Administrative Committee

v. Gauf, supra, 188 F.3d at 770-71, seem inclined to classify

all claims of reimbursement by an ERISA plan as equitable,

perhaps because of ERISA’s very broad preemption clause,

ERISA § 514, 29 U.S.C. § 1144; Jay Conison, Employee

Benefit Plans in a Nutshell 302, 317-19 (2d ed.1998), which

might disable a plan from enforcing its rights to

reimbursement if suits to enforce them were classified as

legal. See also Blue Cross & Blue Shield of Alabama vy.

Sanders, 138 F.3d 1347, 1352-53 n. 5 (11th Cir.1998);

Southern Council of Industrial Workers v. Ford, 83 F.3d 966,

969 (8th Cir.1996) (per curiam). The Ninth Circuit is at the

opposite pole. See Reynolds Metals Co. v. Ellis, 202 F.3d

1246, 1247-49 (9th Cir.2000); Cement Masons Health &

Welfare Trust Fund v. Stone, 197 F.3d 1003 (9th Cir.1999);

FMC Medical Plan v. Owens, 122 F.3d 1258, 1260-62 (9th

Cir.1997). We need not consider in this case the outer

bounds of ERISA’s concept of equity, as a suit to impose a

constructive trust nestles comfortably within them under any

view. Owens, in contrast, was explicit in saying that the plan

had not sought the imposition of a constructive trust. /d. at

1261.

So we have jurisdiction and can proceed-to the merits. The

language from the plan document that we quoted earlier

seems clear, and clearly to favor the plan’s claim. But

contracts—which for most purposes ERISA plans are,

Herzberger v. Standard Ins. Co., 205 F.3d 327, 330 (7th

Cir.2000); see also John H. Langbein, “The Contractarian

Basis of the Law of Trusts,” 105 Yale L./. 625 (1995)—are

enacted against a background of common-sense

understandings and legal principles that the parties may not

have bothered to incorporate expressly but that operate as

default rules to govern in the absence of a clear expression of

the parties’ intent that they not govern. This principle has

been applied to the interpretation of ERISA plans in a number

of cases in this and other courts. See Cutting v. Jerome

Foods, Inc., 993 F.2d 1293, 1297-99 (7th Cir.1993); Waller

v. Hormel Foods Corp., 120 F.3d 138, 141 (8th Cir.1997);

Cagle v. Bruner, 112 F.3d 1510, 1520-22 (1 1th Cir.1997) (per

curiam); Barnes v. Independent Automobile Dealers Ass'n,

64 F.3d 1389, 1394-96 (9th Cir.1995). To read the Wal-Mart

plan literally would allow the plan to free ride on the efforts

of the plan participant’s attorney, contrary to the equitable

concept of “common fund” that governs the allocation of

attorney's fees in cases in which the lawyer hired by one

party creates through his efforts a fund in which others are

entitled to share as well. Boeing Co. v. Van Gemert, 444 U.S.

472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980); Sprague v.

Ticonic National Bank, 307 U.S. 161, 166, 59 S.Ct. 777, 83

L.Ed. 1184 (1939); Davis v. Carl Cannon Chevrolet-Olds,

Inc., 182 F.3d 792, 795 (11th Cir.1999); 1 Dobbs, supra,

§ 3.10(2), pp. 393-98; John P. Dawson, “Lawyers and

Involuntary Clients: Attorney Fees From Funds,” 87 Harv. L.

Rev. 1597 (1974).

It would also gratuitously deter the exercise of the tort

rights of plan participants. For one can easily imagine a case

in which, under the plan’s interpretation, the participant (or

nonparticipant beneficiary, such as a spouse or child) would

lose part of her plan benefits simply by virtue of having

exercised her right to bring a tort suit against a third party.

Suppose Wells had obtained a settlement of $12,000 of which

her lawyer got $4,000 pursuant to a standard contingenf-fee

contract, leaving her with $8,000. Since the settlement would

exceed $10,982.61, the plan. under its theory would be

entitled to that entire amount, leaving her worse off by

$2,982.61 than she would have been had she not sued. This

would be true even if she had sought no medical benefits, or

any other benefits available under the plan, in that suit—it

might have been a suit purely for damage to her car. This

prospect might well deter a suit likely to result in a judgment

or settlement not much larger than the benefits available

under the plan—and in that event the language on which the

plan relies would produce undercompensation for harms that

were unrelated to the type of harm to which the benefits

pertain. Wells would have been surprised to have been told

when she signed onto this plan that as a result of it she might

not be able to obtain compensation for tortiously inflicted

property damage. The plan itself might well be worse off in

the long run, as it would have to incur attorneys’ fees in order

to enforce its right of subrogation. See Blackburn v.

Sundstrand Corp., 115 F.3d 493, 496 (7th Cir.1997).

The plan documents neither advert to the anomaly just |

discussed nor expressly repudiate common-fund principles,

and so they do not alter the background understanding of the

allocation of attorneys’ fees that is embodied in those

principles. We interpolate those principles to avoid wreaking

unintended consequences. United McGill Corp. v. Stinnett,

154 F.3d 168, 172-73 (4th Cir.1998), and Bollman Hat Co. v.

Root, 112 F.3d 113, 116-18 (3d Cir.1997), are only

superficially in conflict with this result. They refuse to

invalidate a plan provision interpreted to bar the application

of common-fund principles; we pose the issue as one not of

validity but of sound application of principles of contract

interpretation. More problematic is Walker v. Wal-Mart

Stores, Inc., 159 F.3d 938 (Sth Cir. 1998) (per curiam), which

upheld a literal reading of identical language—but did so as a

matter of deference to the interpretation by the plan’s

administrator.

That’s a critical qualification. In cases in which the plan

documents give the plan’s administrator discretion to in-

terpret the plans, our review is deferential. E.g., Mers vy.

Marriott International Group Accidental Death & Dismem-

berment Plan, 144 F.3d 1014, 1020 (7th Cir. 1998); Fuller v.

CBT Corp., 905 F.2d 1055, 1058 (7th Cir.1990). But the

presumption is against deference, Herzberger v. Standard Ins.

Co., supra, and has not been rebutted. For there is no

reference to discretion in the part of the plan documents that

deals with the plan’s right to reimbursement—only in the part

that deals with benefits determinations. Determinations of

benefits, determinations that supervene on interpretation of

key terms such as “disability,” invite the exercise of

discretion, being inescapably particularistic and fact-bound;

determinations of issues related solely to the financial aspects

of the plan do not.

An amendment in 1996 to the plan that was in force when

Wells was injured and sought and received benefits explicitly

refuses to pick up any part of the plan participant’s attorneys’

fees, as in Health Cost Controls v. Isbell, 139 F.3d 1070 (6th

Cir.1997), and Ryan v. Federal Express Corp., 78 F.3d 123,

124, 127 (3d Cir.1996). The plan argues that the amendment

is applicable to the claim of reimbursement because the claim

was made in 1997, after the amendment took effect. This is

an astonishing argument, implying as it does that the

amending power can be used to force plan participants and

beneficiaries to return benefits already received and spent.

The logic of the argument is that if the plan were amended to

abolish some class of benefits (say, reimbursement for the

cost of treating mental disorders), the recipients could be

forced to disgorge them even if they had received the benefits

many years earlier. The argument was rejected in the very

case that the plan mistakenly cites in support of it. Member

Services Life Ins. Co. v. American National Bank & Trust

Co., 130 F.3d 950, 957-58 (10th Cir.1997).

Because the 1996 amendment is inapplicable to this case,

we need not consider whether state “common fund” law, see

Ind.Code. §§ 34-53-1-2, 34-51-2-19, is applicable at all,

because either in terms, Ind.Code § 34-53-1-2, or as a matter

of interpretation, Allstate Ins. Co. v. Smith, 656 N.E.2d 1156,

1158 (Ind.App.1995); Standard Mutual Ins. Co. v. Pleasants,

627 N.E.2d 1327, 1330 (Ind.App.1994), it is applicable only

to insurers, and an ERISA plan is not deemed to be (and the

Wal-Mart plan is not contended to be) an Msurer. ERISA

§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B); Stillmunkes v. Hy-

Vee Employee Benefit Plan & Trust, 127 F.3d 767, 770 (8th

Cir.1997). We likewise need not consider whether, if the

state’s common fund law is otherwise applicable, it is

preempted by ERISA. Although, as explained in Blackburn

v. Sundstrand Corp., supra, 115 F.3d at 496, state laws of

general applicability that affect ERISA plans no differently

from similar economic activity are not preempted by ERISA,

our decision in Administrative Committee v. Gauf, supra, 188

F.3d at 771, holds that when (unlike the situation in

Blackburn) an ERISA plan is the plaintiff in a suit claiming

reimbursement, its claim arises under and is governed by

ERISA, or by federal common law created under the

authority of ERISA. Whether Gauf and Blackburn can

coexist is thus another issue we needn’t try to resolve today;

nor whether, if the state’s common fund law is not preempted

and is fully applicable, it can nevertheless be overridden by

an express contractual provision, as intimated in Sell v.

United Farm Bureau Family Life Ins. Co., 647 N.E.2d 1129,

1133 (Ind.App.1995); nor whether if it is preempted it is

preempted in favor of a similar federal common law doctrine,

as implied by McIntosh v. Pacific Holding Co., 120 F.3d 911

(8th Cir.1997), and Waller v. Hormel Foods Corp., supra,

120 F.3d at 141, but rejected in Harris v. Harvard Pilgrim

Health Care, Inc., 208 F.3d 274, 278-79 (1st Cir.2000), and if

so whether that doctrine, too, can be overridden by an express

provision in the plan, as implied by United McGill Corp. v.

Stinnett, supra, 154 F.3d at 172-73; Health Cost Controls y.

Isbell, supra; Bollman Hat Co: y. Root, supra, 112 F.3d at

116-18, and Ryan v. Federal Express Corp., supra, 78 F.3d at

127.

Wells seeks not only a Sharing of the attorneys’ fees with

the plan, to which she is entitled, but also a sharing of the

reduction of her claim in the settlement by 25 percent to

reflect her comparative fault. We are at a loss to understand

how that reduction, unlike the expense of the lawyer who

obtained the settlement, could be thought to have conferred a

benefit on the plan for which it should contribute a part of the

cost under common-fund principles. And while Indiana law,

were it applicable, might provide the relief she is seeking, see

Ind.Code § 34-51-2-19, she does not invoke that or any other

provision of Indiana law, and so has waived the argument.

REVERSED.

10a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF INDIANA

HAMMOND DIVISION

No. 2:97-CV-422-RL-2

WAL-MART STORES, INC..,

ASSOCIATES” HEALTH AND WELFARE PLAN,

Plaintiff,

VS,

DENISE WELLS,

Defendant.

ORDER

This matter is before the Court on Plaintiff's Motion for

Summary Judgment, filed on July 1, 1998, and Defendant’s

Motion for Summary Judgment, filed on July 1, 1998. For the

reasons set forth below, Plaintiff's motion is GRANTED and

Defendant’s motion is DENIED. The Clerk is ORDERED to

DISMISS this case with prejudice.

BACKGROUND

Denise Wells (“Wells”) was injured in an automobile

accident in 1993. Because Wells was a participant in Wal-

Mart Stores, Inc. Associates’ Health and Welfare Plan (“the

Plan”), the Plan paid $10,982.61 for some of her medical

expenses pursuant to the 1993 Summary Plan Description

(“1993 SPD”) and the 1993 Wal-Mart Associates’ Health

Plan Document (“1993 Health Plan Document’) (together

“1993 Plan documents”). On her own, Wells filed a personal

injury suit against a third party and settled the claim for

lla

$73,700. The mediation settlement agreement found Wells

ry at fault.

Wells notified the Plan that she had settled her suit, and

requested that the Plan reduce its reimbursement lien by one-

third for her attorney’s fees. The Plan’s Administrative

Committee reviewed her request, and determined that the

reimbursement provisions of the Plan’s 1996 Summary Plan

Description (“1996 SPD”) provided for 100% reimbursement,

without reduction for attorney's fees. When Wells refused the

Plan’s demand, the Plan filed suit against her based on 29

U.S.C. sections 1132(a)(3) and (e)(1) of the Employee

Retirement Income Security Act of 1974 (“ERISA”). The

Plan requests that the Court compel Wells to reimburse the

Plan for 100% of the $10,982.61 it paid for her medical

expenses. Both parties have filed motions for summary

judgment.

In its November 23, 1998 Order, the Court found that the

1993 Plan documents, rather than the 1996 SPD, apply in this

case. Further, the Court determined that Indiana Code section

34-4-33-12, Indiana’s comparative fault statute, and the

Indiana common fund doctrine do not apply in this case. In

order to rule on the summary judgment motions, the Court

requested that the parties submit briefs on three issues: (1) the

creation of federal common jaw in this case; (2) the discretion

afforded the Administrative Committee under the 1993 Plan

documents; and (3) whether the Administrative Committee’s

decision was arbitrary and capricious. The Court will address

each of these issues, though in a somewhat altered sequence

DISCUSSION

The standards generally governing summary judgment

motions are familiar. Pursuant to Rule 56(c) of the Federal

Rules of Civil Procedure, summary judgment is proper only if

it is demonstrated that there is no genuine issue as to any

12a

material fact and that the moving party is entitled to a

judgment as a matter of law. See Nebraska v. Wyoming, 507

U.S. 584, 590 (1993); Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986). In other words, the record must reveal that no

reasonable jury could find for the nonmovant. Karazanos v.

Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th Cir.

1991); see also Anderson vy. Liberty Lobby, Inc., 477 U.S.

242, 250 (1986). In deciding a motion for summary judgment,

a court must read all facts in the light most favorable to the

nonmovant. Anderson, 477 U.S. at 255; Nucor Corp. v.

Aceros Y Maquilas De Occidente, 28 F.3d 572, 583 (7th Cir.

1994)

The burden is on the movant to identify those portions of

“the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits,” if any, which

it believes demonstrate an absence of a genuine issue of

material fact. Celotex, 477 U.S. at 323. Once the moving

party has met this burden, the nonmoving party may not rest

upon mere allegations but “must set forth specific facts

showing that there is a genuine issue for trial.” Fed. R. Civ.

P. 56 (e); Becker v. Tanenbaum-Hill Assoc., Inc., 914 F.2d

107, 110 (7th Cir. 1990); Schroeder vy. Lufthansa German

Airlines, 875 F.2d 613, 620 (7th Cir. 1989). “Whether a fact

is material depends on the substantive law underlying a

particular claim and ‘only disputes over facts that might affect

the outcome of the suit under governing law will properly

preclude the entry of summary judgment.’” Walter v.

Fiorenzo, 840 F.2d 427, 434 (7th Cir. 1988) (citing Anderson,

477 US. at 248).

“[A] party who bears the burden of proof on a particular

issue may not rest on its pleadings, but must affirmatively

demonstrate, by specific factual allegations, that there is a

genuine issue of material fact which requires trial.” Beard v.

Whitley County REMC, 840 F.2d 405, 410 (7th Cir. 1988);

see also Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1391 (7th

13a

Cir. 1993). Therefore, if a party fails to establish the existence

of an essential element of its case on which it bears the

burden of proof at trial, summary judgment will be

appropriate. In this situation, there can be “‘no genuine issue

as to any material fact’, since a complete failure of proof

concerning an essential element of the nonmoving party’s

case necessarily renders all other facts immaterial.” Celotex,

477 US. at 323.

The Administrative Committee’ s Discretion

In cases where an ERISA plan gives an administrator

discretionary authority to determine eligibility for benefits or

to construe the terms of the plan, the courts may not review

the administrator’s decisions on a de novo basis. Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989),

Rather, the standard is whether the plan administrator abused

his or her discretion to arrive at a decision that was “arbitrary

and capricious.” /d. To determine whether the Administrative

Committee was exercising discretionary powers, the Court

must look to the terms of the agreement. Sanders vy.

Scheideler, 816 F. Supp. 1338, 1342 (W.D. Wis. 1993). The

interpretation of an agreement governed by ERISA is a matter

of federal law. Diehl v. Twin Disk, Inc., 102 F.3d 301, 305

(7th Cir. 1996). The relevant principles of contract

interpretation are a body of federal common law tailored to

the policies of ERISA. Santaella vy. Metropolitan Life Ins.

Co., 123 F.3d 456, 461 (7th Cir. 1997); Mathews v. Sears

Pension Plan, 144 F.3d 461, 465 (7th Cir.), cert. denied, 119

S. Ct. 618 (1998). When interpreting an agreement, the Court

must consider related documents together and should give the

terms in the agreement their ordinary and popular meaning as

would a person of average intelligence and experience. Diehl,

102 F.3d at 305; Central States, Southeast and Southwest

Areas Pension Fund v. Kroger Co., 73 F.3d 727, 731 (7th Cir.

1996).

l4a

The Plan claims that both 1993 Plan documents contain

language giving the Administrative Committee discretion to

act. The 1993 Health Plan states:

[t]he Plan expressly gives the Administrative Committee

discretionary authority to resolve all questions

concerning the administration, interpretation or

application of the Plan, including, without limitation,

discretionary authority to determine eligibility for

benefits or to construe the terms of the Plan in

conducting the review of the appeal. When making its

initial determination pursuant to the claim denial and

appeals section of this plan document, the Plan shall also

have such discretionary authority.

(Def.’s Ex. C, pp. DS52-53) (emphasis added). Wells insists

that a reasonable interpretation of these documents leads a

person to conclude that the Administrative Committee’s

discretion is limited only to denial of claims and appeals

because this language falls under a provision entitled, “Claim

Denial and Appeal”, within the “General Provisions” section.

She notes that no such language is found under the Gen-

eral Provision entitled, “Rights to Reduction and Re-

imbursement”. Wells also points to a parenthetical in the

1993 SPD’s provision entitled “Review of Claim Denial”

which mentions that the Administrative Committee “has been

expressly given, by the Plan, discretionary authority to

resolve all questions concerning the administration,

interpretation, or application of the Plan.” (Def. Ex. D, p.

Dl4) . She claims that the burial of this sentence in the

paragraph demonstrates the Plan’s intent to limit the

Administrative Committee’s discretion to the review of claim

denial.

Walker v. Wal-Mart Stores, Inc. considered a provision

identical to the provision quoted above from the 1993 Health

Plan document. 159 F.3d 938, 939 (Sth Cir. 1998). Without

1Sa

considering the provision’s placement in the plan document,

the court found it “clearly vested the Administrative

Committee with the discretionary authority to interpret the

terms of the Plan.” /d. As a result, the court found that the

proper standard of review of the Administrative Committee’s

decision was for abuse of discretion. Id. at 940. This Court

agrees. Both documents clearly state that the Administrative

Committee has discretionary authority to resolve all questions

concerning the administration, interpretation, and application

of the Plan. See Fought v. Evans Prods. Co. Racine Pension

Plan Agreement, 966 F.2d 304, 305-06 (7th Cir. 1992)

(finding the language authorizing the fiduciary “to construe

the Plan” grants deferential review) and Saracco v. Local

Union 786 Bldg. Material Pension Fund, 942 F.2d 1213,

1214 (7th Cir. 1991) (requiring deference where trust gave

trustees discretion to determine all questions arising in the

administration, interpretation, and application of the plan).

Wells offers no authority to support her argument based on

the location of the provisions in the 1993 Plan documents.

Thus, the Court finds that the 1993 Plan documents afforded

the Administrative Committee discretionary authority.

The Administrative C ommittee’s Decision

When an ERISA plan gives administrators discretionary

authority, the appropriate standard of review is whether the

decision was arbitrary and capricious. Allison v. Dugan, 95]

F.2d 828, 832 (7th Cir. 1992). “A decision is arbitrary and

capricious when the decision-maker had relied on factors

which Congress has not intended it to consider, entirely failed

to consider an important aspect of the problem, offered

an explanation for its decision that runs counter to the

evidence . . ., or is so implausible that it could not be ascribed

to a difference in view or the product of expertise.”

Filipowicz v. American Stores Benefit Plans Committee, 56

F.3d 807, 813 (7th Cir. 1995) (citations omitted). Under the

16a

arbitrary and capricious standard, an administrator’s decision

will be upheld as long as “it is possible to offer a reasoned

explanation, based on the evidence, for a particular outcome.”

Exbom yv. Central States, Southeast and Southwest Areas

Health and Welfare Fund, 900 F.2d 1138, 1142 (7th Cir.

1990) (quoting Pokratz v. Jones Dairy Farm, 771 F.2d 206,

209 (7th Cir. 1985)). It is not the Court’s function to decide

whether it would reach the same conclusion as the Plan or

even rely on the same authority. Mers v. Marriott Intern.

Group Accidental Death & Dismemberment Plan, 144 F.3d

1014, 1021 (7th Cir.), cert. denied, 119 S.Ct. 372 (1998). If

there is a “ ‘rational connection’ between the issue to be

decided, the evidence in ‘the case, the text under

consideration, and the conclusions reached, then the

[administrator’s] decision is final.” Saracco, 942 F.2d at

1215. To be overturned, the administrator must have abused

its discretion; it was “not just clearly incorrect but downright

unreasonable.” Fuller v. CBT Corp., 905 F.2d 1055, 1058

(7th Cir. 1990).

In order to assess whether the Plan’s decision to require

100% reimbursement was arbitrary and capricious, the Court

looks to the contract terms of the agreement. See Filipowicz,

56 F.3d at 812. The Court must decide whether the agreement

is ambiguous, and if it is, whether, after consideration of

extrinsic evidence, there are triable issues of fact. Hickey v.

A.E. Staley Mfg., 995 F.2d 1385, 1389 (7th Cir. 1993) (noting

that the court may consider extrinsic evidence when

interpreting an agreement only if the agreement is

ambiguous). Because the Court’s review is deferential, if the

agreement is ambiguous, the Court will accept any reasonable

interpretation of the 1993 Plan documents’ terms by the

Administrative Committee. See Hightshue v. AIG Life Ins.

Co., 135 F.3d 1144, 1149 (7th Cir. 1998); Morton v. Smith,

91 F.3d 867, 871 n.1 (7th Cir. 1996) (“When the

administrators of a plan have discretionary authority to

17a

construe the plan, they have discretion to determine the

intended meaning of the plan’s terms.”).

The 1993 Health Plan document states:

The Plan shall have the right to . . . recover benefits

previously paid by the Plan to the extent of any and all

of the following:

A. any payment resulting ‘from a judgment or

settlement . . . made or to be made by any person or

persons considered responsible for the condition

“given rise to the medical expense or by their

insurers, regardless of whether the payment is

designated as payment for such damages including,

but not limited to, pain and/or suffering, loss of

income, medical benefits or any other specified

damages; or any other damages made or to be made

by any person... .

(Def. Ex. C., p. D48). Similarly, the 1993 SPD states:

The Plan has the right to . . . recover benefits previously

paid by the Plan to the extent that medical expenses may

be payable in any of the following:

A. Any judgment, settlement, or any payment, made or

to be made by a person considered responsible for

the condition giving rise to the medical expense or

by their insurers.

(Def. Ex. D, p. D94). The terms of the 1993 Plan documents

do not specifically state that the Plan is entitled to 100%

reimbursement. Wells argues that the 1993 Plan documents’

terms are ambiguous and therefore, the Court should adopt

and apply the “make whole” rule of interpretation. See

Cutting v. Jerome Foods, Inc., 993 F.3d 1293, 1298 ¢7th Cir.

1993). The “make whole” rule would prevent the Plan from

enforcing any subrogation rights until Wells has been fully

compensated for all losses. See Cagle v. Flick, 3 F. Supp. 2d

18a

982, 987 (N.D. Ind. 1998). Wells claims that she should only

have to reimburse the Plan to the extent she recovered from

the third party, that is, 25% less than full reimbursement due

to comparative fault, and one-third less for attorney’s fees and

costs.

The “make whole” rule does not apply here. In Cutting v.

Jerome Foods, Inc., the Seventh Circuit held that where a

plan did not specifically accept or reject the “make whole”

rule, and the administrator had discretionary authority to

interpret ambiguous language in the plan, it was not arbitrary

for the administrator to conclude that the plan did not

incorporate the “make whole” rule. 993 F.2d at 1298-99;

Cagle, 3 F. Supp. 2d at 987. Wells admits that the 1993 Plan

documents do not address the “make whole” rule. (Def. Supp.

Brief, p. 8). Because the Administrative Committee had the

discretion to interpret the 1993 Plan documents, the Court

finds that it was not arbitrary and capricious for the

Administrative Committee to determine that the 1993 Plan

documents did not include the “make whole” rule. See

Kaszula v. Parker, No. 96C6903, 1998 WL 142422, *3 (N.D.

Ill. March 26, 1998).

In Walker, the Fifth Circuit considered reimbursement ~ -

terms identical to the 1993 health plan document. 159 F.3d at

940. Noting that Congress intended ERISA plans to be

“written in a manner calculated to be understood by the

average plan participant,” the court found the plan’s language

to be unambiguous. /d. “[T]he ‘any and all’ language plainly

means the first dollar of recovery (any) and 100% recovery

(all) of the funds received by the plaintiff in the settlement, up

to full amount of the benefits paid.” /d.; see Cagle, 3 F. Supp.

2d at 987 (finding language that a fund was subrogated to “all

rights of recovery . . . against any third party or any insurer

. .. to the extent of any and all payments made or to be made

by the Plan” was reasonably interpreted as allowing full

subrogation under the arbitrary and capricious standard). The

iheeiieetmmmmaieattiaeeihaaiaiaatatiiiaaiail ieee

19a

administrator’s interpretation of the plan was found to be

correct. Walker, 159 F.3d at 940-41. In this case, the

Administrative Committee was granted discretion to interpret

the 1993 Plan documents. The Committee’s decision that the

Plan was entitled to full subrogation, rather than applying the

“make whole” rule, was a reasonable interpretation of the

1993 Plan documents.

Federal Common Law

Federal courts may fashion federal common law rules to

govern ERISA suits when ERISA is silent on an issue. Fox

Valley & Vicinity Construction Workers Pension Fund vy.

Brown, 897 F.2d 275, 281 (7th Cir. 1990); Firestone, 489

U.S. at 108. Although the court may create such federal

common law as it deems necessary to carry out the purposes

of ERISA where ERISA is silent, that creative license is not

to be exercised without discretion. Trustmark Life Ins. Co. v.

University of Chicago Hospitals, No. 94C4692, 1995 WL

75367, *5 (N.D. Ill. Feb. 2, 1995); Powers v. United States

Postal Service, 671 F.2d 1041, 1043 (7th Cir. 1982). The

court should not employ federal common law “when the plain

language of the ERISA plan invests the plan administrator

with discretion to interpret the plan, and the administrator has

not interpreted the plan in an arbitrary and Capricious

manner.” Cagle, 3 F. Supp. 2d at 988 (citing Cutting, 993

F.2d at 1298-99).

Wells contends that because the 1993 Plan documents are

ambiguous regarding attorney’s fees, she should be allowed

to reduce the amount of reimbursement by one-third. The

“common fund” doctrine allows “a party who creates,

Preserves, or increases the value of a fund in which others

have an ownership interest to be reimbursed from that fund

for litigation expenses incurred, including counsel fees.”

Kaszula, 1998 WL 142422 at *4. ERISA is silent as to the

“common fund” doctrine, and some courts have found it

20a

“appropriate to apply the common-fund doctrine as federal

common law.” /d.; see Carpenter v. Modern Drop Forge

Co., 919 F. Supp. 1198, 1206 (N.D. Ind. 1995); Dugan v.

Nickla, 763 F. Supp. 981 (N.D. Ill. 1991); cf. Cagle, 3

F. Supp. 2d at 987 (refusing to apply the common fund

doctrine).

Considering the same language in the 1993 Health Plan

document, the Fifth Circuit found that “the unambiguous

language [did] not include a reduction of the subrogation lien

for payment of attorneys fees and costs.” Walker, 159 F.3d at

940. “[T]he fact that the provisions do not specifically

mention attorneys’ fees or set out detailed distribution

procedures, does not constitute silence or ambiguity on behalf

of the Plan.” /d.; see United McGill Corp. v. Stinnett, 154

F.3d 168, 173 (4th Cir. 1998) (refusing to reduce an award for

attorney’s fees where the Plan’s language did not qualify the

right to reimbursement by reference to recovery costs because

“applying federal common law to override the Plan’s

reimbursement provision would contravene, rather than

effectuate, the underlying purposes of ERISA.”). The Walker

court refused to apply the “common fund” doctrine to the

ERISA plan. ——

No provision in the 1993 Plan documents specifically

provides that attorney’s fees and costs may be deducted from

a subrogation lien. Under Walker, the “common fund”

- doctrine should not apply because the 1993 Plan documents

are unambiguous, that is, they do not provide for such

reduction. The Seventh Circuit has not yet specifically

addressed the relation between a plan’s ambiguity and the

“common fund” doctrine. But see Blackburn v. Becker, 933

F. Supp. 724, 729 (N.D. Ill. 1996) (finding it lacked authority

to provide for attorney fees apportionment where the Plan

unambiguously provided for full reimbursement), vacated on

other grounds by Blackburn v. Sunstrand, 115 F.3d 493 (7th

Cir.), cert. denied, 118 S. Ct. 562 (1997). This circuit’s

2la

district courts have a history of applying the “common fund”

doctrine in similar cases, See, e.g., Kaszula, 1998 WL 142422

at *4; Carpenter, 919 F., Supp. at 1205-06; Dugan, 763

F. Supp. at 984-85; Cutting v. Jerome Foods, Inc., 820 F.

Supp. 1146, 1155 (W.D. Wis. 1991). As a result, the Court

hesitates to rest its ruling on this basis.

In Dugan v. Nickla, a fund filed a subrogation action for

reimbursement of medical payments that the defendant had

recovered in a state court medical malpractice action. 763

F. Supp. at 984. In a single paragraph, the Northern District

of Illinois found that if the defendant had not engaged an

attorney and pursued his malpractice case, the fund would not

have recovered any of the cost of the defendant’s medical

benefits. Jd. The court did not refer to or rely on any plan

provision. Rather, because the fund benefitted from the

defendant’s pursuit of his case, the court ordered a one-third

reduction of the fund’s share of the verdict for attorney’s fees.

Id.; cf. Blackburn, 933 F. Supp. at 729 (refusing to provide

for attorney fees apportionment where the plan provided for

full reimbursement).

Similarly, in Cutting v. Jerome Foods, Inc., the plaintiffs

sued an ERISA plan in order to avoid application of the

plan’s subrogation clause to their recovery in a personal

injury suit against a third party. 820 F. Supp. at 1146. Among

other isses, the Western District of Wisconsin considered a

reduction in the plan’s award for plaintiffs’ attorney’s fees.

Id. at 1155. The court found that the plan’s reimbursement

Clause did not include amounts attributable to attorneys’ fees

incurred by participants who pursued their claims against

third parties. Jd. The court reduced the amount payable to the

plan under its subrogation clause by an amount proportionate

to the plaintiffs’ attorney’s fees, noting that if plaintiffs had

not engaged an attorney and pursued their claim, the plan

would not have recovered any of the benefits paid. /d. at 1156

(citing Dugan, 763 F. Supp. at 984-85). On appeal, the

22a

Seventh Circuit noted that the plan afforded the administrator

discretion to interpret the plan, but did not visit the issue of

apportioning attorney’s fees and costs. Cutting, 993 F.2d

1293; cf. Cagle, 3 F. Supp. 2d at 988 (holding that where an

ERISA plan invests the administrator with discretion to

interpret the plan, and the administrator has not interpreted it

in an arbitrary and capricious manner, the “common fund”

doctrine does not apply as federal common law). While it is

not certain whether the Seventh Circuit deliberately ignored

the conflict between the fairness concerns raised by the

district court and the deference to be afforded an admin-

istrator in interpreting a plan, it gives the Court pause.

In Carpenter v. Modern Drop Forge Co., this Court

allowed plaintiffs to reduce the sum they owed their insurer

under a subrogation clause in an ERISA plan by a

proportionate amount of the attorney’s fees they incurred in

resolving an underlying claim. 919 F. Supp. at 1204. It is

assumed that the plan did not address a reduction for such

attorney fees, as there was no mention of the issue. The Court

discussed Dugan, as well as Cutting, in depth before deciding

to allow reduction for attorney’s fees. /d. at 1203-06. Without

deciding whether the administrator was afforded the

discretion to interpret the plan, the Court noted ‘at Dugan

and Cutting “grounded their opinions on the inherent and

equitable authority of the court to determine what is fair.” /d.

at 1206; see also Kaszula, 1998 WL 142422 at *4 (applying

the “common fund” doctrine as federal common law because

the plan ought not “be a free ride on the journey to collect for

a tort’).

Recently, in Cagle v. Flick, this Court declined to employ

the “common fund” doctrine where the plain language of an

ERISA plan invested the plan administrator with the

discretion to interpret the plan, and the administrator had not

done so in an arbitrary and capricious manner. 3 F. Supp. 2d

at 988; Health and Welfare Plan for Employees of REM, Inc.

23a

v. Ridler, 942 F. Supp. 431, 434 (D. Minn. 1996) (“the task of

the Court is to interpret the Plan—or more precisely, defer

here to the reasonable interpretation of the Plan’s

Administrator. . . . The interpretive tool of a growing body of

federal common law applicable to ERISA actions is not a

license to rewrite the Plan to the Court’s taste.”), aff'd, 124

F.3d 207 (8th Cir. 1997). The Court noted that where “the

administrator has not interpreted the plan provisions in an

‘arbitrary and capricious’ manner, the administrator’s

interpretation controls and federal common law will not

apply.” Cagle, 3 F. Supp. 2d at 987-88. The Court

distinguished its decision from Carpenter, claiming that the

plan in Carpenter did not afford the administrator discretion

to interpret the plan. Cagle, 3 F. Supp. 2d at 988.

Having seriously considered these cases, the Court is

reminded that the Administrative Committee was afforded the

discretion to interpret the terms of the 1993 Plan documents.

As a result, the Court must examine the Administrative

Committee’s decisions based on the arbitrary and capricious

standard. This does not mean that the Court would come to

the same conclusion as the Administrative Committee. Mers,

144 F.3d at 1021. Rather, the Court must find that its decision

was “not just clearly incorrect, but downright unreasonable.”

Fuller, 905 F.2d at 1058. The Court has reviewed the 1993

Plan documents, and finds that the Administrative

Committee’s decision not to reduce the amount of

reimbursement by one-third was not arbitrary and capricious.

As such, the Administrative Committee’s interpretation

controls, and federal common law will not apply. See Cagle,

3 F. Supp. 2d at 988; Ridler, 942 F. Supp. at 434,

Wells also asks that the Court adopt as federal common

law a principle similar to Indiana Code section 34-4-33-12. In

its order dated November 23, 1998, the Court denied Wells’

request to apply section 34-4-33-12 to this case. This Court

has refused to adopt section 34-4-33-12 as federal common

24a

law noting that “the interest in uniformity dictates that this

court resist any temptation to apply state law as federal

common law.” Carpenter, 919 F. Supp. at 1202-03; Murzyn

v. Amoco Corp., 925 F. Supp. 594 (N.D. Ind. 1995). Wells

offers no authority that would induce the Court to revisit this

aspect of its decision in Carpenter. Therefore, the Court will

not apply the principles of section 34-4-33-12 as federal

common law.

CONCLUSION

For the reasons set forth above, the Court GRANTS

Plaintiff's Motion for Summary Judgment, and DENIES

Plaintiff? [sic] Motion for Summary Judgment.

ENTER: 3/26/99

/s/ RUDY LOZANO

Rudy Lozano, Judge

United States District Court

25a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 99-2018

WAL-MART STORES, INCORPORATED ASSOCIATES’ HEALTH

AND WELFARE PLAN AND ADMINISTRATIVE COMMITTEE, AS

THE ADMINISTRATOR OF THE WAL-MART STORES,

INCORPORATED ASSOCIATES’ HEALTH AND WELFARE PLAN,

Plaintiffs-Appellees,

Vv.

DENISE WELLS,

Defendant-Appellant.

Decided June 14, 2000

NOTICE: DECISION WITHOUT PUBLISHED OPINION

Before Hon. Richard A. Posner, Chief Circuit Judge, Hon.

Frank H. Easterbrook, Circuit Judge, Hon. Diane P. Wood,

Circuit Judge.

ORDER

On May 31, 2000, plaintiffs-appellees filed a petition for

rehearing and petition for rehearing en banc. All the judges

on the original panel have voted. to deny the petition, and

none of the active judges has requested a vote on the petition

for rehearing en banc. The petition is therefore DENIED.

26a

APPENDIX D

WAL-MART ASSOCIATES’

HEALTH PLAN DOCUMENT

(Excerpts)

INTRODUCTION

Name of The name of this PLAN is the Wal-Mart ASSOCI-

the Plan ATES’ Group Health Plan. It shall hereinafter be

referred to as the PLAN.

Intent of The intent of this PLAN document is to clearly de-

the Plan _fine the health benefits provided for the PARTICI-

Document PANTS in this PLAN. It will describe each aspect

of these benefits and the eligibility requirements for

PARTICIPANTS.

Outline of This PLAN document is structured as follows:

the Plan

Document

Section II Summary Schedule of Benefits

Section I General Information

Section Ill Glossary

Section IV Major Medical Benefits

Section V Limitations & Exclusions

Section VI Medical Billing-Self-Audit

Section VII Medical Case Management

Section VIII General Provisions

Eligibility Those individuals meeting the PARTICIPANT

definition on page 16.

Revised January 1, 1993—Page 1

27a

SECTION I~GENERAL INFORMATION

INTRODUCTION

Funding of the Plan

Contributions to the

Plan

Composition of the

Plan

Effective Date of

Plan

Section I of this PLAN document ex-

plains the general concepts of the PLAN

relating to funding, contribution levels of

the COMPANY and ASSOCIATE,

composition of the PLAN and intent of _

the PLAN. There is a glossary in Section

Ill of this document. All defined terms

used throughout the document appear in

CAPITAL letters.

Funding of the PLAN shall be through

the Plan contributions by the COM-

PANY and ASSOCIATES to the Wal-

Mart Group Health and Welfare Trust.

Contribution levels are shared by the

PLAN ASSOCIATES and the COM-

PANY, and will be modified as needed,

based on the decisions by the Trustees.

Contributions are subject to the adminis-

trative guidelines.

This PLAN is comprehensive Major

Medical Benefits.

The EFFECTIVE DATE of this PLAN

Document is January 1, 1993. This

document supersedes all previous docu-

ments unless charges for covered ex-

penses were incurred prior to January 1,

1993.

Revised January 1, 1993—Page 2

28a

Right to Reductions The PLAN shall have the right to reduce

benefits otherwise payable by the PLAN

or recover benefits previously paid by the

PLAN to the extent of any and all of the

following: |

and Reimbursement;

Enforcement of

Subrogation Rights

A. Any payment resulting from a judg-

_ oe

ment or settlement, or other payment

or payments, made or to be made by

any person or persons considered re-

sponsible for the condition giving

rise to the medical expense or by

their insurers, regardless of whether

the payment is designated as pay-

ment for such damages including,

but not limited, to pain and/or suffer-

ing, loss of income, medical benefits

or any other specified damages; or

any other damages made or to be

made by any person; or

Automobile or recreational vehicle

insurance payments or benefits (in-

cluding but not limited to uninsured

motorist coverage) to which PAR-

TICIPANT is entitled regardless of

whether the payment or benefit des-

ignated as a payment or benefit for

such damages including, but not lim-

ited to, pain and/or suffering, loss of

income, medical benefits or any

other specified damage; or

Business and homeowners medical

liability insurance coverage or pay-

ments, regardless of whether the

payment orbenefit is designated as a

29a

coverage or payment for such dam-

ages including, but not limited to,

pain and/or suffering, loss of income,

medical benefits or any other speci-

fied damage.

Additionally, the PLAN is hereby given

the right to file suit, on behalf of the

PARTICIPANT against the person, firm

or corporation deemed responsible for

the condition giving rise to the medical

expense or damages, to recover the bene-

: fits paid or due to be paid by the PLAN.

Revised January 1, 1993—Page 48

To facilitate the PLAN’S enforcement of

its rights of recovery, reimbursement and

subrogation as set forth herein, the PAR-

TICIPANT must, at the PLAN’S request,

take any action, give information and

assistance, and execute documents so

required by the PLAN, at its discretion.

If a PARTICIPANT fails to comply, the

PLAN may withhold benefits, services,

payments or credits due under this PLAN

document. The PARTICIPANT or

anyone on his or her behalf may not do

anything that might prejudice or interfere

with the recovery, subrogation, or reim-

bursement rights of the PLAN. If the

PARTICIPANT prejudices or interferes

with the recovery rights of the PLAN,

the PLAN may make recovery from the

PARTICIPANT or from the ASSOCI-

ATE of whom he or she is an ELIGIBLE

DEPENDENT to the extent of benefits

or may withhold benefits otherwise.

30a

All benefits paid or provided by the

PLAN to, or on behalf of, any PAR-

TICIPANT shall, by agreement of the

parties, be considered as advance pay-

ments of Worker’s Compensation bene-

fits or of benefits from the Social Secu-

rity Administration, Veterans Admini-

stration, State and Local social services

agencies, etc. In the event the PARTICI-

PANT is later awarded or paid Worker’s

Compensation benefits of any kind or

description under any applicable law or

is awarded or paid benefits from the So-

cial Security Adininistration, Veterans

Administration, State and Local social

services agencies, etc., then the PLAN

shall have the right to be, and shall be,

reimbursed the amount of all benefits

paid or provided by the PLAN to or on

behalf of the PARTICIPANT.

Revised January 1, 1993—Page 49

Claim Denial

and Appeal

The PLAN will, within a reasonable

length of time, make the initial determi-

nation as to the rights of any PARTICI-

PANT to receive any benefits from this

PLAN. Any denial of or decision to pend

a PARTICIPANT’S claim will be set

forth in writing, stating the reason for

such decision. If the claim is denied or

pended because the PLAN needs more

information to make a decision, the

PLAN will advise the PARTICIPANT,

or medical supplier, or appropriate party,

of the specific information needed. If a

claim is denied or pended, or if the

PARTICIPANT disagrees with the

Revised January 1, 1993—Page 52

3la

PLAN’S determination of the amount of

benefits paid or to be paid or some other

decision, the PARTICIPANT (Or spon-

sor) may file an appeal with the ADMIN-

ISTRATIVE COMMITTEE in care of

the PLAN. Any claim appeal filed by the

PARTICIPANT must be presented in

writing, and received no later than 90

days after the PARTICIPANT’S receipt

of the written denial or other decision

that is the subject of the appeal. The

ADMINISTRATIVE COMMITTEE, in

consultation with the ADMINISTRA-

TOR and the MEDICAL ADVISORY

COUNCIL, if necessary, will conduct the

review, decide on the appeal and notify

the PARTICIPANT within a reason-

able length of time of the appeal’s filing.

The decision on review of the appeal will

include specific reasons for the decision.

The PLAN herein expressly gives the

ADMINISTRATIVE COMMITTEE dis-

cretionary authority to resolve all ques-

tions concerning the administration, in-

terpretation or application of the PLAN,

including, without limitation, discretion-

ary authority to determine eligibility for

benefits or to construe the terms of the

PLAN in conducting the review of the

appeal. When making its initial determi-

nation pursuant to the claim denial and

appeals section of this plan document,

the PLAN shall also have [. . |

32a

[. .. ] such discretionary authority.

In the event the requested information

necessary to review the appeal has not

been furnished within a _ reasonable

length of time, the claims shall be

deemed denied on review.

No action at law or in equity shall be

brought to recover under this PLAN

document until the appeal rights herein

provided have been exercised and the

PLAN benefits requested in such appeal

have been denied in whole or in part. In

no event shall any action be brought to

recover under this PLAN document after

the latter of two years from the filing of

the claim or 45 days from the decision on

the appeal.

The PLAN’S agent for service of legal

process is: -

PLAN ADMINISTRATOR

Wal-Mart Associates’ Health &

Welfare Trust

702 S.W. 8th Street

Bentonville, AR 72712

Revised January 1, 1993—Page 53

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.